Will Ferrari’s IPO Affect its Brand?

Ferrari IPOItalian performance car maker Ferrari will launch its Initial Public Offering (IPO) in the U.S. However, its former Chairman, Luca di Montezemolo, expressed some concerns about the company’s upcoming IPO. (Source: Detroit Free Press, last accessed August 12, 2015.)

The former Ferrari chairman was inducted into the Automotive Hall of Fame in Detroit. Before the induction, di Montezemolo said he was concerned that after going public, Ferrari might have to sacrifice its exclusivity in order to maximize short-term profits: “I hope that the clients will remain more important than the analyst or the investor or the financial markets.”

You see, Ferrari has been a company pursuing a low-volume production strategy in order to keep its products exclusive and scarce. In 2014, the company shipped a mere 7,255 cars. There are also long waiting lists for cars made by Ferrari. Some customers have to wait years before taking delivery of their new car.

The exclusivity and scarcity that Ferrari built up over the years has created a massive following among automotive enthusiasts. It is one of the most recognized brands in the world.

Indeed, the most notable competitive advantage of the Ferrari brand is the brand itself. Other car manufacturers could only dream about the brand loyalty customers have for Ferrari. In 2014, approximately 60% of all new Ferraris were sold to existing Ferrari owners. Moreover, 34% of Ferrari owners have more than one Ferrari car.

Ferrari managed to monetize on the exclusivity of its brand. It managed to charge huge premiums in an ever-competitive automotive industry. Its current lineup starts at around $200,000 with the Ferrari California, and goes all the way up to well over $1.0 million for a limited production LaFerrari. In 2014, the company had an adjusted EBITDA margin of 25.1%.

After becoming a public company, Ferrari would likely be facing growth targets set by investors and analysts. To grow its revenue, Ferrari could either produce more cars, or sell them at a higher price. The pricing of Ferraris is already at the very top of the automotive industry. Montezemolo is worried that Ferrari might have to expand its production to meet the growth targets, and that would undermine its exclusivity.

According to di Montezemolo, the company was dedicated to “exclusivity in terms of number of cars, exclusivity in term of how you deal with the clients.” And that helped to build its success.

“I hope that the client will remain the most important point of reference. Because if not, it will be a big mistake. Because, I always say, ‘our people, our products, our clients.’ These are the key elements.”

Scarcity and Exclusivity in its IPO

According to the company’s IPO filing, Ferrari might be pursuing this “scarcity” strategy with its IPO as well. (Source: The Securities and Exchange Commission, last accessed August 12, 2015.)

Ferrari is only offering 10% of its shares in the IPO. Fiat Chrysler Automobiles N.V. (NYSE:FCAU) is expected to own 80% of the company. Piero Ferrari, the son of founder Enzo Ferrari, has 10% of the company and plans to keep his stake.

According Sergio Marchionne, CEO of Fiat Chrysler, Ferrari would be valued at least at 10.0 billion euros ($11.0 billion) in the IPO. He said that the appeal would come from the uniqueness of the brand, and the scarcity value from the mere 10% they were selling.

Ferrari has not announced its IPO date. It plans to list its shares on the New York Stock Exchange (NYSE), while its ticker symbol is yet to be determined.

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