The eagerly-awaited Lotus Esprit could fall victim to the company's mounting financial problems.
No manufacturer likes to see its name linked to a recall. But a minor headache for a maker like General Motors or Toyota can turn into a migraine for a cash-strapped company such as Lotus that is already struggling to keep its product development programs funded.
The numbers are modest – just 80 Evora S models sold last year could be subject to engine oil leaks or fires – but it is the latest in a series of mounting problems that face the maker’s owners and raise growing concerns that Lotus will have to abort an ambitious product development program designed to transform it into a series player in the global sports car market.
Both the much-awaited Lotus flagship, the Esprit could be in trouble, according to numerous industry sources, while other projects have been slowed as the British maker tapers back on the bold, 5-product launch plans it revealed during a show-stopping news conference at the 2010 Paris Motor Show.
Lotus owner, the Malaysian-based DRB-Hicom, is now facing legal action on the part of unpaid suppliers due a reported $40 million. The owner of the British-based maker is now asking U.K. authorities to lend a hand by delaying upcoming tax payments.
Complicating matters, Lotus also is being sued by Dany Bahar, the company’s recently-ousted CEO, who has launched his own $10.6 million lawsuit accusing the maker of wrongful termination.
Nonetheless, despite its many problems, DRB insists it is ready to stand behind Lotus and has hired consultants Ernst & Young and Rothschild to help it work out a financial turnaround plan.
Founded in 1952 by the legendary racer and sports car designer Colin Chapman, Lotus Cars has been a financial basket case for most of its otherwise illustrious existence. So, few were expecting the bombshell the company dropped in September 2010 when it revealed to Paris show-goers an assortment of five new sports cars it planned to introduce – along with a new powertrain line.
While Bahar’s announcement garnered plenty of headlines it also generated a significant amount of skepticism as few industry observers could figure out how the British maker could come up with the necessary cash.
“It just didn’t seem possible. I could see no source of funding that could support such an ambitious program,” another British automotive executive tells TheDetroitBureau.com. Due to connections with Lotus, the official asked not to be identified by name.
Bahar initially dismissed such critics and, if anything, seemed to be expanding the Lotus plan with a more ambitious powertrain effort. But things began to go south, earlier this year, when word of potential financial irregularities began leaking out and Bahar found himself sidelined as DRB began to investigate Lotus’ financial problems. One of Malaysia’s largest industry firms, DRB-Hicom acquired both Lotus and its direct parent, the mainstream carmaker Proton, earlier this year.
Bahar has since fired back with his own lawsuit. But that could be minor compared to documents reportedly filed in British courts seeking payment for outstanding parts purchases. According to a report in British paper The Independent, a court document warns of Lotus, “Cash flow: Critical. Overhead base is massively too high for current business, payroll bill for business is too high. Salaries top-end loaded.”
DRB claims it has already invested about $320 million in Lotus. But there are financial complications stemming from an earlier $400 million credit line extended by a consortium of six banks prior to the DRB takeover. According to the Independent, that debt “could have a domino effect on DRB’s own debt.”
Cutting to the chase, sources say that Lotus will almost certainly have to both slow and scale back its ambitious product program. Finishing the replacement for the little Exige has proven to be a much more difficult project than anticipated, “severely impacting the whole business,” according to court documents.
While the Exige will make it to market at a slower ramp-up rate than originally planned – the fate of the much-anticipated Esprit is another matter.
Made familiar to mainstream American audiences through the early Julie Roberts and Richard Gere film, “Pretty Woman,” the Esprit is, to many, the heart and soul of the Lotus brand. But, at the moment, there are growing indications the project will have to be indefinitely delayed or even cancelled.
Meanwhile, there are reports that DRB-Hicom is looking to get out from under the Lotus debacle, one option being to sell the entire operation to an ambitious Chinese buyer.