resource and finance in F1 and clearly they have taken the view that F1 is the platform they want to use to market their road cars and brand. Craig made the point about having a French super team and I think the future of F1 is going to be a full works team supported by their own engine manufacturers. Lotus do have success with Mercedes engines, but they can’t fully leverage this exposure for best promoting the Lotus brand. So a manufacturer like Renault taking on the team for the purposes of F1 is there for, is more viable.
As Craig said, Renault has a strong heritage in junior formulae like in Clio cup and World Series so it could be argued that perhaps they could promote their brand without F1. But with F1, Renault have the prestige of competing at the pinnacle of motorsport and technology and clearly they want to be involved in that space to sell more cars. In summary, I don’t see the Lotus-Mercedes deal as “surviving” but having an OEM works manufacturer team is the way forward, whoever that might be.
DR: The thing that stood out the most is that it is probably the fourth time in less than 3 years that we are talking about a team in financial strife. To me, that is a challenge for the sport at a time when the sport is looking to attract new markets. This doesn’t seem to bode well for the future of F1, especially in terms of its perception.
Another thing to consider is how serious Renault feels about F1; they were involved a few years ago, then went away, came back again, then stepped away after the “Crashgate” affair. For me, it seems this project won’t be long term till F1 suits their agenda again. I’m also curious about the current state of flux at Red Bull; they must be making their partners and sponsors a bit nervous as to what state did team will be.
Q2: Ferrari IPO & Valuation: FCA plans to float 10% of Ferrari and Marchionne
(Ferrari Chairman, FCA CEO) values this at circa $10bn. He also wants to sell 2000 units more than Montezemolo’s “exclusivity” cap of 7000 Ferraris per year. Is there any direct impact on the F1 team?
DR: It seems a bit extreme to be valuing Ferrari at $10 billion or more, because when you compare the valuation of similar luxury cars and other auto manufacturers, doesn't come to a figure even close to that much. In terms of F1, the racing team are improving in performance but there is a risk that people might feel that the deal is overvalued as their on-track performance hasn’t been that great in the recent past.
The other part of the question on the effect of increasing the number of cars being sold; this is almost an increase of 20% on the previous cap. The challenge for Ferrari is whether they will lose the mystique and exclusivity the brand has had all these years. 10 billion euros is around 60% of FCA's total current market cap. If Ferrari is valued at 10 billion euros, how will the market price the rest of FCA once Ferrari is gone? If the performance of Ferrari does
not improve on track and sales don’t increase as expected, the problem is going to get compounded. Perhaps having more cars on the market might take a little bit of the sheen off the car company as well as the F1 team?
PA: I don't think the imminent IPO is going to affect the racing team much for 2 reasons; firstly, yes it is true that a brand involved with a F1 icon going to Wall Street will bring more resources. But the IPO is not meant to boost Ferrari’s resources but it is to back up some strategic plan of Marchionne at FIAT level.
Secondly, Ferrari has never had a lack of resources. They are one of few teams who can put any amount next to engineers’ and drivers' contracts. The problem they have is to attract skills and lure the talent to Maranello (Ferrari base in Italy). Recently, it seems they’ve lost their determination and focus. Personally, I think one of the main problems for Ferrari is inability to attract a technical leader. Funny thing is when I ask my students about the Technical leaders at Red Bull or Mercedes, they know who they are. But when I ask about Ferrari’s, they have no clue or they mention an old engineer’s name. So this is a little experiment to show that there isn't any technical leader at Ferrari. Allison who is now in charge is a good technician but is not been recognised as a leader so I don't think is going to change much for the racing team.
Another point to raise is that they will probably change the position in terms of branding. That's because they have affirmed they are going to use platforms to develop multiple cars on the same technological line or platform i.e. they were going to move from carbon fibre to aluminium frame, and keep the carbon fibre only for special cars such as the “La Ferrari”. When Marchionne was interviewed, he said it was for efficiency. Now, I don't think the standard Ferrari customer would want to hear about efficiency when they're paying that much money for a car. So Ferrari might lose a bit of its appeal, not much because of the increase in the number of vehicles, but rather for the logic of efficiency, in cars where efficiency should not be a concern/design feature.
We have been discussing a similar operation when Porsche started producing the Boxster or the Cayenne. We can probably all agree that the halo of Porsche lost its lustre after the release of new products at lower end of the luxury market. But in the end, Porsche shares, profitability and overall power of the company in the market rebounded. So we have to give Ferrari a few years but overall, I don't think - and I'm being provocative here - I don't think it is going to make a big difference to the racing team.
BS: I agree - it’s only 10% of their shares i.e. not a huge proportion. So I don’t think they will suddenly bring a whole load of people on the board who are going to pull the brand into a different direction. As for the car-production cap, I don’t think it will decrease the exclusivity because I don’t foresee the price changing. This is just to increase profits by increase production. 2000 more cars just means a few more millionaires can buy a Ferrari.
BW: Agree with Bridget, it’s only 10% stake going on sale and this is about Brand Equity. I don’t think the Ferrari brand would be greatly affected, particularly if they continue to perform as they are at the moment. I’ll reiterate that F1 is there to leverage manufacturers’ brands.
PC: It is a fantastic question for us Italians! I totally agree with what other people have said. As Paolo said, the move is actually to make up for the Fiat debt. I don’t think it will affect Scuderia Ferrari, nor will increasing production by 2000. What is more likely to after the team is the (awful!) choice of Arrivabene as Team Principal or Marchionne’s attempt to buy Correire della Serra (Italian sports newspaper). Personally, I think Montezemolo did a fantastic job at Ferrari and Italians would be happier if Montezemolo was still there.
PA: When I speak about luxury brands, the concept of luxury is also a ratio between the number of people who can buy the product and the number of products available. In recent years, the number of wealthy people who can access/buy Ferraris has been increasing dramatically. And so yes, Ferrari is growing the number of yearly manufactured cars, but also the population of people who can buy Ferrari is increasing so the ratio of products to potential customers is still sufficiently small. Another point is that luxury brands need to be hard to reach to a certain extent, but if they are too hard to reach then it backfires. So exclusivity does not always means that the harder it is to get something, the better it will be. A good analogy of this is when we go to a high-end restaurant and they don’t let us in because it is full. So next time we book in advance, but if we never manage to get on the list and eat at the restaurant, then at a certain point we lose interest and never show up again. So in a sense, they are also trying to follow a trend in their potential market, in the fact that significantly more people can buy Ferrari, and they cannot say “no” to too many of them.