What happened to Cazoo? Why the used car dealer collapsed

Used car dealership Cazoo is on the hunt for a buyer as it verges on administration in light of major cash flow challenges.

The online retailer is now trying to sell off unwanted assets to streamline the business after it agreed a major restructuring deal last year. At the end of 2023, Cazoo’s cash equivalents were reported to have fallen by an estimated £94.6 million.

As one of the best-known used car platforms, the business has sold around 160,000 vehicles since 2019, and was twice identified in our Startups 100 rankings as one of the UK’s top new businesses to watch.

The brand’s collapse puts around one fifth of its 5,000-strong workforce at risk. As its engine splutters, we ask: what went wrong for Cazoo?

What went wrong at Cazoo?

After it was launched by Zoopla founder and serial entrepreneur Alex Chesterman in 2018, Cazoo immediately entered the startup fast lane.

Just four years ago, the brand was at the top of its game. Having been featured in the Startups 100 for the second time in a row, it had also raised £180m in funding and had even been announced as the main partner of Everton Football Club in a multi-year deal.

The business had also proved popular with customers. Its hassle-free, doorstep delivery method for used cars transformed the way Brits purchased their vehicles.

Since then, however, the used car sector – and the wider retail landscape – has shifted drastically. In just half-a-decade, the brakes have slammed on Cazoo’s meteoric rise.

The firm now intends to appoint administrators to its parent company, Cazoo Holdings, its marketplace business, Cazoo Ltd, and its leaseholds, Cazoo Properties. Here’s why.

Supply shortages

Shrinking stocks of used cars was perhaps the biggest contributing factor to Cazoo’s financial woes. The root of this was a reduced production rate of new cars, caused by a global automotive chip shortage, which only ended last year.

In 2022, a lack of global semiconductors (a crucial component in new car manufacturing) hit production rates, leading many consumers to turn to the used car market as an alternative. But, with production paused, the number of units entering the used car market dwindled.

As a result, transaction figures fell across the whole of Europe. Cazoo itself reported a 29% drop in vehicles sold between 2022 and 2023, causing revenue to drop by 44%.

The increase in demand for second-hand cars was unsustainable and it remains a problem for used car dealers. Today, the May 2024 tracker finds that stock availability is still the chief concern for 53% of UK dealers.

Cost of living crisis

Another consequence of the supply shortage was that it made used cars more expensive. As appetite for second-hand vehicles grew, supply also fell, causing dealers to raise prices.

For consumers hit by the ongoing cost of living crisis, this proved an obstacle. Surging living expenses meant budget-conscious buyers were seeking out deals at the same time that prices were going up, making purchases unaffordable for many customers.

Naturally, this added to Cazoo’s dwindling sales figures. Unable to shift units, its earnings fell. Used car prices have since declined, but the change might come too late for Cazoo.

Accelerated expansion

Like many scaling businesses, Cazoo has previously invested heavily in marketing and has never reached a profitable break-even point.

Despite the fall in sales, the company was reportedly still targeting sales of around 40,000-50,000 UK retail units at the start of 2023. But the cost of living crisis, combined with a global stock shortage in used cars, soon put an end to such sky-high growth objectives.

To revive revenue, the brand cut hundreds of jobs in 2023 and has since sold off most of its used car inventory in an attempt to quickly dispose of assets. Sadly, these cost-saving measures have done little to counteract the impact of its prior investments.

Last week, Cazoo warned investors it could fold if it failed to urgently raise capital. It seems the paint chips of last year’s shrunken profits have since turned into rust.

Showroom affordability

Another cause for Cazoo’s cash car crash is its expensive leaseholds. The brand had previously owned 10 “customer care centres” located across the UK, including a major £1 million showroom in Wembley, central London.

Earlier this year, Cazoo announced it would lease the sites and transition to a marketplace business model, similar to rival brand Auto Trader, which operates entirely online. The Cazoo website reportedly attracts one million visitors each month.

Rising business rates have made owning or leasing commercial premises more expensive. Given that rates are calculated by square footage, Cazoo’s huge warehouse sites would likely have come with a big bill attached.

The brand’s pivot away from showrooms is also a common trend within the retail market. Customers are increasingly shopping online as high street footfall dwindles.

Superdry and The Body Shop are two other big retail brands that have suffered as their online-only competitors grew.

What’s next for Cazoo?

Cazoo plans to turn a corner by moving online, hiring a new CEO (Chesterman left the business last December), and selling parts of the business to a third-party. However, its current financial situation means it faces a hairpin bend.

The latest reports confirm that Cazoo has not yet been able to find a buyer. In a statement, the brand said, “we have not received any offers that would, if consummated, enable the company to continue as a going concern in the medium- to long-term.”

By slashing jobs and selling its stock, Cazoo is clearly trying to convince investors its cash flow is strong enough to keep the company afloat. Should it succeed, the next challenge will be for this superfast scale-up to slow down and prioritise sustainability over growth.