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MG and Rover brand face steep de-valuation

MG and Rover branded cars could drop by 10% in value, Glass’s says, in a reaction to MG Rover going into administration last week.

There has been widespread speculation on how badly MG Rover’s current situation will affect residual values. However, a complete answer has yet to emerge as most dealers are unwilling to make dramatic price reductions until patterns of demand become more clear.

"It is still too early to provide a definitive assessment of how MG Rover is perceived in the eyes of the wider buying public and how this translates into what they are prepared to pay," says Adrian Rushmore, managing editor at Glass's.

"Not unsurprisingly, this uncertainty has initially resulted in low trade and part-exchange prices as the measure of risk is considered to be high. When market prices start to stabilise, it is likely that some of the recently quoted prices will appear to be an over-reaction."

Glass's says the question of price is more acute in relation to the age of the car. "MG Rover cars beyond six or seven years old are scarcely affected because prices are low and customers are far less brand conscious. For these older cars, the buying criteria have much more to do with reliability, practicality and low running costs.

"However, for younger cars the issues are greater. Warranties have to be offered to make them saleable and prospective customers need to be reassured about future backup for servicing and parts. Rover cars will also carry the stigma of being 'defunct'. These are the key elements that will determine the market price realignment that is necessary."

Another qualifying factor is that in recent months MG Rover prices have been falling across the board, and at an accelerated rate compared to the broader market. "Prior to the closure announcement, market jitters had already repositioned prices against competing brands and, for the key models of 25, 45, and 75, the residual value ranking was already low," says Rushmore.

Glass's says franchised dealers have made additional pricing adjustments with their stock over recent days, but there was little evidence that prices were slashed. "Price reductions were more in line with the actions that would be taken as stock ages.

A logical approach would be to test the market with incremental drops of perhaps £500, measuring customer reaction at each price adjustment. The practicality of doing this will depend on the urgency to liquidate stock and the actions taken by competing dealers with a similar profile of stock.

"Glass's guide values for MG Rover cars are down in the order of 10%. We are conscious that some of the low prices we have recorded recently are a possible market over-reaction and the last thing we want to do is to lead prices to an artificially low level. What we are reflecting is the highest possible level that prices could settle at in the coming weeks, given that values are now lower than all competing brands."

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