There are a lot of things U.S. consumers associate with the car buying experience.
For example, a 2020 report from the Federal Trade Commission suggested that “unfair negotiation” was one of them. As the car industry struggled and then recovered during the pandemic, that customer experience started to change. Several digital-first companies took the car buying experience more seriously, making it an essential part of their value proposition. Among them: Carvana, Vroom and Shift.
Along with the rise of these companies comes a new element of car buying not typically associated with the process: data. Data and devices are the fuel of the connected economy, and if Vroom CEO Paul Hennessy has its way, that connected economy is poised to use data and a digital “front door” as entry to disrupting the way we buy and sell cars — and what we do with them after the deal is done.
Hennessy told PYMNTS’ Karen Webster that data and platforms (Vroom among them) can establish a relationship with a customer over a long period of time, using apps as a digital front door. Those front doors provide an experience that grows along a continuum of services, from initial search for the ideal SUV, for example, through the purchase to conceivably finding the best mechanic to service it when needed. And getting a trade-in offer you can’t pass up. It’s the difference between having a dealership with a website and an eCommerce platform. And in making the leap to fully scaled eCommerce experience, data matter.
“We live in a world of ‘on demand’ now where customers manage and measure and track the number of steps they took yesterday,” Hennessy said. “We’ve become data junkies.”
The information that a platform like Vroom accumulates and uses as customers move through the car buying journey allows the firm to anticipate the next level of interaction, find customers, communicate with customers and extend ever-farther into the services business, he said.
In one nod to aspirations, down the line, according to Hennessy: “We could be an outstanding source of customer inflow to local service stations. We’re not in that market now, but it’s obviously a logical adjacent market for us.”
In that scenario, users could find their local Mercedes or BMW dealerships to get recommendations, browsing content and reviews. In this way, Vroom could expand its continuum of offerings to bring the company into the car parts business as part of a new digital automotive-centric ecosystem.
Later on, post-sale, tracking value or demand, Vroom could provide customers some insight into whether or not they might want to sell their cars. Advanced analytics could help Vroom extend offers to the consumer who already has a vehicle they bought from the site but has been browsing black, two-door sedans.
Now comes the pop-up: Vroom could offer the same monthly payment, but for the car so earnestly coveted. Click on the email, agree to the terms, the new car arrives, and the old one is taken away. It may be the ultimate frictionless, connected economy disruption to car buying — an industry notoriously tied to reams of paper, documents and “wet” signatures.
Used car buying is indeed primed for digital upgrades. Hennessy noted that half of the used car market is peer to peer (P2P). And that P2P market exists only because customers feel that they are resigned to taking a car to a dealership, getting low-ball offers and haggling. Or they list the vehicle on Craigslist and run the risk of having strangers come and test drive their car.
“That’s an awful experience for anyone,” Hennessy said, in a used car, secondary market where there are hundreds of thousands of transactions weekly (Vroom, he said, buys a couple of thousands of vehicles every week, too).
For Vroom, there’s an advantage in embracing and advancing the connected economy, said Hennessy.
“When you take friction out of the process,” he said, “you can actually shrink the amount of time that was previously the world experience in terms of how long you would hold a car.”
The Great Shift
One of the key drivers of the connected economy has been the digital shift ignited by the pandemic. Work from home, everything from home, leads one to believe that means we’ll need fewer cars. As the old song goes, it ain’t necessarily so.
Companies’ positions on returning to work are crystalizing — and most are embracing a hybrid model, where employees come into the office a few days a week, while working remotely the other days.
Then there’s the shift that’s occurred over the last year in which people have fled the cities for the suburbs. All of this impacts how individuals (and as individuals we are also consumers) move from Point A to Point B, influencing car ownership versus car access.
“Broadly speaking, the used car market is robust, and it’s getting more robust” even as car manufacturing has stalled, Hennessy said. “There’s great organic, fundamental demand for the used car space.”
Demand has been growing in every state, most notably in the Sunbelt — think California, Texas, Florida — and also the Northeast. It’s where the people are and the money is, too, said Hennessy.
The work-from-home, suburban flight shift bodes well for the vehicle industry in general, contended Hennessy. If people are at home more than they are physically present in the office (where they might, for instance, have taken mass transit to the workplace), traveling relatively greater distances to do daily tasks (like getting groceries) mans that people need vehicles.
The individuals and families that have made the leap from the cities to the burbs have largely skewed younger. They’re millennials and Generation Z consumers, said Hennessy, focusing on pricing, selection and convenience.
Vroom’s model is thriving along those parameters and offers a level of customization that acknowledges that different users are interested in different factors when it comes to considering what car they want to buy and at what price, he said. Successful platforms allow consumers to discover what they are looking for, rather than researching what they are looking for.
The Pricing
New cars have price points that average in the low $40,000 range, he said. But the “sweet spot” for used cars is between $18,000 to $22,000, and that’s down from $30,000 to $32,000 not all that long ago. Vroom, as of the company’s latest quarter, is selling vehicles at a roughly $25,000 price point.
“That is where the market is, and as we expand our model, that allows us to continue to go down [in average selling prices (ASPs)] and meet that demand, while building good unit economics,” he said. “Our long-range model has us getting into the low $20,000s.”
Vroom’s ability to get there comes amid operational efficiencies that help reduce the friction points inherent in acquiring vehicles and bringing buyers and sellers together.
“We have invested in human capital, and that was just making sure that our capacity matches the demand,” said Hennessy. “Demand is high, and it’s a great problem to have, but it’s only great as long as you’re serving your customer well.”
The platform model, he said, allows users to go well beyond simply finding cars, enabling them, for example, to put deposits on vehicles and get financing from lenders, then add warranties, extensions and wheel and tire and “gap” insurance.
“We are still in a wet signature piece of paper title world,” said Hennessy, who added that “so long as that is linked to department of motor vehicles, we don’t expect high automation coming. So, we’re going to just work around what we can.”
As to that workaround, he said: “We’re working top of the funnel, then they complete the transaction. Then there’s all this paperwork. And that’s the place where we’re now applying tech wherever we can, whether that’s uploading driver’s licenses via applications, uploading insurance cards, proof of insurance via applications.”
Eliminating the physical paper trail, said Hennessy, removes costs from the business and streamlines the process for customers, which in turn sets the stage for Vroom to scale its business.
“By having a dialogue with customers on the things that they need to do, Vroom becomes a trusted partner, rather than just someone that sold them a car,” he told Webster.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More