Online used car seller Vroom collapses as sales fall, losses mount | Hacker News Reader

Online used car seller Vroom collapses as sales fall, losses mount

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57 pointsPaulHoule74 comments

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And excessive salaries for am unsuccessful money-losing business:

Chief Legal Officer and Secretary $1,221,313

Chief Financial Officer $1,980,750

Chief Executive Officer and Director $7,898,272

https://www1.salary.com/VROOM-INC-Executive-Salaries.html

But without those salaries, they wouldn't have been so successful!

Isn’t a lot of the “compensation” in company shares though?

From data in the link it looks like it was about half and half.

The biggest problem with Vroom (and its peers) from a business perspective is that they’re trying to operate a two-sided marketplace with incredibly low margins. On the sell side they’re competing with Carmax and co., which means they’re trying to win the most price sensitive customers which will inevitably lead to the smallest margins. On the buy side they’re trying to offer a better experience than dealers which means lower profits at similar prices. Add to this that the economies of scale don’t really help for used car dealers, and you’ve got a business that’s primed to fail.

Unfortunate. I sold to them a couple times (5+ years ago) and it was a good experience, overall.

Trade-in values are always quite low, and private party sales carry all sorts of challenges. Vroom gave fair value for the simplification of the process (which was clearly not enough margin to be successful!)

Sounds like you gave them an unfair value.

https://youtu.be/ag14Ao_xO4c

“We are selling to willing buyers at the current fair market price.”

They bought the car how is that unfair?

> Sounds like you gave them an unfair value.

Huh?

They were the bidder. There was no haggling or negotiation. Accept it or walk away.

The joke is that you consider the price they sold at to be a “fair” value when their values led to them going out of business. Presumably, if you did not have vroom as an option and had to trade in your car, you might claim you received an “unfair” value, even though that value might be helping the businesses stay in business.

I think you're drawing a lot of conclusions out of the word 'fair' that aren't really there to draw from. The commentor above is saying they were happy with the money they were offered. This was a person selling their car, not an accountant doing due diligence on their books.

The point is how useless the word “fair” is when describing prices.

In the case of used car transactions, the “fair” value isn’t affected by either side’s financials. If a company or an individual has lots of free cash flow or a mountain of debt, the fair price isn’t affected.

I don’t think insaneirish was using the word “fair” as in the technical finance term “fair market value”. I interpreted it as “fair” as in a price that they felt like they were not being ripped off.

I consider the fair market value as an input to the “I was treated fairly price”.

> They were the bidder.

Does it matter? Apparent from the fact that they collapsed, they have been getting unfair value.

Businesses need to decide if they’re market makers or speculators. Often they masquerade as market makers but they’re really speculators.

Example: Las Vegas casinos aren’t economical to build. They got built by property developers speculating on real estate and using those gains to fund a casino. Property developers really shouldn’t be speculators.

So if your business is used cars, what are you? If you’re a market maker you maintain a small inventory and sell quickly. If you keep cars on your books you’re speculating on used car values. That was a good bet (it is gambling) in 2021. Now? Not so much.

The trap companies fall into is that the margins are too small or the volumes too low so they end up speculating whether they intended to or not. To be a good market maker you have to be really good at buying. Accidental speculation is gambling. A good year convinces you that you know what you’re doing until it blows up in your face.

>Often they masquerade as market makers but they’re really speculators.

>Example: Las Vegas casinos aren’t economical to build. They got built by property developers speculating

I don't think you know what "market makers" are. A property developer might "make" casinos, but they're not market makers. That would be someone buying property and then rapidly selling it off.

Property developers are exactly like market makers. If they hold inventory, they’re property speculators.

The key point is that property prices remain stagnant because a property developer creates value, turning undeveloped land into condos, etc.

Building casinos requires riding property values.

"Market maker" is quite a specific term and is typically used to describe companies providing liquidity in a market for a given good/asset/etc. They are almost by definition not speculating, they are in the business of liquidity, and are compensated for providing liquidity.

Speculators would (try to) buy low and sell high, whereas a market maker could well buy high (when speculators are trying to sell) and sell low (when speculators are buying). That sounds counter intuitive, but of course speculators aren't always right, and market makers typically aren't holding assets for enough time for prices to move much, and they make money off a small spread.

They are not market makers. They buy property and improve it's value and sell it. They are a normal business. They do not buy property just to hold it.

I agree with your fundamental point, but I dont think you are are using market makers in the conventional manner with respect to property.

A market maker doesn't hold assets for appreciation. They make money on the transactions spread, not hold and speculate. The New York Stock Exchange is a classic market maker.

Property developers are classic speculators.

> Example: Las Vegas casinos aren’t economical to build. They got built by property developers speculating on real estate and using those gains to fund a casino. Property developers really shouldn’t be speculators.

What does this even mean? Las Vegas casinos are doing well financially.

Moral judgments about property developers not being allowed to speculate that improving their properties might make them more valuable is a weird line to draw.

Iirc casinos often have weird financing akin to movies where they almost intentionally go bankrupt to squeeze out the smaller investors/get better terms.

The trick is to be the main lenders so that it reverts to you on foreclose, or so I’ve gathered. It’s not something I’d invest in personally.

Can you name a business that isn’t speculating on anything?

Oil refineries, aluminum smelters, steel mills, farms, mines, car manufacturers, chip makers, the list is endless.

Often such businesses will use financial instruments to remove risks (and potential rewards) from market fluctuations eg commodity futures, exchange rate swaps, etc.

This reminded me of another example of accidental speculation. An airline used rolling 6 month commercial loans because it was cheaper than long term bonds by a few basis points. This was fine until it wasn’t. Interest rates spiked and the airline was suddenly insolvent.

They’d inadvertently become a speculator on interest rates.

Farms plant seeds, which costs some amount of money. They then wait for a harvest, at which point they hope that the sale price of that harvest covers their expenses. How is that not speculation on the price of a given crop?

Planting seeds to grow crops is an example of creating value, not speculating. If the crop price remains unchanged, the farmer is fine (generally). Often the risk of price movements over the season are hedged with futures as well.

Speculating would be needing the price to go up to turn a profit or not selling your crop in the hopes that the prices increases in the future.

> Can you name a business that isn’t speculating on anything?

Insurance companies, casinos, stock exchanges, utility companies, universities.

If it were not for government regulation, these companies would have near, infinite riskless profit.

Certainly not riskless. Before government regulation many of these industries went bust often. They are usually credited as some of the first regulated industries due to their societal value and their nature to go under.

All those things are replaceable if the incentives align. So I don’t think large profits would be risk free.

Being in the used car market requires being good at buying used cars. This is why Carmax, the O.G., outlives these would-be disruptors.

True and that makes me worry about Carvana quite a bit. The few anecdotes from pandemic about Carvana bids made think they were prioritizing having cars over making money.

Carvana is an auto loan originator that used cars to originate loans. Can’t sell securitized auto loans without the cars.

https://www.cnbc.com/2023/01/18/carvana-adopts-poison-pill-a...

Lots of financial institutions have car buyers that assist customers, because they make money originating loans. They just do it "for profit" instead of "at scale".

I think it's a crazy competitive business. The new car dealer is always getting cars off lease, there's the Buick enthusiast who always has a few, the guy who brings up old police cars from Southern PA, etc. If you are spending all your money on expensive TV ads and silly vending machines you can't win.

They were prioritizing growth. A common priority for firms seeking boom or bust returns.

I never thought it was market with much room for disruption. There are so many competitors in this market catering to every niche possible. Where’s the inefficiencies?

The market that needs disrupted is the new car market but that’s fraught with legal barriers that are not easily overcome.

The inefficiency is that buying a used car completely sucks from the buyer perspective. It really would be something if you could just like go buy a used car at a fixed fair price with literally zero hassle.

Problem is it doesn’t seem like there’s any way to actually create that business and make any money.

Hassle is inherent to the used car market, because the product has inherently inconsistent and diminished quality, supply inherently mismatched with demand, etc. A good website or a clever business plan will never fix the problem that used cars cannot be manufactured.

“No haggle” pricing is hardly a differentiator. Many traditional dealers in volume markets have done this for decades now. And buyers who really are willing to pay a premium to not haggle can simply pay sticker and choose to not haggle.

Buyers who are frustrated with the used car experience and have the money to spend buy new cars. These disruptors are left fighting over some slice of buyers in the mid-market using the same limited sourcing ability thousands of other competitors suffer from.

> It really would be something if you could just like go buy a used car at a fixed fair price with literally zero hassle.

Is this not exactly what Carmax does, as said above?

It is funny that I always hear people want no haggle cars but no ever wants no haggle flea markets, or jewellery stores, or home buying. Why do folks have such a problem with cars?

I don't think any of that is true.

There are many people who have a social dislike for haggling for anything.

There are many places that offer used merchandise for a fixed price that people shop at, flea markets are fairly unsuccessful in the market for used merchandise. There are many stores that sell jewelry at a fixed price. Stories about people groaning about bidding wars on homes are ubiquitous. And some sellers don't negotiate.

Consumers are consumers, and some cross-section of them will always lack negotiation skills and/or have a distaste for the practice.

What are you talking about? I did not say everyone likes to haggle. I did not say that haggle free places don't exist; in fact they even exist for cars. Sure people groan about bidding wars but who is asking for fixed price homes? I did not say anything about anyone's negotiation skills.

Maybe I was a little too strong by saying no one complains since I have not discussed haggling with the entire population. Put simply, I hear people complain about car haggling but not haggling for other things.

As far as you thinking not any of what I said is true; I think you read a whole lot more than I wrote.

I am referring to your claim that “no ever wants no haggle flea markets, or jewellery stores, or home buying.”

People often do want those things.

Imagine home buying if the seller silently added 5% in extra fees/features after the price was fixed…

You do realize the “diamond paint protection” and the other 1000-$2000 of crap on a modest car is all fake — not even from the manufacturer. It’s just gravy after their commission is already baked in.

The inefficiency is now.

I could sell my clunker for $5k if I waited a few weeks or so on Craigslist; with all the issues associated with selling used valuables.

Or I could sell it to carmax for some amount less than they’ll get for it, and they can do an efficient cleanup pass and offer a warranty.

These “disruptors” (Vroom, Carvana) all have those same costs of buying vehicles, maintaining them, and marketing them. They haven’t disrupted any of those things.

TBH, I'm surprised that there aren't more efforts to organize a shift in that approach. Something like an agent model could potentially work really well here.

Right now, this seems to only happen with specialty and classic cars, but I don't see why it couldn't work for any car.

Just drop the car off and get a check when it sells, with their cut taken out. Then again, there might be issues aligning incentives.

That’s just consignment sales, the problem is that most people selling a car need the cash now or quickly - often because they just bought a new one (hence selling it to the dealer for the down payment) or otherwise need to liquidate.

If you have time to sell you can list and wait.

True, it won't work if they need the cash immediately. I think that's not always the case, though. There's a middle ground here where you can wait a bit, but really don't want to deal with Facebook Marketplace level buyers.

I'm guessing this is why the space is growing so quickly with specialty vehicles.

Well funny story about that. I was at CarMax recently at the sales person told me how fucked over CarMax was on their Tesla fleet after buying so many…while the prices were dropping rapidly.

She said the CEO had to do a fire sale to move them all off their inventory sheets quickly, and they still lost a lot of money

Hertz sells 2 years old Model 3 for $21k. New model 3 is $39k. High depression is likely because Teslas are very expensive to keep. For example door handle is $495. I can buy door handle for Malibu for $24 on Rockauto.

You can buy a Model 3 door handle on RockAuto for $95.79 :)

But yes, repairs (and insurance) are expensive for these vehicles.

A huge issue with used EVs is rebates.

A new Tesla starts at about $41k. In my state, state+federal rebates add up to over $10,000. So, a new Tesla is ~$31,000. Used cars don’t get rebates, so you’re highly incentivized to buy new.

Did you buy one?

No, I was buying another vehicle though and trading in my Tesla - which is how the conversation came up

I sold a car to Vroom previously. It was a great experience, with a very easy process. And, I got a very strong price, thousands more than other online dealers. It's a shame to see them out of business.

you getting a strong price might have something to do with their going out of business!

Same happened when I sold with Shift

Carsome; a similar "unicorn" in Southeast Asia missed its IPO targets twice. Any other comparable startups in other markets?

Carvana already IPOed in the US and is also not doing well

I sold my car to Carvana and it was clear to me that they were not pricing cars properly, there is no way they were going to make money on it.

The idea was to get the users first by subsidizing with investor money, and then jack up the prices once they cornered the market. /s

Moviepass was so good. One movie a day for $120/year.

And how did that turn out?

>. Profit per vehicle fell 25 percent too, to $3,144,

Three thousand dollars?!? Just to run an ebay-like website?

Their profit per car should have been $50 and they should have been shifting millions of cars a month.

I spent 10 years at car dealerships. The hardest part technically of the dealer business is finding enough cars. I honestly don't believe they were making $3,144 a vehicle after costs. I think that's some error in reporting. National average is around $2000 on used cars, and that's at brick and mortar dealers that manage to get more out of customers in my opinion.

But either way, IMO the biggest reason these large sellers are having trouble is because they end up having to overpay to acquire so many cars. Carvana lost $800M in 2018 for example. IMO this happened because they overpaid for their cars so they had something to sell.

Paperwork. It's way more hands on than one would think. For instance, just think of the logistics of transferring a vehicle registration from one random place to another. There are no APIs, etc...

But as a tech startup I'd expect them to solve all that. Automatically generate and fax the necessary forms to the right places. Sign with a robotic hand controlled by the users mouse if needed. Etc.

[dupe]

Official site message a week ago: https://news.ycombinator.com/item?id=39099763

It's not really a duplicate if the other discussion had 2 comments.

but the OP isn't new either, it's from back then. Old news. Discuss on the official post

Reply on news.ycombinator.com