Shanghai supplies
It's the maker of one of Britain's most iconic vehicles, but LTI - maker of the London taxi - is almost a cottage industry in terms of output. Kurt Jacobs hitches a ride to Coventry and discovers how the business is set to become a world player by tying up with the Chinese.
LTI's production area simply screams out: "Home of Traditional Midlands Manufacturing'.
Welding sparks flying; diesel engines roaring; whistling workmen hammering on metalwork; forklift trucks scooting around.
And, in the midst of it all, on the production line sit those menacing big, beetle black London Taxi cabs.
But the offices just a few yards away are a wholly different affair.
Utterly sparse, sterile and silent, fitted out with new wide pine veneer desks, but without piles of unread paperwork cluttering the surfaces.
They look more like recently revamped offices, just waiting for a new occupier.
Put the two together and you have a fairly good idea of how the business that makes one of Britain's most iconic vehicles now stands. The company is the most traditional of British manufacturers - its parent is the Midlands' longest quoted company, floating in 1939 - producing near handmade vehicles whose design and lines would be recognisable to a cabbie negotiating the streets of post war London.
Meanwhile, LTI is in the process of becoming a wholly new business playing on a wholly new scale.
It is concluding the final stages of a joint venture with a Chinese partner that, it hopes, will radically transform its role in the world, while undergoing major changes in its top team and ownership.
Dropped into overseeing that metamorphosis is chief executive John Russell, who only joined the business in March 2007 from the enviable post of being managing director of Harley Davidson Europe, but who has pedigree in automotive that stretches back 35 years, including stints at Unipart, Peugeot and Rover.
Sitting at the top of Russell's To Do list is overseeing the £353m joint venture with the Shanghai-based carmaker Geely, which, if all goes to plan, will see production of LTI's Hackney carriages multiplying by some 16 fold in just three years - enough to start satisfying the demand he believes is out there.
He says: "We'll market our taxis on the London experience; we're selling the idea of Englishness.
We're not just selling the idea of British engineering, but the whole idea of a quality transport system, how it should be run safely. "The way that London operates and licences its taxi drivers - the quality control, the knowledge (the demanding test London cabbies must pass before getting a licence) - means that it sets the gold standard for the world. "Most people set up joint ventures in China for two reasons - firstly because they want to get a share of the second biggest market in the world.
Secondly they want to get access to cheaper production costs. "But we want to go further.
We see this as an opportunity to launch the London taxi as a worldwide vehicle." Although new to the job - he was selected after a fairly long and robust headhunting programme - Russell has already slipped into LTI mentality, saying "we had" and "we were" to crises which hit the business four of five years ago.
However, he has a capable lieutenant by his side in Mark Fryer, group finance director and - as Insider was going to press - now company secretary following yet more boardroom shake-ups at the business.
Although their temperaments are different - Fryer, the more effusive of the two, has been with the business for five years, while Russell, the elder statesman-like one, has been on board for little more than five weeks when we speak - they already have a good working relationship, unselfconsciously cutting across each other during the interview and finishing each other's answer. But what is clear is a present sense of excitement they share; this pair thinks that, if they get this one right, they are on the verge of something very big.
The Shanghai deal, which was passed by shareholders only in April 2007, will see £353m being ploughed into the joint venture, £329m from shareholders' equity and £324m from loans. Manganese Bronze, LTI's parent, is paying for its part of the bargain by giving Geely a 23 per cent stake in the Coventry business, making it the biggest single shareholder. Under the terms of the agreement the joint venture will produce up to 40,000 vehicles a year for sale in China and the Far East under the Geely and Maple marques, including a stretch limo version.
LTI, meanwhile, will concentrate on manufacturing and selling to the rest of the world.
All that is needed, according to Fryer, is formal permission from the Shanghai government to proceed and he expects to get that by June 2007.
The deal with Geely has come after major changes at the business.
Three years ago chairman Jamie Borwick quit Manganese Bronze and sold his 38 per cent stake in the business after his takeover bid failed; and in 2006 Russell's predecessor, Ian Pickering, quit, reported to be frustrated over the failure to set up overseas production - ironically, talks with Geely began a few weeks later.
And, while all this was going on, a protracted restructuring was taking place at Manganese Bronze, which was divesting itself of property and other loss making businesses like bus doors and cintering. "LTI was making money just so the other businesses could lose it" quips Fryer.
Following that shake-up Manganese Bronze has so few other interests that its name and LTI's are now almost interchangeable.
Following the restructuring LTI could have carried on happily pootling in its niche market.
In 2006 Manganese Bronze shares gained 290 per cent - they now hover at the 800p mark and a market cap of £3154m - partly on the back of the Geely deal - and in 2006 made pre-tax profits of £33.6m on an £384m turnover.
It is a healthy medium-sized manufacturer with a solid market and some £310m stashed in the bank.
And there's the rub.
LTI has on its hands an established world icon.
Its cabs are as much a part of the world's image of London as Big Ben, the double-decker bus and Carnaby Street punks. However, that huge image is built on an incredibly small output.
With an annual output of just 2,500 vehicles a year and price range of £326,000-£332,000, LTI's structure is closer to that of a niche sports car firm like Morgan. It does virtually no advertising - it doesn't need to, because it is synonymous with its core market. But because production is so small and base costs so high, LTI has problems breaking out of its closed, predictable market.
Fryer gets scores of inquires each year from taxi firms and city authorities from around the world, keen to buy a bit of Britain, but who back off when shown the price list.
LTI, in its current form, is too small to meet the huge demand that exists for its cabs.
Its high base costs deter potential customers and growth, but small scale orders means LTI lacks the capital to allow the business to become as big as its brand.
Hence the need for a joint venture.
Fryer says that they spoke to a number of possible partners, including Bluestar, before settling on Geely.
He adds: "We selected Geely for a number of reasons.
Their average cost of production is about £32,500 per car.
It's one of the fastest growing car companies in China, growing at about five per cent a year, and it's also one of the longest established." But, as anyone who as ever followed the saga of MG Rover will know, the relationship between British carmakers and Chinese partners is somewhat difficult.
Putting it bluntly, what's to stop Geely or even LTI from shutting up shop in Coventry and shifting production wholesale to Shanghai? Russell is slightly miffed that I raise the idea at all.
Coventry, he is clear, is and will remain that little piece of London that is a taxi.
He adds: "We are retaining our full intellectual property rights.
However, this joint venture has to be done on a basis of complete trust.
If we start from a position of distrust it'll only create future distrust.
We have to protect our shareholders, but we also need totally open relations with Geely because we have both got to grow.
Besides, Geely is now our biggest single shareholder so we need to share things with them." But we finish with Russell's vision that he's not just trying to sell a taxi but the ideal of a taxi - the brand manager's dream.
It's not just that he wants to fill the streets of the world's capitals with beetle black Coventry-designed cabs, but he wants that whole ethos of reliability, quality and safety - which we take for granted when we get into a Hackney cab - to travel with it.
He says: "It's the idea that the London cab is a haven - you know you can roll out of a club at 4am, see the yellow light on top, flag it down and get in knowing you're safe."
