Caterham's future owners must get a grip on its ailing business

Caterham’s future owners have much to do, repairing and rebuilding a business that just four years ago was acquired in good health by Malaysian entrepreneur Tony Fernandes

During this time it has failed in two very public endeavours; running a credible team in Formula One and collaborating with Renault to build a world-beating sports car.

The ripples from the impact of Fernandes’ tenure have finally landed at the heart of Caterham Group, at Caterham Cars.

In the factory, changes are now being made with an eye towards cutting costs and refocusing on its core business, whilst in the marketplace, some of the order book is facing delays as production costs are trimmed and suppliers reassured of the company’s future plans.

Customers are naturally concerned. It can now take up to 9 months from order to delivery (of a kit). This is way too long.

But how did this happen? And more importantly, why did Fernandes let it happen? At a time when lest we forget he was awarded a CBE for his services to business..

A duckling will only ever become one of two things; a duck, or dinner

In 2011, I journeyed to Duxford to witness Fernandes and Ansar Ali (then CEO of Caterham Cars) shake hands to signify the acquisition of Caterham by Fernandes and his group of investors. At the time, like many, I thought this would be good news for the small sports car company. Ali, together with his COO Mark Edwards, had managed to convert Caterham into a solid business with a vision that would protect the brand’s values yet allow the company to move forward from its total reliance on its heritage product (the Seven). All they needed was a reliable investor. They thought Fernandes was their man. We all did.

For me, the defining moment in the intervening years came at the 2013 Singapore Grand Prix as the AeroSeven Concept was rolled-out and presented as the first of the new generation. It was then that I realised that despite all the talent and money Fernandes had assembled, Caterham still couldn’t move beyond the Seven. It was obvious that the project had been rushed; it looked like a bathtub plumbed onto a CSR chassis. The fact that it wasn’t binned soon afterwards shows how little foresight management could muster.

Two years on and a brief glance at Caterham’s website still shows the AeroSeven being hailed as ‘the future’; I can only hope that this is soon to change.

Production of the Zenos E10 (left) is well underway, meanwhile the Caterham AeroSeven (right) remains just a concept.

Facing the realities of low-volume car production

Following the breakdown of Caterham’s joint venture with Renault, the breakup of its top-tier motorsport programme, and the failure of a number of high-profile projects, Fernandes found himself back at square one. He and his management team had spent millions and yet the much loved manufacturer still struggled to sell more than 500 cars a year. Fernandes’ dream that he could build Caterham Group into a global success story, just as he had with Air Asia, was over.

Thankfully Fernandes appears to have finally woken to the reality that this is not a scalable business and that building cars is a very different proposition to leasing airliners. But what now for the future of one of our best-loved marques?

This is a business that is saddled with cost and limited by its product. It doesn’t matter how much we rave about the Seven’s credentials and blistering performance, it’s simply a toy, and an expensive one at that. And as soon as it ventures outside of these Isles, it becomes even more challenged as the impact of a strong Pound takes its toll on the export markets that Caterham has so heavily come to rely on.

If this wasn’t bad enough, for all the PR from the last two years, as has already been pointed-out, the only prospect that Caterham can currently offer to take itself forward against its new challengers is the AeroSeven. Change is no longer an option, it’s a necessity, and it has to start at the top. It needs strength and acumen. A leader who can work with staff, partners, customers and dealers to rebuild relationships and take it both back to basics and then safely forward.

Costs must be the first element to address. The ‘new’ Crawley showroom might look impressive, but I doubt if Caterham manage to sell 100 new cars a year in the UK (and remember that the 50 Academy cars could be sold from a shed outside the factory). This is just one of the excesses that needs to be tackled; executive pay is another. There are too many ‘top people’ and they cost too much. One effective and well-supported CEO could easily oversee the governance, sales and sports roles and slash the wage bill without losing key producers.

Caterham quickly needs to find a way to grow its market too. This means building cars that have wider appeal. The trouble is, if it starts with a clean sheet of paper, it could be three years before we see a credible prototype. But there are plenty of well-developed platforms out there that could easily be bought-into and re-engineered Caterham style.

Of course, much of this depends on what ambitions the new owners have for their acquisition and whether they recognise both the strengths and fragility of its business. Many successful brands have built growing export revenues, despite the presence of a strong currency by keeping their products relevant, by adding value, and by adopting pricing policies that allow retailers to earn a good living and the producer to hedge against future trends. It’s not rocket science.

I have an inkling that with all the turmoil of the last few years, they’ll be realistic enough to understand that a low-volume manufacturing business is exactly that; a business that needs to survive on healthy margins from a loyal customer base.

Supporting its customers is key to Caterham’s survival, while developing a complimentary product to the Seven will be fundamental to its future.