Ferrari Drives the Exotic Car Market
This is an article by Mike Sheehan, as appeared in the Feb 2012 issue of Sports Car Market.
Simply put, Ferrari tells their dealers: "This is your allocation, and that's all you will get"
This column began with a search for a very-early production 2012 458 Spider for a client willing to pay the price of exclusivity. Conversations with the owner or sales manager at almost every Ferrari dealership in the U.S. quickly led into long discussions about the politics of new car allocations, the possibility of "extra cars" and comparisons between Ferrari and the other makes each dealer carried. Ferrari is the only market-based car maker, and it sells about 6,500 cars a year. Ferrari could build and sell thousands more, while all other exotic manufacturers are production-based and build every car they hope they can sell -- and more.
Ferrari leads the pack
Ferrari dealers can't order cars for inventory, as every car must be pre-sold to a client, which creates demand.
Ferrari also spends about 14% of gross sales on research and development, a huge re-investment in new models. Over the past decade, Ferrari has introduced the 360 and 575, followed by the 612, F430, 599, 458, California and the all-new FF. With 40 dealers in the U.S. and Canada, Ferrari will sell about 1,500 cars a year in the U.S. and about 6,300 worldwide. Demand for Ferraris exceeds supply.
Maserati back from the brink
Ferrari took control of Maserati in 1999, opened an all-new factory in 2001 and took Maserati from the brink of bankruptcy to state-of-the-art manufacturing. In 2002, an all-new Maserati GT brought Maserati back into the U.S. market. The Quattroporte followed in 2005 and the Gran Turismo in 2006. Alas, Maseratis are too exotic for middle America and only outsell Ferrari on the West Coast and Florida. As more than one dealer said, "We only outsell Ferrari because we have Maseratis in the showroom, and we can always get more."
In 2005, Maserati was split off from Ferrari and sold 2,006 cars in the U.S. Maserati sold 2,108 U.S. cars in 2006, and 2,540 in 2007. In 2007, Maserati was profitable for the first time in decades. Maserati now has 55 dealers in the U.S. and Canada, and the company will produce about 5,700 cars worldwide and 2,400 for the U.S. market
At a recent dealer meeting, Maserati announced plans to spend 1.2 billion pounds ($1.6 billion) to take worldwide Maserati sales to 60,000 units per year by 2015, which is a massively optimistic and ambitious plan. Supply now exceeds demand, so what happens when production increases by ten times?
Down the road at Lamborghini
Lamborghini was purchased by VW-Audi in 1998 and was wrapped into four companies, Lamborghini Spa (cars); Motori Marini (marine engines); Arti Marca (accessories) and VW-Audi Italy. Clearly, the swapping of tax credits between these companies helped absorb the cost of purchase. The Diablo-based Murcielago was introduced in 2001, followed by the smaller and all-new Audi-based V10-equipped Gallardo in 2004. Murcielago production ended in late 2010 and was replaced by the Lamborghini Aventador as a 2012 model. Always a very niche brand, total Lamborghini production peaked at a high of 2,580 units in 2007. Today, Lamborghini has 29 dealers in the U.S. and Canada, with about 300 projected sales in the U.S. and 1,300 worldwide. Lamborghini production is a rounding-off error for the huge VW-Audi company. How many do you want?
The Bentley boys
In 1998, Bentley and Rolls-Royce were split. By 2003 (and a few billion dollars later), VW-Audi had taken full control of Bentley and modernized the Crewe factory. The VW Phaeton-based Bentley Continental GT was introduced in 2003. While the VW Phaeton was a marketing failure, the Continental GT and its variants, the LWB Spur 4-door in 2005 and the Continental GTC in 2006, have been runaway successes.
Bentley epitomizes production-based manufacturing, and sales were initially a manufacturer's dream come true. A total of 8,627 Bentleys were sold worldwide in 2005, with 3,654 sold in the U.S. In 2007, the 10,000-cars-per-year threshold was broken for the first time, with sales of 10,014 and record profits. Bentley sales dropped to about 7,600 in 2008 and plunged to 4,616 in 2009, with 1,433 sold in the U.S. Bentley suffered an operating loss in 2009. A facelifted and hotrodded Continental Supersports helped sales rebound, with total sales of 5,100 for 2010 and projected sales of 5,500 for 2011. Drop by and pick one out.
Rolls-Royce keeps a stiff upper lip
In what has to be described as a major corporate "oops," VW beat out BMW to buy Rolls-Royce in 1998 for $670m, which included the Crewe works, the Rolls-Royce "Spirit of Ecstasy" mascot and the radiator grille -- but not the rights to the Rolls-Royce name needed to build cars!
BMW later bought the Rolls-Royce name and "RR" logo for another $62m -- but not the right to build Rolls-Royce cars! In a complicated Teutonic trade, BMW was given all rights to Rolls-Royce cars, while VW got Bentley.
In 2003, BMW introduced the all-new Rolls Phantom as a 2004 model with a stated goal of selling 1,400 cars worldwide. Rolls didn't reach 1,000 units until 2007, and then only thanks to the new Drophead. An all-new and smaller Rolls-Royce Ghost was announced in 2009 as an alternative to the Bentley Spur 4-door. The Ghost has revived sales, with about 2,800 units for 2011. It's expensive, but it is in stock.
The very successful, Jaguar-based Aston Martin DB7 ended production in 2003, and it was replaced by the all-new aluminum-and-composite DB9 in 2005. DB9 production is being wound down, to be replaced by the new Aston Virage. Aston's Gaydon facility can build 5,000 cars per year, but it has never reached that level. Total U.S. sales for 2011 will be about 950 cars, and worldwide production will be in the 3,000-car range. Ford sold most of Aston in 2006, and so Aston desperately needs a parent company. What color would you like?
McLaren, the new boy in town
In 2011, McLaren began shipping the all-new MP4-12Cs to 35 dealers worldwide, with eight in the U.S. and two in Canada. Multiple Ferrari dealers across the world are also McLaren dealers -- and this makes them persona non grata at Ferrari. This is a complicated political situation, as these dual Ferrari-McLaren dealers are often the biggest dealers in the biggest markets. The first U.S. model MP4-12Cs arrived in December. Each of the eight U.S. dealers has a huge market area, and all expect to sell their full allocation at full sticker price -- with a generous margin to the dealer, which potentially makes their new McLaren franchises more valuable than their Ferrari franchises. Sold out, for now...
The big picture
Whether they are market-- or production--driven outfits, each of these manufacturers has a global marketing plan -- but they are all susceptible to economic downturns.
Most have well-capitalized major manufacturer ownership, but automotive factories break even at 75% to 80% of total potential production -- and most lag far behind. The latest-greatest model always sells well, but demand quickly fades.
Ferrari's success is obviously based on a regular supply of new and ever-more exotic models, while most other exotic car builders are two-trick-ponies without new steeds in the stable to bring in new buyers. The Asian market has helped all exotic manufacturers, and most now sell 25% of their total production in China. All have an abundance of image -- but several lack an abundance of substance.
Success breeds success, so Ferrari is a cash cow at the current time, Bentley booms in the good years, Maserati and Rolls make little profit, and Aston and Lamborghini often lose money.