Plan Insurance Blog

Cazoo’s Drastic Cash Saving Measures

Cazoo, the British online motor trade company created by Alex Chesterman, listed in America only two years ago with an initial valuation of $8 billion. Its share price has subsequently dropped by an eye watering 99%. It is now worth a relatively paltry $75 million.

Investors pulled out during a massive slide in tech stock valuations. Appetite for loss-making firms, requiring significant sums to hit ambitious growth forecasts evaporated seemingly overnight.

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Cazoo’s vast advertising budget has achieved significant brand recognition across the UK. High level sponsorships with major football, rugby, darts and snooker organisations have proved successful in raising its profile. However, a report in The Sunday Times claims that Cazoo’s online motor retail business model faces a fundamental issue, in that “the more cars they sell, the more money they lose.” This is due to the cost of vehicle delivery logistics.

Cazoo sold 65,000 cars in the UK during 2022. However this year that figure will drop by around 30%. The company can source vehicles and can generate buyers for them but with slim gross profit margins, it cannot afford to sell them at a loss after the cost of each sale is taken into account.

Has Cinch Got the Better of Cazoo?

Though, its main UK competitor in the online vehicle retail space, Cinch is still on track to sell more than 70,000 cars in this financial year, with further growth forecasted. Cinch’s strategy has included similarly high-profile sporting sponsorships with the likes of Crystal Palace FC and England Cricket displaying their branding along with prominent TV advertising campaigns.

Cinch also made pre-tax losses for the year ended April 2022, with figures of £149 million posted. Nevertheless, a key difference when compared to Cazoo, is that Cinch has benefitted from having fundamental industry infrastructure in place. This is because it’s part of the Constellation Automotive Group, that includes WeBuyAnyCar and BCA. CEO of Constellation, Avril Palmer-Baunack, highlighted that sourcing its cars from sister company BCA, insulated Cinch from the recent drop off in consumer demand as fears over the cost of living crisis hit.

Cazoo’s Drastic Cover Saving Measures

Cazoo finished last year with only £250 million in reserve. Chesterman has stated that Cazoo’s objective in the next two years is to save cash. Subsequently, spending has been cut and a number of assets have already been disposed of with more still available for sale. The following action plan has begun to be implemented:

  • Amount of stock bought and advertised reduced to limit losses
  • Sponsorship deal with Everton FC ended early
  • 15 of its 22 customer handover centres closed – 2 have been purchased by Arnold Clark for £10.5 million
  • 4 of 7 vehicle-preparation centres closed
  • Operations shut down in Germany, Spain and Italy
  • 1,000s of job cuts
  • Car-subscription service axed
  • Cazana data platform sold
  • Many of its distinctive vehicle delivery vans sold off – with rumours that the Big Motoring World dealership has purchased circa 70

Cazoo launched with the bold claim that it would disrupt an out of date industry with a reputation for poor customer experience. Yet, the pure online car sales business model is proving a very difficult one for it to make work. Traditional operators will be pleased to learn that many customers still want to view and experience vehicles in the flesh, or should that be in the metal.

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