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Beating the slowdown with a century-old formula

By Parmy Olson, Forbes
April 06, 2009 12:40 IST
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While American auto titans go begging for their lives, England's tiny Morgan Motor Co. keeps making snazzy, old-school roadsters straight out of Bugsy Malone. Founded in 1909 when Harry Frederick Stanley Morgan (a.k.a. H.F.S.) assembled his first three-wheeled vehicle in a small repair shop, Morgan is the planet's oldest privately held automaker. It's been a family affair ever since. Now at the helm: Charles Morgan, H.F.S.' 57-year-old grandson, a tall man with a deep voice, hurried gait and taste for pinstriped suits.

Morgan cranks out only 700 cars a year at a modest 5-acre factory in hilly Malvern, where potholes are marked with fluorescent chalk. Its most popular model is the $37,500 4/4 Sport -- in production since 1936, with a 14-month backlog -- marked by a signature bulbous nose, owl-eye headlights, tiny windshield and 1.6-liter engine that rivals the 30% heavier Mazda Miata. The wait for the curvaceous $151,000 Aero 8 -- with an all-aluminum chassis and better power-to-weight ratio than the Porsche 911 GT3 -- is nine months.

Having a distinctive product always helps; staying small and flexible does, too. In the early 1930s Morgan dropped the price of its original three-wheeler by two-thirds, to £95 ($6,200 in today's dollars), as rivals stepped up mass production. H.F.S. didn't try to overtake them: He introduced the 4/4 but made few, thus avoiding an inventory glut when the Great Depression hit. Controlled reinvestment served him well the next decade, too, when the government leaned on Morgan to make airplane parts for World War II.

Peter Morgan, son of H.F.S., took the wheel during the second half of the century, keeping production steady while cultivating international demand. When sales flattened in the 1980s as Japanese companies got more of the British market, Peter's son Charles decided to pitch in, ditching his job as a television cameraman to snag a degree in car manufacturing at Coventry University. "I was woefully unqualified to manufacture cars," he admits.

But Charles knew enough to focus on efficiency over expansion. Workers used to stand around, waiting for a parade of chassis to be completed before they worked on the body panels (strengthened, as they always have been, with frames of ash, a light wood that helps absorb shocks and cuts down on weight). Charles adjusted the assembly line so that more of each car was worked on at any given time. As a result, production time per vehicle fell to two weeks from three months, boosting output by a third, to 550 cars a year, and giving a quick lift to Ebitda, from 5% of revenues to 10%.

The next big challenge came in early 2000 when the European Union introduced a wave of safety and emissions standards (the U.K. has slightly looser laws). Morgan crashed ten cars to meet the rules, a huge but smart investment as the continent now accounts for 60% of the company's top line.

Despite the current crisis, Morgan is gaining ground. Charles figures sales will hit $38.5 million this year, up 14% from 2008. Morgan makes only cars to order; it sells via 18 dealers in Britain, 13 in Europe, 6 in the U.S. (only for the Aero 8) and a handful elsewhere. Customers must put down a nonrefundable 20% of the purchase price to secure a "build slot." Cancelations are rare, about five a year.

Better yet, Morgan carries no debt and hasn't let go of a single one of its 155 employees in the recession. Meanwhile, British automakers Jaguar and Land Rover are seeking government handouts. Bentley, which makes 7,600 cars a year, recently cut back to a three-day workweek on one of its lines, while Aston Martin in Warwickshire chopped its workforce in half to 600.

On the distant horizon: the Morgan LifeCar, powered by a hydrogen fuel cell supplemented by stored electricity. The British government paid half the $2.5 million in development costs to bring a working model to the 2008 Geneva auto show, while Morgan and four other partners, including the University of Oxford and British defense firm Qinetiq, covered the rest. Full production of the aluminum car, about half the weight of a conventional steel vehicle, isn't planned for another three years.

This year Morgan Motor will be 100 years old. It might even outlive the hydrogen car.

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Parmy Olson, Forbes
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