AutoCognition
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Feature Analysis - marketing the return of the Mg tf

 

Introduction

 

The new owners of MG, Nanjing Automobile Corporation (NAC), have been long on schmooze but short on hard figures. Although the company officials have offered some information on their hopes for production at Longbridge and have hinted at model specifications, they have so far given nothing away concerning model prices. Without this crucial piece of information it is difficult to know how successful NAC will be in launching the MG TF back into the UK market. However, AutoCognition has found that it is possible to estimate the marketability of the new vehicle from the fortunes of its predecessor.

 

Life cycle and market coverage of the TF

 

Looking at the most recent trend for the TF there was an alarming decline from 2004 to 2005. If this trend is extended it would show that the TF, without any further intervention or updates, would have plummeted to sales in 2008 of around 3,000 examples. However, like all products, the TF went through a life cycle, building to a peak a year or so after launch with sales falling gently away after that. The original MG-F, upon which the TF was heavily based, had been launched in 1995 and reached its production peak a year later. This pattern was repeated for the TF, achieving its peak in its second year and falling away after that. With around 300 dealers positioned around the country this meant that at the height they were selling four a month.

 

After three years in the high 14-16,000 range the F spent the next three years hovering around 10,000 a year. The TF, in turn, spent two years in the 14,000 range and then dropped to 10,000 for its last full year. Since the TF was derived from the F it is likely that it was experiencing a shorter life cycle but both cases seem to indicate that after the initial splash on the market the ‘natural’ demand for the car was around 10,000 a year. At this level dealers were selling around 3 a month. It is possible for a sports car to maintain this ‘natural’ level for longer than mainstream models due to the lack of competition, the Mazda MX5 being the only serious rival.

 

NAC has indicated that it would like to see output from Longbridge of the TF, presumably destined for the UK market, of 3,000 units in the first full year. This seems to tie in with the forecast trend figure of 3,000 sales for 2008, but of course the ‘natural’ demand for the car appears to be three times that figure. So is NAC being too conservative in its estimate? Not really, because it has also stated that it would like to see around 100 dealers in the UK. At an average selling rate of 3 a month there is the possibility of 3,600 sales a year.

 

There are two problems with this figure. Firstly, there is the question of whether the 10,000 a year rate could have been maintained without the interruption. Even sports cars suffer an eventual decline in sales and by the time of its first full year back in production the TF will be six years old. Worse, as a derivative of the preceding F it is on an accelerated product life cycle as consumers see through to its thirteen year origins. The TF is also returning after a two absence, even three years if the seasonal nature of sports car demand is taken into account. By then consumers might have discovered the delights of the Mazda MX5, or shifted their attention to hot-hatches. Any boost to sales due to a patriotic upsurge is likely to be offset by cynicism concerning its new Chinese parentage. The F lost sales at an average of 1,000 units a year from its peak and if this is applied to the TF then it would indicate sales in 2008, if in continuous production, of around 7,000 sales. This translates into around 2,300 sales with 100 dealers under NAC.

 

The second problem concerns whether 100 dealers would be enough to give the new TF the critical market exposure it needs. Sports cars are seasonal at the best of times so they are generally only add-ons for dealers busy selling more mainstream products. Both Mazda and MG Rover dealers had a full line-up of conventional saloons to sell, so it was possible for MG Rover to maintain a dealer network of 300 dealers in good locations in most major towns and cities. It was therefore no harder to buy and service a TF than any more sensible kind of car. This is not the case with coverage by 100 dealers where only the more committed of sports car fan would be prepared to go the extra distance to find a dealer. For example, Proton has around 100 dealers and sold 2,700 conventional cars in 2006. Since sports cars tend to sell at about a tenth the rate of conventional cars of a similar price it suggests that if Proton had a sports car under its own name it would shift under 300 a year. Could NAC, using the cachet of the MG name, sell ten times that number from a similar dealer coverage? Even if it were possible, dealers would not have a bread-and-butter saloon car range to survive on during the sports car off-season. This means that NAC would have to rely on dealers that sold other marques, which is usually contractually impossible unless the other brand has a very low profile. An alternative might be to recruit used car dealers. Either way, these new MG dealers are unlikely to be in the prime locations that kept the old network in the public eye.

 

Pricing the TF – on the forecourt and online

 

Of course, the right pricing strategy could significantly counter any problems with the dealer coverage. What price NAC needs in order to make acceptable returns is irrelevant; all that matters is how the TF relates to its main rival, the Mazda MX5. The TF was always priced more highly, £1,000 or more separating the two competitors. This, of course, does not include discounting. The used car market reveals the ‘true’ value of the two models, as judged by the consumers. AutoCognition looked at franchised dealer prices and good quality private sales, comparing these figures with the online auction houses.

 

According to Parker’s Car Price Guide, for the 2002-2005 vintages, when both cars were in direct competition, the current advertised differences in used prices at franchised dealers show the MX5 to exceed the TF by at least £3300 on average. Private sellers of the two models are a little closer and show a price difference of around £2500 in the Mazda’s favour. The disparity between the two amounts is not explained by warranty costs or other commercial assurances of quality since the comparison being measured is that between the two products, not the type of sale. However, it is likely that Mazda dealers continue to be buoyed by new car sales and so feel able to charge more for their sports cars.

 

For online auction houses, however, the results should be similar to those seen in the private sales whilst revealing in more detail the actual selling prices and the number of bidders.  AutoCognition took a total random sample of fifty TFs and MX5s over the same two month period and covering the 2002-2005 vintages. The research found that the number of bidders was, on average, slightly lower for the TF than the MX5; generally, if there were ten bidding on the British car there would be a dozen trying for its rival. However, the price disparity was found to be in the MX5’s favour by about £2500 on average for the range of years in question, in line with that indicated for private sales by Parker’s Guide.

 

These sources of data, Parker’s and the online auction houses, clearly indicate that consumers would put a significantly lower value on the MG TF than the Mazda MX5. Since the Mazda was succeeded by a new model in 2005 the lightly refreshed TF is likely to suffer a further devaluation in the eyes of the public. This is exacerbated by the fact that the new TF’s mild facelift renders it vaguely reminiscent of its MG F predecessor. Not only is it highly unlikely that NAC will again be able to charge a premium for the TF over the MX5 as MG Rover had done, but it is most probable that the TF will have to substantially undercut its rival in order to gain public acceptance.

 

Conclusion

 

This research by AutoCognition using historical and current empirical data suggests that NAC have a huge challenge ahead. The target of 100 dealers is below the critical number necessary for a return to previous rates of sales and is unlikely to deliver the intended 3000 sales a year. Furthermore, NAC will have to consider pricing the sports car far lower than its Japanese rival, perhaps by £3000 or more. The results of AutoCognition’s research suggests that when the TF135 goes on sale, therefore, it needs to be priced for sale at below £14,000 and even then will be fortunate if it achieves sales of 2,000 units in its first full year.

 

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