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Carvana’s Success Rides on Used-Car Loans

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Online used-car dealer Carvana Co. , known for its vehicle vending-machine towers, has a secret sauce to its business success: a way of handling car loans that turbocharges revenue.

The company has become a market darling during the pandemic, benefiting from huge demand and high prices for used vehicles. Its stock has skyrocketed more than 1000% since the depth of the Covid-19-related selloff in March 2020 and is now valued at more than Ford Motor Co. at about $63 billion.

Part of the attraction to investors: selling cars is only part of what makes Carvana money. In the second quarter, around 36% of the company’s gross profit per unit came from selling loans it made to customers to buy the cars. Retail sales accounted for 39% of gross profit per unit, Carvana’s preferred earnings measure. Other types of income, including from vehicle-servicing contracts, made up the rest.

Last quarter, the loan surge helped…

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