An interesting question that has been on my mind for a while and more so since we have seen the expansion ambitions of Constellation, (the owners of BCA - We Buy Any Car - Cinch), via their acquisition of Marshall Motor Holdings and in acquiring a 20% stake in Lookers.
This has been a fascinating period and trading landscape for an acquisitions and used car business development professional to watch play out, especially when you add into the mix the many other challenges facing the retail automotive sector in the UK. So having read a recent article by James Baggott at Car Dealer Magazine; an article salivating over who will be the next (Cinch, Cazoo or Carzam), to be out there acquiring franchised dealer groups, I was prompted to write this analysis? Personally I think there is far too much hubris surrounding this trio and that this is the wrong question to be asking!
So what do I think is the right question to be asking? Well it is in the title of this article and before answering I thought it prudent to cast an eye over them all, the trading landscape and what, (I think), makes them vulnerable, because they all are. However, I must add the caveat that I have no internal knowledge of their operations, only what can be seen when you know where to look and you have the experience required to be able to understand the used car market and offer a qualified comment.
For the record, (and to all the associated legal people), these opinions are my own; I have no shares in any of the companies and no axe to grind, having worked for none of them either!
So where to start? Well let’s look at the challenges facing them all; namely reduced used car vehicle parks and the fact that they manufacturer nothing for themselves; (both of these are critical trading and operational flaws and pose an existential trading threat to all the businesses concerned). From there let’s look at the businesses concerned and what they are offering, how they have disrupted and/or changed the used car market for the better; because here’s the truth, (wrapped up as another problem), none of them have!
They all enjoy the same primary trading challenges of a crowded used car market, their parasitical business models and a lack of used car stock looming on the horizon. New car registrations of today are the used car vehicle park of the future and with the dramatic reductions in new car registrations during 2020, 2021 and likely during 2022, the used car vehicle park during 2023, 2024 and 2025 doesn’t look like it can sustain any businesses lacking the strategic capability to lock used car stock into their business.
Control Access To Stock and You Control Access To Markets!
Only the manufacturers possess this ability; they manufacture the product, sell it to the first owner and via this transactional process, (if they possessed the strategic acumen and the used car experience to do so), they could control access to their future used car stock holding and therefore their market place. At the moment very few do and the remainder do not appear to be taking the steps to do so either. Not Yet!
Unfortunately for the manufacturers, and having spent a large part of my career presenting complex used car business development strategies to the boards of manufacturers and franchised dealer groups, I know that the professionals required to achieve this are not currently working within the 4 walls of many – if any.
The decision taken by manufacturers and their franchise partners to ignore used car retailing and the development of used car professionals for in excess of ten years, is the reason why the Trio being discussed exist today; and until this changes there is still hope for the businesses we are discussing. But be in no doubt, should manufacturers decide, in line with other changes to their retailing model, (Ageny Agreements etc.), to look at fully exploiting and monetising their trading advantage, (as much as there is work to be done), the associated used car stock could be removed from the independent used car market. More on this in a future article.
So if acquisitions expertise and ability, is the key to success in the coming used car market, (and it is), who do I think is best placed to win this battle, should the manufacturers let them do so? Well to an outsider looking in, (at first glance), Constellation look best placed, but I’m not sure.
There is no doubt that they have joined up more of the strategic dots than any of the three; they have tricked franchise dealer networks and manufacturers into using their auction disposal services, which no doubt became the engine room of their further growth. We-Buy-Any-Car has been a work of genius, in terms of changing consumer behaviour and in feeding stock to both Cinch and BCA Auctions.
They appear mightily powerful right now but I see how vulnerable their trading model makes them. Can they really rely (long term) on the continued business naivety of manufacturers and franchised dealer networks and the associated volume of used car stock through their auction houses; via All Auction Disposal Polices and the like?
My views on All Auction Disposal Policies are well known, from the articles I wrote for my Used Car Business Development Blog;
and
My fear would be this; combine Manufacturers and Franchise Dealer Networks making the correct business decision to no longer feed their most powerful competitor, with the eye wateringly high and unsustainable prices currently being paid by We-Buy-Any-Car for used car stock, and there could be a profitability storm heading their way.
To add context, before writing this article I sold We-Buy-Any-Car two cars, just to understand the process which in truth is excellent; I turned up on two separate occasions with a car, because they offered me the most when searching on line, and to be fair within 15 minutes, an appraisal was carried out, (to a level that I would have sacked any of my staff when I was running used car operations), and I left having been paid for the cars.
Absolutely the best service I have ever experienced in terms of being paid far too much by the trade for my car; undoubtedly a 5 star review. Whether this is a sustainable and profitable long term business model remains to be seen; but it got me thinking where they get their valuation data from?
Why? Well this is a dangerous time for those with little or no experience, to be out there purchasing used car stock; my advice at the moment would be very careful who you listen to. This is such a big issue that an article is to follow outlining the flawed data and misinformation out there, a lot of it being produced by CAP HPI, (who appear to rely mainly on auction data), and the auction houses themselves. But in brevity, if Castellion (via their BCA auction houses), are also looking at the pricing data from CAP HPI, then I think they may be in trouble.
I have commented many times on the ridiculous valuations and the predictions for used car pricing being published by CAP HPI, and have questioned their data sources on many occasions. So in order to ascertain their data sources I rang their Head Offices to qualify this; sadly my call has not been returned for over a week.
But if as I suspect, their pricing data is being driven by prices obtained at auctions then in my opinion the data is flawed; why? Well because in over heated commodities markets, those where market forces are put on hold by Governments, where there is little stock and the market has been flooded with free cash (Government support), the only data on pricing that really matters is what retail customers are paying for cars, not what those in the trade attending auctions are paying for stock.
On top of this It is also important to remember that the auctions are frequented by those who do not know how to acquire retail used car stock for retail profit; and I have yet to see the long term credible evidence to suggest that consumers are rushing to pay these overinflated prices for their next used car; in the volumes required for those paying these prices to remain profitable.
So combine an ageing used a car stock holding with a declining supply of used car stock and the Constellation “House of Cards” could be in trouble.
Then we come to Cazoo and as an outsider looking in I just don’t know where to start. I am going to be careful with my words but this really looks like a tech based “Pump and Dump” and if the recent reductions in the share price are anything to go by, there could be trouble ahead.
Those reading my Used Car Business Development Blog will remember my concerns surrounding the numbers and the ambition when the investment prospectus was supposedly leaked to the press in 2020; link to the article below.
CAZOO’S NUMBERS?,,,,,, WTF?,,,,,,,,,,,
The current woes surrounding the share price and the appearance of running a “Scatter Gun” approach to acquisitions/strategic investment and taking the business forward, have just never made sense to me; perhaps I am missing something? In truth it just looks like they have no plan and are clutching at straws; if I was a shareholder my first question might be, why are we expanding into European used car markets with no experience of said markets, (they are entirely different to the UK used car market), when it appears we haven’t quite cracked the UK used car market first?
So add to this ever growing portfolio of challenges, the problems associated with stock acquisition in the future, and I am confused as to how this ends well. At launch and ever since the Founder, Alex Chesterman, has had plenty to say about the used car market, how poorly it serves it customers and how it was ripe for disruption.
Do you know what; he might be right but I’m not sure Cazoo are disrupting the market for the better, or offering anything that changes the market and moves it into a new space? In fact if the used car market is the Christmas Dinner, the Cazoo offering appears to be the Boxing Day Bubble and Squeak; the same ingredients, but the leftovers, just reheated and served up as something different, when in reality it isn’t. More on this in a future article.
But the thing that worries me most about Cazoo and makes me think they are most likely to find that 3 into 2 just won’t go, (in the used car market of the future), is the people at the top. I have written before about my time owning shares in a company that supplied outsourced resource sales and business development solutions to IT providers and tech companies, and the arrogance and hubris I have experienced from our so called tech-geniuses.
Many I had discussions with weren’t providing a solution to anyone’s problem or improving on an offering in anyway, but what was common was a perception that they could disrupt any market at will; an opinion that tech always trumps people.
For some reason I get a sense that this is the case at Cazoo; I can’t qualify these comments but when I wrote my original article, I questioned the strategy of employing no one with any used car expertise.
For sure there were tech geniuses in abundance, and in order to remain balanced, I looked at their company page on LinkedIn again, to see if this has changed. Sadly it hasn’t; everyone with “Head” or “Director” in their title and all those at the very top, have no experience of used car retailing and running successful used car businesses!
To have no one in senior positions with any success at running and scaling a successful used car business, someone that can advise on the competitive leveraging of technology when aligned with a used car business; a business that acquires, prepares and retails commodities in a very small window of fiscally profitable opportunity, and at scale? Well I find this astonishing and it is this fact that leads me to think that they will be the most probable casualty in the used car market of the future!
There is a lot more to be said in qualifying these views; for those interested I will be expanding upon these thoughts in a future article, exploring Cazoo in isolation.
That just leaves Carzam; although they have the same challenges of securing used car stock they are my favourites to succeed; why? Well in a nutshell their journey to here and the people involved. At the very top of Carzam you will find a genuinely successful used car professional and entrepreneur, Peter Waddell, the owner of Big Motoring World.
In my opinion this is the important differentiator. As some are learning the used car market is not an easy market to disrupt; it is a fast paced trading environment where successful used car professionals can leverage technology to further drive a business forward. What doesn’t work so well is when the onus is put on technology and you think you can achieve great things without the professionals required?
I will add at this point that I haven’t met Peter Waddell or any of the owners of Carzam, nor have I ever used their services, but as a used car professional looking in, this business looks set up to succeed. Provided they can continue to feed the business with the levels of stock required to remain profitable.
That said this is not a given and stock acquisition will remain the primary challenge moving forward for all used car businesses. But if I had to back someone? My money would go on Carzam.
Anyone curious as to how to take your used car business back, via the only strategy capable of delivering on this objective; successful and fit for purpose used car stock acquisition polices, can feel free to contact me. No doubt it will be a robust, frank and to the point, and maybe a difficult conversation, but who knows, you may learn something.
Andrew.
No comments:
Post a Comment