Vroom to buy Texas Direct Auto

NEW YORK — Auto Remarketing has learned that online used-car retailer Vroom has agreed to purchase Texas Direct Auto, a store said to be the country’s largest privately owned independent dealership and an early adopter of online retailing.

Funding the deal is a $95 million Series C equity round, according to a news release announcing the purchase. The transaction is subject to regulatory approval.

 Each of the brands will “co-exist” and be run separately within the combined company, which will be headquartered in New York.

And consumers interested in purchasing vehicles the “traditional” way from Texas Direct Auto — in other words, walk into the dealership and buy the car — will still be able to.  

 The new 500-employee company will feature reconditioning and fulfilment centers in Dallas, Houston and Indianapolis that will also be utilized as distribution centers for Vroom.

Auto Remarketing spoke with Vroom chief executive officer Allon Bloch, and then later with Texas Direct Auto co-founders Rick Williams and Mike Welch for some additional background about the deal.

“We’ve kind of always admired what they’re doing, and we always thought that they were groundbreaking in their thinking and their operations,” Bloch said of Texas Direct Auto. “There were a couple things about them that we felt set them apart.

“One is, they’ve built this just amazing reconditioning software and processes that allow them to create these used-car factories and recondition cars at their very high throughputs and at very high conditions,” Bloch said.

He later added: “The other thing is, we thought both companies had very similar business philosophies: buying cars from consumers, treating consumers fairly, selling nationally, working at scale. There were a lot of similar approaches. So as a soon as we met, we felt there was a really high chemistry and a good fit.”

When the two companies unite, there will be a good bit of ideas exchanged, Bloch said, but again the two will be operated as a separate brands.  And they are different models to begin with.

Where Vroom is an online retailer, Bloch describes Texas Direct Auto as a “hybrid model” in the sense that a consumer can walk into the store and buy a car — just like he or she would at a traditional dealership — or, if the shopper lives elsewhere, the dealership will ship the car to the consumer.

That said, the two companies offer complementary strengths: Vroom brings its plans for a national scale, while Texas Direct Auto has the operational know-how and expertise on the fulfillment side.

“Strategically, we were in the early stages of building the capabilities that these guys have in house and have perfected,” Bloch said of TDA. “We feel it’s very important, because we can shave time out of getting the car online without comprising the quality.”

With Vroom building a 500,000-square-foot facility in Indianapolis that’s set to open early next year — and more growth to follow — this purchase represents a “big, big step” in the direction the company is aiming to go, Bloch added.

“Mike and I are technologists, but our business has been focused on optimizing what we do here. Their focus is optimizing what they do everywhere on a national scale,” said Williams, the TDA co-founder. “We do have a national presence, of sorts, but we’ve always been a regional player — a big regional player in used-car marketplace, specifically in Houston. But we do not have the national reach that Vroom is going after.”

He later added: “They’re really pushing for a national delivery, not a regional delivery … their end goal is to open up distribution facilities that are within 250 miles of, let’s say, 80 percent of the U.S. population. And so that’s what they’re bringing to the table. What we bring to the table is the operational expertise and excellence to actually do that fulfillment.”

In fact, Williams and Welch said TDA’s Southwest Houston facility processes more than 3,000 vehicles a month, getting them ready for retail or wholesale delivery. 

“So, they bring the front end,” Williams said of Vroom, “and we bring the back end.”

For instance, going back to the upcoming facility in Indy, that’s where TDA’s insight expertise on the processing side will likely come in handy.

“We like to think of it kind of like the Amazon fulfilment centers,” Welch said. “You reach the customer online, but ultimately you have to deliver that product, and that’s where we come in.”