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Racing success an ace for Ferrari sale

2015-05-20 13:19

LONG TIME COMING: Sebastian Vettel on the top podium step after winning the March 2015 Malaysian Formula 1 GP. Image: AFP

  Video

Dario Benuzzi, a Ferrari test driver since 1969, took the automaker's F40, F50, Enzo, and LaFerrari around Italy's Fiorano circuit. A Ferrari fan's dream come true!

ALAN BALDWIN and AGNIESZKA FLAK

  • Fiat Chrysler to sell 10% of Ferrari
  • Ferrari Mercedes' main 2015 rival
  • F1 team snaps 34-race losing streak

LONDON/MILAN - Ferrari's timely return to the front row of the Formula 1 grid bodes well for the luxury sports-car maker as it prepares to list shares and split from parent Fiat Chrysler Automobiles.

After years of under-achievement, the world's most successful motor racing team has been on the podium in each of the first five GP races so far in 2015 with driver Sebastian Vettel securing a long overdue victory in Malaysia in March.

LIFT FOR MARCHIONNE

That win ended a moral-sapping run of 34 races without success dating back to May 2013 when it won the Spanish GP - the longest losing streak for the celebrated team in two decades.

The turnaround gives FCA chief executive Sergio Marchionne a lift as he seeks to convince investors that Ferrari merits a valuation of at least €10bn - at the top end or even above a range of €4-10bn floated by bankers for the luxury automaker and its Prancing Horse logo.

Manfredi Ricca, head of brand consulting group Interbrand's Italian office, said F1 symbolised what Ferrari stands for: ultimate performance, ground-breaking technology, the best of design and a legacy of racing wins.

"A successful F1 team adds some incremental value to the Ferrari brand and the brand is going to be a key component of Ferrari's valuation in the IPO," he added. "It's the most effective advertising. It's about keeping a promise and bringing it to a global audience."

Marchionne, who took over as Ferrari chairman in September 2015, has said he plans to sell around 10% of the firm in a initial public offering later in 2015.

He’s the first to acknowledge that victories on the track make little impact on sales of its road cars, capped at around 7000 a year and with a healthy waiting list.

"Win Sunday, sell Monday is an argument that may work when you're selling motorbikes. It doesn't make a bloody difference to Ferrari," he said in March 2015, in typically forthright fashion.

But he recognises the team's importance to the brand's DNA. "Ferrari defines itself in terms of its racing ability. When it loses, the house doesn't feel good," he said.

SEVEN YEARS SINCE A TITLE

Ferrari is the only surviving team from the original motor racing series that started in 1950. It has endured lean periods in the past, notably before German Michael Schumacher ended a 21-year wait for a Drivers' title with the first of a record-breaking five successive championships in 2000.

It’s now seven years since a Ferrari driver won a title and, following a disagreement over strategy and results, Marchionne replaced the more flamboyant Luca Cordero di Montezemolo as chairman eight months ago.

Profits were not the only important thing for the iconic car firm, Marchionne said at the time. Winning on the F1 track was also "an essential part" of the Ferrari brand and a "non-negotiable target" for the group.

The senior management team has been radically overhauled this past year; engineers involved in many aspects of the ultra-sophisticated cars were also changed.

Ferrari's engine, no match for Mercedes last season, has been revamped and retired triple F1 champion Niki Lauda, who won titles for Ferrari in 1975 and 1977, estimated the cars now had 30kW more power.

'YOU NEED A GOOD CHASSIS'

Enzo Ferrari, the now deceased founder who made road cars to fund the race team, liked to say he built engines and attached wheels to them. The engine-dominated formula still stands.

"Initially it was the engine and now it's still the engine," new principal Maurizio Arrivabene said after Ferrari driver Kimi Raikkonen, an F1 champion, was second in Bahrain in April -- his first top three finish since 2013.

"But afterwards ... you need to have a good chassis, good aerodynamics and so on."

Arrivabene, plucked from Philip Morris-owned team sponsor Marlboro, joined in November 2014 as Ferrari's third team principal in barely eight months. The team now has a very different feel to it, more collegiate and less political, observers said.

Lauda, who now serves as a non-executive chairman at Mercedes, said: "Marchionne did a good job putting new people in the right place... they are working together without any friction and this is the secret.”

BRAND POWER

While the Prancing Horse has undoubtedly raised its game, nobody is claiming that Ferrari is yet in a position to dominate Mercedes, which has won four of the five opening races this season, as well as securing every pole position.

Ferrari's technical director James Allison, son of a British Air Chief Marshal, said: "They have a bit more power than us and a bit more downforce than us and until we've closed those two gaps it's not realistic to talk about title challenges.”

This weekend's Monaco GP, the glamorous showcase race attended by a who's who of corporate big-hitters, will give Ferrari another chance to narrow the difference with its main rival in this year's Constructors’ standings.

While FCA discloses few financial details about Ferrari, analysts estimate the racing team generates 10-15 % of the unit's €2.76bn revenue, mainly from F1 income and sponsors.

Nearly all of that goes back into the team -- spent on engine and technology development and general racing costs -- meaning the division is probably loss-making most of the time.

F1 ALSO APPLIES TO ROAD CARS

Marchionne would probably struggle to cut costs there but industry analysts expect him to look for ways to boost profits at the division, whose impact is felt throughout the company.

The engine and aerodynamic technology developed for F1 is applied to road cars and the marketing impact of races, which attract more than 400 million TV viewers globally each season, is vast, also helping to propel the sales of an array of Ferrari merchandise in stores across the world.

Consultancy Brand Finance named Ferrari as the world's most powerful brand in 2014 but dropped it to ninth in its list in January 2015 because of the poor showing on the track.

"The sheen of glory from its... golden era is wearing slightly thin," it wrote in its annual report, released ahead of the new season. Even so, it estimated the value of the brand alone at some $4.7bn, with considerable upside.

"The Ferrari brand clearly has huge untapped commercial potential and Marchionne's open-minded approach bodes well for investors," the consultancy’s survey said.

'BAD YEARS CAN HAPPEN TO ANYBODY'

Marchionne, widely credited with rescuing both Fiat and Chrysler, has already announced his intention of turning Ferrari into a true luxury-goods stock, hinting that the cars might one day no longer be the driving force behind company profitability.

However, in any move he makes, having a winning F1 team again can only help.

"They had bad years, which can happen to anybody, and thank God, for the sport (but) not for Mercedes, they have recovered," Lauda told Reuters, as he doffed his trademark red cap to the sport's most storied team.


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