Now's the Time to Go East for Young Carmaker
Saleen of Irvine opens a Michigan factory, where it will work on Ford's GT sports car.One after another in recent years, the big Detroit car companies have moved operations west.
General Motors Corp. launched an advanced design studio in North Hollywood, for example, and Ford Motor Co. relocated the North American headquarters of its Jaguar, Aston Martin, Volvo and Land Rover brands to Irvine.
This week, exotic-car builder Saleen Inc. of Irvine went the other way. It opened a state-of-the-art plant in a former door factory in Troy, Mich., where it will paint and assemble Ford's new $140,000 two-seat performance car, the GT. The high-tech paint facility and assembly line set Saleen back an estimated $15 million.
The expansion eastward by Saleen, one of the few auto manufacturing businesses on the West Coast, signals a new phase in the life of the 20-year-old company, which is privately held.
With plants in two states, "we are structuring Saleen to become a significant resource to the auto industry for specialty and special-niche vehicles," said Steve Saleen, 54, a former race driver who used his race winnings to start the business in 1984.
Although that would seem to hint at a desire to seek work from other major automakers, Saleen said plans "at this time" were limited to Ford.
Saleen's opening the plant in Troy could be seen as merely a case of a supplier following its business.
"Ford needs cars like the GT to come from Detroit - that's important for its image," said Wes Brown, an analyst at Iceology, a Los Angeles-based automotive market research firm. "Saleen saw the value in investing in a factory there to continue gaining Ford business."
For its part, the automaker gains by having Saleen take "that much-needed West Coast flair and freer thinking into Detroit and into Ford."
But the move "has some interesting prospects beyond that," Brown continued. "If the relationship does well through the GT contract, then I'd expect Ford to look for other opportunities for low-volume, high-profile vehicles that could be outsourced and built under contract," he said. "And there's no reason to expect that Saleen wouldn't be the front-runner for that continued business."
Indeed, Ford already is showing a possible successor to the limited-production GT, which is scheduled to be built through the 2007 model year. The next Ford exotic car is likely to be a modern version of the Shelby Cobra, insiders say.
(Saleen's principal product is a line of extensively redesigned and rebuilt Mustangs based on the Ford platform and sold through Ford dealers; a high-performance Saleen Mustang can cost $35,000 to $65,000, versus $18,000 to $35,000 for Mustangs that roll directly out of Ford's factories.)
It's been a tough road to Troy for Saleen. After nearly running out of money last year, the company was recently revitalized by a cash infusion, believed to be in the neighborhood of $20 million, from Los Angeles-based private equity investor Hancock Park Associates. The investment firm is now Saleen's majority owner.
The financing helps replace cash eaten up by development of the 203,000-square-foot Saleen Specialty Vehicles plant in Troy. The company, criticized by creditors in the past for concentrating more on product planning than cash management, also has undergone a retuning of its management system as part of the recapitalization deal.
"They are very, very good at building cars but [were] not so good at managing their money," said longtime Saleen dealer Jim Graham, president of Santa Margarita Ford in Rancho Santa Margarita. Graham, who was bitterly critical of Saleen a year ago, said the company had improved tremendously since the Hancock Park investors began taking an active role in management late last year.
Steve Saleen remains president and chief executive but has appointed a new chief operating officer, Richard Rinke, to handle daily operations at both plants.
Rinke, a veteran of the specialty auto building industry, has worked for the last two years setting up the Troy plant. He will be based there while Steve Saleen remains at the company's 150,000-square-foot Irvine headquarters and concentrates on product development and marketing, said Kevin Listen, a Hancock Park partner and a member of Saleen's restructured board of directors.
Saleen's new chairman is Hancock Park's managing partner, Michael Fourticq. He succeeds S.A. "Tony" Johnson. Johnson, chairman of publicly traded automotive parts and systems supplier Tower Automotive Inc., had been Saleen's majority owner since 1993.
In the last year, Saleen Mustang sales have been slow. Many potential buyers decided instead to await the launch by Ford this year of the all-new 2005 Mustang, the first new platform for the sporty car since 1978. Production of the '05 Saleen Mustang using the new platform is scheduled to begin in November in Irvine.
Saleen also has developed its own exotic car, the sleek, carbon-fiber-bodied S7, which sells for $430,000. The company also builds a $24,000 high-performance version of the Ford Focus compact car, called the Saleen N2O Focus.
Under its contract with Ford, Saleen's Michigan plant not only will assemble and paint the GT - a car sought by enthusiasts and collectors including "Tonight Show" host Jay Leno, who took delivery of his early production model last week - but also will build other prototypes and concept cars for Ford.
After the assembly of bodies and chassis at Troy, the GTs will be transferred to a Ford-owned plant in nearby Wixom, Mich., for installation of the high- performance Ford engine. That will enable the automaker to say final assembly was done by Ford and its union workers rather than by a nonunion contractor.
Ford President Nick Scheele has said the company expects to sell 1,500 GTs a year for the next three years. A new exotic car, possibly an updated version of the Shelby Cobra, is expected to replace the GT in 2008.
Meanwhile, Saleen's S7, Mustang and Focus production will remain in Irvine, where the company has about 125 employees. Spokesman Jack Gerken said Saleen probably would employ about 250 people in Troy and boost Irvine employment to 150 by the end of the year. The company also has retail operations in Mexico, Canada and Europe.
The company won't disclose financial information. Steve Saleen has acknowledged that the costs of building the Michigan factory combined with development costs of the 575- horsepower S7 to consume the company's cash reserves.
"But," he said, "that's all behind me now."