Pininfarina's Snazzy New Design--for Itself

The firm is moving fast into engineering services

Behind a locked door at Pininfarina's new engineering center in Turin, a bit of Ford Motor Co.'s (F ) future is being welded into shape. The racy Ford StreetKa -- a favorite of CEO William C. Ford Jr. -- is the U.S. auto maker's latest bid to inject some glamour into its European brand image. With a sticker price of $18,200, the tiny convertible will hit dealer showrooms throughout Europe in March. Its success will be a vital test, too, for Pininfarina, the Italian auto-design house that fashioned such beauties as the Alfa Romeo Spider and the Ferrari Testarossa. Motorists may never know it, but they'll be driving a Ford entirely engineered and assembled by Pininfarina.

With the StreetKa, scion Andrea Pininfarina is steering the company founded by his grandfather in a new direction. Although it's famous for the elegant silhouettes of cars whose look it has designed, the vast majority of Pininfarina's revenues comes from the low-margin manufacturing of niche models on a contract basis for the big auto makers. Cranking out cars for Peugeot, Mitsubishi Motors Corp., and others accounted for 90% of last year's $560 million in revenues last year. Now, CEO Pininfarina wants to boost higher-margin services -- everything from computer-aided design and engineering of new models to constructing prototypes and testing them. "Design is the most visible business, but the unique asset of Pininfarina is creativity," says the 45-year-old mechanical engineer.

Creativity for hire is a hot business in the car world these days. To cut costs and speed the rollout of new models, the big carmakers are increasingly contracting out part or all of the design, development, and production of lower-volume models. Last year, some 30% of auto-industry engineering was outsourced to companies such as Porsche and Carmen in Germany and Magna International Inc. of Canada. DaimlerChrysler (DCX ), for instance, recruited Pininfarina to build the prototype for its sassy Smart. "Niche cars are more and more where the industry is going. If Pininfarina plays its cards right, it could do very well," says Peter Soliman, a vice-president and partner at consultant Booz Allen & Hamilton in Dusseldorf.

To move up the food chain, Pininfarina has poured $22 million into a new design and engineering center. Inaugurated in October, the steel-and-glass complex is home to a staff of 500 drawn from as far afield as Peru and Canada. A visitor strolling the shop floor draws suspicious glances from engineers, some of whom move quickly to shield prototypes from prying eyes.

But not the StreetKa. Andrea Pininfarina is proud to show off the zippy new convertible -- the newest addition to Ford's (F ) Ka line. The American auto maker contracted Pininfarina to engineer and produce the StreetKa based on its own designs. To transform the existing supermini Ka into a convertible, major changes were needed in the vehicle's body. So software engineers at Pininfarina dissected, sliced, and twirled three-dimensional computer-aided images of a StreetKa crashing into a wall in slow motion. That allowed them to pinpoint vulnerable areas in the body of the car and strengthen them. The project was completed in just 24 months -- exemplary by auto-industry standards. "External suppliers are more flexible and nimble," says Andrew Pollitt, chief program engineer for the StreetKa at Ford Europe.

The tiny car will have a big impact on Pininfarina's balance sheet. Profits are set to soar 81% this year, to $23 million, according to Deutsche Bank (DB ). The 25,000 StreetKas that Pininfarina is slated to roll out this year will bring its 2003 output to 45,000 vehicles. Pininfarina also is in talks with Ford's Volvo division on the design, engineering, and production of a new model. "It's the beginning of a very, very big relationship," says Garel Rhys, professor of motor economics at Cardiff Business School at the University of Wales.

Andrea Pininfarina also has his eye on developing countries such as China and Brazil, where carmakers are keen to offer fresh, original model designs rather than aging ones recycled from Western markets. Pininfarina already boasts a close partnership with China's Hafei Industrial Group, for which it designed a minivan that now sells some 100,000 units a year. The two companies inked a contract in 2001 for the design and engineering of a city car dubbed Lobo. Hafei, once ranked No. 11 in China, has moved up to No. 5. Says Pininfarina: "We are helping them climb the ladder." And putting Pininfarina on the map.

By Gail Edmondson in Turin

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