Things already looked pretty bad for online used car dealer Carvana (NYSE:CVNA). Sales slumping, car loan rates spiking, and a lot of less-than-pristine inventory on hand left the company struggling. However, Carvana got a serious second wind today, as it closed up over 46% in Thursday’s trading session.
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What happened to suddenly drive this clunker uphill at warp speed? Carvana lost its dealer license in Michigan. However, despite this loss, it can actually continue to sell cars in the state. How does that work? Well, you might be surprised. Carvana committed several errors in its Michigan dealings. It failed to get customers’ car titles with any kind of urgency and also incorrectly used temporary license plates.
These are common for recently-purchased vehicles but, like everything else, have rules around their use. That led to Carvana not only acknowledging what it did—based on an agreement with the Michigan Secretary of State’s office—but also landing a $10,000 fine and handing over its dealership license to the state, for which it can reapply after three years.
Carvana only had one physical location in the state: a “car vending machine” tower near Detroit. However, this doesn’t forbid the company from selling cars to Michiganders. It can still operate online, which means in every place but Detroit, it’s business as usual. This isn’t the only such incident; right now, there’s an empty Carvana vending machine tower sitting near I-25 near Denver, Colorado. Though the firm expects to stock it someday, locals question the likelihood.
Interestingly, Wall Street is taking a wait-and-see attitude with Carvana stock. Currently, analyst consensus calls it a Hold with 22.33% upside potential thanks to its average price target of $9.86.
