Auto Trader has said its purchase of Vanarama won’t ‘disrupt’ the market, instead it’ll offer more choice to customers.
The automotive marketplace shocked the motor trade this week but splashing out a cool £200m on leasing broker Autorama – more commonly known by its trading name of Vanarama.
But dealers expressed their concerns to Car Dealer saying that the buy-out will cause ‘conflict’ and put Auto Trader into ‘direct competition’ with them.
Auto Trader has sought to put the record straight about why its snapped up Vanarama and its plans in the short term.
Speaking exclusively to Car Dealer in a video you can watch above, Auto Trader chief operating officer Catherine Faiers said the acquisition will expand the company’s current leasing activity.
‘We’ve had an Auto Trader leasing marketplace since about 2019, and we’ve seen a growing number of consumers looking to buy their next car in this way,’ she said in the video.
‘Why is the leasing segment growing? Well, we’ve seen it being driven principally by the shift towards electric vehicles, where perhaps consumers are not as interested in taking the residual value risk, and the prospect of leasing the vehicle for perhaps two or three years is an attractive proposition.
‘So, we started to look at the market to see which of the leasing aggregators was performing well and would potentially be a good fit for our business, and Vanarama really stood out, particularly the investment they’ve made in that online transaction capability, and their focus on the consumer and consumer experience and service.’
Faiers explained that the purchase of Vanarama ‘strengthens’ Auto Trader’s current proposition.
She said: ‘We’re hoping that over time we can get more leasing companies, more funders, more retailers and more players operating and promoting their proposition through that marketplace.’
When asked if dealers should be worried about Auto Trader strengthening its position in the new car leasing market, Faiers said the company isn’t looking to ‘disrupt’.
‘Retailers underpin our business and our priority is always to be the best possible partner to our customers,’ she said.
‘I think this acquisition is entirely consistent with that.
‘It’s about strengthening an existing proposition that we’ve had for a number of years, in a small, but growing segment of the new car market.
‘We’re not creating a new market segment or disrupting one.
‘We think that the leasing segment that’s there today will grow and we want to be part of that growth.’
She added: ‘Also for our consumer brand, and for the strength of our proposition, we need to provide choice to consumers.’
Faiers explained that the leasing market is only going to take a larger slice of the new car market in the years to come.
Auto Trader estimates it could account for up to 15 per cent of new car sales in the next few years.
Eyebrows were raised by those in the motor trade this week not just because of Auto Trader’s out-of-the-blue announcement, but also because Autorama is currently a loss making company.
Its latest accounts show that it generated net revenue in 2021 of £26m and an EBITDA loss of £6m – after marketing costs of £9m.
When asked why Auto Trader has purchased a business in the red, Faiers said: ‘Ultimately, as with, as with any valuation, the valuation is the price you need to pay to acquire the business.
‘The business is backed by venture capital funders, and we wanted to avoid a wider sales process and complete the acquisition quickly.’
She added: ‘The business has been loss making for the last couple of years, largely because it’s been investing very significantly in technology and operations, and in marketing and building the brand.
‘The impact of that technology investment is really clear when you look at key KPIs, because the percentage of transactions that they’re completing online is higher than certainly any other player we met.
‘Similarly, the investment they’ve made in customer support and service really shines through in the Trustpilot and consumer satisfaction scores that we that we see.
‘With that investment in mind, we see that investment has created this scalable platform that the business can now can now grow from.
‘We’re confident that over time the level of incremental investment that we need to keep driving performance will be less than has been needed historically.’
Faiers also revealed that Auto Trader has no plans to axe the Vanarama name, but allow it to continue as a ‘separate entity’ and allow it to ‘drive growth’.
Also, Auto Trader won’t throttle back on Vanarama’s recent aggressive marketing in the Football League, at least in the short term.
Vanrama was founded by entrepreneur Andy Alderson in 2004 as a used car retailer, before moving into B2B commercial vehicle leasing in 2007.
Alderson told Car Dealer in 2020 he saved up to £50k, remortgaged his house and borrowed money from the bank to get the business off the ground.
It has sold more than 120,000 cars to date.
Car Dealer visited Vanarama in 2020 and produced a special Car Dealer Live video (below).
In it, Alderson explains how the business was founded, and why he kept the Vanarama name above the door despite the business diversifying into new car leasing.