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MG Rover special: After the collapse, the dealer salvage begins

News that there is no prospect of SAIC bailing out MG Rover has left the carmaker’s 258-strong franchised dealer network facing the urgent task of trying to re-franchise or sell existing stock.

Although the Longbridge redundancies and fears of cuts at component suppliers have received huge publicity, many of the 7,000 employees at MG Rover dealerships across the UK are still unsure of their fate.

The cancellation of the manufacturer’s warranty has left dealers faced with funding warranty repairs themselves, and stock values have fallen as consumers become wary of purchasing MG Rover vehicles.

Large dealer groups with multiple franchises will be able to battle through this tough period. However, some of the owner-driven dealerships and small groups which are dependent on MG Rover will face extreme difficulties.

The Retail Motor Industry Federation believes the franchised network is owed more than £25m by the manufacturer for sales bonuses and outstanding warranty claims.

“Unless dealers are paid the money they are owed, thousands of people working in the retail motor sector across the country could lose their jobs,” says Alan Pulham, its franchised dealer director.

Cashflow problems Pulham has received calls from a number of MG Rover dealers with mounting cash flow problems.

“Some financial support for dealers would be wonderful, though I cannot at the moment see where it would come from,” he says. “Many are in a terrible position, because they are not receiving bonus payments, which used to arrive regularly. Meanwhile, most of their outgoings remain the same. If something can be done to help them, it could save major difficulties late.”

However, PricewaterhouseCoopers, the administrator for MG Rover, refused to discuss it. “I don’t blame them for that,” says Pulham who believes only around one in 20 MG Rover dealers began to attempt re-franchising before the manufacturer collapsed. “It’s not that easy – which is part of the downside of block exemption,” he says.

“A manufacturer which likes the look of an MG Rover dealership would have to give two years notice to the existing franchise holder in the area,” he adds. “It is much simpler where a manufacturer is trying to fill an open point but there will not be too many opportunities like that.”

His view is echoed by Nigel Ruddock, head of Grant Thornton’s Motor Retail Group. He believes even the larger dealerships will have difficulty re-franchising. “The prospect does not look good,” says Ruddock. “With most of the dealerships likely to incur major losses, a significant number will be forced to close.”

The problem of unsold stock is likely to be temporary, according to CAP Monitor managing editor Mark Norman. While he admits he “wouldn’t like to be selling an MG or a Rover right now” as the vehicles’ residual values nosedive, he is more positive about the brand’s longer term future once the issues are out of the national media and less prominently in the public eye.

“There’s bound to be a downturn as people cancel orders, but it will even out eventually,” says Norman.

“These are good cars. Once buyers realise they can get themselves a highly specified MG or Rover for a lot less than a more run-of-the-mill car – and once they are confident they can get it serviced and still get spare parts – things will pick up.”

Aftermarket parts for MG Rover vehicles will continue to be supplied by Xpart, which MG Rover sold to Caterpillar Logistics Services for £100m last July.

Plans to re-franchise

The UK’s largest dealer group, Pendragon, has 15 MG Rover sales points, about half of which were added with the CD Bramall acquisition. Nevertheless, the group expects “a minor impact” on its net assets as a result of the carmaker’s collapse.

It started re-franchising its MG Rover sites before PwC moved in, and a site at Aylesbury will reopen soon as a BMW outlet, says chief executive Trevor Finn. It will be a satellite to the group’s main dealership in Tring.

“We have been in talks for a while with manufacturers about a number of other sales points,” says Finn. “We hope that some dealerships with other manufacturers will add former MG Rover sales – we’re doing this at Stourbridge, where we sell Peugeots.”

The group was starting to add Hyundai to MG Rover at a number of locations, and these are likely to become solus points in time. “That was always the intention and what has happened to MG Rover – which was hardly a surprise – will now be accelerated,” says Finn.

“The financial impact of MG Rover on us of is likely to be minimal, but we are not putting a figure on it at this stage,” he adds. “Our stock of new MG Rovers is quite low because there was a lot of pre-registering in March. We are arranging for a 12-month guarantee on new as well as used cars because customers must have some cover.”

Reg Vardy has already warned its investors that it is expecting exceptional charges to its financial results because of the impact on its three MG Rover dealerships, which contribute around £25m or less than 2% of its annual turnover. They are owed £0.6m in receivables by MG Rover. The group plans to refranchise the outlets, and say it doesn’t foresee any impact on trading results in the next financial year.

Chief executive Sir Peter Vardy visited Longbridge two months ago and was assured that the SAIC deal would go through. “Obviously that wasn’t true.

The Phoenix Four have led a lot of people down the garden path. It’s not the Government that is to blame,” he told Radio 5.

‘Stock will sell’ – Lookers

Lookers gave notice to MG Rover in February that it would not renew its franchise when the contract ends in 2007, but still has four sites.

Chief executive Ken Surgenor says its dealership in Coleraine, Northern Ireland, was already planned to close at the end of April and the staff relocated. The Stockport and Motherwell showrooms are dual-franchised with Seat and Hyundai respectively, and will convert to solus sites. The dealership at Lookers’ multi-franchise autopark in Belfast will be re-franchised.

“It’s a sad day for the dealer network and people,” says Surgenor. Lookers will continue providing servicing and repairs for its existing MG Rover customers, and warranty repairs will be at the group’s expense. Fortunately, the company had made a £2.8m withdrawal provision in its accounts.

Surgenor is confident that the 350 MG Rover cars still in group stock will sell and hasn’t knocked down prices. “In fact the announcement has pulled a lot of customers into the showrooms looking for a good deal,” he adds.

Family-led dealer group Caffyns had 21 MG Rover dealerships during the 1990s, but has since reduced these to eight in response to the carmaker’s declining market share. Nevertheless, its MG Rover portfolio still contributes almost a fifth of its annual turnover. Its shares fell 10% on the day administrators announced the end of the carmaker.

“We have in recent months taken steps to reduce our exposure to MG Rover vehicle stocks,” says chief executive Simon Caffyn. “While there will be some disruption, our actions over the last few years and our swift response to the current situation has ensured that this is kept to a minimum.”

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