Mass Layoffs from Carvana to Tesla: Tech Companies Are Driving Over a Cliff

On Tuesday, May 10, employees of the online car retailer Carvana woke up to a chilling internal email from CEO and owner Ernie Garcia III. The Arizona-based tech company had joined the Fortune 500 list only last year, and was considered the fastest growing online auto retail business in the country. So it came as a shock when Garcia informed his employees that 12% of the workforce would be laid off, putting 2,500 workers out of a job.

In his email, the CEO waxed on about the regrettable factors beyond his control and his obligation to do the “right thing” for the company’s interests:

There is so much going on in the world today that I don’t want to pretend to have a full understanding, but it is an understatement to say a lot has changed about our environment. Inflation and interest rates are up, supply chains are disrupted, and consumer and investor sentiment have shifted. The impact of all of these forces on our industry has been severe. All-time-high car prices are slowing sales to recession levels… This brings us to a painful conclusion… We have to say goodbye to part of our team—to some of you—in order to get our team size back into alignment with sales.

Ironically, this internal announcement came within minutes of a very different public announcement: Carvana had successfully closed that day on a $2.2 billion deal to acquire the car auction company ADESA from KAR Global. In a statement regarding the ADESA deal, the boss struck a much more cheerful tone:

Despite the recent industry slowdown, Carvana continues to grow and deliver exceptional experiences to an increasing number of customers. We aim to use this ADESA US alignment… for Carvana to catapult back into rapid profitable growth as the industry inevitably rebounds.

After putting in a hard day’s work—closing a major business deal while carrying out one of the largest mass tech layoffs in recent history—Ernie III surely celebrated with an expensive bottle of champagne. But for the thousands of workers who had lost their livelihoods over a Zoom call that ended with a “have a good day,” the day was one of bitter rage and tears.

Garcia is only interested in lining his own pockets at the expense of the working class. / Image: Gage Skidmore, Wikimedia Commons

The acquisition of ADESA represents a further enlargement of the Garcia family car empire. Ernie III was gifted Carvana by his father, Ernie Garcia II, whose company Drive Time provided its first round of funding. Both father and son appeared on the Forbes 400 list of richest Americans last year. Garcia II came in at 39th place with a net worth of $18.8 billion. His son made 83rd place, at $9.3 billion. The family also has ownership of Bridgecrest Acceptance Corp, a company that provides car and vehicle loans and services, and Silver Rock Inc., a vehicle service and insurance company.

In addition to running the parent company to his son’s business, Garcia II has the distinction of being a convicted felon for his role in a 1980s bank fraud scandal that wiped out the life savings of over 20,000 people—mostly elderly retirees. It is clear that the Garcia family has one goal in life—lining their pockets with as much profit as possible, at the expense of the livelihoods of their employees and the broader working class.

Booming profits and forced overtime

For a long time, Carvana management prided itself on the company’s astronomical rise, depicting it as a story of David standing against the Goliaths of the auto retail industry, and promoting itself as the “Amazon of cars.” In 2015, just a few years after its creation, Carvana employed roughly 1,000 workers. In 2018, this grew to 4,000, and then to 7,000 employees in 2019. By the time the pandemic hit in early 2020, when millions were forced to stay home, the online dealer was positioned to benefit from a flood tide in the demand for internet-based sales.

While many traditional dealerships closed, the company reported a 25% increase in vehicle sales. From April to June 2020 Carvana had a gross revenue of $1.12 billion, up 13%. Carvana needed the manpower to meet the surging demand, growing its workforce by over 200% over the last two years to almost 22,000. By February 2021, its stock had risen more than 130% since the start of the pandemic. Carvana was valued at $45 billion, making it a competitive rival for traditional car companies like Ford and Honda.

This business boom sent profits soaring for several big tech companies such as Amazon, Facebook, and Google, boosted in part by the state’s COVID-19 relief programs, while other industries were being negatively affected as the pandemic wreaked havoc. For Carvana, the good fortune had little to do with the intelligence or skill of Ernie Garcia. It had everything to do with a favorable market situation, combined with the unprecedented degree of exploitation of the workers, who were subjected to mandatory overtime.

Carvana described the entire eight-month period between April and November 2021 as its “busy season,” and required up to eight hours of mandatory overtime weekly from every employee. During this period, it wasn’t uncommon for some workers to rack up to 60 hours a week. The company heavily incentivized “slumber parties” during which employees worked until midnight. Some workers were clocked in from 6 AM to 12 AM during these “slumber parties,” foregoing normal sleep schedules to keep the profits rolling in.

Market chaos and overproduction

While the workers toiled around the clock, Garcia worked to bite off the largest share of the market he could, expanding operations as if the sky was the limit. But under capitalism, production is ultimately restrained by very real limits. As Marx explained in Capital: “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.”

After expanding as quickly as possible and forcing overtime from their employees Carvana now has to slam on the brakes and layoff workers. This is the chaos of capitalism. / Image: Carvana, Wikimedia Commons

In a booming market, capitalists are driven to rapidly expand operations in an effort to capture a larger share of the growing demand and maximize profits. But capitalist profits don’t come out of thin air—they are the byproduct of paying workers less in wages than the value generated by their labor. Sooner or later, this inevitably leads to a point where more is produced than the market can absorb, since the working class also makes up the main population of consumers. This contradiction is called overproduction, and it is an inherent and unavoidable feature of capitalism.

When the bosses realize—as Ernie Garcia recently did—that workers are producing goods or services that can’t be sold profitably on the market, they slam on the brakes, tapering down operations and laying off workers, which in turn tends to further suppress consumer demand. When this happens on a broad scale, the result of the downward spiral is a full-blown recession or depression.

Today, many of the industries that experienced booming profits during the lockdowns are facing the consequences of overproduction. This is particularly clear in the tech sector, where companies are starting to institute hiring freezes and mass layoffs. Aside from the Carvana culling, there have been layoffs at Facebook, Uber, Netflix, and Amazon. In February, the home fitness company Peloton halted production and laid off 2,800 workers, 20% of its employees. And in the last few months, the online mortgage lender has laid off nearly 4,000, over a third of its workforce, after quadrupling its staff during the pandemic. Like the Carvana layoffs, the bad news came as a shock and was delivered callously over a mass Zoom call: “If you’re on this call you are part of the unlucky group that is being laid off. Your employment here is terminated effective immediately.”

The wave of hiring freezes and mass layoffs shows no sign of stopping. At the beginning of June, Tesla CEO Elon Musk announced a global hiring freeze and warned that up to 10% of the company’s workforce may be cut, citing “a super bad feeling” about the direction of the economy. This would amount to laying off approximately 10,000 workers—the largest mass layoff in the tech sector since the 2020 crisis.

A warning for the working class

For several years now, the world economy has been in the grips of chaos that has only intensified under the impact of the war in Ukraine. While bourgeois politicians and pundits blame economic turmoil on external factors like the pandemic and the war, in reality, events since 2020 have only more clearly revealed the internal contradictions of capitalism.

Tesla CEO Elon Musk warned that up to 10% of the company’s workforce may be cut. This would be the largest mass layoff in the tech sector since the 2020 crisis. / Image: Raysonho, Wikimedia Commons

The onset of the COVID-19 pandemic undoubtedly exacerbated many problems. Widespread lockdowns brought some industries to a screeching halt, while others were sent booming. An unprecedented spike in unemployment was combined with an unprecedented injection of federal stimulus spending in an effort to avoid total collapse and social revolt. One consequence was that businesses had no way of estimating future demand based on data from previous years, since no one knew when the pandemic would end, or how long the changes in consumption patterns would last. On the supply side, no one knew whether production would close down tomorrow due to new outbreaks, and international logistics chains completely clogged up, creating a supply crisis. Additionally, the record stimulus spending produced the biggest jump in money supply in US history. This has led to the highest inflation in over 40 years, eating deeply into the wages of the working class.

Recession worries were already present in 2019, when the IMF warned of a “synchronized slowdown” affecting 90% of the world economy. If anything, today’s forecasts are even gloomier. The pessimism of the capitalists is reflected in the two-month decline of the S&P 500, the longest stock market downturn in over 20 years. It is a matter of time before another 2008-style meltdown once again plunges millions into unemployment, homelessness, and desperation.

As long as the capitalist system continues, there is no escape from this continuous loop of misery. But the world working class will not take these attacks lying down. The recent wave of unionization efforts is a sign of the combative mood among a growing layer of workers—particularly the younger generation who grew up through the last major recession and its aftermath. Millennials and Gen Z make up the majority of the American workforce, and are also the most critical of capitalism—a system that has offered our generations nothing but one crisis after another.

If Carvana workers were organized, they could have responded to the recent attacks with united strike action and workplace occupations, forcing the Garcias to take the losses in the form of lower profits, instead of destroying thousands of livelihoods. The capitalists give up nothing for free, and it is only by collectively withholding their labor that workers have the leverage necessary to fight back these kinds of attacks. Class struggle is the only way to fight against the constant onslaught of attacks from the bosses—attacks which will only intensify in the coming period. But another world—with full employment and quality working conditions for all—is possible. Join Socialist Revolution and help us achieve this in our lifetime!

Are you a communist?
Then apply to join your party!