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The Rally Fighter: New Car, New Car Company

"Cars have not really changed from the time that Henry Ford put them out."

That's the sentiment of Jay Rogers, a former Marine armed with a Harvard MBA who loves cars.

He really loves cars.

Source: local-motors.com

He loves them so much he built a car company.

It's called Local Motors.

But...

"The product is hard to make."

To make the product easier to be make — and still be profitable — Rogers borrowed a page from microbreweries. "Customer taste in beer was really in revolt, and they said, 'Look, yellow beer is not exciting to us.'" He took that idea and added a twist — crowd sourcing.

Rogers convinced 45 investors to give him $10 million to start Local Motors. The first $100,000 went into building a website and online community of avid gearheads. Local Motors then solicited their car concepts in a contest. Community members voted on which concepts they liked. Local Motors then chose one to build, the Rally Fighter, believing there was enough demand to at least break even. The winning designer, Sangho Kim of Pasadena, got $20,000 and his name will be on the car.

With a winning design in hand, Rogers opened his first "microfactory" outside Phoenix last year to begin production of the Rally Fighter, a very muscular off-road street-legal racer best suited to the desert. Local Motors designer Aurel Francois says they had to tweak Kim's design to make the car work. "It made more sense to have a front mid engine," he said. The original design had the engine in the rear. Francois, who was a member of the Local Motors online community in France before joining the company as an employee, didn't understand the Rally Fighter's popularity at first. However, "When I came over to the U.S., I realized how much passion there was for the hot rod culture, for the offroad culture."

Wired Business Conference 2011 - A CNBC Special Report
Wired Business Conference 2011 - A CNBC Special Report

The cars cost from $50,000 to $59,000 depending on what kind of equipment a buyer wants. Most of the 1,400 parts are off the shelf from other carmakers, and all buyers must agree to come help build the cars. Rogers has an interesting explanation for that. You can see it here.

"We were looking to try to disrupt this industry," he says, "which means that we were looking to do it on a hundred times less capital." That also means "you'd need about a hundred times fewer of them in volume in order to be profitable as a business." So far Local Motors has spent $3.5 million to start building the Rally Fighter, and Rogers believes he only needs to sell a few hundred to break even.

So far about a dozen Rally Fighters have been sold and are on the road, with another half dozen being built inside the factory. Rogers says he has deposits on 140 more. He says the company will be profitable next year, and he hopes to announce a second microfactory — with a second model — this summer. Texas is a leading contender for the company's expansion, based on demand and business environment. Rogers also sees a lot of demand from drivers in Southern California, "but California is a tough state for us to do business in."

Does Jay Rogers think he can turn the auto industry upside down with his little company?

He says that if one thinks of the industry as a glass jar full of rocks, the big rocks are the big players. "There's all this space around the rocks that they can't fill."

Local Motors, he believes, can help fill that space. "I think we can grab market share. I think it's without displacing current players that are in there...we are feeding demand that is there and not being served."

By the way, what's it like to drive the Rally Fighter? I didn't get to drive it, but I rode shotgun...and lived to tell the tale. You can see it here.

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com

  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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