Would you buy a car online? ‘Digital dealers’ cut thousands of jobs fearing recession

Would you buy a car online? ‘Digital dealers’ cut thousands of jobs fearing recession

06/13/2022

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The revolution in car buying has failed to take hold as online dealer Cazoo cut 750 jobs in the UK and Europe and others went into receivership. Although founders of the companies believe the models are correct, most people believe when it comes to cars, buyers want to see and drive their purchases rather than just push a button.

Cazoo announced late last week that it plans to slash its workforce by about 15 percent as part of a major cost savings drive.

The majority of the job losses will be across its UK operations as well as some in Eurioe.

The group said the measures were needed to protect profits in the face of tougher economic times.

Similar companies to Cazoo have also seen online car sales dwindle and used-car dealer Carzam went into receivership last week.

Cazoo said: “The company is not immune to the rapid shift in the global economy and the possibility of a recession in the coming months. As a result, management’s expectations for the full year are now more cautious, reflecting the weaker and uncertain external environment.”

It has been the same story in the US, where last month Carvana fired 2,500 workers.

Its market value has slumped from $64bn (£52bn) in August 2021 to less than $5bn, a drop of 92 percent reported the Guardian.

Compared with traditional car sellers, online dealers need many more potential buyers to make the same number of sales.

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The proportion of visitors converted into buyers online is thought to be about 1 percent, compared with 30 percent for physical dealers.

The figures tell their own story – Cazoo spent £65million on marketing in the 2021 financial year, working out to more than £1,300 per vehicle sold.

That resulted in a profit on each car sold of only £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 dealer, selling new and used cars.

“Pure online retailing of used cars has not been adopted by the vast majority of people in the UK.

He added: “Pure online retailers cannot do a test drive. I believe that is a fundamental flaw.”

Of 90,000 car sales made in the UK last year in which a website was involved, just 900 were made without a visit to a physical showroom.

Tom Leathes, chief executive of Motorway, which buys and sells cars from the public for auction, believes the disruption to the used-car industry from online sales will be lasting.

He said: “The car industry was lagging behind almost all major consumer sectors for a long time.

“We’re still at the start of the shift to the online economy.”

Cazoo’s 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 hit consumer confidence.

“This perfect storm has placed cash conservation top of mind for the company, ahead of growth.”

Meanwhile, Cazoo has officially been replaced as the main shirt sponsor of Everton FC.

The online disruptor has spent millions on sponsoring sporting clubs, tournaments and organisations, with Premier League Everton among its flagship partnerships.

Now however, amidst the drastic cost-cutting exercise, the firm has been replaced by gambling company Stake.com.

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