As Canada’s tech layoffs continue apace, the on-demand used car industry is facing its own crunch. Online vehicle retailers Clutch and Canada Drives both recently announced staff cuts, citing current economic conditions.
Clutch is laying off 148 people, roughly 65 percent of its staff, while Canada Drives confirmed to BetaKit it has also made cuts, but declined to share the number of people laid off.
Clutch CEO Dan Park wrote in a blog post that its massive staff reduction follows “the challenging market conditions” causing the startup to lose out on a $95 million CAD Series C round.
This is the second set of significant layoffs for Clutch in the past six months.
For his part, Canada Drives CEO Cody Green told BetaKit that the startup made the “difficult decision” to reduce a portion of its staff also in reaction to current economic conditions. “This will allow us best to prepare for the future,” Green said.
The layoffs follow previous cuts and hiring slowdowns at both startups. This is the second set of significant layoffs for Clutch in the past six months after laying off 76 people or approximately 22 percent of its staff in June.
Both Clutch and Canada Drives had also previously slowed hiring plans in 2022. Even while it raised $50 million CAD in equity financing last year, Canada Drives told The Globe and Mail that it reduced hiring plans after failing to raise a targetted $100 million.
Regarding Clutch’s own struggles to raise capital, Park shared in the blog post that market conditions prompted the startup to halt the final stages of closing the $95 million CAD Series C round, noting that the certainty and timing of the close has been put into question.
Park added that this prompted Clutch to reduce its geogrpahic reach, in addition to its team size. “We have made the difficult decision to refocus our business in Ontario and the Maritimes,” he wrote. Park told BetaKit that Eastern Canada represents about 75 percent of Clutch’s business at this point.
Clutch’s recent round of significant layoffs are national: 97 full-time and two part-time employees are being let go in Ontario; 20 full-time in Alberta; 11 full-time in British Columbia, and nine full-time apiece in Saskatchewan and Nova Scotia.
While it’s easy to blame the problems at two of Canada’s largest online used car marketplaces on broadly changing economic conditions, south of the border layoffs at a similar online car retail platform, Carvana, offer some deeper insights.
The Tempe, Arizona-based company cut some 1,500 employees, or roughly eight percent of its workforce late last year, according to Reuters. 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.
Back in Canada, neither Clutch nor Canada Drives specified that their cut backs are due to challenges in the online vehicle market. However, Park noted: “Our mission has always been to provide transparency and peace of mind in every customer interaction. With rising rates, supply chain disruptions, and volatile pricing, that transparency and trust is more important than ever.”
Canada Drives and Clutch are not all the only Canadian online automotive buy and sell platforms to have been hit hard as E. Inc., another Canadian online auto retailer, said in its third quarter results in November that it had done some restructuring.
The latter includes bringing in cost efficiencies aimed at reducing operating costs, primarily in the Southwest and Western US markets. Those were related to marketing, professional fees and other general and administrative expenses, and are expected to save the company some $10 to $15 million in annual costs by the fourth quarter of 2022. E Inc. cited “the challenging macro environment affecting demand for vehicles and tight inventory conditions that have been impacting transaction volumes.”
Times have changed for the two used auto vendors. Clutch secured $150 million in debt in May with an eye toward expanding its automotive stock. That money came just scant months after it raised $100 million CAD in Series B funding in late 2021. To date, Clutch has raised around $250 million CAD.
While Clutch bulked up, Canada Drives was also raising funds with a $100 million CAD Series B round in 2021. Canada Drives also raised $100 million in funding in a Series A round in 2019. Like Clutch, Canada Drives has raised around $250 million CAD to date.
Clutch’s operational cutbacks follow what Park called a year of growth for the company. In the blog post, he claimed that the startup grew 133 percent last year and hit a more than $200 million revenue target.
Despite that, Clutch moves into 2023 with a 65 percent staff reduction and a more limited geographic focus after not being able to close its planned Series C round.
With files from Josh Scott.