Bentley completes speedy turnaround following profit-robbing 'perfect storm'

Bentley was given an ultimatum in January to become profitable -- fast. The message came from Wolfgang Porsche and Hans Michel Piech, two top-ranking members of the Porsche-Piech families who are the leading shareholders in the British luxury brand's parent, Volkswagen Group.

"The important thing is for every [VW Group] brand to generate a reasonable contribution margin," Wolfgang Porsche, head of the families, told the Frankfurter Allgemeine Zeitung when asked about Bentley. "That is not currently the case at Bentley, and we are not satisfied."

Eyebrows were raised at the quick turnaround timetable that Bentley was expected to meet. "It can only be one to two years," Piech said.

Last year Bentley suffered what CEO Adrian Hallmark called a "perfect storm," resulting in a 55 million euro loss.

It was Bentley's first year in the red since it posted losses in 2009 and 2010 after the global financial crisis. In the intervening years, however, it only once posted a margin above single figures -- a 10 percent profit in 2013.

This is about to change, Hallmark told Automotive News Europe.

Through nine months Bentley has posted a 65 million euro profit, according to VW Group figures, and it expects a significantly better fourth quarter than in 2018 because the long-delayed Continental GT coupe will finally launch in China this month. Having the key model available in the world's largest market will help the company's revival. "Next year, it would be hard not to have a record year," Hallmark said.

The cause of the perfect storm Hallmark referenced was the painfully slow rollout of three key models -- the Continental GT coupe, GTC convertible and Flying Spur sedan. The first-generation Continental GT was the car that propelled the relaunched Bentley brand to success in 2003, five years after VW bought the marque.

Bentley stuck to the same successful styling formula for the third-generation Continental GT that debuted last year, but underneath it underwent a radical overhaul. Adapting the Porsche Panamera's platform, adding Porsche's dual-clutch transmission and making extensive use of complex super-formed aluminum body panels pushed up costs and slowed development as Bentley obsessed about the look of the Continental GT's body and the action of its gearbox .

Development was delayed 18 months, but when it finally reached completion, Bentley couldn't find space in overbooked testing stations to homologate the models under the new WLTP emissions regulations. "We spent the money then couldn't build them. And when we could build them, we couldn't ship them and sell them because the certification wasn't in place," Hallmark said.

The replacement for the Continental GT, traditionally one of Bentley's best-sellers, was unveiled at the 2017 Frankfurt auto show, but Bentley has only just started selling the coupe and the convertible versions of the car in the U.S. Meanwhile, global sales of the Flying Spur sedan start in the first quarter next year. Hallmark estimates markets that account for about 40 percent of the brand's global volume didn't have its newest models for large portions of this year.

The brand's main revenue generator in the meantime has been the Bentayga SUV. Sales are still strong after launching in 2015 but neither it nor the niche Mulsanne limousine could carry the company, forcing it to slash costs. Bentley cut 450 people, about 10 percent of its workforce, and made efficiency improvements that reduced the time its core models spent on each station to a little more than 9 minutes from more than 12 minutes.

Hallmark describes the efficiency improvements, helped by Porsche Consulting, as being some of the most comprehensive in the industry over the last 12 months. "It's certainly more than Porsche achieved back in the 1990s when [former CEO Wendelin] Wiedeking did the first phase of lean," Hallmark said.

Under its two previous CEOs, Bentley targeted annual sales of 15,000 by 2018, but since 2014 the brand's volume has stalled between 10,500 and 11,000. After joining in February 2018 Hallmark nixed talk of a Bentley sports car and, according to one source, killed the planned development of a Bentley model on the same J1 electric platform as the recently launched Porsche Taycan.

Instead, Bentley is planning to launch an electric car by 2025. That model is likely to be underpinned by the Premium Platform Electric (PPE) that Bentley is co-developing with sister brands Porsche and Audi. To prepare for the shift to full-electric powertrains Bentley is making changes at its production base in Crewe, northwest England, where it has been building cars since 1946. Development work is being moved to a new site across the road from Bentley's headquarters to free up assembly space among the historic brick buildings.

Reading between the lines of Hallmark's statements, the electric platform layout will push development toward a crossover with a smaller footprint than traditional Bentleys, even if the cabin space doesn't change. "But that's not because we want to build a small car. We just don't want to waste space on the outside," he told ANE. On our visit to Crewe Audi e-tron and Mercedes-Benz EQC electric SUVs were spotted undergoing evaluation.

Another model line would give Bentley more resilience to boom-and-bust cycles that all automakers with limited ranges suffer from, especially in the ultraluxury segment where buyers are easily distracted by the next fashionable launch. But Bentley still has work to do, IHS Markit principal automotive analyst Tim Urquhart said. "The volumes have grown but profits really haven't," he said. "It's a difficult sector. All it takes is for the global economy to catch a cold, and they are back to losing money again."

For now, however, Bentley is in a healthy place. "We had the perfect storm, now everything is running as it should," Hallmark said. "We have built the cars. They are on quality. They are on quantity. We have turned the corner."