In the worst year for stocks since the Great Recession, several big names are headed for their worst year on record with just one trading day left in 2022.
The S&P 500 index
SPX,
+1.75%
and Dow Jones Industrial Average
DJIA,
+1.05%
are both headed for their worst year since 2008, with declines of 20.6% and 9.5% respectively through Thursday. But at least 19 big-name stocks — and half of another — are headed for a more ignominious title for 2022, according to Dow Jones Market Data: Worst year ever.
Tesla Inc.
TSLA,
+8.08%
is having the worst year among the group of S&P 1500 constituents with a market capitalization of $30 billion or higher headed for record annual percentage declines. Tesla shares have declined 65.4% so far this year, which would be easily the worst year on record for the popular stock, which has only had one previous negative year since going public in 2010, an 11% decline in 2016.
Tesla may not be the worst decliner on the list by the time 2023 arrives, however, as another Silicon Valley company is right on its heels. Meta Platforms Inc.
META,
+4.01%,
the parent company of Facebook, has fallen 64.2% so far this year, as Chief Executive Mark Zuckerberg has stuck to spending billions to develop the “metaverse” even as the online-advertising industry that provides the bulk of his revenue has stagnated. It would also only be the second year in Facebook’s history that the stock has declined, after a 25.7% drop in 2018, though shares did end Facebook’s IPO year of 2012 30% lower than the original IPO price.
Only one other stock could contend with Tesla and Meta’s record declines this year, and Tesla CEO Elon Musk has some familiarity with that company as well. PayPal Holdings Inc.
PYPL,
+4.46%,
where Musk first found fame during the dot-com boom, has declined 63.2% so far this year as executives have refocused the company on attracting and retaining high-value users instead of trying to get as many users as possible on the payments platform. It would be the second consecutive down year for PayPal, which had not experienced that before 2021 since spinning off from eBay Inc.
EBAY,
+4.76%
in 2015.
None of the other companies headed for their worst year yet stand to lose more than half their value this year, though Charter Communications Inc.
CHTR,
+1.99%
is close. The telecommunications company’s stock has declined 48.2% so far, as investors worry about plans to spend big in 2023 in an attempt to turn around declining internet-subscriber numbers.
In addition to the list below, Alphabet Inc.’s class C shares
GOOG,
+2.88%
are having their worst year on record with a 38.4% decline. MarketWatch is not including that on the list, however, as Alphabet’s class A shares
GOOGL,
+2.82%
fell 55.5% in 2008; the separate class of nonvoting shares was created in 2012 to allow the company — then still called Google — to continue issuing shares to employees without diluting the control of co-founders Sergey Brin and Larry Page.
Apart from that portion of Alphabet’s shares, here are the 19 large stocks headed for their worst year ever, based on Thursday’s closing prices.
Company
% decline in 2022
Tesla Inc.
TSLA,
+8.08%
65.4%
Meta Platforms Inc.
META,
+4.01%
64.2%
PayPal Holdings Inc.
PYPL,
+4.46%
62.6%
Charter Communications Inc.
48.0%
Edwards Lifesciences Corp.
EW,
+2.87%
41.9%
ServiceNow Inc.
NOW,
+3.67%
39.9%
Zoetis Inc.
ZTS,
+3.00%
39.3%
Fidelity National Information Services Inc.
FIS,
+2.03%
, the used-car dealer that was a pandemic winner, is rushing to conserve cash as once-plentiful financing options dry up and business deteriorates.
On Friday, Carvana laid off about 1,500 people, its second round in six months. Its weakening finances mean raising funds would be difficult and costly, and it could run out of cash in a year, analysts say.
Few companies have been hit harder by rising interest rates than Carvana. The company’s interest expense nearly doubled early this year when it paid up to get financing for an acquisition. Its cost to finance car purchases is up by three-quarters this year, and some of its real estate has lost value. Car buyers, meanwhile, are holding off purchases in the hope that rates fall.
In a memo to Carvana’s employees announcing the layoffs, Chief Executive
Ernie Garcia III
blamed an uncertain economic environment that he said was particularly tough on fast-growing companies that sell products affected by higher interest rates. “We failed to accurately predict how this would all play out and the impact it would have on our business,” he said.
The company said it has millions of satisfied customers, and that disrupting the auto industry isn’t easy. “We have seen many e-commerce companies written off early in their journey only to become market leaders. We plan to follow suit,” a spokesman said. Earlier this month, Carvana executives said cash flows and profitability are the strategic focus now.
WSJ’s Ben Foldy explains the factors that helped drive Carvana’s growth and why investors are now questioning its future. Illustration: Preston Jessee
Carvana became wildly popular among car buyers, with heavy advertising and haggle-free cars delivered to their doors. Investors bought in, driving the shares up more than sixfold. The stock has fallen more than 97% from its peak last year. Carvana’s bonds are trading at distressed levels.
“They built an infrastructure across the enterprise with the assumption that the growth would be there,” said Daniel Imbro, a managing director at Stephens Inc.
The ratings firm S&P Global Ratings warned that Carvana’s liquidity likely would erode faster than expected, and changed the outlook on its CCC+ rating to negative earlier this month. It said the company’s standing to raise more cash from stock and bond investors has deteriorated.
Less than a year ago, Carvana was still trying to keep up with demand. In February, it agreed to buy a car-auction business that would help boost inventory. Car sales slowed, though.
The day the deal was completed in May, Mr. Garcia said it had overshot on growth and laid off 2,500 workers. Days earlier, it had issued a $3.275 billion bond with a 10.25% coupon to fund the purchase. The high coupon almost doubled Carvana’s annual interest expense and reflected investors’ fears of a recession and rising inflation.
Carvana CEO Ernie Garcia III and his father, Ernest Garcia II, when the company went public in 2017.
Photo:
Michael Nagle/Bloomberg News
Carvana thrived when interest rates were low because it could borrow cheaply to buy cars and make loans to customers. Its credit line from
Ally Financial
to buy cars had an average 2.6% interest rate last year, compared with 4.5% at the end of September. Ally required Carvana to set aside 12.5% of the amount borrowed as of late September, up from 7.5%, further tightening its cash situation. An Ally spokesman declined to comment.
Carvana earned big profits selling its car loans to investors who were hungry for yield. Gains from the loans help Carvana offset the losses it makes selling cars. When investors turned choosier on these securities in the spring, Carvana sold many of the loans to Ally instead, on less-favorable terms. The gains it books from loan sales fell by around one-third in the third quarter from the year-earlier period.
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Mr. Garcia told analysts on a call Nov. 3 that the company would keep cutting costs and that it has access to around $4 billion in liquidity, in addition to its $316 million cash and some other assets. The amount includes what it can borrow on credit lines to buy cars and make loans. It also included around $2 billion of real estate, which isn’t typically considered a liquid asset.
The company’s chief financial officer said Carvana could borrow against the real estate, which includes sites it bought this year. It previously raised around $500 million from selling some sites where it inspects cars and then leasing them back for 20 or 25 years.
That step might work, analysts said, but would also add expenses. They said any real-estate deals would likely occur piecemeal over time, or involve high rent payments because of Carvana’s credit troubles.
Scott Merkle, a managing partner at SLB Capital Advisors, which specializes in sale-leaseback transactions, said the long-term leases in the space generally rely on financially sound tenants that can be expected to make their lease payments for years. He said that overall conditions for sellers have softened in that market because of higher interest rates, but that sale-leasebacks still provide a better cost of capital for companies than other financing.
Carvana said it is testing ways to make more from its car sales, such as having customers pick up cars from its vending machines.
Photo:
USA TODAY NETWORK/Reuters
Some Carvana-leased properties have received a tepid response on the market. A 12-story “flagship” car-vending machine in Atlanta that Carvana sold and leased back in December was relisted this summer. It is still on the market, and the asking price has since been lowered.
Carvana said it is testing ways to make more from its car sales, such as taking payment before delivery and having customers pick up cars from its vending machines.
“We’ve got a bunch of committed liquidity. We’ve got a bunch of real estate, and I think that we feel like that puts us in a good position to ride out this storm,” Mr. Garcia told analysts on the Nov. 3 call.
—Ben Foldy, Will Feuer and Ben Eisen contributed to this article.
Write to Margot Patrick at margot.patrick@wsj.com and Kristin Broughton at Kristin.Broughton@wsj.com
Lettuce Entertain You Enterprises Inc., a Chicago-based restaurant group, has added a 3% “processing fee” to checks at many of its restaurants.
Harley-Davidson Inc.
added a charge last year to its motorcycles to cover rising material costs.
Peloton Interactive Inc.
in January began charging $250 for delivery and setup of some of its indoor bikes, a service that was previously included free.
Companies are finding all kinds of ways to make consumers pay for rising costs. Often that is not reflected in the posted price.
The Labor Department’s consumer-price index, which measures how much consumers pay for goods and services, rose to 7.5% in January compared with the same month a year earlier—the biggest rise since February 1982.
The index accounts for some changes that raise consumers’ costs, such as smaller package sizes and some fees attached to hotel packages or car purchases. But it can miss other ways in which dollars don’t stretch as far– a hotel that changes sheets only between guests, a theme park that cancels its free airport shuttle, or an auto dealer that requires customers to buy a protective paint coating with a car.
With supply-chain challenges, pent-up demand and a tight labor market leading to inflation, businesses are looking for subtle ways to pass along rising costs. Particularly in the food business, companies have long used what the industry calls weight-outs, or shrinking package contents instead of raising prices, during economic distress periods such as the 2007-2009 recession.
“There is a lot more to come,” said
Doug Baker,
head of industry relations for FMI, a food-industry trade organization. “Everything is on the table in an effort to deal with those cost increases, and at the same time, not make it too difficult for consumers to shop.”
A global computer-chip shortage has reduced vehicle inventories just as Americans were buying cars in record numbers, pushing up prices for new vehicles. In many cases, they are selling for thousands of dollars above manufacturers’ suggested retail prices, said Tom McParland, founder of Automatch Consulting, which helps consumers find vehicles.
“They’re calling it a market adjustment fee,” said Mr. McParland. “That’s the new thing they are doing: hiding markups with substantially overpriced accessories like mud flaps and cargo protectors.”
Ford Motor Co.
and
General Motors Co.
have said they are cracking down on dealerships using that tactic.
Harley fees
Base prices on Harley-Davidson’s motorcycles haven’t gone up much in recent years, the Milwaukee company said. But to cover rising costs, it added a mandatory materials surcharge last year, which dealers are passing on to customers. Dealers said the fee, which varies based on the model, is easier for the company to adjust than base motorcycle prices when costs decrease.
Dealers said the fee is $850 to $1,500 a bike. Harley this week told analysts that the surcharges helped boost revenue during the fourth quarter last year.
Harley-Davidson added a fee to its motorcycles to cover rising material costs; a dealership in Louisville, Ky., this week.
Photo:
Luke Sharrett/Bloomberg News
Some restaurants are adding new fees in response to escalating costs for food and packaging, and for wage increases executives say are needed to keep cooks and servers.
Brinker International Inc.’s
Maggiano’s Little Italy in October 2020 started charging $5 for a second, to-go pasta dish offered as part of a two-entree deal. For about a decade before the pandemic, the chain had offered a second classic pasta dish free.
“We’ve had no push back,” Maggiano’s president Steve Provost told investors last October. A Brinker spokeswoman said the price change allowed the company to invest more in the value of its carry-out offerings.
When Michael Pfeifer, a marketing professional, picked up the check for his meal at
RPM
Seafood in Chicago this week, he was surprised to find a 3% Covid surcharge added to the bill. “What’s next?” he said. “A dishware rental fee?”
The fee, added in the spring of 2020, offsets the cost of pandemic-related government regulations and mandates, said RJ Melman, president of Lettuce Entertain You, which owns RPM. “These fees can be removed and refunded for any guest that requests,” he said, “no questions asked.”
Peloton, according to its website, is adding the new $250 fees on bikes and a $350 delivery-and-setup fee for some of its treadmills. It cut the price of its original stationary bike in August to $1,495 from $1,895. With the added fees, the total price is now back up to about $1,745, as the company dealt with slowing demand and its own rising costs.
Peloton declined to comment on the fees. In an earnings call on Tuesday, Peloton CFO
Jill Woodworth
said that the fees could cut into consumer demand but that they were part of a “critical learning” process as the company restructures and cuts costs for the post-pandemic era.
Walt Disney Co.
’s Disney World in Orlando stopped offering free airport shuttles—known as the Magical Express—this year, leaving Disney guests to pay for their own transportation. The parks added several fees last year while keeping the base ticket price at $109. A fast-pass system that let park guests make reservations for rides, which used to be free, was discontinued and replaced by a new system that costs $15. And some popular rides, like Star Wars: Rise of the Resistance and Space Mountain, now cost between $7 and $15, on top of the park admission ticket.
Disney offers “a wide range of options to match different budgets and interests,” said Disney spokesman Avery Maehrer.
At its theme-park restaurants, Disney is trying to avoid across-the-board price increases, Disney CFO
Christine McCarthy
told analysts in November. “We can substitute products. We can cut portion size, which is probably good for some people’s waistlines,” she said. “But we aren’t going to go just straight across and increase prices.”
Consumer backlash
Consumer pressure has led some companies to back off added fees, including
Frontier Group Holdings Inc.
The airline, which uses a la carte pricing that lets frugal travelers choose to forgo amenities, in May 2021 added a $1.59-per-flight-segment Covid-related fee. After consumer backlash, Frontier in June stopped breaking it out as a component of its base fare but it didn’t stop charging it. Frontier didn’t respond to requests for comment.
In a press release it said: “The charge, which was included in the airline’s total promoted fare versus an add-on fee, was meant to provide transparency and delineate what portion of the fare was going toward COVID-related business recovery.”
Some of
Marriott International Inc.’s
Autograph Collection hotels had been charging a “sustainability fee” of about $5 a night. The company that manages the properties, Innkeeper Hospitality Services LLC, says it covered things like more-efficient HVAC systems.
They stopped charging the fee several weeks ago, “because we understand that while we believe in environmentally responsible stewardship, not everyone cares about our planet’s health,” IHS CEO Amrit Gill said. He said Marriott had asked the company to stop charging the fee. Marriott declined to comment.
The Biden administration has begun to look into some forms of hidden fees, which it calls “junk fees.” The administration says the amount being charged is not always tied to the costs faced by the company providing the goods or services. The Consumer Financial Protection Bureau is seeking public input on financial services, such as bank overdraft fees, while the Transportation Department is planning actions on airline baggage fees.
John Fiorello, a father of four in Torrington, Conn., was dismayed to see prices rising in his local grocery-store aisles but was initially pleased to see that the blocks of cheese he usually buys hadn’t gone up much in price—perhaps 10 cents, he said. Then he noticed that the package had shrunk, to 12 ounces from 16.
“I picked up the block and said, ‘this is definitely smaller,’ ” Mr. Fiorello said. “It just adds an extra layer of stress.”
Shrinkflation, as economists call it, tends to be easier for companies to pass on to consumers. Despite labels that show price by weight, research shows that most customers look at only the overall price.
The food industry has long shrunk package contents instead of raising prices during economic-distress periods; a Salt Lake City grocery store in October.
Photo:
George Frey/Bloomberg News
“There are sizes that people remember, like a half gallon of ice cream,” said John Gourville, a Harvard Business School professor. “Once you break from iconic sizes, it’s pretty easy to move from 13 ounces to 12 ounces.”
Over the years, tuna cans have come to contain less tuna and toilet-paper rolls less tissue, said
Burt Flickinger III,
managing director of Strategic Resource Group, a consulting firm that works with consumer-product companies. “Historically,” he said, “it’s called a ‘cheater pack.’ ”
Companies have become more sophisticated and use multiple tactics to protect their profitability, he said. They can pull back on discounts, stop making low-selling products and create new varieties that sell for higher prices
Downsized Oreos
Oreo-maker Mondelez International Inc. raised prices by an average of 6% to 7% in the U.S. last month, but it wasn’t enough to make up for its higher costs, the company said. So Mondelez has been introducing new sizes and flavors it says are more profitable.
Oreo’s new 110th Birthday chocolate confetti-cake cookies cost about 10 cents more than regular Double Stuf Oreos at several grocery stores, even though the new flavor comes in a slightly smaller package. At a
Target Corp.
store in Chicago, the limited-edition birthday Oreos, which came out January, cost $3.79 for a 24-cookie package and the Double Stuf ones cost $3.69 for a 30-cookie package.
Retailers set the final prices. Mondelez said it charges the same for the two products, and its limited edition flavors are typically different-sized packages than regular ones. A Target spokesperson said: “We’re priced competitively throughout the markets we do business.”
Economists and analysts at the Labor Department’s Bureau of Labor Statistics monitor prices of thousands of goods and services. They can account for shrinkflation, because they track the cost of certain products by weight and quantity—so a cereal box that costs the same amount but now has 30% less volume would be registered as a price increase.
They said their efforts can’t identify every fee or dropped amenity, such as a hotel room rate that remains the same but that no longer includes fresh towels or a hot breakfast. “We do not capture the decrease in service quality associated with cleaning a room every two days rather than one,” said Jonathan Church, a BLS economist.
Disney World in Florida added several fees last year while keeping the base ticket price at $109; the Magic Kingdom last summer.
Photo:
Joe Burbank/Orlando Sentinel/Associated Press
Jeremiah Mayfield and Carlos Larrea stayed at Alohilani Resort in Honolulu in December and opted for a $75 a-night upgrade to “club level” for free food and drinks. But they said they could rarely use it because the resort didn’t have enough staff to replenish the club-level amenities. After complaining, they were offered free dinner.
Alohilani General Manager Matthew Grauso said that quality and efficient guest service are top priorities and that he tries to remedy any shortfalls immediately, adding, “The pandemic has presented a unique set of challenges within the hospitality industry.”
“We gave them hell for it,” Mr. Mayfield said. “We paid $800 a night. We never expected it would be so scarce in terms of service and amenities.”
Many hotel chains are replacing complimentary hot breakfast buffets with a snack bag. Some fitness centers and pools remain closed, and housekeeping doesn’t refresh rooms daily. Some guests feel like they are getting less for their money.
InterContinental Hotels Group
PLC, which owns Holiday Inn, said it has been working with hotels to return amenities and make it right if guests aren’t satisfied. “Hotel teams have been overcoming many challenges including supply chain and labor shortages, changing health guidance and regulatory requirements,” an IHG spokesperson said.
On a recent trip to St. Louis, Meg Hinkley booked a Holiday Inn because it said online that it offered room service. When she arrived, the restaurant was closed, so there was no room service. She said she would have stayed at a lower-priced hotel if she had known. “I was paying for that convenience.”
—Heather Haddon and Bob Tita contributed to this article.
Write to Annie Gasparro at annie.gasparro@wsj.com and Gabriel T. Rubin at gabriel.rubin@wsj.com
The dwindling number of vehicles on dealership lots is threatening to cool the U.S. car market’s blistering sales pace.
Analysts are expecting new-car sales from June to fall off from recent months, when car shoppers turned out in near-record numbers, buoyed by excess household savings and pent-up demand from the pandemic. Most car makers are scheduled Thursday to report U.S. sales results for June.
Customers are still clamoring for a new ride, dealers say. But it has become harder for salespeople to match buyers to vehicles because of the lack of inventory caused by the computer-chip shortage that has hobbled car production since winter.
“We really don’t have enough cars to go around,” said Joe Shaker, owner of Shaker Automotive Group, which sells several brands in Connecticut and Massachusetts. He said his Ford store is carrying about 14% of its normal inventory.
New-vehicle sales in the first half of the year are expected to reach about 8.3 million units, according to an estimate from J.D. Power, a 32% increase over the same period a year earlier and up nearly 1% from the first half of 2019.
Car dealer Brad Sowers is spending money to prepare for the coming wave of new electric models from General Motors Co. He is installing charging stations, upgrading service bays and retraining staff at his St. Louis-area dealership to handle the technology-packed vehicles.
But when he considers how many plug-in Chevy Bolts he sold last year—nine, out of the nearly 4,000 Chevrolets sold at his Missouri dealerships—it gives him pause.
“The consumer in the middle of America just isn’t there yet,” when it comes to switching to electric vehicles, he said, citing the long distances many of his customers drive daily and a lack of charging infrastructure outside major cities.
As auto executives and investors buzz about the coming age of the electric car, many dealers say they are struggling to square that enthusiasm with the reality today on new-car sales lots, where last year battery-powered vehicles made up fewer than 2% of U.S. auto sales.
Most consumers who come to showrooms aren’t shopping for electric cars, and with gasoline prices relatively low, even hybrid models can be a tough sell, dealers and industry analysts say.
Auto makers are moving aggressively to expand their electric-vehicle offerings with dozens of new models set to arrive in coming years. Some like GM are setting firm targets for when they plan to phase out gas-powered cars entirely.
Sales consultant Robert Mason Jr., center, spoke with Paul Sweeney, left, and his son, Jeff, who were purchasing a Chevrolet Trail Boss at Jim Butler Chevrolet in Fenton, Mo., on Friday.
Many dealers say that puts them in a delicate spot: They are trying to adjust, but unsure whether and how fast customers will actually make the switch. About 180 GM dealers, or roughly 20%, have decided to give up their Cadillac franchises rather than invest in costly upgrades that GM has required to sell electric cars.
A GM spokesman said the company expected some Cadillac dealers to opt out and is pleased that the roughly 700 remaining share its all-electric goals.
Past attempts by car companies to expand electric-car sales have largely flopped, saddling retailers with unsold inventory. Even now, some dealers say they are reluctant to stock electric models en masse.
“The biggest challenge is that dealers have a bit of ‘boy who cried wolf’ syndrome,” said Massachusetts dealer Chris Lemley.
Car companies have promised for years to make electric cars mainstream, but produced only low-volume, niche models, he said. He recalls
Ford Motor Co.
rolling out an all-electric Focus that sold poorly and stacked up on his lot. It was discontinued in 2018.
“So when we are told, ‘This time, we really mean it,’ it’s easy to be skeptical,” Mr. Lemley added.
Some shoppers also are unsure. Joe Daniel, an energy analyst at the Union of Concerned Scientists, said he was determined to buy an electric car, but eventually abandoned his effort after realizing there weren’t enough public charging stations near his apartment in Washington, D.C. Without a place to plug in, the purchase made little sense, he added.
“For EVs to take off, they need to be as convenient as gas-powered cars—that’s the whole point of this big purchase,” Mr. Daniel said.
Gone are the long waits at charging stations: Chinese electric-vehicle startup NIO is pioneering battery-swap systems, challenging Tesla and other rival car makers. Here’s how NIO and Tesla are racing for the world’s largest EV market in China. Photo illustration: Sharon Shi
To solve problems like this, President Biden has said he wants to spend billions of dollars to upgrade the country’s charging infrastructure as part of a push to incentivize battery-powered cars.
Ford, GM and other major car companies say they are confident in their new electric-vehicle offerings and are training dealers to sell and service them.
Still, some auto retailers say they worry about the long-term implications for their business.
Tesla Inc.’s
influence on the electric-car market has created a new standard for car shoppers, offering an online transaction and a simplified lineup with no price negotiation. Other electric-vehicle startups, like Rivian Automotive and Lucid Motors, say they’ll likewise sell directly to consumers and bypass traditional dealerships.
Some car companies are now following their lead, initially stocking dealership lots with few if any electric models and allowing customers to order more directly from the manufacturer.
Volvo Cars CEO
Håkan Samuelsson
recently said that all future battery-electric vehicles would be sold exclusively online and the price would be set centrally, eliminating the ability to haggle. Dealerships will help deliver vehicles to customers and perform other services, like maintenance, he said.
“The marketplace is moving from the physical dealership to online. That’s what will happen in the next 10 years,” Mr. Samuelsson said.
Howard Drake,
a GM dealer in Los Angeles, said he is considering converting two of his showrooms. Rather than separate models by brand, he is considering two stores—one for electrics, the other for gas-powered vehicles.
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“These are really different customers,” Mr. Drake said. “A Hummer EV buyer probably doesn’t want to be sitting next to some guy buying a gas-guzzling pickup truck.”
Mr. Sowers said he sees encouraging signs. GM recently dropped the sticker price of the all-electric Bolt and helped boost sales for the model in February. But he said his electric-vehicle inventory will remain light because he is uncertain about longer-term demand.
“It’s still very early days,” Mr. Sowers said.
As soon as dealers figure out how to sell EVs, another business problem awaits in the service bay.
Troy Carrico worked on a Chevrolet Corvette.
Electric vehicles typically have fewer mechanical parts and don’t require the same type of service that gas engine cars need, such as oil changes. That work right now is a big profit center for dealerships.
“There’s going to be an impact, but it might take three or four years to see the full effect,” Mr. Lemley said. “That’s really my biggest question mark heading into all of this.”
