TEXAS V VROOM: A Failed Brand Promise

90125.

No, it’s not a zip code. And, it’s not a television show.

It was an album released by the prog-rock band Yes in November, 1983. According to the website Songtell.com, “It Can Happen To You” is a song on that album which conveys a message of encouragement “to remain optimistic despite life’s struggles and difficulties.”¹ (90125 was named for the Atco Records catalog number which was Yes’ record label.)

If you run a dealership, you know about struggles! And, if you have a risk and compliance program at your store, you know keeping everyone in line and moving in the right direction can be a struggle. Right?

It’s a struggle to:

• Create compliance policies
• Get people to continually follow your policies
• Audit to ensure they are following your policies
• Understand and know you have the right insurance to cover any issues which might arise

Having a governance, risk, and compliance (GRC) program is how you prevent costly problems. I promise.

So what does this song have to do with the struggles of dealers? More on that at the end of this article but I bet you know where this is heading!

Speaking of “It Can Happen To You,” let’s talk about Vroom’s recent fight with the State of Texas and payment of:

• $2 million civil penalty to the State of Texas
• $1 million reimbursement of attorney’s fees to the State of Texas

(This does not include their lawyer's fees or the “soft cost” of the expense of Vroom’s staff to respond to the allegations.) So, my SWAG (Scientific Wild Ass Guess) at Vroom’s total expense would well exceed $5 million and I think that’s a conservative number.

Here are the allegations:

“Vroom has engaged in deceptive trade practices, including by failing to satisfy certain terms of sale, by failing to disclose certain vehicle history or qualities/characteristics, and by misrepresenting the work done on sold vehicles…”²

“Over the past three years, consumers have filed nearly 5000 complaints with the Better Business Bureau and Office of the Attorney General of Texas. Approximately 4000 of these complaints have come in the past 12 months.”³ If you are a regular reader of this column, you have heard before where I have continually proffered that unresolved customer problems cause regulatory and legal issues. Here’s yet another example proving it. (Compare the 4000 complaints with the approximately 53,455 vehicles sold in the first three quarters of 2021. That’s almost a ten (10%) complaint ratio. That’s a big number.)

“These violations include misrepresenting the condition and characteristics of the vehicles they sell, misrepresenting financial approval, misrepresenting the Defendants have obtained a clear title before selling vehicles, subjecting consumers to spot delivery scams, failing to disclose systemic delays in processing title and registration, and failing to disclose higher insurance premium requirements for non- Texas consumers.”⁴

Vroom was accused of running a very rough business to include deceptive practices.

Vroom’s brand promise says their vehicles are “high quality Vroom-reconditioned vehicle(s) that has passed multiple cosmetic, mechanical, safety inspections, and that vehicles that do not meet their standards will not be listed for sale.”⁵

Despite this brand promise, the following were used as examples by the Texas Attorney General:

• One consumer found several areas of internal rust that could only be caused by sitting in water for an extended amount of time. There was no disclosure of this issue.
• A Texas consumer complained when she attempted to drive her new vehicle for the first time, the driver's seat was pushed all the way back. When she attempted to slide the front seat forward, it would not budge because the rail underneath the seat was damaged.
• Vroom attempted to deliver a vehicle to a consumer that could not even be removed from the trailer due to a failed parking brake pump.
• One vehicle had undisclosed hail damage and even undisclosed structural damage. In this case the consumer was told by a mechanic that the axle of the vehicle had rusted so thoroughly, it would eventually snap while operating.
• One consumer complained he purchased a Tesla with a specific trim package and was delivered a completely different Tesla with a cheaper trim package.
• Another consumer complained he purchased a vehicle that he later learned the Defendants purchased from a Florida auction with a salvage title.
• Defendants have also misrepresented financing approval to customers. It was alleged the Defendants wait until after consumers enter retail purchase contracts, received delivery of the vehicle, and drive for several weeks before telling some consumers that they failed to obtain financing. The defendants then threaten customers with repossession if they do not agree to new (and often more expensive terms), to pay in full, or to obtain their own financing.
• Vroom had a non-refundable fees of $249. This generated various complaints from consumers about sharp dealing.
• Many complaints stemmed from delays in processing title and registration. Many consumers reported waiting as much as a year to receive the title to their purchased vehicles, and sometimes even longer. Consumers compared their purchases to “bricks” or “driveway ornaments” when it became unlawful for them to operate their vehicles.
• Vroom issued multiple sets of 30 day tags. Often, the 30 day tag was from the State of Texas. In these cases, the State of Texas has laws about insurance minimum limits which are typically higher than other states. Because of these minimum limits, it forced consumers to spend more money on insurance to adhere to the Texas law, even though they were not residents of Texas.⁶
• And more.

Because of these poor practices, Vroom made a business decision to enter into an Unopposed Motion For Entry Of Agreed Final Judgment And Permanent Injunction on December 7, 2023. This means that Vroom must adhere to this Order going forward. They are legally bound to follow the rules and guidelines set forth in those eleven (11) pages.

In short, the Order says Vroom shall be restrained from engaging in the following acts or practices:

• Advertising as available for sale or selling a vehicle until the Vroom is in the possession of the title for the vehicle.
• If Vroom advertises a Vehicle Inspection and Reconditioning Process, misrepresenting or failing to disclose the items checked during the Vehicle Inspection and Reconditioning Process.
• Failing to disclose safety, mechanical, electrical and structural issues discovered during vehicle inspection.
• Failing to clearly and conspicuously disclose frame or flood damage on the vehicle in advertisement and listing.
• Failing to clearly and conspicuously disclose on the vehicles listing page significant cosmetic damage.
• If Vroom advertises a vehicle has an accident-free vehicle history report, failing to clearly disclose that history is based on information provided by a reporting service and that such report does not guarantee the vehicle is accident-free.
• Failing to issue refunds or payoffs for vehicles in connection with vehicle returns within 30 days.
• Failing to disclose that the State of Texas requires a minimum insurance policy that is greater than the amount of out-of-state consumer is required to possess under their home state’s vehicle insurance laws.⁷

From a risk perspective, it is important (1) to learn from current events, and (2) to dissect this information so that you understand what practices are forbidden. In addition, by going through these items in rigorous detail, it will shine a light on what areas of concern you should inspect to ensure compliance with the laws and regulations. Expect what you inspect. (Or as my friend and colleague Jennifer Sanford of Sanford Marketing Group says, “Measure what you treasure.”) While this complaint was brought under Texas law, almost all of the content of this article applies to all dealerships across the country regardless of the state.

Back to words of encouragement.

Songtell.com says, “Ultimately, It Can Happen To You suggests that life is a fight where one must be brave and never give up in order to succeed.” ⁸

That says a lot about how to run a dealership.

If you don’t have a governance, risk, and compliance program (GRC), consider starting one right now. Today! Otherwise, what happened to Vroom could happen to you, could happen to me, could happen to everyone eventually…

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¹ https://www.songtell.com/yes/it-can-happen
² State of Texas v. Vroom Automotive LLC and Vroom Inc. Plaintiff’s Original Petition dated April 19, 2022.
³ State of Texas v. Vroom Automotive LLC and Vroom Inc. Plaintiff’s Original Petition dated April 19, 2022.
⁴ State of Texas v. Vroom Automotive LLC and Vroom Inc. Plaintiff’s Original Petition dated April 19, 2022.
⁵ State of Texas v. Vroom Automotive LLC and Vroom Inc. Plaintiff’s Original Petition dated April 19, 2022.
⁶ State of Texas v. Vroom Automotive LLC and Vroom Inc. Plaintiff’s Original Petition dated April 19, 2022.
⁷ State of Texas v. Vroom Automotive LLC and Vroom Inc. Unopposed Motion For Entry Of Agreed Final Judgment And Permanent Injunction dated December 7, 2023.
⁸ https://www.songtell.com/yes/it-can-happen