The Rise and Fall and Rise Again of Dynasty Electric Cars
By Greg Fjetland
What happened to its distribution of GEM
When the U.S. government decided to allow low speed vehicles on the American highways in 1998, Barry Good of North Vancouver saw an opportunity to get in on the ground floor of a huge new market. With an extensive background in both sales and the automotive industries, Good foresaw a significant business for electric vehicles with gated retirement communities, university campuses, destination resorts, industrial complexes and short-haul commuters. Good launched a new company to design and build a multi-purpose electric vehicle that could be customized for customer’s needs, “There were no really viable alternative vehicles available,” he says. Good’s company, Dynasty Motorcar Corporation, was the bold result of his passionate vision. But overconfidence, a razor thin margin for error and lack of capital almost killed Good’s dream. Only through an innovative financing arrangement with another company was Dynasty to survive.
At first it seemed as if Good and his nascent company could do no wrong. Good had a clear grasp of what was required. First he hired experience: top people from Western Stars Trucks and Orion Buses. He chose Gerry McPharland as President, and Kelly Kennedy for VP of Sales and Financing. Then he assembled a team that would design and market this product. Paul Deutschmann, a designer out of Montreal, did the initial concept work for the vehicle in late 1999, before handing the project on to an industrial design team that included Bombardier on its client roster.
With the design well underway, a prototype in the works and increasing staff, Dynasty’s operating costs ramped up significantly. Good and his executive anticipated this and knew that they would need more money to bring their vehicle to market so they finessed the reverse takeover of a publicly traded company called Atwood Gold. Atwood had $2 million in ready cash which, along with a private placement of $1.0 million, provided the initial working capital for operations at Dynasty.
It wasn’t enough. Dynasty’s business plan called for start-up capital of $7.5 million. So in August 2000, with Raymond James as their underwriter, Good and company undertook a roadshow across Canada to raise investor interest in their nascent enterprise. Dynasty hoped to raise $10 million from the IPO.
Unfortunately, their timing couldn’t have been much worse. By then the passion for high tech IPOs was in full retreat. So, Raymond James reduced the IPO of March 2001 to $6.5 million. Outstanding warrants on the private placement could still bring in an additional $2 million, and that $8.5 million would put the company solidly in the ballpark of its capital requirements. Says Kelly Kennedy, “We were looking to establish a financial cushion for dealing with unexpected.” Depending on future financing that was not in place was to prove the company’s eventual undoing.
Adding to Kennedy’s fiscal uncertainty was that Dynasty was venturing into uncharted waters. “It’s always a challenge when you’re going into a brand new marketplace. There’s not a lot of empirical data to which you can look at and say, “A-ha!” Our concept was that we were going to take people of golf carts into our vehicles and out of automobile into our vehicles. So there wasn’t a lot of data because the market was new,” Kennedy says.
After considering US. locations including Tampa, Florida and Tucson, Arizona, the Dynasty executive chose Kelowna for the site of its new production facility. Operating out of Kelowna made a lot of sense, not just because of the favourable exchange rate but because of the local infrastructure. Kelowna was home to the now-defunct Western Star trucks, at the time a sizeable and growing heavy truck manufacturer. Plenty of auto suppliers had opened shop in town, saving Dynasty the expense and time of ordering parts from eastern Canada.
Dynasty’s manufacturing plant opened to plenty of local fanfare in August of 2000. Generating this excitement was the company’s flagship product: the IT (Innovative Transportation.) The IT was a nifty-looking car, able to travel 30 miles around town on a single overnight charge. A zero emission, electric low-speed vehicle, the IT’s trump card was its ability to be custom ordered in a variety of configurations. Dynasty promised to offer the IT in sedan, van, convertible, sport, utility and golf vehicle styles. Dozens of people were hired to build the car, with company payroll eventually topping out at 68 employees.
And so the bills poured in. Says Kelly Kennedy, “The bulk of the money was used very quickly because we were into tooling up for production of the car.” Going public also proved very expensive. “And then you’ve got all the legal costs of doing this which was quite horrendous. That’s a procedure to go through. But we got the IPO and built our first vehicle in April 2001,” says Kennedy. The final tally, from concept to production of the first car off the line, was to total $12 million.
Still, Kennedy and Good were unconcerned. Their business plan was coming together fairly well. With the plant now producing and selling cars, the company had real income. A dealership network of 15 dealers across Canada and the United States was growing, and the company had an order backlog of 150 vehicles at $18,000 each.
Ironically, it may have been this brush with early success and the executive’s considerable experience in the automotive industry that was to contribute to Dynasty’s impending date with disaster. The executive assumed they’d be able to deal with contingencies as they arose. But problems that compounded upon each other would soon prove overwhelming.
It began with unexpected problems with the window crank and seals. Sold units were being returned for repair. New units couldn’t be shipped until the problem was fixed. Every auto company has model recalls but Dynasty was caught on the horns of a financial dilemma. Says Kennedy “ The only way to generate cash was to ramp up our build rate.” But that couldn’t happen until those windows were fixed. And in anticipation of future sales, Good says that all of their capital was tied up in inventory.
By June 2001, the cash flow problems had become much more acute. The stock price, at one point at high as $3.00 drifted down below $2, the exercise price for the $2 million of warrants. Cash, which they had mistakenly assumed they’d have, was suddenly not available. Kennedy, by then president of Dynasty, –Gerry McPharland has stepped aside for health reasons - was out looking for additional venture funding. Waiting in the wings was a $1.5 million order with the good possibility of an additional $40 million order over the next two years.
Looking back, Kelly Kennedy says reflectively now, “Our inability to raise capital was the issue.” He says, “In hindsight I’d say we should have tried to have raised more money at the outset when the timing to raise the money would have been better. Instead of a small private placement we should have tried to do a much larger one. We should have tried to get more money sooner. Having the money is so important for a start-up in the business developing a new product.”
By the end of July, it was obvious no white knight was on the way. Like any CEO, it was with a heavy heart that Kennedy laid off the staff and shut the doors at the Kelowna plant. The problems that had lain dormant within the company since its inception - inadequate start-up capital, no contingency plan to cope with product delays - had brought the company to its knees. “When we saw we weren’t going to get any additional funding we just sort of mothballed the operation, cut way back and continued searching for new money,” says Kennedy.
After taking the time to examine all offers, Kennedy accepted a partnership with Dean MacKay, president of Commercial Body Builders Ltd. Commercial builds custom vehicles like armoured trucks, buses and utility trucks. Electric vehicles would become another product line. The deal breathed new life into Dynasty with news of the joint venture announced in August 2002.
The result is the Dynasty Electric Car Corporation, a joint venture equally owned by Commercial Body Builders and Dynasty Motorcars with MacKay as its president. Dynasty provided the design and assets worth about $3 million and Commercial provided facilities at their existing plant along with cash to the equivalence of about $3 million, receiving 500,000 shares in Dynasty Motorcars in exchange. Dynasty once again is shipping cars to its dealers. Dean MacKay says he’s excited about the prospects for the IT. He says emphatically, “I really really believe that this car will have a very significant place in the market.”
Comments Dean MacKay on Dynasty’s previous woes, “One of the mistakes Dynasty made was it tried to get too big too fast. One of the reasons (they did this) was because they ran out of cash. And when you run out of cash you rush to market with goods that aren’t completely developed. Cars were shipped that weren’t ready.” He says they’ve spent the last six months studying how to best build the car that is now “ten times better than it was before.”
With these hard lessons behind them, both Kennedy and MacKay view Dynasty’s future with confidence as a result of the JV. “Our cash costs are less because we’re in somebody’s else facility, and we’re ramping up production slowly,” says Kennedy. Adds Dean Mackay, “This car has huge sex appeal. When we show the car, everyone is very drawn to it.”