Vancouver-based auto marketplace Canada Drives is undergoing restructuring of its business operations after filing for creditor protection.
On Tuesday, the used vehicle retailer announced plans to narrow down its business lines. To implement its restructuring plans, Canada Drives said it has filed for and was granted creditor protection under the Creditors Arrangement Act.
“The rising costs of holding inventory, amongst other headwinds, has made this specific business model no longer viable in the long-term.”
The restructuring follows existing struggles at Canada Drives, which made staff cuts earlier this year, citing macroeconomic conditions. At the time, Canada Drives declined to share the number of people laid off.
Even while Canada Drives raised $50 million CAD in equity financing in October, Canada Drives told The Globe and Mail at the time that it reduced hiring plans after failing to raise a targeted $100 million.
Founded in 2010, Canada Drives offered a platform for users to buy, sell, and trade-in vehicles through its platform. The startup would buy, inspect, recondition, and certify all of the used cars on its platform, holding its own inventory. Canada Drives also provides financing options, and picks up and delivers cars directly from and to customers once purchased.
As part of its plan to trim its business operations, Canada Drives will only focus on two specific business lines, and is cutting those back. Canada Drives will continue to run its marketplace, but rather than holding vehicle inventory itself, sales will be facilitated via a network of automotive dealerships throughout Canada. Car financing options will also now be facilitated through automotive dealerships.
“The rising costs of holding inventory, amongst other headwinds, has made this specific business model no longer viable in the long-term,” wrote Canada Drives in its statement. “During this transition, Canada Drives intends to continue delivering its industry-leading car shopping experience to Canadians on all its existing inventory and honoring its commitments to both present and future customers.”
According to the company, this restructuring plan will enable it to “scale a less capital intensive and profitable business.”
RELATED: Layoffs spread to Clutch, Canada Drives as online auto marketplaces gear down
Canada Drives is part of a growing number of Canadian tech startups that are facing liquidity issues as the sector faces tough fundraising conditions, inflation, and high interest rates, among other market variables.
Specifically, online used car marketplaces are also feeling the crunch. Toronto-based Clutch, which also operates in the on-demand used car industry, laid off roughly 65 percent of its staff in January. Clutch also reduced its geographic reach after market conditions prompted the startup to halt the final stages of closing the $95 million CAD Series C round.
South of the border, online car marketplaces are also facing challenges. Tempe, Arizona-based Carvana cut some 1,500 employees, or roughly eight percent of its workforce late last year. In its third quarter 2022 earnings report, Carvana warned that looking ahead to the fourth quarter it faced reduced demand for used cars, increasing interest rates, and higher used vehicle depreciation rates.
Feature image courtesy Canada Drives.