The Decline of Vroom: An Online Used Vehicle Cautionary Tale
Adapted from GCADA Newsletter
When online used vehicle retailer Vroom announced in late January it was ceasing online sales and liquidating inventory, the company became the latest “disruptor” to acknowledge that the car business is more complicated than previously thought.
You may remember Vroom as the same group that ran a disturbing 2021 Super Bowl ad depicting a jaded view of the industry’s consumer buying experience. Automotive News reported then that customers who contracted with Vroom to either buy or sell a vehicle were instructed to contact a customer support team as if THAT’s a buying experience anyone would want.
On the heels of the news of halting online sales and inventory liquidation, Vroom's stock lost 51% and was sold at $0.25 a share in after-hours trading. Vroom became popular during the pandemic in June 2020, when it priced over 21 million shares at $22 per share. On its first sales day, the trading price increased by 118% to $47.90 per share. Although Vroom had fewer assets than Carvana, its stock peaked at $73.87 per share in September 2020. However, by October 1, 2021, Vroom's price per share had fallen below its IPO and further plummeted to $3 per share by March 2022.
Mercer Capital analyzed that with more assets, Vroom could have supported additional financing that would have helped the company stick around longer. Unfortunately, the company reported a loss of $82.9 million in the third quarter of 2023 after selling just 4,561 vehicles online. Vroom CEO Tom Short said in a statement that they could not raise the necessary capital in the current market. As a result, the company will reduce its workforce by 800 employees, retaining only 10% of the current employee base.
Vroom's news follows Shift Technologies Inc.'s Chapter 11 Bankruptcy filing a few months ago, raising questions about the viability of exclusive online used motor vehicle retailing. Mercer Capital points out that online entities are a bit of a one-trick pony. Vroom and similar used vehicle retailers suffer when used markets become volatile because they lack the options and access to resources that franchised dealerships enjoy.
The dramatic rise and fall exemplifies the old saying, “The star that burns twice as bright burns half as long.”
