Vroom targets more sales, customers with UACC deal

The acquisition and integration of United Auto Credit Corp. as a captive lending arm should lead to more sales and higher profit per vehicle, according to Vroom executives.

That will be accomplished with a broadening of both the online used-vehicle retailer's customer base and the vehicles it sells.

One way to analyze Vroom's $300 million cash deal for the nonprime lender, announced last week, is by checking out how larger, more established rival Carvana has been handling captive financing — it has its own in-house financing arm. Vroom executives didn't say that, but they concurred when asked by an analyst during a conference call whether it was a fair comparison.

"The model that we're implementing is quite similar to theirs," Vroom CFO Bob Krakowiak said.

Vroom has to close on the purchase and then transition UACC into a captive financing arm.

The deal, subject to regulatory and other customary conditions, is expected to be complete near the end of this year or in early 2022.

In the first half of next year, Vroom plans to start integrating UACC's back-end systems and processes and begin its first nonprime loan originations through UACC. In the second half, Vroom will use its technology platform to scale e-commerce loan originations as it transitions to an integrated captive financing provider.

UACC CEO Jim Vagim and CFO Ravi Gandhi will stay in their current positions, playing key roles in the integration and overall execution of Vroom's strategy. UACC will continue to operate under its current name. Following the acquisition, it will become an indirect, wholly owned subsidiary of Vroom.

Over the long term, Vroom will look to expand its captive financing capabilities to be able to originate for customers across the credit spectrum, which its current model isn't able to do.

As it begins to make this transition, Vroom will shift its vehicle selection toward more mass-market used cars and trucks that carry lower price points, which the company said will bring it more in line with its established peers.

"Although we are anticipating a lower average selling price, we do not believe this will have a material impact to our vehicle gross profit per unit," Krakowiak said.

And sales the company was unable to make before will now be converted, Vroom CEO Paul Hennessy said.

"When you integrate the end-to-end lending solution all together, the customer experience just improves. It takes friction out of the system and the experience; customers end up flying through and being able to find the lending solutions that they need," he said. "And in terms of, were we leaving deals on the table? The answer is a resounding yes."