Has McLaren Ever Gone Bankrupt?

The McLaren Group is involved in Formula 1 and other motorsports, manufacturing luxury cars and high technology via McLaren Applied. This British firm is based in Woking England. Ron Dennis founded the group in 1981, shortly after he acquired the McLaren Formula One Team in 1981 as the TAG McLaren Group because of a partnership with Mansour Ojjeh’s TAG Group. Bruce McLaren, a New Zealander, had established the Formula One team in 1963. In recent years, there have been questions and concerns about McLaren’s bankruptcy. Even though the company has never gone bankrupt, it has faced financial troubles. In July 2020, Sky News reported that the people who owned the McLaren Formula One team were thinking about selling a stake in the squad as they attempted to raise hundreds of millions of dollars to stay afloat during the COVID-19 pandemic. This was a surprise to some in the motorsport industry.

In June 2020, Forbes revealed that that the McLaren Group was facing financial woes because of the times when suppliers were supposed to be paid. For this reason, it seemed unlikely that McLaren was capable of meeting its Formula One team’s ambitions to return to the front of the grid after several years of reversing results. Since it was founded in 1963, McLaren is the second oldest formula one team, after Ferrari. Besides, it is the second most successful squad with twelve drivers’ titles as a result of some of Formula One’s most famous names, such as Ayrton Senna and Alain Prost. Nonetheless, McLaren has not won the championship since Lewis Hamilton helped it win in 2008. Forbes also reported that McLaren’s financial troubles could be worse than people thought initially and could face insolvency by July 17, 2020. During that month, there was news that McLaren was taking the owners of its bonds to court to seek a High Court declaration that would permit the group to use its headquarters in Woking and historic car collection as collateral for a loan.

McLaren might be running out of time.

A few days after news emerged that McLaren could sell its stake in its Formula One team to help cover expenses, news of the group’s financial woes made headlines again as it sought legal assistance from the courts in Britain. McLaren needed to find additional funds, and that’s why it chose to use its historic cars and premises as collateral.

The situation is dire.

Forbes reported that the situation was dire. The publication stated that McLaren could become bankrupt if the Noteholders failed to allow it to release assets from the security and secure a new loan on them or sell them. It added that the judge needed to issue a declaration in McLaren’s favor in 17 days.

Why McLaren might go bankrupt soon

The following are some opinions and facts regarding how McLaren can become insolvent in the future and what the group can do to avoid it.

The history

It is evident that McLaren Motors and the Formula One team thrived when Ron Dennis was the CEO. Under his leadership, drivers’ and constructors’ world championships were won with Mika Häkkinen, Ayrton Senna, Alain Post, Niki Lauda, and Lewis Hamilton. However, after Dennis fell out with fellow shareholders since he was being forced out of the firm with a gardening leave, McLaren Automotive started to face financial problems. Although McLaren Automotive has been creating great vehicles for many years, its financial situation has not been great.

Where it started

Modern McLaren vehicles are based on the development and experience that the group has gained through the production of the McLaren MP4-12C. The 12C was a great vehicle, even if it had some faults. After all, it was the first vehicle McLaren manufactured after the revolutionary McLaren F1. Therefore, in the coming years, it was going to be challenging for McLaren to be producing new vehicles frequently. The MacLaren P1 and 12C did well, with the P1 becoming one of the best supercars produced in the 2010s decade. McLaren produced many other cars apart from the P1. However, the McLaren 720, 540, and 570 ended up costing the company a lot of money. Although these supercars are the best when they are functioning well, the main issue is not the vehicles but the firm’s upper management. The owners of the firm have a negative reputation for sending vehicles that have defects to their customers. Some common complaints among consumers include gearbox failures, windscreen cracking, suspension components failure, and a malfunctioning infotainment system.

It is normal for supercars to have small issues here and there because most of them are handmade and assembled. However, if a car company has been dealing with the same problem for many years, something is wrong. McLaren leaders might know about the problems with their vehicles and choose not to fix them. This can be a short-term solution for McLaren because the dealers pay them. However, it is not a long-term solution. It ends up hurting the brand and the vehicles’ value. The issue is that McLaren is losing money. The cars depreciate quickly, and the company is building more vehicles that its dealers can sell. The company is losing so much money is its build quality issues and a large number of vehicles facing factory defects. A good example is the McLaren 720s which should have brought in a lot of revenue for the company. However, the car lost half of its value within two years. Thousands of people who have bought McLaren vehicles have faced this issue. That is one thing that can render McLaren bankrupt.

The firm has problems selling the vehicles sitting at its dealerships. Therefore, that why dealers are willing to offer large discounts. McLaren dealers are also facing problems because the vehicles are a hard sell. To make the cars cheaper to consumers, the company can offer discounts or raise the vehicles’ residual value. When the residual value of a vehicle rises, it offers a Guaranteed Future Value (GFE). This means that once you have used the car (depending on the contract), a certain amount of money is what McLaren predicts the vehicle to be worth. If the vehicle turns out to be worth less than the GFE McLaren stated, then you do not have to pay additional money to the insurance firm, and you can return the vehicle. This strategy can result in the sale of many McLaren vehicles. McLaren can also focus on improving the status or image of the brand. The company should do its best to get rid of the poor reputation it has gained because of the poor-quality measures it takes in inspecting most of its vehicles. Another possible solution is to produce many different kinds of vehicles.