Business plan: Can a Canadian company make the next Bugatti?

Written by Bryan Borzykowski

Question: What do you get when you put a dentist, a lawyer and a replica-car builder into a room? Answer: Canada’s one and only car company. That’s no joke. Some 893 kilometres from Windsor, Ont., Canada’s car manufacturing capital, sits HTT Technologies Inc., a small shop in St-Eustache, Que., with 10 employees busy building one of Canada’s first autos since the Bricklin SV-1.

The Pléthore LC-750, a high-end “supercar” in the same class as Volkswagen’s Bugatti, is the brainchild of Luc Chartrand, a car enthusiast who used to make a living building replica Ferraris and Lamborghinis. His business partner, Dr. Carl Descoteaux, is a practising dentist, while the face of the business, CEO Sébastien Forest, is a lawyer and former corporate executive. As funny as it might sound for people from such disparate backgrounds to have launched an automaker, the fact that they’re trying to build a business around a Canadian-made car might be the real punchline.

The Pléthore’s innovative design and powerful engine is winning fans — and a few buyers, too. Since putting the car on the market in November, HTT has received six orders, and it hopes to have sold 10 by the end of this year, 30 in 2011 and another 50 in 2012. If HTT meets these targets, the company could turn a good profit: “When everything’s all in place, we’ll see a gross margin at around 60%,” says Forest.

But HTT might not get to that point without additional investors to pay for, among other things, meeting market-specific regulations and attending pricey car shows. And, says one auto-industry expert, the business could stall even with cash in the tank.

Considering the Pléthore’s runway-worthy looks, its supercharged, 6.2-litre, eight-cylinder engine that pushes 750 horsepower and its distinctive central driver’s seat (passengers sit on either side), you could infer that everybody wants one. A big challenge for HTT is that so few can have one. Those that make an early leap into a Pléthore’s driver’s seat will pay $450,000, a promotional price designed to jump-start sales; HTT will sell subsequent cars for up to $750,000. That price point, which is typical of supercars like the Pléthore, goes a long way to explaining why just 20,000 such vehicles are sold worldwide each year.

“This is not a general-public product,” says Forest. “It’s a high-end product for a very wealthy consumer.” HTT is focusing on the European market, where it’s not unusual to see exotic cars on the streets. The firm is going after car collectors, who are always looking for the next big thing. “They want to have what’s new,” says Forest.

Getting the word out to these prospective buyers, he says, is simple: put auto journalists in the car and the media coverage will come. “This is probably the easiest industry, in terms of marketing, in the world,” says Forest. HTT has already received write-ups in newspapers, magazines and blogs. And once the first Pléthore is ready, HTT plans to rent a racetrack and let writers take the car for a spin. (That could backfire; if reporters don’t like what they see, admits Forest: “We’re dead.”)
HTT also plans to appear at auto shows around the world. Some will result in leads — the Top Marques Monaco show elicited about 25 potential buyers — and others, such as the Canadian International Auto Show, will land the company in the press. That means the firm won’t have to spend money on TV or newspaper ads, but it must still absorb the costs of attending auto shows — at about $50,000 a crack.

Money is already tight. Since HTT’s inception in 2000, the firm has raised $2 million from five investors, including its three founders. But it needs more. To succeed, HTT will have to find customers in both Europe and the U.S., says Richmond Hill, Ont.-based Dennis DesRosiers, one of Canada’s leading auto-industry analysts. But doing so represents another expense; although meeting safety regulations for the European market is affordable, the same cannot be said for the U.S. To tap the U.S. market anytime soon, HTT will need another $3 million, says Forest.

Finding funding has been tough so far. “Canadian investors are not familiar with the supercar industry, so they’re reluctant,” says Forest, adding he is in discussions with many new potential investors. And despite governments’ demonstrated commitment to supporting the auto industry with massive injections of public funds, HTT has been able to access only federal and Quebec R&D credits
and subsidies.

Even if HTT finds more money, DesRosiers isn’t confident it will ever turn a profit; the market is too small and the cars are too costly to make. DesRosiers says exotic car startups aren’t uncommon, but most don’t succeed: “I can think of seven or eight Canadian initiatives over my career, and every single one was a money pit.”
Forest, for one, is confident HTT will be the exception. Still, even if the company thrives, you’re unlikely ever to see the car in Canada; the market is too small relative to the regulation costs. That’s not to say a Pléthore will never cruise through Canadian streets. “I will get one,” says Forest. “I’ll have the 100th.”

What the experts say
Two entrepreneurship specialists weigh in on HTT’s prospects for success.

Elspeth Murray
CIBC Teaching Fellow in Entrepreneurship
Queen’s School of Business
Kingston, Ont.

What¹s not to like about an automotive startup like HTT making a truly innovative car? I¹m impressed that HTT is up and running with a mere $2 million in startup money. I¹ve seen software startups blow through this sort of cash without much to show for it, so to have production underway already and orders shows great promise. Clearly, more cash is needed, though. Why not have customers prepay for their cars? In Apple¹s early days, it collected the cash for the computer, bought the parts, made the computer and then delivered it. No cash-flow problems there! Also, why bother with the big automotive car shows? If cash is tight, I¹d bring some influential trendsetters into the fold. Finally, why not consider a completely different target market? Look at the success of the Ariel Atom, the ³everyman¹s supercar.² The 0-to-60 mph time trial stats, the novelty of its looks and the price€¹a mere $50,000€¹are blowing away the competition. There is a waiting list in North America.

Robert Herjavec
Car enthusiast, Dragons’ Den star and CEO, Herjavec Group

HTT has been clever in finding a niche in a crowded market. The three-seat design is unique, and there are very few supercars with 750 horsepower. It has also done a good job promoting the car on a small budget. The challenge in this market is that people like pedigree. There are many competitors in this space: Bugatti, for example, has been around for 100 years; and Lamborghini is about to unveil its new 750-hp vehicle. Another challenge will be raising enough money to get the car certified for all markets; the budgets of the other niche supercar players dwarf HTT¹s. I think HTT should spend its marketing dollars on a PR agency and guerrilla marketing rather than on car shows. Having a celebrity car collector like Jay Leno drive one, or getting the car in a movie, would be a big boost. HTT also needs to ensure it can be profitable selling very few cars; it might make sense to become a custom-build operation.

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