(Reprinted with permission from the September 2001 issue of LOTUS reMARQUE, the monthly newsletter of Lotus, Ltd. See www.lotuscarclub.org <http://www.lotuscarclub.org/> .)

Four years after first supporting the idea of a federal Elise in principle, Lotus has given its formal approval to funding the model. The popular small car, which debuted six years ago and has been sought by American Lotus enthusiasts and the company's U.S. dealership network for nearly as long, is projected to become available in late July 2003 and go on sale as a 2004 model. However, Lotus Cars USA, the company's U.S. distribution arm, is hoping to beat that timetable by at least a couple of months so that it can take advantage of as much of that year's good-weather selling season as possible. LCU's plans call for sales of 2,000 federal Elises annually at a list price of $38,500.

The new model will use essentially the same body style as the current, so-called "Series Two" Elise (referred to as "Monza" or "Elise 2000" at the factory), although it may have to be modified a little to accommodate the federally required side impact protection. The S2's styling has not been as well received as the initial Elise's design, but it is being built to a much higher standard of fit and finish than the hand-laid process used to produce the original. Consideration was given to creating the federal model by mating the S2 body to the Elise-based chassis that is currently being used by Lotus to produce the VX220/Speedster for GM's Vauxhall and Opel subsidiaries. However, the thinking now has turned against using a common platform.

The federal Elise's powertrain will use a high-revving four-cylinder engine that will produce 150-200 horsepower. The choice of engine has been made, and Lotus has already begun doing development work on it. But, because a firm deal has not yet been signed, alternatives from GM and Rover remain slight possibilities.

The uprated engine will power a car that is approximately 150 pounds heavier than the current Elise. The added weight will come largely from the addition of air conditioning, a radio, an air bag, side impact protection and a larger radiator. A stripped-down variant remains a possibility, depending on certification requirements, but it is expected to account for no more than 10 percent of the total sales volume. According to a source, the added weight will not significantly affect the character of the car, and its performance will be equal to or better than that of the Elise being sold now.

Arnie Johnson, the chief executive officer of Lotus Cars USA, had hoped to be able to announce the approval of the federal Elise project at Lotus, Ltd.'s 21st Annual Lotus Owners Gathering in late August. Instead, he freely shared with meet attendees his frustration with the company's slow decision making process, as well as his hope for a positive resolution at a Lotus board meeting that was scheduled for September 5. A day before the meeting, however, a company spokesman feigned ignorance that it was pending. And, after the meeting had taken place, the spokesman continued to insist that the idea of an Elise-type model for the U.S. market was still being studied and that a firm decision had not yet been made.

In fact, the £8 million project was approved at that meeting, with Tengku Tan Sri Mahaleel, the boss of Lotus owner Proton, present and giving it his blessing. However, an official announcement has been withheld because there is some concern that it could adversely impact current Elise sales. This is because the federal Elise will be developed as a world car, with the U.K. and Europe slated to begin getting it a couple of months after it goes on sale in the United States.

Following ten months of manufacturing delays and ramping up, Lotus is now producing 60 Elises per week and maintaining a consistent, decent order backlog of three months. But that is nothing like the year-plus backlogs that existed after the model first became an unexpectedly hot seller. As a result, there is significant sentiment within the company's management for holding off on an official announcement as long as possible, which was done with the S2 car. The opposing view is that, rather than selling against a year-long drumbeat of bad Lotus news production delays, the suspension and subsequent cancellation of the M250 mid-range model, the sharp decline in Lotus Engineering's business, the layoff of hundreds, the shuffling of the company's leadership, and sporadic rumors that the company is for sale getting out significant, positive word of Lotus's future plans can only bolster the confidence of potential buyers and current car sales.

In 1997, Lotus's acting CEO, Mohamed Zainal, who was the initial executive assigned to Hethel by Proton after it purchased the company in late 1996, told his U.S. dealers that a federal Elise would be available within 18 months. In 1998, Lotus's board of directors first committed in principle to the idea of producing such a car. The following year, the board approved Arnie Johnson's business plan for the model. In numerous trips to the factory since then, Johnson continued to press his case. But, with the Elise continuing to sell well elsewhere with nice profit margins, other projects were always given higher priority. Even when Johnson framed his argument for a federal car with then-CEO Chris Knight in stark monetary terms that each year's delay meant another $10 million left on the table that Lotus would not be able to get back he was not able to carry the day.

Several factors combined to produce a favorable decision at this time, and the demise of the M250 played no small role. Previous plans called for the M250 initially in convertible form to succeed the federal Esprit and become the centerpiece of Lotus Cars USA's future, regardless of whether the Elise ever got to the States. Without the M250, and with its replacement three years away at the very least, LCU was faced with the unhappy prospect of having no product to sell once the Esprit had run its course.

According to the same company spokesman who denied that the federal Elise had been approved, Lotus's commitment to the Esprit remains "open-ended." In fact, the company has only enough parts including the lifetime buy-in of many items that are no longer being made to produce 225 more Esprits. LCU has been selling approximately 150 Esprits annually in recent years, and, in the present soft economy, it expects to sell only about 125 of them in 2001. Even so, with a few Esprits still being sold annually in the U.K. and Europe, that rate of U.S. sales means that the model's quarter-century-long run will come to an end by about mid-2003. By then, the car will also be living on the last federal waiver that it can reasonably expect to get; its current waiver runs out in September 2002, and another year's extension should be obtainable without difficulty, but it would be unlikely to get a bye on the tougher federal regulations that 2004 model-year cars will have to meet.

Without product, Lotus Cars USA would not likely have been able to maintain its 35-dealer network, much less upgrade it, and building a new network from scratch to handle the M250's eventual replacement could well have cost more than federalizing the Elise in the first place. The timely arrival of the Elise will moot that potential problem.

The approval of the federal Elise project also means significant work for an engineering staff that sorely needs it. The major development efforts on the S2 Elise and the VX220/Speedster were concluded last year. When work on the M250 was suspended last January, its 100-person project team which was slated to grow to 250 had the model reached the full-blown development phase was reassigned to other projects. And the near-empty pipeline of new business for Lotus Engineering, which was a major factor in the workforce cutbacks last spring, has not yet significantly refilled. As a result, in a historic turnabout for the company, Lotus Cars is currently helping to support Lotus Engineering's underutilized staff. The federal Elise project will not be a panacea, but, with the M250's replacement still not out of the starting gate, it should significantly help.

Finally, the production capacity to build the federal Elise will be available at the time that it is needed. Roughly half of Lotus's current output consists of the VX220/Speedster, but that model is slated for only a three-year run. Lotus poured substantial funds into expanding its carbuilding facilities in the expectation that the M250 would come on stream in 2002 and sales of the current Elise would remain strong, but the former is defunct and the latter is no longer a given.

Mahaleel endorsed the federal Elise project only after satisfying himself that enough study of its marketing and its costs had been done. But, after what happened with the M250, such projects as the federal Elise are now subject to more rigorous review on the basis of meeting milestones, time lines and budgets. As a result, the federal Elise has not been given an entirely free pass. It will be scrutinized again at the end of the concept development stage early next year. Between now and then, work will proceed on the engine, test mules, prototypes and crash protection and testing.

At the same time, in keeping with Hethel's desire to hold off on an official announcement, LCU is planning a so-called "soft launch" of the federal Elise. It has ordered three Euro Elises, which are being built this month, and plans to mount a display at the Greater Los Angeles Auto Show in early January, where consumer feedback will be collected. A new Esprit will be on hand, too and, to help get it to the finish line, a 25th Anniversary Edition is planned for the 2002 model year.

Mark Winston