What happens when a car manufacturer goes bankrupt?
We look at the implications for owners of cars whose brand has gone bust or pulled out of the UK market...
- Frazer Nash, Metropolitan, Swallow, Trojan... you’re probably not alone if you don’t remember these car brands. After all, there have been thousands of car companies over the past 100 years or so and only a tiny proportion have been able to stand the test of time.
So, should you be concerned if the brand of car you’ve bought goes out of business altogether or simply pulls out of the UK market? That’s a question that's been pondered by thousands of British Mitsubishi owners since July, when the Japanese car maker announced that it was beginning to wind down its UK and other European sales operations.
The move is part of Mitsubishi’s plan to reduce its overall costs by 20% and focus on investment in its core markets in Asia and Australia. In the UK, there are currently 103 Mitsubishi dealerships and the plan is for them to stay open until the current stock of 15,000 new vehicles has been sold; this is expected to take around two years.
The Colt Car Company, which has been Mitsubishi’s UK importer since 1974, says it wants to retain as many of its retailers as possible to provide parts and aftersales services to owners. So, in the short term, owners should find it easy to keep their cars properly maintained.
The fact that Mitsubishi isn’t going out of business is also reassuring, because it will want to maintain its global reputation, and that means it will look after its European customers by honouring their car warranties.
While that provides some reassurance for owners, it doesn’t help the majority of new car buyers who have bought their Mitsubishi on a personal contract purchase (PCP) finance deal and might have been planning to swap into a new model from the company when their agreement ends. They can still choose to pay the final balloon payment to buy the car outright, or give the car back with no more money to pay (subject to its mileage and condition). However, the third option of part-exchanging, using any equity built up as a deposit on the next vehicle, will not be available on a new Mitsubishi.
It’s worth remembering that PCP buyers are not tied in to Mitsubishi or its finance company, Shogun Finance, when choosing their next car. They can trade their car in for one from a different brand, just as they would if they were financing another Mitsubishi. If they buy the replacement car from a franchised dealer, that brand’s finance company will pay any outstanding finance to Shogun Finance.
It’s also worth seeing what options are available via Shogun Finance when your PCP deal ends, because the Colt Car Company is investigating opportunities to become the UK distributor for other brands – emerging ones in particular, with a focus on electric models.
Although the value of existing cars isn’t likely to be decimated by Mitsubishi’s pullout, discounts on run-out vehicles have already increased, and that will have a knock-on effect on their residuals.
According to the head of our Target Price mystery shopping team, Pat Hoy, the average discount for the Eclipse Cross family SUV rose from £3284 to £3803 in the third quarter of 2020. “That’s a 15.8% increase in relative terms, which, while significant, is not distress selling,” he said. “Although the pandemic is probably the most important factor behind the increase in discounts, it is unusual for Mitsubishis to be sold at such discounted prices, so leaving the UK market might well have been in the minds of those setting the retail policy prior to it becoming common knowledge.”
However, a complete collapse in used values isn’t predicted, partly because of Mitsubishi’s promise to look after owners. The head of forecast UK at CAP HPI, Andrew Mee, said: “Both used sales and values will be helped by the commitment to supply parts and accessories, technical support, warranty repairs and recalls through an aftersales dealer network for a minimum of 10 years.
“It is even possible that, because there will be a finite number of Mitsubishi cars registered in the UK, as volumes on the road decrease over time, interest from loyal customers could have a positive impact on used values.”
So, should you still buy a Mitsubishi? As long as you buy at our Target Price or less and you realise that you won’t be able to stick with the brand when it’s time to replace your car, a Mitsubishi could be a sound buy. However, not all models are rated highly, and we’d recommend checking out our reviews and star ratings before you buy. If you still want a Mitsubishi after reading them, though, now could be a great time to buy.
