Written by / Ma Xiaolei
Edited / Meng for
Design / Shi Yuchao
Source/Financial Times By Kate Burgess
In 2018, entrepreneur Alex Chesterman founded Cazoo, an online used car supermarket in the UK, in an attempt to leverage the used car market.
Today, Cazoo's vans deliver 50,000 cars a year to their doorstep. Buyers don't have to go to physical stores, don't have to bargain, don't have to test drive, and there's a money-back guarantee.
In 2021, Cazoo went public in New York with a maximum market capitalization of $8 billion, becoming a unicorn.
But a unicorn is a creature that only exists in mythological stories. For investors, now they may see Cazoo as a rabbit, yes, the rabbit in the tortoise-rabbit race.
The company's stock price has fallen in half since it went public, which has shown that rabbits may have fallen asleep deep in the grass.
Investors are also starting to be more cautious about investing in tech start-up used car companies like Cazoo. For them, a safer and safer way is to find out the more technologically minded companies in the existing used car dealers, and then use online means to improve their competitiveness in the field of used cars.
These established used car dealers are like turtles in the tortoise and rabbit race, and may have an advantage in the end.
Take Motorpoint, the only used car offline supermarket listed in the UK, for example. It was founded in Derby in 1998 with only one website, a customer service center and a showroom.
Since then, it has expanded to 15 in-store pickup points, selling nearly 100,000 used cars a year and delivering them to your doorstep. Pre-tax profit is expected to be £25 million in the financial year ending March 2023 and grow to £40 million in the following year.
Compared to Cazoo, its market capitalization is negligible, at less than 300 million pounds ($400 million). But it just goes to show how difficult it is to make a revolution in used cars.
Consumers may distrust salespeople wearing suits and ties, but they do not trust the web even more. Of the 8 million used cars it sells, only 1 percent are placed online.
While the market is changing, it's getting really slow.
Fortunately, however, price comparison sites like Autotrader have increased price transparency, and the arrival of the epidemic has forced people's activities to move online.
Mark Lavery, owner of franchise dealer Cambria Automobiles, said that a decade ago, buyers would run at least four showrooms before buying a car. Now, they first conduct research and comparison online, and only look at it once offline.
Motorpoint aims to achieve £2 billion in revenue in the coming years, with 70 per cent of revenue coming from the web, compared to 60 per cent at the current level.
Still, CEO Mark Carpenter believes car buyers still want a combination of online and offline showrooms, and the company is expanding its branches.
(Cazoo stagnated after going public)
Cazoo's Chesterman estimates that pure online used car transactions could account for 30% of the UK market, and Cazoo only needs to take 2% to 3% of it. He expects Cazoo's sales to double to 100,000 used cars by 2023, making it profitable.
This requirement is a bit high. Cazoo followed the model of Carvana, an online supermarket in the United States, but Carvana has barely achieved profitability after a decade of launch.
In fact, car dealerships, whether used or new, are very competitive.
Sanjay Vidyarthi of consultancy Liberum said: "The revenue in this industry is not high, and it is difficult for so-called disruptors to get what they want. "Overcapacity by manufacturers has led to competition among distributors, whose pricing power is limited and their sales networks are complex and fragmented.
Not to mention, there are franchised dealers bundled with manufacturers, which have luxurious showrooms where up to half of used cars are sold. In addition, new car discounts from automakers under pressure from market share can also penetrate used cars, eroding profits.
Motorpoint has established partnerships with automakers and fleet companies to source almost brand new cars at low prices. Vidiarti said: "It's a pattern that's hard to replicate. ”
Although Motorpoint's share of the "near-new car" market is only 4%, its profit margin is still only a pitiful 2%. But that's already twice as many as publicly traded franchisees such as Pendragon and Lookers.
Cazoo's Chesterman's strategy remains to keep selling purely online and win in volume. He may have been lucky enough to catch up with the "good times", with the pandemic prompting more consumers to switch to the web and the global chip shortage stalling car production, pushing up the prices of old and new cars.
Industry watchers warn that this may only be temporary. Production is about to resume, when prices will fall and profit margins will return to normal. Used car dealers are better profitable or compete.
At the same time, franchisees also have to invest heavily in the sales facilities of electric vehicles, and more and more automakers are beginning to test the waters of direct sales to offset the production costs of electric vehicles, resulting in increased competition.
Chesterman said all this contributes to the development of the online market. Still, Cazoo's nationwide network costs aren't low. In February, it just raised $630 million in convertible notes to expand the network.
Liberum's Vidiarti believes cazoo's biggest challenge may be to "get more" at a lower price, and the bigger it grows, the harder it will be.