UK-based Group Lotus is a wholly owned subsidiary of Malaysia’s Proton and has two main activities: it makes sports cars and has an engineering consulting arm. Mike Kimberley is steeped in Lotus tradition, having worked alongside company founder Colin Chapman. He was parachuted in as Group Lotus CEO last year and is charged with taking the company forward. Dave Leggett recently met up with him.
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DL: How’s business this year?
MK: Business this year is very significantly improved over last year. Since I joined mid-last year, we have turned the group around – I think it would be fair to say that. The car company is profitable and the engineering company is at breakeven at this stage.
DL: How many cars will be made here at Hethel this year?
MK: We made 2,875 cars last year – this year will be about the same.
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By GlobalDataDL: How does that break down by major national markets?
MK: The biggest market is the USA [accounting for just over half of all output], second biggest is UK [around 900 units] and third largest is Japan – where we sold over 500 cars last year and where our brand image is as high as a Rolex. That’s a big part of what we’re about, moving the brand upmarket and it goes back to the decision to develop the engineering consulting business with Colin Chapman back in 1977. As was the case then, we want to take the image of Lotus upscale.
DL: How’s the US market looking?
MK: Not as strong as it ought to be. We have our own importation and distribution operation there and we are in the midst of reorganising things. We have 54 dealers in the US, four in Canada.
We have had to make the company more customer and market driven rather than manufacturing driven.
We have changed that over the course of the last twelve months. In the US we have brought our stocks down to an all-time low. I get telephone calls now from some of our dealers wanting more cars – which is great. After twelve months we’re back into a market-pull situation.
DL: Surplus stock was a big problem in the US?
MK: A year ago the US was grossly overstocked and that is something that I am glad we have put right.
DL: And the weak dollar must be a headache on US shipments, or is Lotus hedged?
MK: We are hedged, yes, but not as much as I would like to be. The yen is also a problem, but we are at least able to offset that a little because we buy engines and transmissions from Toyota.
DL: How is Lotus Engineering doing?
MK: When I joined the engineering side was in what I would describe as a ramp down situation. Since then it has been ramped up. The board have fully supported that because you need a broad business base for a small company.
A small volume car manufacturer – even one like Lotus with considerable brand equity – is subject to cyclical changes in the industry. You’ve got to have a broader business base.
For this business there are three broad bases that we are in: the cars we produce and sell; third party client engineering – high technology consultancy; and thirdly, mutual brand image building vehicles, cars like the Lotus Carlton/Omega.
We now have a five-year strategic business plan, signed off in March by the board and the shareholders – a tremendous signal of confidence in the company.
DL: What are the main aspects of the plan?
MK: The plan includes three new models on the car side and a global delivery model for our engineering activity.
On the engineering side we have operations in the US (Detroit area, one in Southfield and one in Ann Arbor and there’s one on the West coast also), there’s the mothership here, we have an operation in Malaysia with 110 staff – we’re just adding another 47 to that – and there’s a facility in China (where we are planning to have 129 technical and engineering staff). I’ve also given an undertaking to the board to have a technical centre JV in India by the end of this year.
The idea is to form a delivery model that enables us to operate on a 24-hour basis. That can shorten time programmes and reduce cost.
DL: When did Lotus Engineering last make a profit?
MK: It made significant profits just a few years ago, but it was carrying out about 90% of its work for its parent Proton – major projects working with the Proton engineers.
Under our new philosophy, 96% of our new work is third party, ie non-Proton work. That’s the way it should be. We should never have more than one-third of the engineering business with our shareholder/parent – if it’s a large shareholding. Otherwise, you become more introverted, you’re not out there, you’re not aggressive, not out there in the marketplace making contacts and developing the trust that you have to develop in the engineering business. The key thing is mutual trust.
You start with a small project and if you deliver it well, the business will grow. That’s how I started the arrangement with Toyota. I always remember my first meeting with them in the late 1970s: me on one side and 36 of my friends from Toyota on the other. There was a small project to begin with and eventually Toyota became shareholders of this company and actually helped to save this company in 1983 when no-one else would invest in us and no-one would touch us because of the oil crisis.
We were working with Toyota, technologically, but they came in and supported us and we still have a strong relationship. Our cars today are using Toyota engines. And because of our good relationship they allow us to calibrate those engines for worldwide use.
It’s an excellent relationship that we have with Toyota and if we can have similarly good relationships with other OEMs and Tier 1s, that leads to a tremendously strong engineering and consultancy business.
Since we realigned the engineering business, pumping in new blood and a dynamic strategy, the business if growing fast. We have projects ranging from complete vehicles to small technological or metallurgical projects.
China is growing fast for us. I was there recently and signed off a big deal for new vehicle engineering.
All of this gives us critical mass to grow the business.
As part of the process of realigning our engineering business I’m also trying to increase the number of core technologies that we have. We used to have nine and that had fallen to three or four – it’s back up to six now and is rising.
In ‘core technologies’ are things like biofuels, hybrids, electric vehicles.
DL: You mentioned three new models on the car side…
MK: When I joined the company I found a dearth of models – for me, it was a relatively empty cupboard. This is a minimum three-model company in my view – one model is not the way to go.
All credit to the people here: Lotus cars now are the best in terms of quality and reliability that we have ever had. Process control and the whole set-up with the car company looked good.
The biggest problem was that it didn’t have a marketing and sales function and it was manufacturing driven and we needed to have more product to meet different market needs.
Elise/Exige/Europa are marvellous – iconic cars, there’s no doubt about that. The aluminium structure and vehicle dynamics are absolutely exceptional. There’s a big ‘wow factor’. The exhilaration in driving the Exige S certainly gets the blood going.
But these cars are not everyday cars and I think Lotus needs more of a lifestyle type of car. When I joined, the MSC – a new generation Esprit – was on the go and still is. MSC is a fabulous car, superbly styled.
Our view was that we needed to look at where our customers are now and where they step up to, and that led us to the lifestyle 2+2 vehicle (codenamed Eagle) which is V6 mid-engine. There’s room in the back for the golf clubs or a couple of small kiddies. That’s more an everyday car.
And when you become an empty-nester, then you move up into supercar territory, very high status premium.
When I joined, I decided that MSC needed a reassessment and that meant some reworking – including going back to the powertrain provider to change the engine. That’s added about a year to that programme.
In the light of that, the board decided to fast-track the Eagle lifestyle car.
Sales of that car will commence in early 2009. The next generation Esprit MSC will be about a year later and further out we’re planning a supercar which will be a ‘jewel in the crown’.
The board has been very patient with this company. They have now signalled their confidence in the company’s future by refinancing the company as of the end of March; that was another key objective I had coming in – a restructured balance sheet. Some GBP61m of accumulated debt that had accumulated in eight years was written off.
Lotus is now effectively a stand-alone business and on a strong financial base. That’s good for suppliers and good fore engineering clients – they know we’re going to be here in five, ten years time.
DL: Where will Lotus production grow to with the new models, in terms of annual sales/production?
MK. It will be 6,000-8,000 units a year.
DL: All made here?
MK: Made here, fundamentally. We are outsourcing more. A lot of our components come from South Africa, India, there’s more from China. Some come from America.
We are a global player when it comes to sourcing.
DL: How far has production come down on the car side?
MK: Two years ago we were producing 125 cars a week and I had to reduce that down to 45 units a week. We had to bite the bullet and tighten our belt to rightsize in the last quarter of last year when we lost just over 200 people.
The result is that we are manned for 50 but are producing 65 units a week – a clear efficiency gain.
DL: Lotus Cortina, Lotus Sunbeam, Lotus Carlton/Omega…will there be something like that with Proton?
MK: Let’s say we’re talking about it. I would like to do it and so would the shareholders, the board. It’s a question of horses for courses. What sort of car is it going to be? Which segment? Hot hatch or something different?
DL: How important are biofuel/hybrid/electric vehicle projects for Lotus Engineering?
MK: Very important and increasingly so. Client confidentiality means I can’t talk about particular projects or name names. We are working on three biofuels projects at the moment – we have a biofuel Exige that we have developed – it does 0-60 in about 3.8 seconds.
We have five hybrid projects on the go and we also have six electric vehicle projects that are ongoing – not including Tesla because we are not involved on the electrical side for that vehicle; we do the vehicle side.
I think we are in quite a unique position with our culture. Going back to Colin, he was ‘mass sensitive’ and would take weight out of anything. He even sneaked two inches out of the passenger cab on the Esprit when my back was turned.
Colin was driven by a number of Lotus DNA factors that have stuck with us: low mass, simple solutions, elegant lines – balanced vehicles with everything in harmony for the driver.
I see us as serving a niche market – we’re not a Porsche or Ferrari. I don’t think we’re in competition with those sorts of companies. Lotus is a different badge, with distinct attributes.
Of some 87,000 cars that we have made, we’ve only lost about 15,000 due to crashes or whatever. The others belong to loving owners.
One of our core strengths is offering low mass with performance. What can we offer to our third party engineering clients? We can help them with lowering mass on their vehicles and the balanced performance that goes with that.
Our cars offer low mass and by using aluminium they are almost fully recyclable and people never scrap them by choice anyway – a Lotus is a collectors’ item.
DL: How’s the Europa doing in the market?
MK: In some markets it’s been very well received – in Europe and Japan, for example. In the UK it got a hammering from Autocar. We have made some changes and it has had a sticky start, but we are taking action (interior, refinement, NVH, appearance and there’s a performance enhancement too).
Production is only about 400 a year. One thing I will say, it turns heads – more so than Elise does, actually – and it has taken us to a new segment of the market and we have learnt from that.
DL: What do you see as the main strengths of Group Lotus?
MK: Well, there’s the symbiotic relationship of the car business with the engineering side. The cars act as a flagship for Lotus and its capabilities. We work on technologies that are visible in our cars. Similarly, in conducting our engineering activities for other people we bring back know-how that strengthens our capabilities to develop our own cars further – it’s a closed loop, both areas of activity complementing each other.
It’s a phenomenal opportunity for this company.
And we’re not a threat to anybody because we’re so small. We’re not intending to become a big company with high volume.
All in all, it’s a winning formula.
DL: Are you concerned about the condition of your parent company Proton? What about the possible implications for Lotus of Proton’s search for an OEM partner?
MK: A possible arrangement with an OEM is being driven by the availability of spare Proton manufacturing capacity; it’s an opportunity to get low-cost capacity inside the ASEAN trading bloc.
My understanding is that a new company would be formed and that would be a matter for the board and shareholders. I’m not involved in that process and all I know is what I read in the press.
The objective is to have a new company, bring in new platforms at low cost, processes and rebuild the product line of Proton. I have always believed Proton should have at least 30% of its production being exported – it’s nowhere near that.
Lotus is a separate entity and now that we are recapitalised as a standalone business, we have to carry on doing our own thing. It’s business as normal for Group Lotus.
What our parent company does with its major manufacturing operations and new models is something that they’ve got to do and good luck to them. I’m sure they will be successful.
I don’t see why Lotus should be affected.
We’re pushing the boat out wherever possible and getting the support of the board and shareholders.
In terms of the radar screens of the companies reported as negotiating with Proton, I doubt we’re even a blip – which suits us fine.
And as we perform better, we’re enhancing our asset value to our parent, too, which is a positive all round.
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Mike Kimberley profile
Born: 24 August 1938
Education: Advanced Management Program (AMP 104) at Harvard – 1989
Endorsements to HNC: Automobile Engineering & Industrial Administration at Lanchester College
HNC in Mechanical engineering at Aston University
Career: 1959 to 1961 – Design Draughtsman (Jaguar Cars Ltd.) 1961 to 1965 – Senior Designer, Engine/Transmissions (Jaguar Cars Ltd.). 1965 to 1969 – Section Leader, Special Projects, Vehicle (Jaguar Cars Ltd.). 1969 – Joined Lotus Cars as Manager – Continuous Engineering. 1970 – Project Leader, Europa (Lotus Cars Ltd.). 1972 – Vehicle Engineering Manager (Lotus Cars Ltd.). 1974 – Product Engineering Manager (Lotus Cars Ltd.). 1975 – Director & Chief Engineer (Lotus Cars Ltd.). 1976 (March) – Operations Director (Lotus Cars Ltd.). 1976 (August) – Managing Director (Lotus Cars Ltd.). 1980 – Managing Director (Lotus Engineering). 1982 – Appointed Director (Group Lotus plc). 1986 – President (Moog Systems Inc.). 1987 – Chairman (Lotus Cars USA Inc.). 1988 – Chairman – Millbrook Proving Ground. 1984 to 1991 – Chief Executive Officer & Group Managing Director (Group Lotus plc), Chairman – Lotus Engineering. 1991 – Chairman (Group Lotus plc). 1992 to 1994 – Executive Vice President (General Motors Overseas Corporation). 1994 to 1996 – Director (Vector Aeromotive Corporation). 1994 to 1996 – President & Managing Director (Automobili Lamborghini S.p.A), Vice Chairman (ALUSA Inc.). 1995 to 1998 – Senior Advisor to the Board of Directors (PT. Timor Putra Nasional). 1998 to 1999 – Automotive Business Consultant (Auto Distributors PTY and MVI). 1999 to 2002 – Non Executive Chairman (Motor Vehicle Industries Ltd.). 2002 to 2003 – Senior Advisor (Phoenix Venture Holdings Ltd. 2004 – Senior Advisor (Tata Motors Ltd.). August 2005 – appointed to the Boards of Directors of Group Lotus plc, Lotus Group International, Proton Cars UK) Ltd., Lotus Engineering Malaysia, Lotus Cars USA Inc., Lotus Engineering Inc., Lotus Holdings International, P.E.R.T., L.A.T., President of M.A.R.C.O. and Lotus Holdings Inc. Appointed acting Chief Executive Officer of Group Lotus plc in May 2006, confirmed as Chief Executive Officer of Group Lotus plc in September 2006
Married with 3 children and 3 grand children
