Cazoo Group Ltd (NYSE:CZOO), the online car dealer, has yet to find a way to allow potential car buyers a chance to kick the tyres.
That, in essence, might be one reason why the expected revolution in car buying has yet to pan out the way the market thought it would.
Industry statistics indicate that what might be termed forecourt operators convert 30 out of every 100 visitors into sales whereas for the online operators the ratio is more like one in a hundred, which means the online operators have to spend a fortune on marketing.
Cazoo, which floated in the US (despite being UK-based) last August via a much-ballyhooed hook-up with a special purpose acquisition company (SPAC), is now worth less than US$700mln, one-tenth of its initial valuation.
The enthusiasm for the online Arthur Daley caused much head-scratching at the time, as did the enthusiasm for online rival Cinch. London-listed Pendragon Group (LSE:PDG) apparently sells more cars online than Cazoo and Cinch combined, and yet its stock market value is less than £300mln.
The Daily Mail & General Trust (DMGT) was an early backer, owning 21% of Cazoo and as part of the process of delisting the company agreed to distribute Cazoo shares to DMGT shareholders. Those shareholders will take possession of the shares on Thursday and there is speculation that many will trade the shares in pronto for a more reliable model.
Cazoo announced last week it would reduce its workforce by around 15% by the end of next year as sales of cars online tail off. Uncharitable souls – or Liverpool fans – have suggested the company also used a slowdown in sales as an excuse to cut short its sponsorship of Everton FC.
Meanwhile, another UK online rival, Carzam, was forced into receivership by tougher conditions in the market.
In the US, the optimistically named and much bigger operator Carvana has fired 2,500 workers in response to a cooling market. It has seen its stock market valuation plummet to US$4.6bn with its shares collapsing this year to US$24.30 from around US$232 at the start of the year.
As for the hybrid model – having forecourts but also a strong online presence – this seems to be working out reasonably well for Motorpoint Group PLC (LSE:MOTR, OTC:MTPTF), which saw e-commerce revenues increase by 43% to £624.9mln, with over 60% of overall unit volumes generated through online channels.
“Website traffic improved by 15% compared to the same period a year ago, and improvements have been made in all email metrics, with unsubscribe rates dropping to just 0.1%. We have invested in data science tools and talent and this now supports buying and pricing decisions and targeted customer communications,” said Motorpoint’s chief executive officer, Mark Carpenter.
“As the largest omnichannel used car retailer, we are excited by the opportunity to lead, but we also embrace the amount and pace of change required at Motorpoint to seize this opportunity,” Webster said.
The pace of change will not come without cost; Motorpoint cut its profit before tax forecast by 31%, partly because of continued investment in the brand and its omnichannel model.
On the plus side, unlike many online rivals, it has not had to lay off staff.