Tesla may largely be accepted as a legitimate disruptive force in the auto industry by now, but that doesn’t mean the industry is taking any of it sitting down. While the brain trusts in Detroit, Ingolstadt, and elsewhere scramble to field a “Tesla-killer,” across the country, dealership groups – a surprisingly powerful lobby in most states – are mobilizing to strike down Tesla’s revolutionary direct-sales model. The latest battle happened in Indiana, where legislation Tesla claimed was ghostwritten by General Motors was introduced to prevent the EV startup from selling its cars suing its sales model. Tesla won in the Hoosier State, as it did in New Jersey, Maryland, and elsewhere, but the battle is far from over; direct-sales could likely mean the end of car dealerships as we know it, and dealers, like the gas-powered marques they sell, aren’t going out without a fight.
So far, 2016 has been a year of extremes. As the political rhetoric continues to get more rancorous, this discourse (or lack thereof) seems to seep into every facet of American life, including all things automotive. On the one hand, buying cars from dealerships is nothing less than a drag, and everybody seems to know it – don’t tell us the TruCoat scene in Fargo doesn’t induce some elemental panic response in you. The old stories of grandpa walking into the dealer with a briefcase of cash and walking out 20 minutes later with a new Ford can never seem to be replicated today. Instead, there’s hours and hours of bargaining, facts and figures that seem to be conveniently kept from you, numbers that get mixed up, or maybe there’s a “miscommunication” that ends up costing you, and never them. You might even walk out with a car you never wanted to begin with.
On the other hand, there’s Tesla’s model, and it’s one hell of a lot simpler. You see the car online, along with a price. You select your options, and that’s it. No haggling. No upselling on undercoating or floor mats. No getting saddled with the demo model because the one advertised “just sold.” Factory sets the price of the car, you buy it. No middleman, no bullshit.
But remember, there’s a lot of money to be made at dealerships, and a lot of salesmen, mechanics, bankers, drivers, and tradesmen depend on them for a living. In areas all over the country, they’re anchors of local economies. Sure, the mostly decades-old system might be backward and corrupt, but what happens if the 90 year old Chevy dealership on Main Street folds tomorrow? The unemployment office would be flooded! Surely, keeping the local economy alive and spending a few extra bucks is well worth it, right?
If you’re not looking to get into a political battle over something as trivial as buying your next car, but shudder at the thought of losing an afternoon or two at the dealership, you might want to look into Vroom.com, the up and coming “Amazon of cars” that forecasts the future of car buying while keeping everyone happy.
Vroom is a young startup company, but it’s already proven that it’s no flash in the pan. It made Forbes’ list of the 50 Hottest Startups of 2015, raising $95 million last December alone. Its message is simple:
“Pain. Fear. Anxiety. These emotions no longer have a place in your car buying experience. At Vroom, we’re a bunch of gearheads and digital veterans guided by a set of disbeliefs (yup, we go against the grain) to rethink and restructure the way you find your next dream car.”
In short, the company works within the existing system to offer one-click, instant car buying without ever having to set foot in a dealership – you don’t even need to leave your house. It’s a premise that’s refreshingly easy, and it’s already making huge inroads with customers.
“It’s both a technology company and a car company, and I think that’s where the magic is,” says company CEO Allon Bloch. Explaining the company’s explosive growth, he seems pleasantly surprised himself. “We’re 2 1/2 years old, so we’re still like a toddler,” he says, before pointing out that the company moved $900 million worth of cars in 2015 alone. In its latest round of fundraising, it received backing from a number of diverse investors, from T. Rowe Price to football legend and dealership owner John Elway. “John invests in us because he knows we’re the long-term solution in the industry,” Bloch says. “But I also think we’re playing a very different game. If they [dealers] are playing football, we’re playing basketball.”
The key to Vroom is trust, and customers seem to trust the company implicitly – something most brick-and-mortar dealers would kill for. “I’m surprised by how people don’t feel the need to touch and feel the car – if you create trust,” Bloch says. If you’re selling a car, you take eight photos of it, enter the VIN, and answer a few questions. Within 10 minutes, the company will come back with a competitive offer for your car, something that’s relatively unheard of in both the auto world and e-commerce. “What other model is there like that?” he asks. “You couldn’t scan your great grandmother’s engagement ring, or expensive furniture, or piece of art, and have someone give you the true value pretty much on the spot. We’re not playing games, we’ll give you a fair price.” In the end, if the offer looks good, you get the cash, and Vroom comes and picks up your car, simple as that.
If you’re buying, it’s even simpler. From the site, you choose from the company’s stock of around 3,200 cars, most of them based at its 70 acre Texas nerve center. If you fall in love with one, you buy it for the out-the-door price listed (your local, tax, title, and registration fees are factored in), and Vroom ships it to your door for free. Most cars still have their factory warranties. Nearly 10% of them have under 2,000 miles. As Gaurav Misra, Vroom’s Chief Marketing Officer points out: “We’ve effectively driven the depreciation off for you. You can get it for 25% cheaper, and it still feels like a brand new car.” The cars are also covered by Vroom’s own 90 day bumper-to-bumper warranty. If something goes wrong, you can take it to any local repair shop, and Vroom will foot the bill.
If you don’t like it, there’s a seven-day money back guarantee, and they’ll come back to pick it up, no questions asked. And despite buying the car sight unseen, Bloch says they only see a 1% return rate, astonishing compared to the 3% rate dealers see– and most of them don’t exactly offer a money back guarantee.
But despite the massive growth and tremendous potential, Vroom also has a clear place in the industry, and while it may be an entirely new model, there’s a reason why it’s not experiencing the same blowback that Tesla is. For starters, Vroom only deals in used cars, and aims for a more upscale market than your local volume dealer.
“We put a ton of effort into our inventory,” Misra says. “Our cars are mostly premium. Where CarMax averages $20k on a vehicle, our average is $35-ish.” For that money, Vroom is intent on offering its customers piece of mind beyond the transparent pricing and warranties. Distinguishing themselves between other used car dealers, Misra says “We just have better cars.” Bloch adds: ” To be generic for a second, the cars people buy from us are “nice cars.” They’ve never been in an accident. We automatically reject any car that doesn’t have a clean CarFax.”
On top of its premium aims, it has also formed important ties with the current dealership system. “We work with a fair number of dealers. We both work with them and sell them cars,” Bloch says. The reasoning is simple: “Say you’re a Toyota dealer and someone trades in a high-end Mercedes. You might not know the car, you might not know the price; you can open up the Kelley Blue Book, and come up with something. We’ll buy the car from you at the same price you’d give to a consumer, so it’s a fair deal.”
And Vroom may actually turn out to be a savior for a lot of dealerships. “Tesla really threw a brick through the glass house called franchise dealers, which is a crazy law,” Bloch says. “The industry is very clearly going to move to that, the whole game is going to get better, and I hope that we’ll be at the forefront of that.” It may be football to basketball like he said, but for dealers, it’s better than being knocked out of the game for good.
The key word at Vroom is efficiency, and it’s only getting better at it as it edges closer to its third birthday. “In able to get value, we need to be very efficient in everything,” Bloch says. “Buy the car efficiently with no mistakes. Recondition the car efficiently, but also at an extremely high level. Price it at a really competitive level so we can turn it over quickly. And we think this will lead to a lot of long-term repeat buying behavior.” But he says that it’s already reaping dividends for the young company. “We already have repeat buyers,” he adds. “9 1/2 out of 10 love the experience – we’ve had growing pains certainly, but I think we’re getting to get to the point where people go “I’m just going to go back to Vroom because I don’t need to go anywhere else.” They know we’ll treat you fairly.”
In the era of hot and cold, black and white, right and wrong polarization, Vroom has emerged to seemingly prove that there’s a compromise between direct-sales and the traditional dealership model that cuts away the crap without tearing down the status quo. For dealers who want to move premium models fast, there’s Vroom. For anyone who thinks “used car salesman” is less of a job title and more of an epithet, there’s Vroom. As we increasingly expect everything to be available online, it makes sense that something would emerge to make car buying easier. We’re just surprised it came out of the gate so well-formed. Vroom had a big 2015. Expect 2016 to be bigger.