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The Power to Grow.

McLaren Performance Technologies has a new strategy to escape the engineering-services trap. Sharper Image, watch out.

When Steve Rossi joined MeLaren Performance Technologies last December, his first action as its new CEO was swift, certain and highly visible to the public. And while not exactly controversial, it signaled the beginning of a major change at the Livonia, Mich., based engineering services company.

"The first time I saw our headquarters building, I thought, 'Where's the Kiwi?"' he recalls. "The company logo on the wall had become generic; it could've been from any company. We needed to rekindle our great heritage. Putting the Kiwi back on our facilities, and in all of our visual material, was the place to start."

On his first day on the job, Rossi held an employee meeting. He announced to the McLaren staff that the Kiwi, the funny little bird with the pointy beak that adorned the racecars of company founder Bruce McLaren, and the symbol of his New Zealand homeland, would officially rejoin the company name. So would the bright orange color that's synonymous with McLaren's legendary CanAm and Indy cars. Smiles and applause rang out.

It was a simple way to begin re-focusing the well-respected company, launched in 1969 as an engine development shop for McLaren's U.S. racing program. And it's part of a strategic growth plan recently approved by the McLaren board of directors.

Rossi and his team are re-focusing their company because they believe McLaren's current "core" businesses are too limited for the future. "We're a company that does a little bit of everything, and that's dangerous today," he says.

The key is to create a varied revenue stream, "to gain more control over our own destiny," explains Rossi, a committed "car guy" (see sidebar, pg. 37) who began his career in 1976 as a Ford Motor Co. powertrain engineer and continued as an engineer at Saab's U.S. distributor. "The problem right now is that we're an engineering services company that's very good at building 'onesies' of everything. And that leaves us at the mercy of the industry's boom-and-bust cycles."

Currently, the company has four primary business units. McLaren Engines ("our core and our roots," notes Rossi) provides testing, certification and R&D, as well as race engine development. The Engines unit develops the turbocharged LMP Northstar V-8 for Cadillac's LeMans campaign. It also serves supplier customers including Bosch, Engelhard, Catalytic Solutions Inc., NGK, Ishikawajima, Getrag and Orenda Aerospace.

McLaren Performance Products was established last month upon McLaren's recent acquisition of Dart Machine Ltd. in Ontario, Canada. It adds broad expertise in precision machining of cylinder heads, blocks and casings.

McLaren projects that the Performance Products unit will add $7 million to the bottom line this year. Annual growth could be 20 percent, and the unit is expected to boost McLaren's capability in taking prototype powertrains into production.

The third unit; McLaren Traction, licenses the Gerodisc limited-slip technology; which the company acquired from its inventor, ASHA Corp. Gerodisc units are used on the Jeep Grand Cherokee, and the all-wheel-drive Pontiac Aztek and Buick Rendezvous.

And McLaren Vehicle Development builds prototypes, concept and niche vehicles. It will open a new facility in Livonia, dedicated to Ford's advanced concept vehicle development and racing programs, thus freeing up space for new business in the McLaren Engines building nearby.

So what's wrong with this picture? "We're too far down the food chain; we're totally dependent on providing services to others," Rossi notes. "We want to create new opportunities that allow us to be our own customer. We've got to expand our portfolio to dampen those peaks and valleys"

The challenge of escaping the traditional engineering-services model is shared by McLaren's competitors with offices in the Detroit area. Many of them, including Porsche Engineering Services in Troy, Lotus Engineering in Ann Arbor, Roush Industries in Livonia, and Ricardo Consultants in Plymouth, are internationally known, have motorsports roots and boast strong brand awareness among their OEM and supplier customers. Industry analysts note that as the universe of automotive engineering firms has contracted during the last 15 years; the surviving firms must offer more value and services.

America's AMG?

Rossi appears to be an excellent choice to deliver both. McLaren Chairman Lawrence Cohen was searching for a new leader to grow the company and boost shareholder value. He was attracted to Rossi because of his broad industry experience and contacts, engineering background and hard-core automotive enthusiasm. Says one McLaren board member: "Steve has everything we were looking for in a CEO."

He'd been waiting for such an opportunity since leaving DaimlerChrysler. There Rossi had been vice president of global communications, a position that his former colleagues describe as a "no-win" in the fractious aftermath of Daimler's acquisition. It was much different than the top communications posts he'd previously held at Mercedes, Chevrolet and Saab through most of the 1980s and '90s.

The strategy Rossi and McLaren's veteran President and Chief Operating Officer Wiley McCoy have deployed turns the company's expertise in making one-sies into multiples, employing the synergies of the various business units.

"I call it 'squeezing more juice from the orange,"' Rossi explains. The first step is to get the various elements, particularly machining and fabrication, running at 110 percent of capacity; rather than 85 percent today. That means they, along with the dyno, prototype and design shops, become their own operating units and profit centers. Their managers now have full P&L responsibility. According to Rossi, they can go after non-automotive business.

"While their primary role is to support McLaren's OEM and supplier customers, there's no reason we can't make aerospace parts, widgets, or even Ducati motorcycle parts from 5 p.m. until midnight," Rossi says.

The second step of McLaren's strategy is to become a niche-product maker, a reputation the company created in the 1980s when it built and certified high-output engines for the Buick GNX, Pontiac GTP and McLaren/ASC Mustang. Rossi believes his company could be the AMG of North America, referring to the famous German performance-tuning firm that's linked with Mercedes-Benz.

But Rossi doesn't really want a one-brand affiliation like AMG's, or those of Steve Saleen (Ford Mustang), Jack Roush (Ford) and Reeves Callaway (Corvette). At least not in the beginning. McLaren's plan, he says, is to launch "a very multi-dimensional niche approach." It includes upscale, sport-utility and import products. He indicates that discussions are underway with OEMs.

A key to this plan is making sure the McLaren brand goes with the proper product and the proper customer. Rossi is well aware of how Lotus tarnished its name when it was applied to a few "performance" Isusu cars in the early 1990s.

McLaren is also pursuing the automotive aftermarket in a unique way. "Who better to be the Sharper Image Catalog of the auto industry than McLaren Performance?" he asks. "When we start to develop a niche-car enterprise, for example, and we're doing things in multiples, we can also sell that componentry in the aftermarket."

He says the Performance Products unit (the ex-Dart Machining business) will spearhead this move. It may include what Rossi dubs the "restoration and re-manufacturing" of high-output V-8s and other engines, aimed at the multi-million-dollar performance after market.

"It's the consumer end of our plan," he says. "And we can dyno test every engine we build -- even do it for OEMs." To that goal, the company has trademarked the slogan, "Powered by McLaren" -- a badge that Rossi also hopes will add value to his OEM customers' niche vehicles. Even the Gerodisc has potential in the aftermarket, Rossi hints.

(The company has had a tough time expanding its list of Gerodisc licensees beyond Jeep and GM, and is still embroiled in a legal battle with Dana Corp. over patent infringement and breach of contract. The court ruled in Dana's favor and asked McLaren to settle the breach of contract case, which it is now doing. Rossi says his company plans to appeal the patent infringement decision.)

One of McLaren's long-standing advantages is its low employee turnover. The company still boasts a few veterans who came to the U.S. with Bruce McLaren in 1969. Rossi credits this to his coileague McCoy. "Wiley has the ability to simultaneously be COO and get the car to the starting line at 1 p.m. Sunday afternoon before the green flag drops. The relationship he and I have is special; we're packaged as a team. I'm Mr. Outside and he's Mr. Inside."

Amidst the new thrusts into niche vehicles and the aftermarket, there will always be constants at McLaren, promises Rossi assuredly. There'il always be a motorsports program. There'll always be a steadfast ethic to serve the customer in any degree of visibility. There'll always be impenetrable firewalls between the various enterprises and between customers. There may be more acquisitions as well.

And there will always be passion. "It's a religious experience working here," exclaims Rossi. "The Cadillac LeMans motors are built 75 feet behind my office, in the same building. When one of them is 'on song' on our dyno, the building vibrates. It is awesome!

"There are a ton of consumer hot buttons in the auto business today," he continues. "All of them are driven by the fun-to drive/performance quotient. They're all converging into an intersection where we are. McLaren is in the right place at the right time to capture it." With the funny little bird and the orange paint, of course.
A Change Revenue Stream
McLaren Performance Technologies plans to add new businesses under
the new strategic plan.
Today's Revenue
Performance Products (ex-Dart)  35 percent
Race engine building and
development                     20 percent
Dyno testing                    15 percent
Quality and engine audits       15 percent
Vehicle development             10 percent
Traction (Gerodisc) royalties    5 percent
New Businesses Restoration/re-manufacturing "Powered by McLaren"
McLaren Marketing
Net Sales (FY 2000):$11.9 million (FY1999=$4.9 million)
Net Loss (FY 2000): $2.7 million (FY1999=$4.9 million)
NASDAQ Symbol:MCLN
Note: Table made from pie chart


Rossi's Other Office

Don't tell Steve Rossi that a three-car garage is supposed to house just three vehicles. The resourceful McLaren chief (with the help of two super-stout hydraulic "shelves") has squeezed five vintage cars and 10 motorcycles, plus assorted automobilia, into his garage in suburban Detroit. It's a museum, workshop and a place for communing with the beautiful shapes, smells and sounds of auto history -- one of Rossi's lifelong passions.

"I guess you could say my tastes are a bit eclectic," he explains, and a table in his office that's scattered with issues of Hemmings Motor New and Sports Car Market bears that out "On one extreme, I'm in love with big American touring cars from the 1920s and '30s. On the other extreme, it's British and European sports cars and sedans. And I've always been crazy about bikes."

Rossi's collection expands and contracts as he buys and sells. A common thread among his two- and four-wheeled fleets is clever design and technology-- and the fact that everything is fully licensed, roadworthy and regularly exercised.

His latest acquisition proves that It's a rare 1922 Wills St Clair roadster that Rossi's had his eye on for years. "Harold Wills was Henry Ford's original engineer on the Model T," Rossi explains. "Wills later built his own cars in Marysville, Mich., on Lake St. Clair, hence the name. They were sports cars of the period, with a 4.3L, 60-degree overhead cam V-8. They were 10 years ahead of their time."

Rossi counts himself fortunate to have landed the Wills, which was restored by famous Las Vegas car collector Bill Harrah and had also been owned by Briggs Cunningham.

The pride of Rossi's garage are his 1930 Franklin, famous for its air-cooled engine, and his gorgeous 1933 Pierce-Arrow. A gloss-black 1959 Triumph TR3 with red leather "reflects my roots," Rossi explains. He's owned about a dozen TRs and authored a Triumph TR6 owner's guide. The modern era is represented by a "totally reliable" 1975 Aston Martin V-8, in which Rossi and his wife tour the U.S.

On the motorcycle side, big, fast Italian sportbikes rule the roost of European thoroughbreds. The current crop includes five booming V-twins (Ducati S2 Mille, Moto Guzzi LeMans V, Moto Guzzi Daytona RS, Bimota Dieci, Moto Morini 500 Sport); two Laverdas (an SF2 parallel twin and a Jota triple); a new-generation Triumph Daytona 1200 four; and two singles (a 1960s Aeromacchi/Harley-Davidson 250 and a German-made MZ Silver Star 500).

That's a lot of machinery for a three-car garage. But as Rossi admits with a grin, the hunt for interesting iron never ends. You can bet he'll find more space.
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Author:Brooke, Lindsay
Publication:Automotive Industries
Geographic Code:1USA
Date:May 1, 2001
Words:2107
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