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Discussion Starter #1
Here is the scenario.

Small UK company, owned by a Malaysian company, needs to do something to turn around their financial situation. Sees USA market as critical to their viability. Presently sells one niche car that is expensive and getting long in the tooth.

Car company decides to bring over a less expensive car with good performance specs. Some issues with Malaysion company over money, but eventually the project is greenlighted. Company claims it will bring over a car under $40k and starts down development path, committing a large amount of money and possibly the future of the company on this.

Company thinks it has done it's homework and expects people to like the car and want to buy it. But company is also aware that the market for the most part might not know who they are, and sees the USA market as one that has a lot of other choices. It does not want to make any mistakes here. There is too much at stake. Company wants to make long term customers and wants the cars sold at MSRP.

Company is glad to see early buzz about the car in the USA an also some early waiting list entries. Development continues. Company juggles comfort, weight, regulations, performance, and price in the development. Company knows not everyone will be thrilled with every decision, but they want to hit the sweet spot on this one.

In the meantime, the value of the pound/dollar changes. Each car will now end up really being about $7000 more expensive then earlier projections. Financial projections are wrong. Company will not be making enough on each car. Company wants to not start off as being unreliable on what they said they would do. They fear a backlash if the car is substantially different in any way including price. Plus they already have orders in hand. What to do?

Company decides that under $40k can be very close to $40k and that will be okay. And if some options now cost more, that is okay too, because the base car is still under $40k. Some items that might have been standard, get moved to an optional package. Company hopes to make up some of the lost dollars by selling more options and packages.

The car becomes a huge success, even months before the official unveiling. Many dealers have a year long wait list. At the unveiling at a major auto show, the wait list for the entire production is getting to be about 18 months and soon to be 2 years. Reiews in magazines are glowing. It is the hit of the auto show.

This level of success is almost unheard of.

The company, and it's parent company, think about this. From a business point of view, there is a product that is enjoying a huge sales success, that is not making enough money for them. What should they do?
 

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Take a small hit. Sell me mine for $40,000, let me drive all over town making people drool over it. Then mark it up for the second year customers. Otherwise I cannot afford it. :(
 

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I have some thoughts (and one major concern) about what is going to happen. I have wondered about not mentioning this, but I think it is important.

IMHO... Lotus will adjust the MSRP. They came to the USA with the car at the price they promised it. They got some of the money they lost by the dollar-pound problem with the options. But they are a business and they are not making enough money on a product that is sold out. It only makes sense that they will adjust the MSRP.


I do not want to be an alarmist. Really! This is just some thinking on my part. But I do think we will see some pricing adjustment. Maybe MSRP will become $44,950... or maybe even higher.

If I was someone reading this forum and waffling on getting on the list, it would be my thought that they should get on the list now. Should have done it earlier. Specially if the deposit is refundable.

But, I wonder if the contract says you will get a car at MSRP, and the MSRP gets revised at some point, what does that mean? My guess is that all the 2005 cars will not change, but maybe the 2006 cars will be adjusted in price. And if your place on the list means you end up with a 2006 car, what does that do if Lotus adjusts the MSRP on that car?
 

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They should be thankful that they have a built-in excuse to release a re-designed product in 2 model years. That affords the perfect opportunity to re-establish the pricing baseline.
 

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Discussion Starter #5
The one positive of this scenario is that someone that was early on the list may actually have price appreciation on their car that they own.
 

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I think the currency issue will be a problem going forward for all import car makers. There is probably a bounce in dollar now, but the trend is still going much lower.

So, if the dollar is dropping say 5% a year, will Lotus be able to raise price 5% a year. My thinking is no; and this goes to all car makers. Even Porsche is discounting and bringing out lower-priced model.

Remember, American consumers are tapped out. And the cost of health care, insurances, oil and gas, education, local and state taxes are all going up (some in a double digit annual gain); while wages is going down.

As many have discussed before, Lotus will sell very well to the die-hards. But to sustain its sales, Lotus will have to sell to the Joe 6 Pack car buying public. To them, a car is just a status symbol. High speed cornering means doing 40 miles an hour turn on a freeway onramp. Cupholders are required for the trips to the office.

At a price point of $46K, it will cost more than a Corvette, knowing that you can buy Corvette at invoice and that is before all the rebates and financial incentives that GM is using to push out as many cars as possible. GM is loosing about $2500 for every car sold.

I just don't see an Elise at $46,000.
 

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I'm sure there will be some price adjustment on the elise in a year or two. Hopefully Lotus will use the Elise as a chance to get some 'facetime' in the media, to make their presence known again... then release a more expensive car that's the real moneymaker for their company. Then the elise would just be expected to keep Lotus solvent, while the new car makes them profitable.

Wishful thinking, I know.

Cade
 

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One thing you've already touch on, less contain in the base version, higher prices on options. The other thing that they already appear to be doing, parts they have a pretty good list going in and can add to it. Price creep in the next MY. The other thing is volume. If demands holds they can make more cars. In talking to Lotus at the show, the S2 is between being hand made and a mass produce car, but even so I'm sure they can do some streamlining of production, of which the higher volume will help.

Lotus is in effect re-launching themselves in the State. The Esprit was a a very old design, that has gone out of production & sold in such low #'s it's been a non-factor for many years. My understanding the Elise had good margins in the Euro market. They are taking a major hit with the exchange rate. My guess is the parent company will see how the Elise develops, if it continues to do will, they may have to invest more then plan to fund future products. The main thing is for Lotus to do well with the Elise.
 

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I tend to agree there. My father has a business that sells high dollar luxury items and after 911 the business slacked off considerably. The economy is looking up some and some business is starting to trickly back in, but times are tough for all businesses and buyers no matter what they're buying, from electronics to homes.
 

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There is no question that Lotus is between the proverbial rock and a hard place due to the relationship between $, € and pound sterling. However, we are in an election year, after which the interest rates will most likely change. This will have an effect on the economy and ergo the dollar. Both euro and pound sterling are at all time high and near all time high respectively. Some analyst feel that both are due for a correction. This might save Lotus from having to 'correct' the MSRP and enjoy a relatively higher profit margine on the peripheral items. However, I think that they risk loosing people if the prices climb. Many of us are buying the car for what it is and enjoying the marque that comes with it. By virtue of that, many of us would consider a suped up miata/MR2/S2K as just as good a toy (except perhaps the very competitive ones.) The bling blinb crowd might not put up with the 'harsh' nature of the Liz and ergo reduced sales for the company. I wouldn't want to be in the think tank at Lotus dealing with this issue.
Just my longish $0.02
 

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I don't think the Elise is a high dollar item. Indeed, I think it's pretty cheap for what you get. Yes it's small but the chassis is brilliant. A very well executed design. They can get more for this car and they know it; especially in the USA. It’s safe to say that many would buy this car for $5k or even $10k more than it's current MSRP.

Maybe not what you wanna here if you're on a list, but them there the facts sonny.

Many of us started out thinking there would be really no options on this car. That MSRP would be $38,500 plus tax tags and plate out the door. Now my car is up to $50k or so out the door. I'm still buying and lots other are to.

They have some room to make more profit and they know it. I agree that the 2006 Liz will be more $$$ as will the options. There will be special editions like they do in Europe also.

Good for you Lotus... Now where's my M250 replacement?
 

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The dollar has not yet reached the bottom. Currency fluctuations are a reality of any international business. I'm sure Proton has an army of financial experts who are using tools like currency hedging/etc to minimize their risk.

Lotus is counting on the US for long term health. Lotus would be smart to raise prices. Here's why:

1. They are selling more than they anticipated without much investment in advertising.

2. Hard-core purists want a car like an Elise - not a Corvette or a 911 or a hopped up Miata/MR2/S2000. I don't believe any of these alternatives fully speak to wants/desires of the purist.

3. The US market is sufficiently large enough to take 2k Elises/yr.

Lotus needs to keep supply close to demand or under. If they sell too many by saturating the market beyond what it will naturally take, they will dilute themselves. Right now there is some pent up demand for such a car ( hence the 18 month order log), after some time this demand will fall to the natural take rate for such a car.

Lotus needs to fire up the R&D on the M250 and Esprit replacements. These cars will add to their line-up and allow them to sell to those customers who want something even furthur upmarket. These cars will also make the Elise even more desireable to those 'aspirational' types. But they will need to stay true to their mission. If these cars become bloated with luxury and comfort, Lotus will have lost their way and will not be able to differentiate their products.

Lotus does not need to be as large as Porsche to be successful. They need to stay focused. Joe 6-pack or the general sportscar market is not their target market. They must concentrate on the purist niche inorder to maintain their differentiation - which ultimately makes them most desirable and successful. Appealing to the masses is not in their best interest - or ours. Assuming us purists still want simple, lightweight, unadultered sportscars.

I put my money on a 5-10% price hike in year 2.
 

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The 05 Elises will come in pretty close to the show figures pricewise unless a major eco catastrophe occurs.

They don't want to have the same situation they had with the m100, the car was originally quoted in the high 30s, came in at a list of 42,500 ended up being discounted to 26, and change. That would probably cook Lotus goose out of the gate.

I'm quite sure the car will price higher at next model year however.

I do know they're aware of the situation.

Chris
 

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2. Hard-core purists want a car like an Elise - not a Corvette or a 911 or a hopped up Miata/MR2/S2000....

The US market is sufficiently large enough to take 2k Elises/yr...

They must concentrate on the purist niche inorder to maintain their differentiation - which ultimately makes them most desirable and successful. Appealing to the masses is not in their best interest - or ours. Assuming us purists still want simple, lightweight, unadultered sportscars.

In principle, I agreed with you. However, I think there are problems in practice. There is never any study to determine how many hard-core purists will want an Elise; and I also think some purists will want a Vette or GT3, or M3 for whatever reasons (incentives, sponsorships, ease of financings). In short, there is no proof that Lotus can sell 2000 Elise a year for more than a couple year.

If you argue that US is a big country and 2K is a drop of a bucket in car sales, then I will say all the European countries combined have many drivers and 2K should also be a drop of a bucket in car sales across the pound. But may be not. I got this post from SELOC without verifying the data.


Remember that Lotus sales in 2003 in UK were 26% down on 2002 according to Times. They only sold 900 odd cars. They are in a very tough market sector and with end of VX production will have significant over-capacity, so deals on most models in Uk should get better in 2004 and residuals on current S2s will of course fall further unfortunately. S1s residuals seem to be bottoming out, but who knows......don't really care personally as I love my S1.
Lotus are having to concentrate on the US exports over the next 2 years for volume, if they don't succeed in the US they are in trouble....again.



If it is true, then how come Lotus ONLY sold 900 cars?

The fact is that selling cars in the US is like walking in landmines. Lotus knows it and is probably one reason not to ramp up production despite a backlog of orders. Porsche Hot Pepper Truck has a full year backlog of paid deposits before launch also; but dealers were discounting them 6 months after the first sale began.


If I am Lotus, I will hedge the currency risk by committing longer term contracts with supplies to deliver major components (such as the engines from Toyota) at a fixed price. Try to reduce the price hike in the model yr 2006 to a minimum. I think a hike is a high probability event. Launch a new model in model yr 2007, and bumper Elise shortly thereafter.
 

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Ha ha... 'bumper elise'... I know a few people who need that version SOON.

for what it's worth, I think you're right. Like Randy said, hopefully the early waitlisters will see appreciation on their cars. (and I'm quite sure we'll see appreciation OF our cars, too. forgive the pun.)

Cade
 

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Not many people know that HUMMER jacked up the official MSRP and the cost for options midway through the first (2003) model year because demand was so high. Hence half the 2003 have one MSRP and options list and half (any after 11/02) have a different MSRP.

I.E. Lotus can and probably will do this (unless you count that they already shot our MSRP up from $38,500 to $40,700.
 

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agent.5 said:
If it is true, then how come Lotus ONLY sold 900 cars?
It is common knowledge in the Europe that a new better Elise is soon to be released. Many would be buyer are holding out for the new version, the Toyota powered version.

Plus I think in Lotus's case there is more competition in Europe. They have TVR, Noble, EVOs that are far closer to the rally spec car. Renault speedster... God they just have so many enthusiast cars it's not even funny.

What do we have... The Elise and that my friend is it! Bout time we got something, bout time;)
 

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Keep in mind that by developing the Elise with a Toyota engine, Lotus can turn around and sell that car in the UK, perhaps revitalizing that market and defraying some of the developmental costs for penetrating the US market. Also, they may be able to sell more cars in North America by penetrating Mexico and Canada.

I agree that the next model year likely will see a price increase. However, I wouldn't underestimate the profit that Lotus is making up with these option packages.

Miatas were really hot for the first few years, and they are still selling, but I believe that demand has dropped quite a bit in the past several years. Only to be expected at some point. No doubt Lotus will see that here, as they have in the UK. However, they still can sell quite a few more cars than they have before.
 

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You are right there is no 'proof' that the US market will take 2k Elises. It's just my educated/gut-feel guess. The US market sells 15-16 million vehicles/yr. I believe this is much higher than Europe. I think the US will take 2k Elises - at least until other close alternatives are launched.

The Euroland issue is a combination of old product, more competition and a saturated market. You may remember the Elise was pretty much sold out for 2 yrs when it was launched in Europe. When you combine VX and Elise sales then I'm sure the # of cars sold last year is much higher. The Elise does not currently have any competition in the US that is as close to it as a VX. In Europe Lotus also has to face other obscure brands that compete with it (Noble, TVR, etc).

I think the Fed car will sell well in Europe and will give a nice boost to their otherwise ageing product line. As well as the fact that the Exige is right around the corner...those lucky buggers! :p
 
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