In the world of the coronavirus pandemic, good news is a relative concept.
For example, a recent round of headlines touted “stronger than expected auto sales” in the U.S. during spring 2020. A technically true statement that elides the fact that auto sales are now forecast to be 55 percent below pre-epidemic forecasts, as opposed to the initial forecasts of 80 percent below.
And for brick-and-mortar businesses forced to close their doors entirely that haven’t been able to make some kind of pivot to digital, Vroom CEO Paul Hennessy noted in a conversation with Karen Webster that the effects of COVID-19 haven’t been business cut in half, they have been business shut off 100 percent.
For those in the world of selling cars online as Vroom is, on the other hand, effects have been far milder thus far. It isn’t that the global pandemic hasn’t had any effect; the company has seen a “small chilling factor on the business,” something true of nearly every firm on Earth not selling toilet paper or hair dye at this point.
But, he noted, what the company has also noted is that even in the turbulent times created by a novel coronavirus, consumers still want to buy and sell cars and are open to engaging a digital channel to do it more than they’ve ever been.
“The model is able to effectively deliver to every state in the country, and we’ve seen demand remain very strong because digital does exactly what consumers need it to at this time: deliver to their driveway … and settle the entire transaction end-to-end in a contact-free way,” Hennessy said.
And as more consumers are trying out buying cars online, Hennessy said he believes the model will expand. Unlike restaurants, movie theaters and concerts, no one actually misses the experience of going to a car dealership.
The Altered Supply And Demand Marketplace In Auto Sales
In some ways, he noted, the changes in the auto market that Vroom has seen in the last several weeks are exactly what one would expect them to be. As the pandemic has shut down larger portions of the economy and left consumers either without jobs or “waiting for the other shoe to drop on losing their jobs,” Hennessy told Webster, luxury car sales are slowing down markedly, even with the increasingly healthy discounts off of MSRP. In already logistically tight hot spots like New York City, car sales have fallen off in ways Vroom largely expected to see.
But, Hennessy noted, demand, both in pockets and across the board is stronger than one might expect. New York City, he noted, has seen depressed sales — New York state and Washington state, where early outbreaks were also well documented, really haven’t, contrary to what executives had initially assumed at Vroom.
“We had thought that if areas were sick, [buying a car] was the last thing people were thinking of,” he said. “But as it turned out, those people … were suddenly at home with all this time on their hands, and they started … searching for cars online.”
And buying and selling cares, he noted, for a variety of reasons. Consumers who bet big and bought an expensive luxury car with a high monthly payment in late 2019 are suddenly rethinking those buys — and looking to trade down to something more manageable. The share of consumers who haven’t been hit economically hard, he noted, are looking to take advantage of the fairly generous deals and opportunities that are available on some models. Families that had been making do on a single car because one household member used public transportation are straining under the burden of sharing when everyone is home together.
And, he noted, as demand is rising in some increasingly definable segments, the challenge isn’t necessarily finding supply so much as making sure that the supply hits the demand where it is.
“The only thing that I don't worry about in this new world is having enough supply,” Hennessy said, noting that between car rental agencies looking to liquidate supply, cars coming off lease to dealerships that can’t sell them due to closures, and consumers liquidating things like expensive cars, Vroom has lots of inventory to pick through. The challenge is using data to choose the right cars in line with consumer demand on the platform.
Vroom expects demand to rise through the end of the pandemic and beyond, he noted.
Reshaping An Industry
No one has a crystal ball or knows exactly how and when this is going to end, Hennessy told Webster, and he won’t try to predict numbers today because it is largely impossible. But even before there was a pandemic, people didn’t really like going to dealerships as an experience — the challenge was getting them to give that first digital purchase a try, which might be the jolt consumers need to grease a much faster adoption of digital car sales going forward.
He said the goal for Vroom hasn’t been so much about changing its playbook in response to COVID-19 as it has been about accelerating and looking to perfect an online car buying experience that allows a customer with any credit score to log in and negotiate a deal for a car transparently — and then have that car delivered to their driveway.
But, he noted, tomorrow, there could be a possibility to do more with Vroom’s model and expand into a B2B marketplace a la Amazon that allows physical dealerships to tap into the Vroom platform for auto sales.
“Our brand and our brand promise is around building trust with consumers in a low trust vertical, so we're not going to take three steps back just for maybe another little small piece of the pie,” he said. “So, that's why our playbook is intact. Let's do this really well for consumers. But we're cautiously evaluating call pivots and expanding into segments that we might enter into.”
Digital cars sales may have been a niche when 2020 began, when the year ends, there will likely be many more customers looking for auto sales that are both frictionless and contactless — and the industry players that will thrive, Hennessy noted, will be the ones able to meet that need.