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What are you buying?
Sergio Marchionne, the CEO of Ferrari's former parent company, Fiat Chrysler Automobiles, is Ferrari's Chairman. He made the media rounds as Ferrari shares jumped from $52 to $60 when the markets opened.
He had to answer an important question: If you buy Ferrari, what are you buying?
By the numbers, you're buying shares that will be priced at over 30 times trailing earnings, which implies some significant future growth for the carmaker. And Ferrari did disclose that it planned to raise its notoriously low annual production to 9,000 cars from 7,000 - in a few years.
Ferrari fans have worried that Marchionne will renounce the automaker's aura of exclusivity and bring the world too many hot car bearing the prancing stallion brand.
But maybe not. During an appearance on CNBC, Marchionne addressed that issue.
The company was founded on one simple principle," he said. "You only produce one car less than the demand for the vehicle. You just don't exceed that equation."
Translation: The world will always have exactly one less Ferrari than its wants. The company is a perpetual desire machine.
"We need to grow the demand side before we try to supply it and really destroy the exclusivity of the brand," he added.
Screenshot via CNBC
Marchionne on CNBC.
This is illuminating. Ferrari's actually isn't in the car business. Its product isn't $400,000 automobiles - it's products is dreams. And those dreams can never be completely fulfilled.
Unless of course you're Marchionne. When CNBC asked him which Ferraris he owns, his reply was priceless.
"Most of them."
Scuderia Ferrari
Marchionne understands what drives Ferrari. It's unclear, however, whether investors buying the stock do.
The core of the Ferrari brand is the Scuderia Ferrari. The Scuderia is usually described as Ferrari's racing arm, but without it there would be no Ferrari as most people know it. Enzo Ferrari, who founded Ferrari, sold road cars only to fund the racing effort.
Matthew DeBord/Business Insider
A Ferrari Challenge race.
Fast cars and celebrity drivers get the brand in people's heads when they're young.
And they build loyalty: Even someone lucky enough to buy a Ferrari one day can get close to the racing team only by being a loyal-enough customer to be invited to participate in the company's Pro-Am races.
"Ferrari still has the ability to make people dream, and that's something a lot of other car brands have lost," said Fabrice Paget, who runs The Luxury Brand Agency and was formerly Cartier's worldwide marketing and product development director for watches.
Challenges
Marchionne will have to keep two balls in the air after the Ferrari IPO: deploy the money that Fiat Chrysler, or FCA, has raised to bolster the car maker's competitive efforts and endure a future downturn; and preserve the valuable Ferrari legacy.
Preserving that legacy while also meeting investor expectations for some kind of growth is where Ferrari risks running into trouble.
Building 2,000 additional cars by 2019 will boost sales, but it will also erode some of the brand's exclusivity. Licensing could also add to the mix - though Ferrari-branded sneakers and watches and sunglasses already exist - but here, too, there's a downside.
"The challenge for a brand like [Ferrari] at the end of the day: You are what you sell," Paget said. "If most of what you sell is T-shirts, caps, and mugs, that's who you are becoming. The challenge is to not take the easy money, but to control what you develop."
Is change good?
What if Ferrari changes? Already, some of those guarding against its transformation have been pushed out.
Luca di Montezemolo, Ferrari's longtime chairman, always named success in Formula One as a key Ferrari value (along with things like beauty and tradition).
But he couldn't hold the line against Marchionne's goal of tapping Ferrari's value to ease Fiat Chrysler Automobiles' debt situation and fuel its expansion. Montezemolo also presided over a weak performance on the F1 track in recent years, by Ferrari standards. So he was forced out last year.
"I hope that the client will remain the most important point of reference," he told reporters earlier this year, the Detroit Free Press reported. "Because if not, it will be a big mistake. Because, I always say, 'Our people, our products, our clients.' These are the key elements."
The company has already made a big change Montezemolo was guarding against - he didn't want to give the world more than about 7,000 cars each year, much less the near 10,000 that Ferrari is effectively limited to due to emissions regulations, especially in the US.
Now, the world is about to get more Ferraris. From the sound of his comments, Marchionne thinks he can handle this.
But now the real test begins.
REUTERS Take it to the track!