Ex-F1 designer Murray claims to have slashed small-car production costs

Gordon Murray stands with two examples of his T.27 electric car.

Ex-Formula One designer Gordon Murray says he's devised a way to build small cars profitably again.

The British-based engineer is touting a new production system that he claims can make a city car in two primary steps instead of the standard five.

"Essentially, we've been making motor cars the same way since the Model T, and that model is breaking down," Murray told Bloomberg Markets magazine.

As rising oil prices and tightening fuel economy rules push manufacturers to make smaller cars, they are saddled with what Murray calls an outdated and costly system of turning sheets of steel into vehicles.

Automakers have long lost money making small cars because they have to invest just as much capital in the metalwork for a cheap compact as they do for a luxury sedan, says Eric Noble, president of The Car Lab, a California-based consulting firm.

At the heart of Murray's iStream system is a lightweight composite material similar to carbon fiber but 25 times cheaper. This composite is used to make the chassis, onto which components and plastic body panels are installed.

Three steps--stamping the steel frame, welding the body together and rustproofing--are eliminated.

A manufacturer could build an iStream plant to make 100,000 cars annually for 85 percent less capital than a conventional one, Murray says.

His company, Gordon Murray Design, based in Surrey, England, plans to license iStream to automakers in return for an upfront fee and a percentage of the sale of every unit that rolls off the line.

Murray, a South African, rose to fame as an innovative design engineer at the Brabham Formula One team in the 1970s and early 1980s. Perhaps his greatest achievement was the universally acclaimed McLaren F1 supercar in the 1990s.

Murray says the idea for iStream came to him when he was driving to work in the London suburbs in 1993 when he got stuck in a traffic jam. Surrounded by gas-guzzling sedans, he vowed to someday make small, efficient vehicles that would ease congestion and become stylish objects of desire.

He switched his focus away from high-performance machines to build two low-emission city cars--one gasoline powered, the other electric.

The T.25, with a 51-hp, three-cylinder gasoline engine, can reach 100 mph. It weighs just 1,212 pounds and gets 80 mpg.

The T.27, propelled by a lithium ion battery and a 25-kilowatt electric motor, has a range of 99 miles.

Unlike the longer Smart ForTwo city car built by Daimler, Murray's car seats three people instead of two, with the driver placed in the middle ahead of the two passengers. The car has already passed the European Union's crash-test requirements.

Murray has conducted exploratory discussions with 10 car companies and five other businesses to license iStream but has not closed a production deal yet.

"Many automakers are on their financial knees right now, so they can't afford to transition to something different that will involve huge changes to their capital investments," says Maryann Keller, a U.S.-based independent industry consultant.

The tipping point could be the increasingly urgent need to produce a greater volume of low-emission cars ahead of the 2015 CO2 targets for automakers in Europe.

"There are limits to what the internal combustion engine can do, and we are close to that limit, so the next part of this process has to be lightweight materials," says David King, the director of the Smith School of Enterprise and the Environment at the University of Oxford.

Murray's firm, which collects revenue from auto-design consulting, has spent about $51 million since 2007. It raised $12 million from Mohr Davidow Ventures and $7 million from the Technology Strategy Board, a U.K. government-backed research group, to help develop the prototypes.

Murray says he's confident: "We're taking on this monster industry, but we know it's going to work."