Nov. 18 (Bloomberg) -- McLaren, the U.K. motor-racing team that trails only Ferrari in Formula One victories, is switching its pursuit of the Italian icon from the track to the road.
McLaren yesterday opened a 50 million-pound ($80 million) factory that will allow mass production of a 200-mile-per-hour street-legal model selling for 168,500 pounds as it seeks to translate sporting success into 4,000 car sales a year.
Only a handful of teams in the history of motor sport have managed to leverage triumphs on the track to build a manufacturing business. Ferrari’s cross-over success remains unique among competitors in Formula One, the world’s richest race-car series with annual revenue of $1.1 billion and a television audience averaging 50 million for each grand prix.
McLaren will “find it tough because there are lots of well-established brands already in that sports-car space,” said Mark Jenkins, co-author of “Performance at the Limit: Business Lessons from Formula One Motor Racing” and a professor of business strategy at Britain’s Cranfield University. “Motor sport technology is very, very high end and to move into road-car production you’ve got to be far more low-cost.”
Tony Jardine, who was a manager at McLaren before Executive Chairman Ron Dennis took over in 1981 and also worked for Lotus and Brabham, reckons the new MP4-12C model, which will sell at 35 dealers worldwide, including nine in the U.S., is a winner.
“They’ve done a massive amount of work to ensure the car is really amazing,” he said. “It looks like a fantastic product.”
‘Difficulty of Survival’
McLaren opted to begin volume production with a program it estimates will cost about $800 million after efforts to harness race-bred technology for other uses had limited success.
While the company’s electronics are used throughout world motor sport from Formula One to Nascar and IndyCar, the market is worth only about 20 million pounds a year, Dennis, 64, said in an interview at the new factory in Woking, England, pushing it to take a bolder step to safeguard the future.
“When you look down the pit lane, as I’ve been doing for a great many years, and you see that the only brand consistently there is Ferrari, you realize the fragility and the difficulty of survival,” he said. “So that meant diversification.”
Dennis said he’s continuing to seek new investment after cutting his stake in McLaren Group, owner of the Formula One team, to 25 percent and spinning off the production-car venture as McLaren Automotive, in which he has an 18 percent stake.
Bahraini sovereign wealth fund Mumtalakat Holding Co. is the biggest shareholder in both enterprises.
Established by New Zealander Bruce McLaren in 1963, McLaren entered Formula One in 1966 and won its first race in Belgium in 1968. Forays into manufacturing to date have been limited to a venture with one-time investor Mercedes and the F1 supercar, which had a production run of 106 vehicles and was the costliest auto of the 1990s at 540,000 pounds. With a 240 mph top speed, it was also the fastest until the Bugatti Veyron in 2005.
McLaren’s new model will arrive in U.S. showrooms by year’s end as production accelerates. The company has presold 2,000 cars, with 250 already delivered to European clients from existing facilities at the adjoining McLaren Technology Centre, where its Formula One racers are made.
“McLaren is following the Ferrari path of building a brand around racing and exporting that into the road-car sector,” said Jenkins. “They came at it a different way with the F1, which was a very specialist supercar, not mass market, and really are now trying to more seriously develop their brand in that area.”
Ferrari, founded as a race team in 1929, didn’t make a road-going auto until 1947, three years before the first Formula One championship. Based in Maranello, northern Italy, it has won 15 driver’s championships, three more than McLaren.
Most other specialist race teams have stuck with the track, and those embracing mass production have generally struggled, among them Lotus of Norwich, England, which was rescued first by General Motors Co. and then Malaysia’s Proton Holdings Bhd.
Ferrari itself was bought by Fiat SpA, Italy’s biggest manufacturer, in 1969, providing funds to help develop cars such as the Dino, its first high-production model.
Other carmakers come to Formula One as established global manufacturers looking to bolster the prestige and sporting credentials of their road cars. Ford Motor Co. bought a team from former driver Jackie Stewart in 1999 to promote the Jaguar brand it then owned before selling the team in 2004 to Austrian drinks company Red Bull GmbH, which subsequently won the world title. Dennis reckons Toyota Motor Corp. spent 3 billion euros ($4 billion) over eight years without winning a single race.
Renault SA and Daimler AG’s Mercedes unit are among 12 teams competing in this year’s world championship.
McLaren’s push into manufacturing envisages developing eight models and variants in coming years, it said yesterday.
Dennis’s goal is to build 4,000 cars a year within five years, equal to almost two-thirds of Ferrari’s anticipated 6,500-vehicle output for 2010 and three times deliveries at Volkswagen AG’s Lamborghini unit.
Sales of ultra-luxury brands are projected to rise 19 percent to more than 28,000 this year, seven times the 2.7 percent gain in overall deliveries, according to consultant IHS Automotive, with companies insulated from a slowdown by limited production runs that aim to restrict supply and buoy prices.
The first examples of the MP4-12C suffered glitches including malfunctioning satellite-navigation systems and software that drained batteries. Those issues, which McLaren says have been resolved, are not unusual in early-build supercar models, according to Jardine.
“Ron Dennis’s attention to detail is legendary and I expect to see that philosophy in the road cars,” he said. “If you want a raw gear change and raw noise you’ll buy something more basic, but with McLaren you’re going to get sophistication.”
Williams Grand Prix Engineering Ltd., the third-ranked Formula One team with seven drivers’ championships, is sticking with McLaren’s old strategy of technology transfer, contributing to the C-X75 electric supercar being developed by the Jaguar Land Rover luxury unit of India’s Tata Motors Ltd., which will sell from 700,000 pounds and reach 60 mph in three seconds.
The success of McLaren’s MP4-12C in the showroom may hinge on Formula One’s penetration of emerging markets, particularly in the Middle East and Asia, according to Cranfield’s Jenkins. The series has added races in China, Singapore and South Korea in recent years and last month staged the inaugural India Grand Prix at the Buddh International Circuit near New Delhi.
That in turn increases the pressure to win on the track and build a bigger following. With one grand prix left, McLaren’s Jenson Button ranks second and Lewis Hamilton fifth in this year’s championship, which was already won by Red Bull’s Sebastian Vettel with four races remaining.
Dennis says it’s McLaren’s long-term success that counts.
“The Formula One team is our advertising budget,” he said. “Since 1966 we’ve won one in four of the races we’ve competed in and had a driver on the podium half the time. That’s a very good statistic when you’re trying to attract investment, and it supports the concept that we make good sports cars as well.”
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