Vroom, which has raised $73 million in total equity funding since its founding in 2013 by former AutoNation execs Marshall Chesrown and Kevin Westfall, expects to generate $300 million in revenue this year.

Vroom, which has raised $73 million in total equity funding since its founding in 2013 by former AutoNation execs Marshall Chesrown and Kevin Westfall, expects to generate $300 million in revenue this year.

July was a big month for New York startup Vroom. After raising $54 million in additional equity funding, Fortune magazine described it as a firm looking to “cut out the old-school auto dealers,” while CNET wondered if the online used-vehicle retailer could make the used-car lot obsolete. But Scott Chesrown, the company’s vice president of strategy and business development, says Vroom is simply trying to find its niche in what he describes as a fragmented market.

Chesrown is the son of Marshall Chesrown, an industry veteran once called the “best used-car retailer in the country” by AutoNation’s former President and CEO Michael Maroone. Marshall founded Vroom in 2013 along with another former AutoNation exec, Kevin Westfall, who headed up the dealer group’s F&I operations until his departure in November 2011. He now sits on Vroom’s board of directors.

Vroom is developing an online car-buying experience that caters to today’s Internet shopper. It offers a seven-day money-back guarantee, a no-questions-asked return policy, a 90-day bumper-to-bumper warranty, free nationwide shipping and pricing that is 7% below the market rate.

Last year, the firm generated $100 million in revenue, and it’s on pace to increase that to $300 million this year. In May alone, the company reported $20 million in sales. And with its new round of funding — which brings its total equity funding since its founding to $73 million — the company picked up investors that have backed sites like Snapchat and Kayak.

Next month, Vroom expects to launch a complete online financing process, one that will allow site visitors to secure financing and even select from the firm’s four F&I protections. F&I and Showroom spoke with Scott Chesrown about the company’s business model and why he believes consumers will buy F&I products online.

F&I: So are you looking to cut out the traditional dealership, as some reports have claimed?

Chesrown: When the Top 100 dealer groups only have 6% market share, it just shows that everyone can win in some shape or form. We’re just trying to figure out where our niche in the process is and how we fit in with changing consumer buying habits. So I don’t think we ever positioned ourselves as anti-dealer. I think car dealers probably do that enough for us. For us, I think it’s just the change in process. For instance, the test drive, in our opinion, is obsolete. What we do is deliver the car and allow you to drive it for several days. If you don’t like it, we’ll pay to ship it back.

F&I: Your founders, including your father, were involved with Wayne Huizenga during the initial rollout of AutoNation. So you have some industry know-how behind you.

Chesrown: We also had early backings from other automotive industry professionals and people such as John Elway, who, as you know, owned dealerships in Colorado. But last November, we brought on Allon Bloch as CEO and Elie Wurtman as our executive chairman. They bring the tech background. Allon was the prior co-CEO of Wix.com and just brings a whole wealth of knowledge in terms of the Internet and technology.

And when we raised $54 million  in Series B funding this past July, we brought on Catterton, which was behind Restoration Hardware and P.F. Chang’s, and General Catalyst, investors in Snapchat and Kayak. So they bring more of that technology background. We also brought on T. Rowe Price Associates, investors in Redfin and Workday. So we have a lot of great people behind us.

F&I: What was it like growing up the son of such a well-respected dealer executive?

Chesrown: I’ve been able to learn a lot about the industry’s outdated practices that make consumers’ lives difficult and make the car-buying process unpleasant. My dad’s philosophy has always been about being pro-consumer. Those are the tenets he preached when I was a kid and they still hold true today at Vroom.

F&I: So where is Vroom at? And what does the additional funding do for the company?

Chesrown: Well, we’ve kind of been operating in stealth, really just trying to make sure we have the model and the processes before we could scale. So the funding is going to allow us to continue to grow.

We also have a lot of technology advances that we want to bring forward. In about a month, you’re actually going to be able to complete the entire transaction on our website — everything from selecting your back-end products and arranging your financing to choosing your options and signing your paperwork electronically on our site or on your phone.

Vroom carries about 38 makes, all sourced by the fi rm’s team of inventory buyers and from car buyers who take advantage of Vroom’s car-selling app. Vehicles are then sent to Vroom’s 22-acre reconditioning facility in Grand Prairie, Texas, where they are prepared for sale. And each vehicle comes with a seven-day money-back guarantee, a no-questions-asked return policy, a 90-day bumper-to-bumper warranty and free nationwide shipping.

Vroom carries about 38 makes, all sourced by the fi rm’s team of inventory buyers and from car buyers who take advantage of Vroom’s car-selling app. Vehicles are then sent to Vroom’s 22-acre reconditioning facility in Grand Prairie, Texas, where they are prepared for sale. And each vehicle comes with a seven-day money-back guarantee, a no-questions-asked return policy, a 90-day bumper-to-bumper warranty and free nationwide shipping.

F&I: What are your expectations in terms of F&I product sales?

Chesrown: We’re always pro-consumer, so we never want to recommend anything that, quite frankly, we wouldn’t want to buy ourselves. If it’s not a good product to put on that car to begin with, then it’s not necessary. And because our scale allows us to be a little bit lower margin and higher volume, [selling F&I products] isn’t critically important to our operation.

For us, it’s about simplifying the process. For most F&I producers and for finance directors, it’s about giving customers all the options, then you start narrowing it down from there. We want to simplify that by giving customers just a few options that are going to really benefit their purchase, then allow them to include them or not in the purchase and get them through the process as quickly as possible. So everything we’re doing is just 100% pro-consumer.

F&I: But these are intangible products most F&I veterans will say can’t be sold online — at least not successfully or at the levels dealers are used to.

Chesrown: That’s a very valid concern. However, we’re finding that it works just fine as long as you simplify it, know how to explain it to the customer and make sure it’s not a traditional transaction where you’re perceived as taking advantage of them. And by that, I mean selling them coverage that isn’t relevant for their particular vehicle.

F&I: So what’s on your menu?

Chesrown: We offer one type of service contract, and we do allow customers to select their term and deductible to give them a little flexibility there. After that, we offer just a handful of products, including exterior and interior protection, tire-and-wheel and theft protection. And really, the theft protection and service contract are an extension of what comes with every vehicle that leaves our facility, which is a year of roadside assistance and 90 days of bumper-to-bumper coverage.

F&I: There are tools out there that allow consumers to complete the entire vehicle transaction online. My understanding is results have been spotty at best. I take it that’s not been the case for Vroom.

Chesrown: That’s correct. In fact, a significant amount of our business involves customers we never physically meet. Currently, we have to facilitate those deals with paperwork that we FedEx to the customer. Some of it we can sign electronically, but retail installment contracts are not one of them. But like I said, that will change in the next month or so.

For most dealers, there’s this mentality that you’re giving up that back-end profitability if you can’t get the customer in the store — that you have a lesser chance of selling F&I products. What they’re doing is ignoring the fact that consumers still don’t want to go into that environment and feel pressured, especially these younger generations.

The other aspect is consumers nowadays, especially if they’re used to shopping on sites like Amazon, they want an easy process. So it’s one thing to build the tools and spend all this capital to build a great big website, but if you don’t focus on the experience, it’s not going to work. Walmart has proven that. They have the best prices, but it is not a great experience compared to Amazon.

F&I: So how does the finance portion of the process work?

Chesrown: Our process is fairly similar to what you’d find in most dealerships. The customer fills out an online credit application, we send it out to whichever lenders might fit the profile, and then we get our approvals back. The big difference is we don’t let a consumer drive off in a car without a full approval on that vehicle. And when we place a contract with a lender, that’s who [gets the deal]. We don’t change anything, and we don’t start battling for rate after the fact. We let the banks serve up their best offers and let the consumer make the choice.

F&I: I noticed your site really emphasizes that Vroom also buys cars from consumers. Is that your main inventory source?

Chesrown: For us, especially as we’re growing, we have to find any avenue we can to acquire vehicles. The very first thing we did when Allon and Elie came on board was we built a product that allows a consumer to use their smartphone to scan their VIN, take a couple photos of their vehicle and get an actual cash offer.

And by the way, we’ll beat CarMax offers all day long, and you don’t have to physically drive to a location to sell your car. We will pick it up. Worst-case scenario is you’ll have a seven-day offer that’s as good as cash in your pocket. And you can use that offer to make sure you get the most out of your trade if you decide to visit a new-car dealership. So that was kind of the first step of our pro-consumer piece.

But we are a used-car retailer, and for us to carry the inventory we carry, we have a team that spends all day sourcing cars. We carry about 38 makes on our website. And because we cover a broad range of customers, we have to carry everything from Maseratis and Aston Martins to Nissan Altimas and Honda Accords.

F&I: Some of the major public and nonpublic dealer groups are introducing their own version of the online buying experience. What are your thoughts?

Chesrown: I think everyone is trying to make a big impact when it comes to digital. You can spend a lot of money building sites, but we didn’t have to. We brought on our own great team, and they are really focused on how customers want to go through the process. So we control the experience, the development and the speed of it. We don’t have to hire a firm for millions of dollars to execute this. We have great people who do that for us internally.

About the author
Gregory Arroyo

Gregory Arroyo

Editorial Director

Gregory Arroyo is the former editorial director of Bobit Business Media's Dealer Group.

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