Racing ahead of an industry under brakes: In the second of a series on company survival, Nigel Cope takes a spin with Caterham Cars

ASK people to name what remains of Britain's shrunken car industry and they will probably say Rolls-Royce, TVR or Morgan. Few would nominate Caterham.

Yet Caterham, makers of the unspeakably fast Super 7 sports car, is one of the unsung survivors of the UK car industry, which has seen employment shrink from 500,000 in 1971 to only 213,000 last year.

While Rover has been sold, Jensen and Ginetta spun off the road and Lotus reduced to a design engineering firm, Caterham has kept its engine ticking over since 1959.

Caterham's survival is even more extraordinary when you consider that it operates in the sub-sector of kit-car manufacture. If you want to, you can buy a Caterham in bits and bolt it together in your garage.

'The key thing about Caterham's survival is that they build good quality cars at affordable prices,' says Mark Gillies, editor of Car magazine. 'The Lotus Elan was just too expensive, but you can get a Caterham for as little as pounds 8,500.'

Founded in Caterham, Surrey, but now in Dartford, Kent, it has managed to survive the tribulations of the car industry in recent decades.

Its cars are beautifully designed 1950s-style roadsters that combine knee-wobbling acceleration with the price tag of a Ford Sierra. The fastest Caterham, a JPE (price pounds 35,000), can sprint from 0- 60mph in a jaw-dropping 3.3 seconds, faster than a Ferrari or a Porsche 911. Even the slowest Caterham models can manage under seven seconds.

Owners love them. Fans of Caterhams inlcude racing driver Derek Bell and musician Chris Rea, who even put a picture of one on the front cover of his Auberge album.

Caterham now has sales of approaching pounds 10m a year on an output of 600 cars. The business slid into the red last year, making losses of pounds 126,000 compared with profits of pounds 300,000 in 1991, but the company says next year should see it back in the black. 'We had to spend quite a lot of money on litigation last year defending our copyright,' says the managing director, Graham Nearn.

It has a solid export market in Japan and Europe and Mr Nearn is eyeing the American market, which he thinks might take up to 200 cars a year. 'We've got our own following,' he says. 'Our owners are typically aged 25-38, like motor sport and probably like to do their own maintenance.'

Caterham's history is steeped in some of the most evocative names in British motor racing. Its roots go back to the 1950s when the late Colin Chapman introduced the Lotus Seven at the London Motor Show. In 1959, Graham Nearn opened Caterham Cars, one of the first Lotus dealers.

By 1973 Lotus was in trouble and Mr Nearn led a management buy-out. 'To me the Seven was the sports car. I grew up with it,' says Mr Nearn, who has a private collection of eight Lotuses as well as a Jaguar XJS and an Aston Martin DB24 mkII covertible. 'Colin Chapman was clever but always wanted to move on. By 1973 they needed the money.'

The MBO plunged Mr Nearn and his managers into the most problematic period of the British motor industry. They had to contend with an oil crisis, three-day weeks and ballooning interest rates.

Mr Nearn recalls: 'There was never really any shortage of demand for the cars but we couldn't build them. There was always a strike on somewhere. We had four or five pretty hard years until things started picking up in 1979. We wouldn't have survived just as a manufacturer.'

What saved Caterham was the supplying of parts and service to existing models as production of new models slowed. It has also always owned the freehold to its properties. 'When turnover dips, we don't have a landlord on our backs, says Mr Nearn.

The late Eighties boom was a blip for Caterham, giving it an 18-month waiting list. 'People had more money than sense,' recalls Mr Nearn. 'They were speculating, buying options on cars then selling them on.' But Caterham was not seduced by it and cut production down from the 800-a- year peak to its current 600.

Production of the Caterhams is a low-tech, labour of love affair. There is no roar of machinery or flash of blow torches, just a clicking of nuts and bolts. Caterham moved its factory from Caterham in 1987, a week before the big storm (lucky as it blew the ageing roof off).

The new factory is light, clean and above all quiet. Staff in overalls work in bays with a trolley of parts by their side assembling one car each. Only certain parts are batch- prouduced for greater efficiency. It takes 28 to 120 hours for a Caterham to be assembled depending on the model.

Because the system is low volume it is also flexible. If a customer wants snakeskin seat covers, he or she can have them.

Because it only manufactures to order, Caterham is able to adjust to shifts in demand. When a car is finished it is already sold. There is no stock of unsold cars and all manufacturing is sourced outside and completed components brought in.

The engines range from a Ford Kent engine (the old Capri GTi workhorse), through the Rover K series and up to the Vauxhall two-litre 16-valve. But 80 per cent of UK customers choose to assemble the kit themselves with the help of a company manual and video. 'It's not difficult. It's just like assembling a large Airfix model,' says Andy Noble, the purchasing director.

The appearance is still essentially the same 1950s creation of Colin Chapman's era. 'Its basically 1950s aircraft technology,' says Mr Nearn. 'We'll improve the suspension and put wider wheels on them but it's essentially the same concept.'

'They have identified a market and stuck to it,' says Mr Gillies. 'They haven't tried to expand into other areas. They can build the cars pretty cheaply and they make them well.'

The result, according to Mr Gillies is a car that is 'hideously impractical but great fun'.

Comfortable they are not. You don't so much jump into a Caterham as insert yourself gingerly, like slotting a letter into an envelope. There are no doors as such, just vinyl flaps which are opened and closed with straps on metal poppers. The two seater cockpit - it feels more like an aircraft than a car - is compact at best and cannot be recommended to persons of ample girth.

But Caterham's customers do not buy a car for lumbar supports or electronic gadgetry. They buy for its performance.

The car's reputation is built not so much on speed (top speeds range from 110-150mph) as on its stunning acceleration, gleaned from the ratio of low weight to high power.

'It's a raw, fairly intimate feeling, but its probably the closest you can get to driving a a racing car on the roads,' says Mr Gillies.

While Caterham has done well to avoid the pitfalls that have claimed so many of its illustrious counterparts, some in the industry wonder whether the company's designs will some day come to be regarded as old hat. Graham Nearn feels not. 'We are the custodians of a legend. Part of the appeal of the car is that it hasn't changed. We will not change the appearance but are always making improvements to the dynamics. That's what our customers are after.'

(Photograph omitted)