Aston Martin squeezes profit from old technology
LONDON – Aston Martin, the British luxury car brand, wants to defend its independence by squeezing profits out of aging technology.
The British manufacturer, whose best seller is the $113,400 Vantage coupe, plans to develop additional models off an eight-year-old platform. The approach reflects the limits on Aston Martin, which can't tap development resources of a big parent like Volkswagen AG's Lamborghini and Fiat S.p.A.'s Ferrari.
"It leaves the impression of a company stretching itself as far as it can. In the industry that they operate in, with their competitors, they really need to be cutting edge," said Andrew Jackson, an analyst at research firm Datamonitor in London.
Aston Martin, sold by Ford Motor Co. to a group of private investors including Kuwait's Investment Dar Co. in 2007, is outgunned in the luxury-car segment. Daimler AG, the parent of Mercedes-Benz, plans to spend about 5 billion euros ($7.1 billion) this year on research and development. That's more than eight times the British company's revenue of 509 million pounds ($830 million) for the 12 months ended March 31.
BMW AG, which owns the Rolls-Royce marque, is building a factory to make lightweight carbon fibers for a line of electric-powered vehicles, as it adapts to demand for cleaner cars. It's also developing front-wheel drive BMW models and expanding the Mini brand with a coupe and roadster.
"The next 10 years will see more change in the auto industry than the past 100," as the industry adopts new technologies, Ian Robertson, BMW's sales chief, said at an event in Frankfurt last week.
Independence can be risky for small carmakers. Saab, the Swedish brand sold by General Motors Co. in February 2010, was forced to halt production in April because of a cash shortage. The company is seeking to raise fresh financing and agree on payment and delivery terms with suppliers in a bid to restart manufacturing later this month.
Large carmakers can help niche manufacturers stay competitive by spreading development costs across brands and models. Fiat owns Maserati and Alfa Romeo as well as Ferrari. VW is merging with Porsche to add the carmaker to its brand line-up. The Lamborghini Gallardo shares the same platform with the R8 from VW's Audi unit, while the Bentley Continental Flying Spur and GT models are based on the same underpinnings as the VW Phaeton.
A lack of resources at Aston Martin has led to a portfolio of similar models.
Of 15 current vehicles, all but the four-door Rapide and Cygnet city car are two-door coupes or roadsters. Aside from the 1 million-pound One-77 supercar and the Cygnet, which is derived from Toyota Motor Corp.'s iQ, all cars are based on the same aluminum platform first introduced in 2003 with the DB9.
"It's still that same old basic design," Ian McCallum, who designed the DB9 and is now design director at Tata Motors Ltd.'s Jaguar Land Rover unit, said in a July 27 interview. "Some will argue that if it ain't broke, don't fix it. But you do get to a time when you have to move on."
Still, Aston Martin has made a virtue of necessity by using its so-called vertical-horizontal platform as the basis for more and more high-end models, including the 330,000-pound Zagato, which will start deliveries next year.
"All the projects that we are doing have to make a profit," CEO Ulrich Bez told journalists at the company's Gaydon headquarters. "We can't afford a project that is just a marketing tool."
The strategy has pushed up the average price of Aston Martin cars 49 percent to 104,000 pounds last year from 70,000 pounds in 2007, the company said at the July 6 briefing.
By recycling technology and using engines from Ford, Aston Martin can keep costs and development times down. That's secured Aston Martin a profit margin of about 20 percent, nearly double Mercedes's 10.7 percent return on sales in the second quarter.
"We don't make the mistake of applying manufacturing techniques that are perfectly sensible for 500,000-a-year models to small-volume cars," CFO Hanno Kirner said. Aston Martin sold 4,299 cars in the year through March 31.
That focus has given Aston Martin breathing room after Investment Dar, which owns half of the British manufacturer, missed a $100 million bond payment in May 2009. The closely held company in June raised 304 million pounds through the sale of high-yield bonds.
With the new financing, the company has sufficient resources to finance its development, which includes expansion in China.
An initial public offering will be explored when the company sees the "right window," Bez said.