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Guest opinion: 'Lotus desperately needs a new partner'

Author: David Bailey (pictured), professor of industrial strategy at Aston University Business School

"Norfolk-based sports car manufacturer Lotus has just announced that it will cut around a quarter of its workforce in a desperate attempt to cut costs.

"As many as 325 jobs may go amongst its 1,215-strong staff. It has launched a 45-day consultation process.

"The famous firm which once provided James Bond with a white Esprit now makes the Elise, Evora and Exige models at its Hethel plant. It is now a wholly-owned subsidiary of Malaysian group DRB-Hicom.

"In a statement yesterday, the firm’s chief executive Jean-Marc Gales said that Lotus needs to reshape so as to build a 'strong sustainable future' and this is likely to lead to compulsory redundancies.

"He stated that 'we understand the concerns that this proposal will create. We deeply regret the potential impact any reshaping of the business may have on our employees and their families'.

"He added 'we have worked very hard to avoid the need to make the proposal, but do believe that it is now essential. It is in no way a reflection on our employees who have shown nothing but dedication to us and have worked tirelessly to support Lotus'.

"Nevertheless, Gales, claims that over the last year Lotus has made 'significant progress' to turn itself around but said that 'the harsh truth is that if Lotus is to prosper in the long term it must do even better, at lower cost'.

"Back in early 2009, Lotus’s then-owner Proton brought in former Ferrari executive Dany Bahar to run the firm. He soon announced a big expansion plan and five new models planned. This quickly fell apart, however, and after a dispute with new owners DRB-Hicom, Bahar was forced out.

"The latest announcement caught some Lotus-watchers by the surprise. The firm saw sales rise in 2013 and during the summer of this year. Only a year ago Lotus announced plans to take on an extra 100 staff.

"But despite its motor-racing pedigree, Lotus has struggled over many years to transform on-track brand heritage into on-road commercial success.

"While owners like GM Proton have come and gone, one thing has remained pretty constant: Lotus is a perennially loss-making car company.

"The real issue is that developing a genuinely new car costs several hundred million pounds. Lotus has neither the volume to generate cash for R&D nor the prestige to charge high prices.

"The basic Elise starts at just £28,500 and in total Lotus made only 1,400 cars last year. In contrast Aston Martin made four times as many cars and is able to sell models for hundreds of thousands of pounds.

"But even Aston can’t do it on its own anymore and has got into a relationship with Daimler whereby Aston can access Mercedes AMG technology. That will help it develop new models much more cheaply, and may over time lead to platform sharing.

"Indeed, I expect over time for Aston to be acquired by Mercedes just as other premium car brands have been snapped up by bigger players (BMW has acquired Roll-Royce, Volkswagen now owns Bentley, Lamborghini and Porsche, and Tata of course owns Jaguar Land Rover).

"Where does this leave Lotus? It desperately needs a tie-up with a big player that is willing to share technology with Lotus so that it can get its development costs down.

"Given that Lotus is still ‘big in Japan’, Toyota would be the ideal choice (and something that Lotus has hinted at in the past). Or for a completely left-field idea, how about a tie up with Tesla (for whom Lotus supplied bodies previously) heralding a shift into electric sports cars?

"Previously, Lotus’ ownership by struggling Proton made such tie-ups highly unlikely but struggling Proton off-loaded Lotus to its major shareholder DRB-Hicom a few years ago.

"The latter assembles cars in Malaysia for a range of firms including VW, so has links into the auto industry but cannot itself support the investment needed to for Lotus to bring genuinely new cars to market.

"Whether DRB can use some of its links to open up access to technology could be a key question over Lotus’ ability to escape from its long-term predicament of lurching form one crisis to another.

"A big partner is desperately needed."

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  • John Marsh - 23/09/2014 15:59

    interesting piece by the professor. However I wonder if the indirect proton influence via DRB-Hicom might still delay or damage hopes of any tie up with another player? And who want a link with Lotus anyway?