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.
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