Rolls-Royce Motors Ltd.

views updated

Rolls-Royce Motors Ltd.

Pym’s Lane
Crewe, Cheshire CW1 3PL
England
0270 255155

Subsidiary of Vickers, plc
Employees: 5,029
Sales: £216.8 million (US$311.7 million)

The Rolls-Royce name is not as old as that of Panhard, Daimler, or Napier, all three of whom established automotive companies in the 19th century, but as C.S. Rolls & Company advertised in November of 1905, “No greater mistake can be made than to suppose that the older the manufactury the better the car.” Certainly, the Rolls-Royce name implies not only the finest craftsmanship, but comfort, money, power, and elitism. The distinctive radiator grille has transcended its function to become a powerful symbol of luxury and quality. An American art historian recently authored a paper entitled The Ideological Antecedents of the Rolls-Royce Radiator.

The history of Rolls-Royce begins with its founders, an engineer named Frederick Henry Royce, and Charles Stewart Rolls, an automobile dealer and an engineer himself. Royce manufactured electric cranes and dynamos at his company, called Royce, Ltd., which was established in Manchester, England in 1884. Early in 1904, he purchased his first two-cylinder car, a French Decauville. Far from being an inferior model, Royce was nonetheless dissatisfied with its performance. He decided to build a car of his own by “taking an existing part and making it better.” On April 1, he emerged from his workshop on Cook Street with three two-cylinder, 10-horsepower cars.

Royce automobiles, known for their silent and vibration-free ride, featured an engine which could be kept idling and then speeded up to 1000 rotations per minute without the problematic adjustments required with other engines. The successful Royce automobiles soon came to the attention of Henry Edmunds, a friend of Charles Stewart Rolls, who at the time operated a London dealership for French Panhard automobiles. Strongly interested in the Royce automobile, however, Rolls later arranged to meet Royce at the Midland Hotel in Manchester in May of 1904. He was immediately impressed by Royce’s determination and creativity. The two men later agreed to establish an automobile partnership, and pledged that Rolls-Royce vehicles would never again be built with merely two cylinders.

Rolls and Royce believed that by combining their own expertise and dedication with the latest technologies, they could produce the finest automobile possible. By the end of the year, newly-engineered four-cylinder, 20-horsepower Royce cars had won several important races, and had become one of the most popular luxury cars available.

Charles Rolls and Henry Royce formalized their partnership on March 15, 1906 when they founded Rolls-Royce Ltd. The company’s first product, the “40/50” (horsepower), made its debut at the Paris Motor Show in 1906, featuring a distinctive arched top radiator. The car was fitted with a powerful new six-cylinder engine which enabled it to reach a top speed of 65.2 miles per hour. Claude Johnson, an associate of Charles Rolls, later named it the “Silver Ghost,” because of its metallic appearance and because its engine was “quiet as a ghost.” In order to expand, the company moved in 1907 from Manchester to Derby, 50 miles south, in the English Midlands. Soon afterwards Rolls-Royce established a technical inspection service which made house-calls. This service later formed the basis of the Rolls-Royce driving school.

Under the supervision of Charles Rolls, the company began to manufacture small aircraft engines in 1907. Three years later, however, Rolls was tragically killed when his Wright biplane crashed from a height of only 23 feet. As a symbol of mourning, the intertwined “RR” logo on the radiator plate was changed from red to black.

Royce introduced a statuette called the “Spirit of Ecstasy” (or alternatively, the “Flying Lady”) mounted on the radiator of the 1911 Silver Ghost. The winged figure was modeled by Charles Sykes at the behest of Lord Montagu, a well-known motoring enthusiast, and served to further enhance the appearance of the radiator. Electric starter motors became increasingly popular after their introduction in 1914. Royce, however, was cautious about making drastic design changes in his automobile line until the starter device had been properly developed. The electric starter was finally built into Silver Ghosts in 1919. Rolls-Royce continued to develop its hand-crafted automobiles for an increasingly exclusive (and wealthy) clientele. New models were resistant to change, maintaining a practical and traditional appearance.

Despite the death of his partner, Henry Royce remained committed to the development of new engines for the aeronautics industry. During World War I Rolls-Royce accounted for half of Britain’s total aircraft engine output. The company’s automobiles, however, were also well employed during the war. T.E. Lawrence (Lawrence of Arabia) waged several battles with a fleet of nine armored Rolls-Royces, which in the desert, he claimed, were “prized above rubies.”

When the Silver Ghost went out of production in 1925, more than 6000 models had been built. It was replaced by a newer, uncharacteristically light model called the Phantom. Subsequent improved versions of the Phantom came out in later years, including one with a 12-cylinder engine. In 1931 Rolls-Royce purchased Bentley Motor Ltd., a consistently undercapitalized English manufacturer of high-performance automobiles. Henry Royce, who was conferred a baronetcy in 1930, died on April 22, 1933 after a long illness.

The aircraft engine division of Rolls-Royce spent much of the interwar period developing a series of engines, including the Kestrel. On the eve of World War II, a successor to the Kestrel, the more powerful Merlin, was developed. The Merlin engine was used to power Supermarine Spitfire and Hawker Hurricane fighters, the primary instruments of the Royal Air Force.

Rolls-Royce halted its production of automobiles during World War II and instead concentrated its resources on the production of aircraft engines. When the war ended in the spring of 1945, over 150,000 Merlin engines had been built in Great Britain and under license in the United States.

Auto production resumed after the war at a new Rolls-Royce plant in Crewe, near Derby. The company ceased building each car to a customer’s specifications, and instead standardized the product line. A separate diesel engine division was also established which produced large engines, primarily for construction machinery.

Rolls-Royce developed a number of jet engine designs for military aircraft, and was the first company to introduce a turboprop engine, which gave the company an interest in the commercial airplane market for the first time. With the development of commerical jets during the 1950’s, Rolls-Royce altered the design of its Avon jet engine for use in the de Havilland Comet and the French Nord Aviation Caravelle. A new engine, called the Conway, was specifically designed for the American Douglas DC-8 and Boeing 707. During the 1960’s, a new line called the Spey went into production.

Throughout most of the company’s history, the aircraft engine division accounted for over 80% of Rolls-Royce’s total revenues. A decision was made in the early 1960’s to raise this figure by entering the competitive American aircraft engine market. This necessitated the development of a larger, more powerful engine for the emerging jumbo jet market.

In 1966 Rolls-Royce completed a design for the new engine, which was designated the RB.211. A concerted sales effort resulted in the sale of 555 RB.211s to the Lockheed Corporation for installation in their new line of L-1011 Tristar jetliners. The sale, however, was extremely costly to Rolls-Royce, which was forced to lower its price in order to beat a counter offer from General Electric. In order to meet the increasing cost of the project, any available capital from the automobile division was systematically diverted to the aero-engine division.

The construction of the first RB.211 commenced in the summer of 1969. When the engine was tested, however, it became apparent that several design flaws would seriously delay the project. As a result of penalty clauses written into its supply contracts, Rolls-Royce was obligated to remit substantial payments to its customers. This forced the company to announce in October that its interim dividend would be reduced from 4 to 3%. Moreover, company officials refused to address specific problems with the RB.211. The situation continued to deteriorate for over a year, when the gravity of Rolls-Royce’s condition was finally revealed.

On November 11, 1970 the British government announced that it was extending a loan to Rolls-Royce totaling £60 million. Threequarters of this sum was for anticipated losses on the RB.211 project, and the remaining £15 million was earmarked for operating expenses. In addition, it was revealed that executive control of Rolls-Royce would be turned over to a four man committee. Two days later it was announced in the House of Commons that the government would nationalize Rolls-Royce.

As problems with the RB.211 were gradually resolved, the British government continued to meet the company’s financial obligations and oversee its restructuring. To many it seemed ironic that the world’s premier automaker, a symbol of British prosperity, had become a symbol of Britain’s decline. The British government, which was uncomfortable with this situation, decided to prepare the automotive and diesel divisions for privatization. Consequently, Rolls-Royce Motors Ltd., comprising the automobile and diesel engine operations, was created as a separate company in 1973 and returned to private stockholders. The aircraft engine division, which was not profitable, remained under government ownership.

David Plastow, who was placed in charge of the automobile operation after the nationalization, initiated a modernization program for Rolls-Royce Motors, which included a £20 million investment in new plant and equipment. The company’s annual output increased from 2000 to 3500 cars, and its diesel division won a contract to produce 1600 engines for Chieftain battle tanks intended for sale to the Shah of Iran. The government, however, canceled the tank sale after the Shah fell from power in 1978. Rolls-Royce produced 270 engines, none of which were delivered, but was protected from losses by its contract with the government.

In 1979 higher interest rates and a stronger pound reduced demand for automobiles. Further difficulties with the economy weakened the diesel operation despite its having won a contract to produce a line of MBT-80 battle tanks for the British government. The company’s financial situation required urgent action in order to prevent it from falling into bankruptcy. In September of 1980, 90% of Rolls-Royce’s stock was acquired by Vickers plc, a well-known British engineering firm which had a long history as a defense contractor, and with whom Rolls-Royce had frequently collaborated. Rolls-Royce Motors Ltd, subsequently became a subsidiary of Vickers, and Plastow was named the parent company’s new chief executive officer.

Even the Rolls-Royce automobile division encountered difficult times as Britain entered a serious economic recession. The company’s output of vehicles dropped from 3018 in 1980 to only 1567 in 1983, and was forced to lay off 1000 workers. A five-week labor strike in 1983 forced the company to change its marketing strategy and lower the price of its automobiles.

Rolls-Royce has recently found itself vulnerable to many of the same pressures that have plagued large automakers. The present chief executive of Rolls-Royce is Richard W. Perry, who it is said plans to place greater emphasis on the company’s Bentley line, with the introduction of two new models, intended primarily for European customers. Once the cornerstone of Rolls-Royce, Bentley sales have fallen off in recent years, and at one point the company considered its discontinuation. Yet Perry, who believes in effective marketing, believes he can increase sales of Rolls-Royce cars with more enlightened strategies. The advertising budget will be increased by 40%, and a new audience is currently being targeted, namely, younger people with assets of $500,000 or more. Despite the optimism that flows from such a strategy, company executives concede that the days are over when the carmaker could routinely depend on strong profits from a captive clientele.