SWOT Analysis For Ferrari

A SWOT analysis assists with this planning because it identifies the company’s strengths, weaknesses, opportunities and threats.

Professor Kenneth Andrews of Harvard Business School defined the SWOT analysis “as a reasonable method of analyzing and reviewing an organization present position. He has also proved how vital it is for an organization to communicate its operation objectives with its strategic activities” (netmba.com).

Currently companies have adopted the SWOT analysis as a tool to detect their company’s position. Hence highlight on their internal competences based on strengths, weaknesses, opportunities and threat

SWOT ANALYSIS FOR FERRARI

Ferrari is engaged in the manufacturing and distribution of automobiles with greater expertise with fast moving vehicles, in addition to components for those products.

Ferrari has a diversified product portfolio. Business diversification shields Ferrari against demand

fluctuations in certain product categories and also enables it to benefit from opportunities available in various divisions. However, recession in global economy would harm Ferrari’s business by adversely affecting its revenues, results of operations, cash flows and financial condition.

Strengths

Business diversification

Ferrari has a diversified product portfolio. The company operates through different business divisions including: Ferrari group automobiles, Magneti Marelli, Ferrari and Ferrari Powertrain Technologies(FPT), and others. Ferrari group’s automobile division designs, produces

and sells vehicles under the Ferrari, Alfa Romeo, Lancia and Abarth brands. The Ferrari group automobiles division accounted to 44.9% of total revenues in FY2008.The CNH division of the group accounted to 21.4% of total revenues in FY2008. Magneti Marelli division designs and produces cutting-edge technology systems and components for vehicles. It also operates in the distribution of spare-parts in the independent market.This division accounted to 5.5% of total revenues of Ferrari. Ferrari offers luxury cars and it accounted to 3.1% of

total revenues of the group. This division accounted to 1.2% of total revenues. Maserati produces luxury sports cars. Ferrari’s Maserati division accounted to 1.2% of total revenues in FY2008.Teksid manufactures different ranges of engine blocks, suspensions and aluminum cylinder heads. Teksid accounted to 0.9% of total revenues. The other operating divisions of the group include the publishing and communications operations advertising space inprint, television and internet media operations. The other operating division of the group accounted to 1.2% of total revenues. Business diversification shields Ferrari against demand fluctuations in certain product categories and also enables it to benefit from opportunities available in various divisions.

Strategic acquisition

Ferrari has focused on strategic acquisition to expand its business. FPT Powertrain Technologies fully acquired Tritec Motors from Chrysler and decided to give is a new name which is FPT Powertrain do Brasil – Industria e Comercio de Motores. The purchase includes the facilities, the manufacturing unit, the production lines and the license to produce the current range of products. The group completed the purchase accounting for this acquisition in the second quarter of FY2008. This acquisition enables Ferrari to reach two main strategic goals, first, to attract an even larger number of non-captive customers for this product. Secondly, to widen its product portfolio, offering modern and competitive product range. Therefore, this acquisition enhanced Ferrari’s product range and increased its geographic reach by expanding its customer base.

Innovative products

Despite challenging market conditions in 2008, Ferrari added several products to its existing product range. Innovation continued with a focus on both product and methodology. Product innovation was centred around six key elements: new generation vehicles, best-in-class fuel efficiency, high perceived quality of cabin environment, cost-effective solutions for frames, excellence in preventive security, and evolution of telematic systems. In FY2008, Ferrari Group Automobiles launched many products including: Alfa Romeo’s MiTo, in the compact segment; Ferrari Qubo; the Grande Punto Natural Power;Ferrari brand’s 500 by diesel; Alfa 8C Spider; and the new Delta. Ferrari’s product range was further enhanced with the 2008 model year versions of several existing models and sale of the new 4×2

version of the Ferrari Sedici SUV also began during the same year.

Weaknesses

Lack of scale compared to peers

Ferrari lacks the scale to compete with large players in the markets in which it operates. Many of its competitors such as General Motors, Ford Motor and Daimler are larger in size. General Motors, for instance, recorded revenues of $148,979 million and employees of 235,000 in 2008, while Ford Motor recorded revenues of $146,277 million and employees of 213,000 during the same period. Daimler recorded revenues of E95,873 million ($141,061.8 million) and employees of 273,216 during FY2008. The revenues of Ferrari is E59,380 million ($87,368.2 million) and employees of 198,348 in FY2008, much lesser than that of its competitors. Revenue per employee for Ferrari during FY2008 was $440,479.4 which is considerably lower than its competitors General Motors ($633,953.2), Ford Motor ($686,746.5) and Daimler ($516,301.4) during same period. Ferrari’s top competitors with larger scale and more financial resources limit the group’s ability to compete effectively. Weak performance of business divisions In FY2008, Ferrari witnessed decline in its sales in major business divisions, including Iveco, FPT, Teksid and others. Iveco accounted to 17.9% of the total revenues during FY2008. It declined 4.1%

to reach E10,653 million ($15,674.2 million) in FY2008. The decline in sales was due to decrease

in demand for vehicles. In 2008, demand for commercial vehicles in Western Europe declined 6.9% to 1,172,000 units, particularly in Spain (-37.5%), Italy (-6.9%) and Great Britain (-2.5%). France and Germany also registered slight decline over 2007 levels. The light vehicle segment of Iveco declined 9.1% from 2007. Spain posted a marked decline (-41.4%), Italy (-8%), France (-4.4%) and Great Britain (-6.9%). Demand in the Iveco’s medium vehicle segment also decreased 3.9% over 2007, particularly in Spain (-23.7%), Italy (-10.1%) and Germany (-3.8%).

The FPT division contributed to 2.5% of the total revenues. It witnessed a decline of 9.3% to reach E1,509 million ($2,220.3 million) in FY2008. This was due to decrease in demand for passenger and commercial vehicles. Similarly, Teksid accounted to 0.9% of total revenues and witnessed amarginal decrease of 0.7% to reach E537 million ($790.1 million). The decrease in sales was dueto a sharp decline in demand in the last quarter of FY2008. In addition, the others division alsodeclined 3.3% to reach E724 million ($1,065.3 million). Therefore, sluggish performance of major operating divisions will eventually affect Ferrari’s financial position and puts pressure on other profit making divisions of the company.

Poor performance of Ferrari in major markets

Ferrari’s sales witnessed poor performance in some of its key geographic segments. Italy, which is thel argest geographic market for Ferrari, accounted for 24.1% of the total revenues in FY2008.

Revenuesfrom Italy reached E14,316 million ($21,063.7 million) in FY2008, a decline of 9.7% compared to

2007. The US accounted to 8% of total revenues and it reached E4,723 million ($6,949.1 million),

a decline of 2% compared to 2007. Germany, which accounted to 7.7% of total revenues, declined1.7% to reach E4,597 million ($6,763.7 million) in FY2008. Similarly, the UK accounted 5.6% of total revenues and it accounted to E2,349 million ($3,456.2 million). Spain, which accounted to 3.8% of total revenues, declined 30.8% to reach E2,242 million ($3,298.7 million) in FY2008.Turkey accounted to 2% of total revenues and it declined 2.9% to reach E1,195 million ($1,758.3 million).The decrease in revenue contribution from Italy, the US, Germany, the UK, Spain, and Turkey and other countries has offset the increase in revenues witnessed by Brazil, France, Poland and other regions.Therefore,poor performance of Ferrari in major markets may eventually affect the group’s financial performance.

Opportunities

Growing economy in India and China

Developing economies in Asia are spending heavily on luxury material. The Indian

construction and engineering industry is forecasted to increase at a CAGR (2007-12) of 7.9%. The value of this industry is forecast to reach $55.8 billion, in 2012. This growth is driven by increased spending on infrastructure and industrial projects.The construction and engineering industry in China is also expected to reach $282.4 billion in 2012, with an anticipated CAGR (2007-12) of 12.4%. Foreign direct investment, exports and public infrastructure spending are forecast to drive construction spending in China. Ferrari has a strong presence in construction industry. Through its agricultural and construction equipment business, Ferrari offers a wide range of tools, equipment and services to the

construction industry.Therefore, growth in infrastructure and construction industry in India and China would boost demand for the group’s products and services.

Threats

Forecasted global recession in 2009

The global economy is presently in a massive financial instability thereby causing an acute loss of confidence. According to the world economy outlook of the IMF, global economies will decrease sharply in 2009 and in 2010. The company has presence primarily in Italy, Brazil, France, the US, Germany, the UK, Spain, Poland, Turkey, and other. As Ferrari conducts businesses on a global scale, there is a relationship between the company’s operating results and economic trends in major countries around the world.The worldwide financial and economic crisis triggered significant and widespread deterioration of trading conditions in most sectors and regions where Ferrari operates. According to IMF, the GDP growth rate of Italy is forecasted to decline from -1% in 2008 to -4.4 in 2009. Italian exports plummeted 26% in January 2009 from a year ago, the biggest drop since 1991. Italian retail sales contracted for the 24th consecutive month in February 2009, as the credit crunch tightened its grip on spending, and consumers put off purchases of cars and other products. Italy is the largest geographic market of Ferrari and it accounted to 24.1% of total revenues in FY2008. Similarly, the GDP growth rate of Brazil is forecasted to decline from 5.1% in 2008 to -1.3% in 2009. Brazil is the second largest geographical market and it accounted to 14.6% of total revenues. Also, the GDP

growth rate of Eurozone is forecasted to decline from 0.9% in 2008 to -4.2% in 2009.These economic factors initially affected consumer demand for less fuel efficient vehicles, particularly full-size pick-up trucks and sport utility vehicles. In addition, consumer demand for automobiles has contracted due to a decline in the availability of financing and a significant contraction in consumer spending based on the continued recession in the US, resulting in automobile sales at their lowest levels in 16 years. Therefore, further recession in global economy would harm Ferrari’s business by adversely affecting its revenues.

Downturn of global automotive industry

The present global economy downturn is also affecting the automotive industry from the year 2008. The total sales in the number of cars sold decreased compared to the former year.

A continuation of this trend in the future would slowdown the demand for the group’s products and may eventually affect its revenues.

Competitive pressure

The global automotive industry is highly competitive. Ferrari is subject to intense competition in

substantially all of its product area. Some of its competitors are, Daimler,Ford Motor, General Motors, Honda Motor, Nissan Motor, PSA Peugeot Citroen, Renault, Volkswagen. Ferrari is also subjected to increase in price pressure. Therefore, working in such a competitive environment could put additional pressures on the operations of the group. This intense competition results in price discounting and margin pressures throughout the industry andadversely affects Ferrari’s ability to increase or maintain vehicle prices.