Group Lotus - A future worth fighting for

It’s been a matter of debate for months now as rumours continue to abound over the future of Group Lotus. But rather than clarify the situation, most reports serve only to confuse and frustrate an already jaded audience.

Much has been speculated, many of it inaccurate, and whilst I could go through each and every one, this would be of little benefit to Lotus or its 1,200 loyal employees.

The Lotus Evora GT4 Race Car.

The reason, in part, is due to the situation changing nearly every day and the challenge faced by Lotus in conveying a consistent message to the market. You see, Lotus are now an adopted subsidiary of an industrial conglomerate over 9,000 miles away. In fact it would be more accurate to say, a subsidiary of a subsidiary that has yet to be welcomed into its new family. Hardly the ideal relationship for a company that ‘was’ in the middle of a major transformation of its business.

Whilst politicians and the media demand answers, Lotus in turn are busy each day asking the same of their new owners. This in turn has caused the more impatient observers to accuse the Norfolk car maker of being withdrawn, secretive and overly defensive. Is that really a surprise?

So, rather than cover the same old ground, I’ll use this article to focus on what hasn’t been said and what’s really going on behind the scenes.

Over the past week I’ve immersed myself in Lotus – spending time on the ground at Hethel, speaking with senior management and investigating some of the more damaging rumours.

And what I’ve found is a company contrite over past mistakes, fighting for a future they so recently dreamed of, and seemingly powerless to change their fate.

Visit to Hethel by DRB-Hicom’s Group MD and Exec Chairman of Proton

Executive Chairman of Proton Holdings Berhad, Dato’ Sri Haji Mohd Khamil Bin Jamil, visited Hethel last week, meeting Lotus’ senior management team and touring the production and development facilities. Whilst his visit has been reported elsewhere, what hasn’t been mentioned is his reaction to what he saw.

..it is still an option to sell Lotus, but it’s not something I am preoccupied thinking about at the moment

DRB-Hicom is a business with some 61,000 staff, 12,000 of those acquired with Proton and an almost insignificant 1,200 staff tucked away over the other side of the world at Lotus. Unsurprisingly, the small Norfolk car maker didn’t really feature in the industrial conglomerate’s acquisition plan, which also distributes and assembles cars and light trucks for Volkswagen and Mercedes-Benz.

Dato’ Bin Jamil found his visit to Potash Lane something of an eye-opener, not just because it was the first time he’d seen what Lotus could do, but the impression he gave was it’s a completely different kind of business than he’s used to. The Group Managing Director at DRB-Hicom is nobody’s fool – he has a Law degree from the University of London, is a bone-fide Gray’s Inn Barrister and was called to the English Bar in 1983. He practiced law in Malaysia before venturing into business in 2001.

But there’s a huge difference between a business that provides airline and transportation services, and that of a specialist lightweight sports car maker.

It has been reported elsewhere that Dato’ Bin Jamil said last week, “We won’t sell Lotus”, but that’s not strictly true.

When the Proton Executive Chairman arrived at Lotus’ HQ last Wednesday, he said in a meeting with Lotus management that “..he was not thinking about selling Lotus, but it was certainly a possibility – although not a priority”. He reinforced this point later when saying “..it is still an option to sell Lotus, but it’s not something I am preoccupied thinking about at the moment”. During the meeting he referred to a time frame of approximately 6 months that he might allow himself before deciding what to do with Lotus.

He used DRB-Hicom’s purchase of Proton as an example, saying there were 3 bidders for Proton during its 2011 sale and DRB-Hicom were not the highest bidder, but they were chosen because it was the best fit for Proton. When speaking to Lotus’ staff representatives later in the day he said, “..if Lotus should be sold, then we will make sure we choose the best fit for Lotus.”

He did not say “Lotus will not be sold”, because that would have been patently untrue. The real issue however, is not whether Lotus is up for sale, but how long it might take for DRB-Hicom to make a decision about Lotus’ future.

Business as usual? Not likely.

If you are a Lotus supplier, then you’ll probably be on first-name terms with their Accounts Payable team. That’s what weekly phone calls to chase invoice payments can do to a relationship. Yesterday, a friend of mine referred to Lotus as “bad payers”, which may or may not have been true in the past, but right now, it’s a situation that’s beyond the company’s control.

Every day or so, the management team at Lotus meet in the 2nd floor ‘War Room’, to plan what to pay for, which cars they can afford to build and which new liabilities they can responsibly incur. This is corporate stress Guantanamo Bay style and one can only imagine how difficult it must be to turn up each day for work, without any certainty about what you’ll be able to accomplish.

This already pressured situation was considerably worsened by the statement made by South Norfolk MP Richard Bacon in the House of Commons a week ago last Tuesday (24th April).

..for Lotus it’s like replacing the torture received from waterboarding with an extra dose of electrocution thrown in for good measure.

During the adjournment debate Mr Bacon said, “The fact that KPMG has been appointed with a mandate to sell Group Lotus to the Chinese is not an encouraging sign.”

Which appears to have been information Mr Bacon obtained about the mandate KPMG were working on between 2008 and 2011, and therefore prior to the acquisition of Proton Holdings by DRB-Hicom in January 2012.

This mandate to perform a revaluation of Lotus and to advise Proton on the best strategy for Lotus’ business moving forward, was subsequently terminated and is no longer in operation. KPMG Malaysia are currently engaged with the new Proton Board under a different mandate, which would not have been known by Mr Bacon when he made his statement to the House of Commons on the 24th April.

He also went on to raise his suspicions about the now dormant Lotus Youngman Automotive Company Ltd (another red herring), described Youngman as Lotus’ importer in China (also wrong, the correct answer is ‘Symphony Lotus Limited’) and voiced his fears about Proton MD Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir’s recent visit to China (which was actually to discuss a partnership between Proton and Youngman).

The consequence of such inaccurate statements, which were picked up by 1,300 publishers around the world, with 226 of those referring to the subsequent story in Autocar, was to further jeopardize the future of Lotus business, with some suppliers now seeking payment for goods in advance.

This would be a huge challenge, even for a business flush with cash, but for Lotus it’s like replacing the torture received from waterboarding with an extra dose of electrocution thrown in for good measure.

Even though we are sure the Rt Hon Mr Bacon had Lotus’ best interests at heart, it highlights the danger of poorly-informed speculation.

Car production and future models

It has been reported elsewhere that full production at Lotus has now resumed following the 60-day post-acquisition hiatus, but that’s also slightly misleading for reasons I have already stated above. Lotus are producing cars to a planned schedule, but orders are being carefully picked, depending on the company’s available working capital. But it is wrong to conclude that everything is back to normal. The car maker are working to a constrained and uncertain budget, which hampers the production and development of new vehicles.

Whilst visiting Hethel, I saw several ‘new’ vehicles that will be shown for the first time at the Goodwood Festival of Speed at the end of June. If you have been under the impression that the Lotus range has fallen behind and is out-of-date, then prepare to be surprised.

The company openly admits that the Evora has not been as successful as they’d have liked, but they have been busy engineering two new variants which will introduce different designs, offer better value for money and be of higher quality.

I have not seen a Lotus which I’d consider a true challenger to Porsche since the Esprit ceased production 8 years ago, so it was heartening to see these cars and envisage such desirability returning to the range.

The 611bhp 5.0-litre V8 next generation Lotus Esprit.

Of course, the Esprit will return, its design has advanced considerably since the original Paris concept, but with less budget to spend on the more costly aspects of new car development, the production model has inevitably been delayed and is now expected in 2014. Despite the setbacks though, Lotus’ new Esprit is definitely a car we should be looking forward to and judging by the other new variants due in 2012, we’ll soon be thinking of Lotus as a brand revitalised, if not to the same degree as Dany promised in 2010.

But there are serious challenges facing Lotus and it’s far from certain they will remain intact until even 2013. Despite claims in the press that it’s back to being ‘business as usual’, Lotus are being starved of cash and are no longer masters of their own destiny. Decisions are being taken (or more accurately, not being taken) far away from the tranquil South Norfolk countryside and that’s a difficult enough situation to cope with for the next 6 weeks, far less to consider 6 months from now.

Calling Messrs Tata, Zetsche and Winterkorn: Lotus needs you..

This is an open letter to Ratan Tata, the owner of Jaguar Land Rover, Dieter Zetsche, the boss of Mercedes or Martin Winterkorn, the chairman of Volkswagen, asking one of them to, please, send one of their sharpest suits immediately to Hethel in Norfolk.

Auto expert and business adviser, Steve Davies, had a hard look at the Hethel works last week and also believes that in the hands of a big carmaker, Lotus can be made first-class again to sit alongside your brands such as Aston Martin and Ducatti.

Read the article on The Indepenent..

MARGARETA PAGANO
Business Editor of The Independent on Sunday, she has worked for The Guardian, The Times, The Sunday Telegraph and was city editor of the Sunday Correspondent. She appears regularly on Bloomberg TV and the BBC and writes for Spectator magazine.

With the business in near stasis and plans for the multi-model transformation of Lotus in tatters, there is naturally concern over how much longer Lotus will be able to retain its team of internationally renowned automotive executives.

Wolf Zimmerman, former AMG Chief Operating Officer, Donato Coco, ex-Design Director of Ferrari and even CEO Dany Bahar didn’t sign up to run a small British car company, and without a forward-looking plan there’s nothing to keep them there.

Some of you might not see this as a downside, but Lotus currently has the strongest team working for the marque since the days of Colin Chapman and despite our misgivings about Dany’s New Era plan, he’s undoubtedly achieved a great deal since he took over the helm of the company in September 2009.

As we now head towards the middle of 2012, Lotus sits at a precipice – to the left is ruin, whilst to the right is a future potentially rich with accolade and success.

Yes, they took their eye off the ball and neglected their existing business. Yes, they spread themselves too thinly over too many areas and yes, Dany said things to the press and at motor shows (especially Paris 2010) that have come back to haunt him, but from what I have seen this is not a business which deserves to fail, but instead one that needs restructuring, refinancing and refocused on slightly less adventurous goals.

If I were on the board of BMW, Mercedes, Porsche or even Tata, I’d be beating a path to Norfolk to ensure my competitors don’t get there first.

Whether Genii (owners of Lotus F1 Team) have a part to play in this future is as yet uncertain, they’ve been awfully quiet recently, but if you’d like to lend your encouragement to the cause then I encourage you to read Margareta Pagano’s column in The Independent on Sunday this weekend, where she’ll challenge Europe’s business leaders to step up to the plate and keep one of Britain’s most talented car makers alive.