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Vroom CEO talks Q2 earnings and the state of the used car market

Paul Hennessy, Vroom CEO, joined The Final Round to discuss the company's second quarter earnings report and consumer trends in the used car market.

Video Transcript

SEANA SMITH: Vroom shares off just around 18% today after the company's first earnings report as a public company. The stock declining today after it posted a wider-than-expected loss and also the third quarter guidance coming in a bit lighter than what the Street was expecting. So for more on this, we have Paul Hennessy. He is the CEO of Vroom.

And Paul, it's great to have you back on the show. Let's just talk about the second quarter. Obviously, it was challenging for you, for the company. Talk to us just about the headwinds that you faced due to COVID and how you're addressing those challenges in the second half of the year.

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PAUL HENNESSEY: Sure, and good to see everyone. Thanks for having me back on the show. Second quarter was really an interesting quarter for us. As you all know, when COVID came on, we ultimately had a-- you know, a required reaction to the event. And so what Vroom did, seeing the pullback in demand, is that we priced our vehicles to sell, and sell we did. There was great demand. There was great encouragement from our customers, and we sold those vehicles down.

And then as soon as the inventory kind of got down, as the market started to stabilize, we then saw that demand came back. And Vroom went on kind of the buying tear to secure inventory for our customers. And really, since the May timeframe, we've been at that. And now, we've actually got the highbrow problem of demand being greater than our inventory, and so we're working really hard to add inventory to the Vroom business so that customers can take advantage of that.

So we're very pleased with our results from second quarter. We have 74% growth in our e-commerce business, which is outstanding. And then since the sell-off of the inventory and now the rebuilding of the inventory, we've had a sequential growth in June and in July. So we gave really strong guidance.

I think what has troubled the Street is that the average revenue per car has actually come down, and they were not expecting that. And that's because consumers now are looking to buy more affordable cars. And so Vroom actually secured those cars to meet that demand, and I think that's where you see that the miss in revenue.

RICK NEWMAN: Hey Paul, Rick Newman here. So I mean, it's pretty standard in recessions-- excuse me-- that people who need a car, who might otherwise have bought a new car, if they are worried about the money or have less money, they're going to buy a used car. How much of a shift are you seeing from new car buying to used car buying, and can you tell how long it's going to last?

PAUL HENNESSEY: Well, you know, the used car market, as you know, Rick, it's very large. It's almost three times the size of new. But given that there's been a lack of production in new, we've seen real pressure in used cars, meaning customers coming into the market and buying used cars, and we see that in our own business. Customers are, you know, coming in droves.

And again, we're sprinting to fill that demand. And I think that's going to last some time, particularly in our business. Because the beauty of the Vroom model is that we're transacting in a contact-free way and delivering in a contact-free way, and so customers are leaning in now more than ever.

ANDY SERWER: Hey Paul, so you talked about this bounce-back, in terms of demand from customers, and, you know, we've been reading, of course, and listening to people talking about consumers wanting to drive, not trusting mass transit, maybe also wanting to take vacations and not flying. So if those are some reasons why you've seen an increase in demand, I'd like for you to comment on that. And if that is the case or not, will you see a continuation of this demand?

PAUL HENNESSEY: Yeah, Andy, we're definitely seeing that. As a matter of fact, our data is telling us that in addition to people driving more, using their cars more, reduction in mass transit because of social distancing, we're seeing all of that materialize in demand. We've also seen a very interesting thing as well-- even in cities, major cities, we've seen a 20% lift in sales, where either potential customers are saying, I want to get away for the weekend or get away for a week, or they're actually migrating out of cities and now need vehicles to navigate a suburban market. So yeah, we-- and we think-- to answer your lesson question, we think all of this is sustainable. These are, you know, material shifts that we're seeing in our business.

SEANA SMITH: Paul Hennessey, CEO of Vroom, we'd love to check in with you next quarter, just to see how things progress. Thanks so much for joining the show today.

PAUL HENNESSEY: Thank you very much.