Since my recent article Cinch, Cazoo or Carzam? Who Will Be The First To Fail? (an article to found in my feed), I have been planning this little analysis, a consultancy shop window – if you like, in to why I think Cazoo will be the disruptor to fail out of the 3 discussed in the article above. Although they are all vulnerable should manufacturers restrict availability to future used car vehicle parks; that said there is much to done for this to be achieved.
So why Cazoo? Well I could start anywhere; their determination to take a single business model into multiple used car markets, (all of them operating very differently to each other), along with the delusion and assumption that as tech based professionals they know more about specialised used car markets than successful used car professionals? In fact from the outside looking in the charge sheet of fatal used car operational flaws is very long, including but not limited to;
• Fit for purpose valuation processes, or lack of them.
• Stock acquisition initiatives at the volumes required.
• The aforementioned one size fits all business model for multiple specialised used car markets.
• Apparent lack of understanding of the used car market; therefore the individual markets.
• Lack of genuine used car experience and acumen within the business.
• The sheer weight of the financial overhead.
Now as much as I am not here to give Alex Chesterman and his pals any free used car business development consultancy or any of the answers free, I thought I would at least offer some feedback and analysis; after all it easy to find fault, but as Cazoo are obviously finding it is not so easy to find the answers. So I put my used car business development hat on, the hat I wear when advising manufacturers on used car business development; manufacturers like BMW, Toyota Motors Europe and Lexus.
I then imagined I was sitting with Alex Chesterman and the board; what would I say and where would I start? Well before advising I thought I’d better look at the Cazoo website, their stock, their customer offering etc. so what did I find?
Well at first glance the problem for Cazoo is an easy one, although I would be careful to point out to Alex the danger in approaching a highly complex trading market in an overly simplistic manner. In addition the feedback I am going to give Cazoo has tentacles extending into all operational areas of the business. But if I had to sum up the major problem it would be thus; Alex, you have launched a business that doesn’t appear to know its identity, its core customer, its market or what it is doing!
Now as a piece of feedback on a used car business, (or any business for that matter), this is a pretty damming and terminal state of affairs; no doubt inextricably linked to the dropping share value and the low levels of profit per unit. So let me expand a little on one of the core problems at the foundation of this.
That of approaching the used car market, a market made up of individual highly complex trading markets, (all operating in execution very differently from each other), with a single service and operational model. Combine that FUBAR with the huge overheads involved and I think there is a real danger that Cazoo will get taken down under the pressures of both the overhead and the expensive mistakes that this policy appears to be leading to.
Let’s expand and look at your operational model and service offering. I have no doubt that for customers in certain purchasing profiles you have vastly improved the service model. However the fatal flaw in this sector of the used car market, is that the available trading profit margin makes it impossible to pay for the model in execution, whilst remaining profitable.
The reason why your competitors in this market don’t indulge this model is not because they are delivering poor customer service, it is primarily because it doesn’t pay, nor does the customer necessarily expect it; you are in effect the “Knight in Shining Armour” that nobody needs or requested! In order for this to be financially viable on a long term basis, you are going to have to acquire the associated used car stock holding at prices that allow for this operational overhead in their trading margin. Unfortunately this will prove impossible, as you will no doubt be finding out Alex?
Acquisitions expertise (or the lack of it) appears to be another major flaw running throughout Cazoo, and the aforementioned is not the only trading sector of the used car market where problems are raising their ugly head; oh no! Sadly Alex from what I can see there are far bigger financial problems looming and ones that are going to cost Cazoo a lot more.
I don’t know if it was arrogance, naivety or both Alex but Cazoo have taken this model into some far more specialised markets; markets where your “Knight In Shining Armour” – I’m here to fix the used car market people, operational model is woefully short of what customers expect or already experience.
Now remember “Customers” Alex, because it is their purchasing nuances that dictate how businesses have to operate in specialised sectors of the used car market and quite frankly, in some of these markets, Cazoo and the operational and servicing offering are the burger van in a landscape of Michelin starred restaurants. Not only that Cazoo are trying to sell burgers at £30,000 plus!
Let me expand; on the day I wrote this article I popped onto the Cazoo website and noticed that you had some very expensive and specialised used car stock profiles; including 9 Maserati’s, 50 Porsche’s and 22 Tesla’s. Alex I couldn’t catch my breath; with no profitable and quantifiable trading success in used car markets, you have entered some of the most specialised markets. Markets where if you get it wrong you are going to lose your shirt; and boy, I fear Cazoo are about to lose their shirt!
For example there were 39 Porsche Macans listed on the Cazoo website; now I don’t know what you paid to acquire this stockholding but I do know that it will be in excess of £1Million; a serious level of investment in a profile of used car stock you have a very small window within which to sell profitably.
Now there are problems aplenty for Cazoo in entering specialised markets such as this; including acquisitions expertise and experience, utilisation of funds employed to this stock holding, the Porsche offering and customer purchasing experience expectations, to just a few. So let’s look at the 3 in greater detail.
Customer Expectations
Alex, Porsche customers are a very discerning bunch, they know their stuff, and many will have been with the brand for many years. Aside from these very important considerations, customers spending the sums of money involved do expect a very different level of service and attention than Cazoo are offering. This is a market of long term business relationships revolving around experienced and knowledgeable sales professionals, and a specialised product.
They are also very successful people, buying cars with very high individual specifications; people who value dealing with sales professionals with the knowledge of the product required. Price is not so much the issue here and if you want their business you are going to have to raise the bar of experience and expertise to a far higher level; and let’s be honest Cazoo is not set up to deliver and achieve this!
All this aside I thought I would look at some of the 39 Macans that were listed; and let me tell you what Cazoo are offering these very discerning buyers. One Macan being advertised for in excess of £55,000 has had one service done in 2 years, by your prep centre in Long Bennington; as had another 4 year old example on sale for in excess of £39,000. Just 1 service in 4 years and done by Cazoo.
The third Macan that I looked at, a 2016 example with 21,000 miles, costing in excess of £35,000, had no service history at all! In fact the description on the website actually states; “The service history for this car is not available. Its documents or books are either missing, or not officially stamped. “
Now as much as there are other serious problems associated with stock acquisition expertise evident here, you cannot expect to retail premium used car product, in specialised markets and to discerning customers, that have a Cazoo stamp in the service book or worse; no service history at all! I will not expend on this point Alex because with all respect, if you don’t know why this the case, then Cazoo should leave this market sector immediately, because the inevitable losses are going to be eye watering; more on this later.
Utilisation of Funds Employed
Now Alex, this is a critical measurement of profitability for any used car business; scale does not lesson the problem it only increases it and if two of the Porsche Macans discussed above, are indicative of the utilisation of funds being deployed to your stock holding? Well you would be better off putting the funds involved under your mattress.
Now in order to demonstrate this I’m going to be kind; I’m going to assume that you serviced the 2 cars on the day you purchased them, although if I’m honest I think we both know that this is very unlikely. But let’s be kind; according to your website both the Macans serviced by Cazoo were done so in November 2021; one on the 14th and one on the 30th. So at the time of writing this article (22nd February) one car had been in stock 84 days and the other 100 days.
So the average days in stock so far, (although they remain unsold so this will increase) is 93 days. Now Alex, I’ve been building successful used car businesses, business development programmes and acquisitions programmes for over 25, so trust me when I tell you this; after 45 days in stock the successful used car business is trading at a loss.
Now if you had thought to employ and/or seek the expertise of genuinely successful used car professionals, those with a proven record of success in the market you are trying to disrupt, then you could have listened to this before you were staring down the barrel of approaching £200,000 of losses on your Macan stock holding alone!
More on this bombshell later, along with the ramifications that rates of stock turn have on your used car acquisition requirements.
Used Car Stock Acquisition
Alex, at the foundations of any successful used car business are effective stock acquisition programmes; the volume objectives for which are inextricably linked to the rate of stock turn being achieved by the business. Now if we assume that on average, the rate of stock turn being enjoyed by Cazoo is comparable with the Macans discussed above, then currently you appear to have a rate of stock turn of approximately 4 times per annum; or 90 days per unit.
Now be in no doubt Alex, if you are not measuring Cazoo’s rate of stock turn then you should; this is one of your most important KPI’s; why? Well let’s add some context; I read your recent press release confirming the ambition to retail 100,000 used cars during 2022, all very laudable. However there are some problems Alex and they start with the retail sales ambition, aligned with stock levels; all inextricably linked to the rate of stock turn Cazoo are able to operate at.
On 18th February your website confirmed that you had 6,067 cars in stock; great but at the current rate of stock turn being achieved by the Porsche Macans, (a small data cut but probably indicative of the overall average), you are only turning your stock level over 4 times per annum. Unfortunately, and this unavoidable, unless things change you are on tracking to retail 24,268 cars.
If the rate of stock turn taken from the Porsche Macan stock holding is indicative of the business as a whole, you will need to increase your stock level to 25,000 cars on a continual basis throughout the year. Where are these cars coming from is the obvious question here Alex? Alternatively if your stock level remains the same, you need to increase your rate of stock turn from 4 times per annum to 16 times per annum. A reduction in the average days in stock from 90 days to 22 days in stock! Just let that sink in for a moment Alex.
Now I don’t want to be overly negative Alex but the used car business capable of achieving these improvements (in such a short space of time) would not be in this position in the first place! As a used car professional looking in, I know full well that you won’t achieve this.
Anyway back to your Porsche Macan stock holding and what it tells me about Cazoo’s ability operate in specialised used car markets. Well it tells me that Cazoo can’t operate successfully in these markets; and reasons why also extend into Cazoo’s used car stock acquisitions expertise, or a lack of it! Now I am not privy to how your website values cars, but from what I can see I know it isn’t “Fit for Purpose;” not in specialised markets.
In truth Alex, and I hope you are sitting down, all your technical valuations platform has achieved is to build Cazoo the worst stock holding of Porsche Macans I have seen in the UK; one consisting of the lowest levels of specification, and the three I looked at being advertised without Porsche service histories. In truth I think Cazoo are just a “Useful Idiot,” a dumping ground for anyone who has a Porsche Macan to sell that the Porsche network wouldn’t buy! Exactly what Cazoo should have done by the way!
Unfortunately Cazoo appear to have put everything into technology and allowed it to make far too many of the critical purchasing decisions in your business, rather than trusting human beings; you remember human beings Alex? If you had thought to seek the advice of a successful used car professional Alex, (someone like me), you wouldn’t be looking down the barrel of huge losses on this stock holding; why?
Well I would’ve told you how to make money from this stock holding, (and it is not from retailing and trying to go “Toe-to-Toe” with who now how to operate in these markets), I would have advised you that Cazoo are not set up to operate credibly in these specialised used car markets; especially from a platform of retailing this substandard stock holding to discerning and knowledgeable group of buyers.
The cost of this folly Alex? Well let’s do “The Math” and quickly because the ageing profile, (an inconvenient operational truth it appears not yet grasped by Cazoo), dictates that you are already bleeding money! How much? Well let’s be kind and let’s ignore completely the utilisation of funds employed equation (one step at a time) and let’s look at some of the likely losses for the stock holding.
To bring clarity let’s apply some sympathetic averages; from what I have seen I think you are on course to lose (on average) £5,000 per car on the Porsche Macan stock holding. Provided you grasp the nettle now and seek the advice on how to limit these losses; again I have no doubt that Cazoo do not possess the skills to limit these losses. If Cazoo did, it would not be in this position.
Anyway, back to the maths; 39 Porsche Macans at an average loss of £5,000 per unit is an eye watering loss across this stock holding of £195,000! Perhaps now you will appreciate my disparaging comments Alex; because it appears that Cazoo have taken over £1 Million of investors’ capital to invest it in a stock holding that will, in all probability, return close to a 20% loss!
Now you can go back for further investment rounds as often as you like Alex but more money, more tech and more of the same will not dig Cazoo out of operational stock investments like this! In fact the real danger here is that Cazoo continue buying stock like this, thus only compounding the problem.
Sadly Alex these used car stock acquisition inadequacies aren’t just limited to your Porsche Macan stock holding; for balance I thought I would look at one of the Maserati Levante’s that Cazoo have in stock. Now Alex, Maserati owners, where do I start? Different than the average Porsche owner, (in terms of the nuances surrounding purchasing and ownership), but still a VERY knowledgeable, discerning and some might say high “Maintenance Bunch.”
So I looked at a 2017 example with 46,000 miles being advertised for £32,000, only to find that the problems were just problematic. The service history section states that it didn’t have its first service until it was 3 years old and had covered over 37,000 miles; at least this was completed by an associated franchised dealership. That said, and I am not here to train Cazoo for free Alex, but let’s just be reassured that the servicing schedule for a Maserati Levante IS NOT once every 3 years or 37,000 miles!
However Alex, Cazoo then compounded this terrible servicing picture by putting a Cazoo stamp in the service book at 46,000 miles on 2nd November 2021. Now Alex, as clever man albeit one with no experience in successful used car retailing, you may not see the damming significance of all this, so let me use some performance statistics from your business to ring the alarm bells.
I note that the car concerned has just enjoyed a distress selling message price reduction of £1,500 and that it has been in stock since at least the 2nd November; 112 days in stock on 22nd February! Now if no one in your senior team can see the problem here and tell you the remedies? Well Alex, you are surrounded by the wrong people!
So where to go from here Alex? Well undoubtedly Cazoo will have a target market and the associated customer base; whether Cazoo knows where this lies is difficult to ascertain. The problem really lies in the numbers; can this target market, (the one aligned to Cazoo’s operational and delivery model), pay for the overhead? I don’t know and more alarmingly, I’m not sure that anyone in Cazoo does either!
Anyway Alex, back to the beginning and back to Cazoo; a used car business employing no successful used car professionals in senior strategy positions and one that appears to have no obvious and transparent idea of its market niche; where and how it can be profitable? Only you know if the numbers will ever add up, the one thing I know without doubt though is this; if you want to be successful in used car markets, you have operate as a successful used car business in your target markets.
Trying to disrupt specialised used car markets with poor quality stock and an operational and delivery model far below what the associated consumer base expect, is not a recipe for success; or how you disrupt an established market. If you or anyone within a senior operational position in charge of strategic change want to know more? Well I’ll give you an hour of my time for free; not something I would normally offer.
Whether you or anyone responsible is humble enough to reach out? Well only time will tell; but be quick, problems like those above for a used car business have a nasty habit of getting totally out of control, and quickly!
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