The Garcias took Carvana public in 2017 with agreements to pay DriveTime for various business services. Last year, Mr. Garcia II’s companies took in around $85 million in revenue from providing extended warranties to Carvana buyers, collecting on their loans, and selling or leasing real estate, according to Carvana filings.
Carvana, known for its car vending-machine towers, has continued to strike new related-party deals with companies controlled by the elder Mr. Garcia, a Carvana spokeswoman said, “because they provide the most value in delivering exceptional customer experiences and growing into our opportunity as quickly as possible.
When Carvana was having trouble meeting customer demand this year, it bought thousands of cars from DriveTime to help catch up. To add buildings for another 1,000 employees at its Phoenix-area corporate campus, Mr. Garcia II bought the land. To help pay for inspection centers getting cars to customers faster, Carvana purchased a building from Mr. Garcia II and sold it for more.
Mr. Garcia II isn’t a Carvana executive or board member but controls around 85% of its voting shares with his CEO son. He has also profited handsomely, selling $3.6 billion of Carvana stock since October 2020.
Publicly traded companies often shun related-party transactions because they raise questions about whether shareholders, or the related parties, are getting the best deal in a transaction. They require additional disclosure under accounting rules and securities law.
Elizabeth Gordon, accounting chair at Temple University who researches related-party transactions and corporate governance, said such deals can be a form of efficient contracting between trusted parties, benefiting shareholders.
But of course the real concern is, what is your conflict of interest? she said.
The Carvana spokeswoman said: “At certain companies, there may be concerns with related-party agreements creating risks for investors,” but she said the roughly 20 times increase in Carvana’s stock since its initial public offering has presumably resolved any potential concerns.
Carvana’s share price has rocketed through the pandemic. Despite a recent pullback, it is by far the country’s most valuable publicly traded auto retailer. Investors betting on Carvana’s fast growth have sent the company’s market capitalization to nearly double that of rival CarMax, Inc.
To the extent we find future related-party agreements that benefit our customers and shareholders, we expect to continue utilizing them, the Carvana spokeswoman said. Payments to Garcia family companies represent less than 1% of the company’s overall expenses, she said.
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