A Morgan craftsman works on a car in a factory outside Great Malvern, central England, on October 16.

'We always want to be building cars for customers. We do not want to have cars sitting in showrooms waiting to be shipped out.' - REUTERS photo

GREAT MALVERN, England (Reuters):

In the sprawling Morgan car factory in central England, business is brisk. Workers in navy blue overalls hunch over aluminium chassis and wooden frames of half-completed sports cars, the floor littered with wood shavings, the air punctured by the throaty roar of engines undergoing testing.

"Good British cars are lovingly remembered, but great British cars are still being built," proclaims the website for enthusiasts of Morgan sports cars, www.gomog.com. Morgan Motor Co. has handcrafted its sports cars here since 1909. One of the last remaining significant sports car makers in Britain, it is battling rising costs and competition from larger rivals, but hopes its niche position will ensure its survival.

"We always want to be building cars for customers. We do not want to have cars sitting in showrooms waiting to be shipped out - that's what everybody else does, that's why there's over-production and we're seeing so many car companies go bust," Charles Morgan, the 54-year-old grandson of founder H.F.S. Morgan, told Reuters in an interview.

Most of Britain's luxury car marques have either disappeared or been swallowed up by foreign firms - U.S. car maker Ford Motor Co. has acquired Jaguar and Aston Martin, while Malaysia's Proton Holdings Bhd. bought Group Lotus. Surviving alongside Morgan are Noble Automotive and Caterham, but as Britain's automotive industry faces a bumpy road, Morgan holds several trump cards - brand exclusivity, low production output, increasing exports and loyal customers.

CULT CLASSIC

The Morgan enthusiast "can cry like a baby when he finds a flea-sized scratch on his paint job, but will laugh with the rest of them when he spins out on a corner and smashes a fender," according to the Morgan lovers' website. "You can feel the engine when it's fired up, the way the tyres are going on the tarmac - you get a real thrill out of it," said first-time buyer Simon Wakeling, 42, who is already thinking of his next Morgan purchase.

Shrinking demand and escalating costs are prompting many domestic car makers to shift output to eastern Europe where labour is cheaper, although Japanese brands Toyota and Honda have launched successful British-built models. "Morgan will survive as it has an interesting consumer proposition. It's not a fashion product, but more of a cult classic, where demand is much less cyclical," said Harald Hendrikse, an analyst at Credit Suisse. The brand's vintage 1930s design and tight supply commands a premium. Customers have a waiting period of 10-12 months, down from five years previously, and the company produces 600 units a year. Each car costs between 25,000 and £65,000 (US$46,720- US$121,500).

Charles Morgan said rising production expenses from research and development, raw materials and labour are a challenge. The company keeps a lid on costs by sourcing its parts like engines and gearboxes from its partners, BMW and Ford. "We've made a couple of losses in the last five years due to the massive R & D expenditure in developing cars to meet U.S. market requirements, but apart from that, we've been profitable every year that I've been here," said Morgan.

The company is also grappling with intensifying competition from larger premium manufacturers, such as Germany's Porsche AG and Daimler-Chrysler AG's Mercedes marque. "What helps is Morgan's very protected, small market of loyal clients," said Horst Schneider, analyst with WestLB Research.

REPEAT CUSTOMERS

To survive the challenges, Morgan is boosting exports to the United States and western Europe, and new markets in eastern Europe, Russia, India and China, said marketing director Matthew Parkin.

The company sells 30-35 per cent of its cars in Britain and exports to the United States, Germany, France, Italy, Belgium and the Netherlands.

It also aims to encourage customers to buy a second Morgan by developing new models and tweaking existing designs. Now, 40-45 per cent of clients are repeat customers, up from 20 per cent nearly a decade ago, Parkin said.

To spur demand, Morgan created the limited edition AeroMax coupe, priced at 94,000 pounds.

"The AeroMax is a clear case of finding a new market for our cars," said Morgan. "We want to be in business for another 100 years, so the way to go is caution, with innovation."

Charles Morgan shows off his latest model, the Morgan AeroMax, which costs more than £90,000 (US$170,694), in a factory outside Great Malvern, central England, on October 16.