By most measures, venerable British carmaker Rolls-Royce Motor Cars Ltd. has undergone a remarkable transformation.
It has halved the time it takes to make a car and plans to halve that again by introducing an automated assembly line. The company laid off 50 percent of its work force and reorganized those that remained. In the process, it increased sales and lowered its break-even point.
But has Rolls revved itself up enough? It still lavishes 30 days on the production of each Rolls-Royce and the company’s sportier model, the Bentley, while the rest of the industry thinks in hours. Sales, though recovering, are well off their highs of the 1980s. Ultimately, despite the company’s gutsy restructuring after near-bankruptcy in the early 1990s, few believe Rolls can maintain its independence in today’s cutthroat automotive industry.
The company’s dilemma tells the story of the pressure felt by exclusive, low-volume carmakers.
Despite price tags of $178,000 to $376,000 on its cars, Rolls gains few economies of scale with its production of only a couple of thousand cars a year. Other great car names such as Lotus, Maserati and Jaguar have faced a similar problem and have been snapped up by large mass-market manufacturers.
No matter how Rolls refines the way it makes cars, industry observers say, it will always be thwarted by its size.
“The history of the motor industry is that smaller manufacturers fall by the wayside, and Rolls isn’t the exception,” says Garel Rhys, a professor at the University of Cardiff, Wales.
Yet Rolls is lucky to have made it this far. An independently run unit of diverse engineering conglomerate Vickers PLC, it was buffeted in the early 1990s by an economic recession and ballooning overhead. Sales slumped from a high of 3,333 vehicles in 1990 to 1,350 vehicles in 1993. While the parent company doesn’t break out Rolls’ figures, analysts estimate losses to be $164 million for 1991 and 1992 combined. Sales crept up to 1,744 vehicles last year.
The company was also hit in the U.S., which had contributed some 40 percent of total sales, by the “luxury tax” levied against imported goods in the early 1990s.
Though Rolls has begun to swallow the cost of the U.S. tax, sales have barely risen and, in 1996, Rolls sold only 462 cars in North and South America, down from with 1,274 cars in 1989.
Rolls Chief Executive Graham Morris insists that the only way forward is to remain independent under the wing of Vickers.
Attempting to guarantee independence has been painful, though: Between 1990 and 1994, Rolls paid hefty severance packages to almost half of its 5,100-person work force. Those who remained were organized into flexible teams capable of operating on any part of the car’s production. Following Japanese management theories, all employees, even senior executives, were required to wear identical uniforms, each bearing their names.
In addition, investment was made in high-tech testing and painting equipment, and work will soon start on a production line that will shuffle the half-built cars around the factory floor. Previously, in keeping with traditional techniques, employees pushed the cars.
The company is also developing closer relationships with manufacturers, such as Bayerische Motoren Werke AG. Rolls’ next-generation cars will be powered by BMW engines, and the German carmaker is seen as the most likely potential buyer for Rolls. Both say no discussions are taking place beyond those relating to their joint venture.
These changes sharply reduced Rolls’ costs. To break even now, the company must sell 1,350 cars a year, down from 2,800. So, analysts estimate that Rolls could double profits by 1999.
But the carmaker’s low volume will still hamper the company, which has to buy similar tools and equipment as Ford Motor Co. does, for example, but can spread costs over only thousands–not millions–of cars. It also has to conform to modern auto legislation calling for expensive safety and emissions testing, which is most burdensome for low-volume manufacturers.
In addition, few parts suppliers go out of their way to cut special deals, though they enjoy the reflected glory of Rolls’ business. By contrast, Fiat S.p.A., the big Italian carmaker, slashed Maserati’s costs when it purchased the company in 1993.
“If we say, `Hi, this is Fiat, we buy 20 trillion tires, can you throw in a few for Maserati?’ the equation changes quite dramatically,” says Richard Gadeselli, head of corporate affairs for Fiat.
Recognizing the limits on how much it can improve its internal processes, the company has started to examine its relationship with customers and dealers.
“So many customers want different things, so we personalize them for different tastes,” says Adrian Minshull, a Rolls craftsman for 12 years, as he bends tiny strips of boxwood to make the inlay for an oak dash.
Responding to that demand, the company is ramping up its service for customers who want to style the car themselves. There is no limit to choice: For a price, Rolls will mount drink cabinets in the car or paint the body pink.
Rolls has left its basic four-door sedan unchanged for 17 years. Because revenue come in so slowly, the company is often forced to delay critical investment in new models. A redesigned Rolls, whose development has been shrouded in secrecy, is set for a long-overdue launch around 2000. Acknowledging that it has waited too long, the company says it will refresh its model range every 10 years in the future.
The delay has damaged Rolls’ reputation. “The car isn’t as comfortable as it used to be,” says Jack Joseph, a director of London-based Allied Manufacturing Ltd. and a race-horse owner who has bought six Rolls-Royces since 1970. Less expensive luxury cars made by BMW and Mercedes have begun to steal Rolls’ thunder, adding features such as television sets to their top-of-the-line models.
Chief executive Morris is realistic about the company’s chances. No matter how successful the restructuring, he concedes the company is prey to events beyond its control as long as it remains independent.
“If the bottom line isn’t there, we would have to ask what the alternatives are,” he says. “We haven’t had to do that yet, but if we don’t deliver, who knows?”
