NHTSA fines Ferrari $3.5 million for failing to file “early warning” reports

31 Oct 2014 | Author: | No comments yet »

Can Ferrari survive in a niche market?.

Following its spin-off next year from parent Fiat Chrysler Automobiles, the global cachet of the Ferrari name will be key to master hurdles such as the costs of developing cars that meet the standards of its elite customers and ever demanding regulators.

Ferrari’s self-imposed production cap at about 7 000 cars a year, aimed at preserving the exclusive appeal, will limit growth potential in an industry where scale can be paramount to survival. “The global industry trend is that such brands seek shelter” by becoming part of a large automaker, said Arndt Ellinghorst, an analyst with ISI Group. “Fiat does the opposite to repay debt from the mass-market business. FCA Wednesday announced plans to raise about $4.7 billion including an estimated around $1 billion from the sale of Ferrari, a $2.5 billion convertible bond, and the sale of shares.

With Michael Schumacher as the driver, Jean Todt as team principal and Ross Brawn in charge of the technical side, they produced the fastest car for five consecutive seasons and Schumacher won everything. Fiat Chrysler announced yesterday it will spin off the famous brand, offering 10 percent of outstanding shares to the public and reserving the rest for current shareholders. It’s the beginning of the end.” The threat of being squeezed out of a market has driven Bentley, Lamborghini and Porsche into the arms of Volkswagen, and Rolls-Royce is part of BMW. Fiat Chrysler shareholders certainly approved of the deal, with FCAU shares rising more than 12 percent yesterday following the announcement, but brand aficionados (including us) are concerned about what could happen to a publicly traded Ferrari. Aston Martin, which has struggled since being cut loose by Ford in 2007, is cosying up to Daimler to access technology, while British sports carmaker Group Lotus is cutting its workforce by as much as 27 percent to survive. “It’s getting increasingly difficult to operate in a market niche like sports cars as a stand-alone company,” said Stefan Bratzel, a director of the Centre of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany.

The task of putting the sport’s greatest name back in the winners’ circle falls to a quietly spoken 43-year-old from Rome with no record in motorsport. We don’t have any information yet on who might plunk down the cash for a piece of one of the most famous companies on the planet, but to be honest, we’re kind of worried. What might set the company apart from other sports carmakers is what Brand Finance lauded as the world’s “most powerful” brand, beating even Apple. After the deal is completed some investment banks don’t think much will change. “FCA will still be left with seven to eight billion euros ($8.8 billion to $10.1 billion) of net debt, over eight billion euros of pensions and healthcare liabilities and massive negative working capital. This still makes FCA the most leveraged automaker in the world, on our reckoning,” said Bernstein Research analyst Max Warburton. “Spinning off Ferrari is another clever exercise in value maximization.

Mattiacci has been with Ferrari for 15 years in the road car division, rising to the post of head of Ferrari North America, which is the company’s largest market. It’s supported by quasi-religious loyalty of devout fans ranging from young boys plastering their bedrooms with posters to Formula One fanatics to rich serial buyers who will spend any sum on the latest model. Ferrari’s independence was the result of mounting debt at Fiat Chrysler, which is seeking to finance a five-year, e48bn (R663bn) investment programme. With the focus on expanding Jeep and Alfa Romeo brands globally and Maserati already part of the portfolio, the opportunity to cash in on Ferrari’s allure was hard to pass up. It seems that FCA will at least seek an implied value of five to six billion euros for Ferrari, which is higher than many were prepared to value the business at, including us, and if successful this would create value for FCA shareholders,” Watkins said.

In the third quarter, Ferrari posted earnings before interest and taxes of e89 million on revenue of e662m, giving it a profit margin of 13.4 percent, which is among the highest in the auto industry. – Bloomberg Has a comment offended you? Ferrari sales reached about 7,000 last year, about 0.2 per cent of FCA’s 4.4 million sales, but accounted for about 12 per cent of Fiat’s operating profit. It could follow the example of Porsche, which has had tremendous success recently by cranking up volume and moving away from its heritage, with sport cars that are also practical for getting around.

It may be hard, given his background and allegiances, for Mattiacci to provide similar protection for his staff. “Every business is first of all about people,” Mattiacci says, “So I try to understand how we got here and look at the assets we have. We are setting up a strategy that is for the next three years, that is going to take Ferrari back to the top of Formula 1.” He has made a positive start, identifying some key areas of weakness where Ferrari has fallen behind the benchmark teams, Red Bull Racing and Mercedes, in recent years. He says it placed too much emphasis on reliability at the expense of performance in the hybrid development phase, producing inferior technology, while Mercedes invested more and for far longer in its energy recovery systems. This is a huge failure, given that the two departments are a few dozen metres apart, rather than in different locations, and even different countries in the case of UK-based Red Bull and its French supplier Renault. Another 80 percent will stay with current Fiat-Chrysler shareholders, including large chunks owned by Fiat’s founding family, the Agnellis, as well as Fiat-Chrysler CEO Sergio Marchionne.

Then there’s Ferrari’s legendary Formula One team, which, despite historic glory, hasn’t won a Constructors’ Championship since 2008 and hasn’t fielded a Drivers’ Champion since 2007. The current rules stipulate an engine development “freeze” on cost grounds and manufacturers can only make performance improvements at the end of the season. Mattiacci has lobbied for one or two “windows” during the season for manufacturers to introduce upgrades, as they can at any time on the chassis side. “Formula One is about innovation, “ he argues. “I think that whoever did a fantastic job, it’s important that it’s clear that he’s ahead, but I think that to wait a year to have a possibility to catch up with the best, to develop and to innovate is too much.” Mercedes, which has enjoyed a healthy advantage over the field this year, is understandably opposed to such a suggestion, so blocked a move to loosen the regulations for 2015.

Ferrari’s brand is as strong as it’s ever been and we can see getting rid of the F1 team and all the drama and distraction that goes with it as something a profit-minded activist investor like Carl Icahn might insist on. It will take longer to see whether his blueprint for returning Ferrari to winning will be equally successful, especially with Marchionne bearing down on the team. After he was pushed out of the company last month, Ferrari Chairman Luca de Montezemalo said Ferrari was now an “American” company (it didn’t sound like a compliment).

Right now, Ferrari cars are lumped in with Fiats when it comes to meeting America’s exacting CAFE fuel economy standards, which demand that a company’s cars yield 34.1 mpg by 2016, and 54.5 mpg by 2025. Standing on its own, without smaller vehicles to offset the terrible fuel economy of cars like the 458 Italia (15 mpg) and the California (16 mpg), Ferrari might have to sell some hybrids.

It’s hard out there for a carmaker, and without deep pockets bankrolling expensive research and development, it’s possible a global recession and some mismanagement could send the company into bankruptcy. Ferrari’s leadership will most likely be mindful of the company’s heritage, especially with Pierro Ferrari, Enzo’s only living son, still involved as vice chairman. “It is an iconic and venerable brand that can and should exist on its own,” says Ferrari enthusiast, Shark Tank star, and LaFerrari owner Robert Herjavec. “Ferrari inherently understand the philosophy of creating desire and by nature that is limited,” regardless of a need to make a profit.

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