For Walter Mittys the world over, Ferrari is a symbol of speed and guilt-free excess. For Luca di Montezemolo, chief executive of the boutique auto maker here in the northern Italian industrial heartland, it is a business whose past glory does not guarantee survival.
Plunging sales in the early 1990's proved that Ferrari could no longer rely on its image to persuade enough status seekers to part with $130,000 and up -- way up -- for hard-to-handle sports cars in exotic red wrappers. Yet if any design or marketing changes undermined the mystique, it could drive customers into the hands of BMW, Jaguar or Mercedes-Benz.
"We have to give people something unique," explained
Mr. di Montezemolo, a former World Cup soccer team manager and
public relations executive hired in 1993 by Fiat, Ferrari's corporate
parent, to stabilize the fortunes of its upscale subsidiary.
Priority No. 1 was better cars: new models that vroom and zoom
like Ferraris of yore, but are easier to drive. Next on the list
was expansion in Asia to offset wealthy Europeans' declining taste
for conspicuous consumption.
But Mr. di Montezemolo realized that making Ferrari work as a business meant embracing the idea that Ferrari is as much style as substance, as much a legend as it is a car company.
To turn that insight into cash meant reconceiving Ferrari as a brand to be extended and exploited. Mr. di Montezemolo is doing so with a vengeance, licensing luxury goods, sportswear, even toys with the familiar logo of a stallion unreined. And the strategy is working: The company, which was in the red from 1992 through 1994 and earned just $2 million last year on sales of $500 million, expects to net $10 million in 1997 on licensing alone.
"Ferrari is a very strong little business, a bright spot
for Fiat," said Christopher Will, an analyst for Lehman Brothers
in London.
For all its sense of timelessness, Ferrari is a modern creation.
The company dates only to 1947. That's the year Enzo Ferrari,
a sometime Alfa Romeo dealer as well as the manager of its racing
team, struck out on his own.
His goals, suggests Brock Yates, author of an unauthorized biography of Mr. Ferrari, were to win racing championships and settle scores with old rivals. Profit was almost an afterthought. To finance the racing operation, he started building outrageously expensive sports cars for the let-them-eat-cake crowd. Among his early customers were the Shah of Iran, Emperor Bao Dai of Vietnam, King Leopold of Belgium and the Aga Khan.
Ferrari earned its reputation in racing, dominating the sport over the decades. But "there was no black magic" to its success, explains David E. Davis, publisher of Automobile magazine. "Ferraris were always robust cars," he said, that could be relied on to stay the course and that were piloted by the best drivers of the era. Indeed, Mr. Ferrari discouraged the use of leading-edge technology, leaving it to others to risk innovations like disk brakes or fuel-injected engines.
By the same token, Mr. Ferrari, who ran the company with an iron fist until his death in 1988, only grudgingly acknowledged his dependence on paying customers. Like a restaurateur who builds a reputation by slighting the patrons, he wowed the rich and famous by ignoring them. But the ever more problematic economics of racing -- roughly a quarter of Ferrari's 1,900 employees support its elite Formula One team -- always dogged him. In the mid-1960's he flirted with selling the company to Ford for $18 million. In 1969 he fell into the arms of a white knight, arranging to cede 90 percent of the stock to Fiat after he died.
While the Ferrari sports cars of the 1970's and 1980's won only mixed reviews from the critics, the company enjoyed a windfall from the new frenzy for exotic cars as collectibles. Ferrari increased output from 2,366 cars in 1983 to a peak of 4,487 in 1991. "Values were hopelessly inflated," Mr. Yates noted, with speculators paying tens of thousands of dollars simply for places in line to buy the latest models. In 1990 a vintage Ferrari 250 GTO (one of 39 made from 1962 to 1964) sold at a Sotheby's auction for $10 million -- the highest sum ever paid for a used car.
But the company's prosperity during what Michele Scannavini, the manager of sales and marketing, calls "the crazy years," evaporated with the collapse of the collectibles bubble and the industrial world's recession. By 1993 a new 512TR, the over-the-top signature model known as the Testarossa, "depreciated 20 percent as it was driven out the showroom door," recalled Keith Martin, publisher of Sports Car Market magazine. In just two years, total new car sales fell by half from their 1991 peak to 2,325.
If Ferraris were no longer to be sold or to be squirreled away in climate-controlled garages, Mr. di Montezemolo reasoned, perhaps they could be sold to be driven. In 1993 the company created the Ferrari Challenge, a series of amateur races for Ferrari owners. And in 1994 the relatively modestly priced eight-cylinder F355 ($127,000), the user-friendly model that now constitutes 70 percent of Ferrari sales, made its debut.
Other designs developed during Mr. di Montezemolo's tenure reinforced the marketing realignment. The 456GT ($225,000), a conservatively designed coupe with a softer ride and a vestigial back seat, can be (and generally is) ordered with an automatic transmission (add $5,000). The new 550 Maranello ($220,000), which replaced the ill-mannered Testarossa, has anti-skid brakes, traction control and a self-adjusting suspension -- all anathema to the scarf-and-goggles sports-car purist.
Ferrari's marketing gurus are even working on a way to eke advantage from the company's greatest liability -- its dependence on high-cost hand assembly. "Clients" will soon be able to factory-customize the interiors of the cars they order, much the way they choose wallpaper for their powder rooms.
Add to this brew a new thrust in emerging markets where, Mr. Scannavini said, "showing off your wealth is still acceptable." In 1993 Ferrari sold just 8 percent of its output in Asia. Last year one out of five cars from its 3,363 production run went to Taiwan, Malaysia, Japan, Singapore and China, more than making up for tepid sales in Europe.
Ferrari has not turned its back on collectors, but now emphasizes nostalgia over the potential for appreciation. The Ferrari Web site (www.ferrari.it) is loaded with lush images of vintage models and Enzo hagiography. Ferrari's freshly remodeled museum across from the factory even contains a full-scale replica of The Master's office. And Ferrari is marking its 50th anniversary in racing this summer by inviting collectors to bring their old cars to Italy for a series of parties and road rallies. "We want owners to feel like members of a family," a Ferrari spokesman explained.
The company is still manufacturing a super-exotic, $480,000 model, the Formula One-like F50, in a fixed run of just 349. But cars meant to be collected rather than driven will remain the exception, Mr. Scannavini says. Moreover, to discourage speculative turnover, the F50's sent to America are initially being leased rather than sold.
The most startling change in marketing, though, is the foray into licensing. Authorizing Girard-Perregaux to sell Ferrari watches or Asprey of Bond Street to offer Ferrari baubles at $5,000 a pop seems a natural. But the company is also licensing Ferrari shirts, caps and jackets sold through mass retailers, and it is even peddling Ferrari-insignia school supplies to European teen-agers.
Last but hardly least, Shell gasoline stations will soon be selling plastic models of Ferrari Formula One cars. "This year we'll net $10 million on licensing, and we should eventually be able to make $30 million to $35 million annually with very little commitment of capital," Mr. Scannavini said.
All this is music to the ears of Ira Mayer, publisher of The
Licensing Letter, a trade publication based in New York. There
is a tradition, he points out, of building great licensing machines
on the foundations of modest businesses and long-gone entrepreneurs.
Christian Dior, for example, died a quarter century ago. But his
name prospers on, licensed to After Six (formal wear), Best Form
(undergarments), Meso Umbrella, Danskin, Sasiki (housewares),
Warnaco (undergarments) and others.
Certainly the strongest vote of confidence in Ferrari's evolution
from the playpen of its founder to a modern luxury goods maker
with one of the world's great trademarks comes from its parent
corporation. The conglomerate has assigned Ferrari's managers
the task of doing it all over again -- by resurrecting Maserati,
another fast-fading Italian sports car maker left on Fiat's doorstep
after changing hands several times in recent decades.
Just how does the team in Maranello plan to turn Maserati around? Apart from confirming that "Ferrari will have total control" and hinting that Maseratis will share some parts and dealers with their more expensive siblings, Mr. Scannavini isn't saying. But judging by the way the company is transforming the intangible Ferrari heritage into solid gold, it's a sure bet there is a lot more to the plan than producing overpowered cars in arresting shapes and waiting for Walter Mitty to show up.
GRAPHIC DESCRIPTION:
Photo Chart: "Image Is Everything"
Ferrari, the Italian car maker long associated with expensive
and desirable, if sometimes unreliable cars, has discovered that
selling its name can be more profitable than selling cars. This
year, for example, the car maker expects to earn $10 million from
licensing, five times what it made from its car business in 1996.
Chart shows some of the costly items that bear the Ferrari name.
(Allen Rosenberg for The New York Times; Photographs by Naum Kazhdan/The
New York Times)
Graph: "Uneven Performance"
While sales of Ferraris have recovered in recent years from a
severe slump in 1993, they still are not where they were in the
late 1980's and early 1990's. And they still do not sell in sufficient
numbers to generate big profits. Graph shows car sales from 1980
to 1995. (Source: Ferrari)(pg. 36)