What next for CarNext and others in the European used car business?

When CarNext was established in 2017 as a subsidiary of Leaseplan – one of the largest leasing companies in Europe, focused mainly on the B2B market – we thought this could be a breakthrough development.  The idea of CarNext was that it provided LeasePlan with a stronger presence in the B2C sector that allowed them to sell their ex-lease cars directly to consumers through a limited physical network and online channels.  A number of other leasing and rental companies such as Arval and Hertz followed a similar route at the time.  This was significant as these companies are an important source of younger used cars for the trade, particularly in the independent sector, and a successful direct retail operation would reduce that flow.  It also had the potential to disrupt the sector more broadly, as the lease companies could leverage their existing new car business to offer lease deals to consumers on the 3-4 year old cars, including bundled aftersales using their existing partner network.

In practice, things did not develop that way – not because the concept was wrong or the demand was absent, but arguably because Leaseplan management did not give their own child the backing and authority to fully develop the business.  In a market where standing out from the crowd in used car listings is key, not enough seemed to be done to promote the brand itself.  Actively buying the right products at the right price is one of the ‘golden rules’ that we advocate for used car success, but CarNext was restricted to buying from its parent company, at prices that did not reflect good value.  This also meant that the consumer offer was extremely limited – great if you wanted a 3-4 year old car, but the company did not have a mandate to go out into the market and actively source younger or older product.  The UK business – which seemed to have lukewarm backing anyway from local Leaseplan UK management – was closed a year ago, although the total business was reported as having sold 40,000 cars B2C and 200,000 B2B in 2020.  However in July this year, the whole CarNext business was sold to a consortium of investors including TDR Capital and a number of the other investors in Leaseplan.  At the time, one perceived benefit of spinning CarNext out of Leaseplan and broadening its business base was that a broader business would generate better data to inform their trading algorithms – surely a milestone when big data has been raised to the level of driving a corporate transaction.

Things took a new twist last week, when CarNext was sold again, this time to Constellation Automotive Group, the owner of BCA (one of the major auction houses in Europe) and cinch (an online used car marketplace, launched in 2019).  The shareholders in Constellation are again closely related to those of CarNext and Leaseplan with TDR Capital being the common thread, so it remains ‘within the family’ and the transactions might be more linked to the workings of private equity funds than any change of strategic intention.  However, it now means that we have two well-financed used car start-ups who have their eyes set on expanding out from the UK into continental Europe – Cazoo and cinch.  Both are pursuing an online-led model, though both have some physical capacity as well, so should be more accurately considered as omni-channel.  Both recognise the criticality of data to drive the used car business and have invested in data science to drive sourcing and disposal decisions.  Both have war chests that are bulging with newly-raised capital to allow them to pursue their ambitions in Europe.

Even as we are coming into the last couple months of 2021, I would not rule out further acquisitions this year by either player that build their local presence in some key European markets.  Although some dealers there have significantly upped their game in the last few years, others are asleep at the wheel, and do not invest as much time and energy in their used car business as it deserves.  The wake-up call is coming, and with both the new car and aftersales business also under pressure for different reasons, there is no time to lose.