What Team Lotus’ takeover of Caterham Cars could really mean
The cat is out of the bag. Team Lotus has acquired Caterham Cars. Conventional wisdom is convinced this is an attempt by Team Lotus’ Principal Tony Fernandes to manufacture an “out” should the court case over rights to the Team Lotus name go against him in the coming weeks. Couple this with the fact that a number of website names including the Sonangol and Caterham brands, both in conjunction with the name “Team Lotus” as well as without it, have been purchased, and most journalists have all of the “proof” they need to prove that Fernandes is doing nothing more than planning for a life with or without Team Lotus.
While it’s true that Sonangol is an Angolan petroleum company that sponsors Team Lotus’ reserve driver Richard Teixeira and that the ink on Team Lotus’ purchase of Caterham Cars is still wet, there is much more to this tie-up between the maker of the Seven and the man who currently claims to own the rights to the Team Lotus name. Much, much more. First, though, some relevant history.
Tony Fernandes proved himself to be a practitioner of asymmetric warfare and a believer in “the long war” when he bought Air Asia from DRB-Hicom. Interestingly, DRB-Hicom once owned a large stake in Malaysian automaker Proton (the owner of Group Lotus) and is a major component supplier to the Malaysian automaker. The company derives a significant portion of its revenue from Proton and has looked for opportunities to wrest the car company from Government ownership. The Malaysian Government owns 42% of the equity in Proton Holdings Berhad through Khazanah Nasional Berhad, a Government-owned entity. Fernandes used his connections to meet with the then Malaysian Prime Minister Dr. Mahathir Mohammed in October 2001. The former auditor for Virgin Atlantic wanted to start an airline and knew that Mohammed’s Government owned a major stake in Air Asia.
A money loser since its launch in 1996, Air Asia – like the rest of the post-11 September, 2001 airline industry – was rocked by the terrorist attacks on the U.S. Despite having been earlier turned down by Mahathir Mohammed’s Government when he sought to start a no-frills airline from scratch, Fernandes was encouraged to put together a bid for Air Asia and acquired the company – not much more than two old Boeing 737-300s and $11 million in debt – for the sum total of one Malaysian ringgit (26 U.S. cents). With aircraft lease rates down by nearly 50% and seasoned staff on the unemployment lines, Fernandes modernized and increased his stable of aircraft and put experienced professionals both in the front office and on the flight deck. By October 2002, the company had broken even and cleared all of its debts and one year later he had convinced the Prime Minister to initiate open-skies agreements with neighboring countries. Not surprisingly, Air Asia’s 2004 stock Initial Public Offering (IPO) was wildly oversubscribed.
In 2007, Fernandes became an hotelier, starting the Tune Hotels chain with a no-frills hostel in the heart of downtown Kuala Lumpur. Further units are planned throughout Malaysia, and Fernandes is in the process of expanding into Indonesia and other ASEAN countries. Where better to direct your low-cost airline’s passenger than to your value-based hotels?
When Fernandes moved into Formula 1 with Lotus Racing, he made no secret of the fact that he intended this relationship to extend to the manufacture of road cars. Evidently, he saw an opportunity for a no-frills line of vehicles that used F1 imagery and built upon the hallmarks of the Lotus brand (lightness, simplicity, driving fun, etc.). The idea was that, as with his two previous ventures, these vehicles would appeal to people who were interested in achieving the greatest value for the money. Additionally, it would entice Malaysian, Indonesian, Thai and other buyers into the realm of name-brand high-performance sporting vehicles at a price they could afford. Furthermore, under the original agreement with Group Lotus, this focus provided a ready-made pool of future buyers for Lotus vehicles in these and other markets. It was a classic stepping-stone strategy, but one that put Fernandes in a potential controlling position as Lotus and Proton determined what form their future would take.
This strategy may well have caused the rift between Fernandes and the new leadership at Proton and Lotus. The former saw it as an encroachment on its territory [Proton-badged sport vehicles engineered by Lotus as well as potential control over Lotus – and, possibly, Proton], while the latter wanted control over a motor sport future it saw as central to its accelerated upmarket strategy. Though he had plowed the field, Fernandes very quickly became the farmer no one wanted to acknowledge.
We are still some weeks away from a final resolution to the Team Lotus branding debacle, a case that could go either way. The history of Team Lotus is as murky as that of Colin Chapman himself. However, it is apparent, from what little is known of the court proceedings, that over time Chapman personally owned the assets of Team Lotus, sold them to Group Lotus, allegedly intermingled the assets of each for personal gain, then reclaimed complete control over Team Lotus and separated it from the road car company well before his death in 1982. The judge has an unenviable and, perhaps impossible, task ahead of him, though he might consider selling a screenplay of the affair to Disney. With Johnny Depp as Chapman, Keira Knightley as his long-suffering wife, Hazel, and local boy Stephen Fry in a cameo as Romano Artioli, Pirates of the Norfolk Broads: Dead Man’s Treasure would be an instant hit.
Knowing that he could lose the case, Fernandes has taken a logical step in buying Caterham. He can use a name closely associated with Lotus, thus rubbing the noses of the leadership at both Proton and Lotus in it, whilst moving forward with a no-frills line of sports cars and a backup name for his F1 team. However, Fernandes’ past history suggests a more broad-based line of attack, one that continues the war without threats of legal redress.
Group Lotus under Dany Bahar seems set to continue its move upmarket into a territory new to Lotus and its customer base, but that leaves an underserved market of customers smitten with the Lotus ideals of performance through light weight, driving fun, technical depth and affordable pricing. Customers who would have no more trouble moving from Lotus to Caterham than they did in accepting the Seven when it switched the name on its nose. This positioning also gives Fernandes and Caterham the ability to slowly extend their range upmarket , while making certain they service the current customer base. Sources claim that, as at 15 April, 2011, Group Lotus was on the hook for £270 million in loans extended by a syndicate of six financial institutions. The six are: CIMB Bank, Malayan Banking Berhad, Overseas-Chinese Banking Corporation Limited, Export-Import Bank of Malaysia Berhad, Affin Bank Berhad and EON Bank Berhad. This external financing will carry Lotus through the initial phases of its move upmarket until it can fund the Future Product Programme though internally generated profits. Should Lotus’ five-year plan to move into Ferrari and Porsche territory prove troublesome or, worse yet, a failure, Caterham will be there to pick up the pieces.
Fernandes would then be in a position to offer the Malaysian Government a chance to take the stricken Lotus off its hands. Indeed, as he did with Air Asia, Fernandes could purchase Group Lotus for literally pennies and integrate it with a successful automotive operation of his own. Unlike Dany Bahar, Fernandes doesn’t have to sell thousands of high-priced supercars into a saturated market or establish a brand in a market segment in which it has never consistently competed. Nor is he at the mercy of money Fund Managers who may, or may not, get extravagant bonuses to spend on four-wheeled toys. Fernandes only needs to survive. No matter which way the wind blows in this contest, he wins.