Supply Chain Fail #2:
“Doc…are you telling me you built a time machine… out of a DeLorean?”-
This classic quote from Marty McFly sets a milestone in automotive history as the DMC-12 takes the lead role in Hollywood’s hit film series; back to the future. While the futuristic sports car continues to inspire a vibrant community of enthusiasts today, the infamous demise of the DeLorean Motor Company is often overshadowed by its glory on the big screen.
Long before DMC-12 found its way on to the red carpet, the nuclear powered time machine featured in its very own drama. Throughout its seven years of existence, the DeLorean Motor Company (DMC) was plagued by multiple bankruptcies, a bloody civil war as well as involvement in a major international drug trafficking operation. Although the manufacturer failed to overcome these challenges in the early 80s, could modern technology have brought the DMC-12 back to the future?
The DeLorean Motor Company was founded in 1975 by John DeLorean, a highly regarded American mechanic responsible for developing some of the most pivotal American cars of that era. After leaving Chrysler, DeLorean set about building his own automotive empire. With a cash injection of nearly $120 million from the British Government, The DeLorean Motor Company began construction of its new production center in Northern Ireland.
Both British and Irish political leaders saw this opportunity as a huge blow to the savage IRA revolutionists as the new factory created thousands of jobs for both Catholics and Protestants in one of Ireland’s most deprived areas. When the first DeLorean DMC-12 rolled off the production line, it seemed the broken nation had taken a huge step towards achieving peace. However, initial optimism was short lived as numerous issues began to shoot down the viability of the DeLorean dream.
An unfavorable exchange rate made the sports car considerably more expensive than the original target price point and due to delays in the development phases of production, by the time the DMC-12 was launched; Datsun, Mazda and Porsche had already established faster alternatives. As a result demand was much lower than the 10,000 sales required to break even. However, in an unusual attempt to mitigate the impact of poor demand on sales, DeLorean ignored actual demand figures and increased factory output in the hope of increasing revenues.
This proved to be a catastrophic decision as growing stockpiles of cars ignited a cycle of financial woe. At first, the increase in supply forced showrooms to heavily discount prices to a fraction of the original list value in order to clear stock. Eventually the surplus got to such an extent that American distribution partners simply stopped paying for new deliveries.
As with many low-volume production cars, many components of the DMC-12 were sourced from external foreign suppliers at great cost to DMC. As a result, cash flow issues started to spiral out of control as vast amounts of capital became locked into redundant stock and it was not long until the Irish manufacturer was unable to pay its suppliers forcing production to grind to a halt. By this point, the DeLorean Motor Company was in a desperate position, and even the British Government was quickly losing patience.
While in the past, DeLorean had used Ireland’s political unrest to leverage millions of pounds in public funding, the new Thatcher Government stood firm, refusing to bail out the failing motor company. Despite rising tensions between Catholics and Protestants which saw an eruption of riots within the DeLorean factory, the British government was only willing to fund part of the £20 million required to keep DMC afloat. In an attempt to raise the rest of the capital, John DeLorean became entangled in a high profile drug smuggling operation worth an estimated $24 million dollars only to be foiled by the FBI. Without the necessary finance, in 1982 the DeLorean Motor Company came to an abrupt stop after producing just 9000 cars.
The Butterfly effect…
Perhaps if the DeLorean Motor Company had the chance to travel into the future, the company could have utilized the vast array of supply chain tools available today. For example, modern supply chain tools could have provided the automotive manufacturer access to the most up to date market information which could then be used to accurately forecast future demand. Such information would have highlighted the dangers of stockpiling and thus helped the business to avoid the major cash flow issues which gripped the DeLorean Motor Company throughout its 7 year existence. As a result, perhaps John DeLorean would never have to have sought financial aid from the illegal drugs industry.
No doubt back to the future’s Marty McFly would agree that hindsight is a wonderful thing. However in the case of the DMC-12 it is worth remembering that in its short life, the DeLorean Motor Company produced thousands of finished vehicles despite operating in the middle of one of the most volatile political conflicts to hit Ireland: a considerable feat, even by today’s standards. However, businesses should learn from the fall of the DeLorean Motor Company in order to prevent their business from also becoming a mere relic of the past.