Carvana had a rollercoaster of a year in 2022. Besides a cratering stock and fears of collapse, allegations of Carvana failing to fulfill its legal duties to provide proper registrations and titles to customers erupted all over the country. As reported by Florida-based news site WFLA, some customers couldn’t even drive the vehicles they’d purchased from the retailer because allegedly Carvana had either failed to provide the necessary paperwork or had illegally issued out-of-state temporary plates. The allegations turned into investigations in a number of states, including Michigan, Illinois, Texas, North Carolina, Florida, California, Pennsylvania, and more. Some of these investigations have resulted in Carvana temporarily losing its dealer license in a couple of states. According to Fox Business reports, this happened in Illinois twice in 2022, and it also caught Michigan’s attention. If you’re interested in learning the greater scope of Carvana’s legal issues across America in 2022, click here to read our coverage. For this, we’ll be focusing on Carvana’s public legal battle with Michigan.
How Carvana Got Michigan’s Attention
Carvana’s legal problems in Michigan began in February 2021 when, as Automotive News reports, state regulators performed a general compliance inspection. Regulators found that Carvana was allegedly not giving Michigan residents their titles. From Automotive News: As reported by the Detroit Free Press, on May 7, 2021 Carvana entered into an 18-month probation agreement with the state, admitting to several violations of Michigan’s vehicle code. The dealership then paid a $2,500 fine and agreed to an 18-month probation period, from Detroit Free Press: The state said the issues at hand date to at least February 2021. Carvana entered an 18-month probation with the state in May 2021, followed by a six-month probation extension reached in February 2022. Since then, the department said, it has received additional titling complaints from consumers, which led to the current actions. You would think that’s where this mess would end, but Michigan regulators continued to receive reports of missing titles. These reports convinced regulators to dig deeper into Carvana’s practices in Michigan, where the state found that Carvana broke its probation. Carvana apparently then admitted to breaking state laws again, paid another fine, and ended up adding an additional six months to its probation. Then, Carvana upset regulators again by apparently breaking its probation for a second time. From Detroit Free Press: According to the Detroit Free Press, Michigan’s Department of State has accused Carvana of committing a laundry list of violations of state law and its probation. Those violations included: But state officials received several complaints from consumers even after the probation extension, it said. So the state conducted another investigation that led to the current violations and suspension. Thus, on October 7, 2022 Michigan suspended Carvana’s license and initially blocked it from selling vehicles to the state’s residents from its vending machine near Detroit. In response to the suspension, Carvana fired back, seeking an injunction in the state Court of Claims. The dealership sought a temporary restraining order to lift its suspension and to prevent the state from suspending its license again during the legal proceedings. Carvana’s argument was that the state violated its own laws in suspending the dealership. At the time, Michigan was reportedly considering revoking Carvana’s license entirely as reports of title issues continued to pile in, even after the suspension. The court later denied Carvana’s request for a temporary restraining order, siding with the state in that no laws were broken in the suspension. Despite the blows to the used car seller, Michigan allowed Carvana to sell vehicles to Michigan residents, provided that those vehicles were purchased online and not from Carvana’s physical location in Novi, Michigan. Now, the saga of Carvana’s fight against Michigan’s suspension now reached some form of a conclusion.
Carvana’s New Agreement With Michigan
As reported by Automotive News, Carvana has entered into a Dealer License Closeout Agreement with the state. Carvana will surrender its license to sell vehicles from the Novi location in lieu of further administrative action by state regulators. It will also pay a $10,000 penalty to the state to cover the Secretary of State’s investigation costs. But that’s not all, as the Agreement contains acknowledgments from Carvana: The Agreement goes on to note that Carvana will not be able to sell a vehicle from a physical location in Michigan for a period of three years. After that time, Carvana will be able to apply for another dealer license. From the agreement:
- Violating a probation agreement. [MCL 257.249(b)] 2. Improper use of temporary registration. [MCL 257.256 and MCL 257.226a(1)] 3. Records not available for inspection during reasonable or established business hours. [MCL 257.251(5)] 4. Failure to make application for title and registration in purchaser’s name within 15 days of delivery. [MCL 257.217(4)] 5. Failure to have properly assigned certificate of title in immediate possession. [MCL 257.235(1)] 6. Failure to maintain odometer disclosure records. [MCL 257.233a(3)]
Michigan residents can still purchase vehicles from Carvana and even receive their vehicles from the Novi vending machine, but the transaction has to be online. No paperwork can be filled out at a physical location. The state also notes that residents that buy vehicles from Carvana will have to retitle those vehicles to Michigan (I assume this means folks will be receiving out-of-state titles since Carvana doesn’t have a Michigan license).
[…]
Licensee agrees to surrendering the dealer license as of the date of this agreement. As part of its ongoing e-commerce sales through its out of state licenses, Licensee will continue to deliver vehicles to Michigan residents at its Michigan locations, but Licensee will not engage in the business of acting as a dealer, as defined by the Code, including, but not limited to, the properties located at 26890 Adell Center Dr, Novi, MI, or 2046 28th St SW, Wyoming, MI.
If you’re wondering why Michigan decided to settle rather than continue litigation, Department of State spokesman Jake Rollow has given an explanation to the Detroit Free Press:
Hopefully, Carvana sticks with it, because the Agreement stipulates if Carvana operates without a license, each violation will carry a $7,500 penalty. I reached out to Carvana, and a representative from the company gave me this statement from Alan Hoffman, Head of External Affairs: “The settlement agreement cements Carvana’s ability to continue selling and delivering cars to Michiganders as it has done continuously since 2014 by using its innovative and consumer-friendly e-commerce business model.”
The retailer says that it has new practices to ensure that it adheres to Michigan law. Thus, Carvana’s fight with Michigan has come to a close, but the state will still be watching in case violations occur again.
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I don’t see Carvana’s value proposition. It’s supposed to be more convenient, but they fumble the basics like title transfer. It’s supposed to be more sophisticated and profitable than the dealers, but it relies on a questionable algorithm to buy and sell cars sight unseen. Kind of like the whole Zillow and OpenDoor fiasco with homebuying, cars need to be evaluated carefully by someone knowledgeable if you want to buy and sell at a profit. They no longer have cheap VC cash to paper over their losses.
I’d expect them to file at a minimum for Chapter 11 within the next year, if they’re not completely liquidated. To which I say good riddance. One of the most enjoyable parts of the high-rate environment and bear market is to see these tech companies that have coasted on their hubris and rhetoric fall flat on their faces. Maybe I’ll be proven wrong but I’d be surprised if Carvana still exists by the time they can reapply for a dealer’s license here. They can live in the normal building, and all their (usually non-functional) vehicles can be parked.
No more annoying warning letters from the city!! Heck, it would be fun just to have a giant palletized storage elevator system, regardless what’s on them. “Looks like Bob at the old Carvana found a serious bulk deal on Charmin this week. It’s a bay above his Christmas decorations.” Those Carvana vending machines are in prime commercial. I could absolutely convince Beau to write a check to buy a set of dealer tools for a ‘here’s what your $20 OBD-II reader will never do’ article. $7M+ of prime real estate with a whole lot of bad PR attached, not so much. Their 2021 revenue was $3.753 BILLION dollars. If they were fined $2500 for each of the 127 violations, that’s $317,500 or less than 0.01% of a single day’s revenue. That is not even ‘cost of doing business’ money. That isn’t even close to how much they pocketed on every one of those cars not including the ones they illegally took back or illegally sold. Now I’ll be the first to admit that the thing isn’t worth much, but it’s in excellent mechanical and aesthetic condition and worth a hell of a lot more than that even for a low ball trade in offer. I checked Vroom too and they offered …drumroll… $100. Yes, one Benjamin. They went from offering 20% over KBB to politely telling you to eff off. They’re definitely in trouble. I mean, seriously? Talk about toothless! Michigan sounds like a fucking fantastic state for criminal corporations to operate in. They clearly save on land area, but seem to be a difficult and overly complex way to display and sell a car. If any one of us did anything even remotely like that, that’s also how many times we would be shot by the police. But since it’s a group of felons repeatedly convicted of fraud going back decades, some pocket change and a pretend slap on the wrist is sufficient.
