Ferrari’s prancing horse in a spin-off

Fiat Chrysler Automobiles (FCA) has announced that it is going to do what Chief Executive Sergio Marchionne has been trying to resist, and that is to spin off its Ferrari sports car brand as part of a scheme for the company to raise a whopping US$2.5 billion to help fund its very ambitious business plan. Marchionne had been resisting a listing of Ferrari for many years, but in an interview early this month, he signaled a change of heart when he described Ferrari as a “phenomenal carrot” for US investors.

However, for all of you Ferrari fans out there, you need not worry too much. FCA is only listing 10% of the company split between US and possibly Europe. 10% of the shares belong to Piero Ferrari, the son of the founder of the company, Enzo Ferrari, and the remaining shares will go to FCA shareholders, of whom the Agnelli family, the founders of Fiat, has a 30% control.

Production of the icon will remain firmly in Italy as well. The sale of a 10% stake on the stock market will allow Fiat to cash in on its investment while ensuring enough of the company remains in Italian hands to head off any political protests about an Italian icon potentially falling into foreign hands.

The Fiat-Chrysler merger was a long drawn-out affair that began in 2009, and has seen Fiat buying out the other owners since then with the final tranche being bought from the United Auto Workers earlier this year. Now that they have complete control, FCA plans to invest a total of US$60 billion in a five-year plan to make Alfa Romeo, Maserati and Jeep into a VW rivaling super group.

“Today is a big clean-up day,” Marchionne said, adding that “It gives us all the comfort to go and execute the plan up to 2018; it is designed to deal with the worst-case scenario” a reference to Fiat’s prediction of a contraction in global car sales (read also: Fiat and Ford are gloomy, but it’s sunny over at Bentley).

The announcement comes just weeks after Marchionne became the new Ferrari Chairman. Under the plan, he will continue in the post after the spin-off. Ferrari could have a value as high as €5.8 billion according to some sources. Marchionne has declared that all would be “pleasantly surprised” once the floatation occurs. Marchionne is known for wanting to increase Ferrari’s production, which is currently capped at 7,000 vehicles a year, a throwback to Enzo’s “you should build one less car than the market demands” strategy that was designed to create an air of exclusivity for the marque.

The strategy of spinning off the luxury brand and distancing itself from its volume manufacturing parent seems to fly in the face of conventional wisdom. Most of the luxury brands have been eagerly strengthening their associations with volume brands; all you have to do is think Porsche with VW, Lamborghini with Audi, Rolls-Royce with BMW. Whether Ferrari can become a standalone sustainable business remains to be seen.

Not many people know this…

Ferrari is possibly the most widely recognised car brand in the world. It is possibly the most admired as well. However, Ferrari sells fewer than 7,000 cars a year worldwide and only about 200 cars a month in the US, where they will hold the IPO.

In the 1960’s Ford Motor’s namesake boss, Henry Ford II, thought he had a deal with founder Enzo Ferrari to buy the Italian maker. But it came apart and an embittered Ford ordered the automaker’s engineers to build race cars to humiliate Ferrari on the race track, where its reputation shone brightest.

The result was the Ford GT40, which crushed Ferrari at the famous French 24-hour endurance race at LeMans, finishing first, second and third.


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