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Friday
Aug222014

A Recipe for Disaster

By Christopher A. Sawyer 

Revisionist History 

The Malaysian automotive website paultan.org is reporting that new Lotus CEO Jean-Marc Gales has told the Proton Cars board of directors that Lotus will have two new vehicles around which it will build its future: a D segment performance sedan and an SUV. If this sounds familiar, it’s because it is what many believe to be the playbook that led Porsche to become fabulously profitable in the early part of this century. First the VW Touareg-based Cayenne SUV, then the (somewhat) Audi A8-based Panamera launched, breaking sales and profit records for the Stuttgart-based sports car maker. Since that time, the company has added a smaller SUV, the Cajun, and more models are planned. It is the non-sports cars, they say, that made Porsche a powerhouse

Toyota to the Rescue, Sort Of… 

The car that saved Porsche, the Boxster.Unfortunately for those who subscribe to potted histories, this isn’t the case. Porsche was saved by the Boxster, which shared more than 40% of its pieces with the 911 that followed. More importantly, a group of ex-Toyota executives were allowed by the Japanese automaker to thoroughly study Porsche’s processes, and suggest changes that would make the company more profitable. These experts dramatically cut the amount of inventory carried in the plant, the hand crafting necessary to get panels to fit properly, the time and labor cost per vehicle, and more. They identified enough changes that, when fully implemented, would reduce Porsche’s costs by more than 30%; money that would drop straight to the bottom line. 

The other thing the Japanese analysts showed Porsche was that — though it needed the 911 — the smaller, lighter, more affordable sports car it wanted to build could not be done profitably in a vacuum. For this program to work, the new car had to be designed alongside a new 911. Both cars would share the structure from the A-pillars forward, and a large portion of the underbody. The structures would be optimized to reduce the number of panels, the number of dies necessary to form those panels, and to eliminate the hand work the current range needed to make the panels mate properly. In addition, designing for manufacturing and assembly (DFMA) would further cut the labor hours per car, and reduce costs. Finally, building both vehicles around a rear-mounted flat engine reduced the number of defects (Things Gone Wrong, or TGW) that could creep into the assembly process. 

Refocusing the Image 

Armed with this information, Porsche attacked its problems with a vengeance. Hand labor and rework dropped dramatically. Quality improved. Costs began to drop. This money was used to help fund the Boxster and new 911 programs. Happily, the new small Porsche proved to be a tremendous success, reviving the Porsche image as a builder of light, affordable and fun cars. The 911 that followed added to this image, and reestablished Porsche as a maker of top flight sports cars. 

Without the ministrations of the former Toyota executives, the major changes made to the way Porsche produced vehicles, and the success of the Boxster and 911, Porsche might have gone under or been absorbed by Mercedes-Benz, which had its eye on the sports car maker. Instead, the Boxster became the best selling Porsche in company history prior to the introduction of the Cayenne, and was produced both in Stuttgart (1996- ) and Valmet’s plant in Uusikaupunki, Finland (1996-2011), before the Finnish production was sent to the former Karmann factory in Osnabrück, Germany with the introduction of the latest model. 

Though the Boxster and 911 are not as closely related as they once were, the two cars still share a significant number of components and structural pieces, as proven by the fact that the Boxster and 911 grow in size in lockstep as each new generation is introduced. This will become even more pronounced in the future as Porsche lays out the modular platform for the VW Group’s rear- and mid-engined cars. 

A Similar Situation 

Elise and Exige no longer qualify for safety standard waivers, can't be sold in North America despite being one of the most popular Lotus models ever.What does this mean for Lotus? Plenty. For the company to be successful, it must first put its house in order before building vehicles for markets it has never entered as a first-level manufacturer. Currently, the Evora is the only global model it has in its lineup, and new safety standards promise to make it difficult, if not impossible, to sell that car in some markets, like the U.S., without significant short-term investment. This must be done, and the effort made to update the styling, safety and interior appointments in order to keep it competitive and keep the Lotus brand in major global markets. This should be done while cutting assembly time, reducing inventory, and applying DFMA lessons to the revisions, much as Porsche applied the lessons it was learning from the former Toyota executives to its then-current lineup. 

Unfortunately, the Elise and Exige no longer can be sold in North America. They don’t meet safety standards. In addition, though a production-ready Esprit replacement was nearing completion when former CEO Dany Bahar took over the reigns at Lotus, the original concept for a light, nimble, upper-level mid-engined sports car based on the Evora platform and powered by a choice of three Toyota engines (supercharged V6, Lexus IS-F V8 and Lexus LF-A V10) was abandoned. And while this remains a seductive segment, it is not important to the company’s immediate health. Many are the car companies that withered under the weight of a halo car that had no chance of making a decent profit. 

In addition to dropping the Esprit project, Lotus must involve its workforce in weeding out waste throughout the engineering, development and assembly processes; fundamentally cut decision making time; and reduce bureaucratic overhead. Refusing to do so will lock in inefficiencies that grow over time and must be systematically cut back at regular intervals. This bureaucratic mission creep is the bane of the modern business organization. 

Two Tracks, One Goal 

Believe it or not, this is the most important model for Lotus today.As it moves forward on the updated Evora, Lotus must follow Porsche’s example and refocus its image, rediscover those elements that make a car a Lotus, and apply them persistently to every product it builds. The most successful Lotus vehicles have been the ones that have appealed directly to the enthusiast, without producing a vehicle so singularly focused that it could not be used everyday. Of these, two come to mind: the original Elan and the Elise. Both cars combined light weight, fuel efficiency, surprising ride comfort, sublime steering and approachable handling in a fresh, mischievous wrapper. Package protecting for a larger car (the next Evora) that takes these hallmarks and expands upon them for a wealthier, more discerning, buyer — and introducing variants of each — expands market reach at minimal cost. Thus the Elise (convertible) and Exige (hardtop) anchor the bottom of the range, while the Evora (coupe and convertible) anchors the top of the line, while leaving room for a range topping supercar when the company and global economy return to full health. 

Volvo's SPA architecture will debut on the XC90 SUV.Only after Lotus reestablishes its bona fides through the introduction of profitable, capable, competitive vehicles can it move into new markets. This may not be as difficult as it first appears given the fact that Proton, which still owns Lotus even though Proton is now owned by DRB-Hicom, is negotiating a deal to build cars with Chinese maker Geely. Geely, you may remember, bought Volvo from Ford for a ridiculously low price. It also is in the midst of overhauling its lineup by introducing a new family of four-cylinder powertrains and a modular architecture similar to VW’s MQB structure. Plus, it is cooperating with its Chinese parent to build a less expensive version of is modular SPA (Scalable Product Architecture) structure for use in its cars. Proton hopes to take these Geely designs and build its own versions for sale in Malaysia and elsewhere in the Far East. 

By taking what it needs from the Geely and Volvo structures and combining them with its own Variable Vehicle Architecture, Lotus could produce a credible sport sedan and sport utility without breaking the bank. However, build quality would have to be many times better than your typical Lotus today, top quality materials would have to be better deployed throughout the interior, and Volvo would have to supply its entire electrical system and powertrains to Lotus as it is too small to develop these items on its own. Also, it probably would be necessary to produce the bodies in white either in Sweden or China (Sweden is closer) as Lotus does not have the facilities to build a vehicle that is stamped and welded. They would be modified and trimmed in England, much like the Lotus Carlton sedan was in 1990. 

However… 

Could this work? In a perfect world, yes. However, Proton has been the largest stumbling block to Lotus success since the death of its former CEO Yahaya Ahmad in 1997. Ironically, Ahmad was CEO of DRB-Hicom, took a controlling interest in the state-owned car maker (Proton), and bought Lotus in 1996. He envisioned Lotus acting as Proton’s in-house engineering development firm, where it would bring the company’s vehicles up to European standards for ride, handling, efficiency and quality. Those plans died with him, and DRB-Hicom divested itself of its stake in Proton, only to take control again in 2012, reportedly under government pressure. After Yahaya’s death, many palace intrigues and managing directors came and went, and Lotus was starved of financing and blamed for Proton’s sad financial shape. 

Unfortunately, Proton’s latest CEO is Mahathir Mohamad, the former prime minister of Malaysia, and the person who started Malaysia’s National Car Project in 1982. He has a strong, vested interest in seeing Proton survive at any cost. Over the years, Proton received many offers to purchase the company outright (Ford and VW are the most prominent), but Mohamad refused to let the company be sold. Call it a bad case of misplaced national pride. Proton’s official line was that it would be willing to sell a large minority stake to an established automaker, but only on the condition that said automaker taught it everything it knew. No one took the bait. 

This same delusional thinking underpins the latest plans for Lotus. Rather than fix what is broken, put the company on a solid footing and grow its way to prosperity, Proton and the current Lotus management believe they can skip the hard work and pain by taking Lotus  into markets in which it has never competed, with vehicles it has never built, and using materials (steel, aluminum) with which it has no history. As currently envisioned, it is a recipe for unmitigated disaster.

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