The downfall of DeLorean was fueled by overconfidence in a slick design that masked shoddy construction, ignorance of market forces, and a series of disastrous leadership decisions. For entrepreneurs, DeLorean serves as a cautionary tale on the razor‘s edge between runaway success and catastrophic breakdown.
John DeLorean was an ambitious dreamer who believed he alone could take on the automotive giants. In 1975, he founded DeLorean Motor Company (DMC), intending to manufacture an ethical sports car that prioritized people over profit. However, despite $175 million in investment, the DeLorean vehicle resulted in one of history’s most spectacular business failures – much to the surprise of its visionary founder.
This article will explore how DeLorean crashed and burned in such spectacular fashion despite so much initial promise. For the modern entrepreneur, DeLorean offers a prescient warning on the finer points separating game-changing innovation from just another footnote of failure. By examining the integral reasons DeLorean failed across production, design, leadership, and financial management, forward-thinking founders can inoculate themselves against similar disaster.
Fast Rise and Even Faster Fall of DeLorean
| Year | Key Events |
|---|---|
| 1974 | DeLorean quits General Motors to start his own company |
| 1975 | DeLorean Motor Company founded |
| 1976 | Begin work on prototype "Ethical Sports Car" |
| 1978 | Construction on factory in Northern Ireland |
| 1980 | First prototype DMC-12 finished |
| 1981 | DMC-12 goes into production |
| 1982 | John DeLorean arrested on drug charges; company declares bankruptcy |
| 1983 | Factory assets liquidated to pay debt |
In the above timeline, we clearly see evidence of a meteoric ascent followed by an even more meteoric downfall. But what specifically went so wrong so quickly?
Reason 1: DeLorean‘s Inexperience Set the Company Up to Fail
John DeLorean made a critical mistake in assuming his past accolades equipped him to lead an independent car company. As an executive at General Motors (GM), DeLorean oversaw successful programs like the Pontiac GTO muscle car. However, DeLorean was primarily an engineer and designer – not a CEO with full profit/loss responsibilities.
DeLorean lacked expertise in manufacturing operations, supply chain management, marketing and other intricacies in scaling up production. With no seasoned veterans to counsel him, DeLorean managed through guesswork and ego. This inexperience led directly to major missteps like deciding to build almost the entire vehicle in-house when competitors outsourced those functions.
Let’s contrast DeLorean’s solo act with Elon Musk at Tesla – another startup automaker. Despite his bold vision, Musk recruited experts like CFO Deepak Ahuja early on from other automakers. The mix of innovative thinking plus industry experience helped Tesla iterate and improve through inevitable stumbles. DeLorean’s blind ambition drove his venture off a cliff.
Reason 2: Unforced Quality Control Errors Doomed the DMC-12
The initial reviews for early DMC-12 prototypes were glowing heading into production with multiple magazines praising its cutting-edge design. However, once actual customer vehicles rolled off the line, crippling quality issues sank its reputation almost instantly.
| Component | Quality Control Issues |
|---|---|
| Engine | Severely underpowered at 130 hp; poor fuel economy of only 21 mpg |
| Body | Ill-fitting panels with large, visible gaps; leaks in rainstorms |
| Electronics | Frequent short circuits; radio/gauge malfunctions |
| General | Rattles, leaks, stalls; described as "garbage" by critics |
DeLorean executives were aware of these deficiencies before launch but prioritized cash flow over delays. Still, competitors like Lotus and Porsche offered superior fit, finish, and performance at similar price points. DeLorean could have mitigated the damage by holding launch to address problems. Instead, the company doomed itself playing catch up on quality after the fact – an enormously expensive and reputation-harming position.
Reason 3: The Economic Downturn Killed Sales Projections
The launch of DMC-12 production coincided disastrously with the devastating early 1980s recession. Unemployment in the U.S. hit nearly 11% by 1982 while inflation remained wildly high stunting consumer spending power. Auto sales across the industry plunged to their lowest levels in decades.
| Metric | 1981 | 1982 | % Change |
|---|---|---|---|
| US Unemployment Rate | 7.6% | 9.7% | +28% |
| US Car Sales | 8.1M units | 5.1M units | -37% |
This economic climate strangled dealers’ efforts to sell unproven DeLoreans when trusted brands offered better machines for equal or lower cost. Demand forecasts expecting 12,000 sales in the first years proved fantasy – actual sales topped out around 6,500 units. There was no reserve capital to endure lean times after the enormous start-up costs.
Worse still, consumer appetite shifted towards practicality with high gas prices and environmental concerns around excessive sports cars. DeLorean’s mediocre fuel efficiency looked outdated before it even debuted. The economic downdraft slammed the door on critical early revenue.
Reason 4: Insufficient Capital and Hemorrhaging Finances
John DeLorean cobbled together around $175 million to launch his automotive concern – no small sum. However, the capital proved wildly insufficient to sustainably run an independent car company manufacturing from scratch. By late 1981 with just under 3,000 cars produced, DeLorean was $175 million in debt – exactly equal to their total starting capital.
| Metric | Dollar Value | Notes |
|---|---|---|
| Total Startup Capital | $175M | Seed/VC funding raised |
| Peak Monthly Outlays | $17M+ | $500k+ daily burn rate |
| Total Debts (1982) | $175M | 100% of starting capital |
The financials also fail to capture massive intangible damage to relationships with suppliers, investors, and partners through things like delayed payments to contractors causing work stoppages. DeLorean induced whiplash going from a media darling to facing investigations of impropriety in shockingly fast fashion.
Learning from DeLorean, future transportation startups like Rivian and Lucid Motors have raised billions upfront to withstand cash bleeds better. But excessive access to cheap capital comes with its own dangers long term.
Reason 5: Drug Charges and Legal Troubles Torpedoed Trust
In scenes resembling a Hollywood crime caper, John DeLorean was videotaped by undercover federal agents agreeing to bankroll a $24 million cocaine smuggling operation in a last ditch attempt to raise cash. While DeLorean claimed entrapment and beat the charges, the conniving stigma stuck.
Investor confidence in supplying further capital evaporated overnight with the founder’s name plastered on headlines tying the company to narcotics. Any remaining hope of good faith deals to take risks on DeLorean cars or stock vanished. Suppliers stopped extending credit worried about not getting paid.
Though DeLorean deserves benefit of the doubt on veracity of the charges, the controversy cemented the narrative of mismanagement and malfeasance. Rightly or wrongly, the court of public perception ruled strongly against DeLorean from that point forward.
Key Takeaways for Aspiring Entrepreneurs
The rapid collapse of DeLorean holds several powerful lessons for leaders trying to launch the next big thing:
On Leadership: Vision and charisma alone cannot outweigh operational expertise. Bring experienced partners on early who have built scalable companies in your industry.
On Quality: Rushing products to demo capabilities or generate buzz can backfire disastrously. Take the time and investment to rigorously test for bugs, and problems that erode hard-won trust.
On Capital: Tremendous amounts of seed funding cannot substitute the revenue engine of sales, especially for physical products with extensive production needs. Make razor-sharp projections and be ready to cut losses.
On Reputation: Optics, trust, and relationships make or break companies, especially during turmoil. Avoid a siege mentality and communicate transparently with investors, partners, and customers.
At its core, DeLorean Easters a sobering lesson in hubris believing no problem can’t be outrun with enough hype. But slick marketing materials and media reports are no match for fundamentally broken products when rubber hits the road. Build a solid vehicle before designing lavish interiors.
