Mastretta reaches an impasse - but is this really the end?

Mexican car company Mastretta has ceased production of the MXT sports car – the first car designed, produced and marketed in Mexico by Mexicans, citing irreconcilable differences between the founders and their investors.

The problem is sadly all too familiar, but despite the impasse we might still one day see a Mastretta-badged car on European roads.

In a statement released on Monday, founders Daniel and Carlos Mastretta apologised to the company’s 45 employees, suppliers, distributors and supporters, while criticising their business partners; Latin Idea Ventures, and the government-owned Mexico Ventures Fund and Corporacion Mexicana de Inversiones de Capital (CMIC).

Both government institutions are responsible for promoting innovation and entrepreneurship in Mexico, while Latin Idea are the venture capital firm who originally financed development of the car.

Co-founder Carlos Mastretta blames Miguel Angel Dávila and Humberto Zesati González of Latin Idea for mismanaging the company, making Zesati Dávila its head and empowering him with full decision making authority over the funds.

They describe Dávila as, “..a goofy, irresponsible and negligent manager who in just eight months has used up all the resources provided without meeting any of the agreed objectives.”

The trouble is, Mastretta and his brother ceded control in their company when they took investment from the Mexican government in 2013, becoming minority shareholders and diminishing their voice on the Board of Directors. Sadly they’ve now exhausted all conventional channels and have resorted to placing ads in national newspapers to bring attention to the company’s plight.

READ ALSO: Mexico Rising: Interview with Daniel Mastretta

Latin Idea has now closed the factory in Toluca and suspended any further investment, which the Mastretta brothers claim is in breach of the company’s Subscription Agreement signed in 2013. During an interview with El Financiero, Chairman Carlos Mastretta said “Of the $5.5 million promised by the government-owned Development Bank, less than half has been applied (which would have helped buy time to find new investors).”

“It’s pretty clear from the tone of Carlos’ and Daniel’s statement that they’ve reached the point of no-turning back,” said Steve Hindle, Brand Manager for Mastretta in Europe.

“If Mastretta Cars is to succeed, then there are going to have to be significant changes to the corporate structure in order that a platform for new investment can be created. Of course, it’s quite possible that Latin Ideas will attempt to continue without them, but a Mastretta without a Mastretta is not Mastretta. As it is, everybody right now is hurting, so getting people to ‘step-out’ is not going to be an easy fix, but the business case is strong, so as a key national project (in Mexico), we’re going to have to appeal to the government shareholder group to bring both parties to the table.

Supporters of the company are now lobbying the Mexican government to intervene, release its promised investment and mediate a solution, which must inevitably include a restructuring of the board to ensure those who run the company actually understand what’s needed to bring the MXT to market.

No doubt mistakes have been made on both sides, but the company’s shareholders would be wise to stand back and reconsider both the management and governance of the business. Finance should always ‘follow’ capability in a venture, get the latter right and it stands a good chance of reaching its potential.

Thus far we haven’t seen the MXT’s full potential, which although low in volume (c. 200-300 cars per year), could offer strong competition to the likes of Lotus, Caterham and Zenos in their sector.

Mastretta has sold around 25 MXTs in South America powered by the Ford 2.0-litre Duratec engine, but had planned to replace this with the 2.0-litre EcoBoost unit used in the Focus ST. European type approval was scheduled for later this year ahead of the market launch of a revised MXT in 2015.