Moody's early warning in action: Cazoo Group

Cazoo Group filed for administration in May 2024 after mounting losses and supply chain woes.

Cazoo Group Ltd., the UK-based online car retailer, indicated plans to enter administration in May 2024. The company’s online marketplace and direct-to-consumer delivery model aimed to disrupt the used car sector, allowing customers to buy, finance, or rent secondhand vehicles without stepping into a dealership. Initially a private entity, Cazoo was listed on the NYSE in August 2021 but faced significant economic and operating challenges shortly after it began trading. The company was flagged as an elevated credit risk in June 2022, after the firm’s forward-looking probability of default (PD) first crossed its peer-based trigger. Within the Moody’s Early Warning System, when a company’s PD crosses its peer-based trigger, the likelihood of a negative credit event significantly increases. 

Cazoo faced a volatile operating environment in the wake of the COVID-19 pandemic. The company’s e-commerce approach was initially a tailwind, as consumers opted to shop from home given concerns around in-person interactions. However, factory closures across Southeast Asia, particularly those producing semiconductors, reduced global chip supply and, as a result, the production of new vehicles. With fewer new cars available, consumers turned to the secondhand market. Inventories evaporated and Cazoo struggled to meet demand. At the same time, inflationary pressures increased logistical expenses and weighed on margins, with Cazoo failing to post a profit in 2021 and 2022. 

Cazoo consolidated in face of its financial difficulties. The company shuttered its Continental Europe operations to focus on its core UK market, sold off non-core assets and restructured its capital base in late 2023, swapping out debt for equity. However, these efforts could not keep Cazoo afloat, with the company filing its intention to enter administration on May 8, 2024.