TVR: Who'll save a very British sports car?

In an episode of the BBC show Top Gear last year, the Formula One legend Sir Jackie Stewart was raving about the engine of a Tuscan 2 sports car, made by Blackpool-based TVR, which he had just test-driven.

The presenter, Jeremy Clarkson, interrupted him with the quip: "Yes, but will it last?" Now, after the iconic British sports car maker's production arm went into administration over Christmas, people are asking the same question about the 60-year-old company itself.

Uncertainty also surrounds the intentions of TVR's Russian owner, Nikolai Smolensky, who bought the company two and a half years ago for £15m. The publicity-shy millionaire, aged just 26, has been nicknamed the "baby oligarch" because of his father, Alexander, who made his fortune in banking in Russia under former president Boris Yeltsin.

Mr Smolensky had repeatedly assured the company's 300-strong workforce that manufacturing would remain in the UK. Then, in October, the company announced that it would cease production at its only factory in Blackpool and move the operation to an unspecified location overseas after failing to find an alternative site in Britain.

To followers of the recent history of car making in the UK, it is a sorry and all too familiar tale. The French giant Peugeot announced last year that it would cease car production in Coventry and Vauxhall said it would cut 900 jobs from its Merseyside plant. MG Rover went bust because its antiquated factory in Longbridge and tired brand could not compete with the efficient overseas plants run by global car makers.

But TVR was not doomed to fail. It has always been a niche manufacturer, churning out around 500 cars a year in the 1990s, catering to dedicated, sports car enthusiasts. MG Rover, by contrast, had the capacity to make 200,000 vehicles.

Nor was TVR starved of money, at least not recently. Mr Smolensky is thought to have invested £30m in the company to make production more efficient and to improve the designs of the cars. He is far from being an asset stripper, and even if he had wanted to, TVR has few assets to strip.

Astonishingly, Mr Smolensky completed the deal to buy TVR in around two weeks; normally, an acquisition of this size would take several months. The sports car enthusiast famously walked into a TVR showroom in London, bought a T350 Targa and then told the disbelieving dealer: "I'm buying TVR tomorrow."

It seems that in his haste he did not carry out proper due diligence on the business. Several well-informed sources report that Mr Smolensky did not know, when he completed the deal, that he was not buying the Blackpool factory and the surrounding land. Instead, former owner Peter Wheeler retained the site, near a residential area in Blackpool, and charged the new owner rent. According to the latest available accounts for the business for the year 2004 (the first since the acquisition), this amounted to £219,000. Crucially, only a short lease was attached, which expired in October. This forced the company to look - unsuccessfully in the end - for an alternative site.

It seems incredible that all this could have escaped Mr Smolensky's attention when he did the deal. But the Russian, then only 24, does not boast a long track record. According to Companies House, which gives him a north London address, he has only been director of three other companies, two of which were dissolved. For an inexperienced businessman and a sports car enthusiast playing with his father's money, it's perfectly plausible for him to make such a mistake.

Other problems emerged after the deal went through. In 2004, the company lost £11.7m, compared to a loss of just under £1m the year before. This was largely due to a writedown of £8m, on the value of completed and partially completed cars, given by the previous auditors under Mr Wheeler's ownership. Grant Thornton, the new auditors, also complained of the "unavailability of detailed records".

When Mr Smolensky's advisers visited the plant in Blackpool before they struck the deal, brand new TVR cars were conspicuously parked outside to impress the visitors. But a proper walk through of the antiquated factory in Blackpool would have told a different story. One industry executive remembers: "There were legends about engineers from Porsche walking out scratching their heads wondering how on earth it was done. The factory was Victorian-era." To move the chassis from one assembly line to another, workers would have to load them on to trolleys and push them around.

In some ways, the rustic nature of the plant and its old-fashioned, labour-intensive methods contributed to the TVR aura. It was founded by a young engineer, Trevor (hence the name, TreVoR) Wilkinson, when he designed a sports car, and has mostly been run since then by car enthusiasts first and businessmen second, who were often eccentric to boot. The company has prided itself on making "real" sports cars without all the add-ons and frills seen in rival models. Ralph Dodds from the TVR Car Club says: "There is no other car like it. It's a driver's car."

When a journalist asked a press officer in the late 1990s why TVR cars did not include standard safety features like airbags, he replied: "We're still making our cars for heterosexuals."

But sales have been on a downward spiral in recent years. The break-even mark is thought to be around 600, but last year TVR made fewer than 200 cars. It only generated a profit once in the five years before Mr Smolensky's purchase.

Paul Newton, an analyst at consultancy Global Insight, says: "Smolensky is feeling his way here. He's a young man without a lot of experience. I don't think when he started he had a clear plan of what to do."

Senior managers left the company soon after Mr Smolensky took over and staff were never entirely convinced by his protestations that the Blackpool factory would stay open. Joan Humble, Labour MP for Blackpool North and Fleetwood, says: "The picture has been confused ever since Smolensky bought TVR. At the time, questions were asked about his intentions. To his credit, he invested a lot of money in the factory to improve production."

Many of the problems are attributable, says Mr Newton, to the company's decision in the 1990s to start making its own engines. "They were unreliable and were the final straw when it came to what customers were prepared to put up with from TVR. People started walking away, especially as competition for two-seaters intensified."

Nicky Samengo-Turner, a motor industry consultant, says Mr Wheeler had opportunities to sell the company when it was still making a profit in the late 1990s. It was "the perfect brand and profile for Ford or GM, or even Chrysler then, but Wheeler was too difficult to deal with," he says.

A variety of management buy-in proposals were put to Mr Wheeler, including a deal with a former partner in the McLaren Formula One team to take production to Brazil, and one with the management of the engine developer Cosworth.

Mr Samengo-Turner adds: "Wheeler saw himself as a mini Enzo Ferrari, hence his obsession with making his own engines."

The question is whether TVR can now be saved - and if it's worth saving. Blackpool Automotive, a subsidiary set up last year to take over the running of the factory, was sold last month after TVR said it was moving production overseas. It is not known how much it was sold for, but it was probably a token sum. Nor is it known who bought it, although the two new directors listed are Roger Billinghurst, a TVR director, and a mysterious Austrian called Angelco Stamenkov. A few weeks after the sale, Blackpool Automotive went into administration. The subsidiary, and not the TVR holding company still owned by Mr Smolensky, is liable for the estimated £3m owed to workers in back pay, as well as other debts.

Mr Smolensky has told the administrators, PKF (UK), that he is prepared to pay the redundancy money, but legally he may not be allowed to do so if he does not pay back other, higher-ranking creditors.

The only real asset left is the TVR brand, which the holding company retains, but this has been damaged by the engine problems and the negative publicity from the company's recent financial difficulties. Mr Smolensky wants to take the brand upmarket by building the car overseas with a contract manufacturer, probably in Italy. Bertone, which makes chassis for Ferrari, is one possible partner. TVR is expected to announce details later this month, but Mr Newton cautions: "I don't see the logic as I can't see TVR having a market outside the UK."

A revival of production in Britain is not impossible, but the chances are now slim. Company doctor David James, who tried to buy the MG sports car business last year, contacted Mr Smolensky about acquiring the brand in the summer, before he bought the Smart Roadster marque from DaimlerChrysler. Jon Moulton, the venture capitalist who runs Alchemy (which tried to buy MG Rover in 2000), also considered buying TVR but is no longer thought to be interested.

Mr Smolensky would still like to sell TVR. But having paid £15m and invested another £30m, he is understood to want £50m for a loss-making company that has no factory and a flagging brand. Unless he finds someone as generous - and naive - as he is, the chances of TVR making a comeback are slim.

The TVR timeline

1947 young engineer Trevor Wilkinson establishes TVR (derived from his first name TreVoR) when he hand-builds a sports car using a light chassis to minimise the power-to-weight ratio.

1950s TVR starts to make its name with production of the Grantura sports car, which uses a tubular fibre-glass body like the Lotus car. Sales in the US begin.

1962 TVR races at the 24-hour Le Mans race for the first time.

1963 a more powerful version of the Grantura is introduced, the TVR Griffith, which outperforms Jaguar and Ferrari models.

1965 after financial difficulties, the company is sold to Martin Lilley, who introduces the Vixen and Tuscan V8 series.

1970 as the company grows, it moves to the current Blackpool site. Two years later the M-series is introduced. Capable of accommodating several different types of engine, it still influences current designs.

1982 car enthusiast and oil services businessman Peter Wheeler buys TVR, introducing a new series of V8 cars including the 350i, 390i, 420 SEAC and 450 SEAC, using engines made by Rover.

1987 one of the TVR's most popular cars, the S, is introduced.

1993 the Griffith 500 is launched. Together with the TVR Chimaera (also new that year), this goes on to become one of the great TVR classics. Production of the Griffith 500 only stopped in 2002.

2004 Russian businessman Nikolai Smolensky buys TVR for £15m as losses mount.

April 2006 TVR lays off half the staff because of poor sales.

June 2006 TVR announces that it will keep production in the UK after finding an alternative site in Lancashire with help from the council. A month later, the laid-off staff are reinstated.

October 2006 TVR announces it will move production overseas after the plans for the new site fall through because of concerns over the suitability of the proposed factory.

December 2006 TVR subsidiary Blackpool Automotive, which runs the Blackpool site, is sold for an unknown price and days later goes into administration. Its 300 staff are made redundant.