Online used car disruptor Cazoo is to slash 750 jobs, end its subscription service and rationalise assets in a huge cost-cutting plan.
The troubled firm – which has seen its share price plummet 87 per cent since it listed on the NYSE – is aiming to save £200m over the next 18 months.
Blaming the ‘economic climate’ for its troubles, the business says it will also cut its marketing spend.
It is planning to cut its vehicle preparation centres from 10 to eight, has reduced its revenue forecast for 2022 by £500m and said it will now make less on each car it sells than it previously planned.
Outlining a ‘business realignment plan’ today (Jun 7), Cazoo said that it has a strong balance sheet of £400m in cash and £200m of self-financed stock.
However, it still needs to ‘right-size the business’ as it aims to move towards ‘profitable growth’.
Founder Alex Chesterman said: ‘I am very proud of the incredible team and business we have built so far.
‘The opportunity ahead of us remains as exciting as ever and we continue to see record sales levels, despite the challenging economic environment.
‘However, we need to be laser-focused with our drive towards profitability and preservation of capital.
‘We currently have a very strong balance sheet with over £400m of cash and over £200m of self-financed inventory, and we believe that our business realignment plan will ensure that we are well-positioned to achieve our long-term targets and capture the enormous market opportunity.
‘The size of the prize is huge, and I have no doubt that our business will be stronger as a result of the actions we are taking now, that we will continue to grow at a fast pace and will win.’
The plan emerged just a few days after rival online used car dealer Carzam closed its doors for good as it entered voluntary receivership.
Carzam co-founder Peter Waddell blamed Cazoo for his firm’s struggles to raise capital in an interview with The Times yesterday.
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As well as cutting 15 per cent of its workforce, Cazoo says it will slow the pace of new hiring.
It is limiting ‘capital expenditure’ and will also be delaying a number of planned investment projects.
Cazoo says it will rationalise its vehicle preparation centres down from 10 to eight and look at doing the same with its customer support sites to drive efficiency.
Although it gives no further clue as to what this will mean, it could mean the closure of some of the handover sites it set up following the acquisition of Imperial Cars.
Cazoo says it will be ‘modifying its consumer proposition’ to drive down costs and will be looking for ‘operating efficiencies’ elsewhere.
Cazoo will also be slowing the rate at which it plans to grow as it looks to grow profitability instead.
This year it says it will sell around 70,000-80,000 used cars to retail customers and generate revenues of around £1.4bn.
Previously, it said it would sell 100,000 cars and generate revenues of £2bn.
It also wants to increase its profit per unit to between £500 and £600 from a little over £100 per car currently.
The £500-600 figure is still well below that achieved by established car dealers, such as Vertu Motors, which makes well over £1,500 per car.
And the business says it is now planning to break even in the UK by the end of 2023.
The announcement added: ‘As part of the actions being taken, the company will no longer be offering its subscription service to new subscribers from the end of June, given the highly cash-consumptive nature of this business model, but will continue to benefit from a sourcing perspective in the short term as existing subscription contracts come to an end.
‘It is expected that the combination of these initiatives will result in cash savings to the company’s budget of over £200m during the period from June 1, 2022 to December 31, 2023 with approximately 750 roles being impacted across the business.
‘The company will continue to evaluate its business plan as necessary to address trends in the marketplace and macroeconomic factors.’
Zeus Capital analyst Mike Allen said the announcement was fundamentally a ‘profit warning’.
He told Car Dealer: ‘Investor appetite is next to non-existent for these types of businesses now. The funding markets are incredibly tough, so they needed to preserve what cash they have got for longer.
‘Clearly, the trading environment is not what it was last year and looks like it will get tougher. I have some sympathy for them as they put their business plan together pre-Covid, so it would have looked weird if they didn’t do anything.
‘Raising money is going to be harder for them, so they need to make moves like this to protect the money they have got.’