Aston Villa against Everton is not usually considered one of the most important games in the Premier League, but it would probably have felt like a big problem for Alex Chesterman: the shirts of both teams were printed by Cazoo, the retailer in used car line founded by the series. businessman.
The Cazoo derbies, both won by Villa this season, were the product of a marketing bombardment as the new company and its rivals fought to break the second-hand car market. However, Cazoo workers might think the money would have been better spent elsewhere – the company cut 750 jobs on Thursday as it warned that a recession could delay its first profits.
The company’s struggles are part of a wider stock market defeat, but Cazoo isn’t the only used car dealer online with difficulties. A steady stream of bad news has raised questions about whether the online car sales boom induced by the coronavirus pandemic could last.
In the United States, Carvana laid off 2,500 workers last month and its market value has fallen from $ 64 billion (£ 52 billion) in August 2021 to less than $ 5 billion, a drop of $ 92 billion. %. The market value of the smaller American rival Vroom has fallen by 98% compared to September 2020. In the United Kingdom, Peter Waddell, the founder of Carzam, blamed the problems of the rival Cazoo for his inability to raise more investment , which forced him to sue the start-up last week. . Cazoo’s value has dropped from $ 7 billion last year when it traded its shares in New York through a merger with a cash box to $ 900 million.
Rising interest rates, which tend to focus investors on short-term survival rather than long-term growth potential, have explained some of the defeats of digital companies, ranging from online cars to prominent pandemic winners such as exercise bike manufacturer Peloton and grocery retailer Ocado.
However, analysts are increasingly wondering if the online revolution can turn the used car industry upside down in the same way as other forms of retail. Dealogic data shows that the car mergers and acquisitions business has shrunk from $ 10.6 billion in offerings in 2021 to $ 1.8 billion in the first half of 2022, putting the industry on track to at its lowest activity rate since 2017.
“The gap between the digital model and old-school retailers closed so quickly,” said Ian McMahon, a partner at accounting firm UHY Hacker Young. Traditional car dealers spent a torrid time during confinements, but now they have been busy updating their systems and can offer the same services.
Sponsor Cinch at a tennis tournament at Queen’s Club, England. Photo: Luke Walker / Getty Images for LTA
One of the main attractions of online retailing is the lower cost, compared to running an extensive and expensive network of stores. But you only have to look at the sport again to see how any cost savings can be spent quickly elsewhere, McMahon said. There are possible Cazoo football derbies in France and Spain, not to mention sponsored darts, rugby league, cricket, snooker, horse racing, golf and even fishing, although sponsored by Cazoo at Everton is over, replaced last week by the casino and sports betting platform Stake. .how.
British rival Cinch, part of Europe’s largest used car dealership, Constellation Automotive, has England cricket, Scottish football and Northampton Saints rugby. Carvana has a Nascar rider and even a pickleball tournament, as well as an advertising space in the American Football Superbowl, a rite of passage for companies that want to prove that they have reached the big era.
Online retailers need many more potential buyers to make the same number of sales. The proportion of visitors converted to online shoppers is believed to be 1%, compared to 30% of physical distributors. Cazoo spent £ 65 million on marketing in 2021, or more than £ 1,300 per vehicle sold. He made a profit for just £ 124 per car, less than a tenth of what traditional dealers can get, according to a veteran.
Combining its store chains with sleeker online operations could offer traditional distributors more benefits, said Olaf Sakkers, co-founder of venture capitalist RedBlue. Used car sales are especially difficult to sell entirely online because of the baffling combination of possible options for any model, and also some of the digital habits formed by the need during confinements have not lasted, he added.
“The pendulum never really fluctuated,” said Robert Forrester of Vertu Motors, Britain’s fifth-largest dealer, which sells new and used cars.
“The vast majority of people in the UK have not embraced pure online retailing of used cars,” he said. “Pure online retailers can’t do a driving test. I think that’s a fundamental flaw.”
Vertu offers customers the choice of being physical, online or a hybrid of both. Of the 89,000 used car sales at Vertu last year, only 900 were made without having visited a showroom at some point. “Bricks and Clicks is the way to go,” Forrester said. “Point. End of.”
Cars are the biggest purchases most people make after a home. This means that the classic model of Internet shipping from a remote warehouse is not viable. Online retailers have quietly acknowledged this by purchasing physical dealerships to serve as collection points.
Sign up for your Daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Mike Allen, head of research at Zeus Capital, an investment bank, said having a salesperson to guide people could be especially helpful for electric cars, something most buyers won’t know.
Highway CEO Tom Leathes is still hiring on his online car sales platform, which allows people to auction their cars to professional dealers. His company does not face the financial risks associated with finding and holding stocks that could depreciate in value, but said the tide has shifted to other emerging companies looking to fund growth models with heavy assets. “We’ve seen a change in that environment, for sure,” he said. “No one wants to raise funds right now.”
However, Leathes added that he believes the disruption of the used car industry from online sales will be lasting.
“The auto industry lagged behind in almost every major consumer sector for a long time,” Leathes said. “We are still at the beginning of the change in the online economy.”