Lotus Cars Ltd.

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Lotus Cars Ltd.

Hethel
Norwich
Norfolk NR14 8EZ
England
(95) 360 8000
Fax: (95) 360 8300

Wholly Owned Subsidiary of 21 Invest International
Holdings Ltd.
Incorporated: 1955
Employees: 200
SICs: 3711 Motor Vehicles& Car Bodies; 8711 Engineering
Services

Lotus Cars Ltd. is an international developer, manufacturer, and marketer of luxury sports cars. Lotus’s market is small; the company’s entire production run from 1957 to 1995 totaled just over 50,000 vehicles. Although the company’s exotic and expensive cars have always been its most recognizable products, the company’s most profitable operation during the mid-1990s was its engineering consultancy.

Lotus continued to bear the stamp of founder Anthony Colin Bruce Chapman, whose initials appear in the marque’s logo, into the mid-1990s. Chapman’s 35-year career has been highly praised. In a February 1987 Motor Trend article, Phillip Bingham described the designer and engineer as “a genius, an iconoclast, a bloody-minded pioneer, a tireless human dynamo, a legend second only to Enzo Ferrari.” Chapman’s automotive innovations included monocoque construction, ground effects, commercial sponsorship of Grand Prix racers, and more. Following the founder’s 1982 death, Lotus went through four transitions in ownership, two of them within a span of 18 months.

The history of Lotus Cars Ltd. can be traced to postwar Britain’s club racing movement. Unlike the better known professional racing circuits, club racing was an “everyman” competition often involving street-legal cars. Colin Chapman, who had started building race cars in 1947 at the age of 19, wanted to create a relatively inexpensive yet high-performance vehicle for the club racing market. His Lotus Seven, launched in 1957, met both these criteria. Chapman helped his weekend-racing confederates save money on their speedy toys by offering the Seven as a kit; Britain’s high auto taxes did not apply to the box of auto parts. When assembled, the tiny car had an 88-inch wheelbase and weighed 900 pounds, but it could achieve top speeds of 110 miles per hour. Its four main models were sold primarily in kit form and were offered by Lotus until 1973 (when the car’s production rights were transferred to Lotus aficionado Graham Nearn, whose Caterham Cars continued to manufacture the vehicle through the mid-1990s).

Chapman founded the Lotus Engineering Company in 1952 and conceived Lotus Cars Ltd. three years later. Like the club racers he catered to, Chapman had more enthusiasm than capital. He borrowed £25 from girlfriend (later wife) Hazel Williams to build his first car. Although Lotus would eventually make him a millionaire, the company was known for its seat-of-the-pants operation. Lotus’s headquarters and production were housed in a garage behind the Chapman family’s Hornsey North London hotel from 1955 to 1959, when the company moved to a production facility at a converted World War II airfield.

Chapman’s lightweight, sparse designs harked back to his days at engineering school, when he participated in an aeronautical internship with DeHavilland aircraft. For example, he adapted monocoque chassis construction, in which the body covering bears as much or more of the vehicle’s stress as the frame, from aircraft design. His body shapes, like the wedge, also echoed elements of aircraft. Many of these ideas were applied to racing models, then adapted for street cars.

Although Lotus’s racing arm remained separate from its passenger car segment, they shared, through Chapman, an emphasis on engineering and design. Team Lotus’s racing successes helped maintain the high interest in Lotus street cars. The group won three Grand Prix World Championships in the 1960s, seven GP titles in 1963 alone. In 1965 Lotus won its first Indianapolis 500. The company added design awards to its racing titles during the 1960s as well. These included two consecutive prizes at the London Motor Show, as well as Colin Chapman’s attainment of the Companion of the Order of the British Empire (CBE) for “Services to Export.”

Lotus launched its first passenger car, the Elite, in 1957. The model combined aesthetics and performance in a package that sold more than 1,000 cars over the course of its five year production run. The Elite’s successor, the Elan, would become an icon of the sports car segment. Introduced in 1962, this convertible roadster became Lotus’s all-time best-seller. This classic sports car featured the sleek fiberglass body and pop-up headlamps that became industry standards. Its engine was based on Ford Motor Co.’s 1500cc block, which was modified to be more powerful. By the time the company ceased production of the Elan and its derivatives in 1973, it had sold over 17,000. A Lotus corporate release asserts that “the Elan became a legend; it was a sports car by which owners were judged.”

The Europa was another successful model introduced by Lotus during the 1960s. Just under 9,900 of these cars, which were among the first to feature a race car-inspired mid-engine layout, were sold from 1966 to 1974. Lotus Cars launched its first model with four full seats, a revival of the Elite, in 1974. The car body featured glass reinforced plastic construction and was characterized as “the most luxurious and expensive Lotus road car to date.” Lotus continued to garner design honors in the 1970s. Model year 1975 brought the Esprit and Eclat, which together won three medals at the Earls Court London International Motor Show. The Elite became Lotus’s first car to be approved for exhibition in London’s Design Center.

Racing victories and international exposure enhanced the Lotus mystique in the late 1970s. The Esprit made its feature-film debut in the James Bond thriller The Spy Who Loved Me in 1977. Factory visits from members of the royal family and Parliament also boosted the company’s prestigious image. During the same time, Team Lotus was racking up a string of design and racing triumphs. Chapman revolutionized Formula One racing with the launch of ground effects or “skirts” in 1977. In 1978 Mario Andretti was behind the wheel of the Lotus 79 that brought home Team Lotus’s sixth Driving Championship title.

But while the racing group flourished, the production group began to struggle. The mid-decade oil crisis raised gas prices and eviscerated the sports car market. Lotus’s monthly production declined from a high of 200 in the mid-1960s to 100 in 1978 and a paltry 32 in 1981 as a global recession began to take effect. The automaker’s North American marketing group crumbled in the late 1970s; from 1980 to 1983, Lotus didn’t sell a single car in the United States, the world’s largest sports car market. Employment dropped from 900 in 1970 to 300 in 1974. The company recorded losses in 1974 and 1981. In light of Lotus’s poor fiscal standing, its banker, American Express, withdrew its financial backing in 1982.

When John Z. DeLorean asked Lotus to revamp his DMC-12, the $18 million engineering and design contract looked like a lifesaver. As it turned out, it was a mixed blessing. On the downside, Lotus’s intensive concentration on the DeLorean distracted the company from developing its own new models for the 1980s. Worse, DeLorean Motor Co.’s 1982 failure and John DeLorean’s subsequent arrest entangled Lotus in a damaging scandal. The British government embarked on an exhaustive search for millions in “lost” business grants and loans made to DeLorean Motor Co. (DMC). Both Chapman and Lotus were implicated in a government investigation of DMC. When the government assessed a punitive tax assessment of £80 million against Lotus, the tiny automaker opened its books to scrutiny, eventually clearing itself and avoiding the penalty.

These multiple pressures exacted a price. Lotus reached its nadir December 16, 1982, when founder and guiding light Colin Chapman died of a massive heart attack at the age of 54. According to the founder’s will, Team Lotus, “the jewel in the crown,” went to its earliest benefactor, Hazel Chapman. Given the strikes against it, most observers expected Lotus to fold. But thanks to a cadre of dedicated team members and a timely fiscal reorganization, the company survived. Ironically, part of the revival was credited to Lotus’s work for DeLorean. Michael Kimberley, who had been managing director since 1977, later told Motor Trend that the research and development contract “established Lotus as a credible overall vehicle engineering consultancy company.”

That capability attracted the attention of Toyota Motor Company, which led a 1983 refinancing and reorganization of Group Lotus Car Companies. (Although Lotus had gone public in 1968, Colin Chapman had refused to sanction the sale of company equity.) Other corporate investors included British Car Auctions, JCB, and merchant bank Schroeder Wagg. In exchange for Lotus’s research and development proficiency, Toyota offered the British company cheaper mass-produced parts. With Toyota’s backing, Lotus was able to increase production to 640 cars in 1983 and reenter the U.S. market through a private import and distribution operation called Lotus Performance Cars.

When Lotus was acquired by auto industry giant General Motors Corp. in 1986, many observers sounded the marque’s death knell. But instead of being stifled by a bland corporate bureaucracy, Lotus retained its independence and gained the financial support it needed to continue. Lotus hoped that the big-name influence would help it triple its annual U.S. sales to 1,500 from 1985 to 1988. In 1987, Motor Trend proclaimed that “the company [was] in the midst of a glorious renaissance.” But that was not to be. In a January 1986 interview with Ward’s Auto World, Kimberly noted global overcapacity in the specialty car market and predicted that “the number of independent auto manufacturers will reduce considerably over the next 20 years.” As the ensuing years progressed, that prophecy appeared to be coming true.

In 1989 Lotus revived its most popular model, the Elan, in hopes of recapturing the glory of the 1960s and early 1970s. But recession, a new U.S. luxury auto tax, and changing demographics combined to gut the luxury sports car market. In 1991, Lotus joined Mercedes-Benz, Jaguar, Porsche, Peugeot, and Sterling, laying off about 20 percent of its 1,500 British workforce. Lotus also tried to boost sales by offering rebates of $5,000 to $15,000 on the $40,000 to $90,000 Elans and Esprits. But instead of the 6,000 cars it had hoped to sell in 1991 and 1992, less than 3,857 Elans rolled out of showrooms, each one at a loss. The company tried to balance inventory levels with a five-week break in production, then ceased building the Elan altogether in June 1992. The Economist blamed a misguided application of mass-production techniques to the traditionally small-run company. According to a 1992 piece, Lotus “spent six years and £30 million [US$60 million] developing the Elan and building a new, partly automated factory.” Lotus could not sell enough Elans to account for the expenditure. The company continued to offer its higher-priced Esprit Turbo but was compelled to give a 20 percent rebate on the model.

In the late 1980s and early 1990s, Lotus Engineering’s research and development consultancy proved the more vital business segment. The value of its contracts grew at a blistering 60 percent annually, and this division employed over 400 by early 1987. Lotus earned contracts with some of the world’s top auto manufacturers, including Chrysler, Toyota, Austin Rover, and Volvo. The engineering segment brought in over US$50 million annually by the early 1990s.

Corporate ownership of Lotus changed hands again in 1993, when Bugatti Industries acquired the marque from General Motors Corp. for $48 million. Bugatti’s Grand Prix heritage meshed more logically with Lotus’s culture and helped the subsidiary improve both its sports car operations and its fiscal position. On the heels of fiscal 1994’s (ended August 31) $16.5 million loss, Lotus chalked up net income of $3.2 million on $81.3 million revenues for fiscal 1995. Production more than doubled over the same period, from 320 to 710. Employment levels also rebounded to 700.

The group entered a completely new segment, high-performance bicycling, in the 1990s as well, applying design concepts like monocoque and composite construction techniques to the new segment. In 1992, the company’s biggest proponent on the competitive cycling circuit, Chris Boardman, won the Olympic 4000m Gold Medal on a Lotus Sport bicycle.

Although it was apparently successful, Lotus’s union with Bugatti was short-lived. Bugatti sold Lotus to 21 Invest International Holdings Ltd., a merchant bank, in April 1995 for $58.3 million. Although 21 Invest was headquartered in England, its two primary shareholders were Italy’s Bonomi and Benetton families. One of 21 Invest’s principal investors, Alessandro Benetton, was also intimately involved with his namesake Formula One racing team and the United Kingdom’s TWR, a successful exotic car manufacturer.

In spite of these connections, the new owners vowed not to combine their disparate auto interests and even hinted that they would “bring in other investors or permit a buyout by management” before the end of the century.