What Montezemolo did for Ferrari

Posted on September 15th, 2014 by

Photograph of Ferrari logo

Luca Cordero di Montezemolo has left Ferrari. After 31 years with the brand, the President of the company’s departure seems a little odd. He initially called a press conference to confirm that he would be seeing out the remainder of his three year contract at the Italian Grand Prix at Monza, only to be immediately contradicted by his eventual successor Marchionne. Their apparent ‘clash’ went public, and he resigned only a few days later. Despite his dramatic departure, he was one of Ferrari’s greatest assets.

Montezemolo’s Success Story

Montezemolo will be mostly remembered for his sporting role at Ferrari. He won two Formula One World Championships as sporting director with Niki Lauda in the 1970’s, and became good friends with the company’s charismatic founder Enzo Ferrari. He became President of Ferrari in 1991, and had brought Jean Todt and Michael Schumacher into the Ferrari Formula One team by 1996. This led to a string of ‘nearly seasons’ and then five world championships in a row from 2000 to 2005.

However, his business success was arguably greater than his sporting success. Under his tenure, Ferrari has increased revenues tenfold. He is widely credited with breathing new life into the supercar manufacturer, and keeping the company alive after the period of turmoil immediately following the death of Enzo Ferrari in 1988. In addition to this, Ferrari is expected to post record profits this month.

How did he achieve all this? 

Firstly, by limiting the amount of cars produced each year to 7,000, Ferrari has been able to maintain an exclusive image and ensure their products remain highly desirable and valuable. They have used their control over supply to manipulate the market level, and therefore maintain the premium people pay for their products. This is where others have struggled.

Secondly through their procurement principals, Ferrari has been able to maintain its reputation for quality. Ferrari only uses the best materials, Italian wherever possible. Since 1992, Ferrari has offered their customers the opportunity to fully customise their cars, including the option to upholster cars with the same Vilale Barberis pinstriped fabric as worn by Prince Charles and the Duke of Kent.

And then there’s the work done in the early 1990’s. Through investing in their facilities, Ferrari has managed to reduce costs in both production and development. The Ferrari Cittidella has been completely redesigned and now even holds a wind tunnel ‘on campus’ that can accurately simulate road conditions. There is also a new logistics building, a new machine engineering area, a new pain technologies center, a project development center and a new assembly floor. Through extensive investment across development and production, costs have plummeted.

 Photograph of Montezemolo

As Ferrari makes its money through profit margins, reducing costs has had a huge effect. While Ferrari has managed to maintain the same high prices through limiting production and maintaining quality, cost reductions have seen already impressive profit margins soar. In fact Ferrari’s profit margin is so high, it accounts for 12% of the whole of the FIAT group’s operational profit.

Goodbye Ferarri

When Ferrari is doing so well, you might ask “why did Montezemolo resign?” There appear to be three major reasons:

Firstly, Ferrari’s recent Formula One performances have damaged his reputation. Ferrari is an emotive brand and a sporting icon, and their failure to provide their drivers with a title-worthy car since 2008 might soon become a structural issue. From the business side, Ferrari’s special place in Motorsport is essential for the brand image in the long term, and with such a dismal showing in the Italian Grand Prix, this would have only further intensified the pressure Montezemolo felt.

Secondly, there are more complex business issues at play than is immediately obvious. FIAT has bought Chrysler, but the resulting company will become American. As Ferrari becomes part of a flotation on the New York Stock Exchange, their iconic culture and values are being threatened. Shockingly, Montezemolo said that the reason for his departure was that “Ferrari is now American”.

Thirdly, some will argue that he was pushed out by FIAT bosses who want to see Ferrari move in a different direction. His successor Marchionne has previously talked about ramping up Ferrari production, and it certainly appears it was his criticism that finally pushed Montezemolo to resign. Montezemolo has previously been quoted saying that he is worried “that Ferrari will become like Lamborghini”, a reference to the common belief in Italy that Lamborghini has become little more than a string of brand names used by Volkswagen.

Photograph of Ferrari Badge

Montezemolo will always have his place in automotive history. As a business leader, he re-established Ferrari’s dominant place in the world, while simultaneously recapturing the sporting flair of previous eras. The FIAT-Chrysler group may or may not miss him in years to come as the Ferrari story continues to evolve, but it is safe to say that the newly formed group would be significantly worse off without Montezemolo’s strong Ferrari.