Is Vroom Going Out Of Business? Everything You Should Know

In recent times, there has been increasing speculation about the fate of Vroom, the online used car dealer known for its innovative approach. Is Vroom going out of business? This has become a prominent question in the minds of investors and industry observers.

To shed light on this pressing matter, it’s crucial to delve into the intricacies of Vroom’s business model and financial challenges. And the factors that might determine its future. In this exploration, we will uncover everything you need to know about Vroom’s current status and what lies ahead.

Let’s begin!

(A) Synopsis of Vroom

Vroom, an online used car dealer renowned for its innovative ‘door-to-door’ business model, has faced scrutiny due to structural challenges. Notably, the company contends with substantial transportation expenses, an issue not shared by traditional brick-and-mortar dealerships. 

Despite earnest attempts to rein in costs, Vroom’s Selling, General, and Administrative (SG&A) expenses still outpace its gross profits, raising concerns about its financial sustainability. Some projections even suggest that the company could deplete its cash reserves by the close of 2024. 

Given these challenges, investors are pondering whether to steer clear of Vroom’s stocks, despite occasional short-squeeze opportunities.

(B) What does Vroom do? 

Vroom is your digital pit stop for car enthusiasts and everyday drivers alike. This innovative company transforms the way you buy and sell used cars by bringing the entire process online. With a virtual showroom, transparent pricing, nationwide delivery, and even financing options. Vroom delivers a car-buying experience right to your doorstep. 

It’s like having your very own car concierge, making getting behind the wheel of your dream ride easier and more exciting than ever. Now, let’s look at the profile of Vroom company-

(C) Vroom Business Model

Before delving into the flaws of Vroom’s business model that led to its humongous losses, let’s have a brief look at its business model.

(C.1) Working Strategies of Vroom

Vroom’s business model involves the following working strategies-

(C.1.1) Online Platform

Vroom operates primarily as an online platform, allowing customers to browse, buy, and sell used cars through its website and mobile app. The platform offers a wide selection of vehicles, including various makes, models, and price ranges, giving customers a broad array of choices.

(C.1.2) Virtual Vehicle Tours

One of the standout features of Vroom’s platform is its use of virtual vehicle tours. Customers can explore and inspect vehicles virtually by viewing high-resolution images and 360-degree videos. This feature aims to provide a comprehensive look at the car’s condition and features, enhancing transparency in the buying process.

(C.1.3) Transparent Pricing

Vroom emphasizes transparent pricing. The listed prices typically include the vehicle’s base price, taxes, fees, and any additional costs, providing customers with a clear understanding of the total price they’ll pay. This approach aims to reduce haggling and increase trust in the buying process.

(C.1.4) Home Delivery (“Door-to-Door” Services)

Vroom’s distinctive “door-to-door” service sets it apart from many traditional dealerships and other online platforms. Once a customer purchases a vehicle, Vroom arranges for the car to be delivered directly to the customer’s doorstep. This eliminates the need for customers to visit a physical dealership, enhancing convenience.

(C.1.5) Financing Options

Vroom offers financing options to customers looking to purchase a vehicle. Through partnerships with lenders, customers can apply for loans and receive financing offers directly through the platform. This streamlines the buying process and provides customers with accessible financing solutions.

(C.1.6) Trade-In and Selling Services

In addition to buying cars, Vroom provides services for customers looking to sell their used vehicles. Customers can request an appraisal of their car’s value and, if they choose to sell, complete the transaction through Vroom’s platform.

(C.1.7) Quality Assurance

To maintain customer trust, Vroom claims to conduct thorough inspections on the vehicles it sells, ensuring they meet certain quality standards. This quality assurance process is aimed at providing customers with confidence in the condition of their purchased vehicles.

(C.2) Revenue Sources of Vroom

The prominent revenue sources of Vroom are-

(C.2.1) Used Car Sales

The primary source of revenue for Vroom is the sale of used cars through its online platform. Customers purchase vehicles listed on the Vroom website or app, and Vroom earns revenue from the sale, which includes the purchase price of the vehicle, taxes, fees, and any other applicable charges.

(C.2.2) Finance and Insurance Products

Vroom offers financing and insurance products to customers as part of the car-buying process. The company earns commissions or fees from partnering financial institutions and insurance providers when customers choose to finance their vehicle purchases or opt for insurance through Vroom’s platform.

(C.2.3) Extended Warranties and Vehicle Protection Plans

Vroom also generates revenue by offering extended warranties and vehicle protection plans to customers. These plans provide coverage for certain repairs and maintenance after the sale. Vroom earns revenue through the sale of these plans and any associated service fees.

(C.2.4) Ancillary Products and Services

Vroom offers additional products and services to enhance the car buying experience. This includes accessories, add-ons, or other automotive-related products. Revenue is generated from the sale of these ancillary products.

(C.2.5) Transportation and Delivery Fees

Vroom’s “door-to-door” service involves the transportation and delivery of purchased vehicles to customers’ locations. Vroom may charge customers transportation and delivery fees, which contribute to the company’s revenue.

(D) Flaws in the Vroom Business Model

Here are the major challenges of the Vroom Business Model that contribute to its humongous losses-

(E) Is Vroom going out of business?

As of the most recent financial report, Vroom Inc. has a high Probability of Bankruptcy at 77%. This is a significant increase of 54.34% compared to the Auto and truck industry average. However, it’s important to note that the probability of bankruptcy does not necessarily mean that Vroom is going out of business immediately. It indicates a higher risk of financial difficulties.

Let’s look at the challenges that Vroom is facing in its post-IPO era-

(E.1) Vroom’s Declining Consumer Interest

The online used car retailer, Vroom, has experienced a noticeable decline in consumer interest over the years. This is marked by a series of challenges and financial setbacks.

(E.2) Emergence during the pandemic and low sales

Although Vroom was established back in 2013, it gained significant public attention during the COVID-19 pandemic. The pandemic highlighted the appeal of online car buying, as consumers sought contactless and remote options for purchasing vehicles. Unfortunately, in the post-COVID era, it couldn’t make many sales and profits.

(E.3) Decline in Revenues

Despite a strong performance in 2022-23, where Vroom generated $971.79 million in revenues. The company’s financial health has deteriorated further. This decline in earnings has fuelled concerns about the company’s sustainability.

(E.4) Earnings & Profitability Concerns

Vroom’s lack of profitability has added weight to the rumors circulating about the company’s potential closure. Reports from early 2022 indicate a substantial drop in gross profit in the fourth quarter of 2021, plummeting from $878.1 million in Q4 2020 to just $473 million. The company incurred a significant loss of $130 million for the entirety of Q4 2021, raising questions about its financial viability.

(E.5) Capital Needs for Survival

To remain operational, Vroom faces the pressing need to increase its capital by mid-2023. This financial requirement is crucial for the company’s survival in an increasingly competitive market.

(E.6) Competitive Landscape

Vroom competes in the realm of e-commerce platforms for used motor vehicle sales, aiming to provide a digital marketplace that eliminates the need for consumers to physically participate in the car-buying process. However, formidable competitors like Carvana and Carfax have been gaining popularity, intensifying the challenges Vroom faces in retaining market relevance.

Despite facing challenges, Vroom has managed to stay in business. It’s worth mentioning that Vroom’s stock has been falling since its IPO in June 2020, which has raised concerns among shareholders. 

As Vroom grapples with these financial hurdles and heightened competition, the rumors surrounding its potential closure persist. These factors are raising significant uncertainties about the company’s future in the online used car retail industry.

However, the company continues to operate as an online car marketplace.

Note: We have explained various Indian used-car platforms like Spinny & Cars24. You can check them out for more information.

(F) Financial Highlights of Vroom

The table given below describes the financial highlights of Vroom. Here, the various financial metrics of Q1 2023 are compared to those of Q4 2022.

Source: Vroom’s Annual Financial Report

(G) Is it safe to buy a car from Vroom?

Buying a car from Vroom can be a safe option, but there are a few factors to consider. Vroom is a legitimate company, but they have received some negative attention for delivery delays and other issues. However, they do offer competitive, no-haggle pricing and have strict inspection standards for their vehicles. 

It’s important to research and read reviews before making a purchase to ensure a smooth experience. Keep in mind that Vroom operates similarly to other online car buying and selling websites like Carvana and CarMax.

Before making a car purchase from Vroom, it’s crucial to have a clear understanding of their policies. These policies encompass various aspects of the buying and ownership experience-

(G.1) Returns Policy

Vroom offers a returns policy that allows you to return a purchased car within a seven-day window or after driving it for up to 250 miles, whichever comes first. While the car pickup is arranged at no cost to you, it’s important to note that the original shipping fee will not be refunded. Additionally, in some cases, a $599 restocking fee may apply.

(G.2) Trade-In Process

If you’re considering trading in your current vehicle, Vroom accepts trade-ins. The process is straightforward, requiring you to provide some basic information to receive an offer. Once you receive the offer, you have a grace period of 10 days or 250 miles to decide whether to accept it.

(G.3) Warranty Coverage

Vroom vehicles come with a standard 90-day/6,000-mile limited warranty, providing peace of mind for the initial period of ownership. Furthermore, Vroom includes one year of roadside assistance. If you desire additional coverage, options such as trip interruption coverage, towing reimbursement, and rental car reimbursement are available for consideration.

(G.4) Vroom Car Qualifications

Each vehicle in Vroom’s inventory undergoes stringent testing standards to ensure its suitability for sale. Moreover, every Vroom vehicle boasts a clean accident history, reassuring customers about the vehicle’s condition and safety.

Being well-informed about these policies will empower you to make informed decisions when purchasing a car through Vroom, ensuring a smooth and confident buying experience.

(H) What is the Vroom controversy?

The Vroom controversy revolves around the following complaints-

(H.1) Customer Complaints and Legal Actions

The Vroom controversy centers on a barrage of customer grievances and legal actions directed at the online car dealership. These issues have raised serious concerns and led to significant scrutiny.

(H.2) State Violations and Formal Complaints

Vroom has found itself in hot water due to state violations and formal complaints from disgruntled customers. Notably, over 4,700 complaints have been lodged with prominent entities like the Better Business Bureau and the Texas Department of Motor Vehicles.

(H.3) Array of Complaints

A myriad of complaints has been hurled at Vroom, including allegations of selling wrecked vehicles without adequately disclosing repairs, failing to deliver vehicle titles as promised, and a range of other related issues. Furthermore, they’ve been slapped with fines by the state of Florida for their failure to provide titles to consumers.

(H.4) Texas Attorney General’s Lawsuit

Texas Attorney General Ken Paxton took the dramatic step of filing a lawsuit against Vroom Automotive LLC and Vroom Inc. This lawsuit asserts that Vroom engaged in deceptive trade practices by misrepresenting and failing to disclose significant delays in transferring clear titles and obtaining vehicle registrations. 

The lawsuit further alleges misrepresentation of vehicle history, condition, and financing terms, all constituting violations of the Texas Deceptive Trade Practices Consumer Protection Act.

(H.5) Inadequate Management and Consumer Harm

The lawsuit paints a picture of Vroom’s ineffective management of its rapid growth, which has led to inadequate systems and procedures. These shortcomings have had detrimental effects on Texas consumers.

(H.6) Mounting Complaints

The magnitude of dissatisfaction is evident in the staggering numbers. Over the past three years, consumers have submitted more than 5,000 complaints against Vroom and its subsidiary, Texas Direct Auto. 

These complaints were submitted to both the Better Business Bureau and the Office of the Attorney General. This ongoing situation underscores the depth of concern surrounding Vroom’s practices and their impact on consumers.

(I) Final Words

In conclusion, Vroom has confronted substantial financial hurdles and heightened competition in the online used car retail sector but has persevered as an operational entity. Its stock has declined since its 2020 IPO, sparking concerns and rumors of potential closure. Vroom’s experience underscores the nuanced nature of the online auto marketplace.

It highlights the significance of adapting to competition, maintaining customer trust, and financial stability. While uncertainties persist, the company’s resilience in the face of adversity demonstrates the determination of modern businesses to weather challenges and deliver valuable services in the ever-evolving realm of e-commerce.