Conscious uncoupling

By S.W.

OWNING a Ferrari is the dream of many a petrolhead, but for most drivers the Italian supercars are priced well beyond their reach. Next year owning part of the company may be a more realistic prospect. Fiat Chrysler Automobiles (FCA) said on October 29th that it would spin off Ferrari in 2015, listing 10% of the company in New York, and distributing the rest of its shares to the Italian-American carmaker’s current investors. Sergio Marchionne, FCA’s rumpled boss, said that it was time for the two car companies to pursue “separate paths”.

Keeping road space between the two companies has always been a concern for Mr Marchionne, who feared that the Ferrari brand might lose some of its sparkle if its relationship with mass-market Fiat appeared too close. Yet he had long denied that Ferrari would be put up for sale. By distributing the firm to shareholders and floating a small portion of the company he makes good on his pledge while raising cash to pay debts and to finance his plans to turn around FCA. On the same day the company also revealed that it would raise $2.5 billion through a sale of convertible bonds to put towards the goal of selling 7m cars by 2018, 60% more than this year.

Drawing closer to the size of Volkswagen and Toyota is an over-ambitious goal. Europe’s car market is recovering only slowly after a prolonged slump. America’s boom is running out of gas and sales will grow only moderately in coming years. China’s economy is spluttering. Car markets in Russia and Latin America are also sagging.

But splitting Ferrari apart from FCA makes sense. One is a mass-market carmaker and the other a luxury brand that makes huge profits partly by selling merchandise—around a fifth from selling baseball caps and the like emblazoned with Ferrari’s prancing horse.

Investors have broadly welcomed the news that Ferrari would follow its own route, giving FCA’s share price a boost. They seem to agree that Ferrari as a standalone company would have a far better chance of being valued as a luxury brand, rather than merely as a carmaker, and would be worth far more as a result. But it is a tricky balancing act: Mr Marchionne reportedly wanted to produce 10,000 cars a year—and fell out with Luca de Montezemolo, who quit as chairman in September after 23 years at Ferrari over his desire to cut production to 7,000. Ferrari could make lots more cars to rake in cash and cut long waiting lists, but it would then run the risk of denting its exclusivity. Selling fewer cars than the market demands, however, may prove a tough sell to impatient shareholders once it has become a separate company.