Vroom (NASDAQ:VRM) stock is plunging over 40% in early trading after the used-car retailer announced that it had suspended its e-commerce business. Moreover, the firm disclosed that it would be “winding down” its dealerships and laying off 90% of its employees.
With its focus on selling cars online during the pandemic, Vroom thrived as many consumers were afraid to travel to dealerships. However, the company and VRM stock have struggled mightily in the post-pandemic economy.
Vroom’s Cost-Cutting Measures
Going forward, the company intends to sell used vehicles only via “wholesale channels” and noted that it would no longer buy vehicles. The firm explained that it is sharply curtailing its operations in order to “preserve liquidity.”
However, VRM noted that its financing unit and analytics service would stay open.
Vroom’s CEO, Thomas Shortt, explained that it was unable to raise enough capital to keep its retail business afloat.
The firm’s move and its inability to raise capital suggests that most American consumers are unwilling to buy vehicles online during normal times. However, Vroom may have also been hampered by its inability to compete effectively with the leading player in the space, Carvana (NYSE:CVNA).
VRM Stock and Vroom’s Outlook
“Although we were unable to raise the capital necessary to achieve profitability in our ecommerce operations, we are committed to responsibly managing our remaining businesses and prudently deploying our capital as we seek to maximize value for all of our stakeholders,” Executive Chair Robert Mylod said in a statement.
Despite the company’s vote to “maximize value for… shareholders,” it’s unlikely that its remaining businesses will be able to generate much revenue or profit. After all, many firms finance vehicle purchases, and a high number of companies analyze trends within the auto market.
Therefore, the company’s outlook appears to be quite grim at this point.
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On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
