Articles
Sports car firm moves up a gear
Author: Andrew Stone
Source: Financial Times
Publication Date: 1st September 2002
FIRST impressions suggest little change at Caterham Cars, maker of the speedy
two-seaters first manufactured by Lotus in 1958. The car was driven by Patrick McGoohan in
the cult 1960s series The Prisoner and has been loved ever since by enthusiasts with cash
to spare and time to tinker.
The company still has a showroom at the end of a sleepy branch line in leafy Surrey.
Inside, its diminutive Super Sevens resemble scaled-up 1950s toys painted in the colours
of a sweet shop.
When the Enterprise Network visited in 1998, Simon Nearn had just taken over as
managing director from his father Graham, who founded the company. He hoped to increase
sales of the 45-year-old Super Seven, along with the newer Caterham 21 model, to 1,000 a
year while doubling profits to £1m.
The strategy was to focus on the cars’ appeal to “Toad of Toad Hall”
aficionados with a yen for adrenaline-fuelled motoring.
Talking to 33-year-old Nearn four years later, it is clear that much has changed —
but not all in ways he had hoped for. Sales of new cars have dipped slightly to about 600.
Export markets, which account for a third of sales, remain sluggish and annual profits
hover at around £500,000. One unwelcome change has been the demise of the 21, made
uneconomic by a rash of similar products from rival manufacturers.
Yet Nearn is optimistic. The company is more efficient than it was five years ago, he
says. It has streamlined operations, set and met internal targets and cost controls,
opened a new showroom in the Midlands and cut the value of parts stocked at its factory in
Dartford, Kent, from £1.2m to £900,000.
It has also diversified where possible outside its traditional core of new car and
parts sales. Second-hand Caterham sales are up 30%. New finance products and second-hand
non- Caterham car sales have also helped to boost revenue.
The latest models start at £15,200 unless self-assembled. They are competitively fast
and the motoring press still raves about the performance and fun the Seven offers.
“We are in a very strong position to survive any shortfalls in the next few years
and in a better position to expand sales in the export market, where we have developed the
right relationships with agents,” says Nearn.
A new partnership with MG Rover has led to better deals on the sporty MG Rover engines
that power the Seven. Joint marketing and cross-branding campaigns should help Caterham to
expand its footprint.
The other important benefit is on the export side. The cars have to comply with noise
and emissions rules in continental markets and now this can be done cost-effectively
thanks to MG Rover’s engineering expertise. European MG Rover dealers will also have
the option to stock Sevens.
Nearn had a background in motor-sport sponsorship and worked in a promotion company
before joining Caterham. One of his most important initiatives has been expansion into
motor sport, something he feels the company has got “spot on”.
Championships, corporate and public race days, a racing academy and owners’ club
events all provide revenue and help to get potential customers into the cars. Motor sport
is also a useful source of parts revenue, accounting for about 30% of all parts sold.
Caterham has run 10 of its own championships in Europe this year. It takes on 50
motor-sports recruits each year through the Caterham Racing Academy, each paying £15,000
for a car and tuition.
“This side has huge potential for growth,” says Nearn. “Our car is just
the best tool for teaching and the most exciting one.”
Caterham stands out as an exciting alternative to today’s bland mass-production
cars, he adds. The climate for fast but spartan motoring, astride a motorcycle or in one
of Caterham’s “four-wheeled motorbikes”, remains healthy.
“There is a gap for Caterham Sevens to put the fun back into motoring,” says
Nearn. "There are plenty of places to drive where the roads are empty, plenty of
places to enjoy racing and plenty of people whose passion is still cars.”
Nearn is confident Caterham will survive even though it now relies on a single core
product. The car giants are unlikely to muscle in with a direct competitor. “They
would struggle to create what we have created over 40 years: a worldwide following for our
car and a worldwide basis for our motor sport, both fundamental to survival.”
Survival has been an achievement in itself, given the fortunes of motor manufacturers
and retailers in the past few years, and especially given the pressure not to increase
prices.
“For us the outlook is okay. It is just a question of what level we are going to
be at. Are we talking about a company that is going to be building 1,000 cars a year for
the next 20 years, or just 250? As a business it is strong enough to survive at either
level. There are 10,000 cars needing parts, two sites selling cars and a factory building
profitable units.”
The domestic challenge for the company is improving brand awareness with tiny marketing
budgets. “If you did a straw poll on the streets of Britain, how many people would
have heard of us and how many would know where to get a car? We spread the word in our
specialised market but not necessarily in the broader sense of the word. That’s
always going to be a challenge.”
The company’s marketing budget for motor shows, motorsport, PR, and running a
fleet of press and demonstrator cars is about £250,000, from which Nearn says he squeezes
a lot of value. “I think any manufacturer would be envious of what we achieve, given
the budgets.”
The toughest issue remains knowing when to pile in money, effort and time to its export
sales markets, most notably France, Germany, Japan and America. “I’m impatient.
I can't believe how long it takes for some things to come to fruition,” says Nearn.
“But I’m also a firm believer in not just throwing money away.”
The company might have to refinance to do this on a large scale, although there are no
plans right now. A sale is not on the cards, but Nearn is not sentimental about keeping
Caterham in the family, which owns about 80% of the company.
“I don’t run this as a family business. People find it weird but I see my
father as the chairman and my friends and family as shareholders. There would be a lot of
emotional stuff tied up with a sale. But if it was best for shareholders and employees to
look for outside investment or seek a structured sale, I would advise them to do it."
Nearn admits he sees a future for himself beyond Caterham but has not given it serious
thought. He is a veteran competitive racer of skiffs — the Super Seven’s sailing
equivalent — and is tempted to do some challenging round-Britain or Trans-Atlantic
sailing or even start another business.
Moving on is a distant prospect, however. It would be difficult to find a more engaging
product to sell, he says.
“Like any business, you have staff, customer and employment law driving you mad,
but you also provide a product that people want. On a good day, the sun is out, you meet
your customers and it’s the best job in the world. That would be hard to
replace.”
CATERHAM'S CHALLENGES
- To sell more cars overseas
- To increase brand awareness with a small marketing budget
- To keep its finances healthy so it can respond to change
THE EXPERTS
CATERHAM must decide how big it wants its niche to be. I reckon it
could be much bigger without spoiling the 'what-was-that?' quality that is part of its
appeal.
Simon Nearn will need cash, but I doubt if Caterham is generating sufficient to invest
in growth. External cash will require the family to give up equity - and they may not be
keen.
A smaller stake of a bigger business might be worth more than 80% of the current
business, but selling equity in a family business is a bit like selling your children.
Nearn has to test and align the aspirations of shareholders and managers. How ambitious
are they? How much pain are they prepared to suffer to expand the business?
Discussing strategy in the abstract is one thing, but he might find that not everyone
may be up for the ride that his growth plans will demand.
Simon Bevan partner specialising in growing businesses BDO Stoy Hayward
CATERHAM has been very sure-footed, but difficulties may lie ahead.
Take the company's aim to increase awareness of its brand - an area that needs handling
sensitively. The average man has never heard of a Caterham Seven. But that may be part of
the appeal to those who have.
Maybe a large part of what customers like about the cars is their exclusivity. On the
one hand, it gives them a sense of belonging to a select group of aficionados. And on the
other, it allows them to show off their pride and joy.
The moral? Be cautious about tinkering with the brand before taking market soundings.
The dangers of brand dilution must be resisted. Selling non-Caterham products may make
short-term sense from the revenue perspective, but could cause longer term damage to the
brand. Careful market research will provide guidance.
Jon Furmston marketing director of the SME business BT
THE company should attempt to make more use of its present successful
partnership with MG.
This has served to give Caterham the scale, security and expertise it needed and has
allowed it to punch well above its weight. The solution to the company's problems seems
certain to lie somewhere in this area.
The Caterham Seven has to be developed further. Otherwise the firm is bound to be left
in a vulnerable position.
As with any luxury item, brand awareness is vital to Caterham in maintaining and
driving profit margins. There have to be some opportunities for product placement with a
car like the Seven and these ought to be actively pursued.
In the final analysis, the company has to think bigger if it is not to lose momentum
and become susceptible to hostile competition.
Phil Smith business development director Cisco Systems
STATIC sales should not overshadow Caterham's progress. Stringent
financial management has fortified the business in tough market conditions and Simon Nearn
can take heart from the successful diversification programme.
Brand awareness comes from the love affair with Super Seven owners and the motoring
press. More research is needed to understand who buys the car and why. Testimonials could
be used to target prospects. The MG Rover alliance should be used to secure showroom
coverage in key places.
Increasing exports sound attractive but market research and evaluation of investment
needs are essential to decide which countries offer the best opportunities.
Can MG Rover's expertise be used to devise a European strategy that incorporates
participation at sporting events?
Michael Riding managing director for corporate banking Lloyds TSB Corporate
CATERHAM has built a good base for growth but is not getting a
breakthrough in sales growth. A number of risks threaten it.
Competition has already killed the Caterham 21, which suggests that ploughing money
into developing a new car is not the way forward. The purchase of a Caterham car is
discretionary spending and an economic downturn could cut sales to below 500 a year. g b
Simon Nearn needs to exploit the MG Rover relationship. In particular he needs to take
advantage of its showrooms. Doubling the number of sales will stretch the business, its
people, skills and infrastructure.
He should also consider the acquisition of competitors or new designs to increase
output and market presence.
Lastly, the events format, if successful, provides Nearn with the opportunity to create
a spin-off business.
Ian Staines business unit director of business services npower
SIMON NEARN has been smart to exploit the niche market for Caterham
Sevens and expand into profitable sectors of motor sport. But reliance on a single product
means there is no room for complacency.
The most cost-effective route to building sales is to sell more to existing customers
and use them to find new ones.
To increase brand awareness Nearn should focus on creative, targeted direct mail and
PR. He should create brand news by generating customer case studies for relevant
publications at home and abroad.
Are there further profitable niches Caterham could succeed in? Is further customisation
a possibility? Can corporate events be offered to external sponsors?
Nearn should exploit his relationships with agents in export markets while gaining his
own local knowledge of key markets.
Gillian Wilmot managing director of mail markets Royal Mail
Added to the database on
5th September 2002
Keywords: Caterham, Nearn, Super 7, seven, sports car
Aerospace industry
