Image: Mk3 Roadster
Businessweek
The Mk3 Roadster kit car will cost you $12,990.
By
updated 7/13/2006 3:51:40 PM ET 2006-07-13T19:51:40

A bad grade drove David Smith into business. Smith is co-owner, with his brother Mark, of Factory Five Racing in Wareham, Mass. The two started their company in 1995 after David's C grade on an MBA case-study paper outlining—of all things—the growing potential for do-it-yourself custom car kits.

Though Smith's professor didn't buy it, the brothers, both engineers by training, were convinced that significant advances in technology, growing parts availability, and renewed public interest in classic cars presented a golden opportunity.

Since then, they have doubled volumes nearly every year. They predict this year's sales of between 800 and 1,000 kits of the five models they offer will top $16 million, up 12% from last year's $14.1 million. Factory Five Racing, meanwhile, has become the largest U.S. seller of kit cars in a quickly growing field of custom manufacturers.

Stable niche
Kit cars are highly-customized, homemade, hand-assembled cars, typically built around major technical components taken from other vehicles. They come in two formats: As unique models (such as the Caterham CSR260 roadster, a British kit car that can go from 0 to 100 mph in 11.95 seconds) or as ways to transform the chassis and engine of a mundane car (making a VW Beetle look like a Lotus 7).

A stable auto industry niche since the early 1900s, some estimate hundreds of small manufacturers from Southern California to Northern New England have cropped up, offering similar step-by-step custom kits that enable hobbyists to build cars practically from scratch. Models range from meticulously detailed replicas of legendary racers to whimsical flights of design fancy based on muscle classics.

Time and equipment requirements vary given the complexity of the kit and the builder's experience. Most kits are aimed at enthusiasts who are more than comfortable tinkering under the hood and have most likely restored older cars in the past, though heavy-duty tasks such as welding aren't usually part of the process. Some kits retrofit existing chassis with new bodies and others recreate vehicles from the wheels up. A "donor car," from which to lift common parts, often speeds up construction.

Making a memory
A fraction of the cost of a factory-made new or classic car, kits commonly replicate cars so rare that sale prices of auctioned originals easily climb into six-figure territory. This year, for example, 1963-model year Shelby Cobras have sold for anywhere from $300,000 to $600,000 at sales held by RM Auctions, an automotive auctioneer based in Blenheim, Ontario. Exceedingly rare race-bred originals, meanwhile, have gone for as much as $1.65 million.

In comparison, a kit reproducing a similar vehicle—both in design and performance—offered by Factory Five Racing starts at $13,000.

Enthusiasts also say kits appeal for nostalgic reasons, excavating memories—mostly for well-educated, high-income men in their fifties—of automotive thrills long past. The most popular models by far replicate the spirited roadsters of the early 1960s such as Cobras and Austin Healeys.

Smith says kit cars are the modern equivalent of model ship building. "Nothing against ships in bottles," he jokes, "but that's boring. Now making your own 200 mile per hour car—that's a big deal."

Kit clubs
The entire hands-on process can take anywhere from a few months to 10 years, hobbyists commonly kid. Average build times range between 6 and 12 months, with some enthusiasts keeping journals chronicling their progress. Many take on kit projects—which include every step from the first bolt affixed onto the chassis to the installation of the gas cap—before having mastered many of the assembly techniques required. "The learning curve is part of the fun," says Don Scott, owner of Classic Roadsters II, a kit provider in Sauk Centre, Minn., who bought his company after building a kit car in his spare time.

As do other providers, Classic Roadsters II also offers turnkey cars that have been assembled in a factory. Scott notes that this is a less popular option since the build process is part of the attraction. Only about 10% of his sales are pre-assembled. Enthusiast clubs, an important gathering ground for builders, sometimes convene to collaboratively build kits in as little as one day.

Though the tiny size of this niche market has remained for the most part constant, the quality of kits has improved since the much larger aftermarket parts sector heated up in the 1990s and computer-aided technology ripened.

Quality parks
The Diamond Bar (Calif.)-based Specialty Equipment Market Assn., a trade group that represents manufacturers, retailers, and distributors, estimates that of the rapidly expanding $34 billion U.S. specialty auto equipment and accessories market—i.e. components which drivers add after purchasing a vehicle—just under $1 billion is comprised of kits and kit car accessories.

In part thanks to greater availability of high-quality parts and computer-aided design software, car kits are shedding their stereotype as rowdy and sometimes dangerous. That reputation developed in the 1970s when many vehicles were simply inexpensive fiberglass bodies mated to Volkswagen undercarriages.

Jim Youngs, the editor of the hobbyist-oriented magazine, which has a circulation of 35,000, says the improved quality of after-market parts is helping fuel growth. "It's no longer an exercise in junkyard scrounging," he says.

Creative license
The road for kit cars hasn't been entirely obstacle-free, however. Until recently, Departments of Motor Vehicles in many states had muddy registration procedures for the highly customized cars, if any at all. Outdated registration rules or lack of vehicle class definitions can make it tough to obtain titles for home-built cars.

With some success, SEMA has been working with state legislatures to pass laws more favorable to kit builders. Versions of legislative text it drafted, which allow kit cars to be registered under original model-year dates, have passed in seven states since 2002 and are pending in five more.

For example, an Austin Healey replica built in 2006 could be registered in Illinois as a 1962 model it is designed after, exempting it from emissions tests it could not pass given the lack of expense-increasing technologies like catalytic converters.

It's patriotic
SEMA's vice-president of government affairs, Steve McDonald, has rallied 140 state legislators, 87 U.S. House members, and 12 senators into various caucuses sympathetic to kit motoring enthusiasts across the country. McDonald points out that the law's text specifies that kit vehicles are intended for occasional, low-mileage recreational use, which has helped legislation move through state assemblies.

"The reality," he adds, "is that these are the same vehicles that escort many politicians down Main Street on the Fourth of July. It's feel-good legislation." Kit cars are even more popular in Europe, thanks to more lenient laws.

Other complicated legal challenges have periodically cropped up, though. Famed tuner, racer, and designer Carroll Shelby, who penned the first drawings of the popular kit-inspiring Cobra racer, sued Factory Five Racing for copyright infringement. Hard-fought legal proceedings that began in 1992 ended this January when Shelby lost his final appeal in the First Circuit Court. Observers say that decision sent a generally positive message to prospective kit makers.

Smith says that now the legal wrangling is over, Factor Five Racing and others can continue pursuing their passion. "The Germans and Italians have managed to translate their cultural love of automobiles into their products—I mean just think of how beautiful a Lamborghini is,” Smith says. “And that's what we're trying to do here."

He adds, "All in all, kit building begins and ends with love."

Copyright © 2012 Bloomberg L.P.All rights reserved.

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