CarLotz Inc., a Richmond-based company facing mounting losses in a tough auto resale market, said this week it is closing 11 of its hub locations across the country as part of a strategic review of its business.
The company, which sells used cars on consignment as opposed to a commission model and got its start as a local startup, said it is shuttering about half of its locations with an eye on “cash preservation and future profitable growth.” The closures will result in a 25%-30% reduction in headcount and will cut down operational losses by roughly $12 million to $13 million on an annualized basis, the company said. But those estimates assume CarLotz (NASDAQ: LOTZ) will be able to sublease certain locations.
“Over the last 12 months, our sourcing has been challenged,” CEO Lev Peker, who joined the company in late April, said in a statement. “Growing our mix of consumer sourced vehicles is a priority to complement our retail remarketing sourcing channel and reduce our reliance on auctions. We believe the closures should allow us to improve sourcing across a smaller hub base and focus on the productivity and efficiency of the remaining hubs.”
Peker, who previously led Los Angeles automotive parts seller CarParts.com, said in his statement he believed the closures were a necessary step to improve the company’s performance. He said the company was “committed to help support” employees impacted by the layoffs.
The used-car market is facing rising demand but low inventory; price indices for used cars jumped 40% last year, according to George Hoffer, emeritus professor of transportation and economics at Virginia Commonwealth University, and new car sales remain mired in delays created by supply-chain and labor issues stemming from the pandemic. Rising gas prices, if they remain elevated, could move the market back into the buyer’s favor.
CarLotz posted nearly $40 million in losses across 2021 compared to just $6.6 million in losses in 2020. It posted a $24 million loss in the first quarter of 2022, an increase from a $15.1 million net loss in the first quarter of 2021.
It went public in early 2021 via a SPAC merger with Miami’s Acamar Partners Acquisition Corp. Its market cap was about $1.2 billion when it hit the Nasdaq, but its share price has fallen 82% this year to 46 cents on Thursday afternoon, putting its market cap below $53 million. Its share price has been below $1 since late April.
The locations CarLotz is closing: Lilburn, Georgia; Bakersfield, California; Clearwater, Florida; Highland Park, Illinois; Merritt Island, Florida; Mobile, Alabama; Madison, Tennessee; Plano, Texas; San Antonio, Texas; Lynnwood, Washington; and O’Fallon, Illinois. The company also said it would not open three locations where it has executed leases but had not opened. Those exact locations were not revealed.
The company’s four Virginia locations are not impacted by the closures.
CarLotz also said the reductions should free up roughly $10 million in working capital as inventory is liquidated. That will be partially offset by a one-time severance cost of as much as $600,000, the company said. It is also estimating one-time noncash impairment charges of $2 million to $5 million associated with lease assets and as much as $6 million associated to other fixed assets.
