This month Steve Banner has been up in the West Midlands to meet with Steve Young, chief executive of revitalised LDV.
It's restored confidence among employees, suppliers, customers and dealers, and provided stability. That's been brought about by fresh investment, the installation of a new management team and by bringing along the introduction of new products that were previously stalled.
We've certainly not lost anyone, although for a time we were in a situation where some fleets were keeping their distance and some dealers were not prepared to invest. Since the GAZ acquisition, though, the reaction has been positive from customers such as the Royal Mail, we're signing up new dealers and existing ones are recruiting staff and spending money on their facilities.
Commercial confidentiality means that I cannot disclose the purchase price. However, it has subsequently invested £48m.
Some of it has been invested in Maxus minibus and chassis cab, while some of it has been spent on stabilising the business; ensuring dealers get their warranty payments and sales allowances for instance, and that suppliers are paid promptly. We cannot afford not to pay on time because again, it's about getting confidence back. Miss one payment and the reaction is likely to be 'here we go again'. Some of the investment has gone to fund the operating loss of the business because LDV is still losing money.
It varies from month to month, but we're losing about a third of what we were losing previously. Before, we were losing £3m to £4m a month on an annual turnover of upwards of £120m. We'll be breaking even by the middle of this year, however, and we'll make a profit for the calendar year as a whole.
Mainly by getting production volume up and thus spreading our overheads across a larger number of units. Getting confidence back is important here too. If the market has more confidence in you then that affects the residual value of your products and you don't have to sell them at a heavy discount because customers fear you're going to collapse. So you sell your increased volume at higher prices and because volumes are up the prices you pay for the materials you use come down.
Currently it's 205, but we're aiming to increase that to 253 not later than April, then to 286. Minibus will increase the volume, so will sales to Continental Europe and a contract we have to export vehicles to Malaysia will soon start to kick in.
The plan is to do 15,000, double last year's output. As well as Maxus minibus, potentially a big seller for us, and the existing Maxus van we'll have Maxus chassis cab in volume production from September onwards, so that will help. It should account for 15 per cent or more of our annual volume. Growing exports will help too of course. We expect to export 2,000 vehicles this year. Around 500 will go to Malaysia while the balance will for the most part go to Continental Europe. We already have well-established distribution arrangements in Denmark and Sweden — those countries will be our initial focus — and we also aim to develop sales in the Benelux countries, France and Spain. We intend to start selling in Germany towards the back end of this year. We're actively recruiting dealers in Europe and we're getting a lot of interest from European truck dealers who view the franchise as a potentially valuable addition to their existing business.
GAZ dealers there are keen to get it although the import duty means that the economics for GAZ aren't very attractive. Maxus, however, is viewed as a premium product there and demand for that sort of product is growing at such a pace that customers won't be prepared to wait until GAZ can start building Maxus locally for local buyers. So I suspect we will end up sending vehicles to Russia although that wasn't in our original plan.
We'll probably start next year.
You are launching Maxus chassis cab at this year's British Commercial Vehicle Show in April and it will be available with dropside, tipper, box and Luton bodies. The 17-seater minibus will be there too, along with other minibus models and some accessible minibuses will be on display just outside the venue's main entrance. You'll also have the very well specified Maxus Combi Titan six-seater on show. But how come customers won't be able to buy the chassis cab until the autumn?
Although the vehicle has been shown to people on several occasions, when GAZ bought LDV last year the tooling required for volume production didn't exist. The durability testing necessary to ensure that the customer gets a robust product built to a quality standard we're comfortable with hadn't been done either; and that takes time. On that score Maxus van was possibly put into the market sooner than it should have been, although recognising the pressure that the business was under at the time I understand what drove that decision. That's not the situation we're in now. Furthermore, we still need to complete the installation of some of the production facilities for chassis cab.
I think 3.5 tonne is probably the limit for a front-wheel drive goods vehicle. It would be a different situation if we had rear-wheel drive and this is in fact under consideration, especially for the Russian market. Although it's not a functional necessity the Russians are more used to rear-drive products.
We'll have two new versions of Maxus's VM diesel engine; one at 105 bhp and one at 135 bhp. They'll join the existing 95 bhp and 120 bhp derivatives.
While we have to be ready to introduce ESP at present there's no customer demand for it. So far as ABS is concerned we're standardising it on Platinum versions and on the 135 bhp model and it is of course standard on minibus.
Most products these days work on an eight-year life-cycle with a mid-life refresh. I don't see us being any different to anybody else.
That's likely to start next year, but first we'll need to go through homologation and durability testing and it's all subject to the economics working out. I'm also anticipating some engineering changes in what will be a 12- to 18-month programme. The product we have in mind already exists, is rear-wheel drive and chassis-based, but will be available with a van body and will go up to 6.5 tonnes.
That would be a convenient event.
Not that one. It was a rear-wheel drive concept vehicle built on a Volga car chassis and although it was nice looking it didn't, for example, have a side loading door. However, it's right that we need a product that fits beneath Maxus. It's a gap we need to fill but realistically the earliest that anything is likely to happen is next year and it's unlikely that we would build it in Birmingham. What we're talking about is a car-derived van and it wouldn't be the most appropriate product to put through our facilities.
We're looking at a range of options.
We were looking for another way of opening up the market for used LDVs. We're modest enough, however, to recognise that people aren't necessarily going to google 'used Maxus' so we decided to go the all-makes route; we're not afraid of having Maxus compared with, say, Ford's Transit or Mercedes-Benz's Sprinter. The site is going extremely well. We're getting over 1,000 hits a day.
We've got 65 main dealers plus another 80 who handle service and parts only. The network is about the right size but there are a couple of gaps in coverage we want to fill and a couple of dealers we need to change.
Because the actual construction cost isn't that substantial. Most of the cost is in the price of materials and that's not particularly influenced by where you make the vehicle. What's more, while GAZ's plant in Russia probably has the capacity to build Maxus for Russia and related markets, it's doubtful if it has the capacity to produce it for the UK and the rest of Western Europe without further investment. Bringing products in from Russia would also involve significant logistics costs and they would be subject to duty. So as long as we can get production up to a reasonable level — and 15,000+ units/year is a reasonable level — then the Birmingham plant is sufficiently lean for it to be economical enough for us to keep making Maxus here just so long as the operation is managed properly. And if we can produce at the right cost and quality level then that will justify the necessary investment being made here to produce the replacement for Maxus; whenever that may be due.