This Car Is Killing Lotus
One of the many problems Lotus has is that, as a long-lived but perpetually struggling maker of semiaffordable sports cars, lots of people have owned one. Most of them feel they can take personal credit for having saved the business and are entitled to say how it ought not to be run, even if they don't have a clue about how the industry operates, last owned a Lotus when they still had hair and erectile function, and don't have any better solutions.
Their outcry at the bizarre and dizzyingly ambitious growth plans of now-sacked CEO Dany Bahar was deafening. Under Bahar, this sleepy rural carmaker suddenly embraced celebrities like Sharon Stone, appointed a hip-hop producer as VP of creative design and global marketing, and planned a $1.4 billion expansion, only $600 million of which was secured. Volumes would quadruple to 8000 by 2015 with five new models, which were unveiled together at the 2010 Paris auto show.
Bahar may wish he had revealed his plans more gradually or not spent so much on expenses, the alleged offense for which Lotus's new owners dismissed him in June; he's now suing for $10.9 million. Only $160 million of Bahar's planned investment was due to come from former corporate parent Proton, which was bought by the Malaysian conglomerate and contract carmaker DRB-Hicom in January. The new owners wanted Proton, not its loss-making English subsidiary. Unwilling and unable to raise the remaining funds, they have canceled all but one of Bahar's cars. The new Esprit is well advanced; the others were vaporware anyway.
Great, say those enthusiasts. A proper new mid-engine Lotus, and none of these four-doors or heavy GT cars. But Bahar was dead right. Lotus cannot continue to build low-volume, low-margin sports cars, with annual sales skidding between a few hundred and a few thousand. Whatever is the opposite of an automotive sweet spot, Lotus is in it, needing to operate like a big car firm but not generating the cash to do so. Sooner or later, this will kill it. Lacking Ferrari's margins, Lotus needs Ferrari-plus scale to be stable: probably more than 10,000 cars each year. It is not going to do that with what we've always thought of as Lotuses. The existing cars, with their incandescent handling but limited appeal, would have done it by now if they could. In fact, industry analysts said Bahar's plans didn't go far enough, that the company should provide a more mainstream car for the Chinese consumers who are transforming the fortunes of other elite British brands.
Lotus is the only one that hasn't been reinvented by a global group, and it's unlikely to happen now. Audi ran the ruler over Lotus before the global financial crisis and found no reason to buy it then, and none of the big groups is buying now. Proton appointed consultants KPMG to find a buyer: new parent company DRB-Hicom says that search has been suspended while it examines what it has inherited and that it has "not decided to sell." But a sale still seems the most likely outcome, and there are rumors of continued contact with Chinese car companies, particularly Youngman, that are looking for a shortcut to a strong brand and smart engineering. If it happens, Lotus's engineering arm -- it provides stellar consultancy to big carmakers who'd rather not admit they need the help -- may be its savior. You can't move nearly 1000 engineers from Norfolk to China, meaning that production of Lotus's existing cars has a good chance of staying there, too.
A Chinese buyer will have the funds Lotus needs but would work the brand even harder than Bahar planned to, and the Lotus badge might appear on some very un-Lotus-like, Chinese-built new models. The enthusiasts won't be enthusiastic, but Lotus needs to grow if it's to carry on building the cars they like.