Bentley CEO outlines post-coronavirus survival plan

Just as Adrian Hallmark had turned around Bentley, making the UK ultraluxury automaker profitable again in 2019 and putting it in position to remain in the black, the coronavirus crisis will most likely push it back into the red. The pandemic forced Bentley to halt the announcement of a long-term strategic plan and replace it with last week’s grim news that the Volkswagen Group subsidiary would have to cut a quarter of its workforce, amounting to about 1,000 employees, as it expects revenue to fall by up to 30 percent this year. Automotive News Europe Correspondent Nick Gibbs spoke to Hallmark about Bentley’s current financial situation and the challenges of fulfilling orders for newly launched cars such as the Flying Spur sedan while operating at half capacity.

You have announced Bentley will cut 1,000 jobs, which is a quarter of your workforce. How will this affect future programs and how do you preserve quality and customer choice?
It was very tough decision. We released several hundred contractors immediately after the pandemic hit when we had to close down temporarily. A lot of the adjustments that we are able to make are with those contractors. We always plan to have that buffer because you never know. We still have this major challenge, however, for the rest of the business. How will it work? We have just gone through the launch of three new products. It's been a peak of activity. That workload will naturally go down over the next few years before we get into the face-lift for the next generation. We need this level of change to be competitive. We need to protect the cost structure and, therefore, the future. The first step is the voluntary relief program to give people a generous opportunity to be able to leave the company. It is very difficult situation.

How much is that going to cost you?
I won't comment on the actual cost, but it's expensive.

How many people are working at your factory and headquarters in Crewe, England, right now?
We originally furloughed 66 percent of the total workforce [of 4,000], although that's now down to about 500 people. We have about 2,000 back to work at the factory and headquarters, 1,500 working from home and about 500 furloughed.

Previously you said Bentley would launch an electric car before 2025. Now you are saying 2026. Is this delay because of the cost cuts?
No. The commitment to electrify every model with hybrids by 2023 does not change. The ambition to have the first BEV (battery-electric vehicle) by 2025 does not change, but with the COVID-19 crisis, there could be some slippage on the BEV. The short-term shock doesn't help because we planned to generate more cash to be able to pre-invest in the next generation, but it didn't change the strategic direction. We still want to electrify as fast as we possibly can as soon as the technology is available.

Will the aftershock of the coronavirus crisis kill any model programs that you haven't already announced?
No, not at all. We have some slight delays. All the emissions labs were closed, so we are all still in the queue waiting to put the cars through the process again. These tests are already starting across Europe, but there are delays of up to 12 weeks getting the final results. We are not stopping anything, just struggling to catch up. There could be re-timing on certain things but nothing has been scrapped and nothing has moved down more than six months from now.  

Your plant is running at 50 percent capacity because of the 2-meter social distancing rule. You’ve said you will return to full capacity if the distance between employees was reduced to 1 meter. Are you frustrated that you can’t move to 1 meter when the UK government itself doesn’t seem to be taking its own rules seriously?
No, I don't see it that way. Bringing everybody back is a real worry, which is why we have been so forensic and well prepared in the restart process. We are far more worried about an outbreak of COVID-19 in Crewe than we are about a 50 percent capacity reduction at this stage. The UK is still in a critical phase of coronavirus. If the government said in a meeting tomorrow, 1 meter is OK, I don't know if we would do it straight away, even with a strong order book. In the last two weeks we have brought back 2,200 people and their behavior has been amazing. We are getting more confident. We have also had one person who has been diagnosed with coronavirus in that two-week period.

Was this person working in the factory?
Yes. The person felt symptoms and didn't come in. The person got tested and was found to be positive. We cleaned the area and quarantined it for 72 hours. We tracked and traced all the people who they came in contact with. We established cells around the business. That means when you come in you can only go to your cell area. Even if you have an all-access card, now you can’t just go wherever. Everybody was protected. There has been no cross contamination. So, the lines, the defense that we put in have worked. In terms of infections, we have had eight in total: two before the shut down in March, five during the shutdown and one after the shutdown.

Did you test everyone in this worker’s cell?
No, but we have ordered 500 test kits per week and we will systematically test everybody in the company.

How is your order book looking?
China has bounced back already. But when it comes to Europe, the UK and the U.S., which had a good registration month in May, we just don't know yet.

Why do you need the drastic job cuts if orders are looking OK?
Our costs when we were shut down were 88 million pounds [98 million euros] a month for almost two months. Now we are running at 50 percent for I don't know how long. We are talking 25 percent to 30 percent of revenue lost this year. The shutdown has embedded a loss into this year that -- whatever we do in the next five months -- you can't repay. I'm really optimistic about China, but I have no idea how Europe, the U.S. will respond. If they bounce back the way China did, then we will be in a very different situation, but we still couldn't build the cars [at the same rate as before lockdown].

What about your outlook for 2021?
The big question for next year is: Does the pandemic create a global recession? How long will it last? We have looked at 24 scenarios of how a recession could look, if there would be one. We have taken a fairly optimistic view, which is no second wave, full recovery of all markets by late 2021 and early 2022, with China being the leader in that process. Don't forget, China didn’t close down fully, whereas the whole of Europe and the pretty much the whole of the U.S. did. We have modeled it in many ways, but I haven't got a clue.

Have you been hit by supply interruptions since restarting?
We have had no disruptions so far. Do we have trouble-free supply of everything? No. But we didn't before COVID-19. What we did is built the warehouses to prepare for a hard Brexit. When the coronavirus problem started, we shut down about 10 days before anybody else but continued to supply all of those components linked to the cars coming in the next schedule. Therefore, when we started up again two weeks ago, we already had components because we expected the restart would be tougher than the shutdown.

Are you going to maintain that stockpile?
Yes, but not for COVID-19 because now is the time period when we have to ramp up for a hard Brexit. We are just restarting the Brexit management committee and we are going to make decisions in the next few weeks about how do we start replenishing the stockpile in the event of a hard Brexit.

How many days of production do you need?
We will go from two days to circa 10 days. It will take three to five months to get it to the right level. For example, for bodies it may take four or five months to build up an extra 10-day stockpile. Whereas for steering racks it might take us a month to build up the extra stock because the supplier has more capacity.

If a supplier suddenly stopped shipping, the stockpile would help, right?
Absolutely. I think the coronavirus crisis will force us all to look more closely at supply chains in the future, including not running them so lean.

So, that will become another reason why we have to pay more for our cars, right?
That as well as the masks and the hand sanitizer. We were proud that we took about 1.8 million pounds out of the cost of our consumables last year for things such as rags, gloves and various protection stuff. Now we use 5,000 masks a day at cost of about euro each.

Returning to the topic of Brexit, should the UK government ask for an extension to its current transition period with the EU to ensure it gets the right trade deal?
Our requirements haven't changed. We are heavily embedded into the European economic model in the automotive industry, supply base and access to our biggest market. It’s 24 percent of our sales. Any duties and tariffs on components or products would be damaging to us. If we get a hard Brexit on top of what we’re going through, it would be highly damaging for our business and for the UK industry. I'm not advocating extensions. The first priority would be to get a deal done before the deadline. The second priority, of course, will be to ensure that if there isn’t a full deal done across all sectors, that there are extensions to various agreements for sectors, if that's possible, or a total extension. We trust the government to do the right thing for the UK and the automotive industry in particular.

Before the coronavirus lockdown you were going to announce the Beyond100 strategy for Bentley, looking deep into the future. What does that future look like now?
We only have one electrified car now, but we want to fully electrify the brand between 2025 and the late 2030s. I'm not saying every combustion engine will be gone by 2035, but there will be a lot more electrification in the Bentley portfolio, not just hybrids. We want to make the business sustainable, both economically and environmentally. The company’s mission doesn't change. Because of COVID-19, we have the reduction in expectation of revenues, the need for rapid restructuring and this voluntary [redundancy] scheme. That will dominate our thinking for the next three to six months, but it doesn't change the direction.  

Has your desired specification for the full-electric Bentley due in 2026 changed?
No, we have always said that the first priority is to build an electric Bentley grand tourer that has to have a certain range -- well over 500 km (311 miles) to make it comparable with cars we sell today. The mid-2020s is when we’ll see the battery power sufficient to propel a Bentley-sized car for a Bentley-sized distance.

James Dyson estimates he could achieve a range of 500 km with his electric SUV before he killed it. Why is that distance not achievable for Bentley now?
Well, it is achievable, it just depends on a lot of variables. The journey we are on -- learning how to manage batteries -- can be as liberating as the battery-cell technology itself. There are theoretical potentials beyond what's currently practical and available. I'm just talking about reliable battery life within known scientific parameters without taking any reckless risks. Dyson isn't launching a car so his estimate is theoretical.

Will the COVID-19 crisis have any long-term effects on car buying or the industry?
It's a little early to draw any real conclusions, but I will give you an anecdote. I visited the garden center on a recent weekend and the number of people walking out with decorative twigs to put in vases was no less than I had seen before. So, if we thought we would all become more fundamental and altruistic in our purchasing behavior, I didn't notice it. But, anyone who hasn't self-reflected during this period probably should. We have 1,500 people working from home today. The corridors are empty but the teams are still meeting. I think it will give companies and individuals permission to behave differently. And I'm optimistic that people will still want to spend money and enjoy themselves. We all need a reward, whatever that may be, a flower for the house or a [1.5 million pound] Bentley Bacalar for your air conditioned garage.