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Cunningham Motors:The Virtual Automobile CompanySourav Mukherji, Associate Professor of Organization Behaviour at the Indi...
Robert Lutz1 isn’t the first entrepreneur to dream of starting a car company fromscratch. But he is the first one who plan...
Mercedes- Benzes and Ferraris they will ever own. If they could have something newthat their friends don’t have, they will...
Question for class discussion1. Do you think Robert Lutz will succeed in realizing his dream of creating the world’s   fir...
Appendix 2: 24 Hours of Le MansThe 24 Hours of Le Mans is a famous sports car endurance race held annually since1923 near ...
acceleration. GTs excel at high speed, long distance travel or races and make betterdaily-drivers than sports cars. Very h...
special race bodied Cadillac in the 24 Hours race at le Mans in 1953, finishing 10th an11th respectively.                 ...
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Cunningham motors

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Cunningham motors

  1. 1. Cunningham Motors:The Virtual Automobile CompanySourav Mukherji, Associate Professor of Organization Behaviour at the Indian Institute ofManagement Bangalore, prepared this case from publicly available material. It is intended thatthis case, a work in progress, would serve as a basis for class discussion.© 2007, Indian Institute of Management Bangalore. 1
  2. 2. Robert Lutz1 isn’t the first entrepreneur to dream of starting a car company fromscratch. But he is the first one who plans to do it without putting a penny into buildinga factory. Lutz, former Chrysler president and current CEO of Exide hopes to build andsell the sleek Cunningham C7 – capable of speeds of up to 200 mph and selling forabout $250,000 – with a company of only twenty people. How does he plan toaccomplish his dream? By contracting with other organizations to handle everythingfrom engineering to final assembly and shipping. If the plan succeeds, CunninghamMotors will be the first truly “virtual” car company.Briggs Cunnigham – an American racecar builder who nearly beat the European carcompanies at 24 Hours of Le Mans2 in the 1950s - will design the Cunningham C 7,fashioning it after the racing sports cars of the 1950s. The racer’s son and namesake isthe cofounder of Cunningham Motors, while former Suzuki and Honda executive JackMcCormack serves as the chief executive.Lutz, who is often credited with Chrysler’s product resurgence in the 1990s with carssuch as the Dodge Viper and PT Cruiser thinks that there is a niche for a small volumesuper-luxury American sports car to rival European prestige brands such as Ferrari andAston Martin. “The Cunningham is a gentleman’s or gentlewoman’s high-techconveyance that is different from road candy like Lamborghini or a Bugati”, says Lutzwho is out to raise up to US$ 100 million for the company from investors. Driven by the500-plus horsepower V12 engine, the luxury Grand Tourer (GT)3 is Lutz reaction totoday’s car designs that remind him more of “trash compactors and toasters than properautomobiles”. Lutz describes the car as combining the lush leather appointments of aBentley with the performance of a Ferrari. “Why should someone who wants topurchase a truly prestigious automobile, something unique, will have to turn to anEuropean marquee?” asks Robert Lutz. “There is sufficient wealth – and moreimportantly desire – in the world to support an American prestige marquee andCunningham will fill the niche. There are enough wealthy people who have all the1 Appendix 1 provides Robert Lutz’s biography2 Appendix 2 provides a description of Le Mans race3 Appendix 3 provides an explanation of Grand Tourer 2
  3. 3. Mercedes- Benzes and Ferraris they will ever own. If they could have something newthat their friends don’t have, they will buy it.”But automotive history is full of romantic dreams that crashed on the rocks of financialreality. Lutz knows the only way they could reach their goals would be to keep start-upcosts low by creating an organization design based on partnering with other companies.With a reasonable target of selling only about 600 cars a year, building a factory simplydoesn’t make sense. The plan is for a network of automotive suppliers4 to furnish partsand assemble them into modules, which will then be shipped to one large partner thatwill put the modules together into a finished vehicle. Internet-based collaborativesoftware will tie together a vast network of designers, chassis developers, parts makers,fabricator, and manufacturers throughout the United States. Finally, boutique carretailers will sell the super premium Cunningham C7.Times have changed since iron ore and other raw materials went into one end of HenryFord’s factory in Dearborn, Michigan, and bright, shiny Model As came out the otherend. At the beginning of the twenty-first century, vertical integration has given way todisintegration, with more and more companies farming out many of their activities tooutside contractors. “The concept of a virtual car company is something everyone isthinking about,” says Randy Redding, manager of the Automotive Industry Group atUGS, the partner providing collaborative software for Cunningham. Lutz andCunningham are turning thought into action – and, they hope, into a successful new carcompany.4 Appendix 4 & 5 provides news clippings describing some of the contractual relationships thatwere set up between Cunningham Motors and its suppliers 3
  4. 4. Question for class discussion1. Do you think Robert Lutz will succeed in realizing his dream of creating the world’s first virtual car company? What are the advantages of the proposed business model? What are its dangers?2. If you were a banker, would you lend money to CMC? If you were a supplier, would you agree to supply components to CMC? What would you expect from CMC in return? Do you think Cunningham Motor Company can sustain itself?3. What kind of skills would the twenty employees in CMC need to have? Appendix 1: Biography of Robert LutzRobert Lutz holds a bachelor’s degree in production management and masters inbusiness administration from University of California, Berkley. He began his automotivecareer in 1963 as a senior executive in the European operations of General Motors. In1971, he became the Executive Vice President of Sales at BMW in Munich and waselected to its Board of Management. In 1974, he joined Ford Motor Company and spentthe next twelve years in senior positions such as VP of Truck Operations, Chairman ofFord Europe and Executive VP of Ford’s International operations. From 1982 to 1986,Lutz was a member of Ford’s Board. In 1986, Lutz joined Chrysler Corporation where heserved as President and Chief Operating Officer responsible for Chrysler’s car and truckoperations worldwide that included sales, marketing, product development,manufacturing and procurement. It was here that Lutz earned the status of first citizenof North America’s car industry when he helped reinvigorate Chrysler with ‘cool risky’vehicles. Even though Lutz left Chrysler in 1998 after its merger with Daimler Benz,Chairman Jurgen E Schrempp continued to consult him on issues of integration. True tohis status, Robert Lutz likes to live large. He flies in his personal Soviet-era fighter jetand speeds around Detroit in a Dodge Viper. 4
  5. 5. Appendix 2: 24 Hours of Le MansThe 24 Hours of Le Mans is a famous sports car endurance race held annually since1923 near the town of Le Mans, Sarthe, Francs. Commonly known as the Grand Prix ofEndurance, it is organized by Automobile Club de l’Ouest (ACO) and run on a circuitcontaining closed public roads that are meant to test not only a car and driver’s ability tobe quick but also endurance to last over a 24-hour period.Le Mans was envisioned to be different from Grans Prix racing. Instead of focusing onthe ability of a car company to build the fastest machines of the time, the 24 Hours ofLe Mans would concentrate on the ability of manufacturers to build sporty and reliablecars. Since the cars race over public roads that are not of same quality as permanentracing circuits, there is considerably greater strain on the automobile, necessiatinggreater emphasis on reliability. The vehicles also needed to be fuel efficient since thenature of endurance racing requires as little time to be spent in the pits as possible.These technological innovations have had a trickle-down effect, with technology used atLe Mans finding its way into production of cars, especially those of grand tourers – roadcars needing high speed, reliability and fuel efficiency.Source: Accessed (on 26th June, 2007) and modified from Wikipedia Appendix 3: Grand TourerA Grand Tourer (GT), is a high-performance automobile designed for long-distancedriving. Any such car could be considered a grand tourer, but the traditional and mostcommon body style is the coupé (two door) with either a two-seat or a 2+2 seatarrangement. Grand tourers differ from typical sports cars (e.g. Porsche 911) in thatthey are usually larger, heavier, and tend to make less compromise in comfort for thesake of driving ability. For this reason, most have front-mounted engines, which leavemore space for the cabin than mid-mounted engines. They also tend to have softersuspensions to provide good ride quality. However, grand tourers do have similaritieswith sports cars, such as their predominant use of rear- or four-wheel drive and becauseof their powerful engines, GTs can compete with many sports cars in top-speed and 5
  6. 6. acceleration. GTs excel at high speed, long distance travel or races and make betterdaily-drivers than sports cars. Very high-performance grand tourers, such as the Ferrari599 GTB Fiorano and the Mercedes-Benz SLR McLaren, are often considered supercars.Source: Accessed (on 26th June, 2007) and modified from Wikipedia Appendix 4: News Clipping AGM Invests in Cunningham Motor Co.General Motors Corp (NYSE:GM) and Cunningham Motors Co. today announced that GMhas acquired a minority stake in Cunningham. Cunningham intends to build and sellabout 600 C7 Grand Touring cars per year with a sticker price of $250000.“Cunningham Motors is pleased and gratified to have GM as a investor in the company’sefforts to develop the first true American GT since Briggs Swift Cunningham last did soin 1953,” said Jack McCormack, CMC president and CEO.CMC was founded by Briggs Cunningham III and Robert A. Lutz, to develop and producea grand touring car that would compete with Ferrari, Aston Martin and other world classtouring cars in North America and Europe. Lutz joined GM as a vice chairman of productdevelopment last August and was recently named to the additional post of chairman ofGM North America. Under a governance framework approved by GM’s Board ofDirectors, Lutz will not participate in transactions between the two companies but willcontinue to be a member of the Cunningham Board of Directors. Additionally, GM willappoint a member to the Cunningham Board.As a virtual car company, Cunningham’s business plan calls for outside suppliers to beresponsible for the design, engineering and production of its vehicles. Roush Industriesof Livonia, Michigan, has been selected to develop and integrate the C7. Although noofficial announcement has been made about a powertrain supplier McCormick toldAutoweek that the company has settled on an engine from Cadillac Cien concept carwithout mentioning the supplier. The connection between Cadillac and Cunninghambegun 50 years ago when Briggs Cunningham campaigned a Coupe de Ville and a 6
  7. 7. special race bodied Cadillac in the 24 Hours race at le Mans in 1953, finishing 10th an11th respectively. Appendix 5: News Clipping BCMC Selects Evans Engine Cooling for its New Cunningham C7 GTThe new Cunningham C7 automobile, introduced by Cunningham Motors Company(CMC), of Plymouth, MI, at the N American Auto Show in Detroit will use engine coolingtechnology pioneered by Evans Cooling Systems Inc, of Sharon, CT.Cunningham traces its links to Briggs Cunningham, builder and racer of fabulousCunningham Cars of the 1950s. Credited with having built the first American sports car,Briggs Cunningham produced a series of cars, the C1 through C6. The C4R wasparticularly noteworthy as it nearly won the 24 hours race at Le Mans in 1952, anamazing feat from a small American company. Nearly 50 years later, members of theCunningham family are principle backers of the new Cunningham Motors Company,along with Robert Lutz, formerly President of Chrysler Corp and currently CEO of ExideCorp.“Cunningham Motors brings together a number of high-tech improvements heretoforelacking in production automobiles, including our waterless NPG+ engine coolingsystem”, said J W Evans, CEO of Evans Cooling System Inc. , and inventor of he coolingsystem. Powered by the 500+ V12 engine, the Cunningham will have tremendousperformance capabilities that will require a cooling system that can dissipate the heatproduced by that kind of horsepower. We are pleased that our cooling system has beenselected for this remarkable automobile”.“ The Evans cooling system will provide to Cunningham the ability to perform withoutcooling system failure regardless of any ambient air temperature or operating vehicleload parameter,” according to Jack McCormack, President and CEO of CMC. “This is oneof the many innovations that will set the Cunningham C7 apart from all other productionautomobile efforts,” he added. 7

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