Vroom Update: Investors File Class Action Lawsuit Against The Used Car Site After Dismal Quarterly Earnings Results

We had our own headaches with Vroom, and clearly we're not the only one

We attempted to buy this BMW i8 from Vroom.com in February, and the process didn’t go well, to put things mildly. (Image from Vroom.com listing)

Have you had that feeling of, “Well, at least I’m not alone?”

Those of you following TFLcar may well be aware of our recent experience with online car retailer Vroom. In essence, they offer the same schtick as Carvana and even CarMax (with their delivery/pickup options). No-hassle shopping, no-haggle pricing, and convenient delivery right to your driveway. You would think that process would be a cakewalk in our new pandemic landscape, but we didn’t have that experience, as you can see if you check out the videos below. Now, though, Vroom in particular is facing its own problems at the moment. Particularly, the company is facing a class-action lawsuit for allegedly engaging in securities fraud — misleading investors about its financial health. Vroom announced its fourth-quarter 2020 results on March 3, where it posted a whopping 41.9 percent in net losses ($60.7 million), even while overall revenue grew by 14.1 percent, to just over $400 million.

Through Businesswire, the legal firm suing Vroom released a brief outline illustrating its complaints against the Texas-based company:

The complaint filed in this class action alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that Vroom had not demonstrated that it was able to control and scale growth in respect to its salesforce to meet the demand for its products; (2) that, as a result, the Company was forced to discount aged inventory to move through its retail channels or liquidated in its wholesale channels; (3) that, as a result, the ecommerce gross profit per unit was reasonably likely to decline; and (4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.

Editorial: Vroom faces ire from its own customers

Now, it’s likely you (much like TFL) aren’t part of the class looking to extract damages from Vroom. If you’re not an actual investor in the company, then whether they committed any fraud hardly matters to you. What that lawsuit does reveal, though, is a cause-and-effect relationship stemming back to consumers. That is where our experience comes in. Back in February, we sent a $63,000 cashier’s check to secure a used 2015 BMW i8. In short, Vroom lost that check, many back and forths were had, and eventually, we decided to just get our money back and try to forget the whole ordeal. If you aren’t up to speed, I did post more details on our original issue in an earlier piece.

I do want to make clear, Vroom did resolve our issue, but boy did we have to fight to get there. And we were hardly alone — many of you also reached out with your own experiences after we aired our original video on February 18. One email from a viewer stuck out to me.

Here, they didn’t lose a check, but they lose the car this customer intended to buy:

I tried to buy a Fiat 124 Spider Abarth from Vroom. I live in an area where convertibles are harder to come by with our long winter season. Vroom offered a way to buy vehicles that are harder find in my area (as well as buying one from a warmer climate that wasn’t exposed to salt/harsh road chemicals during the winter months).

The paperwork process for Vroom was fairly straightforward. I paid a deposit, but I was reluctant to put any other money down as it was my first time buying a car online (and only time so far) and I wanted to be able to walk away free any clear without hassle if the deal were to go south…

Well, I am glad I didn’t put money down because when it came delivery time, the car didn’t show up. I called Vroom multiple time about the status. They had no idea where the car was nor could they get in contact with the shipping driver (Even though the vehicles were supposedly GPS tracked.)

I called on the second day, and they still didn’t know where the vehicle was nor talked to the delivery driver. At that point I told them that I wanted to cancel the order and “return” the car I didn’t have. Luckily it was a relatively pain-free process to go through the return (but I made sure it was when I didn’t put money down and using their financing). Vroom had already refunded my deposit and they weren’t charging me a restocking fee for a car I never had possession of.

The loan had already made its way through underwriting before delivery of the car, so vroom essentially paid that loan off for me. I even ended up getting a small overpayment check from the bank when it was paid off.

Vroom never did tell me what happened with the car or shipper. I do have my own theories but there is no evidence to back that up.

In the end, I purchased a 2017 Fiat 124 Spider Classica from a local dealer about a month later. I’m coming up to a point now where I want to replace the 124 spider with something that has a backseat for my 2-year-old son since he is starting to show interest in cars. But I don’t think I can bring myself to try an online dealership again after my experience with vroom.

Vroom had its BBB accreditation revoked

There’s nothing wrong with trying something different, and some folks want to bypass the traditional (more often than not, painful) dealer experience. Another litmus test to consider before pulling the trigger, though, is the business’ standing with the Better Business Bureau. Or, if you don’t trust their ratings or accreditation, look at complaints and testimonies. Just on first glance, Vroom netted an average customer review of 1.26 out of 5 stars. What’s more, they’ve also gotten 730 complaints over the past three years — many of them touching on the same issues outlined above. Lost payments, lost paperwork, lost vehicles and slow, spotty communication to resolve all of it.

Our friends over at Jalopnik hit on the fact that Vroom is a small fish, comprising far less than 1 percent of the used car sales market. It’s understandable that the company would struggle financially — validity of its earlier, lawsuit-instigating claims notwithstanding — but its most recent legal woes may be a culmination of a years-long chain of bad decisions, rather than a kicking-off point.

Running afoul of your customer base will inevitably cause some pain. Even with some efforts to right the PR ship, though, Vroom’s stock plummeted 28 percent on March 4, after the fourth-quarter results. The stock has recovered slightly over March, but the story is looking grim, especially as the reviews aren’t looking any more rosy than our own experience last month.

More on that below (Part 1 and Part 2):