WSJ News Exclusive | Carvana Faces Government Scrutiny and Fines Following Consumer Complaints

Consumers have filed dozens of complaints with state regulators and hundreds with the Better Business Bureau about issues that include incorrect paperwork, delays getting titles and registrations, and other troubles with the purchasing process. At least four states have disciplined Carvana or are investigating the company for violating vehicle-sales rules.

In Michigan, the company is on probation after admitting to violating state laws including those governing title transfers and vehicle registration, according to a document reviewed by The Wall Street Journal. The company has been assessed $10,500 in fines in Texas for paperwork issues, according to a state website. These actions haven’t been previously reported.

A Carvana spokeswoman said the company remains firmly committed to improvement and is working hard to make the car buying and shopping experience better.

“Carvana has pioneered online car buying by continuously delivering exceptional experiences, and we have bought and sold well over a million cars with customers,” the spokeswoman said, adding that the company enjoys strong customer-satisfaction ratings.

Carvana didn’t respond to questions about the state actions.

In August, Carvana received a six-month suspension from selling cars from its dealership in Raleigh, N.C., for violating the state’s dealer-licensing laws, with another location put on probation for more than a year, according to the state’s transportation department. That month, the company paid $850,000 to settle a civil lawsuit with four counties in California after selling and transporting cars without licenses to do so.

Some Carvana customers said delays in getting documents from the company have left them unable to register their cars for nearly a year, which they said has put them at risk for getting ticketed or towed. For others, those delays left them stuck making payments on cars that had expired tags and couldn’t legally be driven, they said. One man said he had to return a car to Carvana after the Tempe, Ariz.-based company told him it didn’t possess the vehicle’s title.

“It makes me wish I’d just gone to the car lot,” said Laura Simmons, a public-health worker in Kentucky. She said she was ticketed in August for no registration while driving on expired temporary tags and is still waiting for Kentucky title and registration documents for a Hyundai Sonata she purchased from Carvana last November.

“I’d pay more, but at least it’d be registered, and I wouldn’t have these headaches,” she said.

Carvana declined to comment on specific customer complaints.

This year through September, the Better Business Bureau has collected 899 complaints from Carvana shoppers reporting problems with the experience. That compares with 411 complaints recorded for rival used-car seller

CarMax Inc.

CarMax sold more than three times as many cars in its most recent fiscal year, which ended in February, as Carvana did in 2020. Carvana’s sales pace has accelerated in 2021, but still lags behind that of CarMax.

Carvana customers have filed dozens of complaints with state officials in Ohio, Texas, Georgia and North Carolina, state records show. Many of the complaints are from buyers like Ms. Simmons who have been waiting months to receive a vehicle title, which is necessary to transfer ownership and register a car.

Traditional dealership managers say tracking down titles from the seller or their lender is among the most troublesome aspects of used-car operations. Still, they say, delays rarely prevent them from getting a title to a customer within the required window, usually 30 to 45 days, depending on the state.

“In my world, if there’s a title issue, they call once or twice,” said Brian Kramer, general manager of Germain Toyota of Naples, Fla. “Then, they’re standing outside my office, staring at me until I get off the phone.”

On a conference call with Wall Street analysts in August, Chief Executive

Ernie Garcia III

said the company’s efforts to buy more cars have left it short on manpower and resources, leading to issues such as longer delivery times and registration delays.

“The most important thing that we can do right now is catch up to the demand that we’re seeing,” Mr. Garcia said, saying that the company was hiring and investing to expand operations.

“You always make mistakes here and there,” he added. “And we’re built in a way to be able to absorb that as well when we’re properly staffed for the volume that we’re seeing, and today we’re behind.”

The obstacles Carvana is confronting highlight the difficulties of taking the car-dealership business—which for decades has been a mostly local and in-person undertaking—and putting it fully online. As Carvana expands, the task is complicated by the patchwork of state and local regulations that govern how a vehicle is sold, industry analysts say.

Carvana’s business has won many positive reviews on social media, with customers saying their transactions were easy and successful.

In its advertising, the company promotes itself as a new way to buy a used car, offering no-haggle prices, in-house financing and next-day home delivery in certain markets. Established in 2012, the company has become well-known for its tall glass towers that dispense cars purchased through the website.

Within the past year, its sales have taken off, helped in part by a surge in used-car demand and a greater willingness among car buyers to shop for vehicles online during the Covid-19 pandemic.

Carvana said it sold more than 200,000 vehicles in the first half of 2021, compared with roughly 244,000 for all of last year.

On Wall Street, its model has proven popular with investors. At one point this summer, the company’s valuation surpassed that of

Ford Motor Co.

before the stock pulled back within the past month. As of the close of trading on Thursday, it was worth $52.1 billion.

Carvana isn’t the only online auto retailer encountering customer-satisfaction complaints, and at least one has a higher rate of such grievances. The BBB has collected 663 consumer complaints on

Vroom Inc.,

another online-only car seller, based in New York City, this year through September. The BBB has an advisory on its website warning of a pattern of complaints about Vroom. The company said it sold 33,772 vehicles in the first half of the year.

The reports included customer claims that the car they received didn’t match the photos from Vroom’s site, unresponsive customer service and not receiving the paperwork needed to register vehicles.

“Our goal is for every customer to be 100% satisfied with their Vroom experience,” a Vroom spokesman said. “As consumers turn more and more to buying cars online, we are investing significantly in our people, processes and operations to ensure we can deliver the experience our customers deserve.”

The six-month sales ban in Raleigh, N.C., came after state officials found that Carvana failed to provide title paperwork to the state’s Division of Motor Vehicles, sold a vehicle without a state inspection and issued out-of-state temporary tags on a vehicle sold to a state resident. State officials in North Carolina said the actions violated its dealer-licensing laws. Issues with temporary registrations and insurance information led to the other North Carolina probation.

Last month, Carvana settled a different complaint in Florida after the state’s motor-vehicles department found it had failed to provide title paperwork to 12 customers for up to eight months. The company paid a $6,000 fine.

In a different call with analysts in August, a Carvana executive discussed the North Carolina sanction as an outlier.

“This was a relatively unusual action but is also pretty small in scope, relatively speaking,” said Mike Levin, the company’s vice president of investor relations.

The Carvana spokeswoman declined to comment on the Florida settlement.

Some Carvana customers who have encountered difficulties say they rarely speak with the same person twice when calling the company or have to spend several hours on multiple calls before speaking to someone who can help. As a result, these customers say, they wind up frustrated with no way to resolve issues in person.

Joe Sachs, an air-traffic controller in the Charlotte, N.C., area, said he had planned to sell his family’s minivan to Carvana, but paperwork errors by the company at first prevented the deal from going through.

Even though the deal hadn’t closed, Carvana deposited payment in his account soon after, Mr. Sachs said. Not only was the payment itself a mistake, the amount was around $400 short of the price he and Carvana had agreed on, he said.

While at work the next day, he said, he received a panicked text from his wife with a picture attached. In the picture, a tow truck was hauling their 2017 Chrysler Pacifica out of their neighborhood.

He said the van was towed without its keys or title. Mr. Sachs said he called Carvana and said he was considering reporting the vehicle as stolen to the police.

After he spoke by phone with several customer-service employees, the correct payments and documents were overnighted to him, he said, and Carvana kept the car.

“At the heart of it, I just wanted a face-to-face interaction,” Mr. Sachs said.

For Brian Thompson, a Carvana buyer in Michigan, the hassle of trying to troubleshoot with the company got to be too much, he said.

Mr. Thompson said he’d used Carvana last year and generally found the experience to be easy. It was his more recent purchase of a Lincoln MKZ in January that he said soured him on the company.

For months, he said, Carvana provided him with temporary registrations from Georgia, Tennessee and Arizona in lieu of registering his car in Michigan. He said it also didn’t provide a title, while Michigan state law requires buyers to title vehicles with the state within 15 days.

After several months of back and forth with Carvana, Mr. Thompson said he filed a complaint with the Michigan attorney general’s office.

He said he was soon called by a state investigator, who was interested in Carvana’s use of out-of-state temporary registrations.

The state of Michigan in May fined Carvana $2,500 for seven violations of state rules for vehicle dealers, including improperly issuing temporary registrations, state records show. Carvana also agreed to an 18-month probation, during which the state can suspend or revoke the company’s license to sell cars if it fails to comply with Michigan law. Neither measure was announced publicly at the time.

In September, about eight months after his purchase, Mr. Thompson received plates and the title for his car, which by then he wanted to sell.

“I loved the car, but I hated the experience so much I didn’t want it anymore,” he said. “It was horrible.”

Write to Ben Foldy at Ben.Foldy@wsj.com and Mike Colias at Mike.Colias@wsj.com