Why Spinning Off Ferrari Makes So Much Sense

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Ferrari F60 America launch, Beverly Hills, California

Ferrari F60 America launch, Beverly Hills, California

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Yesterday’s announcement that Ferrari would be split off from Fiat Chrysler Automobiles [NYSE:FCAU] and have 10 percent of its shares sold to the public is sure to have come as a shock to many, but here’s a bit of insight into why the move makes so much sense for FCA. Maserati, which is still in the early stages of its turnaround, managed to earn more during the third quarter than Ferrari, which in contrast is enjoying record performance at the moment.

Maserati's third-quarter operating profit rose to 90 million euros (approximately $113 million) from 43 million euros during the same period a year ago. By comparison, Ferrari’s profit over the quarter was 89 million euros, up from 88 million euros a year ago. As Automotive News (subscription required) points out, Ferrari’s profit did take a hit of 15 million euros because of a severance package for outgoing chairman Luca di Montezemolo, but it shows how much potential for profit FCA’s more mainstream brands have and why it’s so important for CEO Sergio Marchionne to get the necessary funds to fuel their respective turnarounds.

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Maserati’s turnaround has only seen the introduction of the new Quattroporte and Ghibli sedans, but already sales are up significantly. In the U.S., Maserati’s sales are up a staggering 307 percent through the first nine months of 2014 compared with the same period a year ago. And this is before the new Levante SUV, Alfieri-based sports car and next-generation GranTurismo arrive. All three are due over the coming years. Maserati’s goal is to sell around 50,000 vehicles by 2015. Last year it sold 15,400 cars.

Of course, repeating this success with FCA’s other brands such as Fiat and Alfa Romeo won’t be so easy, which is why it’s a risky move for Marchionne and his team. They intend to spend more than $60 billion over the next five years on all FCA brands, so tapping the potential of Ferrari to raise funds makes a lot of sense. Furthermore, 90 percent of FCA’s own 90 percent holding in Ferrari (Enzo Ferrari’s surviving son Piero Ferrari owns the other 10 percent) will be going to FCA shareholders, the biggest of which is the Agnelli family with its 30 percent stake, so control of Ferrari will be largely unchanged even though the ownership structure will be.

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