News and views on motorsports

Friday, April 22, 2005

Fiat Shares Hammered

Interesting article on here. After taking quite a beating on the Italian Stock Exchange, the shares of Ferrari parent, Fiat, were suspended from trading.

Its quite well known that Fiat's financial situation is dire. GM have decided to cease their joint ventures with Fiat and have decided not to takeover the ailing Italian concern. This comes with a financial penalty payable to Fiat but fears are that GM might miss the final payment of those penalties.

In September this year, lending banks will convert their loans to Fiat to equity, giving them majority control of Fiat. This puts the Ferrari in their control as well. Now we all know what these financial types are interested in three things only. First, money. Second, money. Third, money. Look at Ford's decision to pull Jaguar out of Formula 1 and dispose Cosworth. That was purely financially motivated. In real terms, it didn't save the Ford empire a lot. But the perception to the bankers and investors are enormous. It was seen by this lot as an astute financial decision even if it really only affected maybe 0.001% of the profit and loss statement.

What follows next is pure speculation.

Now the Ferrari road car division is a profitable venture. Perhaps the only subsidiary that is making money. The Formula 1 team however, burns money. And lots of it. Fiat have been financing the sporting activities for a very long time now. Now, given their cash flow difficulties, it cannot continue that level of spending indefinitely. Despite lots of sponsorship from the likes of Vodafone and Marlboro, Fiat still subsidizes these activities substantially.

Given these factors, the future for the Ferrari team looks to be at risk. They cannot depend on Fiat money. Not with those leeches... sorry, bankers, looking over their shoulders. And so, one begins to understand their hard line attitude. Especially when it comes to the division of Formula 1 income. If they can demonstrate to these bankers that the Formula 1 team can pull in more income to subsidize their activities, then just maybe these bankers will leave them alone.

Cost cutting would be a good idea but I speculate they want to show the bean counters that with their special privileges and greater income, Ferrari are in an advantageous position to win. They can outspend the competition and win. And winning looks good for Fiat. Especially now that the Ferrari Formula 1 cars carry the Fiat logo on the nose.

Should we sympathize for Ferrari? Absolutely not. Sport is sport. And you play the game with whatever you have equitably. In this global economic uncertainty, all manufacturers must give due consideration to costs. But fair play must remain on the racing circuits. And the wealth of the sport must be shared fairly among all the players. On merits, not nostalgia or past achievements.

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