What You Need to Know
Tech startup Vroom has raised $95 million and is using some of that equity to purchase a competitor, Texas Direct Auto. This is potentially a big move for the car buying world, maybe not today, but for how used cars are bought and sold in the years to come. Here’s what you need to know about these two companies
What is Vroom? Where most used/classified car sales companies create marketplaces to buy and sell cars, Vroom handles the entire thing. The company takes possession of the used car, reconditions it, and then brings it to the buyer’s door in tip-top condition. There are also in-person showrooms. What is Texas Direct Auto? Texas Direct Auto is an online car sales company with a backbone built on tech and coding. When you sell a car to them, the vehicle is test driven, detailed, and then information on the vehicle is entered into a database before it is photographed in a studio. That last step makes the car more appealing for buyers in the many avenues through which TDA sells cars, including eBay autos.
Why did Vroom purchase TDA? According to Forbes, Vroom’s success is based on speed. Their goal is to ship cars to customers within 48 hours, sent off with a seven-day money-back guarantee and a 90-day bumper-to-bumper warranty. But the process of reconditioning a car is a challenge. Texas Direct Auto is a smart buy because it has technology that can possibility speed up the complicated process of getting a car ready for sale. TDA has developed a workflow that allows you to efficiently route cars and get prepped for sale. It’s software could shave 2-3 days off the process, which of course means money can change hands faster, which is good for everyone. RELATED: Unrelated app named "Vroom!" lets your clunker sound like a supercar Poised for Growth NY-based, plans to speed up the turnover time by hiring staff and opening new facilities Facilities now in Dallas and Houston. Vroom also plans on opening a 500,000 sq. ft. facility in Indianapolis in early 2016. Once combined, there will be 500 employees so ensure a quick turnaround. They estimate 100 cars a day are reconditioned between the two companies Funds leftover from latest round of fundraising (and after TDA acquisition) will go to accelerate growth and expedite delivery. That includes buying more trucks to ship cars. RELATED: What Does "Certified Pre-Owned" Mean?
Bigger Fish Eaten by Smaller Fish? Vroom hopes to crack $300 million in sales this year. Meanwhile, Texas Auto Direct did $500 million in sales last year, so how is it the smaller company was able to acquire the larger company? Vroom has some big backers, The company has raised $168 million in venture funding since its founding in 2013. In the initial round of investing, which raised $19 million in equity, backers included former Autonation and Blockbuster CEO Steve Berrard, as well as former NFL quarterback John Elway. This move helps Vroom take on rivals, such as Beepi, Carvana, and Shift Technologies. All of these companies have their own take on concierge car buying service. It is clear the industry is betting big that this is how we will buy and sell cars in the years to come. RELATED: What's the Cheapest State to buy a Car?