Analysis : Lotus in limbo
Another spin on the Group Lotus merry-go-round
DRB-HICOM Berhad’s (DRB-Hicom) recent acquisition of PROTON Holdings Berhad (Proton) also gave the company control of Lotus Group International Limited, the owner of struggling British engineering consultancy and sports car maker, Group Lotus PLC (Lotus) – or, if you wish to read that another way, the scapegoat for Proton’s losses for the past 15 years. I will admit Lotus has not been consistently profitable even when the company’s accounts have been in the black, but claiming that the low-volume car manufacturer from Hethel is the cause of the turmoil in Kuala Lumpur is like saying the tail can wag the dog.
DRB-Hicom has spent the past 90 days doing its due diligence on the purchase. During this period, it is claimed, the assets of both Proton and Lotus were frozen until the sale was complete and this has lead to speculation that the CEOs of both Proton and Lotus have been stripped of their powers and serve as nothing more than figureheads until a decision has been made or DRB-Hicom decides to replace them. Unfortunately, that, in turn, has lead to problems that make a benign situation look cancerous. This would include suppliers not being paid, production of road cars coming to a halt and the Lotus Indy effort operating on the shoestring of a shoestring. The problem with this situation is that it is hard to tell if the words you read on the matter are fact or spin…
This was enough to not only get the Internet rolling with rumour, conjecture, fact and fiction (depending on which website you read) but also prompted British Prime Minister David Cameron to raise the possible sale of Lotus with both DRB-Hicom and Proton during his recent visit to Malaysia. A charitable view would be to say that DRB-Hicom was going about its business, unaware that its actions were causing a firestorm of activity halfway around the world – with no UK-based media consultancy to handle the company’s affairs there (cue the Sales Departments of every over-priced London PR firm), it was oblivious to the impact of its actions in the UK. However, DRB-Hicom should really have known better. The basic rules of Public Relations say there should be someone on the ground or, at least, in the company’s Headquarters designated to handle inquiries about the takeover of another company and its subsidiaries.
Anyway, all this Internet activity eventually prompted DRB-Hicom to issue the following Press Release of its own on the situation:
DRB-HICOM HAS NOT DECIDED ON SELLING LOTUS
KUALA LUMPUR, 21 April 2012 – Following numerous reports in the media on Lotus Group International Limited (Lotus Group), a wholly-owned subsidiary of PROTON Holdings Berhad (PROTON), DRB-HICOM Berhad (DRB-HICOM) as the new owner of PROTON would like to clarify some important matters. DRB-HICOM is currently undertaking an operations audit on Lotus Group as part of its governance exercise. Contrary to reports that Lotus Group would be put under administration, DRB-HICOM is still supporting Lotus Group, both financially and management wise.
DRB-HICOM has not decided to sell Lotus Group and does not know the source of the speculation about selling Lotus Group to a Chinese party i.e. Youngman. As of today, DRB-HICOM has identified one of PROTON’s Senior Management personnel to take up a position in Lotus Group in an effort to strengthen its management.
Apparently, DRB-Hicom has yet to make a decision as to whether or not it will sell Lotus in order to cut Proton’s losses. Yet this raises a few questions:
- Why was the due diligence on Lotus not, apparently, completed before DRB-Hicom signed on the dotted line and bought Proton?
- Was the deal too good to pass up? (A 50% rise in Proton shares on the rumour of a sale despite a 76% first quarter drop in profits suggests some investors thought there might be untapped potential – if DRB-Hicom got Proton for well under book value, it might have seen this as a smart move.)
- Then again, did the Malaysian Government exert political power to save face and careers by guaranteeing control over Proton stayed in-country?
- How does any of this square with a report in the Eastern Daily Press that ‘Group Lotus boss Dany Bahar was instrumental with another Director, Azman Bin Abdullah, in registering a new joint venture, Lotus Youngman UK Automotive Company Limited, at Companies House on 13th January, 2012 – just three days before the sale of Proton was announced’?
Take your pick from the first three. However, the fourth question should give you an indication of my take on both recent developments and the likely outcome.
The story does not stop there, though. According to a Speed.com article published on 18 April, 2012, the teams running the Lotus Indy engine are less than satisfied. Indeed, two of them are willing to pay $1 million to get their hands on either a Chevy or Honda engine contract and forfeit any money paid to Lotus Motorsport Limited for the John Judd-designed and developed engines thus far. Matters had been brought to a head when Lotus refused to supply engines for a test at the Indianapolis Motor Speedway on the 4th April, 2012 – the only test prior to IndyCar’s most important race. Oh, and why in the world is Lotus putting former F1 star Jean Alesi in this year’s Indy 500? Where is the money for that effort coming from and how does missing the 4th April test help Alesi’s chances, especially since he’s never run a race on an oval and will have to go through rookie orientation?
Fold in the effort at Le Mans, the Exige rally car, the various and sundry single-seater programmes, and it’s easy to conclude that the company believes it’s better to be seen in a number of series rather than to be a leading contender in one… or two. There may be other reasons, but my pockets are not deep enough to fend off any lawsuits. You’ll have to use your imagination.
Had enough? Well, unfortunately, Lotus put out a Press Release/Facebook screed two weeks ago in response to a sarcastic piece on Sniff Petrol (in which Dany Bahar was portrayed as Baghdad Bob) and investigative pieces on Joe Saward’s website. What makes the Lotus diatribe all the more interesting is that anyone who reads Saward’s blog rules will discover his connection to Caterham (he’s a Non-Executive Director of Caterham Cars Group Limited, not an ‘active Director on the Caterham Group Board’ as the Lotus release claims) and that he is far from the only one writing about Lotus’ troubles.
Oh, and if that wasn’t enough, Tony Fernandes (owner of Caterham and the person who took Group Lotus to the cleaners over its Team Lotus ownership claims) is another target of that missive. It’s enough to make you think the rumors about Fernandes taking control of Proton and Lotus were true, including the ongoing ones about Bahar’s demands to remain CEO of the Fernandes-run Lotus and personally own nearly 20% of the company. (Fernandes apparently said “no” and the Group Lotus/Team Lotus lawsuit followed, say a number of insiders.) Then again, who knows? It’s all so very murky.
Anyway, that brings me to Bahar’s interview last week with CAR Magazine. The article contains a number of gems and opportunities for some tough questions which the man from CAR apparently failed to ask:
‘I don’t know if Lotus is for sale, nobody told this to me officially.’
Does this mean the sale has yet to be finalized? Bahar’s statement is odd considering that British Prime Minster David Cameron met with the Malaysian Prime Minister and the head of DRB-Hicom and asked them to protect the jobs in Hethel by not selling to a Chinese company which might move production offshore. One doubts whether Cameron would have addressed this issue before the House of Commons if Lotus was not for sale.
‘I was in the Middle East and Far East on a business trip, but I am here as you can see!’
Yes, we see, and your trip to China and Lebanon to visit new Dealers is most interesting – especially in light of the peace that has suddenly broken out in the Middle East. Perhaps, the folks at Genii Capital can suggest a dealer in Bahrain? China… Isn’t that where the new owners were rumoured to be from before they, too, balked at the debt Lotus has piled up?
Oh, and did this trip have anything to do with the Eastern Daily Press article that says you and Azman Bin Abdullah registered a new joint venture, Lotus Youngman, at Companies House three days before the sale of Proton was announced? You would, Mr. Bahar, admit this looks suspect, wouldn’t you?
‘Well, after we showed the five cars at Paris, we decided to invest in our own engine project instead of going for the Lotus Elan.’
Actually, according to my Toyota sources and despite the smiley faces and handshakes all-around with Toyota after this was announced, that angered the Japanese no end. They will supply the V6s for the Evora and Exige V6 for as long as those vehicles remain in production. However, the plans put forward during Mike Kimberley’s reign, whereby Toyota would provide Lotus with powertrains, electrical architectures, technology and parts, is well and truly over. There will be no Toyota shareholding unless the company goes into a controlled receivership and all ties with Proton and its representatives (and there are many) are completely severed. Even then, Toyota insiders say the company is now loathed to take control without a long courtship.
‘So the only discussion now is if we stick to that four-car programme but, as I said, I believe we are so far advanced with the Esprit project that it would be a shame for everybody and a lot of sunken investment if somebody would stop that, and I strongly believe that the Esprit will make it. But, after that, we will have to see.’
Read this closely and you will see that the Esprit replacement is the only project currently moving forward. Everything else is a discussion for another day – that might help explain Bahar’s tease to CAR that the Esprit may make an appearance at Goodwood. What better way, in a world where image trumps substance, to silence the critics than to show the company is moving forward on its Product Programme, even if the only product planned is the Esprit? A vehicle, it should be noted, which would have made its production-ready appearance at this year’s Geneva Motor Show, had Mr. Bahar never come on the scene.
The merry-go-round took another worrying turn in the House of Commons last Tuesday night in an hour-long debate about the future of Lotus when South Norfolk MP Richard Bacon announced he had learned that the accounting firm KPMG had been retained to find a Chinese buyer for Lotus. Yes, not just a buyer, a Chinese buyer. Bacon also stated that the Malaysian banks wanted their money back from Proton for the loans which they extended in order to underwrite Dany Bahar’s Business Plan – in short, if Lotus is gone, the banks want their money back. There are two ways of doing that: 1) sell the sports car maker and use the proceeds to pay back the loans while covering any shortfall, or 2) keep Lotus in-hand long enough to negotiate a write down of the loan amount and either liquidate or sell the company off as surplus to needs.
Interestingly, Bacon also pointed out that, a few hours after Prime Minister David Cameron’s recent meeting with Proton Managing Director, Datuk Seri Syed Zainal, in which Cameron had emphasised that the UK Government saw the retention of Lotus’ skills and jobs in Norfolk as being of vital importance, Zainal travelled to China seeking a new owner for the company.
The British Prime Minister might therefore be understandably left with the impression that has been played but, more importantly, if Richard Bacon MP’s sources are correct, the folks in Hethel must now be really concerned for the future of both Lotus and their own careers.
The Group Lotus merry-go-round clearly has a few more turns to take before any clarity emerges…
[Editor's Note: AROnline Contributor, Christopher Sawyer, is Editor of the authoritative, US-based motoring website The Virtual Driver.]