Ferrari Should Buy Volkswagen's Luxury Brands

2015-10-20 13:50

Back in 2013, I was one of the many millions of young folk who bumped to the American rapper, Ace Hood’s I Woke Up In A Bugatti track. A major club banger, but as usual, it was another song (among so many) that boasted about a life most of the world’s people would never live in reality. Nevertheless, we can always aim to at least have some piece of the pie by starting to invest in stocks.

I recently wrote about the fall of Volkswagen, once the world’s largest company, in this blog: http://voices.news24.com/es-ntshuntshe/2015/10/vw-cars-worth-less-than-bmw-mercedes-benz/, and this morning I read an interesting piece on Bloomberg about the possibility of VW divesting itself of “nice to have” marquees like Bugatti and Lamborghini, where the latter is probably the most perfected combination of design and performance in a motor vehicle..., well according to me anyway.

So why did this interest me so much?

It had nothing to do with the song I opened this blog post with, but has much more to do with the financial aspect of things. Currently, the biggest IPO by a luxury brand since Prada SpA raised $1.91-billion in 2011, will be this coming Wednesday’s listing of Ferrari on the New York Stock Exchange. The car maker is valued in the same way as the leather goods makers that form LVMH and others.

However, the concern of most bankers on Wall Street has been how will Ferrari be able to stand on its own in the long-run without the backing of a larger car company like Fiat Chrysler from which it is currently being spun out off?

In private hands, Ferrari wouldn’t be scrutinized by short-sighted investors, as exampled by the likes of Chanel and Giorgio Armani which are privately owned. However, for most luxury brands to survive in the future, they will need to conduct the same consolidation that formed industry leader Louis Vuitton in the late 80s and mimicked by others over the past two decades.

The troubles VW faces following their emissions scandal can be good for a standalone Ferrari. Estimates for the scandal have been suggested at over $30-billion! That’s more than half of VW’s size at current valuations. If the Bloomberg analysis ends up being the company’s way forward, then selling VW’s luxury brands (excluding Porsche and Audi) to Ferrari would boast well for both automakers.

A Ferrari Motor Company encompassing the namesake Italian marquee, fellow Italian Lamborghini and the French Bugatti suddenly looks more appealing than just a company that sells and manufactures extremely high-end cars of one brand and associated accessories.

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