The SPACs Shift Technologies and Carlotz are already dead. Carvana is still out there, after its distressed debt exchange.
By Wolf Richter for WOLF STREET.
In an SEC filing and an announcement on its website Monday evening, Vroom Automotive said that it shut down as used vehicle dealer after Ally suspended its credit line. Vroom will no longer retail any of its vehicles. It will sell its inventory on the wholesale market. It will lay off most of its employees. It will only keep its subprime auto-lending platform United Auto Credit (UACC), and its used-vehicle listing platform CarStory, both of whose clients are other used-vehicle dealers.
On the first day of trading following its IPO in June 2020, Vroom shares [VRM] spiked by 117% from their $22 IPO price to $47.90 and then skyrocketed amid consensual hallucination, as we’ve come to call the phenomenon, to $73.87 by September 1, 2020. Today the stock is trading at $0.31, and it’s getting delisted (data via YCharts):
The collapse and shutdown of Vroom’s used-car business wasn’t a surprise to us. Back in April 2022, we mused out loud that used-car startups Carvana, Vroom, and Shift Technologies “face an existential crisis.” All three of them have long been firmly situated on a special pedestal in our pantheon of Imploded Stocks.
Shift was the first to die. It had gone public via merger with a SPAC in October 2020. Reduced to a near-worthless penny stock in August 2022, it merged with another online used-car SPAC, CarLotz, as we observed factually at the time, “to merge into one Zombie to burn the remaining cash together.” The combo filed for bankruptcy in October 2023 and shut down.
Carvana is still out there, bedazzling folks with its losses and its distressed debt exchange in July 2023, when it had gotten its unsecured note holders – a group of PE firms led by Apollo that had bought the debt for cents on the dollar – to agree to exchange that debt for a much smaller amount of new debt that effectively wiped out $1.2 billion of the debt. Carvana booked a one-time gain of $889 million in Q3 as a result of the debt forgiveness.
Now it’s Vroom’s turn. The ecommerce used-car dealer essentially shut down its website, with the announcement on the front page “that Vroom has halted all purchases and sales of used vehicles. We are discontinuing Vroom’s e-commerce operations and winding down our used vehicle dealership business.” And for customers with pending transactions, it provided links to get in touch with someone.
In the press release with the shut-down announcement, Vroom still calls itself “a leading ecommerce platform for buying and selling used vehicles,” the standard lingo in all its prior press releases, that some underling forgot to remove?
In its SEC filing Monday evening, Vroom announced:
- That Ally Bank and Ally Financial had suspended the credit line for vehicle purchases, so Vroom cannot buy any more vehicles. And it’s over.
- That Vroom shut down its used-vehicle ecommerce and dealership business.
- That it will sell its remaining inventory on the wholesale market.
- That it will maintain its subprime auto lending platform UACC and the used-vehicle listing platform CarStory. Their clients are other used-vehicle dealers.
- That it’s laying off about 800 employees, or about 90% of the employees not working at UACC and CarStory.
- That it has no idea how much all this will cost, “partly due to the uncertainty of the liquidation process of its used vehicle inventory, the Company’s ongoing obligations under its contractual and lease agreements, and ongoing assessment of severance and retention costs.”
In terms of the last point about the “uncertainty of the liquidation process of its used vehicle inventory,” let’s just add this: Wholesale prices have been in a historic down-spiral, after the historic spike during the pandemic, so liquidating this inventory that it had bought when prices were higher into this wholesale market where prices are now lower is going to be fun. And the longer they drag this out, the less that inventory will bring.
Funny thing is…
All these online used-vehicle dealers had lost huge amounts of money forever even in the hottest used-vehicle market ever during the pandemic, when retail prices spiked like never before, and gross profits became grotesque because customers were eager to just pay whatever – and even then, those operations still couldn’t make any money.
They were never designed to make money. They were designed to burn investor cash, and they did a good job with that.
This is why their “existential crisis,” as we called it at the time, was easy to see coming when the used-vehicle market turned in early 2022, with retail and wholesale prices dropping, and consumers no longer willing to just pay whatever, and with investors getting skittish about watching their cash getting burned in front of their eyes.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
That chart reminds me of the log ride at Knotts Berry farm!
so my daughter bought used 2020 Kia from local dealer
been over 75 days and she still have paper tags and no title
she paid cash
Joediddle:
That’s a local department of transportation issue. Call them…
Your daughter is probably dealing with a crook.
Best
What a great log-ride that was wasn’t it? I think that was the first one I’d ever seen. That was back in the early 70’s.
Dot com bubble 2.0 popping as capital slowly drying up
Still waiting patiently to buy another car. Probably will go for something used.
Carvana is next in line. When these guys could not make money during the hottest car market, how would these perform during slow down and recession.
@jon
I’d watch out for carvana, they’re like a cat with 9 lives. Evidently they got on the ‘must survive list’. If I could only see that list for 5 seconds… ah, we can dream, can’t we.
These all are like spoilt children born out of ZIRP era.
Car payments sky rocketed a lot.
Gonna be tough for these companies.
Back during the frenzy, Carvana offered me over 16k for a nice but well aged Lexus RX. Blue book private party price at the time was around 10k. I don’t see how they will survive in the long term given their financials.
Yeah, but they’re saying I could only sell them my GX for $3K, but most GXs are going for well over 10K right now. Might have been a timing issue with yours, but I haven’t seen those prices.
I do think their list prices are overpriced. You can hop over to auto trader and find boatloads for less that are comparable to what they’re selling (at least in the models I’m looking at) for higher.
What recession? Teh one has been forecasted for 3 years by the economists?
Now, since the economics pundits are forecasting “no recession” for 2024, we should not discount a minor depression, but no worries, the US Gubernmement will step in with a measly $5 Trillion stimulus package and the economy will be purring again like a rescued feral kitten.
Yep, the Youtube “economists” and other such puffery are still pushing their talking points trying to convince everyone the world is coming to an end. probably politically motivated.
Economist have not been predicting a recession. The consensus was always like 40%-60% chance back in 2022 when inflation was raging… worried that higher interest rates would “break” something.
Of course the most pessimistic economist always get boosted on news website because it always gets more clicks “Top economist at goldman thinks a recession is guaranteed. Click here to find out how to save your 401K!”
There is so much wasted time, energy and capital in these commercial ventures with marginal business plans or leadership.
Along with crypto, sports betting, social media influencing and other speculative expenditures, too many resources are being diverted from the critical needs of this country/planet.
That’s the thing – the entire system is rotten to the core because of the FED and their NIRP/ZIRP nonsense.
It’s a deeply imbedded rot that would take a generation to dig out if we started today.
I agree, but to be fair, the era of essentially free money has produced some positives.
Tesla went from a startup to a legitimate car company. They probably don’t make it in a regular money era (Even Musk admits they were close to bankruptcy), at the very least, they don’t do it as fast as they did.
They made it because of taxpayer money, not NIRP and ZIRP. Take away that $7,500 per car GIFT and they go bye-bye long ago. Corporate welfare queen.
Ruled by corporations, society is all about lust and greed. Look at the failures of Greece and Rome and it’s easy to see we are headed.
Invasion by Macedonia, Persia and the Germanic Visigoths?
Visigoths!!
I saw some Visigoth kids at the mall.
Wait till all of the new electric air taxi companies (eVTOL) start imploding. Vertical Aerospace’s founder just had to inject $50 million of his own money into the company to keep it afloat.
MW: 30-year Treasury yield hits seven-week high ahead of U.S. GDP, inflation data this week
Every time I think of used cars, I think of YouTuber Doug Demuro and his “THISSSSS”.
What selling point do these SPACs have other than cashing in on the money printer era?
Doug runs Cars & Bids these days and has many high-end cars including a lot of really great BMWs at CarsAndBids.com.
The legacy and antique Toyotas appear to command a premium compared to other vehicles of that price range.
Doug has a more viable business model than the opportunists. Doug has his “THISSSS” when reviewing cars, and Scotty Kilmer has his “rev up your engines” using a 1920s sound effect.
Better to have people with hands on experience with cars than vultures wearing suit and ties.
We bought our most recent vehicle through Vroom. Best used car purchase experience of our lives. No dealership, no haggling, no upsells. Just “here’s what we’ll give you for the trade in and here’s the price of the car.” We got a good deal and brought our own financing too. They picked up the trade in and dropped off the new car. I hope someone fills the void and does it right on the business side because I want to buy any new (used) vehicle that way from now on.
Obviously, that business model doesn’t work, LOL. Costs are too high.
So you’re saying if something seems too good to be true…
That’s seemed like the order of the day for a while now: ventures driven over the cliff helmed by fantasists who never worry about picking up the tab. The Herman Judd character in the sometimes exceptional Avenue 5 series was not a gross caricature of the modern-day “idea man.” Indeed, it was probably a charitable rendering.
The question is; What costs were too high?” Was it the operating expenses of the business, or the payments to the executives who dreamed up this “Cash burn machine”?
The number of active US auto manufacturers dropped from 253 in 1908 to only 44 in 1929.
Where have you been hiding for that last 31 years? That void you are longing for has been filled by CARMAXX since 1993.
I dont get it.
Why did these newer online (lower cost ) car sellers not survive.
How did the existing incumbents protect their market share and business from the new lower cost entrants.
Their costs are way too high. They didn’t even care about costs. They had no plan to be profitable. Their only plan was to grow and lose tons of money doing it. And that’s what you get in the real world.
It seems like more and more companies are just designed to make the guys that start them money and not really succeed. As a small hands on low LTV conservative apartment owner I knew that most (if not ALL) of the “buy as many units as possible” apartment companies that started in the last few years had no chance of long term success and it looks like we in addition to the office/retail CRE problems over the next 24 months we will see a lot of apartment firms go under led by Tides Equities.
You need low LTV for later, when prices drop and everybody is going upside down in their mortgage and experiencing negative cash flow. Back in the late Eighties and Nineties I learned that the hard way.
Everything here reminds me of 2008.
Mark Strome said you have to know when it it time to step on the gas.
Ally is going to take a bath on this!
Dec 2021 Ally had increased the line of credit to Vrooms inventory financing agreement from $450 to $700 million.
Given the slow but steady drop in prices, increased days for turnover, and a population of buyers having the highest loan delinquency rate in 30 years I could see a flesh wound or two coming out of this for Ally.
Vroom’s flooring line had a balance of $212 million as of 09/30/23. Typical SOT losses are around 20%. Add to that the declining value of inventory, and the loss on inventory is likely to exceed $50 million.
“….and a population of buyers having the highest loan delinquency rate in 30 years…”
Who exactly is that population of buyers?
I would like to know why you believe Ally will take a bath. If Ally enforced the same rules with Vroom Ally enforces with my dealership Ally is fully protected on any wholesale liquidation of used vehicles
Because there are always vehicles that are “sold out of trust.” Any retail purchaser holds the purchase money interest in the vehicle, so anything that is sold and unpaid will represent a loss to Ally. Further, used vehicle values have been dropping, so anything that’s been in inventory for more than a few weeks is going to be worth less, particularly at wholesale auction, than what was paid for it at the time of acquisition.
Used car prices along with publicly-traded online used car dealership valuations entered bubble territory during the pandemic. Now that things are adjusting back to a more normalized state, the bubble is deflating.
Just to be clear, all bubbles end the same way. Badly!
It will be shocking if other sectors are not impacted in a similar fashion as the great unwinding progresses.
Comical that pandemic people were shut out from their workspaces and confined to tehir houses. Practically all entertainment was shut down. Nowhere to go; nothing to do. Yet, America went berserk for JUNK cars. Americans got a little money from the Gubernement, and splurged more intensely than “drunken sailors” on used cars.
For about 100 years, except for collector and special interest cars, as the vehicles aged they depreciated predictably and significantly.
COVID cured that problem by causing the rusting cherry orchard to appreciate about 30% from the trough of the Flu Season to the middle of the Flu Season. One thing CDC definitely got right about COVID. The virus affected adversely the cognitive abilities of millions of Americans and demonstrated the affliction by buying record numbers of new and used vehicles overpaying grossly for them.
Yo, Dino! How ya like that $900 monthly payment and that $11,000 negative equity?
Chin up, 5 more years, $54,000 and that rare 2018 Jeep Grand Cherokee will be paid off.
Was a great time to sell everything.
Desert Dweller-
Your line “Just to be clear, all bubbles end the same way. Badly!”
Too true, and reminded me of one of my favorite old lines:
“Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
— Paul McCulley, Pimco, as quoted by Paul Krugman, Dubya’s Double Dip, New York Times, August 2, 2002
What goes around, comes around (again and again).
As can be by the current stock markets, there is a lot of cash out there just asking to be evaporated. No wonder AI and tech are zooming, it’s all about not missing out on the latest gravy train.
Enjoy, Zirp made money is still plentiful. These people don’t know how to cash in the chips at the casino window and go home. They’ll feed it all back into the slot machine and leave broke.
Excellent analogy. Slot machines are frequented by the least sophisticated gamblers and offer the lowest payout.
I guess it is all when you get out if you invest. So many of these companies exist with seemingly little viable strategy for long term profitability. Doordash and similar companies come to mind as well. There just becomes a point where the convenience of something is not worth what the cost would be if they were making a profit.
I’ve been wondering how much longer Chewy will continue to exist for this same reason.
It is really nice to see consumers waking up to reality: this business model did not work. Who wants to pay extra money for the privilege of purchasing from a ‘disrupter’. Who really cares about the Carvana tower, etc.? Apparently, not enough folks! And thank the good lord too! I’m so fond of reading these stories about how naive investors have lost money. Wall Street will never change its true colors, and as investors, we need to remember that it is our responsibility to invest wisely. Let’s hope this continues!
From a Car dealer for over 50 years, a little advice, profits on cars sales are never made on the sale, only at the purchase price.
“cars but online!”
“A office but with an app!”
“Groceries from your phone!”
These “disrupters” copying the facebook method of losing billions while you first corner the market could have all likely succeeded if they attempted to start from the beginning with a sustainable business models.
Used cars are not fungible: they are not identical. The are the reverse mirror image of the ‘buy on line’ where you see a pair of pants and assume the ones in yr size are all the same. A used car can be in great shape or in need of major work, no matter how late model. I know nothing about these e-commerce used dealers. Can u return if not satisfied?
Who were the investors who are the obvious suckers in all this? I cannot imagine vulture capital firms taking losses like this. They’re always the last money in and the first money out. Nevermind the flawed online auto firm: what happened to them?
They didn’t take losses. They’d bought those bonds for cents on the dollar when the company was at risk of defaulting. So their costs were small. So they’re probably sitting on fairly big gains now. The losers were the former bondholders that sold them for cents on the dollar and too massive losses. And if the company files for bankruptcy, the unsecured note holders (Apollo et al.) have a seat at the table and may end up getting much of the company.
“In the press release with the shut-down announcement, Vroom still calls itself “a leading ecommerce platform for buying and selling used vehicles,” the standard lingo in all its prior press releases, that some underling forgot to remove?”
Their communications director was likely one of the first to be let go and just walked out with their box and just left his/her desk.
Wouldn’t a large number of unsold used vehicles being dumped into an already difficult market to liquidate them, increase downward pressure on the already existing downward trend of the used car market?
Maybe their inventory subject to being liquidated isn’t that large?
Could be. Not going to prop up prices, for sure. Over the next few months, as they’re liquidating their inventory, it might add some downward pressure. But they also stepped away as buyer in the used-vehicle market. So that’s the counter-balance.
Another foolish eCom dream meeting real world VC slash and burn. There is no real new economy, just versions that work better than others. Business evolution has sped up, and the cycles are quicker.
As I said to spouse, if stupid money appears for our used cars, we take it. And we didn’t buy used but new after the crazy wave broke. Just like housing, this crash will pass over the years. Wall street is a casino, unless you buy boring stocks for the long term.
Pets.com with wheels. Yay!
You people crack me up. Of the five vehicles I own, the least dependable has been the 2002 BMW 525I Touring Sedan.
The stinking computers make the car a joke.
I will never buy another car built in this century.
A few months weeks ago, I replaced the engine in my 1956 Chevy.
I put in my old rebuilt 283; it was about time.
It cost me a weekend with an old friend, and a case of Mexican pee.
No computer crap, and we enjoyed it.
My 1936 Cord is still running perfectly.
This mentality cracks me up. We all like simple stuff. I just fixed my furnace from the 50s by moving a wire. But….. To say cars are less reliable now is crazy. A well designed car can last 300k plus miles. Cars from the 50s didn’t do that. Reliability has come a long way. Fuel injection, 6,8,10 speed transmissions, high output turbo engines. The engineering is impressive. Many people don’t want to drive a 1950s car or even a 1990s car. For those that do, that’s cool, but we can’t pretend they are better and that everything now is junk. Sure, companies can still design problematic crap in 2024 just like they did 50 years ago if they do a crap job. But it’s not technologies fault.
In 2016 I bought a nice used 2014 Audi A6 for $24,000. I drove it over 5 years and put 100,000 miles on it. Sold it to Vroom in January 2022 for $23,000 with 150,000 on it, cracked windshield, flip up dash screen not working, needed new tires….what a business model!
I have not seen one post that suggested that new cars are less dependable. I can tell you that I can keep all of my vehicles running well for decades. To pick my brother’s 1956 Chevy for example, I could completely rebuild the engine, transmission, suspension, interior, et al for a few thousand dollars in the next couple of months. It would likely run well and look good for another few years.
If I want crap like a backup camera, a new stereo system, paint job, etcetera; I can fit it in the tens of thousands of dollars that I didn’t throw to the lace pants boys in Detroit, Tiokyo, Hamburg, Austria, ad nauseum.
And my Cord still looks beautful and runs very well, too.