This sporting strife

Brickbats are flying as the fortunes of Lotus collide with those of another motoring legend - troubled Bugatti

ON 4 FEBRUARY this year, Adrian Palmer, the managing director of Group Lotus, had a meal with South Korean visitors costing pounds 314.34. On 27 March, his finance director, Andrew Tempest, paid pounds 120 for a meal at the Hilton, and on 5 April splashed out pounds 5.43 at Macdonald's.

These expenses, along with others coming to about pounds 16,000, are detailed in a writ issued last Tuesday against the two men - now ex-employees - by Lotus. It marks the latest twist in one of the strangest corporate soap operas - The Group Lotus Story.

Lotus, one of the most famous names in British motoring, has been host to enough intrigue - real or supposed - to keep the series in storylines for many years. It has featured a brilliant engineer who died (or did he?) just before his part in a huge fraud was exposed. John DeLorean and his disastrous car company have been guest stars, as have any number of putative saviours, one of them an Indian who claims to be a prince. Now the tale turns to two sacked executives, accused of secretly trying to sell Lotus to the South Korean car-maker Kia without telling their boss . . . and in the process illicitly charging the cost of their Big Macs to the company.

The scene fades out on the ashen-faced Mr Palmer and Mr Tempest sitting in their office in Norwich, and a dazzling image appears. It is Wednesday morning, and as Britt Ekland wanders around the Lotus stand at the London Motor Show, a staccato-voiced presenter for the BBC's Top Gear programme dramatically unveils the new Elise. It is a pretty car, a fast car, and an advanced car. It has been named by the current boss of Lotus, Romano Artioli, after his granddaughter, Elise.

Cut to Modena in northern Italy, where Mr Artioli is looking at least as gloomy as his former British employees. His other car company, Bugatti Automobili - a reincarnation of an even greater motoring name - has just been put into liquidation. Hopes of storming the world with his new Bugatti supercars have skidded into the crash barrier. Bugatti International, his master company in Luxembourg, is still intact - for the moment.

The scenes last week are the culmination of one man's noble but doomed attempt to revive the marque he has loved all his life.

Mr Artioli was a young man when the original Bugatti company went out of business in the early 1950s. Ettore Bugatti's racing and road cars had a matchless reputation; his factory may have been in France, but he was an all-Italian hero.

The young man grew rich selling Suzukis and Ferraris in northern Italy, and in 1987 he fulfilled his dream to revive Bugatti. He assembled a team that designed two spectacular supercars, the EB110 and EB112. He also built a plant near Modena, the home of Ferrari. The pounds 300,000 EB110 was launched in 1992, in mid-recession, and sales were tiny. But Mr Artioli was an optimist, and the next year took another leap by buying Group Lotus.

Lotus was founded near Norwich in 1952 by Colin Chapman, a flamboyant and brilliant engineer. He started off building racing cars, and his team took seven Grand Prix championships. Then he moved into road cars, the most celebrated of which was the Elan, as driven by the Avenger, Emma Peel. The Esprit and Eclat were launched in 1975, and Roger Moore drove an Esprit (under water) in a James Bond film.

But the car's main commercial use was to market the money-spinning part of the business, specialist engineering. Big manufacturers would use a handful of companies for their advanced design work, and Lotus was among the leaders. Mr Chapman's engineering reputation was formidable - his business reputation less so. At the end of the 1970s, he was approached by John DeLorean to help design the gull-winged car that the American intended to build in Northern Ireland. British taxpayers pumped pounds 77m into DeLorean, only to see it collapse amid a wave of lawsuits. In 1992, Fred Bushell, a confidant of Mr Chapman's and former Lotus chairman, was given a three-year prison sentence for fraud. DeLorean and Mr Chapman were named as co-conspirators in a plot to siphon off millions of pounds of American investors' money that should have been used to pay Lotus, but instead disappeared into a Swiss-based company set up by Mr Chapman and Bushell. Mr Chapman was never tried because he had died suddenly 10 years earlier, just as investigations into DeLorean were at their peak. Rumours persist that he disappeared to escape inevitable disgrace, though there is no hard evidence to support this claim. Four years after his death, in 1986, Lotus was bought by General Motors. It was interested primarily in the company's develop- ment expertise, though it allowed it to diversify. Lotus built, for example, the bicycle on which Chris Boardman won his 1992 O lympic gold medal. Lotus managers also persuaded GM that it should back the development of a new model, the Elan, launched in 1989. It was a sophisticated design but never made money, simply because it cost more to build than it could be sold for. GM poured money intothe car before finally halting production in 1992, a year in which Lotus lost pounds 37m on a pounds 61m turnover. The following August, GM sold out to Mr Artioli. The Italian had great plans to meld Lotus's and Bugatti's engineering skills. For a year, business went well - thanks, it was widely believed, to Mr Palmer's and Mr Tempest's stewardship. Lotus turned in a pounds 5m profit last year and even restarted pr oduction of the Elan, albeit only to use up the components left in store. But it became increasingly clear that Mr Artioli's plans to relaunch Bugatti were going awry. Although Lotus and Bugatti Automobili were separate subsidiaries of his master company, there were crossovers: the Lotus network in the US, for example, was to be used to distribute Bugattis. Mr Palmer and Mr Tempest became increasingly nervous about the links. According to one insider, the crunch came a year ago when the two men put together a buyout plan, backed by Midland Bank. Mr Artioli was furious but could not get rid of them because he needed to keep Lotus's credibility intact. By last December, itwas well known that Mr Artioli needed funds, and a number of buyers or investors had expressed interest in Lotus. They included the South Korean companies Samsung and Kia, the Sultan of Brunei, and 21 Invest, a London-based venture capital house owned by the wealthy Bennetton and Bonomi families of Italy. By March, several had "due diligence" investigations under way at Lotus - to establish whether the company was all it said it was. At the end of that month, the company signed a deal with 21 Invest. Though this was a small investment operation run by a 3 0-year-old, Andrea Bonomi, it was involved, through the Bennetton family, in another British specialist engineer, TWR. According to last week's writ, Mr Artioli claims he knew only half of what was going on. It says Mr Palmer and Mr Tempest "deliberately concealed and secretly orchestrated an attempted takeover of the Lotus Group of Companies by a company known as Kia Mo tor Corporation under the guise of 21 Invest". It also says that Mr Palmer "set out to deliberately discourage potential purchasers other than Kia under the guise of 21 Invest from pursuing and/or entering into negotiations to purchase Lotus". In particular, the writ says he did not tell Mr Artioli t hat US motorbike doyens Harley-Davidson had also made a written offer. Mr Palmer denies any wrongdoing. "Everything we did was to save Lotus," he says. Kia and 21 Invest had indeed come together in a joint bid. The Koreans were to take a minority share, although they would be entitled to buy 21 Invest out after five years if certain conditions were met. The idea of this delay was to protect the GM busin ess of Lotus - which accounted for two-thirds of the engineering work. Mr Palmer and Mr Tempest would also have had a stake. But the "deal" announced this March between 21 Invest and Mr Artioli was no such thing - it was a mere "heads of agreement", an agreement in principle. The venture capitalists were only half-way through their due diligence, and when that finished they c ut the price from pounds 36m to less than pounds 30m: they were concerned about a number of points, not least the Bugatti-Lotus link in the US. Mr Artioli rejected the new offer in April, and 21 Invest bowed out. So, apparently, did the other potential i nvestors. Meanwhile, the Elise project was coming to fruition. Lotus was now making one model, the elderly though still admired Esprit, and it wanted a more modern showcase for its engineering skills. The concept of a small, light sports car had been long nurtured by its engineers - and Mr Artioli was happy to give the go-ahead. A "squirted aluminium" chassis, combined with the use of special adhesives, meant it was cheap to make - the cost problems of the Elan had been avoided. With a price tag below pounds20, 000, Lotus believed it had a winner on its hands. But the first Elises will not be sold until next May, and its development and launch costs ate even further into Mr Artioli's funds. In July, he persuaded a judge not to push his car company into bankruptcy, producing a backer in Shivchandra Rao III, a s elf-styled Indian prince. That prospect faded, and last month Bugatti Automobili was put into liquidation by a magistrate. Pressure from creditors continues: it is possible that Mr Artioli will be ordered to sell Lotus to pay Bugatti's debts, in which ca se a raft of buyers will reappear. Meanwhile there is plenty of talk of "rescuers", mainly from the Italian financial community. In August, Mr Artioli abruptly fired Mr Palmer and Mr Tempest. Rod Mansfield, a long-time Ford manager recently retired, was asked if he would take over as managing director. A respected 62-year-old, he is a classic "safe pair of hands". But he is keeping his head down as the hostility between the former managers and Mr Artioli has flared into open warfare. Mr Palmer and Mr Tempest are suing for compensation, while Mr Artioli is fighting back with the help of a firm of "forensic accounta nts", whose work has resulted in the writ. As well as accusing the two men of trying to orchestrate a takeover by Kia, it alleges that Lotus funds were being used to pay for the deal, including almost pounds 200,000 in professional fees. At the Motor Show, Mr Mansfield refused to be downhearted. "It's been a desperate year, but it's all behind us now," he said. He talked enthusiastically about plans for a new car in three years' time, followed by a surprise: "We need not only produce sp orts cars," he said. But, he added: "I wouldn't discount an adjustment on ownership." As Britt Ekland stepped elegantly into the Elise, it was clear the soap opera would continue.

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