Caterham rebuilds for a new future

It’s been an up and down year for Caterham. In March 2014, their Joint Venture with Renault came to an end, and with it the dream of producing a Porsche-challenging sports car. While the iconic Seven has gained several new additions (the 270, 360 and 420 models), becoming the best it has ever been in over 40 years of production.

Then there was Formula One, and the crowdfunding campaign which raised £2,354,389, helping the Caterham F1 team race in the final Grand Prix of the 2014 season in Abu Dhabi. You’ve got to love a fighter, and nearly six and a half thousand fans and enthusiasts showed their support for a small group of people that had come to symbolise the essence of the British bulldog spirit.

Sadly, attempts to save the team failed and its assets are now available to buy after administrators Smith & Willamson LLP gave up trying to find a new owner.

But our focus today is firmly on the future as we sit down with Caterham Cars CEO, Graham Macdonald and Chief Commercial Officer, David Ridley.

We meet in the company’s new 25,000 sq ft showroom in Crawley, West Sussex – known officially as Caterham South – where more than 500 Caterham owners and guests gathered for an Easter Monday celebration and showcase of everything that defines Caterham in 2015 and beyond.

It’s an impressive facility, directly opposite the shiny head office of Virgin Atlantic, the company founded by the entrepreneur Richard Branson, and a world away from Caterham’s dilapidated old factory in Dartford, Kent.

It may seem somewhat ironic then, that taking pride of place in the new 40 car showroom are two former Caterham F1 cars, purchased from the administrators as a memento of the brand’s four years competing in the top theatre of motorsport.

I start by asking Macdonald about the Caterham Group business (co-chaired by Tony Fernandes), which previously comprised Caterham Cars, Caterham Technology & Innovation (CTI), Caterham Composites, Caterham Bikes, Caterham Moto Racing Team, Caterham Challenge and the F1 and GP2 race teams.

During the past year, many of the divisions within the group have either been closed or sold, so I wonder how the remaining businesses were now structured to benefit ‘Cars’.

GM: “The Group now consists of the two revenue & profit making entities which are Cars and Composites. Whilst there were a number of businesses within the Group, they were individual companies with individual aims that complemented each other. The Cars business, whilst benefiting from some of these businesses continued to develop our core product internally in its own right and continues to do so, which has resulted in what is now our strongest order book we have ever had.”

Export sales account for well over 50% of Caterham Cars’ business, with 345 vehicles sold to customers outside the UK in 2014 (just shy of 500 units in total). Their budget for 2015 is a total of 650 vehicles (15 units per week), but according to Ridley this could increase to nearly 800 units once improvements in their supply chain are made.

Knowing many of the company’s suppliers, that last point may touch something of a raw nerve. I get the feeling that running an F1 team and investing in a major industry JV has taken its toll on more than just group finances, and MacDonald seems relieved that the challenge ahead is more within his grasp.

As Caterham’s dealers will know, cars are not being supplied quite as quickly as they would like, with frustrations boiling over to the benefit of their newer competitors.

DR: “We’ve had to limit the models that we build because there’s been a huge demand from Japan, for the (entry-level) 160 (165 in Japan), so we’ve said they can only have 150 cars per year, but even so our suppliers can’t keep up with demand, so we’re looking at reducing build down to 13 or 12 units per week which will give our suppliers time to catch up.But demand isn’t just coming from the entry-level models. In Germany it’s the 485 (at 65,000 – 70,000 euros), while in the mature UK market we’re selling the super-quick 620, so our product mix really helps.”

Reading between the lines, I ask whether these problems are a case of finding new suppliers or giving existing suppliers sufficient confidence in Caterham’s business? Both Ridley and MacDonald confirm it’s a bit of both.

GM: “Formula 1 brought us a lot of good exposure and introduced Caterham to a raft of new global audiences. Thanks to this, the Seven is on sale in markets as far flung as China, Taiwan, Malaysia and Colombia. We had our first race in Taiwan last week with 20 cars on the grid and we’ve got 22 cars scheduled to race in Columbia, the same in Turkey, with Malaysia taking 12 cars and another 20 cars bound for China. That’s why we can’t build cars fast enough to satisfy our (European) customers.”

But Formula One also created concerns about Caterham’s business, whether that be the business of winning or making sound commercial decisions in the best interests of its stakeholders.

GM: “The sad thing for Caterham is we had to license them (Colin Kolles and Engavest SA) our name, because that effectively brought us into disrepute. We couldn’t get out of that, because they couldn’t change the name mid-season. But pretty soon after Kolles bought it (Caterham Sports Limited, formerly known as 1Malaysia Racing Team) it wasn’t working the way we thought – he owed us money for the licensing, he owed us money for the property he was renting and we could see which way the deal was heading. But that was Formula One, this is the car business and our new Crawley HQ is a signpost of our intent going forwards.”

SEE ALSO: How to decimate your brand – a case study by Caterham

Future motivation

When we last interviewed MacDonald, he talked about his goal of “..creating another British success story, a global brand that is recognised for the excellence of its products.” So, I wanted to know what had changed (if anything) and whether Tony Fernandes remained as committed to Caterham’s future as previously stated.

GM: “Despite our regrettable exit from Formula One, the underlying business is still here, it is funded by Tony (Fernandes) and the two shareholders and we still have a promising future. My goal hasn’t changed and indeed this is still my driver, we have been on an extraordinary journey in the last 18 months and one thing we have achieved is growing this brand worldwide, that is evident in the growth of our Export Sales. My personal aim is to continue to do this and to keep Caterham in the forefront of everyone’s mind whilst creating and taking any opportunities I can to continue to grow this business. ”

SEE ALSO: Caterham Cars Exclusive: A look to the future (March 2013).

But when we spoke in March 2013, MacDonald said “Tony didn’t invest his money in Caterham to produce just 500 cars a year and £20 million revenues”. So what does Fernandes now expect from Caterham?

GM: “We’re in a period of reflection as we take a considered and realistic view of future product that befits a brand with the rich heritage and pedigree that Caterham enjoys.”

Okay, that’s not the answer I was looking for. Let’s ask a more direct question. Is Caterham for sale?

GM: “I think everything is for sale. At the right price. And if you were involved in Formula One you’d see that Tony is always willing to do a deal, but it’s at his price. In the last 12 months we’ve had at least six people approach me with an interest in buying the Caterham business, and every one of them has been turned away, but at the right price I am sure it’s for sale. He bought this business to grow it, he took some bold steps, spent a lot of money, but it didn’t work out. So what he does is he parks it and he moves on.”

Beyond the Seven

As we walk around their new flagship showroom we see the AeroSeven, CK-01 kart and the SP/300.R LMP1-lookalike track day vehicle. So, are any of these still planned for production?

GM: “They are exactly as you see, concepts, we have no plans at this stage to develop them, but that does not meant we won’t sometime in the future.”

And what of the closed cockpit two-seater sports car that Caterham were developing with Renault Alpine?

GM: “It was a fantastic opportunity, but the differences with Renault came to the surface and there were differences between Tony and Carlos Ghosn (Chairman and CEO of Nissan and Renault), so it didn’t happen. But we parted on good terms and we still own the IP (intellectual property) rights to the work that was done by my teams and we were probably further down the line with the development on that project than most people believe, but any further development has been put on hold at this time. Our focus now is on our core product of the Seven and continuing to maximise its popularity and appeal in new and emerging markets internationally. If we can turn over 500 Sevens, simply and efficiently, there’s a nice little business there, and for the time being that’s what Tony is happy with.”

MacDonald has taken plenty of heat from the breakdown of the Renault JV – their investment in CTI, which closed its doors in February, was primarily to work with Renault, so they’ve had to cut headcount, remove overheads and let go of several senior people. MacDonald described this as “..a painful but necessary process.”

“My first task is to return the business to a profitable state,” said MacDonald, “because we were recruiting and spending money to develop the business. My goal as agreed with Tony is to get it back to selling a reasonable number of cars, profitably, and let’s see where we go from there. And if someone comes along and offers however many millions that Tony wants for it, I’m sure he’d sell it tomorrow.”

We leave Caterham more optimistic about its future than when we first arrived. Not the ambitious future once described by Tony Fernandes, but one grounded on the principle of delivering a simple thrilling product to its growing customer base.

It should come as no surprise that the business is being prepared for sale, but it comes with some relief that Fernandes wishes to leave it stronger than when he first acquired it.