Automobili Lamborghini Holding S.p.A. is one of the world’s most renowned manufacturers of high-performance sports cars. The company sells fewer than 300 cars in a given year (more than 100 of them in the United States, its largest market), but the hefty price tags–upwards of US$300,000, for example, for the limited edition Diablo GT–make up for small volume. Lamborghini has had a troubled history featuring a revolving door of owners, including Chrysler Corporation, an Indonesian consortium of investors, and, starting in 1998, AUDI AG, which is itself owned by Volkswagen Aktiengesellschaft. Under its German owners, the company was restructured into a holding company with three separately operated companies: Automobili Lamborghini S.p.A., manufacturer of cars; Motori Marini Lamborghini S.p.A., maker of marine engines; and Automobili Lamborghini Artimarca S.p.A., a licensing and merchandising arm.
Ferruccio Lamborghini’s Road to Car Making
The founder of Automobili Lamborghini, Ferruccio Lamborghini, was born in 1916 in the village of Renazzo, near Bologna. As a boy he was fascinated by the mechanics of revolutionary machines such as the automobile and airplane. As soon as he could, he went to Bologna, and he completed studies in mechanics just before the start of World War II. During the war he worked as a supervisor of the Italian Army’s vehicle maintenance unit in Rodi, Greece.
Lamborghini’s experience in the motor pool prepared him to assume the role of entrepreneur when he returned to Italy after the war. He immediately purchased old military vehicles and collected abandoned German tanks in order to reconfigure them and produce tractors, equipment that was essential for Italy to rebuild itself after the destruction caused by the war. The young businessman was so successful with this enterprise that he purchased a large factory and workshop in Centro during the early part of 1948.
During the 1950s, Lamborghini focused on his tractor business. Sales expanded rapidly, not only in Italy, but soon in other war-ravaged European countries. As revenues increased, he traveled to the United States to acquire technology for the manufacture of heating systems, air conditioners, and automobile parts. During the late 1950s, one of the company’s most innovative products was an air-cooled automobile engine. The company’s financial stability provided Lamborghini with the opportunity to pursue one of his lifelong ambitions: the manufacture of helicopters. Unfortunately, the Italian government refused to grant him a license.
A well-circulated tale describes the genesis of Lamborghini’s sports car company during the early 1960s: As he grew more interested in automobiles, Lamborghini purchased a Ferrari, one of the most prestigious, high-performance sports cars in the world. One day, while taking a pleasure drive, he noticed a sound in the front of his car and discovered a faulty part. He drove the car to Modena, the headquarters of Ferrari, and asked them to repair or replace the faulty part. He was kept waiting for such a long time that he finally demanded to see Enzo Ferrari, the founder. Ferrari, already a great man in the international race car circuit, also kept Lamborghini waiting. Angry and frustrated with the way he had been treated, Lamborghini decided to establish his own high-performance sports car company.
1963-72: Successful Early Years
Situated in Sant’Agata, near Bologna, the Automobili Lamborghini S.p.A. car factory began operations in 1963. Lamborghini hired a brilliant automotive engineer by the name of Paolo Stanzani and asked him to establish one of the most technologically advanced car-making facilities in the world. The first Lamborghini sports car was delivered in 1964 and created a sensation in automotive circles. The 350 GT, an aerodynamic sports car with a four-cam V12, five-speed transmission, four-wheel disk brakes, and four-wheel independent suspension, was soon competing for customers that had previously purchased such high-performance cars as Porsche and Jaguar. Especially gratifying to Lamborghini was the fact that his cars were as well received by automobile critics as Enzo Ferrari’s.
In 1966 the company produced the 400 GT, while at the same time building its own transmissions. During the same year, Automobili Lamborghini produced the Miura P400, which created a buzz in the crowd during the Geneva Motorshow due to its compact 3929 cc transverse V12 powertrain and bare chassis. In 1968 the Islero 400 GT was introduced, featuring a luxury interior, four-wheel independent suspension, disc brakes, and an all-aluminum quad cam V12 engine. Also in 1968, Lamborghini produced the Espada, a four-seater engineered with a one-piece, solid steel body. Within a short time, the Espada became one of the most popular of all the Lamborghini models, and sales of the model remained brisk for years. The company was now known around the world for its sleek, low-slung sports cars, and sold models to celebrities including Grace Kelly and Frank Sinatra, who ordered a custom-made Lamborghini and requested that the interior decoration include genuine leopard skin.
From 1970 to 1972 the company was at the height of its success. A new version of the Miura P400, the Miura P400 SV, was introduced in 1971 and featured a completely redesigned suspension system and leather interior. Another new prototype, the Countach LP500, had its debut at that year’s Geneva Motor Show. The design included a handmade aluminum body, aerodynamic contours for high-speed performance, and a dramatic new ‘wedge’ look. In 1972 the company introduced the Urraco P250 at the Turin Motor Show, and later introduced the Jarama 400GTS. With a unique hood scoop, five bolt wheels, and significantly increased horse power, the Jarama was the last Lamborghini sports car to exhibit a front engine. With such new and exciting models, the company seemed destined for even greater financial rewards and international recognition.
1973-87: Fall into and Recovery from Bankruptcy
Unfortunately, the year 1973 was a turning point for the company. Automobili Lamborghini was hit hard by the oil embargo and by the crisis created by the worldwide recession. The market for high-speed, gas-guzzling sports cars suddenly dried up, and the firm was confronted with rapidly decreasing sales. Disappointed, Ferruccio Lamborghini decided to sell his shares of the company and retire to a 740-acre estate on Lake Trasimeno; in 1974 he sold his remaining 49 percent stake to René Leimer, a friend of the man who earlier in the decade had purchased a 51 percent stake, Swiss businessman Georges-Henri Rossetti. Lamborghini Automobili was controlled by the government for a short time, then suffered the indignity of compulsory liquidation.
Yet, due to the determination of the remaining employees, the company continued to manufacture sport cars. In 1974 the Countach LP400 went into production with a 3.9 liter V12 engine and a tubular chassis. In 1975 the Urraco 300 was manufactured and, one year later, the Silhouette was introduced at the Geneva Motor Show. In 1977, in an attempt to revive the company’s profitability, production of off-road vehicles for the military was initiated. However, the design of the prototype vehicle was altered when management discovered that the general public was more interested in purchasing the models than was the military.
Despite the seemingly fast-paced production schedule, the company’s fate remained uncertain throughout the decade. In 1980 the Bologna Court sold the firm to the Mimram brothers, young and famous entrepreneurs in the food industry who had a passion for sleek sports cars. They immediately started a comprehensive restructuring program, including the infusion of large amounts of capital to rehabilitate the dilapidated manufacturing facilities in Sant’Agata, and then initiated a worldwide search for highly qualified automotive engineers and designers.
Results from the investment made by the Mimram brothers began to pay off immediately. In 1982 the Countach LP500S was introduced with a new 5-liter, 375-horsepower engine. A brand new model, the Jalpa, was also introduced during the same year. The Jalpa, a two seater, included a 5-speed transmission and a new transverse-mounted V8 engine. In 1985 the Countach underwent its third major redesign and was renamed the LP500S QV. Unfortunately, the rapid production pace did not generate increased income, and the Mimram brothers soon realized that the amount required for capital expenditure was beyond the financial means of individual investors such as themselves. Looking for an experienced and financially stable partner, they met with representatives of Chrysler Corporation.
1987-93: The Chrysler Era
Chrysler Corporation was attractive to Lamborghini due to the company’s committed management, its ability to introduce new models in a relatively short time and, of course, the mystique of the Lamborghini sports car. Chrysler paid approximately US$25 million for Automobili Lamborghini and took control of the company in April 1987. Chrysler management immediately poured US$50 million worth of capital into the Italian automobile manufacturer, primarily to increase production and to expand into the United States.
Under Chrysler management, the most popular and successful of all Lamborghini models, the Countach, went out of production in 1988 after 25 years and a total output of 1,997. The Countach was replaced by the Diablo, the fastest car in the world made on a production line (202 m.p.h.), at a base price of US$239,000. In 1990, sales of the car were so brisk that Lamborghini showed a profit of US$15,000. During this same time, Chrysler established a United States branch to sell Lamborghini’s new models. Chrysler developed Lamborghini’s U.S. network from a disorganized and loosely connected jumble of private distributors into a highly efficient franchise with support services such as maintenance and service agreements and spare parts distribution. Under Chrysler’s direction, Lamborghini also began to manufacture marine engines for the offshore racing circuit. In addition, a new factory was opened in Modena, Italy, called Lamborghini Engineering, to design and produce Formula One racing cars. For its diligence, Chrysler saw Lamborghini production rise to 673 cars in 1991, and profits increase to US$1.32 million.
For all Chrysler’s efforts, however, its success with Lamborghini was brief. By 1992 production had dropped to 166 cars, and the company lost nearly US$19.3 million. Sales had dropped precipitously, in spite of an expanding franchise network in the United States. Americans just were not buying the US$239,000 Diablo, so plans were initiated to develop an exotic car with a price of US$100,000, a range more accessible to American sports car enthusiasts. Yet development of the car lagged, and Chrysler became more and more frustrated with the difficulties involving Lamborghini production methods. Total production for the company amounted to just 215 cars in 1993, a figure that did not satisfy the executives at Chrysler who were used to high-volume car production. As a result, Chrysler began to look for an investor to take Automobili Lamborghini off its hands.
1994-98: Indonesian/Malaysian Ownership Period
In late 1993, Chrysler reached an agreement with MegaTech, Ltd. to sell Lamborghini for approximately US$40 million. MegaTech was a holding company registered in Bermuda and wholly owned by SEDTCO Pty., a large Indonesian conglomerate. SEDTCO, headed by Setiawan Djody and Tommy Suharto, the son of the premier of Indonesia, had extensive worldwide holdings in mining, manufacturing, and shipping. The agreement, which was consummated in February 1994, included the sale of Automobili Lamborghini in Sant’Agata, Lamborghini Engineering, the manufacturer of Formula 1 race cars, and Lamborghini USA. Djody owned a 35 percent stake in Vector Automotive Corporation, a manufacturer of sports cars with an average sticker price of US$450,000, and he thought Vector and Lamborghini might collaborate on the design and marketing of new models for the high-performance sports car market.
With Djody acting as chairman, the new owners hired Michael J. Kimberly as president and managing director of the company. Kimberly had worked with Jaguar and Lotus and finally as executive vice-president of General Motors in Malaysia before he was hired for the position at Lamborghini. Kimberly began a comprehensive analysis of the entire Lamborghini operation. He concluded that the company needed more than just one or two models to sell, and he began to make plans for the development of Lamborghini cars at a price accessible to the American car enthusiast. At the same time, he implemented a marketing strategy to raise awareness of the attractiveness and mystique of the Lamborghini sports car. By the beginning of 1995, sales of Lamborghini models had jumped 14 percent in the United States and 34 percent worldwide. During 1995 the ownership of Lamborghini was restructured. Suharto, through his company V’Power Corp., held a 60 percent interest, with the remaining 40 percent owned by MyCom Bhd., a Malaysian company controlled by Jeff Yap.
Despite the improved sales, the company continued to operate deeply in the red. Vittorio Di Capua was hired in November 1996 as president and CEO to attempt to turn Lamborghini around. Di Capua was a veteran of the car industry, having spent more than 40 years at Fiat S.p.A. The new CEO immediately launched a major cost-cutting and restructuring program. A number of executives and consultants were let go, and the production process was overhauled to achieve a 50 percent productivity gain. In 1996 Lamborghini would have had to have sold 450 Diablos just to break even (it sold only 211); the following year the break-even point had been cut to 196 units–209 Diablos were actually sold, resulting in a net US$120,000 profit, the first in years. Di Capua also worked to leverage the well-known Lamborghini brand and image by taking a more aggressive approach to merchandising and licensing deals. In addition, he moved forward with a US$100 million development budget for both a high-performance version of the Diablo, nicknamed the Super Diablo, and a smaller version dubbed the Baby Diablo.
1998 and Beyond: Germans in Charge
Di Capua’s turnaround program set the stage–with the help of the Asian economic crisis that erupted in 1997–for another ownership change. The chairman of Volkswagen AG, Ferdinand Piëch, grandson of Volkswagen’s founder, Ferdinand Porsche, decided to take his company upmarket through acquisitions. During a 1998 buying spree, Volkswagen acquired Lamborghini for about US$110 million. Lamborghini thereby became a subsidiary of Volkswagen’s luxury car subsidiary, AUDI AG. Audi spokesman Juergen de Graeve told the Wall Street Journal that Lamborghini ‘could strengthen Audi’s sporty profile, and on the other hand Lamborghini could benefit from our technical expertise.’ Lamborghini also needed a deeper pocketed owner if it was to successfully expand its line of products.
In the immediate aftermath of the acquisition, management changes and an organizational reorganization were the first orders of business. By early 1999 Lamborghini had been restructured into a holding company called Automobili Lamborghini Holding S.p.A., with Franz-Josef Paefgen, president of AUDI, as chairman. The holding company controlled three subsidiaries: Automobili Lamborghini S.p.A., handling the manufacture of cars; Motori Marini Lamborghini S.p.A., taking over marine engine production; and Automobili Lamborghini Artimarca S.p.A., which was responsible for licensing and merchandising. These separately run companies could now focus more completely on their specific duties. Di Capua initially headed Automobili Lamborghini S.p.A. but resigned in June 1999. Hired to take over was Giuseppe Greco, another automotive veteran with previous experience at Fiat, Alfa Romeo, and Ferrari. During 1999 Lamborghini increased its sales to 265 units, a 24 percent jump from the previous year. Helping to boost sales was the introduction of the US$308,000 Diablo GT, a high-performance version of the Diablo featuring a six-liter, 575-horsepower engine that translated into a top speed of 210 m.p.h.–said to make the car the fastest production model on the market. The GT was limited to a production of 80; as a limited edition, the GT was not exported to the United States because the low volume made it uneconomical to go through the process of gaining official emissions and crashworthiness approval.
In place at the turn of the millennium, with AUDI’s support, was a five-year plan to relaunch Lamborghini. Through the year 2003 the company planned to spend US$161 million to overhaul its engineering and production facilities at Sant’Agata Bolognese. During that period two new models were to be developed: a successor to the Diablo, scheduled for introduction in late 2001, and the former Baby Diablo, now simply code-named L140. The latter was still expected to be positioned as a more affordable Lamborghini. By 2003 Lamborghini was aiming to produce 1,500 vehicles–two-thirds of them L140s and one-third the Diablo successor–which would represent an astounding leap forward and cap the German rescue of an Italian legend.