Finished: De Lorean Incorporated

By John S. DeMott

The rise and demise of a stainless-steel miracle

Callers to the plush Manhattan offices of De Lorean Motor Co. last week got only a computerized voice: "At the customer's request, 889-8900 has been temporarily disconnected."

It was a whimpering climax to the daring venture that put John Z. De Lorean's name on wheels. De Lorean attempted what no one had managed to pull off since Henry J. Kaiser did it in the 1940s: to start an auto company and compete successfully in a market dominated by Ford, Chrysler and GM. In the end, De Lorean's eight-year effort left U.S. investors, dealers and suppliers--and particularly the British government--poorer and wiser. In the beginning, De Lorean made them all believers. The British government, which was looking for ways to provide jobs for desperately unemployed workers in Northern Ireland, poured $156 million in grants, loans and equity capital into the deal. In return, De Lorean built a factory near Belfast that at one time employed 2,600 workers.

Last week, after De Lorean had turned out fewer than 10,000 cars in a little more than 21 months, the Thatcher government ordered the plant shut down. With that, some of the plant's remaining 35 employees had a last fling, taking the wheel of De Lorean's cars, called the DMC-12 (after De Lorean Motor Co.), for a few turns around the premises. Hundreds of other workers in Northern Ireland stood to lose their jobs with companies that supplied the factory, a tragic circumstance for a place that has an unemployment rate of about 22%. De Lorean's project was obviously risky, but it was doomed in the end by his own mistakes and some events he could not control. Sales, buoyed by dealers' hype, were brisk when the car first came to market in the summer of last year. Some 3,000 DMC-12s' were sold in the first six months. But by December, bad weather and the recession's icy grip had cut sales to a fraction of their starting pace.

Many other factors were involved in the car's demise, not the least of which was the DMC-12 itself. True enough, it was sleek and racy, with a stainless-steel skin, a corrosion-resistant, glass-reinforced plastic underbody, a 130-h.p. Renault engine and gull-wing swing-up doors borrowed from the 1954 Mercedes sport coupe. But, doors aside, car critics could find nothing distinctive or terribly special about it. One described it as "clunky." Still, the car had its fans.

The fact was that many people could not afford such a car, whatever its merits or drawbacks. Originally, De Lorean envisioned his creation as a competitor for his old employer's Chevrolet Corvette. But when the DMC-12 reached dealers' showrooms, it listed for $26,000, almost $11,000 more than De Lorean had projected and about $8,000 more than the Corvette. As sales slumbered, the price was discounted to about $19,000.

Demand might have been a little stronger, despite the cost, if the car had not been so long getting to market. In the mid-1970s when the DMC-12 began taking shape in De Lorean's mind, there was nothing quite like it on the road. But by 1981 Mazda, Porsche and Datsun had competitive cars on the market, and the DMC-12 found itself in a rigorous grille-to-grille battle. De Lorean's sense that he could not fail compounded the problems. His own market research showed that perhaps 12,000 DMC-12s, at most, could be sold in a year. Yet he doubled production to 80 cars a day, the equivalent of 20,000 annually, and ignored the advice of his key executives that this was senseless. Last spring he admitted to FORTUNE magazine: "I guess we got carried away."

De Lorean was not the only one. At least 345 car dealers chipped in a total of $8.6 million to buy stock in his company. The dealers, mostly for GM, who had known De Lorean from his days at Pontiac, were impressed by his record and wowed by the pitch he began delivering to them in 1977. Other believers were Tonight Show Host Johnny Carson, who kicked in $500,000, and Entertainer Sammy Davis Jr., who invested $150,000.

By 1978 De Lorean actually had two governments competing to put money into his company. In the early part of the year, after negotiations with officials in Puerto Rico, he won $40 million in loan guarantees from Washington and the Commonwealth for a $96 million plant in Aguadilla, a poor area 70 miles from San Juan. In addition, a group of drug companies and General Electric's pension fund were ready to pump $35 million into the project.

But in July De Lorean surprised everyone and infuriated the Governor of Puerto Rico by making a deal with the British instead. The British went along even in the face of some discouraging reports. The management consulting firm of McKinsey & Co. was asked to assess De Lorean's proposal and reported back that the project had only a one-in-ten chance of succeeding. Nonetheless, the British Labor Party, which was then in power, outbid Puerto Rico by promising some $110 million to get De Lorean's factory to Ulster.

That kind of backing was all De Lorean needed to lure still more money. About 130 rich investors put $18 million into a tax-shelter partnership formed by the Wall Street securities firm of Oppenheimer & Co. to finance research and development on the new car. One businessman familiar with that deal says that even in retrospect, the investment looks prudent. "There was about $107 million in before the partnership was signed. This would have satisfied anybody."

Very little of the money, it appears, was John De Lorean's own. It is conceivable that De Lorean put no mare than $20,000 from his own pocket into the company at the start. He has claimed to have invested as much as $3 million, but one man familiar with the operation says, "No one's been able to trace that money." Because it was his idea and his magnetism that made it happen, De Lorean was able to negotiate with the investors to keep a controlling interest in the business.

De Lorean paid himself about $500,000 a year, and he lived very well. He established a free-spending corporate style, flying the expensive Concorde on his numerous trips across the Atlantic and often insisting on being met at airports, just like the Detroit executive he used to be. De Lorean dabbled in a slew of other businesses, from snowmobiles to buses, and left a trail of corporations registered in Nevada and Michigan. In time, he seemed to lose interest in running the automobile business, and was seldom seen in Belfast. One Wall Streeter who observed the goings-on at De Lorean's company summed things up: "I don't think the company ever got managed at all. Everything happened so fast."

Indeed it did. By early this year, only twelve months after the first car rolled off the production line, it was clear that De Lorean's dream was stalling, and probably dying. More than 4,000 cars were unsold, and by February the factory was in receivership. In London, angry Members of Parliament were describing the project as a "rip off." Even then De Lorean was saying that the Belfast plant would need $70 million in new capital. The British government balked.

After that, De Lorean began losing his credibility, if not his cool. In an effort to get his plant back from the hands of British receivers, he appears to have invented investors he said were poised for the rescue. Sir Kenneth Cork, one of the two British receivers, said last week, "They were always shadowy people whose names we never learnt. There would be a telex saying businessmen would put up so much, but always on the condition they were not named. They never emerged into daylight."

Only one investor actually surfaced between March and last week's shutdown order: Peter Kalikow, a New York real estate executive. But Kalikow's terms were unacceptable to the British receivers. He wanted still more government financing over the next four years. Finally, the British set a deadline of 10 p.m. on Monday of last week. They now say that $17 million was the minimum amount needed to get the plant operating again.

Only hours before his arrest, De Lorean said in an interview with the British Broadcasting Corp. that the money was in a U.S. bank, but neither receiver could confirm it. Said Cork: "Right at the bitter end I was receiving telexes saying the money was definitely available. We said, 'Fine, but let's see it in a bank account,' and that never transpired."

De Lorean's arrest caused a furor in Parliament. Margaret Thatcher's Conservatives attacked the Laborites for approving the deal in the first place. The Laborites retorted that De Lorean put people to work and built a sprawling factory where there was only an empty field before. The Conservatives vowed to investigate. There seems to be plenty to dig into. Reports began surfacing, all unconfirmed, that De Lorean had diverted some of the British money into a Swiss bank account or into his own separate businesses. There were even rumors, disbelieved in Belfast, that some of the money had found its way to the Irish Republican Army as protection payoffs for the 70-acre plant site.

When the Belfast operation was finally shut down, it left 350 unsecured creditors who were owed $60 million and might end up with nothing. An additional $120 million is owed to other creditors, including the British government. Renault, which made the De Lorean engine, is the biggest single commercial creditor; it is owed $17 million.

Only the dealers have anything to cheer about now. At week's end some were predicting a dramatic rise in the price of the car, and Capitol Cadillac Co., a De Lorean dealership in Lansing, Mich., was negotiating to buy the entire U.S. inventory. The owner of the dealership, Don Massey, estimates that there are some 400 cars to be had, and he said on Friday that he had a deal to buy 100 for an undisclosed price.

There are serious doubts in the auto industry, though, that the DMC-12 will turn into a collector's item, like the Cord or the Edsel. One such skeptic is Semon ("Bunkie") Knudsen, retired president of Ford Motor Co. and mentor of De Lorean when both were at GM. Says he: "Usually you have to have cars built in really small quantities to be collector's items, perhaps 700 or less."

So some dealers were understandably eager last week to see the end of their De Loreans, whatever the price. "We've taken quite a beating with them," says Patrick Alonzo of Stephens Chevrolet in New Orleans. "I want them to go now."--By John S. DeMott. Reported by Bonnie Angelo/London and Peter Stoler/New York

With reporting by Bonnie Angelo, Peter Stoler

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