Rover runs flat

Melting away: The administrator believes MG Rover is losing between $50 million and $62 million a month with liabilities of about $2 billion.

Australian importer, customers left stranded as MG Rover fades away in the UK

By NEIL McDONALD 21 April 2005

MG Rover in Australia has been left to fend for itself after the collapse of the UK car-maker last week.

Importer Motor Group Australia faces an immediate crisis of quickly securing a reputable warranty structure on its new cars after the UK administrator, PricewaterhouseCoopers refused to honour any new car or existing warranties worldwide.

MGA managing director, Mr Michele de Vriendt, has been forced to process the enormity of last Friday’s news but at the same time focus on the urgency of getting a new warranty deal in place "within 10 days" so dealers can continue to sell cars.

"In regard to warranty, we’re looking at what can be done with new cars and our existing stock," he said.

Under Australian law, it is impossible to sell a new car without a full warranty.

"Obviously, we had to tell the dealers that they couldn’t sell any cars without a warranty," he said.

Under the old regime, all MG and Rover cars were covered by a comprehensive three-year/100,000km new-car warranty. UK MG and Rover owners have been told they must pay upwards of $1000 for a three-year mechanical warranty.

The MGA group had vehicles "numbering in the hundreds" to sell but Mr de Vriendt was confident all 18 MG Rover dealers nationally would be able to retail remaining cars and carry on existing servicing arrangements.

No more vehicles had been ordered or were in the process of being shipped from the UK either, he said.

Most dealers are also multi-franchised so the loss of MG and Rover cars, while a severe blow, could be managed, he said.

Mr de Vriendt (left) is also a shareholder in Motor Group Australia, an independent distributor responsible for two other niche brands apart from MG and Rover – the Noble and Pagani supercars.

However, as MG and Rover cars account for most of its business, MGA faces a bleak future.

"It came as a big surprise to us. We thought it was a done deal with China. Everyone was stunned," he said. "I’ve never seen a manufacturer fall over or brand fall over. They’ve always been picked up."

Already MG Rover dealerships owned by Phoenix Venture Motors in the UK are closing with three shut and eight others in doubt.

Talks between MG Rover and Shanghai Automotive Industry Corp (SAIC) broke down late last week, closing the Longbridge plant in central England and leaving 6000 workers out in the cold.

The SAIC had originally planned to take a 70 per cent partnership in the company in a deal reputed to be worth almost $2 billion.

The administrator believes MG Rover is losing between $50 million and $62 million a month with liabilities of about $2 billion.

Despite the crushing blow, PricewaterhouseCoopers says many potential buyers had expressed an interest, even though the business was expected to be carved up.

GoAuto understands up to 70 interested bidders have expressed interest, while Mr de Vriendt insisted there was still a chance the Rover business could go to China.

The 75 prestige sedan, a long-wheelbase version, 25 small car and K-Series engine business could easily carry on out of China, he said.

Mr de Vriendt also said both MG and Rover were great brands and were well positioned for takeover because they had an international reputation, ready-made image and the prospect of a new line of products in the wings.

"It would take billions to start from scratch to build up a brand like this," he said.

Apart from warranty issues, Mr de Vriendt said he wanted to assure owners and buyers that the future supply of spare parts should not be a problem.

"We have an agreement in place with Caterpillar in terms of continuity of parts," he said. "They have a bulk parts business and have agreements with more than 800 suppliers so there should be no issue."

The Caterpillar Logistics Services UK Ltd is believed to have a stockpile of almost $100 million in spares.

The other effect of the MG Rover collapse is on residual values of existing cars.

There are believed to be 7000 MGs and Rovers on Australian roads and according to chief executive officer of Sureplan Fleet Risk Management, Tony Robinson, their values have just plummeted.

"The MG and Rover cars were already suffering so this news is not good," Mr Robinson said. "The concerns about the warranty issue are also not encouraging." However, Mr Robinson believes that once the dust has settled, certain variants of the MG and Rover 75 "could become collectors’ cars".

"Look, it’s the last truly British-badged manufacturer so there may be some people out there who will consider the 75 or even MG TF to be a classic," he said.

However, in the short-term he expected residual values to be low.

Owned by Phoenix – a group of business managers and financial institutions – since BMW abandoned the car-maker almost five years ago, the company’s haemorrhaging had been widely reported.

MG Rover has been a niche player here and one of 17 other passenger car importers with substantially less than one per cent of total market share.

Last year, MGA sold just 566 vehicles, achieving just 0.1 per cent market share. Industry insiders suggest that to break even, 900 vehicle sales per annum would have been an acceptable target.

To March this year, MGA has sold 115 cars, 11 of them ZR 160s, while the Rover 75 accounted for just 10 of the total tally, according to the latest VFACTS industry figures.

In February it launched the hot hatch MG ZR 160, joining the MG TF, ZS180, MG ZT and Rover 75 models.