Those High End Italians Are Revving Up Again

Ferrari, Ducati, and other makes are pulling out of the pits

In their heyday, Italian sports cars were synonymous with record-breaking speed, elegant design, and astronomical price tags. Cutting-edge technology and racetrack glories put autos built by Maserati, Lamborghini, and Ferrari at the top of car lovers' wish lists around the world. These days, though, the names evoke more nostalgia than desire.

That may be about to change. Italian car- and motorcycle makers are betting they can resurrect celebrated brand names to gain an edge in the world's highly competitive luxury markets. Maserati and Lamborghini, as well as motorcycle companies Ducati Motor and Moto Guzzi, are unveiling new models, overhauling aging plants, and burnishing their images through merchandising and museums. "There's huge power in the brand name," says Salomon Smith Barney analyst John Lawson.

Lawson thinks many carmakers have neglected the luxury segment, which can be hugely profitable. Now, some of the industry's biggest names, such as Fiat and Volkswagen, are paying it more mind. With financial markets crashing around the world, their timing may seem off. But Italy's carmakers intend to sell just a handful of cars in select markets. And companies such as Maserati and Lamborghini will benefit from their parents' distribution networks, management, and technology.

Italy already has one success story in this sector: Ferrari. Near bankruptcy after the death of founder Enzo Ferrari in 1988, the company got a fresh injection of capital from parent Fiat. After renewing its product range over six years, Ferrari posted consolidated sales of $600 million in 1997 and pretax profits of $22 million. In the U.S., its bread-and-butter market, an enlarged dealer network helped sell 3,581 cars last year. "These kinds of cars appeal to the superrich, who are not affected by general economic cycles," says Michael Smith, an analyst with Standard & Poor's DRI.

Now, Fiat wants the company to work the same magic on Maserati, also a subsidiary. Last year, Fiat sold a 50% stake in Maserati to Ferrari. Since then, Ferrari has poured $15 million into revamping Maserati's factory in Modena. Another $60 million went to developing Maserati's first new model in more than eight years. The two-door Maserati 3200 GT coupe will go on sale in January at $88,000. With a turbocharged V8 engine and a choice of 14 designer colors, the GT is expected to push total sales to $135 million in 1999, from an estimated $55 million this year. Next, Maserati plans to introduce another model, the Spyder, in the U.S. before 2002.

A similar renaissance is under way in Bologna, where Lamborghini has found a German savior. Volkswagen's Audi luxury carmaking unit purchased Lamborghini in July for an estimated $110 million and already has new models in the pipeline. Thanks to cost-cutting, the company eked out a $120,000 net profit in 1997--its first in years. Lamborghini's successful, eight-year-old Diablo, priced at $250,000, is soon to be duplicated in a smaller version called the Baby Diablo that will cost about half as much.

ROYALTIES. Motorcycle makers are following the same strategy. After years of losses, Italy's 78-year-old motorbike company, Moto Guzzi, is seeking to revive itself. The company recently installed a new CEO and management team and filed with the U.S. Securities & Exchange Commission to list on the NASDAQ market. The move would help finance improvements to its plant in central Italy and increase production threefold, to 20,000 units per year.

Meanwhile, Italy's second-largest motorcycle company, Ducati, may list on the Milan bourse and the New York Stock Exchange. After a reorganization two years ago, sales in 1997 climbed 88% from 1996, to $230 million, and Ducati earned $3 million. Now, it's opening outlets in the U.S., Europe, and Australia to sell biking gear. In October it will open a museum in Bologna, displaying 27 bikes from its collection.

In fact, merchandising is crucial to the brand-name revival. Ferrari makes $11 million per year from merchandising and licensing royalties. Its Grand Prix T-shirts, watches, and hats are sold in Ferrari stores worldwide and at Formula One races. Similar plans are being developed for Maserati, which already offers a set of luggage that fits into the trunk of its new coupe. Maserati hopes that customers who can't afford the car may at least spring for the suitcase.

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