DRB-Hicom say Lotus is for keeps - but what are their plans for the car maker?

DRB-Hicom released a statement last night confirming that beleaguered sports car maker, Lotus, is not for sale. But what is their motivation for providing such an assurance, and what does this ‘really’ mean?

On the face of it, given Last Friday’s announcement of Lotus CEO Dany Bahar’s suspension, one could assume that the latest statement is to underline DRB-Hicom’s message of it being ‘business as usual’ at Lotus.

The statement, shown below, makes reference to South Norfolk MP Mr. Richard Bacon and UK Business Secretary, Dr Vince Cable, as well as mentioning the £10.7 million regional growth fund that has been set aside for job creation at Hethel.

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It’s a very political statement, designed to calm the nerves of suppliers, local government and the 1,200 employees working for the car maker, but less we all forget, Lotus was in the middle of a much-needed transformation to reposition its brand, restructure its dealer network and develop new cars that customers actually want to buy and which generate sufficient economic profit to sustain their business.

Like him or loathe him, Dany Bahar is a marketing guy, adept at building demand for consumer products and services in the premium sector. DRB-Hicom’s core business lies in heavy-industry construction and supply chain management, primarily within B2B (business to business) sectors (including vehicle assembly, property development, defence and component manufacture). Their two worlds could not be further apart.

As I mentioned yesterday, the £270 million syndicated loan provided to support Lotus’ 5-year turnaround contained several conditions (covenants) which had to be met, but which Lotus were already in breach of. Since the loans were nearly 3 times the size of Lotus’ annual turnover at the time, their parent company, Proton Holdings, acted as guarantor of the loans.

With DRB-Hicom’s acquisition of Proton, they now own this liability and will have been seeking to assure the consortium of lenders that these covenants will be met and the loan serviced, regardless of Lotus’ future success.

So what’s the problem

Last month I contacted Vince Cable and Mark Prisk (Minister of State for Business and Enterprise), warning them that saving jobs at Hethel was something of a red herring. While local MP Richard Bacon’s campaign for the livelihood of his parish is understandable, a more important priority is to help DRB-Hicom understand what they should do with Lotus and if they decide not to keep it, then facilitate the sale of the car maker to someone who already understands what it takes to compete in its sector.

In my experience, jobs are lost and businesses decimated when growth is absent or not fully evident. When the focus is on capturing market share and reaping a competitive advantage, there is seldom time (or interest) in restructuring or relocation – instead this is the tactic used for boosting (or sustaining) short-term earnings – the magician’s sleight of hand – which clearly fails to address Lotus’ main challenge (i.e. sustainable growth).

Lotus is not a ‘cash cow’, but instead demands significant support in achieving its own goals.

The two statements released since last Friday, should heighten our concerns over DRB’s stewardship of our most iconic sports car maker. Firstly the appointment of Khamil’s men to conduct the day-to-day management and affairs of Lotus – none of whom seem qualified for the role. It seems a little like sending civil servants to replace front-line combat soldiers in Afghanistan. Do they realise Lotus are in the middle of battle?

Secondly, the statement “We acknowledge that Lotus can provide value to PROTON” is a very worrying sign of DRB’s future intentions. Apart from Lotus Engineering, which provides technical services to 3rd party clients around the world, there is very little in the short term that Lotus can provide to Proton.

Using the vocabulary of the Boston Growth/Share matrix, Lotus is not a ‘cash cow’, instead it’s a ‘problem child’ which demands significant support in achieving its own goals. If those goals become secondary to the needs of its parent company, then the future of Lotus Cars becomes very bleak indeed. It’s a binary choice, either DRB focus on building Lotus’ share of the fast-growing premium sector, or they strip it down to its most competitive elements and dispose of the remainder.

If DRB-Hicom really wishes to reassure its sceptics, then it needs to move beyond pacifying the concerns of politicians and start demonstrating its plans for making Lotus a world-class car maker. Or not.

Nearly 5 months has passed since they acquired the sports car maker, but Lotus won’t be around much longer unless someone with the vision, authority and resources gets the business moving forwards again. Let’s hope that message sinks in soon.

And finally..

DRB-Hicom has today confirmed several other decisions made at last Friday’s Proton Holdings Berhad board meeting. As expected, Dato’ Seri Syed Zainal Abidin Syed Mohamed Tahir, Group Managing Director of Proton will leave the company, effective July 4, 2012.

He will be joined by Proton’s Chief Financial Officer Azhar Othman, who’s resignation is effective from July 6, 2012.

Both Syed and Azhar were strong supporters of Lotus CEO Dany Bahar and acted as guarantors on his 5-year transformation plan. Without their protection, Dany never stood a chance of protecting his vision (and perhaps his job).

Following the departure of Syed Zainal, the Executive Chairman of Proton, Datuk Seri Mohd Khamil Jamil, will continue to lead the company. DRB-Hicom delisted Proton Holdings Bhd from the Malaysian Stock Exchange earlier this month.