Ferrari is entering its biggest period of uncertainty in 23 years. Matthew Lange takes a look at what this might mean for the future of one of the most recognisable performance marques on the planet.
When Gianni Agnelli masterminded the purchase of Ferrari by Fiat in 1968, I suspect he did not realise that one day in the future, the tiny sportscar company would become the financial powerhouse that would support the wider Fiat group’s operations.
Okay, so that last statement is slightly simplistic, but looking at the 2013 financial statement of the Fiat Group, it is certainly true that without Ferrari and the recently merged-in Chrysler, Fiat would be on very shaky ground. The group as a whole reported earnings before interest and tax (EBIT) of €2,972m. Take away Chrysler and the group crashes to an EBIT loss of -€188m. Take Ferrari and Maserati out of the equation and loss rises to -€658m as the two luxury brands reported an EBIT of €470m with Ferrari making the lion’s share of that with €364m.
So, Ferrari producing 6500 cars when total Fiat Chrysler group annual output runs into millions of units a year accounted for 12% of total group earnings. That is quite an achievement, and it is easy to see why Fiat CEO Sergio Marchionne would want to keep Ferrari firmly under his control right now. For him that was perhaps easier said than done since for the last 23 years Ferrari has been run by its charismatic chairman (and one-time Fiat chairman) Luca di Montezemolo.
Montezemolo was appointed by Agnelli in the dark period that followed the death of Enzo Ferrari. The F1 team was in the doldrums, and the road cars were likeable but technically behind the times (that’s a polite way for saying they were a bit crap). Under his stewardship the F1 team was transformed, taking six world drivers titles and eight constructors’ championships. The road cars have once again become the standard against which all other high-end sports and supercars are judged.
However, lately things have not been quite so rosy; the road cars continue to go from strength to strength but the F1 team is once again struggling, having not won a title since 2008 and looking set for a winless 2014. It would seem this poor performance has been used by Marchionne to push di Montezemolo out the door. As was recently announced, he is stepping down as chairman of Ferrari even though he has three years to run on his contract. Marchionne has installed himself as Ferrari chairman going forward.
I suspect that it's not the poor performance of the F1 team that has caused this ousting, but rather a disagreement over the long-term strategy for Ferrari's road cars. In 2013 Ferrari announced they were reducing production slightly and capping it at 6500 units per annum to maintain exclusivity. Despite this, they intended to increase profits through the individualisation programme that can have customers spending up to £100,000 in options on their new Ferrari. It seems likely that this strategy has been successful as Ferrari has announced record half-year profits again. With this in mind, it seems odd that the chairman of a highly profitable business could be effectively forced out due to poor performance.
Marchionne may feel that more can be done, however; there is talk that he would like to see production increased to around 10,000 units a year, the current maximum capacity of the Maranello factory. In the great scheme things this increase is not huge and we're a long way from seeing Ferraris on every street corner, but increased volumes will undoubtedly have a knock-on effect on resale prices of Ferrari models — something that's very dear to the hearts of owners, judging by many of the posts on Ferrarichat and other forums. There may even be the possibility that production of the limited edition and highly profitable LaFerrari will be extended to accommodate those people that were disappointed not to make the original planned run of 499 cars. Personally, I’m not sure that total demand is actually that much more than the planned run, considering the other options available in the rarified hypercar market.
There is also the possibility that this growth could be achieved by a cheaper model which would see Ferrari move into the increasingly crowded ‘911’ market. To do this seems a little surprising since it would also mean Ferrari would tread on the toes of Maserati's forthcoming Alfieri sports car, and I’m sure not many Ferrari fans would be in favour of a platform share with the new Maserati either. Cheaper models also mean reduced profit margins per unit and again, the increase in volume might not result in the overall gain in profits expected once the additional development costs are taken into account.
A more outlandish idea is that Marchionne may be looking to sell Ferrari. There are certain attractions to this - Ferrari is a largely self-contained unit within the Fiat empire which would make it an easier sale than, say, Alfa Romeo, whose cars share their platform with other vehicles in the Fiat Group. Ferrari would be highly attractive to potential suitors from New York to Tokyo too, and the brand alone is worth perhaps several billon Euros. Any sale could raise considerable cash which could be used for much-needed investment in the flagging mass-market Fiat brands.
However, the wider Fiat Chrysler group is about to undertake an IPO listing in New York to raise that cash, and unless that is considered a failure, it is unlikely Fiat will want to let Ferrari go in the short to medium term. Whatever happens, it looks like Ferrari’s many customers and supporters are in for a period of uncertainty until Marchionne’s plans become clear.
Data source: Fiat Spa financial statements 2013