Ferrari Could Be Safety Valve in Fiat-Chrysler Investment Plans

TURIN – Fiat Chrysler Automobiles CEO Sergio Marchionne might have placed his biggest bet yet in pushing Ferrari Chairman and CEO Luca Cordero di Montezemolo out the door just ahead of the planned Oct. 13 listing of Fiat Chrysler on the New York Stock Exchange.

Whichever way the new stock is received, it will be a clear indicator of the confidence investors have in Fiat-Chrysler and Marchionne’s long-range plans for the fully merged Italian-American automaker.

Without solid backing on Wall Street, Fiat Chrysler may have trouble securing favorable credit for the estimated €50 billion ($65 billion) required to follow the path Marchionne charted last May that sets aggressive volume targets for the Chrysler, Jeep and Alfa Romeo brands by 2018.

The Alfa plan alone calls for a €5 billion ($6.5 billion) infusion to broaden the product lineup and hike global sales more than fivefold to 400,000 annually within five years.

Marchionne’s newly garnered control of Ferrari – he takes over as chairman effective with Montezemolo’s departure, also set for Oct. 13 – could serve as his best insurance policy against a lukewarm reception for FCA by investors. Should all else fail, Ferrari could serve as a precious jewel to sell, either in whole or through a separate initial public offering, but only if Marchionne’s bold gamble to send one-time Fiat Group crown prince Montezemolo packing doesn’t backfire.

Whether it remains part of the fold or is spun off, it is certain Ferrari, 90% owned by Fiat Chrysler, will be targeted for further growth under Marchionne, who during the Investors’ Day briefing in May made it clear he believes the brand can retain its air of exclusivity even if annual volumes increase from 7,000 cars today to 10,000.

Officially, the automaker says there is no plan to sell Ferrari or conduct an IPO. “Let me be clear about this,” Marchionned told financial analysts earlier this year. “Ferrari is a phenomenal repository of value. Whenever you think we’re going to get hard-pressed for cash, look at this.”

Whatever the path, Italian eyes will be fixed firmly on Marchionne, and the legion of Ferrari fans worldwide that approaches the brand with religious zeal will be paying close attention as well.

Last week’s Maranello press conference, in which Marchionne and Montezemolo took the stage together to announce the management shakeup, was widely and thoroughly covered by Italian media, dwarfing most other news of the day.

Although the two executives were not on the same page regarding Ferrari’s future, they could not agree more on Ferrari’s need for more success in Formula 1 racing, the one flaw in the brand’s performance. Though it came close in 2010 and 2012, it has been seven years since Scuderia Ferrari has won an F1 world championship.

What they don’t agree on is Montezemolo’s plan to position Ferrari completely outside of FCA, potentially selling a minority stake in the brand on the Singapore stock exchange. Montezemolo, who has led Ferrari since 1991 and is considered near-royalty in Italy, also opposed increasing sales, though Marchionne now concedes a target even slightly below 10,000 units will be enough to grow EBITDA (earnings before interest, taxes, depreciation and amortization) beyond €1 billion ($1.3 billion)

Montezemolo was fearful Ferrari would be folded completely into the FCA brand portfolio, similar to the way Lamborghini is treated within the Volkswagen Group, and lose its independence and Italian DNA.

Marchionne insists Ferrari will continue to operate independently, even as part of FCA, but says “People should not underestimate the importance of Ferrari for the group. Structurally, in terms who we are as a carmaker, they have and will continue to define us.”

Indeed, short-term, little is expected to change. On the F1 side, Scuderia Ferrari already has made drastic moves in recent months, and a new race team is in the making. And with the GT business (car sales) clicking along with record profits, no sudden change in direction is needed.

With the waters calming post-shakeup, attention is turning to upcoming events, such as the celebration of Ferrari’s 60^th anniversary in the U.S. with an Oct. 12 parade of 60 historic models down Rodeo Drive in Beverly Hills, CA, and the world debut of 10 custom-built Ferrari Blue N.A.R.T. cars that evoke the brand’s racing heritage and will be delivered to their buyers.

Also on tap is a Paris auto show unveiling of a new Ferrari 458 Speciale Spider model next month. Both events are seen taking some of the focus off the rather messy management shakeup.

The question isn’t so much whether Ferrari can prosper under Marchionne, whose plate continues to fill. He has his people in place, including Amedeo Felisa, the company’s CEO for the sales side and Marco Mattiacci team principal of the F1 racing team.

More murky is what Ferrari might become in three, five or 10 years from now.

“I am leaving the company with plenty of projects in the safe box. They will implement the ones they will choose to,” Montezemolo says, implying there has been considerable squabbling over the brand’s product and marketing strategy.

Keeping pace with BMW and Porsche, which are moving upscale with innovative body construction and hybrid technologies, will require a big portion of the financing Marchionne now seeks.

The same goes for the F1 programs. Montezemolo concedes that compared with Mercedes-Benz, Ferrari has not poured enough money into its R&D.

Ending Montezemolo’s reign early – he recently was given a new 3-year contract – will cost Ferrari €27 million ($35 million), about half of it to be doled out over the next 20 years.