Texas-based Vroom.com secures $50 million in funding to expand its novel online car retailing business to more states.

Online car sales are accelerating, thanks to online car retailer Vroom.com.

Since launching its retail web site three years ago, Vroom has been driving toward a complete e-commerce experience in which shoppers choose and buy a car completely online without human interaction.

Vroom.com receives sales in three ways: an in-person sale at one of Vroom’s two dealership locations in Dallas and Houston, which is a small percentage of transactions; all online, which is a single digit percentage; and online assisted with a human touch, such as a phone call to verify details, which is the majority of transactions, says Vroom’s CEO Paul Hennessy.

In 2015, Vroom generated $900 million in total sales, and in 2016, Vroom is on track to do $1.1 billion in sales, which is about 50,000 cars sold, Hennessy says.

Presently, Vroom’s online car retail business operates predominately in Texas, but last week it closed on a $50 million round of new funding which it will use to expand to other states. Vroom is much like used-car retailer CarMax Business Services LLC, in which Vroom buys used cars, tunes them up and resells them to consumers. Vroom gets its inventory from a “healthy mix” of three channels: trade-ins from consumers, auctions and purchasing from small car centers that consumers sell to, Hennessy says. Most of the inventory that comes in is sold within the month, Hennessy says.

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Direct-to-consumer sales are the “lion’s share” of sales, however, Vroom does have some wholesale business, he says.

Consumers can pay for a car in traditional ways, such as a cash wire transfer, financing  with a loan or a combination of borrowing money plus the value of a trade-in vehicle. Vroom’s site offers consumers 30 banks from which to finance their loan. Vroom does not allow consumers a leasing option, but it is considering it, Hennessy say.

Vroom, however, differs from traditional used car retailers because it allows transactions to be 100% online, and there is no haggling involved.

“We are committed to our mission of simplifying car buying, and haggling over $100 is not the way to get there,” Hennessy says.

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After a consumer purchases the car, it is shipped for free to wherever the shopper chooses, which is most often her driveway. Vroom bakes the cost of shipping into its prices, Hennessy says.

“We don’t have the costly overhead of massive dealership lots in expensive locations, and we pass those savings along to the customer directly, which is why our prices are generally below market value,” he says. “Delivering cars for free nationwide certainly comes at a cost to us, but it’s baked into our efficient business model that is turning around thousands of cars a month. We have put maximum effort, technology and data into making our shipping logistics as cost-efficient as possible.”

The shopper has up to seven days to return the car, and returns are free. Vroom’s return rate is below 1%, which thrills Vroom, Hennessy says.

Online-only sales are growing, he says. This summer Vroom integrated electronic signature technology DocuSign into its checkout process. Previously, once a shopper added a car to her cart, a human would have to call and verify the details of where she wanted Vroom to ship the car and other payment details. Vroom would send documents via FedEx to the shopper for her to sign and then send back for the transaction be complete. With DocuSign, a shopper can electronically sign those documents, which eliminates the need for human interaction and cuts three or four days out of the process, Hennessy says.

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Because a car is an expensive purchase—Vroom’s average ticket is $28,000 to $30,000—many shoppers do want to call Vroom and speak with a person. After consumers go through the process once and are familiar with it, Hennessy expects shoppers will make a completely online purchase the next time they buy a car.

Vroom last week closed a $50 million funding round. New investors Altimeter Capital and Foxhaven Asset Management joined previous investors L Catterton, General Catalyst Partners, Allen & Company and T. Rowe Price Associates Inc. To date, Vroom has raised $218 million.

The retailer plans to use the investment for four things: expansion, hiring employees, marketing and inventory. Vroom wants to expand in states beyond Texas by opening fulfillment centers for more regions, and the retailer needs more money for marketing the brand outside of Texas, he says.

Hennessy also wants to hire software engineers to help optimize Vroom’s website and mobile site, as well as help with the software that manages inventory and shipping. Vroom also will use the money to buy inventory, he says.

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Vroom has 550 employees, many of whom joined when it acquired car retailer Texas Direct Auto at the end of 2015. Texas Direct Auto, in business for 14 years, operates as its own entity.

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