Online Extra: Q&A: A Talk with Pininfarina's Driver

CEO Andrea Pininfarina on the car-design company's expanded portfolio of services and on its new deal with Ford

Pininfarina's magnificent silhouettes have won the Italian car-design house acclaim for more than 50 years. Among its more notable achievements: five decades of Ferraris and the 1960s-vintage Alfa Romeo Duetto Spider, the sports car driven by Dustin Hoffman in The Graduate.

Now, under the third-generation of family management, the Turin-based company is making a name in product engineering as well -- taking cars from a paper sketch through test prototypes to the production line. As big auto makers increasingly outsource new models, Pininfarina is positioning itself as a full-range company.

And thanks to a contract with Ford Motor (F ) sales are expected to jump 49%, to $768 million this year, according to Deutsche Bank analyst Dario Fumagalli. CEO Andrea Pininfarina, 45, recently spoke with BusinessWeek Senior Correspondent Gail Edmondson at the company's Turin headquarters. Edited excerpts of their conversation follow:

Q: Pininfarina is known worldwide for its auto-design talents. But 90% of sales last year came from low-margin production contracts for other auto manufacturers. What is your growth strategy?

A: We want to increase the engineering work we do for a number of customers. We're making a significant investment to reinforce the service side of our business. I would love to break into Germany. The target for 2003 is to grow services' -- product design and engineering -- contribution to revenues to 15% in 2003 [from 10% last year]. We're not the strongest engineering house, but we're the only one selling 360-degree services -- from design through production.

The second market challenge is emerging countries like China and Brazil. We've raised our profile with local manufacturers who want innovative models -- they don't want a license on an existing Western model. They want fresh, new style and engineering.

Q: Where do you see Pininfarina's competitive advantage over other rivals, such as Bertone, Porsche, or Magna?

A: We try to be excellent and competitive in each area. Ferrari is only interested in design. For Jaguar, we're doing only product engineering. For Mitsubishi, we're only doing manufacturing. The Peugeot 406 Coupe is styling, design, engineering, and production. The Chinese Hafei contract is for design and engineering. And Ford's StreetKa contract is for engineering and production.

Q: How can you boost your business in engineering, given the tough European rivals you face?

A: We did extensive research in 2000 interviewing auto manufacturers. They've all reorganized to improve efficiency and concentrate their resources on platform engineering as a common base for new models. By contrast, they're facing increasing market demand for greater differentiation and segmentation. There is an [outsourcing] opportunity in body engineering to develop different bodies for auto makers on their same platform.

We have specific skill in body engineering -- that's definitely an expanding market. Around 30% of auto industry engineering activities are outsourced. And if you look at body engineering, it's up to 50%. Companies that want to build four or five models on one platform need support from a company like ours. The reason they outsource is to reduce costs on lower-volume models.

Q: Your production is set to rebound this year to 45,000 units with the new Ford StreetKa. Will you seek to expand your capacity in anticipation of new business?

A: We're not making significant investment to increase production capacity, only to update our current facilities. With current lines we can build up to 70,000 units. There's not enough long-term visibility [to justify a costly capacity increase].

Q: How did you clinch the contract to engineer the Ford StreetKa?

A: We started working with Ford Europe through Jaguar, where we have an engineering contract. The people at Jaguar were aware of our capabilities and suggested Ford speak with us. When Ford presented the StreetKa at the Turin auto show in 2000 it was a big hit with the public, and we started to talk.

Q: The StreetKa looks different from a basic Ford Ka -- but you say you didn't redesign StreetKa. How do you explain its different look?

A: The platform of the Ka was not intended [for] a convertible. Structurally, it was very difficult engineering work. If you cut a hole in the roof, the car is structurally weaker. We had to reinforce the lower side of the StreetKa to give the car structural integrity. That's our knowhow -- we build convertibles and do the conversion.

In the end, no one piece of the exterior skin on the Ford Ka and the StreetKa is the same. It's a different car bumper to bumper. But we started with Ford's basic Ka design -- not from scratch. However, the customer perceives the StreetKa as a completely new car.

Q: Will the collaboration with Ford boost Pininfarina's margins?

A: Ford wanted to price the car very aggressively, to attract young people. But we also had to make money. It's a difficult business today to produce cars.

Another challenge was the aging of the product and the basic platform. We agreed with Ford that we'll produce the StreetKa as long as the public wants it. No auto model normally starts with a lifecyle of less than five or six years. The StreetKa could have a minimum of 2.5 years. If it proves to go beyond a fashion product, we will make it longer.

Q: How long does the engineering phase take?

A: We started in 2001 and launched production in January, 2003. The time to market was quite an achievement.

Q: What does a product like the snappy little StreetKa do for the image of a big auto maker?

A: These kinds of products create showroom traffic and grab the attention of younger car buyers. If you capture buyers in their 20s, it's easier to keep them over a lifetime than to win them from another auto maker. That's exactly the way the Japanese grew in the U.S.

Q: Is the contract with Ford a turning point for Pininfarina?

A: Ford is a new customer. The thing we care most about is having a range of customers. We've sacrificed profitability to have many customers. It's very expensive. We have to dedicate resources to different information-technology systems, computer aided-design programs, teams of people. It's much more profitable to dedicate yourself to one customer. But our strategic object is independence, so we're looking to have as many customers as posssible. It's of the utmost importance.

Q: What were the negotiations like with Ford?

A: There were tough moments between December, 2000, and March, 2001, in Geneva. This phone was fairly hot in several meetings. But Ford's culture fit well with ours. They're very straightforward. The logic of the cooperation was clear. Upfront, they handed us the targets: low sticker price, fast time to market, high quality standards, and profits for both Ford and Pininfarina. To improve the profitability, we had to be very fast to market.

Q: Are there more possible contracts in the works with Ford -- maybe designing a car for its Volvo unit?

A: There may be some news in the coming year. Volvo is part of a growing relationship with Ford. We're talking for the future with Ford about design.

Q: What about Pininfarina's core design business. Will it be overshadowed?

A: We need to maintain the image of Pininfarina as a creative company. We don't want to reduce the design work. The company has to maintain its soul. It has to maintain the passion for creating, not just technical skills and products. We have to retain the image of a very creative Italian design company.

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