In this week's episode, Bob comments on Vroom's recent purchase of finance company United Auto Credit Corporation (UACC) in a $300 million deal. It's brilliant and it makes complete sense. "Think about Carvana... They're not selling a car. They're using that as an object to make profit on finance. It's the same reason they want to have dealers and, dealer groups let them sell their inventory. It's the smartest thing that anybody ever thought of. It's brilliant because they're actually selling the dealer's car at a retail price. That's acceptable to everybody, but they're picking up the finance. That's the only place there's any money is in finance."
Vroom to buy finance company United Auto Credit Corporation (UACC) in $300 million deal.
It's brilliant. No question is brilliant for one simple reason. The brilliance of Carvana. The brilliance of the people who founded and run Carvana is that they don't sell cars. Why would you believe they sold cars? They don't, they sell finance.
What you pay for a car. It could be completely irrational. It doesn't make any difference. They're not selling a car.
They're using that as an object to make profit on finance.
It's the smartest thing that anybody ever thought of. It's brilliant because they're actually selling the dealer's car at a retail price. That's acceptable to everybody, but they're picking up the finance. That's the only place there's any money is in finance. Right? So now think about it now, room who struggled and let's call it the market cap and you know, all the rest of it and growth, right?
Well, first of all, we already know they don't pay more. That cars are worth because we see them bidding on our course all day, every day, if they were paying too much, they'd buy them all.
We wouldn't need to sell them anybody else. That's not what happens. In other words, their algorithmic proxy takes them to a point where it's a fair market value for core, and they buy them if they're any good, but if they're not any good, they only bid 32 times by proxy and then didn't become the best end user. And why are they not in a panic about that?
It's very difficult to be the best end-user on certain categories at middle mud car, because you got Avis and Hertz completely blowing everybody out of the water.
Okay. So that's all good.
But when you stop and think about the true business model, no, why let's say CarMax is successful because they discovered it now, master wholesale, right?
It's based on the core model of not necessarily selling cars, selling finance. So now Vroom needs to compete. Why wouldn't they buy a company, it would put them in a position to show revenue. And now all of a sudden be able to go out to, to the markets to get more capital, to lend money, credit challenged people and not necessarily credit challenge. I ain't talking about, you know, 400 credit scores, but people that are on the edge.
You have to be in a position to be able to make irrational loans, because don't forget the lower your credit score, the less you actually know or care about what you're actually paying. And it has to be realistic about that, right? So somebody paying cash, they'll break your balls to the point of insanity, because it's actually their cash that they're buying something where they want to be shorted. They get a better price than anybody in the world is ever going to get and all the rest of it. Right. But as your score continues to drop, what you wind up with is, um, a circumstance where you're less acutely aware of what you're actually paying him.
We're focused more, are you getting me approved? Right? I mean, that's just a fact of life. It's, that's not an invention of anybody. And when you look at Vroom, and they need to grow, like all public companies have to grow that revenue numbers got to move. Even if you're losing money, it's got to move right. Now they have an internal source that they're going to be able to go a little deeper getting them bought. I think it's brilliant actually.