The car-buying revolution failed to take hold, with online dealership Cazoo cutting 750 jobs in the UK and Europe and others going into receivership. Although the companies’ founders think the models are okay, most people think that when it comes to cars, shoppers want to see and drive their purchases rather than just pressing a button.
Cazoo announced late last week that it planned to cut its workforce by around 15% as part of a major cost-cutting drive.
The majority of job losses will occur in its UK operations as well as in the Euroe.
The group said the measures were necessary to protect profits in the face of tougher economic conditions.
Companies similar to Cazoo have also seen their online car sales decline, and used-car dealership Carzam went into receivership last week.
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Cazoo said: “The company is not immune to the rapidly changing global economy and the possibility of a recession in the months ahead. Accordingly, management’s expectations for the year as a whole are now more cautious, reflecting a weaker and more uncertain external environment.
The same was true in the United States, where last month Carvana laid off 2,500 workers.
Its market value has fallen from $64bn (£52bn) in August 2021 to less than $5bn, a drop of 92% reported the Guardian.
Compared to traditional car sellers, online dealerships need significantly more potential buyers to achieve the same number of sales.
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The proportion of visitors converted into online buyers would be around 1%, compared to 30% for physical retailers.
The numbers tell their own story – Cazoo spent £65m on marketing in the 2021 financial year, or over £1,300 per vehicle sold.
This resulted in a profit on every car sold of just £124 – a tenth of what traditional dealerships can make, according to an industry expert.
“The pendulum never really swung,” said Robert Forrester of Vertu Motors, Britain’s fifth-largest dealership selling new and used cars.
“Pure online used car retailing has not been embraced by the vast majority of Britons.
He added: “Pure online retailers cannot test drive. I believe this is a fundamental flaw.
Of the 90,000 car sales made in the UK last year in which a website was involved, only 900 were made without a visit to a physical showroom.
Tom Leathes, chief executive of Motorway, which buys and sells cars to the public at auction, believes the disruption to the used car industry from online sales will be long-lasting.
He said: “The auto industry has long lagged behind almost every major consumer sector.
“We are only at the beginning of the transition to the online economy.”
Cazoo CEO Alex Chesterman said: “The combination of rising inflation and interest rates with supply chain issues caused by the pandemic and war has driven up the cost of living. and damaged consumer confidence.
“This perfect storm put cash conservation at the forefront of the corporate mindset, ahead of growth.”
Meanwhile, Cazoo has been officially replaced as the main shirt sponsor of Everton FC.
The online disruptor has spent millions sponsoring sports clubs, tournaments and organisations, with Premier League Everton among its flagship partnerships.
Now though, amid the drastic cost-cutting exercise, the company has been replaced by gaming company Stake.com.