Cheerio, Old Chap--Focus on Bentley as RR&B awaits Rolls hand-off

CREWE, U.K. - It's the auto industry's version of the Hong Kong hand-over.

In mid-1997 the British government ceded control of Hong Kong to Mainland China, overnight transforming the island from a British colony to a part of the largest communist nation in the world.

It's a similar situation at U.K.-based Rolls-Royce and Bentley Motor Cars. Because of a complicated series of deals cut between the British and Germans - namely Volkswagen AG, BMW AG, former Rolls owner Vickers plc and independent engine builder Rolls-Royce plc, VW acquired ownership of the RR&B assembly plant here, but lost rights to the Rolls-Royce brand name to BMW beginning 2003.

VW now plays the role of the British in Hong Kong, a temporary caretaker of what is widely considered to be an industry crown jewel - the Rolls-Royce marque.

The impending loss has cast a pall over operations here. But in the British tradition, RR&B executives are sporting stiff upper lips and vowing to take good care of the brand in the interim - even promising new investment in Rolls - a convertible is rumored - over the next six to eight months. "It's the right thing to do," explains Alasdair M. Stewart, president and chief executive of RR&B's U.S. arm.

It also may turn out to be good business. VW still is holding on to the notion it may be able to purchase the Rolls name from BMW. And if not, RR&B is offering to continue building the existing Rolls Silver Seraph for BMW after 2002. That ultimately may make sense for BMW, which is developing its own new Rolls model but may have trouble establishing that car's credentials and lineage without the Silver Seraph positioned alongside it in showrooms.

In the meantime, the focus at RR&B is very much on the Bentley brand, which VW wants to build into a global powerhouse in the high-luxury vehicle segment, a sector currently dominated by archrival Mercedes-Benz.

About 70,000 high-luxury cars (above $95,000) are sold worldwide each year, RR&B says, with Mercedes accounting for nearly half and Rolls and Bentley only about 2%. But RR&B executives see a silver lining. Bentley sales are up 52% so far this year in the critical North American market. And the $203,000 Arnage Green Label 4-door sedan launched last year is enjoying a 60% conquest rate in the U.S., with half of those buyers defecting from Mercedes.

"If we're going to grow, the U.S. is where it has to be," Mr. Stewart says. "(And) we have to target Mercedes."

Adding to the momentum, RR&B executives believe, is a new Arnage derivative, the Red Label, which resurrects the circa-1958 Bentley 6.75L 400-hp V-8 engine all-but phased out two years ago. Assembly of the engine, which had been farmed out to Cosworth Engineering because of the low volume, has been brought back to Crewe. It represents the latest in a string of investments at the RR&B campus here during the past two years that has seen the addition of body-in-white operations and a modicum of modern production techniques inside the assembly plant, plus the groundbreaking for a new $167 million design and engineering center.

Although the Red Label was developed in-house, it marks the first program under VW, and RR&B executives give much of the credit to the new ownership for getting the project from approval to production in less than 12 months.

"We now have access to fantastic (test) facilities," says RR&B Chief Executive Tony Gott. "And we now have 15,000 engineers we can count on (for help)."

The tie to VW also is providing RR&B greater pull with suppliers. Because of low volumes, the British ultra-luxury car maker often wasn't top priority for many suppliers. But RR&B now serves as the official center for all VW Group parts purchasing in the U.K. and Sweden, giving it the leverage it needs.

"It's not always easy to motivate suppliers to have the best quality (when you're dealing in low volumes)," Mr. Gott explains. "Now we have a magic word: Volkswagen."

Launch of the Red Label, which will hit the U.S. by year's end, also marks an effort to put a greater accent on the driver, positioning the Bentley brand a little closer to its roots. In addition to the revitalized engine, the 5,556-lb. (2,525-kg) Red Label features an automatic transmission with sport-shift mode, stiffer body and suspension, larger tires and brakes and class-leading 619 lb.-ft. (839 Nm) of torque for Porsche-like acceleration - 0-60 mph in 5.9 seconds. Pricing hasn't been set, but the Red Label is expected to cost about $10,000 more than the BMW

V-8 equipped Green Label.

"We think we're setting the benchmark with the Red Label, and now we have to build on that," Mr. Gott says.

The battle plan includes a new marketing push - RR&B says it will spend $3 million to $4 million on Bentley advertising in the coming year, a program to spruce up its 37 U.S. dealer showrooms and launch of a new finance and leasing arm. Currently about 80% of RR&B customers pay cash. But it's the opposite for Mercedes buyers, the far majority of whom lease or finance, so RR&B sees financing/leasing availability as a longer-term necessity.

"It's there for the future," Mr. Stewart says.

To heighten awareness in the U.S., where RR&B is shooting for double-digit annual growth during the next several years, Mr. Stewart also is looking for publicity tie-ups with high profile celebrities who fit the edgy image Bentley wants to cultivate.

"We need a vision for Bentley and we need to share that (with consumers)," Mr. Stewart says. "We have to get (the marque) ready for the medium term."

The medium term is 2004-2005, when the Bentley rebuilding effort will culminate in a new family of sedans, dubbed "Baby Bentleys." The cars will be even more driver-oriented, somewhat smaller, lighter weight and less expensive (around $175,000) than the current Arnage. And they're targeted to get worldwide Bentley sales to the 9,000 to 10,000 mark from less than 2,000 today. Those cars are part of a planned $885 million new product program that will gear Bentley up for the competitive onslaught that will see up to 25 new or heavily revamped models bow within the next five years, including the Rolls from BMW and Maybach from Mercedes.

"There will be a lot of activity in this sector in the next several years," Mr. Stewart says. "This is a growth sector. This will be a profitable sector to be in."

The strong investment plan and arm's-length approach of VW has RR&B executives upbeat about the new ownership.

"We were unsure how the new owner would treat us," Mr. Gott says. "Would they dominate? Take over?" But so far there have been "no great orders from above. It's been quite the opposite.

"(VW Chairman Ferdinand) Piech has a great passion for Bentley. That's important to us."

Still, there will be several hurdles for RR&B, particularly maintaining company morale as the handoff of Rolls to BMW nears.

"As we move closer to the end of 2002, then internally it is going to become an emotional issue," Mr. Gott admits. "As we get nearer that date, there will be a lot of wistful looks around here."