Ferrari enters the Marchionne-era
A case study in Automotive evolution and corporate governance:
Online Exclusive—July 2015 issue
by Michael Sheehan
We begin with a history lesson:
Over the last seventy years Ferraris have evolved through four distinctive eras, the rapid evolution of the Enzo Ferrari era, the mass-market production increases of the FIAT years, the user-friendly, high-volume, option-heavy exotics of the Luca di Montezemolo era and now the Corporate big-picture-driven Sergio Marchionne era.
Two decades of rapid evolution:
Enzo was firstly a racer, only building street cars to help subsidize his increasingly expensive racing habits, offering his sporting clients mildly de-tuned race cars for road use. The Enzo era began modestly enough in 1947 with a pair of 125 Barchettas, s/n 01C and 02C. Powered by a diminutive 1497cc V-12, putting out a very modest 72hp, the 125 was a success from its second race, winning at Rome’s Caracalla Circuit on May 25th, 1947. At the first rebuild the 125’s engine went to 159 spec., with 1903cc and 125hp, and the evolutionary race was on. Within five years Ferrari racers leapt from the diminutive 125 Spyder to the 4522cc tire-shredding 340hp 375 MM sports-racer of 1953-54.
The Europa GT was introduced in 1954 and within two years evolved into the dual-purpose 250 TDF, as the differentiation between full-racer and milder street car started to widen. In yet another five years the TDF evolved and separated into the full-race 250 GTO for the hard-core racers and the much higher-volume 250 Lusso street cars to help pay the bills. Only two years hence the 275 GTB and GTS followed and within another half a decade morphed into the 365 GTB/4 Daytona. The racing department was further subsidized by the building of a series of ultra-exclusive limited production and one-off coach built cars for the mega-rich. Starting as a race and machine shop, Ferrari rapidly grew from only 2 cars built in 1947 to 619 cars built in 1969, making the transition to small manufacturer.
The cars of Enzo Ferrari dominated the racing world on every level, from F1 to Sportscar GT racing and a multi-year domination at Le Mans. The Enzo era was one of rapid, cutting-edge stylistic innovation and mechanical evolution, defining Ferrari as the world’s standard for ultra-exclusive ultra-rapid autos.
All good things come to an end:
By the mid-1960s, Ferrari, and indeed all of Italy, was crippled by labor unrest and frequent strikes. Ferrari was also hammered by Ford as the costs of sports-prototype endurance racing spiraled. All good things come to an end, and by 1969 Ferrari teetered on bankruptcy. Enzo’s multi-faceted racing habits, low production-car numbers and looming EPA and DOT regulation in the US market required a bail-out from FIAT, with FIAT taking a 50% stake on June 21st, 1969 and control of the production cars while Enzo kept control of the racing department. Ferrari soon had to concede all sports-racing programs to privateers which allowed Enzo to focus on Formula One. FIAT’s stake would ultimately increase to 90% with the last 10% owned by Piero Ferrari.
FIAT doubles production:
FIAT production-engineers shifted the emphasis from racing to street cars and in two years road car production jumped from the 619 built in 1969 to 1,246 in 1971. New EPA emission standards and DOT bumper and headlight regulations, combined with pressure from upstart Lamborghini, forced FIAT to develop the all new mid-engine 365 BB as the flagship 12 cylinder. FIAT also accepted that the looming regulations would kill off the popular 246 Dinos, and so introduced both the first of the all-new V-8s, the Bertone-styled 308 GT/4 alongside the 365 BB at the Paris Auto show in 1973. Almost simultaneous with FIAT’s production-car takeover, the glamorous era of the one-off coach built cars for the super-wealthy ended because of labor problems, the demise of the design studios and the looming bumper, headlight and emission laws. Further complicating Ferrari sales, the 1973 Paris Auto show was in October, the same month the first Arab oil crisis drove gas prices from 33 cents to $1 a gallon, (and much more in Europe) throwing the global economy into recession.
Styling by committee:
Today the faceless FIAT era is often remembered for the bland styling-by-committee of the 308 GT/4 and the 400/412 GT series. While Ferrari’s CEOs and CFOs of the 1970s and 1980s, such as Nicola Tufarelli, Giovanni Squazzini, Vittorio Ghidella or Piero Fusaro are largely unknown today, it must be remembered that all auto manufacturers suffered through the ignobility of the new bumper and headlight demands, new power robbing emission requirements, the volatile gas prices and a series of repeated world-wide economic crises. Additionally, in the 1970s Italy suffered through the era of the Marxist-Terrorist Red Brigade, at a time when driving a Ferrari was asking to be kidnapped, encouraging bland styling. Supercars and wretched excess simply went out of fashion through the early-mid 1970s. Mere survival was success.
FIAT responds to the new order:
FIAT’s mandate was to increase street car production. In 1976 the company responded to the new socio-economic order of the 1970s with the introduction of the highly successful Pininfarina designed 308 GTB, masterfully integrating bumpers and headlights while overcoming the power loss of emissions equipment with the torque of a 4-cam 3-litre V-8. Indeed the V-8s soon became the Ferrari standard-bearers, with V-8 production doubling and eventually tripling the V-12 production. The timing of the 308 GTB was fortuitous as the global economy and American economy were again booming.
FIAT also expanded the number of Ferrari dealerships and with the 308 GTB gave their dealers a high volume, affordable (a strange word to use in context with Ferrari) model to sell. Ferraris were no longer toys of the ultra-rich, but were now accessible to the merely wealthy. Through the 1970s and 1980s FIAT expanded the Ferrari brand with the 308-328 as the junior supercar, the 400/412 as a businessman’s express and the 512 BB and Testarossa as the Flagship 12s. The Testarossa, introduced in 1984, was the first 12-cylinder Ferrari specifically designed for the U.S. market, featuring integrated bumpers, U.S.-friendly headlights, a then state-of-the-art engine-management system and emissions system, making it a production supercar by the performance standards of the day.
FIAT also understood there was a market for a high-end exclusive supercar, building the limited-production 288 GTO, a 308 on serious steroids, followed by the F40. Each of these models set new benchmarks as the world’s most-exotic and then-fastest production car. Although racing successes were few and far between, in just over twenty years FIAT increased Ferrari production (and profitability) from only 619 cars a year in 1969 to well over 4,487 cars built in 1991.
Enter Luca Cordero di Montezemolo:
The Enzo era was unquestionably ruled by a strong-willed and driven individual while the FIAT era was run by forgotten CEOs and CFOs. The next era was again led by a strong-willed individual: Luca Cordero di Montezemolo. He joined FIAT in 1971 and in 1973, at the age of 26, became Enzo Ferrari’s personal assistant. In the early 1980s Montezemolo left Ferrari to manage other arms of the FIAT empire, returning to run Ferrari in 1991. Montezemolo made it his personal goal to regain the Formula One Championship while introducing all-new, state-of-the-art Ferrari road cars.
Coincidentally, the introduction of the Acura NSX in 1990 redefined the playground for all supercars. Cramped cockpits, inadequate A/C, overheating engines, recalcitrant windows, heavy steering, ad nauseum, were simply no longer acceptable. The 355 was a quantum leap over the 348, while the introduction of the 456 GT in 1994 and the 550 in 1996, marked a full-circle return to the front engine V-12 Ferrari flagships, offering all the amenities that are now de-rigueur, combined with the svelte long-nose, short-tail look that harkened back to the 1960s and early 1970s.
Re-defining leading edge:
Introduced in 1999, the all-new aluminum space-framed 360 re-defined Ferrari as a leading-edge manufacturer while the smooth, flowing and curvaceous lines matched those of the V-12 flagship 550. Under the tutelage of Luca Cordero di Montezemolo the V-8 and V-12 Ferraris defined the gold standards for exotic ultra-high performance, cutting-edge styling and real-world usability. Additionally, under di Montezemolo, one M. Schumacher won five consecutive drivers’ titles from 2000–2004, all while Ferrari moved beyond being a car manufacturer. Ferrari has become a brand name on everything from laptops to Teddy bears in Ferrari boutique shops from Beverly Hills to Bahrain. Today Ferrari has 68 licenses for goods ranging from Lego toys to Puma sneakers and 30 stores in 14 countries. In licensed merchandise Ferrari ranks 23rd among top global licensers and is very profitable, although accounting for only a tiny fraction of Ferrari’s total revenues!
Under di Montezemolo, Ferrari had become a multi-faceted corporate money-machine with production ramping up from 4,487 cars in 1991, to 7,255 cars in 2014. The company also came full circle in that corporate cash flow now helped pay the staggering costs of running an F1 team. Ferrari also encouraged their wealthiest clients to work with coachbuilders such as Pininfarina to build the one-off P4/5 and Zagato to build an exclusive series of very elegant and factory sanctioned Zagato-bodied 612s, 550s and 575s, none of which are for the slight-of-wallet.
Meanwhile back at headquarters:
By the late 1990s Ferrari’s parent company, FIAT, was a sinking ship surviving only with a €3b bailout from a consortium of Italian banks. In 1999 FIAT approached GM for a merge but was turned down. Mercedes (who had recently bought Chrysler) then offered to buy FIAT but GM re-entered negotiations. In 2000 FIAT and GM entered into a ‘strategic industrial alliance’, with FIAT acquiring a 5.1% stake in GM and GM acquires a 20% stake in FIAT. Additionally GM agreed to a ‘put option’, (essentially a bet by FIAT against a fall in FIAT’s market value) which stipulated that FIAT would have the right to sell the remaining 80% to GM after four years at a fair market value. Losses continued at FIAT with €400m in 2001, €3.9b in 2002 and €1.9b in 2003 bringing net debt to over €5billion. By late 2002 GM wrote down its investment in FIAT from $2.4 billion to $220 million. In a bid to survive, FIAT cashed out its best assets, selling its GM shares to Merrill Lynch and its financing arm, Fidid, back to the banks for €6b.