McLaren shifts into high gear with 35 new dealerships

There is a school of thought that would have McLaren cars out there only on the racetracks. Such is the symbiotic relationship the marquee enjoys vis-à-vis Formula 1. But you will not find Ron Dennis, executive chairman of McLaren Automotive and McLaren Group, sharing the view.Under his stewardship, the carmaker is now flagging off a network of showrooms in the UK and beyond. At the opening of the first, in London's Hyde Park One, Dennis spoke at some length on the need for such showpiece facilities and his many other plans for McLaren. Gulf News: What explains the new emphasis on a retail network? Ron Dennis: The opening of our first showroom is one small facet of an incredibly complex programme that we've been working on for years. I am inherently risk-averse and definitely was wrestling with the early part of the funding because you've nothing to show the public. Those were quite stressful times, but we're now in the position where our new factory is due to commence production on time and on budget. We have a sales book of 1,821 cars. Jardines in Hyde Park One is the first of 35 dealers to open. Initially we had 500 applications from some of the best dealers in the world. We selected 100 to go through a very intense process to determine which of them should represent us in our key markets. The initial wave is 35 dealers, we will ramp to 70 as we introduce more volume and different models into our product range. The dealership selection process was driven by pure quality and our common values in respect of the intensity and focus that we want to put to customer care. It's our belief the actual point of sale is very critical, but that is a small part of the ownership experience. We aren't perfect and we fully accept that we are going to make mistakes. We fully accept that with the car we've tried to develop — the perfect performance car — that we are going to have problems and we're going to rely on the customer relationship to power us through those initial teething problems. We know that we aren't fool-proof, we're not mature as an organisation, we have to be prepared to be responsive to anything that manifests itself. What was it you looked for in the dealers? It was about 30 years ago I realised the intuitive design process in Grand Prix racing was not going to have the level of consistency, regarding performance, that I wanted to bring to McLaren. There had to be an application of science; that we would derive all of our decisions ultimately from a careful, numerical approach to break down the performance parameters of the Grand Prix car and its team. Every single car in the world is registered and therefore it didn't take a great deal to determine where the hotspots of car ownership were with respect to our segment of the market.For us the market breaks down into three price levels — north of €100,000 (Dh528,508), north of €150,000 and north of €700,000. In 2007 that market was about 120,000 cars a year. At the worst depth of the recession it dropped to somewhere between 75,000 to 80,000 cars a year globally. It's now recovered to about 100,000 cars a year and of course our objective is that by 2014-15 we intend to be at 4,000 cars a year which means we're looking at 4 per cent of the market. But the segment is very demographically measurable in terms of where the buyers tend to concentrate. That gave us a very clear perspective, especially in North America where a very significant percentage of car sales have taken place. We went to dealers that were in those areas, we then looked at their track record, and of the 100 that we interviewed, we looked at what their business plans were. I think the most surprising thing for our dealers was our commitment to their profitability. That commitment includes guaranteeing large market areas, which means that they're going to have sufficient volumes to make them profitable. We are concentrating our showrooms in luxury goods streets; so we are deliberately in One Hyde Park rather than Berkley Square. It could be Bond Street, it could be Sloane Street, but it would not be Fulham Road or Chelsea. An integral part of dealer selection is their appetite for assisting us in becoming a luxury brand by being in luxury places. How do you go about choosing the markets to open first? If we're going to have a problem, we'd rather have the problem closer to us then further away from us. So logic says you start in the UK, you move to Europe, you move to America, then you move to the Middle East and Asia.Then it was really a question of integrating that with type approval. Logically you start with European type approval, then go for American type approval and then to the approval processes for the Middle East and Asia.The UK dealerships will all be open within four weeks, the European ones will probably within another two months and then by the end of the year the American, Middle East and Asian dealers will be open. With a £168,000 (Dh1 million) vehicle, a thousand cars is £168 million which is one heck of a lot of cashflow. So I'd love to be able to wave the magic wand and deliver a thousand cars tomorrow, but that's not reality. One of the things wee looked at when we [were] analysing this programme several years back was the traditional lifecycle model, speed to market and the general pace at which larger organisations run. Some of the pace is determined by culture and what we've tried to integrate is we are a motor racing team totally focused on winning. But winning in the McLaren sense is not just winning races, it's actually trying to be world-class in everything we do. So, the pace at which we've run this programme is — by most people's standards in the automotive industry — breathtaking. By our standards, it's a little slower than Formula 1, but not much. And we have challenges occasionally — human resource problems as we try to recruit the right calibre of people and get them to understand the McLaren DNA, how they should think and react. But it's all part of the maturity process and therefore I hope customers will give us sufficient tolerance as we mature as an organisation.The values that are the DNA of McLaren creates a winning culture and an attitude so intense. There are lots of people in the company that have those values and they are McLaren DNA values, not Ron Dennis values anymore. When will the company turn profitable? I am very debt-averse; so the first challenge is to hit my business plan which is to raise cash through equity sales. There's the existing shareholder group which will remain at 43 per cent, then there's the new shareholder group which is 47 per cent. When that round is complete we will be fully funded in the sense of no bank debt and no loans except shareholder loans. There is then a short-term period which will last no more than a year and a half to repay the shareholder loans from cashflow. I would say in Year Two we will be profitable. That means in Year Two you will recover your initial investment? When we've got our initial investment back, we will be profitable. Then of course the investors have to determine what is the mechanism for getting back their money — is it a question of dividends or is it a question of an IPO or some such? First thing is to hit our targets. We sell 1,000 cars this year and 2,000 next year and if we deliver all of those cars we are beyond our targets. At the moment there is of course the newness of the product, there is the inevitable range of conflicting opinions. Most people hail it as the best handling sports car in the world; some people have views based on its styling. Those people who express views that it's not edgy enough, I completely understand what they are saying because it was never designed to be fashionably styled because we wanted longevity in the look. One thing's for sure, we have phenomenal respect for the Asian market and that respect has grown to such a level that we've decided we will create an Asian hub out of Singapore. We believe that the market is so important to us that we want to have a cultural hub from which we can talk to our dealersWe've already done it for the Middle East (in Bahrain). From / Gulf News