Online car retailer Carzam has entered administration, as the market for used cars booms and competition for low mileage stock intensifies across the dealer network in the UK. Many would be car buyers are frustrated by the supply chain problems surrounding new cars, with some buyers waiting nine months for delivery on a new car. All that fuels demand in the used sector, but although prices are rising, the cost of storing, selling, online marketing, transporting, repairing and valeting cars has also increased – margins are tight, even on 20K plus car deals.
Carzam founder Peter Waddell told Car Dealer magazine that if Cazoo’s share price hadn’t collapsed, then Carzam could have secured extra capital and kept going, even though Carzam hasn’t made a profit in 18 months.
It’s an interesting argument, and one that has parallels with the insurtech sector; at what point should investors expect a return on start-ups and does the performance of immediate rivals affect investor sentiment towards your company? If so, why should that be the case if you had faith in the concept and the company just a couple of years ago?
Waddell says he will now focus more closely on Big Motoring World, which is a used car supermarket type operation, which does make money.
There is some debate in the motoring trade press about whether Cazoo, Cinch and Carzam can disrupt the established franchised dealer chain networks, plus independent dealerships. Perhaps when supplies of chips improve and new cars can be sold easily on lease/loan packages, we will see which online retailers can deliver a workable business model for taking in PX vehicles – at a guaranteed price – then selling them on, without losing money.
The problem for the motor trade is that people have high expectations of perfect `as new’ condition vehicles, plus smooth PX/delivery service when shopping online, but also want rock bottom prices when they do comparisions on same make, model and spec of car.
CAR DELIVERY IS A DIPLOMATIC CORPS JOB
Fact is, delivery and collection of vehicles is a specialist job, requiring a certain level of skill in assessing vehicle condition, reading people, diplomacy when things go wrong and resoucefulness when faced with traffic jams or minor damage not listed on the email and photos. If you offer minimum wage for roles like that, you risk daily failure and if you pay good wages, your margins shrink even more.
It isn’t easy to disrupt an existing model where the customer drives their own PX car to a dealership and signs a 29% APR agreement on a newer one with a cheery smile.