Bob Lutz: The First Virtual Carmaker?
Robert A. Lutz is living large. The 69-year-old former Chrysler Corp. president still flies his Soviet-era fighter jet and speeds around Detroit in a Dodge Viper. His status as North America's preeminent car guy--earned in the early 1990s, when he helped reinvigorate Chrysler with cool, risky vehicles--is unchallenged. In fact, even though Lutz left the company after its merger with Daimler Benz in 1998, Chairman Jürgen E. Schrempp still consults him about how to fix the auto maker. Schrempp likes to call Lutz his rabbi. Indeed, Lutz is one of the few people in the industry who tells it like it is: At the Detroit Auto Show in January, he said many of the sport-utility concept cars "resembled angry kitchen appliances."
What's more, Lutz has enjoyed some success as a CEO in his own right. In the two years since he took over troubled battery maker Exide Technologies, he has settled its legal problems (the U.S. attorney's office accused Exide of deceptive sales practices), cleaned up its books, and acquired one of its rivals.
Now, Lutz is putting his good name and moxie to work for himself. He has started a company called Cunningham Motor Co. to build what would be the first super-exclusive sports car (it would go for about $250,000) to come out of America in 50 years. Actually, "build" might not be the right word, since Lutz only wants his company to design the car. He would like Cunningham's suppliers, whoever they end up being, to piece the vehicle together, with one of them handling the final assembly.
The idea is clever, and it certainly reduces the amount of money Cunningham needs to get started since there would be no plants to construct, no distribution centers to maintain, and hardly any offices to rent. Even so, Lutz is talking about some $80 million; just the engine could cost $20 million to develop. Raising that much will be tough. After all, automotive history is littered with romantic but failed startup efforts, from Preston Tucker in the late 1940s to John Z. DeLorean in the 1980s. Lutz and his partner, Briggs S. Cunningham III, the son of racing legend Briggs S. Cunningham Jr., have each invested about $1 million. So far, they've raised just $2 million from others.
Few fault the car's design. A model of the Cunningham C7, a sleek coupe with a much bigger interior than European sports cars, went over well at the Detroit Auto Show. Lutz describes it as combining the lush leather appointments of a Bentley with the performance--powered by a 500-horsepower V12 engine--of a Ferrari. He figures he can sell about 1,000 cars a year, even in an economic downturn. "There are enough wealthy people who have all the Mercedes-Benzes and Ferraris they'll ever own. If they could have something new that their friends don't have, they'll buy it," he says.
NO TAKERS. Lutz has tried before to "redefine American luxury," as he puts it. At Chrysler, he led the development of two prestige concept cars that never made it to showrooms. Now, after 30 years of working for the big carmakers, Lutz is operating on his own terms. The irony, though, is that he may need his old colleagues to get the C7 on the road. Industry analysts believe he'll have to work with another car company to cut development costs and share parts. "It's easy to talk about this, but it's very tough to do," says David E. Cole, director of the Center for Automotive Research in Detroit. "Someone like Lutz has presence, but he requires a partner, preferably another auto maker."
That's the trouble. Lutz may be the best-connected executive in Detroit, but no one seems ready to risk hooking up with him. He talked to another former employer, General Motors Corp. (GM ), about building new versions of a few engines for the C7. But GM is notoriously cheap these days. "There's very little chance GM would invest," says David E. Davis Jr., the former editor of Automobile magazine who is working with Lutz on the project. Lutz also approached DaimlerChrysler (DCX ) but hasn't been able to strike a deal.
What Lutz believes he has going for him that others didn't is his idea of creating a virtual car company. His plan is for a network of automotive suppliers to furnish parts and assemble them into modules, which would then be shipped to one large supplier that would put the vehicle together. This wasn't possible in the early 1980s, when former GM executive DeLorean tried to start his own company in Northern Ireland. In the years since then, auto makers have thrust onto their suppliers many more design and engineering responsibilities as well as more assembly work.
Basically, what motivates Lutz is a desire to prove people wrong. "If there is conventional wisdom that says this can't be done, Bob will want to do it," says Mark A. Lutz, Bob's younger brother and a retired economics professor at the University of Maine. That defiance dates back to his childhood, spent in Switzerland and the U.S. Their father, a banker who at 93 still goes into his Zurich office daily, was so strict at home that Bob grew to oppose anything that came as an edict, says Mark. Indeed, when Bob held executive posts at GM's German unit and at BMW in the 1960s and 1970s, he refused to follow European protocol. BMW's Quandt family expected Lutz to kiss the hands of aging baronesses at social events. He didn't. GM forbade him to ride his motorcycle to work or to race his car. He continued to do so. Eventually, he returned to the U.S. to work for Chrysler.
That same brassy approach may help recharge Exide. When he took the helm in late 1998, some colleagues thought Lutz had made a big mistake. The battery maker was bleeding money, had racked up $1.3 billion in debt, and was being investigated for selling Sears, Roebuck & Co. (S ) lower-grade car batteries marked as premium ones. "It was not a functioning company," Lutz says. Since then, he has written down millions of dollars in bad investments, paid $27.5 million to settle fraud charges against Exide in relation to the Sears case, divested ancillary businesses, and closed plants. He also dumped its high-profile but unprofitable deal to supply Sears Diehard batteries. After several years of losses, Exide eked out profits of $7.8 million in 1999 and 2000. Now, though, he has to contend with a weakening auto business that is dragging down battery makers.
Salvaging Exide would be enough for some executives. But Lutz wants to see a Cunningham car racing down a highway before he says "enough." Nonetheless, "I don't think even Bob knows if he can pull it off," says Davis. Chances are Lutz can't. But he will probably get closer than anybody else could. And he still has his day job to fall back on.
By David Welch in Detroit