The Ferrari balance sheet used to be the same colour as the cars – red. Over-production and imperfect technology took its toll until Luca di Montezemolo became president...

No more red

Timeline:12 December 1999

As Luca di Montezemolo strides to his office from some sort of crisis meeting deep in the bowels of the modern Ferrari car-making complex, his visitors learn there is a problem with his new racing car. Not that he tells them. It is serious enough for 52-year-old di Montezemolo to have got very angry with his people. The aftermath of the anger flows into the interview, as he berates his aides again for not telling him about the photograph session that is scheduled to follow. Despite the fact that everything is going extremely well at Ferrari, there is a new anger about di Montezemolo in 2000.

Never a man to suffer fools gladly he has vowed not to suffer them at all in the fist year of the new millennium. He is a man on a mission this year. He has the Ferrari car factory working like a sewing machine, manufacturing the best sports cars ever and making plenty of money. Yet he is lavishing a record near quarter of a billion dollars on his racing team and not, so far, achieving the results he wants. Sure they won the constructors championship in 1999 but the fact remains that for the past four years in succession, Ferrari has been second best in the Formula One world championship. For a man like di Montezemolo, finishing second four years running is devastating – it visibly pains and grieves him. He cannot believe his team has played second fiddle four times – for him second may as well be nowhere.

It’s certainly a far cry from the years between 1975 and 1978, when he was in direct charge of the team and he won three times and finished second twice.

It is why in September last year he finally snapped and read the riot act to number one driver Michael Schumacher. Schumacher, supposedly still recovering from a broken leg but in reality in his garden playing football, was told by di Montezemolo to turn up for work and earn his salary.

It was a pivotal moment for di Montezemolo but he realised he had nothing to lose. Schumacher could have thrown a tantrum, put the phone down and refused to listen. And then maybe walked out of his contract on some pretext and driven for deadly rival Mercedes in 2000. But Ferrari was second anyway. Would it be the end of the world if he did? For the first time di Montezemolo thought it wouldn’t and from that moment on he took the gloves off and told the team to earn their salaries. Before that moment di Montezemolo had given the highly paid management of the Ferrari racing team the benefit of the doubt and time to win. Now they all know that if they don’t win in 2000 there will be changes. This fresh approach means that new second driver Rubens

Barrichello won’t play second fiddle to Schumacher in 2000 either. If he is faster then he will be allowed to win.

At 52 di Montezemolo seems wedded to Ferrari for the rest of his career, unless he is finally called up for a weightier role at Fiat. But as he gets older it becomes more obvious that he will not succeed Agnelli at the head of the Fiat empire and that a generation will be skipped and younger Agnelli nephews will succeed.

Despite that di Montezemolo is determined to finish his career in a blaze of glory. He is Italian, he is passionate – and he wants to win. His whole reputation is on the line. If Gianni Agnelli is king of Italy (and many think he is), then Luca di Montezemolo is his crown prince. For him the remaining jobs are recreating the Ferrari-owned Maserati as a major sports car maker and making Ferrari the undisputed world champion of Formula One.

Few Europeans realise how famous and revered di Montezemolo is inside Italy. He is in fact the country’s most famous entrepreneur – Italy’s equivalent to Britain’s Richard Branson and France’s François Pinault.

His career started at Ferrari in the early seventies when he ran the sporting division, which included the F1 team and sports car racing. Then he was an unqualified success. He was marked out and began a 20-year journey through the Agnelli empire. But for some reason the early promise failed to materialise and he never really shined again, although he was very high profile and regarded as one of Italy’s best businessmen.

Then almost as a swansong di Montezemolo returned in 1991 to head up Ferrari after Enzo Ferrari’s death. On his return, after a 20-year absence, he found the factory in a mess. Despite being half-owned by Fiat, Enzo Ferrari had retained absolute autonomy. Such was his aura and the respect that Gianni Agnelli and all Italy felt for him, Fiat just threw money at Ferrari, faltering only in the depths of the 1973 recession and the oil crisis, when it actually withdrew from Formula One as its business almost collapsed.

In the Enzo Ferrari years sports car production alternated between a thousand to a many thousands of cars a year. After the near disaster of 1973, misfortune struck again in the late eighties, when the Gulf War broke out and no one bought a Ferrari for three months. Ferrari found itself with too many €80,000 sports cars in storage. Without Fiat, then in control of 90 per cent of the shares, it would have gone bust. It was in a management vacuum after Enzo Ferrari died.

With things going from bad to worse, in 1991 Gianni Agnelli drafted in his best trouble-shooter – a man familiar to everyone – Luca di Montezemolo. His first act was to cut production to get rid of unsold cars. He knew Ferrari could never be successful selling cars from stock. He had to make Ferraris rare again. It worked so well that production is now up to a fixed 4,000 cars a year. He also hiked the price 20 per cent and with better designs and engineering the price stuck.

Di Montezemolo swears that 4,000 is the highest number that will ever be built, whatever the market conditions. “Even in five years’ time Ferrari will be producing the same number of cars – it will never be more than 4,000,” he says. “I want to keep the exclusivity, and the high value of the product. I want to control the new car market.” That is somewhat easier to say in boom conditions – the difficulty will come in the next recession. There are plenty of Ferrari buyers right now, probably more than ever before in the history of the car. But whether Ferrari could still eke out a profit on sales of 2,000 cars a year is another matter. One thing is certain, however – when recession does strike again, di Montezemolo has a plan to cope rather better than last time.

The bottom line is what he is really all about. He has always been a talented manager and the only reason he has never succeeded in a bigger way is that he has always been attracted to glamorous, riskier enterprises.

Since he arrived in 1991 sales have more than doubled. In the last four years Ferrari has been the world’s fastest growing car-maker, with sales rising from €379 million in 1995 to over €600 million last year. Di Montezemolo admits he has been surprised at the level of growth: “Four years ago we were expecting half of what we have now,” he says.

The renaissance has been a mixture of everything. More cars sold, better marketing, better market coverage, higher prices and more income from the race team. The race team is now a very important part of the balance sheet. Its sponsorship income is getting on for a fifth of the whole factory’s sales. Contrary to what others think Fiat no longer pumps in millions – the team has become largely self-supporting, with Fiat perhaps chipping in as little as US$15 million or so a year in sponsorship.

Michael Schumacher’s salary is five per cent of the total costs, hence di Montezemolo’s keenness for him to return quickly from injury. Di Montezemolo thinks that within two years the racing team will be contributing to Ferrari’s bottom line rather than being a burden. It was his idea to set up Ferrari Idea SpA, the merchandise arm which now has separate retail value sales of over €400 million a year.

Ferrari’s road car sales are incredibly buoyant. It now sells more cars in Britain than its homeland, which speaks volumes. Last year it sold 818 cars in North America, 640 in Germany, 446 in Britain and just 380 in Italy. Italy is now only Ferrari’s fourth largest market. Thanks to di Montezemolo it is now possible to buy and have a Ferrari serviced on 90 per cent of the world’s land mass.

Di Montezemolo’s rise has always been subject to close scrutiny. He trained as a lawyer and until 1973 no one knew who he was. At 26, straight from Columbia University, he landed a job as assistant to Enzo Ferrari. This was great training as Ferrari was beset by the problems

of the 1973 recession and the oil shortage. Di Montezemolo’s contribution and support to Ferrari was well noted and three years later he was made managing director of the Ferrari sporting division and promptly won three world constructors championships and two drivers championships in the most sustained period of success Ferrari has ever had.

This established his reputation and he promptly left Ferrari and spent five years in the curious position of head of external relations for the whole Fiat Group. This appeared to be a familiarisation process of the whole Agnelli empire, and a clear sign that he was being considered as a future head of the family business. Di Montezemolo shrugs off any discussion about succession at Fiat. He says it is not even on the agenda and never has been: “They know that I am very busy with Ferrari and that Ferrari and Maserati are two fantastic companies. To be honest, when I first heard these rumours

I was really surprised because I haven’t worked inside Fiat for a long time. In the 25 years I have worked, I have only spent seven of them at Fiat.”

There are clear indications that di Montezemolo was considered a member of the Agnelli family. But why? There is no indication of him being that, although he has always been treated as such. There is a Luca in a distant branch of the family but it is not him. The only explanation is that he is a direct descendant of Fiat founder Giovanni Agnelli born outside of the official family. Italian journalists regularly refer to him as ‘a nephew’. But it is a question that remains unanswered, even by insiders, as apparently no journalist has ever dared ask di Montezemolo to his face, until EuroBusiness pitched the question. Surprised at being asked directly he said: “It’s not true.” He says speculation rose during his childhood as he became almost a member of the family but says: “One of my three best friends is Agnelli’s nephew. I’ve known Agnelli since I was 15 years old. Now I am 52, so I’ve been in touch with him for many, many years.”

That may well be. But the suspicion lingers and if there is any truth in it di Montezemolo is not saying, aside from admitting that his relationship with Gianni Agnelli goes beyond the normal boss/employee status. He admits they speak together on a daily basis and Agnelli’s shadow is ever present at di Montezemolo’s shoulder. There is still a chance that he will take over when Gianni Agnelli passes on.

“I speak with him every day. We don’t necessarily talk about Ferrari, but I am in touch with him a lot. I even talk a lot with the managing director of Fiat, Paolo Cantarella, over the future of Ferrari – because Ferrari is very important for Fiat.”

For certain di Montezemolo worships the ground that Gianni Agnelli walks on, as he admits: “In my life I have had two people that have taught me a lot: Enzo Ferrari and Gianni Agnelli. Agnelli likes Ferrari very much, he is proud of it. He’s always very close to me and to Ferrari.”

So much so that, apart from a five-year secondment to organise Italy’s 1990 world cup, di Montezemolo has spent 26 years as a senior executive at Agnelli-owned companies. After five years at Fiat he was appointed managing director of ITDEDI SpA, the Agnelli-owned publishing company that produces titles including the Turin daily newspaper La Stampa. In 1984 he had a short stint as managing director of Cinzano, the drinks firm and another Agnelli offshoot, during which he organised Italy’s assault on the America’s Cup. He then moved on to spend five years organising Italy’s hosting of the 1990 world cup. After which he spent a couple of years as managing director of RCS Video, part of the Rizzoli Group, before moving to Ferrari a few years after Enzo Ferrari’s death.

Being president of Ferrari is one of the best jobs in the world when times are good but it is a lousy job in recession. And di Montezemolo has experienced both. His first few months were spent keeping Ferrari alive. It was made easier because of Fiat’s almost unconditional financial support. It has total independence by virtue of Gianni Agnelli’s promises to Enzo Ferrari and also the fact that Enzo’s son Piero owns 10 per cent of the company. Di Montezemolo says: “Unlike Alfa Romeo or Lancia, Ferrari is very independent, although Fiat does have a financial contribution. We do our cars completely differently. Our clients are different. We are present all over the world, including Japan. Our largest market is the United States, where Fiat doesn’t sell a single car. When you talk of Ferrari and Fiat, you have to consider that Ferrari is like La Stampa. The paper is owned by Fiat, but it is an independent newspaper. The same goes for Ferrari.”

Once di Montezemolo had the Ferrari revival firmly under control, he then turned his attention to the racing team and hired a completely new team centred around ace driver Michael Schumacher. He tore the rule book up when he agreed to pay Schumacher an initial US$20 million a season in mid-1995. It was as much as the rest of the grid of drivers then earned between them.

With the race team sorted out, he turned to a new challenge – the Fiat-owned struggling sports car maker Maserati. Ferrari initially bought 50 per cent of Maserati from Fiat and the remaining 50 per cent in December 1999.

On first inspection, di Montezemolo found a ramshackle factory and a company in its death throes. But he realised that Maserati could be strategically very important for Ferrari. The self-imposed Ferrari production limit of 4,000 cars left room for another sports car brand – a car that cost less than a Ferrari. “After five years it was very important for us to have in our dealer networks a car that was very sporty, Italian, less expensive than Ferrari and of course without any kind of overlapping,” says di Montezemolo. “It had to be different. Maserati is perfect – it is a huge Italian name and has a long history of winning important Formula One races with Stirling Moss and Juan Manuel Fangio. It is a sports car and it is Italian, so it is prestigious.” Di Montezemolo believes Maserati fits better under the Ferrari umbrella than Fiat’s: “The typology of the Maserati cars is very different from Fiat, but it is closer to Ferrari. Furthermore, since the beginning Maserati has been based in Modena. Therefore there was a good opportunity to create a synergy with Ferrari.”

But getting Maserati was a doubled-edged sword. It needed a huge amount of investment. Di Montezemolo shut down production for at least a year in late 1997 and completely gutted and rebuilt the factory at a cost of US$40 million. He says: “We have invested huge amounts of money to rebuild, or rather create, a very modern, up-to-date, high technology factory.” In hindsight it was a huge gamble, as it wasn’t only the factory that had to be rebuilt – the styling, engineering, management and market had to have a make-over as well. The only thing di Montezemolo found that was good about Maserati was its name, as he says: “We completely reorganised the company and people, the method of work and mentality.” But that was only stage one. Stage two is just beginning, as he says: “Now we have started to create and reorganise the dealers’ network all over the world and have introduced a brand new model – the Maserati Coupe.” Di Montezemolo’s intention is to bring Maserati production up to 10,000 cars a year and presumably bring the price down. He is taking things gradually, step-by-step. Ten thousand is on target by 2005, when clearly the model range will be very different from the one of today. The current Maserati models resemble top of the range Toyotas but di Montezemolo aims to bring it on a level with Porsche, Jaguar, BMW and Mercedes sports cars at a price level of around €80,000.

To achieve that he is introducing new models such as the eagerly-awaited Spider, as he says: “We are producing 2,000 Maseratis at the moment but our objective is to achieve 5,000. Aside from the Spider we are working with Pininfarina on a new four-door car. In five years’ time we hope to reach 10,000 by going back to the United States.”

It is clear that styling is the future of Maserati and that, currently, it leaves a little to be desired, hence Pininfarina’s involvement. Di Montezemolo agrees: “Maserati has to be a car with key characteristics. Firstly, very advanced technology. Second, a mix between Italian desire, flavour and sport – a car that you can immediately feel is Italian. And third, a car with great performance but one that you can use every day in every condition and with enough room inside.”

During its recent years of neglect Maserati has suffered from a tarnished image and di Montezemolo plans to revamp that image. He intends to spend 10 per cent of sales on advertising in a massive re-branding exercise that may cost up to €45 million this year. He is not about to spend €40 million on the car and then fail to tell anyone about it. But he also says that the rumours surrounding him possibly buying the small Swiss F1 team Sauber and renaming it Maserati are also just speculation. He admits it would make sense for Ferrari to reintroduce Maserati to the sport but baulks at the prospect. He says he could never consider launching a team with the Maserati brand but using a Ferrari engine. He says he would have to start from scratch, and that would defeat the object: “Maserati is a car manufacturer. Therefore if it is to race in F1 it has to build its own engine,” he says. “It’s not like Sauber or Prost, which are not car manufacturers – they are just assembly teams – they don’t sell cars. Maserati is a very important car manufacturer, so if it is going to race in F1 it has to build the car, the engine, everything.”

But still di Montezemolo’s brand and marketing ambitions for Maserati are huge and limitless. He intends to make it synonymous with state-of-the-art technology. He also sees great potential for Maserati merchandise. And he is installing a programme dedicated to customer service called Maserati’s upper market services, which will provide insurance, finance and peace of mind motoring.

Di Montezemolo also wants to sell Maseratis on the Internet: “We intend to sell Maserati worldwide through the Internet,” he says. The marketing costs will delay Maserati’s return to profitability for at least three years and depress Ferrari’s bottom line: “I hope in three years from now to break even.”

The big danger is of course taking sales from Ferrari. Whilst di Montezemolo may be clear about the differentials, certainly customers are not. To them there is no essential difference between the brands. Both are exotic Italian sports cars. It is di Montezemolo’s job to get customers to think differently. He says: “The customer in my opinion is related to the product. The Ferrari client is looking for exclusivity, super high price and extreme performance, whereas a Maserati client is looking for similar things but to lesser degrees – an important car, but less exclusivity; a high price, but not too extreme; sports performance, but again not too extreme. The Maserati client also wants a car with four doors, two-plus-two seats and therefore more room inside. In short, Ferrari is extreme in everything, the ultimate drive, unlike Maserati, which is a high level car, but not as extreme.”

Di Montezemolo attempts to explain what is going to be a difficult marketing message to get across: “Ferrari is like a very pretty woman that you desperately desire but is sometimes difficult to go out for dinner with. Maserati is a very good looking woman, less extreme in other words, less difficult to go out for dinner with but still a high level woman.”

One can hardly imagine Mercedes-Benz’s Jurgen Hubbert or BMW’s Joachim Millberg using the same terms to describe a car. But that is where di Montezemolo has the advantage – as well as being president he is also a typical Ferrari and Maserati customer – he knows how they feel, whereas Hubbert and Millberg are traditional executives running car companies.

For di Montezemolo Ferrari’s uniqueness stems from its inseparability from Formula One. Ever since the days of F1 driver-founder Enzo Ferrari there has been the link, and although there have been hiccups in its history, F1 is inextricably bound up in Ferrari’s business. It represents nearly a third of the business in cost terms and a quarter in turnover. Di Montezemolo says it is also an essential element of the Ferrari road car’s development. In his own words he sums it up: “Ferrari is a mixture of passion, high technology, and sport. We have been for 50 years the only one to develop and build a Formula One car. A lot of car manufacturers supply engines or gearboxes, but not the entire car.” By making a complete car, Ferrari has the unique opportunity to develop technologies that directly fit on road cars. For example, it was the first car manufacturer to introduce a Formula One-style gearbox on a road car – an innovation most others are following. Di Montezemolo says: “We have transferred our F1 experience to our road cars. So for us F1 is not just a question of image – it is also an opportunity to transfer technology. The big success of our road cars is because we have such advances in aerodynamics, in the engine, in the gearbox.”

Di Montezemolo says Formula One is now giving Ferrari a very good return on its investment rather than being a black hole for Fiat’s cash. He also goes so far as to insist that F1 is now actually contributing to the Ferrari bottom line rather than being a drain: “What we invest in Formula One gives us a good return on investment,” he says.

He is referring mostly to the Ferrari brand. The brand on its own already brings US$13 million to Ferrari’s bottom line just from licencing fees. The reason is clear – Ferrari evokes values beyond the name of a car. There are few worldwide brands that come anywhere close to Ferrari’s values of exclusivity, passion, chic and fast living. Yet strangely the brand is under-utilised and di Montezemolo thinks 10 times that income is possible in the next five years. Ferrari Idea was literally his idea and he thinks it will ultimately be more profitable than car-making.

Ferrari Idea SpA will prosper through the sale of merchandise. Di Montezemolo has thought out a careful marketing plan for the merchandise recognising the blue collar and white collar appeal of Ferrari that few would even comprehend: “We do merchandising for two very different targets,” he says. “One is the popular target; the other the high-level target.” And that is his genius. For all the high aristocratic aura he commands, di Montezemolo is not above strolling around the spectator enclosures and observing some of his Ferrari (merchandise) customers first hand. He is a brave man, as some of the sights are not pretty. But he understands he has to have a marketing strategy for them as well.

However, the fact remains that Ferrari’s star employee’s merchandise sales are much higher than its own. It is clearly a sore point and di Montezemolo bristles visibly. He is horrified at the comparison. He is said to regret the deal Ferrari signed with Schumacher allowing him to use the Ferrari brand on his own merchandise.

He says Willy Weber’s (Schumacher’s manager) selling techniques are completely different to his own. Weber is looking at the short-term, quick gain. Di Montezemolo is thinking long-term, because he does not want to dilute the brand. He says: “We are not pushing on the merchandising to do everything, Ferrari is far more exclusive. A driver can sell everything because his career is not for so long, so he has to take the opportunity at the right moment to sell everything. We have a very exclusive catalogue with not so many products. It’s a different target and a different mentality of people.”

It is fair to say that when the contract was signed with Schumacher more than five years ago, the value of the Ferrari brand had not been realised and it is not di Montezemolo’s fault that the value has now rocketed.

To maintain exclusivity he limits the licences carefully: “We choose big worldwide partners, but we don’t give out many licences. We have super control over how someone else can use the Ferrari mark. For me that is the most important part of the company, so we place a strong emphasis on protecting it.”

There is much more to come. Already di Montezemolo has turned the Ferrari factory near Bologna into something akin to a theme park. As well as a state-of-the-art road and race-car facility, it has external attractions such as a museum. Rumours of an actual Ferrari theme park abound. What is coming for certain is a chain of merchandise shops that is being planned for three years hence. Di Montezemolo is planning up to 40 shops selling Ferrari merchandise, and there are also e-commerce deals in the pipeline. “We want to increase our sales routes by opening some upper-market shops, using Internet e-commerce to increase our merchandising sales, and creating new video games.”

As for the main product – cars – it could not be rosier, as di Montezemolo says: “Last year we beat our historic record of sales in the US – we have never sold so many cars, it’s been a fantastic year. We have also won the championship for constructors. I learnt one very important lesson from Enzo Ferrari: to look ahead. I am sure that he is very happy to see a car company looking as far ahead as we do. That is the reason for our success right now.”

Author: Catherine Monk