SELLING cars is easy, right? Buyers turn up, open their wallets, hand over the asking price and drive off.
They’re so happy they tell all their friends on social media and down the pub, and after a few weeks you have a stream of customers queuing around the block ready to buy whatever stock you can get your hands on.
Business booms, you buy a Ferrari and sail away into the sunset on your luxury yacht.
Of course, I’m being facetious. I know how complex running a car dealership is. Good dealers make selling cars look easy which must be why so many people outside the industry think they can do better.
Our Car Dealer Forum is awash with wannabe traders looking to start up in the motor industry. More seasoned members give them some ‘advice’, but many new entrants forget this is a competitive boxing ring – and giving away the best way to sell cars, or buy them for stock, isn’t something successful business people want to do.
It makes me wonder how big new entrants to the used car market, like the online-only retailer Cazoo, think they can make it work. Talk to any dealer out there and they’ll tell you how tough it is right now.
There are plenty of very talented, experienced motor trade veterans running dealerships that are making shoestring margins and having to pedal very fast to earn them.
Do you not think that if there was more money to be made selling used cars online-only they would have done it by now?
Cazoo is an online retailer brought to life by Alex Chesterman, the man who launched Zoopla.
He’s raised £80m from venture capitalists to fund the site and it’s being run by a team rumoured to number in the hundreds from London. The site launched a few weeks ago with more than 1,500 used cars for sale.
Everything is done online – from cash sales to finance, part-exchanges valued remotely and then picked up when the purchased car is dropped off as little as 72 hours later. They even offer a seven-day money-back guarantee and a 90-day warranty.
The concept sounds pretty good – but at the risk of sounding like a dinosaur, I’m not convinced enough people are ready to buy cars – especially used ones – online. Buyers want to try used cars out for size, touch them and, importantly, drive them.
Every used model is different and it doesn’t matter how many pictures you take of it, they will never compare to seeing the paintwork under different lights, working out if your favourite bag fits in the footwell, or discovering if you can understand the multimedia system.
They’re subtle things, but cars are big purchases people want to take their time over.
Falling in love
The mistake Cazoo seems to have made is thinking cars can be commoditised. They’ve forgotten that a lot of people buy a car after falling in love on a test drive.
These are emotive purchases, statements of personality – if they’re not, then why are all cars different? If no-one cared, we’d all be driving the same model.
The Cazoo story might sound familiar. Some of you will remember Tesco’s foray into selling cars which lasted less than a year in 2011.
That was an online sales solution which even one of the biggest supermarket brands in the country couldn’t make work – despite the marketing power and Club Card data at their disposal.
To cut a long story short, they couldn’t get hold of enough stock and discovered simply not enough people were buying online.
Dealers I’ve spoken to – including bosses of big groups and MDs of family-run sites – have already written Cazoo off. They say the margins are too tight.
One told me he made an average of £1,000 on a used car – but Cazoo will have to factor in delivery (£300 a car) and huge prep costs, not to mention the overheads involved in employing hundreds of expensive staff.
Add in the problems warranty work could cause them, the potentially huge cost of collecting cars customers don’t want after seven days and all the other hassle that comes with selling used cars that you only learn after years in the business, and it doesn’t take a mathematician to see the numbers don’t add up.
Cazoo needs scale – huge scale – and is banking on car buyers being too lazy to get off their sofas and get a deal in their local showroom.
They think customers don’t want to haggle (so Cazoo prices are fixed); that they don’t want to travel; and that they hate traditional car dealers.
In a recent interview, Chesterman said: ‘Used cars are one of the last remaining consumer markets yet to benefit from any digital transformation.’
I don’t think that’s true. There are billions of pounds invested in selling cars in this country and if that transformation was ready to happen, a dealer group or manufacturer would have cracked it by now.
Ok, so Zoopla may have been a huge success, but selling houses isn’t like selling cars. For a start, the latter depreciates every day, and Cazoo bought cars in October that it’s only begun selling now.
With decisions like that, £80m will disappear pretty quickly. I think Cazoo has bitten off more than it can chew.
It’s a classic case of ‘we know better than they do’ which is what a lot of outsiders think when they look in on the car industry. Tesco learned very quickly they didn’t know better and I think Chesterman will too.
James Baggott is the founder of Car Dealer Magazine and chief executive officer of parent company @BaizeGroup, an automotive services provider. He now spends most of his time on Twitter @CarDealerEd and annoying the rest of us.