News Analysis : Can Honda rescue Lotus?

Christopher Sawyer

Just over one week ago, Automotive News Europe reported that Honda had signed an agreement with Malaysian automaker Proton ‘to explore opportunities to collaborate in technology and new product line-up.’ That’s a pretty nebulous and open ended statement, promising much but committing to nothing.

However, that didn’t stop the speculation. Interestingly, the first volley came from the other party in this arrangement. DRB-Hicom stated: ‘Having a strong and renowned global automotive player like Honda Motor as a foreign strategic partner to Proton will provide the group with the opportunity to grow as an original equipment manufacturer. The opportunities are endless.’

Here We Go Again?

It doesn’t take much looking to discern where the problem lies – look no further than this phrase: ‘…will provide the group with the opportunity to grow as an original equipment manufacturer.’ Proton wants its partner to divulge its secrets, teach it how to be a first tier automaker… and, eventually, leave. That was the case when former Ford CEO Jac Nasser sent then Mazda President and CEO Henry Wallace to Kuala Lumpur to begin negotiations with Proton. Worried by GM’s negotiations with Daewoo, Wallace was told to buy the Malaysian automaker by his Dearborn bosses. However, Proton had no intention of selling out to Ford and even less intention of selling Lotus – the company wanted a ‘strategic partnership.’ Plans for the Lotus M250 to underpin the Ford GT, for Ford’s 2.5-litre V6 to power the stillborn Elise GT and for the Duratec 1.6-litre to replace Rover’s K-Series in the Elise disappeared as quickly as they had been dreamed.

Volkswagen also wanted nothing less than control of 51% of Proton. With Proton in the fold, VW would have had two important items: 1) a major Asian assembly base outside of mainland China and 2) a sub-brand from which buyers could move to VW. However, like Ford, the German automaker discovered that nationalism trumps business logic in Kuala Lumpur. Proton is Malaysian and must stay ‘pure’ at all costs.

One reason for this state of affairs is Proton’s funding. Malaysia’s Government-run Employees Provident Fund (Kumpulan Wang Simpanan Pekerja or KWSP) is a major investor in Proton. KWSP is a mandatory fund for private and public sector employees which deducts a portion of their salary (11% from the employee and 12% from the employer) for retirement, sickness, disability or unemployment. That means every Malaysian worker is a shareholder in the company. Malaysian car makers also profit from protectionism which keeps prices of indigenous vehicles lower than those produced in other ASEAN (Association of Southeast Asian Nations) countries. ASEAN nations include the Philippines, Indonesia, Malaysia, Singapore, Thailand, Myanmar, Cambodia, Laos and Vietnam. Without that protection, analysts say that Thailand would be the production base of choice in the region. To compensate, Kuala Lumpur has flouted the ASEAN free trade pact.

Honda and Proton

Honda opened several plants in Malaysia starting in 2009 to hed against the country’s continuing use of controversial grants and subsidies to support Malaysian production. Boon Siew Honda manufactures and sells motorcycles in Malaysia. HICOM-Honda Manufacturing Malaysia builds motorcycle engines. Honda Malaysia makes and distributes automobiles, including the Honda CR-V. UMW Industrial Power imports and distributes power products. Moving into a joint venture with Proton not only builds on its existing relationship with DRB-Hicom (HICOM-Honda Manufacturing Malaysia), it potentially eliminates the need to expand Honda’s production footprint within the nation.

Ironically, the excise tax rebates and other support from the Malaysian Government have made it possible for Proton to sell outdated designs at low prices over the years, undercutting cars from major manufacturers like Honda and putting it behind its more established competition. By agreeing to an arrangement with Proton through DRB-Hicom, Honda effectively slashes the price of its vehicles in the Malaysian market by taking advantage of the grants and subsidies handed out to those companies that build vehicles in-country. Proton may believe it’s gaining in this relationship, but it’s likely that Malaysian buyers will go with the established nameplate (Honda) if the price is within 10% of the Proton price.

Honda and Lotus

Lotus is no stranger to Honda and vice versa. Team Lotus used Honda factory engines between 1987 and 1989. After brief flings with Ford and Lamborghini, Mugen-Honda motors were used before the team collapsed in late 1994. However, this was not the extent of Lotus and Honda’s relationship. Lotus Engineering designed and developed an estate variant of the Civic for Honda’s British manufacturing arm in the middle 1990s. The work done was highly regarded within Honda (UK) and it lobbied heavily for the parent firm to purchase the then-struggling sports car maker. However, Honda decided against that and Proton grabbed Lotus out from under its then purchase rival, Daewoo, in late 1995.

Though a large-volume mainstream automaker, Honda has lost it image as a maverick, a youthful and sporty automaker ready and willing to take on ‘the establishment’. It has become the establishment and many of its recent offerings are seen as safe and boring. Honda has addressed this by announcing plans to build a new NSX – one with a hybrid powertrain – and is also considering sports models lower down the range.

Unfortunately, the launch of the Evora into the teeth of a global financial storm, Dany Bahar’s overly ambitious product and racing programmes and more have given Lotus an outstanding debt of at least $360 million. Additionally, new owner DRB-Hicom has radically slowed all investment in new and existing programmes and set a March deadline for the completion of a review of the sports car maker’s balance sheets. The future looks bleak in Hethel.

How bleak? Bahar recently attempted to buy Lotus from Proton for pennies on the dollar. His overture was unceremoniously rebuffed – there’s no clue as to who would have provided the financing for Bahar’s takeover – but, seemingly, there are no other offers on the horizon. However, any potential agreement with Honda includes access to Lotus and, while Honda is poised to launch an up-level supercar of its own, leaning on the Lotus legend cuts through years of languor that have built up around Honda. Better yet, collaborating with the British company brings a bit of luster to the Japanese car maker. Certainly, this is most of what was behind Toyota’s most recent informal relationship with Lotus. Having Toyota engines in the Elise and Evora and plans for more to be placed in the Esprit replacement were seen as a plus in the Toyota boardroom and, had Bahar not taken charge, ejected Toyota and buried the company under crushing debt, Lotus and Toyota would have grown closer. Until the acrimonious breakup, Akio Toyoda reportedly was very pleased with the relationship.

Furthermore, despite Bernie Ecclestone’s troubles with the German Prosecutors, Yoshiharu Yamamoto, who is CEO of Honda R&D, has, as recently reported by, suggested that the company would consider rejoining the F1 circus once the new turbo engine regulations take effect. Any such return would – I am informed – be contingent on the teams and sanctioning body agreeing on an equitable split of F1’s profits and, more importantly, strong cost-containment measures. Honda does not want to enter a series where only the deepest pockets can compete – even though the company will likely return only as an engine supplier. However, if these concerns can be answered, it would take little effort to continue running the Lotus-branded former Renault F1 team (the ‘Enstone Team’) with engines designed, developed and supported by Honda, at least in the short term.

Lotus would, in return, produce an Elise-based small sports car for global sale by Honda, collaborate on the development of new Honda-based powertrains for use in future Lotus vehicles and provide technical assistance in terms of ride and handling, etc. A Honda – Lotus marriage would, at least on the surface, seem to be one made in heaven and some have suggested that the personnel who left Lotus during Bahar’s reign would return if the stability promised by a Honda tie-up was part of the deal.

The Cold Slap of Reality

Unfortunately, by choice or by force, many of Lotus’ regulars have left the company. A number have moved over to Caterham, which has just signed an agreement with Renault to produce sports cars via a new 50:50 joint venture company. Renault’s Alpine factory in Dieppe, France, its 300-member workforce and a joint Renault/Caterham engineering group will design, build and develop lightweight two-seaters for each company. Officially called Société des Automobiles Alpine Caterham (SAAC), the JV gives Caterham access to production facilities, technology and a workforce it could not afford on its own. The agreement also strengthens the ties between the low-volume sports car maker and the supplier of its F1 engine. For Renault, this partnership reduces the risk associated with low-volume production, opens up new markets – Caterham Group Chairman, Tony Fernandes, hopes to make a concerted push into the Asian market with Renault-powered Caterham sports cars – and doubles the French company’s branding opportunities in F1 by increasing the separation between Infiniti (Red Bull) and Renault (Caterham).

There’s even talk of launching Caterham cars in the U.S. market with Nissan badging – the Infiniti name is reserved for complete vehicles sold under that brand in Infiniti dealerships – and, as explained in my AROnline article back in August,

‘That’s where the problems would really start for Lotus. Caterham could easily slip into the slot Bahar abandoned before the brain’s trust at DRB-Hicom can put anything in place – especially since many of the old hands at Lotus jumped ship as the uncertainty over the company’s future grew and made their way to Caterham. The need for the new owners to act swiftly and steadily has never been greater. To do otherwise is to seal Lotus’ fate, possibly forever.’

Fate Sealed?

Speak to people in Hethel and you immediately notice their compete lack of optimism. According to them, DRB-Hicom has reduced spending to the bare minimum, suppliers are not being paid, no money is being spent on badly needed new products and the number of outside engineering contracts is dwindling. Short of scaling the walls and looking through the books, it’s hard to discern just how close these claims are to reality. However, the fact remains that Lotus is in limbo, teetering under a mountain of debt and waiting for a March 2013 deadline that will come too soon. British politicians were able to gain only a short stay of execution (the March deadline) and DRB-Hicom will be faced with a decision it undoubtedly will approach dispassionately: to chop up the company and sell its assets separately or to put Lotus on the market.

One possibility is a debt-for-equity swap. DRB-Hicom could offer investors access to all or part of the Lotus debt for a predetermined investment. Management, in this case DRB-Hicom, could offer higher-than-market exchange values to entice investors (in this example, Honda) and debt holders (Proton through its ownership of Lotus) to participate. Proton gets much needed capital, DRB-Hicom writes off a large amount of debt and Honda gets an ownership stake in Proton and/or Lotus in exchange for debt it can use to offset profits in the region. The downside is that Honda would likely forfeit any shareholder rights in exchange, making it a silent (non-voting) partner.

The other possibilities are to break up the company and sell its assets or to load Lotus with Proton’s entire debt, effectively killing the sports car builder while freeing the Malaysian car maker from its debt load. Lotus would cease to exist as anything other than a paper company. Any assets could then be sold off separately. For Lotus, the future does not look bright.

[Editor’s Note: Christopher Sawyer is a former Communications Director for Lotus Cars USA and Founder and Editor of The Virtual Driver website.]

Christopher Sawyer
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  1. Personally, I think the positives of a link between Proton and Honda outweigh the negatives.

    Proton’s current partner of choice, Mitsubishi, seem to be going nowhere fast and have blocked sales in Europe of the Impian replacement, the Inspira, due to its close resemblance to the current Lancer (although, much to Mitsubishi’s chagrin, the Proton car is reputed to be the better drive due to Lotus tweaked ride and handling).

    The combination of Lotus and Honda is an enticing possibility with the prospect of some really good engineering being mated to the Lotus flair for design and suspension design.

    For Hicom it’s a win-win in my opinion. Why sell Lotus when it gives a good return in Asia and has the potential to add Kudos to the mainstream brand? Add Honda and they have the halo effect of two well respected brands, one with real flair for making cars that look good and drive well (but can be fragile)and another with an enviable repuation for exceptional engineering. Inject just a little of that in to Proton, sell it worldwide at a competitive price and you have a potential winner. Once Europe is off its knees Lotus sales will bounce back, especially if the brand is preceived as being part of a stable, well-run business.

    Also, if the experience of Rover Group is anything to go by, Honda would probably not want to take over Proton anyway; satisfying the nationalists in Malaysia.

    What Proton do need to do is sort out their marketing PDQ. It makes MG Motor UK look slick. People just don’t know they exist any more.

    Offer the Satria Neo 1.3 with Sport interior and stripes and a year’s free insurance for, say, £8995 and it could become this decade’s Citroen Saxo with real potential in the young driver market. Then keep them with a similar offering in the upcoming Preve (Gen-2 replacement). Keep them as their family grows with the Exora MPV, but with Honda engineered powertrain to replace the CamPro. They also get some much-needed diesel engines in their lineup.

    I see real potential here. With Bahar out of the way it just needs someone with a bit of vision, tempered with some common sense, to push it along.

  2. @ Tim Burgess:

    “Also, if the experience of Rover Group is anything to go by, Honda would probably not want to take over Proton anyway; satisfying the nationalists in Malaysia.

    What Proton do need to do is sort out their marketing PDQ. It makes MG Motor UK look slick. People just don’t know they exist any more.”

    Some good points here as there are clearly a number of benefits to this business relationship. Firstly, the working cultures between the Japanese and Malaysians are far more in harmony with each other compared to that of Japan and Great Britain back in the early 1980s. Also, Proton does not possess the same problems that British Leyland had in the late 1970s such as outdated assembly plants and equipment, a militant workforce or too many models competing with each other. Build quality and productivity is also far more consistent. What Proton does not have however, are huge resources to develop new cars unaided which have an acceptable production life cycle.

    Despite the lack or recognition of Proton’s current models by many car buyers, for those that do venture into a Proton dealer, they soon find that the model line-up competes in logical sectors of the market and is priced competitively.

    The Satria was actually quite a nice model although like you say, few people knew about it. Indeed, here in Exeter, which has the largest number of car dealerships within a one mile square radius in the whole of Europe, there has not been a Proton dealer for a number of years. The marketing is also non-existent and hardly inspiring when it does happen.

    The last Proton I really enjoyed driving was the old Compact GTi launched back in 1999, which had Lotus Engineering working on the suspension and handling. Apart from the usual bland Mitsubishi-based interior with a few token bits of silverware thrown in for good measure, it was a hoot to drive. I almost felt as if the good old days of hot hatches from the 1980s had returned. A shame it was only ever offered in just the one colour (Silver) and the marketing was so poor. When was the last time you saw one of these kitted out Compact GTis on the road? Compared to most of its rivals, including the rare Rover 200 BRM LE and Honda Civic Jordan, it seems to have disappeared off the face of the earth.

  3. Yes! Please Honda, save Lotus! This brand deserves to be a major one. Indeed, if I remember well, Honda wanted to buy Rover but Thatcher prefered to sell it to her very good friends at British Aerospace. We all know the tragic end to that story…

  4. @3. I actually saw one a couple of weeks ago in Scotland’s former motor city; Linwood.

    I was driving my Gen-2 Ecologic and the lad driving it actually waved at me!

    We have a very good Proton Dealer in Glasgow and I had a choice of 3 or 4 when I lived in Bristol.

  5. @4

    No, completely wrong. Despite many attempts by BAe to convince Honda to buy AR (Honda held 20% of the company at the time), Honda refused. Honda offered to up their stake in the company to a maximum 47.5% which was not acceptable to BAe. AR was thus sold to BMW.

    Very poor attempt to have a dig at “Fatcha”.

  6. When I worked in Scotland, one of the chefs had a Compact GTi. Had an air intake in the grille that looked like a airhorn.
    Said it was a flying machine, a real go kart.
    Another chef had a Wira 1.5 that was surprisingly brisk.

  7. @ Magnus:

    “No, completely wrong. Despite many attempts by BAe to convince Honda to buy AR (Honda held 20% of the company at the time), Honda refused. Honda offered to up their stake in the company to a maximum 47.5% which was not acceptable to BAe. AR was thus sold to BMW.”

    Yes, absolutely right. John Towers and other Rover directors worked hard to try and get Honda to up their stake in the Rover Group to fifty percent. The remaining shares would have been acquired through a management buyout. I was always amazed at Honda’s reaction that they had been duped by British Aerospace in preference to BMW, when the reality was the complete opposite.

  8. @ Magnus:

    Sorry, the opening sentence should read as: “Yes, you are absolutely right.”

    @ Tim Burgess:

    I am guessing the number of dealers in the Bristol area may have been influenced by the fact that Proton UK’s head office is based in Bristol. Certainly in Devon and Cornwall the number of dealers is very poor. Five years ago the dealer for Exeter was based about seven miles outside of the City in a rural location where it shared the tiny three-car showroom with the TVR and Lotus franchises. Within a year all three franchises had departed this site, and no-one has yet taken on the Lotus or Proton franchises for Exeter, East, South or Mid Devon.

    I am glad you have recently seen a Compact GTi as I was beginning to think that in terms of surviving numbers they were even rarer than an SD3 Rover 216 Vitesse.

  9. If all the best guys have now gone to Caterham, then I think it’s a case of,”the king is dead, long live the king!” Sadly, there ain’t anyway back now for Lotus. Bugger!

  10. Forget about Honda, what about JLR as Lotus’ saviour?

    No, think about it.

    Ratan Tata has an eye for fixer-upper companies, and Lotus could very easily be polished up. Like Jaguar, like Land-Rover it has a glorious, if chequered history, and if we assume a mid-term product range consisting of Elise, Evora, and Esprit then Hethel would hardly be in competition with any of JLR’s product lines. Well, you might argue there’d be overlap with the F-type and XK, but the Loti would be birds of a very different feather compared to the front-engined Jags.

    Even more tantalising, there’s absolutely no reason why Bahar type ambition couldn’t be achieved with a bit of cross-pollination (but on the cheap.) I am thinking of Lotus variants of exisiting JLR products. Higher performance variants of the Evoque, Range Rover, XF, XJ, XK, and F-Type with “Handling by Lotus.”

    JLR doesn’t have an Alpina, or an AMG, but Lotus could be that man.

    I am a Lotus owner (a ratty 11 year old Elise) and I would be distraught to see to company go.

    On a Lotus web forum I did ask why the company seemed hell-bent on developing its own forced-induction V8 when there was a very good one used in Jaguars. Didn’t really get a satisfactory answer. Is there any reason why future Loti couldn’t be powered by JLR: V8 for the Esprit, V6 for the Evora, and the forthcoming four-pot for a new Elise?

    In my eyes, it would be a natural fit. Three iconic British brands under one roof. And it would be the wheel come full-circle: William Lyons admired Chapman and proposed a merger in the early-60s, something that was called off when Lotus got into bed with the Blue Oval to make the Lotus-Cortina (Sir William didn’t like Yanks…)

  11. The only other option would be for TATA to bring Lotus back to the WestMids/Warks/Bucks (in some form) where the auto-industry is beginning to gain ground again, where they could make use of various economies of scale, and where the majority of the pool of talent currently resides.

  12. I hope somebody saves them. Honda would be an interesting partner. As would Tata/JLR. Bad times in East Anglia right now…

  13. @11 The reason why Lotus (or anyone else for that matter) don’t use a Jag V8 is because JLR won’t sell their engines to anyone else. I don’t know why. BMW, however, do sell their engines to 3rd parties, perhaps Morgan being the best example of this.

    Lotus was all geared up to use Toyota/Lexus V8s.

  14. Hi, maybee you know that i am a great lotus fan. Thats beacouse my dad introduced me to the magic world of F1 and Ronnie Peterson was the driver…..than older i became a british car fan and the ACBC badge is always close to my mind.

    Lotuses were always like the formula one cars of the same company, with no compromise, and needed care and knowing how to drive them. manteniance was always to be done in a certain way not just putting petrol in and push the accelerator like a hog. But the lotuses of the last decade, those with the Toyota engine, betrayed the true spirit of the brand.

    The Elise S1 with the so critisised K engine was much better performance car then the toyota one (consider weight, gears number, usable rev. band of one or the other…..)and is in mypersonal oppinion for now the last lotus that chapman will be proud of.

    I hope that who will buy the assets will have the good taste to put some true engie in (not hi revs japanese powerplants who make high noice but on a B side road are always in the revs gap changing down a gear)….maybe someone can bring to life the Coventry Climay brand again if we have to do some heritage

    What concernes the upgrade the JLR cars….Lotus did that, not only to the cortina but also to te calrton but that was tottaly different car from the original….maybe the time is not right for such aproach…..

    In any case i prefer to stay with good memories of a non existing brand than looking on some zombie (no soul and crumpy move car) like the today MG

  15. I think Lotus really dropped a huge clanger when they moved to Norfolk. It is the backside of England, and a real pain to get to, as the road and rail infrastructure are quite frankly crap. I actually think TATA would make a good buyer too, move production to Cov, but keep Hethel as their R&D centre for all JLR/Lotus products..Let’s face it, those yokels up in the land of turnips seem to know a thing or two about handling & chassis development, and Jag had TWR doing hot versions of XJ’s in the 1980s, so a Lotus-Jag coupe could be a really serious Aston rival for a few less bucks. Just a thought…

  16. Maybe Honda will just sift through the engineering and chassis development parts of the company,seems like kitcars are selling better.

  17. I had a Proton 1500 GLS, the saloon based on the eighties Mitsubishi Lancer, as I needed something cheap and reliable for work and this fitted the bill. In 18 months of ownership no faults and the 1500 actually gave this unassuming looking car a real turn of speed. However, Proton seem to have become almost invisible after their nineties glory days when they were selling budget cars that were reliable and acceptable to drive.

  18. I wouldn’t be surprised if Lotus ends up being like a Prodrive or Ricardo type company to be honest. They would do well to sell up the manufacturing assets and become a consultancy and IP company.

  19. All this talk about Lotus Engineering possibly acting as a consultant to Jaguar Land Rover (JLR) and developing very high performance variants along the lines of what Lotus did for the Ford Cortina surprises me. JLR already employs some brilliant engineers who know a thing or two about chassis development and tuning to enhance driving dynamics. They have also worked further with the AJV8 engine to enable it to deliver 551Ps in 5-litre supercharged form and also be used as the basis for a new V6 version.

    This is hardly the stuff of amateurs, is it?

    And what additional kudos would the Lotus name give to a JLR when the company already uses its own sub-brand identities for their flagship variants, with great effect in terms of desirability and, more importantly, sales?

  20. Lotus was just about standing on its own two feet when GM took over and when they sold it off it was an offload job,trouble is,car makers have caught onto chassis development and spawn thier own development engineers,who needs Lotus? in the past as engine developers they have made some absolute gems of prototypes like the Jewel engine,I think they should just stick to engine design and consultancy and low production runs of bread and butter sports cars and track day specials,and leave the rest to Ferrari and Mclaren,even Noble can do Lotus.

  21. NISSAN, because I don’t think that JLR would be a buyer, simply because Jaguar always had issues with cannibalization when Ford owned them and Aston at the same time. Even though I think Lotus is a very different car company, I think the memory of Jaguar exec’s problems green lighting faster cars due to Aston’s objections (and also now with the the new F type and the CX-75 in the wings) would prevent the board from going after a company like Lotus for the time being.

    Since we all can’t agree that JLR or Honda would be good buyers, why not NISSAN? They established their street cred with the GTR, selling for around 100k now. They also have a current relationship with Lotus, using the Evora platform for their Emerg-E Concept. Thwy are also now attempting to build a supercar and want to go upmarket. What better way than the English Ferrari: Lotus. They could engineer and test both cars side by side, perhaps sharing platforms or at least some components. This will enable them to go head to head with cars (like the new NSX or LFA) with the Infiniti branded “Esprit,” and then after bigger targets (like new “entry” level Ferraris/Maseratis/Astons) with the new LOTUS ESPRIT. The fact remains that there are many people…I daresay MOST car enthusiasts, actually, worldwide that would rather see a new Esprit in their garage than any of these other “Johnny come way too late to the supercar roundtable” upstarts.

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