“Online car remarketing needs a reset”
CarNext and Cazoo: both big names in online car remarketing – both recently cutting back the range of their services. What’s wrong? Nothing, at least not in theory. “But in practice, the sector suffers from high overhead. The concept needs a reset”, says Michel van Roon (pictured), remarketing specialist and consultant.
Last week, Fleet Europe reported that CarNext is ending its B2C activities in both Germany and Norway. It was only the latest in a string of similar announcements in recent weeks. Cazoo announced that it would cease its activities in the EU to refocus on the UK, its home market. It’s a trend not limited to Europe: in North America, online vehicle remarketing specialist Carvana’s stock value has plummeted, reflecting disappointing results.
To the casual observer, the sector’s dire straits may seem puzzling. Haven’t the residual values of used cars gone through the roof? Indeed, and they’ve proved a valuable windfall for lease companies and other large fleets that are selling used cars. But not everyone is reaping the benefits of those wide profit margins – certainly not the online platforms that are merely connecting sellers and buyers of used vehicles.
However, “the fundamentals of online car remarketing are good. And there’s certainly a lot we can learn from the first generation of players in this space. But the sector suffers from high overhead. Online car remarketing needs a reset”, says Mr Van Roon, Director of GO Remarketing Solutions in Den Bosch (Netherlands) and a specialist and consultant in Automotive Retail Sales Remarketing IT & Product Development.
Trading used vehicles online, be it B2B or B2C, offers wider choice – and ultimately, better prices – to both sellers and buyers, compared to the industry’s analog past. That’s the theory. So where did the practice go wrong? Mr Van Roon sees three areas.
“Firstly, if you’re an online remarketer who actually buys the vehicles you’re selling, you have to acquire or pay for a whole lot of competences, from logistics over inspections and repairs to auctioning. Even for a used car selling at €15,000, that can easily add up to 3% overhead. That’s a lot, certainly considering gross margins on used vehicles have shrunk, from 15% to 20% a few years ago to 10%, 15% at most today. This makes it pretty hard to earn back the cost of those competences.”
A second element increasing unnecessary overhead: personnel. “Highly-paid MBAs – let’s say they cost €8,000 a month each – crowding the hierarchies of many companies. The sector could do with fewer of these, and with some more practically-minded people, who are cheaper, and have a better understanding of how to market used cars.”
There’s a common element to these two factors, Mr Van Roon says: “Until recently, online car remarketers were flush with money. They were highly valued on the stock market, and received plenty of money from investors. The idea was that this was the way forward to disrupt the used-car business.”
It may still be, but – and that brings us to Mr Van Roon’s third point, consumer sentiment has turned. “I don’t think the problem is that these companies have brick-and-mortar footprints, on the contrary. I believe physical showrooms have value. That’s because people only buy things online with what I call ‘hobby money’. If it’s money they can’t afford to miss, they would rather see and touch the merchandise in person. So, the current cost of living crisis means people have less money to spend, and that’s taking a toll on purely online used vehicle sales.”
But in the end, Mr Van Roon still believes in the fundamental soundness of the online vehicle remarketing formula. “We still have to work out some kinks in the concept. What if I don’t like the car I’ve bought online, but I’ve already traded in my old car? Things like that. And we can do it, but not with the large overhead many players have today.”
Which means: “Physical showrooms: yes, but smaller ones. Make your organization leaner, more streamlined. And I believe this will work. Because digitization won’t go away. We just have to find a way to do it right.”
Image: GO Remarketing Solutions