Cazoo Restructuring Bears Financial Fruit Amid Struggling Global Used Car Market

British online auto marketplace Cazoo said an intense focus on improving unit economics as well as restructuring activities which saw it ditch its other European businesses to concentrate exclusively on the U.K. market, are “starting to bear fruit.”

In a Thursday (April 27) press release announcing its earnings results for the first quarter of 2023, the U.K. used car retailer noted a gross profit of 14 million pounds (about $17.5 million), up 367% year on year, while retail units sold jumped 4% year on year to 13,314.

The focus on unit economics also led to retail gross profit per unit (GPU) increasing 64% quarter on quarter to 980 pounds (about $1,200) compared to 596 pounds (about $745) in Q4 2022, with the firm achieving a new retail GPU record level of over 1,200 pounds (about $1,500) in March.

Commenting on the results, Cazoo CEO Paul Whitehead said in the release that despite the challenging economic environment, he was “very pleased” with the firm’s Q1 performance, which saw robust demand in the quarter “as our online proposition continues to resonate with consumers due to the selection, transparency and convenience of using our platform.”

He added that the firm remains “laser-focused on improving our unit economics, optimizing our fixed cost base and maximizing our cash runway” to ease its path to profitability.

As PYMNTS has reported, low-price trends caused by high interest rates and limited demand have dampened the once-booming European used car market, which saw competition intensify during the pandemic as consumers embraced the convenience of buying and selling second-hand vehicles online.

See also: Used Car Sector Faces ‘Challenging Year’ as Consumers Cut Spending

According to the latest figures published by the Society of Motor Manufacturers and Traders (SMMT), used car transaction volume in the U.K., Europe’s largest used vehicle market worth over 100 billion pounds (about $125 billion) annually, was down 8.5% to about 6,890,000 transactions in 2022.

“The performance saw 640,179 fewer vehicles changing hands than in 2021 and remains -13.2% off 2019’s pre-pandemic total, as the squeeze on new car supply — primarily due to the global shortage of semiconductors — restricted stock entering the second-hand market,” the U.K. industry body noted in a February press release.

Global Used Car Market Shrinks

Like Cazoo, rival businesses in mainland Europe have had to put in place belt-tightening measures to weather the storm. Last year, Amsterdam-headquartered marketplace operator CarNext closed its operations in the Netherlands, announcing on its website that it had stopped selling used cars to consumers on its home turf.

The Dutch company, which was acquired by Constellation Automotive Group in October 2021, has also axed its business-to-consumer (B2C) business in Italy, Germany, Norway and more recently France, while maintaining its sales activity to business-to-business (B2B) customers in those countries.

And it’s not just in Europe. Across the pond, Carvana, the second-largest seller of used cars in the U.S., which experienced a crushing Q4 2022 during which unit sales and revenue dropped more than 20%, has said it expects continued declines into the first quarter and perhaps beyond.

“We expect our weekly retail unit sales volume to stabilize relative to the declines we saw in the second half of 2022 as the seasonal headwinds we faced at that time transition to seasonal tailwinds,” founder and CEO Ernie Garcia said earlier this year, noting plans to reduce expenses by another $100 million over the next two quarters, bringing the total reductions to more than $1 billion since the beginning of last year.

Research by PYMNTS also showed that American consumers have readjusted their buying strategy due to inflation and as a result are purchasing fewer vehicles.

Fifty-five percent of consumers said they did not buy a car in 2022 and likely won’t again this year, according to “New Reality Check: The Paycheck-to-Paycheck Report: The Economic Outlook and Sentiment Edition,” signaling a bleak outlook for the sector moving forward.

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