How to spot a car company that is about to fail.

The car industry is a very spacial environment, with some very special people in. It seem to attract an amazing mix of personalities and a huge range of talents. Making cars fires some people with an enthusiasm that drives them far beyond the limits of their own talent, it’s a curios business, not quite like any other area of industry.

Old MGs are fun, but they were constrained to use parts that were already out of date, this one has a Lancia Twin Cam engine and shows what could have been.

The history of the car industry is littered with the corpses of dead dreams, idealists, optimists, dreamers have all had a hand in making the story, but equally so have rogues, villains and cheats. It’s even more colourful than the newspaper industry!

Sometimes it’s just one name that signifies the loss of hope, the crushing of dreams and the tragic culling of ordinary hard working decent folk’s jobs. Names like Delorean are well known, but he is unusual in being almost universally held guilty, more often opinion is ferociously split. Names like Eagan, one camp see him as securing the future of Jaguar

The Rover 400, a good example of using Honda's platform investment and adding their own identity. Trouble is it was never replaced when it had run it's course, just facelifted, twice.

with a wealthy parent (Ford), others view his skill in presenting a failing company as being a raging success as nothing more than a traditional used car salesman, some love him, some hate him, this is more often the case with the main characters in the industry.

There are a couple of key facts that are far too often overlooked when bloated executives prepare a new daring business plan for a car company. Firstly it takes a hell of a lot of money, time and people to develop a good car. I think the Ford Focus cost something like four billion dollars, seven years and a couple of thousand people to develop. That’s a huge investment, and a really long wait for a return, remember that is four billion over seven years and not one salable car produced, it would be many years after production started before any return on investment was made. In the Focus case it turned out rather well, but that’s not guaranteed, remember the Scorpio? That was designed many years before launch, as are all cars, can you predict what cars will look like in five years? Can you make a style that will fit in nicely on the high street in ten years time? It’s really easy to poke fun at the tragedy of the Scorpio, a car that lost Ford the D sector market so utterly that they found it more cost effective to just buy Volvo instead of trying to resurrect it, but when you look at the Mercedes that came out a few years later it looks very similar so they were not that far off.

Car design is a massive gamble, huge in fact. Not only does the product have to meet all the customers expectations, but it must meet incredibly stringent legal requirements too. I won’t bang on about the incredible scale and breadth of technical challenges, suffices to say it makes rocket science seem easy by comparison. I’m struggling to thing of another high tech, multi computer controlled, real time systems that has to function in specific ways even whilst being crashed.

It’s a sad fact that throughout the history of car design incompetent management have made the tragic mistake of thinking that the technical things they don’t know about must be easy. Just look at the once magnificent Rover K series engine, originally designed with a closed deck block, no head gasket worries there, solid and robust. But a decision was made to stretch it to a capacity well above it’s original design limits, this is not an engineers decision, this is a managers decision. This decision necessitated the loss of the closed deck and the inevitable sensitivity of the head gasket, but the mangers did what they so often do and pushed it through. Then they had a the clever idea of saving money by making the smaller engines in the same way, thus making the formally robust 1.4 just as fragile as the 1.8. The rest is history.

This is just one example of management not understanding the importance of investing in new designs to meet new targets. This problem is often scaled up to include whole companies, not just one car part. Trying to produce a new model without the correct investment in time, money and people results in inadequate products. Inadequate products result in reduced sales, and so less revenue coming in. Now a clever management team would spot this and invest in a new product to get sales up again, this is a long term strategy and makes successful companies. But a poor management team will notice the falling revenue and react the wrong way by tightening spending, reducing investment and continuing to bang out inadequate cars but with shinier badges and brighter paint.

The Rover 75 was a great new car. By 2003 the company should have started work on it's replacement so that it would be ready for launch in 2010, but they didn't.

When BMW sold Rover they had already made the investment in the 75, from that point on not one new model was developed. The Phoenix chaps made no obvious attempt to replace the old Honda derived 400/45/MGZwhateverthehellitwas etc. Remember it costs billions to develop a new car, they ‘invested’ millions, so no new platforms, no new engines, no new sales. From the moment they announced their plans most people inside the industry knew it was just a matter of time before the company sputtered to a tragic and unnecessary halt. The fact the the government also were convinced to invest millions into the failing company merely shows that ministers were either clueless or had other motives for handing over money to the increasingly wealthy board members.

The new Jaguar XJ. Real investment leads to real success.

Compare this with Jaguar, a company that had suffered inadequate investment since the grim days of the ’70s. When Ford took stock of what they bought and found out the truth they swallowed hard and started investing in making new models such as the XK8 and the S type, they also invested heavily on a complete redesign of the XJ plus they funded the development of Jaguars own legendary V8 even though Ford had a wealth of V8 engines available. They invested heavily and sales increased. No one is perfect and the idea that the X type would out sell the BMW 3 series was flawed, that decision cost them dearly. And the conservative styling of the S type and the XJ limited appeal. But again they saw struggling revenues and invested in new models, the current stunning XJ, XF and XKR were all funded by Ford. They bought Land Rover when BMW split up the Rover group and used the Jaguar engines in a range of new models there too. Unfortunately for Ford their own cash flow problems meant they had to sell Jaguar Land Rover before they saw the return on the investment, but their decision to invest in new engineering has resulted in Jaguar Land Rover posting billion dollar profits.

The Bentley GT was a totally new design, VW invested properly in the factory, the people and the product. A big change compared to the previous owners.

The same success from investment can be seen at companies such as Rolls Royce and Bentley. Morgan is a fascinating departure from the norm, they have steadfastly remained focused on doing what they do best, on servicing their unique customers demands, resisting the brainless call to expand excessively. They have stayed small but crucially stayed profitable, it is a very clever model and one that any aspiring business leader should make time to understand. But even they have understood the need to invest in new models, but where they could not afford to design their own parts they have bought in parts that meet their needs, benefiting from someone else’s investment and avoiding the trap of under investing in designing their own engines etc.

Focused investment at the right level generates success. Under investment generates failure.

So you see, if a mainstream car company announces it is going to make new models then there needs to be a large amount of money behind it to work, billions not millions. It also need the facilities and people to make it happen, thousands, not hundreds.

If you see a company that historically designs only one new model at a time then they will have the facilities and people to do only that. If they announce that they will suddenly make five new models at once then they will need five times more people, larger facilities and huge investment.

It is sad to see that there are such companies about in the UK, making bold plans but with a fraction of the required investment. The same old story, with inevitably the same old ending; lots of trouble, usually serious.

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