Liquidation risk ‘highest’ for dealers

Dealers are 1.8 times more likely to slip into liquidation than typical New Zealand businesses, according to a new report from credit bureau Centrix.

Keith McLaughlin, managing director, says company liquidations were up year-on-year in September as credit defaults continued to rise. 

“Retail stores specialising in high-cost products like motor vehicles, electrical appliances and household furniture are at a greater risk of liquidation than other business sectors,” he explains. 

“It’s clear the current climate remains tricky to navigate for a lot of Kiwis. As discretionary spending continues to scale back, many retailers are beginning to feel the pinch.” 

The warning from McLaughlin, pictured, comes as Centrix’s latest credit indicator report puts the spotlight on the retail sector.

The report shows there are nearly 44,000 registered companies in retail trades, with more than 3,200 of those selling motor vehicles or parts.

A breakdown by Centrix of key credit indicators shows the automotive sector has the highest liquidation rating of 1.8X, which compares with an average across 11 different retail categories of 1.3X. 

The next retail trades ranked most at risk of liquidation are electrical and electronic goods, and recreational goods, both on 1.7X.

McLaughlin adds that when it comes to business failures, “we know the highest rate of failure happens within the first five years of existence”. 

The analysis listed credit demand for businesses selling motor vehicles and parts as being up by 15 per cent year-on-year – the highest jump of the retail categories and well above the average of four per cent. 

Motor vehicle-related loan defaults were up by three per cent over the same period, compared with an average of 20 per cent for all retailers, the report shows. 

Credit demand

Centrix’s latest monthly figures reveal credit demand for automotive loans rose by 14.4 per cent year-on-year in October.

This helped increase the overall figure for those wanting to borrow by five per cent over the same period. 

Demand was also up for retail energy by 9.1 per cent, credit cards by 7.2 per cent, personal loans rose seven per cent, and buy now, pay later products were up by 2.9 per cent.

Meanwhile, consumer arrears figures climbed to 11.7 per cent of the credit-active population in September – compared with 11.6 per cent in August this year – and the number of people behind on payments hit 427,000. 

Vehicle arrears were down to 5.4 per cent of active credit accounts month-on-month in September but remained up by 22 per cent year-on-year.

“Credit demand is now trending back above pre-pandemic levels, driven by auto loans, retail energy, credit cards and personal loans in October 2023,” adds McLaughlin. 

“Arrears have also climbed, tracking close to 2018 levels – although it is important to remember these levels are coming off historic lows in the wake of the Covid-19 pandemic. 

“Mortgage and vehicle loan arrears are up year-on-year, which is a concerning trend to observe as these essential repayments are often the last households let slip when times get tough.”