Image source, Getty Images
- Author, Michael Ras
- Role, Business reporter, BBC News
-
Online used car retailer Cazoo has gone bankrupt after cutting hundreds of jobs as part of a major restructuring.
Cazoo became popular during the Covid pandemic when restrictions forced car buyers to browse and make their purchases online.
But the loss-making company has struggled to raise money from investors and in March changed its model from a dealership, where it bought and sold cars itself, to a marketplace where consumers can buy and sell cars.
That move has led to 728 layoffs, administrators Teneo said, after they were appointed to try to find a buyer for the company.
Teneo said the company’s 208 remaining staff would be retained for the time being during the administration process.
It’s a dramatic fall from grace for the company, which soared in popularity during the pandemic and subsequent lockdowns.
If you weren’t using Cazoo in 2021, you probably would have seen or heard it. The brand name was seen everywhere, with the company sponsoring Premier League football teams Aston Villa and Everton, as well as a host of other major sporting events such as darts and snooker.
Cazoo was different from other, more traditional car dealers: it was a technology company trying to shake up an established order.
The platform allowed customers to purchase, trade-in and finance vehicles completely online. People could order while sitting on the couch, and the vehicle would be delivered to their home within 72 hours, with a seven-day return policy.
Launched in late 2019, the pandemic has massively boosted the company’s fortunes. In addition to Covid restrictions that only allowed people to buy used cars online, a global microchip shortage that disrupted new car production also played into Cazoo’s hands as used car prices soared.
The environment led to an astonishing increase in the company’s value. When it listed on the New York Stock Exchange in September 2021, it was valued at a whopping $7 billion (£5 billion). Now the valuation has dropped to just $30 million.
In November 2021, Cazoo’s founder Alex Chesterman – who also launched real estate website Zoopla and LoveFilm, a predecessor to Netflix – told the BBC that acquiring just a small percentage of the market would create a “huge company”, arguing that Cazoo offered customers a simpler offer. experience, greater choice and transparency about price.
The platform was launched in France, Germany, Spain and Portugal. At its peak, Cazoo employed 4,500 people in 2021.
But despite the mission to transform the car sales industry, the feel-good factor around Cazoo began to fade.
Image source, Getty Images
One of the key people behind Cazoo’s strong marketing campaign was Andrew Francos, who joined the company shortly before its launch.
He says the early days were “really exciting times” but believes the company grew too quickly.
“Looking back, I think Europe was a distraction,” he says. “I remember saying to someone, ‘Are we going too early?’ I was probably naive to just believe in the vision because I believed in it.”
Mr Francos left Cazoo in October 2022 and admits he felt like he was leaving a sinking ship, but adds: “I also thought they would turn it around.”
‘Cars are fundamentally different’
The company has never made a profit. While this is not unusual for a start-up — in fact, Mr. Chesterman said he expected this to continue for two or three years after the IPO — losses mounted.
In 2022 it posted a loss of £704 million, compared with £544 million the year before, and in December last year it restructured debt worth $630 million.
According to Catherine Faiers, chief operating officer at car market giant Auto Trader, while Covid saw a shift to online purchasing become the norm for many goods, “cars are just fundamentally different to other things you buy”.
She says the majority of British consumers prefer a combined approach: research online, but then view the car and speak to a dealer in person before handing over their money.
“Buying a car is a bit like buying a house. It’s the second most valuable thing that most people buy. We name our cars. If you ask people why they own a car, it’s a bit like the American Constitution: ‘I own a car because it gives me freedom, it gives me independence, it gives me strength,'” says Ms. Faiers.
Kevin Gaskell, a former director of Porsche, Lamborghini and BMW, said Cazoo’s problems were due to the “simple fact that it was trying to gain a foothold in a very sophisticated, very established market”.
“They believed they could become an online retail company and offer a full service, but car dealers are already doing that. There is nothing new in the model they developed,” he told the BBC Today programme.
“They’ve spent a huge amount of money developing the brand. In terms of revenue, it’s still nowhere near where they expected.”
Changes at the top
Mr Chesterman stepped down as CEO in January 2023 and perhaps the writing was on the wall for Cazoo when he left the company entirely in December.
His replacement, Paul Whitehead, stepped down in March this year – at the same time Cazoo announced it had sold its remaining stock and moved to an online marketplace model, allowing car dealers to list their own shares on the platform, and had phased out his replacement . European affairs.
The company has said it has explored “strategic alternatives” to insolvency, including selling parts of its business, as it struggled to raise money from investors, but no buyer has emerged.
When contacted by the BBC for comment on Cazoo’s demise, Mr Chesterman said he had had no involvement with the company for more than 18 months and declined to comment further.
Philip Nothard, director of insight and strategy at Cox Automotive, said Cazoo forced many of the established players to adapt, but now that supply issues and microchip shortages have subsided, others have been able to catch up.
“They came in fast, they came in heavy, they came in with a concept that on the surface worked in a lot of ways,” he adds.
“[But] over time, established retailers were able to offer what Cazoo had to offer. They could provide that digital omnichannel e-commerce experience. And essentially they already had a physical infrastructure in place.”