EXIT STRATEGIES

Exotic Auto Venture Is $24-Million Nonstarter

Harold and Ben Rosen, founders of Rosen Motors, failed to redefine the automobile with their hybrid electric car when major manufacturers rejected their new engine technology. A business obit.
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Obits

The Business: Rosen Motors

Founded: 1993

Closed: 1997

Cause of Death: Major car manufacturers' rejection of new, flywheel-based engine technology

In August 1996, brothers Benjamin and Harold Rosen summoned a throng of journalists and auto executives to the remote Mojave Desert, in California. The founders of Rosen Motors had spent three years developing a hybrid electric vehicle. Now they were ready to debut their version of the car of the future. As the road test began, the spectators craned their necks in anticipation.

The car refused to budge.

The moment was humbling for the Rosens, who had resolved to do nothing less than end the internal combustion engine's century-long reign under the hood. Yet the problems that would make Rosen Motors a nonstarter ultimately weren't technical but commercial.

If reinventing the automobile is an undeniable long shot, the Rosens nonetheless seemed a better bet than most to pull it off. Harold, 72, is a former Hughes Electronics engineer who pioneered the geostationary communications satellite. Ben, 65, is the chairman of Compaq Computer Corp. and a legend in the personal-computer industry. His venture-capital firm's early investments in Compaq and Lotus Development Corp. hiked the worth of his stock holdings to more than $100 million.

The brothers fueled their new venture with nearly $24 million of that money, soliciting no outside investment. ("I didn't want to take money without confidence there would be a customer," says Ben.) Their aim: to create a means of propulsion that would be cleaner and more fuel-efficient than the internal combustion engine yet more practicable than the batteries in electricity-powered cars, which require recharging after relatively short driving distances.

Their exotic design combined a small, gasoline-fed turbine with an energy-storing flywheel. The turbine provided electricity for propulsion. The flywheel, spinning as fast as 55,000 rotations per minute in the car's trunk, could store energy that's normally dissipated during braking and release it for sudden bursts of acceleration--acceleration that a turbine alone couldn't provide.

By all accounts, the company, based in Woodland Hills, Calif., solved some terrifically thorny engineering problems. And several months after its embarrassing failure, the test car redeemed itself with a successful performance.

The Rosens' business model, by contrast, never got on track. Rather than build an entire car, they had planned to produce its vital innards, the drivetrain, much the way Intel Corp. creates chips for computer makers. But tradition-bound Detroit is not disposed to contract out the guts of its cars to another manufacturer, and the Rosens say they never considered licensing out the technology. "The drivetrain is just so critical for the big manufacturers," says John Paul MacDuffie, a professor of management at the University of Pennsylvania's Wharton School. "It was a gamble to try to break into the industry that way."

The stumbling block, ironically, wasn't resistance to innovation but too much enthusiasm for it. The major automakers snubbed Rosen Motors' visionary drivetrain because they were already hard at work on their own environmentally friendly alternatives, and flywheel technology didn't figure into their plans. Glenn Mercer, director of automotive services at McKinsey & Co., explains, "The Rosens just got squeezed out."

With their company entering a costly crash-testing phase, and with automakers in Detroit and overseas unwilling to bankroll it, the Rosens decided to call it quits, putting their 70 employees out of work. Reinventing the automobile turns out to be as difficult as it sounds--even for Ben Rosen. --Jerry Useem

Last updated: Jun 1, 1998




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