1929 Through World War II: Early Years of the Ferrari Company
As Alfa Romeo's fortunes declined during the late 1920s and early 1930s, it was taken over by the Istituto di Ricostruzione Industriale (IRI), a government organization formed to assist companies experiencing financial difficulties. As a consequence of this takeover, Alfa Romeo withdrew its direct involvement from the racing car circuit, except for the international Grand Prix races. Ferrari, however, was not to be denied, and, parlaying his contacts with the Americans at Shell Oil, the Germans at Bosch ignition systems, and his fellow Italians at Pirelli tires, he formed the Società Anonima Scuderia Ferrari, a stable of racing cars and drivers dedicated to furthering the sport of competitive racing, in 1929. Ferrari promised his fellow investors that his operation would not only buy and race cars, but also build high-performance automobiles for the sports car enthusiast some time in the future. Alfa Romeo contracted the new Scuderia to act as its official representative in some races.
With the increasing strength of the Fascist Party under the leadership of Benito Mussolini during the 1930s, Ferrari decided to become a member of the Fascist Party. His association with the Fascists dovetailed with his ambition to run Alfa Romeo's racing program, which, of course, was operating under the auspices of the government-controlled IRI. Ferrari's ambitions were frustrated, however, with the arrival of Wifredo Ricart, a Spanish engineer hired by IRI to revitalize Alfa Romeo and return the company to the winner's circle on the competitive race car circuit. Ferrari's personal dislike of Ricart was evident from the beginning, but increased dramatically when he discovered that Ricart was behind Alfa Romeo's decision to buy 80 percent of the Scuderia Ferrari and return administration of the racing program to the company's office in Portello. With acrimony and bitterness compounded during every meeting between the two men, and after a particularly unpleasant exchange in which Ricart likened himself to a genius, Ferrari decided it was best to end his association with the Spanish engineer and Alfa Romeo.
Ferrari's parting agreement with Alfa Romeo stipulated that he could neither use the name of Scuderia Ferrari nor engage in racing for four years. For this, he received a generous severance package, and he wasted no time in establishing Auto Avio Costruzione, a custom machine shop that initially manufactured small aircraft engines for planes, in 1940. The famous Ferrari symbol of the prancing horse first appeared during this time on company letterhead and marketing brochures. With Italy's entry into World War II in 1940, Ferrari's factory soon was producing machine tools for the Axis armies, including sophisticated hydraulic grinders. Although his company profited from its association with the Axis Powers, Ferrari was impatient because the war years interrupted international motor racing.
Postwar Entry into Car Design and Manufacturing
After the war, Ferrari was approached by a group of car enthusiasts who convinced him to manufacture the 125, a new car for the racing circuit. In March 1947, the prototype 125 took its initial test drive, and later in the year entered and won the Circuito del Valentino in Turin before the wealthy and elite of Italian society. Soon after the race, such dignitaries as Count Bruno Sterzi and Count Soave Besana of Milan and the Russian Prince Igor Troubetzkoy (husband of Barbara Hutton, the heiress to the Woolworth fortune) were knocking on Ferrari's door in Modena to purchase his cars. By December, Enzo Ferrari was manufacturing a limited number of high-performance sports cars. Ferrari's first cars, such as the Tipo 166 Spider Corsa, were triple-purpose vehicles. They could be used as sports cars on the public road, as competitive sports cars in races such as the Mille Miglia, and as entries in Formula Two racing events (with fenders and other equipment removed).
By the summer of 1948, Ferrari's automobile designers had completed work on a nonracing car. This gran turismo automobile would be made with windows, heaters, a top, and leather upholstery. Each car body was to be hand-made by artisans with traditionally exquisite Italian styling and craftsmanship and delivered to distributors in batches of less than ten automobiles at a time. When the car was finally delivered, the customer would have the final decision regarding paint color, upholstery, and external trim. Until Ferrari was taken over by Fiat in 1969, all cars made by the company were manufactured by this method and, hence, no two cars were identical.
During the early 1950s, Ferrari cars were ordered by the international elite, including the Aga Khan, King Leopold of Belgium, the Shah of Iran, Juan Perón, Crown Prince Faisal of Saudi Arabia, and members of both the Dulles and Du Pont families. The company listed dealer franchises in London, Rome, Zurich, Algiers, Casablanca, Melbourne, Florence, Brussels, Montevideo, Sao Paulo, Paris, and New York. Although Ferrari engines were temperamental and frequently overheated, the combination of their nastiness with their brilliant bodywork and designs created an unparalleled mystique. Alfa Romeos, Maseratis, and Jaguars seemed to pale in comparison.
Despite the growing success of his commercial enterprise, Ferrari remained obsessed with racing, with most of the money he earned from selling sports cars in Europe and America used to fund the annual Grand Prix and Formula One races. The fortunes of race car sponsors were volatile, however: in 1952 cars designed and manufactured by Ferrari won 16 of the 17 races the company had entered; in 1957, Ferrari won only a few of the numerous races on the international circuit. Nevertheless, by the end of the 1950s Enzo Ferrari had become a national institution in motor racing, a kind of quasi-official representative of the Italian nation in every race. Ferrari began to believe the press reports about his responsibility in carrying Italy's banner in international racing, and he devoted more and more time to his racing team. While most Italians celebrated Christmas and Easter Sunday, Ferrari was conducting business to improve his chances of winning the next race.
In 1960 the firm was restructured as a public corporation under the name Società Esercizio Fabbriche Automobili e Corse--SEFAC S.p.A. Approximately 40 percent of all Ferrari cars were exported to North America, primarily for the American market. The cars were stripped down and detuned versions of the company's racers, and even though the money made from selling these automobiles to wealthy Americans allowed Ferrari to pursue his motor racing dreams, Ferrari was indifferent to almost every aspect of the manufacturing process.
Ferrari made it known in the industry that he wanted a large firm to take over the administration and management of his factories so he could devote all his energy to racing, and in the early 1960s, Ford Motor Company made overtures to the Italian carmaker. In return for rights to the Ferrari name, trademark, patents, future technical developments, and 90 percent of the company's stock, Ford agreed to purchase the sports car manufacturer for $18 million. The acquisition of Ferrari by Ford developed into a national issue, with the Italian press leading the opposition to the deal as a matter of national honor. Negotiations proceeded smoothly until Ferrari insisted on maintaining complete control over the racing operation. Ford executives balked and could not accept a completely independent operation working within the organization. The deal between Ford and Ferrari, which appeared so promising, was suddenly canceled. In 1965, meanwhile, the company changed its name to Ferrari S.p.A. Esercizio Fabbriche Automobili e Corse.
Bussiness Down
Sports car manufacturers such as Porsche, Jaguar, and the brand new Lamborghini began to chip away at Ferrari's market in both Europe and the United States, and the grand master's continued indifference to passenger car production at his own firm finally took its toll: the designs of 330GTs, 275GTBs, and other models were downright ugly, and production was shoddy. Car bodies were inclined to rust easily and component parts were badly or cheaply tooled. U.S. distributors soon discovered that the Ferrari sports cars of the late 1960s were almost impossible to sell. Between 1968 and 1969, car sales dropped from 729 to 619 units. Lacking funds for expansion, and with Ferrari's insistence on competing in many races at once rather than concentrating his limited resources on, for example, the Formula One competition, the company began to suffer financially. Yet Ferrari himself was a prisoner of his own public image--he was the focal point, the icon, of a nation hungry for respect in the international community. Ferrari realized that massive amounts of money were required for the company to survive, so he turned to Fiat for help. Since Ferrari had harbored such a lifelong dislike of Fiat, it was an ironic turn of events.
Business Starts Going Up Back
Late 1960s Through Late 1980s: Enter Fiat, Exit Enzo
On June 21, 1969, Fiat purchased Ferrari for $11 million. According to the terms of the agreement, Fiat gained 50 percent of Ferrari stock and would manage the passenger car operation, while Ferrari himself retained the other 50 percent and complete control over the motor racing operation. Fiat immediately took over the daily administration of designing, manufacturing, marketing, and selling Ferrari's road cars, and invested millions in modernizing the company's factory and expanding its production. By 1970, under the new Fiat management, production of Ferrari passenger cars had increased to more than 1,000, and by the end of the decade production had reached 2,000. Fiat doubled the size of the Ferrari factory and was committed to making Ferrari cars the focus of its international marketing.
During the 1970s and 1980s, the collection of Ferrari automobiles by car enthusiasts reached the intensity of a quasi-religious experience. Americans and Europeans alike paid enormous sums of money for the older Ferrari racing machines, and one Frenchman even converted his entire 375-acre estate outside Paris into a shrine for Ferrari automobiles. Enzo Ferrari was not the slightest bit interested in the deification of his cars and, more often than not, displayed contempt for the individuals who bought Ferrari cars as a status symbol. After selling the passenger car operation to Fiat, for nearly two decades the old man remained engrossed by the fortunes of his racing team. When Enzo Ferrari died on August 15, 1988, the Italian population went into mourning. The last of the automotive giants had passed away. Shortly after his death, Fiat management announced that the Ferrari factory works would increase production and that the last remnants of handcrafted car production would be gradually phased out. Fiat increased its stake in the nearly bankrupt Ferrari to 90 percent in 1988 (Enzo's son Piero Ferrari retained the other ten percent), injecting some much needed capital, and the following year the company was renamed Ferrari S.p.A.
1990s: Reviving a Legend
The early 1990s were particularly difficult years for the world auto industry, with recessions plaguing both the U.S. and European economies. Ferrari felt the effects as well, with sales plunging to 2,289 cars by 1993, half the number sold in the 1980s. Fiat hired Luca Cordero di Montezemolo as chairman and managing director of Ferrari in 1992. Di Montezemolo, a marketing whiz with previous stints at both Fiat and Ferrari (he managed Ferrari's Formula One racing team in the 1970s) as well as at liquor company Cinzano, had most recently been in charge of organizing the World Cup Soccer championship held in Italy in 1990. The championship was a huge financial and public relations success, with much of the credit going to di Montezemolo.
Di Montezemolo quickly overhauled nearly every area of the company's operation. He spent $80 million modernizing its factories. The production and design processes were revamped with the help of engineers and designers hired from Fiat. Labor concessions were won that improved factory productivity. The company's product line was completely turned over. At the beginning of the decade the firm was making only two models, 'with two seats, very uncomfortable, very extreme,' according to di Montezemolo. In the mid-1990s, nine new models replaced the two outdated ones. Customers had a wider range of Ferraris from which to select, including a lower-end Ferrari 355, which started at US$160,000 and sold particularly well. The 456M bucked tradition by including a back seat. Another model was made roomier by moving the engine from the rear to the front, violating another Ferrari tradition. Customers also could now select from a dozen or more colors, rather than being obliged to accept the standard Ferrari red. Di Montezemolo's transformation of Ferrari had clearly paid off by 1997, when the company posted pretax profits of US$22 million on record sales of US$594 million, a vast improvement over the US$2 million in pretax profits and US$399 million in sales of 1995.
As the rebounding company celebrated 50 years of carmaking in 1997, Ferrari faced a new challenge in 1997 when its parent, Fiat, sold a 50 percent stake in Maserati S.p.A., another troubled Italian maker of sports cars, to Ferrari, giving the latter management control over the former. Fiat hoped that di Montezemolo could complete another turnaround; another reason for the move was to provide Ferrari access to Maserati car designs, which included four-door models--Ferrari was making only two-door cars. Maserati had a checkered history noteworthy for its succession of owners and its rare profitable years. Fiat had bought 49 percent of Maserati in 1989, then took full control in 1993.
Under Ferrari management, Maserati was thoroughly overhauled, with US$120 million invested by the late 1990s in an attempt to revive the brand. The Maserati factory in Modena was refurbished, all the assembly line workers were either replaced or retrained, and a new model, the 3200 GT coupe, was introduced in November 1998 to critical acclaim. Maserati sales exceeded 1,500 units in 1999, tripling the figure of the previous year. In November 1999 Ferrari acquired the 50 percent of Maserati stock it did not own already, gaining full ownership.
As befitting a marketing maven, Di Montezemolo also worked to leverage the cachet of the Ferrari brand. He developed a sideline business whereby the Ferrari name and logo were licensed to other companies, which then sold Ferrari-branded goods. Among the licensed Ferrari products in the late 1990s were watches (in partnership with Girard Perregaux), perfumes (Satinine), clothing (TSS & P), video games (Electronics Arts and Sega), and miniature cars and toys (Mattel). In 1999 Ferrari created a wholly owned subsidiary called Ferrari Idea S.A., which was based in Lugano, Switzerland, and which took over responsibility for developing and maintaining these licensing partnerships. About ten percent of Ferrari's profits were attributable to Ferrari Idea in 1999.
Ferrari enjoyed its sixth straight year of sales growth in 1999, with revenues increasing 22.8 percent over 1998, reaching US$760.8 million. During the year, the company completed another successful launch of a new model, the 360 Modena, which replaced the F355--the best-selling Ferrari of all time. Some good news also came from the sporting world, where the Ferrari team won the 1999 Formula One Constructors' Championship for the first time since 1983, although Eddie Irvine narrowly lost the Drivers' Championship in the final race that year (the last individual Ferrari championship dated back to 1979). Nearly 3,800 Ferraris were sold in 1999, edging the brand closer to its goal of 4,000. With its newfound success, Ferrari was under pressure to increase production. The company felt that doing so could undermine the brand. Therefore, Ferrari's strategy for the early 21st century was for Maserati to become the company's volume brand. Production of 2,000 cars was projected to increase to 10,000 per year by 2005. A key to this growth was the planned reintroduction of the Maserati into the U.S. market, with a new two-seat convertible called the Spyder slated to debut in 2001. The following year another new model, a four-door executive car, was scheduled for introduction. To meet these production goals, new assembly options were being explored, including the assembly of cars outside Italy, perhaps in the United States, the largest potential Maserati market. In the meantime, Ferrari followed up its move into licensing with another nonautomotive venture. In April 2000 the company announced that it had entered into alliances with Marsh & McLennan, a U.S. insurance and consulting firm, to offer insurance to new car buyers, and with Fidis, the financial arm of Fiat, to launch retail financial services. As with the company's plans for Maserati brand, these initiatives were seen as alternatives to sharply increasing production of Ferrari vehicles in order to increase sales and profits.