Aston Martin expects to be profitable after 2016

To boost sales until new models arrive, Aston Martin is relying on special editions such as the V8 Vantage N430, which goes on sale in September priced at 89,995 pounds ($151,827) in the UK.
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MILLBROOK, England (Reuters) -- Money-losing Aston Martin expects to make a significant return to profitability after 2016. The company said it would start to see the benefits of a five-year 500 million pound ($843.57 million) investment program, having struggled to grow since the economic downturn.

"Once we finish the investment phase, we are very, very confident that it's going to take us to a very sustainable profitability," Chief Financial Officer Hanno Kirner said in an interview on Monday at Milbrook Proving Ground north of London. "We expect to return to significant profitability in the periods after 2016," he said.

The company posted an adjusted pretax loss of 24.6 million pounds in 2012, down from a 21.2 million pound loss a year earlier.

Aston Martin is owned by Kuwaiti and Italian private equity groups and is a rare ultra-luxury car brand that doesn’t belong to a larger manufacturing group. Its latest program to develop new models by 2017 is the biggest investment in the marque’s 101-year history, but it is small in comparison to the firepower at the disposal of rivals, which can spend more money in as little as three months.

BMW spent 993 million euros ($1.37 billion) on research and development in the first quarter alone, almost double Aston Martin’s four-year investment plan. BMW can spread those costs over annual sales of about 2 million vehicles.

By comparison, Aston Martin sold just 4,200 cars last year, and deliveries are forecast to fall to 3,700 in 2014, IHS Automotive estimates. When Aston Martin’s sales peaked at 6,700 vehicles in 2007, the brand was roughly the size of Fiat’s Maserati.

BMW’s volume gives the automaker leeway to take risks such as investing in its own carbon fiber factory to make vehicles lighter.

High-end performance models like the $111,500 M6 coupe compete with Aston Martin’s lineup, which consists of two-door sports coupes and convertibles, including the $116,700 Vantage, and the four-door Rapide.

'Stretching' technology

"They’ve been stretching the technology they have as far as possible,” said Al Bedwell, an analyst at LMC Automotive in Oxford, England. "They keep pushing variations of the same theme, but the theme has to move on. They risk being massively left behind."

Neil King, an automotive analyst at Euromonitor International in London, said: "With increased competition from the likes of Maserati, Aston Martin cannot afford to stagnate."

Aston Martin canceled the Cygnet city car in 2013 after the derivative of the Toyota iQ minicar failed to meet sales goals.

The lack of resources led Aston Martin to team up with Daimler’s Mercedes-Benz, which will be granted a holding of as much as 5 percent in the automaker as part of a cooperation agreement. The linkup includes Mercedes’s AMG performance unit supplying V-8 engines for new Aston Martin models. After Daimler mothballed the ultra-luxury Maybach brand in 2011, there’s potential for the partnership to deepen.

SUV not likely soon

Aston Martin reiterated its focus was still on sports cars and the company is unlikely to follow upmarket competitors, including Maserati and Volkswagen Group’s Lamborghini, in developing an SUV soon, but product chief Ian Minards said he remained "open-minded" to a possible SUV.

Kirner said the brand is "quite happy with our core portfolio” of sports cars. “We have no concerns about growth. There’s plenty of growth available." At the same time, “we’re looking at all concepts” for expansion, and “the Daimler cooperation gives us options, but there’s no decision” on any SUV, he said.

Aston Martin suffered a setback in February when it was forced to recall 17,590 cars after discovering a Chinese supplier was using counterfeit plastic material in its production of pedals.

The company said the recall cost it 1.5 million pounds and Aston saw a barrage of negative media coverage in China, where the state media slammed what it called the stereotyping of a low-quality Made in China manufacturing.

Kirner said the firm was moving on and played down the impact. "With a super-luxury brand there was a lot of excitement generated, but materially it is not a big recall for us."

Aston Martin cars require as long as 200 hours to make by hand, with each vehicle bearing the name of the final technician who worked on the auto before it’s cleared for delivery.

Of the 70,000 cars built in the manufacturer’s history, about 85 percent are still running. Models developed under the investment program would start coming out in 2016.

The company’s models sold for an average 126,000 pounds ($213,000) last year, up from 70,000 pounds in 2007, Kirner said. Because of lower overheads, Aston Martin can introduce cars as much as 40 percent less expensively than rivals, Kirner said.

Bloomberg contributed to this report

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