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Sunday, November 2, 2014

Ferrari to be spun out of Fiat, and the race for control is on


Ferraris on display in Los Angeles
Ferraris on display in Los Angeles
Would you trade a Ferrari for a bunch of Fiats, Chryslers, Alfa Romeos and Maseratis? Becuase that's essentially what the automaker itself will do next year.

Today, Fiat Chrysler Automobiles — the merged union of the Italian and American auto companies — announced it would give 80 percent of Ferrari's shares to its investors, and sell an additional 10 percent by this time in 2015. The result will be a publicly traded Ferrari, a first in the automaker's 67-year history, and the potential for it to be bought by another corporation.
The move comes after months of turmoil at the luxury brand that culminated in the early retirement of long-time chairman Luca di Montezemolo, a departure that Fiat Chrysler said cost the company $19.1 million last quarter.
"We are doing the right thing by giving Ferrari a proper, unique place in the capital markets, to be valued and evaluated as a luxury automaker," Marchionne said, adding "the cars are almost incidental to Ferrari. It is truly a luxury brand. There is nothing else like it.
As for whether Ferrari could be bought after the spin, Marchionne answered: "Let the market make that call."
The sale represents the most visible effects of Marchionne's strategy of boosting Fiat Chrysler's global sales — a move that requires billions of dollars in capital.
The Ferrari sale will help boost Fiat Chrysler's stock just as Marchionne and the board of directors try to raise some $4 billion to reduce debt and help pay for projects like building Jeeps in Europe, re-launching Alfa Romeo worldwide and catching up with other automakers in China.
In that worldview, Ferrari looks like a completely different business. Fiat Chrysler wants to sell 4.7 million vehicles this year; Montezemolo had kept Ferrari's production capped at 7,000 cars a year to maintain its exclusivity, ruling out money makers like a potential SUV.
 Ferrari makes $100 million a year from licensing its name alone, and runs luxury stores around the world, but has to spend at least that much on a Formula 1 racing team that's disappointed this year and may not get better next year.
Marchionne had once spoken about how Ferrari could someday build 10,000 vehicles a year, but said today keeping Ferrari exclusive was far more important than anything else.
"Our customer base of Ferrari is unique and we can’t flood the market," Marchionne said. "We will handle this very, very carefully because we understand the downside risk of making this brand too accessible."
Fiat Chrysler did not provide extensive details on how Ferrari would be spun off; Marchionne said it was "too early to tell" whether any current Ferrari shareholders will hold special rights to maintain management control — but history has shown no boutique automaker can thrive without shelter from a larger corporation.
Volkswagen chairman Ferdinand Piech has suggested interest in Alfa Romeo in the past, and has made buying brands from Porsche to Ducati part of his life's work.
 Marchionne has clashed with Piech several times over the years, and made an oblique reference to that history today, warning that keeping Ferrari exclusive applied to "the people on the other side of the Alps."
Yet Ferrari's appeal is so large, it's easy to imagine other automakers (BMW for one) or even some of the world's billionaires deciding they like the car so much they should just buy the company too. The listing of Ferrari's shares will end 47 years of Fiat ownership — but it will waive a green flag for many others.