The challenges for an online-only used car retailing model have come into clear focus over recent months, and this has escalated as we move into 2023.

On January 3, it was announced that the New York Stock Exchange (NYSE) had begun the process of de-listing warrants for online car retailer Cazoo due to “abnormally low” price levels. While the business can continue to trade normally, it adds uncertainty to a business whose shares stood at $0.18 on the day of the announcement. The price reflected a fall in value of 96.5% decline over the past 12 months.

Significant efforts have been made to reshape the business model to become profitable. However, concerns about its longevity continue to be reflected in falling investor confidence.

Cazoo’s woes are similar to those of the US Carvanna business upon which Cazoo is broadly modelled. It has gone from chasing growth to slashing operating costs and cutting staff. Increasingly this looks like a late move for survival at risk of failure. In December, Carvana’s largest creditors signed an agreement to negotiate debt restructuring together. It was a move that raised the spectre of imminent bankruptcy.

The other major online used car retailer in the UK, Cinch, is also facing challenges. Its latest accounts published on January 5 for the year ended April 3, 2022, revealed a pre-tax loss of £149.1m pre-tax loss, or £126.7m after tax. In the preceding year, losses were £22m.

Cinch points to long-term plans in its accounts, designed to have long-term benefits. The challenge Cazoo and Carvana face is whether investors are happy with a long-term return; the same could also prove to be a challenge for Cinch.

In so many ways, the lockdown conditions created by Covid appeared ideal for an online model. Arguably, the opposite has proved to be the case. Bricks-and-mortar retailers were forced to embrace online but did so by creating an omnichannel model that enabled consumers the opportunity to visit a dealer and test drive a car. A simple but vital difference as the UK re-opened.

Another difference was market empathy. To succeed, used car retailers must buy right to sell right, act with agility and keep a close eye on cash flow, which is critical in a low-margin business that retails depreciating assets. The online retailers have invested heavily in brand building, and while their brands are widely known, it has been at a considerable cost.

It is too early to say that online used car retailing is not viable. Some buyers like the model and perceived lack of ‘faff’, but when an established omnichannel retailer can offer online/offline and a physical and accessible presence for aftersales (that was not part of Cazoo’s initial model), then you have to reflect it is the traditional dealer with an omnichannel capability that offers the greater choice.

I am left to reflect that traditional retailers learnt quickly from the new start online retailers (classic agility) but that online retailers have learnt far more slowly from conventional retailers. In the immediate future, this is the difference.

Debbie McKay, Commercial Director of Motor Sales

Trustpilot reviews