Here's Why Cazoo Collapsed

This video is sponsored by Ground News, Alright guys, how are you doing? Welcome back, today we dive into the dramatic fall of Kazoo, once a rising star in the online used car market, so book in as we explore what led to its demise last month. Kazo officially entered administration and that marked a significant turnaround for the company. It was such an ambitious company that it planned to revolutionize the entire used car buying process, so let's look at the key events that led to this moment. Kazo was founded in 2018 by a guy called Alex Chesterman, now Alex Chesterman, he was responsible for founding Love Film and also Zuper, the latter of which he sold for 2.2 billion, so he's a very rich guy and I personally admire a lot businessmen like him.

Sometimes I'm a little risk averse. I need to kick the butt to really do something or take that leap so I really like to explore and research stories like Alex Chesterman's because I find them really fascinating after his previous successes with love movies and zuper, then he went after what was used. In the car business, their goal was to make the process of buying a car as simple as buying any other product online, which makes sense. They expanded rapidly by investing heavily in marketing and even ventured into continental Europe, but beneath the surface financial problems were brewing now as a used car dealer.

I myself remember hearing about Kazoo for the first time in 2019 and was quite worried. I thought this might be the end of days for people like me, although having said that and I've said it in previous videos many years ago, I just couldn't see it. The whole idea works the principle makes sense but people don't buy used cars so it would be like trying to revolutionize the house buying process without letting someone go and look at the house first t

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just aren't some things you can't buy blindly online and Ed cars are one of those. I also have the perfect example of this.

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I was contemplating getting rid of my Range Rover and buying a Tesla model, so I went. I went on the Tesla website and you know, I set it up and I thought, I'll buy it and then I thought no. I better go and drive it and make sure I'm happy. I did it and I was not happy at all. so you need to test drive the cars, you need to go see them and make sure it's what you want to live with and in my opinion that's why these online car buying sites eventually struggle and then fail all together modes and return to Kazoo so that We are expanding rapidly now as a car dealer Ed.

I can tell you that growing too fast is a double-edged sword. Yes, you want growth, you want to control more of the market, but before you know it, the costs just go up. control and there is no way to recover it. Kazuo's heavy spending on marketing and sponsorships probably looks great on the surface, but it's a risky move if revenue doesn't recover quickly enough, and Kazuo's rapid expansion came with significant costs for the company. Spent heavily on marketing campaigns, including some high-profile sports sponsorships, this aggressive growth strategy was aimed at quickly capturing market share, but led to increasing expenses in the early days.

Kazuo's business model seemed promising, customers could purchase a Finance or Lisa car completely online, all from the comfort of their own home and then within a few days the car would be delivered to the door now that in theory it is perfect, it's the most convenient way to buy a used car, it couldn't be simpler and that element of convenience attracted a lot of attention and something else worth noting, they arrived just at the right time, do you remember what happened early of 2020? The world closed. No one could go out and buy a used car even if they wanted to, so these types of online businesses flourished. with social distancing and masks and all that kind of stuff, people could just order a car, get it delivered and then just hand over the keys with no contact at all, it was almost like a perfect storm, it was the right place, the right time to kazoo at that time. so.

It just made sense and over those two years they flourished. However, the used car market is notoriously difficult. I know as well as anyone, unlike other online retail sectors, car sales involve complex logistics, significant overhead costs, and the need for substantial capital to maintain inventory. Kazo High operating cost quickly became a big burden, let's not forget, plus during covid prices were inflated, it was a really crazy time when we were paying fortunes for cars. Personally, I didn't realize they were selling for a premium, so we had a very busy run where we were. delivering cars all the time and then we just couldn't replace them and when we did, in many cases we were paying retail prices for these cars and then putting a small margin on them, it was a really strange time.

That running a used car business is not just about buying a car and then selling it, there is much more to it than that. Logistics inventory management, customer service, all are critical. Kazuo's model of delivering cars directly to customers sounds good. convenient, but managing logistics and maintaining quality adds a lot of costs. Traditional dealerships like mine still have their advantages, so for example I have a presence on the street, so I can drive by, people from the trade can come for test drives and physically look and touch. a car before agreeing to buy it, people still like it this is still a very important factor.

I still truly believe that most people want to go sit in a car and make sure it feels good before they agree to buy it. Also let me let you in on a It's a bit of a secret, there is something called long distance selling law which is linked to consumer rights law, so if you buy a car locally and have it delivered to your door, you, As a consumer, you have 14 days to reject that vehicle without any reason. It doesn't have to break, there can't be any faults at all, you could just change your mind and it's your right to return that car to the dealer.

So to be honest, I learned this the hard way during Covid. so I don't do that anymore, we offer delivery in person, but first you have to come and see the car, test drive it, make sure you're happy with it and then we can arrange delivery at a later date, we don't do things blindly. Car sales are no more because I've been stung too many times and for companies like Kazoo, where their entire business model is based on that, they will suffer. I'm sure I don't know the percentages, but hey, they're ruined. That says everything. I'm sure many customers have taken advantage of the fact that in March of this year Kazoo faced serious financial stress, they missed a critical $5.3 million interest payment, putting them at risk of default.

Additionally, they did not file their 2023 accounts on time, leading to a default notice from the New York Stock Exchange, things just weren't looking good, another major issue with market conditions, the economic climate, including rising inflation and interest rates, which severely affected consumer spending and confidence, the demand for used cars. It fluctuates all the time and, in my opinion, Kazoo struggled to adapt to these changes quickly and efficiently in early May. Kazoo announced that they needed additional capital just to say a float, which is a pretty worrying sign that they are obviously burning a lot of investors. cash, so they sought new funding and explored selling parts of the business, but these efforts failed, consequently the board decided that it was best for shareholders to simply close the doors despite entering administration.

Around 200 employees have been temporarily retained. The administrators are working. sell various kazoo assets to create value for creditors and preserve jobs where possible, the future of kazuo's online marketplace model remains uncertain, but administrators are hopeful of securing a sale, an extraordinary general meeting with shareholders is scheduled for this week, actually not just to discuss the I have plans to close the company now if you like me and want to stay up to date with what's happening in the automotive world. I have just what thanks to today's video on sponsor news. There is so much information available that it can be difficult. to verify information and that is often because we lack context about the source of our news and that is where Ground News comes into play.

It was created by a former Nassa engineer and Ground News is an app and website designed to empower readers to navigate our complex media landscape. It brings together related articles from over 50,000 sources around the world in one place so you can compare how different news outlets cover the same story. It also provides context about the information source, including its political bias, how reliable its reporting practices are, and who owns the source and all the data. These are backed by ratings from three independent news monitoring organizations. I found Kazoo's story when I was on their automotive interest page, so it helps me stay up to date with what's happening in the automotive world.

Take the recent news about Kazuo's collapse. I have 15 different sources for this story. You can see all sources across the political spectrum and even a map showing that most sources are from the UK. I can see some sources saying 200 jobs are at risk, while others provide deeper context on Kazo. collapsing after acting in over 700 jobs now not wanting to sound like Donald Trump, there is a lot of fake news out there, so comparing articles with different headlines only helps give you a more complete view of the news you consume. The terrestrial news has additions for different regions too, so I'm using the UK version, but you can switch to the US, Europe or others if that's what you're interested in.

Personally, I like how terrestrial news helps me access different points of view not only across the political spectrum but around the world. Just think of it as a great tool for finding common ground between perspectives. If you want to try it yourself, all you need to do is go to the field. news/AOS or scan my QR code and try it. If you sign up through my link, you'll get 40% off the Vantage plan, which is what I use to get unlimited access to all features. I think Ground News is doing very important work. So I hope you give them a try and thanks for sponsoring today's video to Kazoo.

Then let's dive into some of the specific challenges Kazoo faced. One of the key problems was their pricing strategy. Now they deliberately sought to be a little cheaper than the others. I don't think that's the way to go. I know firsthand: the actual profit margin on the car is quite small, so squeezing it out yields nothing. In the used car business there are two opportunities to make profits. of a car, one is what is known as a chassis profit, so basically, if you buy a car for £5,000 and sell it for £6,000, you will make a gross profit of £1,000 on the chassis of that car, that's it if you don't sell anything else. warranties or anything else, you just get £1,000 off the car, end of story, but then your second chance, your second bite at Cherry, is then to sell more product, so paint protection guarantees all that sort of stuff , that's where you make some money.

Now to be honest I don't believe in any of that so I never do that which is probably missing a trick but I just don't like it. I don't like all the hard selling of warranties and super. guard and all that kind of stuff, so everything I do for my business is just making a profit off the chassis, so I'm always reluctant to reduce prices because I don't need to be the cheapest person out there and that I think, in Ultimately, it's another reason why Kazoo failed. Another area where you can get ahead in the used car business is vehicle preparation.

Now you've heard me say frequently in these videos that I've grossly overspent and that's part of the risk, so buy. a car that you might think is okay, so you take it to your mechanic or body shop to do the work necessary to put it up for sale and then you end up massively overspending now in my little used car garage that sells 40 cars a month on my bills. Honestly they are looking so I can't imagine what someone like Kazo was like and kazoo invested a lot in their reconditioning centersof vehicles, which aimed to ensure that each car met a high standard before being sold, which is commendable, but the cost simply escapes itself now.

While this could have improved customer satisfaction. There is no business there, you can't price your cars cheaply and then spend a lot on them, there is nothing there. You know what I mean? Another factor was Kazuo's decision to expand into mainland Europe, now that he has lived in Spain for almost 10 years now I know that the used car market in mainland Europe is nothing like that in the UK. This move was ambitious, but came at a time when the European market was experiencing its own economic difficulties, the cost associated with establishing operations in new countries and shipping.

New regulatory environments put further pressure on Kazoo's finances, so let's talk about customer experience. Many customers appreciated the ease of purchasing a car online, but others missed out on the traditional test drive experience. Buying a new used car is a big deal for many wishing people. go there and have a cup of tea and chat to the salesman and test drive the car and make sure the suitcase fits in the back and make sure it fits in the driveway and all that sort of stuff you can't do from that. your rocking chair at home now this presented a challenge for Kazoo as they had to balance the online model with the expectations of customers accustomed to a more hands-on approach.

In my experience, customers really value the ability to see and test drive a car before it is built. a purchase, so while it might have been the perfect thing during lockdown, luckily we're not in lockdown anymore so there's nothing to do there, I don't really see how it would work and I'm not really one of those people who sit back and say: I told you, but I remember it clearly. By making a video 3 or four years ago where I predicted this would happen, you see that Kazuo's model requires a lot of trust from the customers and why should the customer trust a company like that, which is so new with a unproven track record, plus Kazuo's customer service? and after-sales support were critical again.

I've dealt with this many times firsthand, but handling returns and complaints in the used car business is different from many other retail sectors; It's a fine line to walk between ensuring your company's profitability and also keeping your customers. Happy, it's really hard, it's something I still struggle with today, so I can completely understand why someone like Kazoo quickly became unstuck. Now let's consider the broader economic factors it had. Increase in interest rates. Increase in inflation. All this destroyed customer confidence. I'm not the chancellor, but I know that whenever this happens with interest rates rising and inflation rising, there is always a decrease in higher value items, so the housing market always softens.

The same goes for used cars. This macroeconomic change hit Kazoo hard because we were heavily reliant on heavy customer spending and again during Co and shortly after we were in strange times, people had a lot more disposable income because they couldn't go on vacation, so things were improving. cars. Those days are gone, although another issue was the competitive landscape from other online and brick-and-mortar auto retailers. Dealers have also increased their digital offerings and it's much easier for a large, established dealership chain to suddenly pivot to selling things online or make it more convenient than it is for a new company starting out and just going all-in on this business model.

Increased competition zo found it more difficult to maintain its market share and grow its customer base, as projected, competition in the used car market is fierce, so for example, we are now in the village from Romley, which is a small town on the outskirts of Stockport. There are eight used car dealerships, nine, all competing with each other and that's just one Village in the whole UK. Companies like Kazoo have made traditional dealerships like mine adapt. You know, there are more online services, which makes it more difficult for purely online players like Kazo. Customers often prefer a combination of traditional and online.

You can't just go down an avenue. I think you should keep your options open and Broad to give you a sense of scale at its peak. Kazoo had over 3,000 employees and a fleet of thousands of vehicles now. I can't imagine the headaches associated with running such a large company, but managing such a large operation requires significant capital and efficient logistics areas where I believe Kazoo struggled to balance cost and service despite these challenges. Kazoo had a loyal customer base and managed to complete over 990,000 transactions, which is commendable and admirable as it shows that there was a demand for its service, but operational and financial issues ultimately overshadowed its successes.

In conclusion, Kazuo's story is one of great ambitions and significant challenges. His attempt to disrupt the used car market with his online-only approach was rather short-lived. I just think they faced too many obstacles due to high operating costs, rapid expansion, fluctuating market conditions, and intense competition. What do you think I would love to hear? your comments below, do you think your idea was flawed from the beginning or do you think it was due to economic conditions or do you know the rapid growth? Let me know what you think. Below in the comments and we will have the conversation.

Personally I think so. It was flawed from the beginning. I just can't see an online-only approach working in the used car business. Well, I think that's it guys, thanks for watching and thanks to Ground News for sponsoring today's video and yeah, make sure to follow me. Facebook Instagram Twitter and Tik Tok I leave the links below until next time