Lotus Cars, alongside Aston Martin, is one of the UK’s success stories in terms of building desirable sports cars. Aston Martin exudes sophistication and style – and their V8 and V12 engines sound awesome – but nothing compares to the driving experience of a Lotus. You don’ so much sit in a Lotus, but more you “wear it”. Light and nimble, you feel so connected with the road.

This is due to a philosophy which has been behind Lotus cars since the days of the late Colin Chapman, called “value engineering”. Remove weight wherever you can. This is a virtuous circle. Make the body lighter and therefore the suspension can be lighter as there is less weight to carry around, and as there is less weight engine can be smaller to get the same performance, and as there is less weight to slow down the brakes don’t need to be servo assisted eliminating more heavy components. So now the suspension can be even lighter. And so on and so on.  And the end result is a “fantastic driving experience” with “reasonable running costs”

So if a Lotus has “less car” and in this case  “less is definitely more” how come they can’t make a profit? Their loss making over the years has now put a huge question mark over their long term viability.

The latest edition of Evo Magazine devoted a page to desperate plight of Lotus, but also pitted the new Lotus Exige S against cars twice its price. And it came out the winner. But with a Malaysian owner who has recently sold its stake onto another Malaysian company, DRB-Hicom, the future of the company is very uncertain.

But the root of the problem is a lack of profitability. Here are some questions that need answering. And they are not engineering questions but core business and marketing questions:

  • Is the market niche that they are targeting too competitive?
  • Do they not have the volume to be able to make the cars for the right price?
  • Is it that they cannot design and make cars cheaply enough?
  • Do they keep changing the models so they are constantly in design mode and never sell enough of a model to recoup the design costs?
  • Are they being too ambitious with the mouth-watering range of cars that they are aiming to launch? The new Esprit, Elite, Elise, Eterne  Marketing 101: announcing a new product stalls the sales of the existing ones. Evora resale vales have fallen off a cliff, so why would you buy new – which starves company of vital cashflow.
  • Are they not charging enough, or too much, which takes back to the market positioning? The latest Exige S is £50,000 and Evora S is over £60,000 which puts them in Porsche 911 territory. And the entry level Elise is nearly £30,000.
  • Or are they wasting money on ego-driven F1, IndyCar and huge range of other motorsport?

It is not that small volume manufacturers are not profitable. At the top end you have Pagani who makes very few cars, but the prices of a new Pagani have moved from £180,000 to £1.5m since the first car was launched. And, apparently, they have had offers of over £200m for the company.

So what will happen to Lotus, and what will change? It cannot continue to lurch from year to year losing money and hoping to stay in business – no matter how good the cars are. As a famous philosopher once said

“Insanity is doing the same thing and expecting different results”

(BTW I am a committed Lotus fan with an 1986 Lotus Excel and 199 Lotus Elise, but we need to look at Lotus as a business, not a rich man’s plaything)

 

 

 

 

 

 

 

 

 

UPDATE: CEO Dany Bahar has been suspended

So, looking at his school report for the end of term:

BusinessStrategy101 – failed; didn’t really seem to understand what we needed here
Engineering101 – pass with distinction; has a natural talent here which comes through in all the assignments
Sales101 – failed; great products but really didn’t come up to expectation and never hit the numbers
PR101 – failed; too little ie none, too late

Overall; showed great promise but failed to focus on what was important.

Advertisements

One thought on “Why can’t Lotus Cars make a profit?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s