To make his digital used car business known, Alex Chesterman (52) relies on one of the most expensive marketing channels of all: sports. The founder and CEO of the British platform Cazoo sponsors the English football clubs Aston Villa and Everton in the Premier League. He pumps money into three of the world’s biggest darts tournaments and the World Snooker Tour, horse racing, cricket and rugby. And from the summer, the company name will also be emblazoned on the jerseys of other football clubs in Europe: Cazoo will be the main sponsor of the traditional French club Olympique Marseille, the Spanish first division club Real Sociedad – and the Bundesliga club SC Freiburg.
The club is “like us, ambitious and result-oriented at the same time,” said Chesterman when the deal was announced. How much he pays for the commitment in Freiburg is not known. Predecessor Schwarzwaldmilch reportedly transferred almost three million euros a year to the club. It could hardly be cheaper for Cazoo.
Chesterman knows all about spending money. In a document just published by the US Securities and Exchange Commission, the company unraveled the sums that have flowed into the development of the business so far. The high-deficit company spent the equivalent of 76 million euros last year on marketing alone. All in all, Cazoo has accumulated a loss of around 775 million euros by the end of 2021. Last year alone, the British burned around 642 million euros with a turnover of 780 million euros. Chesterman’s advertising strategy in sports is not exclusive either. The German competitor Auto1 also praises its Autohero sub-brand at the soccer clubs Hertha BSC Berlin and Paris Saint-Germain, for example.
Cazoo, which was only founded in 2019, claims to want to digitize the still largely analog used car business and, according to Chesterman, to “Amazon for cars”. The British buy vehicles directly from private customers, prepare them and then market them online – including door-to-door delivery if a buyer so desires. In Great Britain Cazoo was able to convince almost 50,000 customers in 2021. A five percent market share in the largest European used car markets and 18 billion euros in sales should be the future.
In Germany, Cazoo is not yet a big player. The online car dealer only started here at the end of last year. Chesterman had previously gained market access by taking over the Munich car subscription start-up Cluno. According to the SEC document, Cazoo put the equivalent of a good 70 million euros on the table. Now the expansion should pick up speed, not only in Germany, also in other European markets such as France, Spain or Portugal.
Of course, Cazoo does not make any profits. With the equivalent of around 514 euros gross profit per used car sold, the British did better than their German competitor last year (Autohero: 418 euros). But they are miles away from the US industry leader Carvana (4,205 euros).
The numbers from the first quarter of 2022 give little hope that Cazoo will soon be able to close the gap. Sales increased by 102 percent to 19,713 units compared to the same period last year. The average gross profit per car melted down to just 145 euros. At Autohero, things went much better in the same period, with 14,558 cars sold and an average gross result of 718 euros per vehicle. Carvana came to 105,085 units and an average gross profit of 2,687 euros per car.
Online car dealers crash on the stock market
British investors have now become cautious. Since Cazoo started last summer with a Spac deal on the New York tech stock exchange Nasdaq, the price has fallen by 85 percent. The valuation recently fell below the one billion US dollar mark. However, the competition for Carvana (minus 85 percent) and Auto1 (minus 76 percent) has suffered badly on the stock exchange over the past six months. A current posse at Carvana shows just how nervous they are. According to several tweets from those affected, the US market leader fired around 2,500 employees on Tuesday – without style via a zoom meeting. The companies need money. Cazoo already reacted in February and issued convertible bonds worth 630 million dollars to an investor group around Viking Global Investors.
But the doubts about the business case remain. Apparently also at Cazoo itself. In the SEC publication, the company lists around 70 potential threats to its own business. Explosive: Cazoo speaks openly that it is “not in the interest” of the shareholders that CEO Alex Chesterman (23.3 percent) and major investor Daily Mail and General Trust (around 17 percent) together hold more than 40 percent of the shares. This could hinder a change of ownership in the future. The following quote also sounds less than optimistic: “While we believe that we will achieve profits in the future, these investments may not achieve the results expected. And as a result we cannot guarantee that we will achieve the profit levels anticipated, or at all will make profits.”