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GIANT UK digital used-car company Cazoo has shocked the global automotive industry by stating in a securities commission document that it cannot guarantee it will “achieve profit at all”.

This from a company that has already accumulated £660 million ($A1 billion) in losses selling used cars online.

The report indicates the knife-edge financial position of some high-flying digital used-car businesses in an era of fierce competition, soaring used car prices and dwindling used-car stock.

In its report issued to the US Securities and Exchange Commission (UK-based Cazoo is listed on the New York stock exchange), Cazoo outlined its potential business risks and pitfalls of its online car retail and vehicle subscription model.

 

The report, issued to the Securities and Exchange Commission (SEC), an independent agency of the US federal government, also detailed the fees paid for nine business acquisitions since its December 2019 launch.

Cazoo reported first quarter 2022 gross profit in its UK operation of only £124 ($A220), down 19 per cent on the previous corresponding period. It posted a loss of £550 million ($A975m) in 2021.

But revenue was up on demand for its vehicles and expansion into France and Germany. Revenue for the first quarter was up 159 per cent to £295 million ($A523m) and sales volume hit a record 19,713 units, up 102 per cent on the previous period in 2021.

In its SEC report, Cazoo said: “We have not been profitable since we began operations in December 2019 and had an accumulated loss of approximately £664.3 million ($A1.18b) as of December 31, 2021.

“We expect to continue to incur losses in the near future as we make significant investments to further develop and expand our business (including investments in the acquisition of synergistic companies, infrastructure, advertising and the expansion of our vehicle inventory).

“While we believe we will become profitable in the future, these investments may not achieve the anticipated results and as such we cannot guarantee we will become profitable, achieve the levels of profit anticipated or achieve profit at all.”

Cazoo


Automotive Management reported that in detailing the money spent on growing the business through acquisition for the first time, Cazoo’s report stated that: 

  • £23.8m ($A42.2m) was spent to acquire UK used-car supermarket group Imperial Cars
  • £65.4m ($A115.9m) on car subscription firm Drover
  • £39.1m ($A69.3m) on car reconditioning group Smart Fleet Solutions
  • £60.4m ($A107m) on German subscription service business Cluno
  • £76.5m ($A135.6m) on UK logistics company SMH Fleet Solutions
  • £23.7m ($A42m) on UK vehicle valuation and stock management firm Cazana
  • £23.6m ($A41.8m) on Spanish car subscription business Swipcar
  • £7.9m ($A14m) on Bristol-based online commercial vehicle retailer Vans365
  • £80m ($A141.8m) buying Italian online car retailer and subscription service provider Brumbrum. 
  • Total: $A709.6 million.

AM reports that in 2021 alone, Cazoo also spent £65.2 million ($A115.6m) on marketing, customer experience, advertising and other marketing related costs.

It now operates 21 customer centres and 10 vehicle preparation centres in the UK and plans to add similar centres in selected EU countries.

But the SEC report spelled out almost 70 potential issues with the business as it continued to drive rapid growth across Europe.

Among the potential pitfalls, it listed:

  • Traditional car dealers or marketplaces who could increase investment in technology and infrastructure to compete directly with our online retail model or online retail platforms such as Cinch in the UK and AutoHero in Europe.
  • Search engines and vehicle listings sites and new entrants that could change their models to directly compete with us, such as Google, Amazon and AutoTrader.co.uk and Motors.co.uk.
  • OEMs that could change their sales models through technology and infrastructure investments and enter into the subscription and/or direct online retail sales market themselves.

AM said that the report submitted to the SEC also conceded that the combination of Cazoo founder Alex Chesterman’s 23.2 per cent stake in the business, combined with that of Daily Mail-owned DMGT, was “not in the interest of our shareholders” as it could inhibit a future change of ownership.

By Neil Dowling

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