Cazoo: What went wrong for the online used car retailer?

Cazoo, The Web Auto Dealer, Goes Bankrupt

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A reporter who covers the topic of commerce for the British Broadcasting Corporation's news division.

Cazoo, an internet-based seller of pre-owned automobiles, has declared bankruptcy following a major overhaul that entailed the termination of numerous positions.

Cazoo gained recognition amid the Covid outbreak, as limitations compelled individuals to explore and secure their vehicle acquisitions on the internet.

The company that was not making a profit has been facing difficulties in getting funding from backers. In March, they transformed their approach from being a dealer, which meant buying and selling vehicles by itself, to a platform where customers can purchase and vend cars.

The decision resulted in 728 job cuts as reported by Teneo, the administrators who were tasked with seeking out a purchaser for the company.

Teneo mentioned that they will keep hold of their 208 staff members for now, while undergoing the administration process.

The business suffered a significant loss of status, considering it had experienced increased demand during the pandemic and the succeeding lockdown periods.

In the year 2021, if you were not a user of Cazoo, you must have come across it in some form or the other. The company's brand was all over the place, with its sponsorship of major football clubs like Aston Villa and Everton in the Premier League, among other big sporting occasions such as darts and snooker.

Cazoo stood out from other conventional car dealers by being a technology company that aimed to disrupt an established industry.

The platform made it possible for shoppers to make purchases, trade-in their cars, and arrange financing for their vehicles through the internet. Instead of having to physically go to a dealership, individuals could comfortably order from their homes. The vehicle would then be shipped and delivered to their doorstep within just three days, with the option to return it within seven days if unsatisfied.

Introduced towards the end of 2019, Cazoo experienced a significant rise in their business due to the pandemic. The limiting Covid measures led individuals to purchase pre-owned cars exclusively via the internet. Moreover, a global short supply of microchips disturbed the creation of new automobiles, which further benefited Cazoo as prices of second-hand cars rose remarkably.

The conditions enabled the company to experience a remarkable surge in worth. Upon its debut on the New York Stock Exchange last September in 2021, it was estimated at an incredible $7bn (£5bn). However, presently, its appraisal has plummeted to a mere $30m.

During November 2021, Alex Chesterman, the founder of Cazoo, which also launched Zoopla and a predecessor of Netflix called LoveFilm, shared with the BBC that obtaining even a small percentage of the market would result in a considerable business. He state that Cazoo provides users with an easier experience, more options, and clarity regarding prices.

Cazoo was later introduced in France, Germany, Spain, and Portugal. During its prime, the company had a workforce of 4,500 individuals in the year 2021.

However, even though Cazoo aimed to revolutionize the automotive sales sector, the positive vibes associated with it started to dwindle.

Source of the image: Getty Images

Once upon a time, Cazoo had offered sponsorship to two Premier League squads.

Andrew Francos played a crucial role in boosting Cazoo's impressive advertising strategy as he came on board just before it was introduced.

According to him, the initial period was full of excitement, however, he thinks that the company grew at a rapid pace which proved to be detrimental.

As he reflects on the past, he believes that Europe diverted their attention from what truly mattered. He recalls expressing concern to another person, questioning whether they were acting too hastily. In hindsight, he realizes that perhaps he was inexperienced and simply trusted in the idea without carefully considering it.

In October 2022, Mr. Francos left Cazoo and expressed feeling as if abandoning a failing venture. Nonetheless, he acknowledged believing that there was a prospect of recovery.

'Cars Have Unique Characteristics'

It's not unheard of for start-ups to initially struggle to turn a profit, and this has been the case for our business too. However, our financial losses have continued to escalate rather than stabilize over time, despite our CEO's forecast of a few years of unprofitability after becoming publicly listed.

The loss of the company in the year 2022 amounted to £704m, which is an increase from the previous year's loss of £544m. In December of the same year, it executed a reorganization of loans worth $630m.

As per the statement made by Catherine Faiers, who holds the position of chief operating officer at Auto Trader- a well-known car marketplace, the Covid-19 pandemic had led people to adopt the habit of buying products through the internet as it became more common. However, she mentioned that purchasing vehicles are unique compared to buying other commodities.

According to her, most British buyers tend to mix traditional and digital methods when looking to purchase a car. They might start by searching for information online but ultimately prefer to see the vehicle and interact with a salesperson before making a final decision and payment.

Purchasing a car is similar to purchasing a home which is the second-most valuable investment for many people. We often give our cars names. When people are asked about why they own a car, their response is similar to that of the American constitution; "I own a car because it provides me with the freedom, self-reliance, and a sense of empowerment," quoted Ms. Faiers.

According to Kevin Gaskell, who previously led companies like Porsche, Lamborghini, and BMW, Cazoo faced difficulties due to the difficulty in entering a well-developed and sophisticated market.

According to him, their idea of setting up an online retail business and offering complete services was not original, as car dealerships were already practicing it. Thus, they couldn't bring anything fresh to the table, he stated during his appearance on BBC's Today program.

The brand development cost was quite significant. However, the revenue generated did not meet their projections.

Top-level Shifts

After serving as the chief executive, Mr Chesterman resigned from the post in January 2023. It could be implied that Cazoo's future was uncertain when he completely departed from the company in December.

Paul Whitehead resigned from his position as a replacement in March of this year. This was also the time when Cazoo revealed that it had disposed of its remaining stocks and switched to an online marketplace model. This allowed car dealers to advertise their inventory on the platform, which subsequently scaled down its European operations.

The business declared that it looked into various options to avoid bankruptcy, such as selling certain aspects of its operations. However, it faced difficulties in obtaining funding from investors and failed to attract any potential buyers.

After being approached by the BBC to give his thoughts on Cazoo's collapse, Mr. Chesterman stated that he hadn't been involved with the company for over a year and a half and refused to elaborate any further.

According to Cox Automotive's Insight and Strategy Director, Philip Nothard, Cazoo was successful in pressuring established players to modify their approach. However, with the resolution of supply and microchip issues, other companies were able to close the gap.

"They arrived swiftly and with great force, introducing a notion that initially appeared effective in multiple aspects," he remarks.

As time goes by, the older retailers may be able to provide the same services that Cazoo offers, such as a seamless online shopping experience across different channels. What's more, they already have a physical network set up.