Online car dealer Carzam has ceased trading only 18 months since launching. The company was seen as a smaller but still significant rival to the likes of Cazoo and Cinch.
It was seeking to follow a familiar path to its competitors but had years’ worth of top-level motor trade experience within the management team. Given that track record of success, many commentators and investors may see the firm’s failure as a sign of potential struggles being on the horizon for similar businesses.
Like other online used car retailers Carzam offered vehicle deliveries to customers across the country within short time frames. Customers were also given a longer than previously provided period in which to decide whether they wished to keep their purchase. Only half a year ago the firm had raised £112 million from an American investment fund.
It was co-founded by the CEO of Big Motoring World, Peter Waddell with the stated aim “shaking up” the car dealing market. Buyers have traditionally visited showrooms to sit in and get a feel cars before making a purchase. Its failure could be a sign that the online used car sales boom has crashed and that customers still value a more old-school, physical sale process on big ticket items.
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Steve Young, MD of ICDP automotive retailing research and strategy specialists says, “Our consumer research indicates that only around 6% prefer this option. Although no quibble guarantees, high-quality imaging and use of finance to remove the mental hurdle of a large up-front payment all help, the vast majority of buyers want to conduct some part of the process face-to-face.”
In December 2021, Carzam hired the former boss of Paddy Power Andy McCue, as its executive chairman, he lasted only 3 months before standing aside. A number of other senior management figures subsequently resigned, including Waddell himself. Administrators at Smith & Williamson were appointed after it entered voluntary receivership in early June.
Could Cazoo Also Go Ca-Blamo?
As recently as late 2021, Cazoo floated on the New York Stock Exchange at a $7 billion (£5.6 billion) valuation. The market truly believed in the vision and figures put forward serial entrepreneur Alex Chesterman, who played a key role in the huge success stories of both Zoopla and Love Film.
However, Cazoo’s valuation has since plummeted by as much as 87%. That drop off was cited by Waddell as being a major contributor to Carzam’s collapse. Investors simply couldn’t be convinced to risk their funds. Forecasts of high-growth and strong profitability for these exclusively online motor traders looked far-fetched.
In a highly competitive market Young believes that, “ The fantasy that Alex Chesterman promised of a 15% margin will remain just that, at least in the UK, and other players in continental Europe are starting to wake up too.”
Lower than forecast trading forced Cazoo to announce earlier this month that its projected revenue for 2022 has been reduced by £500 million. The business said it will make less profit on each unit sold than previously anticipated. The used car trading disruptor is subsequently aiming to save £200m over the next 18 months to balance the books. That will involve having to axe 750 jobs and abandoning recruitment plans. It’s also cancelling its subscription service and will rationalise overheads in a substantial cost reduction exercise.
Cazoo will be cutting back significantly on its high profile media spending. Almost straight after announcing a deal it cancelled its shirt sponsorship of Everton Football Club. Many other high profile arrangements will cease to save money when 2 year break clauses come around. Its claimed the seemingly ceaseless advertising campaign achieved 80% awareness for the brand in the UK.
The company now intends to sell between 70,000-80,000 used cars in 2022 to retail customers, down from a target of 100,000. Revenue expectations in the same period have been reduced from 1.4 billion to £2 billion. Profit per unit is currently just over £100 and the firm is aiming to exceed £500. To provide some context larger car dealers are capable of sustaining over £1,500 per vehicle.
Chesterman remains defiant saying, ‘The opportunity ahead of us remains as exciting as ever and we continue to see record sales levels, despite the challenging economic environment.” Many in the motor trade and investment industry are less than convinced.