But how can it be done economically? Twelve percent return is not enough. ADC would do better with progressive integration, which means going vertical (manufacturing subcomponents). And I doubt that 160 man-hours is possible. Maybe something like 200 when it's producing 1,200 a year. Also, it has to have specialists purchasing the cars, because a car full of holes ends up costing twice as much. It should focus on the West Coast, since that's where the cars without rust are. But cars it buys there will be tagged with a good $500 in extra transportation [to ship to them back to Cleveland]. Therefore, location becomes important. It would have been easier to handle everything from California. In lieu of enlarging the company centrally, eventually it could repeat the same system in other locations, that is, if the first is successful.
OBSERVER
MATT DeLORENZO
Editor, AutoWeek, a magazine for car enthusiasts, Detroit; published article pointing out American DreamCar's deleterious effect on collector market in April 1990
The notion of recapturing one's youth with an updated old car is appealing. Given the success of the Miata, which rekindled interest in the 1960s and '70s sports cars, there's no doubt that American DreamCar will do the same for the muscle car, especially in that the reliability of a new car takes away the nostalgia-oriented driver's basic fear that the thing won't run. Collectors have bid up the prices of real muscle cars to, in some cases, way more than an equivalent American DreamCar, and that'll work to support its market.
The downside is that the market is based on a fad, which this current trend may be. It can vanish as quickly as it appeared. And buying an American DreamCar will be a onetime deal. At those prices, there won't be much repeat business. When owners tire of their toys -- which really is what they are -- used DreamCars will compete with new DreamCars. If and when the fad dies off, you could have an oversupply. It'll be interesting to see what happens after the company sells a couple of thousand.
FINANCIER
BENJAMIN M. ROSEN
Founding partner, Sevin Rosen Management Co., a New York City-based venture capital investor in more than 40 start-ups; has his own collection of Americana memorabilia
The idea is clever. But my gut reaction is that there are flaws in its concept of the nostalgia market. No doubt people are willing to pay premiums, but only for an authentic article. When the article is ersatz, value and price and market probably get diminished. I don't have a real feeling for [the market for refabricated nostalgia cars], but it may be big enough to support the idea.
Looking at it financially, American DreamCar's outstanding problem is that its gross margins are too low for a manufacturing company. I'm afraid it's underestimating what the below-the-line expenses are. It hasn't budgeted enough for harder-to-visualize items such as general-and-administrative, sales, and marketing costs. Even as its projections look to 1,200 units, it doesn't show enough gross profit to support what I think will be true overhead. For example, since it's trying to create a new market rather than exploit an existing one, the costs associated with setting up a dealer network may come as a surprise.
This means that ADC's cookie-cutter financial model for manufacturing and marketing a car, if adjusted for reality, is not attractive to a professional investor. Therefore, the company may be in a bit of a financial bind. A positive aspect of its shell financing is that it got cash on reasonably good terms. On the other hand, a private placement would have to be for far, far less than the public valuation, and that would have implications for public shareholders. It would be very hard to do a public financing, given the state of the company.
That ADC doesn't have debt is appropriate to this stage; it's hard for a company that's losing money as it'll be for a while to absorb debt-service cost. Therefore, it should be able to continue to get financing for the operation from friendly sources, who obviously have been willing to make necessary leaps of faith until the financials prove realistic.
MARKETER
JIM WANGERS
Created and promoted the concept of the muscle car while at Pontiac's ad agency in early '60s; wrote lyrics for hit song "GTO"; now runs own firm, Automotive Marketing Consultants Inc., in Detroit
Needless to say, I'm an enthusiastic backer of the concept, notwithstanding some difficult business aspects. If there was one thing Detroit was good at, it was piling on horsepower. American DreamCar is bringing that era back, along with a level of quality that consumers at least think they remember. Given the drivability of its cars, the company might attain a level of acceptance, of snob appeal, that could rival Japanese or German cars.
ADC should continue to restrict franchises to about one per major-market area, maybe 40 altogether in the country. An attractive aspect of an ADC franchise is you're looking at only a couple of hundred thousand dollars to get it off the ground. You don't have to stock hundreds of cars like everyone else.
Supply may be more limited than realized, and the company may face a serious setback as popular cars such as GTOs and 442s get thinned out. Thanks in part to ADC itself, owners today are asking $8,000 for beat-up '69 jobs that would have sold for $1,500 just a year ago. I was a little surprised the company didn't take some of that first capital and go out and buy what it could so it would have a bunch of cars to work with. There's no question that the average cost of basic units is going to increase significantly.
The company's got to move quickly to deepen the line. It's an unfortunate selling premise for a franchisee to be told it has to take what it's given. In a revival atmosphere, buyers have serious preferences and little patience. Right now ADC can't predict when it'll be able to deliver certain choices. If it offered five or six key models and could build any one on order in a month, that would be acceptable. I realize I'm spending money ADC doesn't have, but it's what's needed for growth.
