Man Math & Ferrari V12 GTs

Man Math & Ferrari V12 GTs

Man Math & Ferrari V12 GTs

Recently there have been a number of front engine Ferrari V12 Grand Tourers that have appeared on different online auction sites at very tempting prices.  I have to confess that every time one of these pops up, the man math and garage space games start.  The purpose of this article is actually to remind myself why I should not go there again despite a Ferrari V12 being one of man’s greatest creations.  We have owned four front engine Ferrari V12s and none has lasted more than 2 years in the garage.  When I compare this to the average garage life of the various mid-engine V8s we have owned, it is less than half.  The question therefore is why?

The four front engine Ferrari V12 we have owned are a 365 GTB/4 Daytona, 550 Maranello, 575 Maranello (manual with Fiorano Handling Pack), and a 599 GTB HGTE.  The first and last of these were the 2-year cars whereas the 550 lasted about 8 months in the garage, and the 575 made it just over a year.  In all four cases, the V12s were traded in for a mid-engine car.  The 365 GTB/4 Daytona left when the Jaguar XJR-15 arrived.  The 550 Maranello was traded in against the Ferrari F40 (Collecting the F40) while the 575 left for the Mosler MT900S (Mosler MT900S) and landed next in the hands of the #3 driver on car #188 at Garage 59.  Last but not least, the 599 GTB HGTE was traded in for the McLaren 720S (599 GTB Like but not Love).  With the exception of the McLaren 720S, which does both civilized and tasered cat equally well, the other three are far less civilized hard core carbon clad supercars.    There might just be a trend here…….

One of our house rules is that cars that don’t get used need to depart to new homes.  Three of the four V12s fell afoul of this rule and it led directly to their departures.  The outlier, the Ferrari 575, actually was exactly the opposite.  It was my daily driver for a year and that’s what led to its departure.  As a Grand Tourer on road trips, the 575 was wonderful.  The 575 had huge amounts of power, was comfortable, had lots of luggage space, and with the gated 6 speed gearbox was engaging and a joy to drive.  We still have fond memories of driving the 575 across Wales and down to Reims.  As a daily driver however, it didn’t like crawling in traffic on the M25 and the Fiorano Handling Pack made it teeth rattling stiff on Surrey’s pockmarked roads.  As it was acquired for daily duty and didn’t thrive in the role, the 575 was moved on.

Of the other three Ferrari V12s, almost all their use was on road trips.  The 550 Maranello did two epic trips in the short time it lived under our garage roof.  The first was a wonderful summer jaunt from Brussels to Lisbon and the second took us from Madrid to Kassel.  Had the opportunity to acquire the F40 not come along, the 550 likely would have kept its garage spot a bit longer.  The 365 GTB/4 Daytona saw quite a bit of Great Britain during our time together and the 599 GTB HGTE got called to duty for multiple road trips across New York and the New England states.  The catch in all these cases though was when they weren’t being used on road trips, they got very little use.  For a weekend drive, each lost out to a mid-engine V8 that just happened to be a bit more engaging to drive.  Hence this lack of regular use led to their departures.  In the case of the Daytona, the fact that it was a good, but not great one also didn’t help, especially given one of my close friends has one of the best Daytona around.  Yes, I suffered from Daytona envy.  When I bought the Daytona, it was in pretty rough condition.  A year later we had moved it from rough to pretty good and quite presentable.  It was never going to be great though without an additional major investment of both time and money.  Lesson learned, always buy someone else’s restoration project.

Looking back, the fact than none of the front engine Ferrari V12s were long termers was much more to do with my tastes than any shortcomings on their behalf.  All four V12s were brilliant at what they were designed to do, crossing continents at high speed and in comfort.  All had magnificent engines and sounded superb.  The crux however is the demand for these attributes only happened a few times a year.  In the case of the last our V12s, given the choice of a 430 Scuderia or a 599 GTB HGTE for a weekend drive, I would be grabbing the keys to the former 9 out of 10 times.  Add in the fact that today we have what I consider to be the best road trip car we have ever owned, the McLaren 675 LT Spider, and the man math games on the next 550 or 575 Maranello to pop up on Bring a Trailer or Collecting Cars needs to stop.  As much as I like the concept, I do know that if I bought another it would be consigned to the same fate of limited usage followed by garage expulsion 12-24 months later.

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May 2020

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McLaren 720S Spider vs. 650S Spider

McLaren 720S Spider vs. 650S Spider

On paper, comparing the McLaren 720S Spider to the 650S Spider doesn’t seem like much of a fair fight.  The 720S is the current generation “Super Series” car while the 650S is the previous generation.  The 720S was built against a brief to not only beat all competitive benchmarks but leap a few generations forward.  In terms of outright performance, even 3 years after the 720S launch, Ferrari and Lamborghini are still struggling to catch up.  The 650S on the other hand was an evolution of the 12C, who’s original development traces back to 2007.  The 720S is built around a new lighter, stiffer, carbon fiber tub, and has a 69 bhp advantage over the 650S.  Over 90% of the 720S’ parts are new.  

So why the comparison?  Two reasons really, the first is to capture just how far forward McLaren has moved the game on with the 720S Spider and the second is to reinforce just how good the 650S Spider still is today.  I also have an enormous soft spot for the 650S Spider, as it has been my daily driver (650S Spider Daily Driver) for almost 5 years now.  

Initially I was a bit skeptical on trading in the 2014 12C Spider for the 2015 650S Spider.  It was one of the last 12Cs built and I thought it was a significant improvement on the earlier cars.  However, the 650S Spider really moved things forward. It’s hard to put your finger on exactly why and where the 650S Spider is better than the 12C but it just is and it’s across every dimension.  The twin-turbo 3.8 liter V8 engine delivers 641 horsepower and 500 pound-feet of torque, enabling the 650S Spider to hit 62 mph in 3 seconds and 124 mph in 8.4 seconds.  Power delivery, handling, suspension, brakes, were all just a bit improved and when you add the whole package up, what you have is a noticeably better car.  The changes in suspension were particularly noticeable as the “floaty” feeling you could get in the 12C had been eliminated but the ride quality has not been compromised.

While we have had our 720S Spider for 6 months, due to winter and the call of the mountains, we have only been in the same location for half that time.  Since we returned from the ski slopes, we have added several hundred miles to the 720S Spider odometer via a number of long drives pre the Covid-19 lock down and then on a few grocery runs during the current lock down.  It’s been enough to get the break in miles out of the way so we can begin exploring all of its immense capabilities.  No other car I have driven combines smooth and quick the way the 720S Spider does.  One of my first impressions is that the 720S Spider seems to ride slightly more smoothly than its closed roofed brother who’s slot it took in the garage.  The suspension provides a beautiful balance of both road feel and smoothness that irons out the imperfections in the rather iffy local blacktop. Steering weight and feedback are excellent.  There is zero body roll when cornering and it remains beautifully balanced across the axles.  With a twin-turbo 4.0 liter V8 engine that delivers 710 horsepower and 568 pound-feet of torque, the 720S Spider will hit 62 mph in 2.8 seconds and 124 mph in 7.8 seconds.  Power delivery is the most linear of any non-hybrid turbo charged car I have owned.  The 7-speed dual clutch gear box is incredibly quick.  The three transmission modes provide a nice range of choices from civilized to tasered cat.  When “on it” in sport or track mode upshifts bang off wonderfully, rewarding the inner petrolchild.  The carbon ceramic brakes are massive and instill confidence just by looking at them.  The 720S Spider is one supercar that “stops” as well as it “goes”.  The 720S Spider is a deeply engaging and rewarding car to drive. It excites and engages but not does not leave you battered and exhausted after a few hours behind the wheel.

There are two items where I actually prefer on 650S Spider to the 720S Spider: the seats and the climate controls.  While Mrs. SSO prefers the seats in the 720S Spider, my preference is for the one’s in the 650S Spider.  It may simply be down to years of familiarity, but I do find them more comfortable.  One area we both agree on is the electric seat controls are more intuitive and easier to operate on the earlier car.  We also both prefer the door mounted climate controls on the 650S Spider as neither one of us is a huge fan of having to scroll through menus on a touch screen when a simple dial will do.  Mrs. SSO also prefers to keep her side of the car a bit warmer which is much easier to do with a door mounted dial vs. having to scroll through menus and then adjust the temperature on a touch screen.

On paper the 720S Spider is clearly the superior car, as it should be given where it sits in McLaren’s evolutionary timeline.  Spend time with a 720S and you can see how McLaren has incorporated learnings from the 12C, 650S and 675LT into its development.  The engineers at McLaren are good Darwinists, each generation is better than the last, which is in fact McLaren’s core selling point (Ferrari takes more of a creationists approach….we created it, it’s a Ferrari and therefore you should be delighted to have the opportunity to buy one.) In terms of performance, the 720S Spider is a hypercar in supercar clothing.  However, that takes nothing away from the 650S Spider.  On its own the 650S Spider is an outstanding supercar, so good in fact that it still on par with just about anything the competition has in their portfolio today.  Hence why I see no reason to change my daily driver, for at least the next couple of years.

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Collecting McLarens

Collectability of McLarens

Collectability of McLarens

It’s now been 10 years since the McLaren 12C was officially launched at an event at the McLaren Technology Center.  Antony Sheriff kicked off the launch presentation and was then followed by Ron Dennis & Martin Whitmarsh, outlining the strategy for the McLaren Automotive.  The unveiling of the launch car was done by the two McLaren Formula 1 drivers at the time: Lewis Hamilton & Jenson Button.  At the launch, McLaren claimed to have 1,600 likely buyers lined up with deliveries to start in mid 2011.  While 10 years may not seem to be that long ago, a lot certainly has changed at McLaren since then.  

In my mind, ten years is the first major inflection point that a car crosses on the way to either classic status or a permanent state of ever advancing oxidation.  With the earliest McLaren’s (putting the Mclaren F1 aside as it exists in a completely different universe) now approaching their tenth birthday, I thought it would be interesting to take a shot at predicting which of the many models McLaren has produced in the last decade will become collectable classics in due time and which might not.  

Super Series

There have been three main models in what McLaren today refers to as the Super Series.  They are the 12C, 650S, and 720S.  The 650S and the 720S also had an end of run limited production special track focused editions: the 675LT & 765LT.  All were produced as both coupes and spiders.  In addition, there are 25 MSO HS’ which are a 675LT dialed up to “11”.  I have not included the 765LT as customer deliveries have not yet begun.

12C 

It can be hard going first.  The 12C was both loved and heavily criticized when it was launched.  While technically superior and quicker around a track to its main competition, the Ferrari 458, the 12C took a bashing for not having as much character or soul.  Early “swipe door” 12Cs had a reputation for having a number of quality problems which were resolved during the four-year production run.  Out of the 12C range, long term I believe the early “swipe door” 12C Coupes and, the late 12C Spiders (Our McLaren History – 3 12Cs) will be the most collectable as the former is the first of its kind and the latter the best of the bred.  

As a reference point, I believe the 12C will be viewed long term in a similar manner to the Ferrari 360.  It was the first new mid engine V8 Ferrari developed under Luca di Montezemolo (the F355 was a heavily revised 348) and the first all-aluminum space-frame chassis Ferrari.  The 360 broke new ground on many fronts but also had a number of weaknesses that were addressed by the model that replaced it.

650S

To describe the 650S as a facelifted 12C is to do it a great disservice.  McLaren claimed that 25% of the car was new but the 650S is really a combination of hundreds of small improvements that together deliver a superior car.  Compared to the 12C, it has more power, sharper and yet more compliant handling, fast shift times, and ceramic brakes as standard.  I have used ours as my daily driver for close to five years now (650S Daily Driver) and never had a single issue with the 650S Spider.  In terms of long-term collectability though, I would rank it slightly behind an early 12C.  The 650S doesn’t have the uniqueness of being the first McLaren Automotive road car that the 12C will always carry with it and it is eclipsed by the model that replaced it, the 720S.

A point of conceptual comparison for the 650S is the Ferrari 512BB.  The 512BB is a much better sorted car than its predecessor, the Ferrari 365 GT4 BB.  However, the 365 GT4 BB commands a premium among collectors as it is the first mid-engine Ferrari road car. 

675LT

The 675LT may just be the greatest car McLaren has produced in its first decade as a road car manufacturer. So far the 675LT is my favorite McLaren (Favorite McLaren) and I can’t imagine it loosing that title anytime soon.  It’s the 675LT that put to rest the criticism on McLaren’s lacking personality while burying its main competition, the Ferrari 458 Speciale, across the board in terms of performance.  With only 500 coupes and 500 spiders produced, the 675LT is also relatively rare when compared to the 3500+ Ferrari 458 Speciales.  As the best and last of the 1st generation McLaren road cars, long term the 675LT should also be the most collectable.  However not all 675LTs were created equal.  McLaren Special Operations produced a very limited run of 675LTs on steroids which were badged the MSO HS.  These are the ultimate and rarest of the 1stgeneration McLarens.

I can see the 675LT being viewed a decade or so in a similar light to the Porsche 911 (993) Carrera RS.  The 993 RS is the best and last of the aircooled Porsches with similar production numbers to the 675LT.

720S

If the 675LT was built to bury the Ferrari 458 Speciale in terms of performance, as the 1st model in the 2ndgeneration of the McLaren Super Series, the 720S was designed to outperform every possible competitor, and it did.  The 720S was the first supercar to offer hypercar levels of performance while delivering supercar levels of civility.  If the 650S was a significant improvement on the 12C, the 720S represents a major leap forward.  The 720S does both docile and feral with equal levels of confidence and composure which long term should make it a favorite for collectors.  It will also likely be not only the last of the pre hybrid McLarens but also the best. 

The reference point that comes to mind with the 720S is, a bit ironically, the Ferrari 458 Italia.  The 458 was both a significant improvement on the Ferrari F430 and the last in the line of the normally aspirated mid-engine Ferrari V8s dating back to the Ferrari 308.

Ultimate Series

In ten short years, McLaren has launched four Ultimate Series hypercars: the P1, Senna, Speedtail, and Elva.  In the history of hypercars, the number of models in this a short time frame is impressive unprecedented and yet concerning (Too Much of a Good Thing).  For this article, I’m only going to include comments on the P1 and Senna as customer deliveries of the Speedtail have only just started and the Elva is still at least a year out.

P1

Of the 2014 Hypercar Holy Trinity (Porsche 918, Ferrari LaFerrari, McLaren P1), long term I believe the McLaren P1 will be the one to have.  In this league rarity counts and with over 710 LaFerraris (coupe & spider) and 918 Porsche 918s produced, the 375(ish) McLaren P1s make it a significantly rarer car.  If the LaFerrari is polished and the 918 is a complete technology showcase, then the P1 has a raw edge the other’s lack.  The P1 is also the fastest around a track and is held in very high regard among the very fortunate few who own all 3.  If the P1 has an Achilles heel, is too much technology that may not age well.  The other major concern when it comes to long term collectability is the battery pack. The issues with the 1st generation battery packs were a key reason we sold ours (P1 Farewell) and a long term solution will be critical for P1s remaining viable.  

In terms of collectability, the car that most reminds me of the P1 is the Ferrari F50.  While today the F50 is highly regarded and highly sought after, that wasn’t always the case.  It was more respected than loved most of its existence and got quite a bit of mixed press at launch.  Build numbers between the two are similar as is the purity of the driving experience.

Senna

McLaren’s brief for the Senna was to produce the ultimate road legal track car.  What it lacks in polish, it makes up for with brute force.  It’s a binary car, either you love it or hate it.  In terms of performance, nothing else with a license plate is going to come close to it on a track.  The 500 units produced do detract slightly from its long-term collectability.  Raw focused cars like the Senna do tend to both age well and remain high in the public’s imagination.

Since the first time I drove ours, I’ve thought that the Senna was a modern version of the Ferrari F40 (F40 & Senna).  The F40 & Senna demand similar levels of skill and concentration to drive well while being both immensely rewarding and potentially terrifying.  

Sport Series

To date McLaren has only produced one model, the 570S, in its entry level Sport Series.  The replacement to the 570S is expected to be announced shortly.  The 570S had two end of run special track focused editions, the 600LT and the limited production 620R.  I have not included commentary on the 620R as customer deliveries have just begun.

570S

As McLaren’s entry level sports car, the 570S was targeted at doing everything the Porsche 911 could do, but better.  Whereas the Super Series McLaren’s have all been produced in both coupe and spider versions, the Sports Series included a more practical coupe variant badged the GT with extra luggage room and softer suspension settings.  Commercially the 570 has been a major success for McLaren with the Sport Series making up almost 2/3rd of the cars McLaren has sold in the last several years.  Long term the relatively high production numbers will hold values back but as a highly usable and accessible sports car, it should remain popular. 

I believe the Aston Martin Vantage is a good comparison for the 570S.  The Vantage opened up Aston Martin ownership to a whole new group of people.

600LT

Like the 675LT, of the first-generation Sport Series McLarens, long term the 600LT will be the collector’s choice.  The 600LTs already have a very loyal following among track day enthusiasts for both their superior capabilities and drivability.  Comparing the 600LT to the 675LT is unfair (2 days with a 600LT) but it is still best in its class.

If the Aston Martin Vantage is good comparison for the 570S, then the Aston Martin V12 Vantage provides a good reference point for the 600LT.  Cramming a V12 into the nose of the Vantage transforms the car from quite civilized to just a bit feral while remaining decently civilized.

New GT

The McLaren GT sits on its own outside of the 3 main series of cars.  Its McLaren’s second attempt at attracting competitive Grand Touring driver’s after the moderately loved and short lived 570GT.  The new GT, like all McLarens, is mid-engine which puts inherent constraints on luggage space.  In terms of performance and comfort, it sits right between the 570 and 720 series.  GTs tend to be better loved when new than as collectors’ cars and I can’t see the McLaren GT being any different.

The McLaren GT reminds me of the Ferrari 599 GTB, technically excellent and wonderful to cruise in for hours.  However, it is a car you more like than love (Like but Not Love).

In summary, all McLarens will always have a decent degree of collectability and a loyal following.  Of the models produced to date, my guess is 20 years down the road, the 675LT Spider, MSO HS, Senna, and P1 will be the four most highly sought after with the early “swipe door” 12C Coupes having a cult following.  Time will tell.

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Aston Martin, Ferrari, & McLaren Business Review

Aston Martin, Ferrari, & McLaren’s Challenges

Aston Martin, Ferrari, & McLaren’s Challenges

Last week I posted an update on the outlook for the Supercar Market which briefly touched on the health of a few of the manufacturers.  Writing that article prompted me to go look a bit more deeply into the health of several of the larger supercar manufacturers to try and understand their current situations as we are all trying to gauge the impact that the Coronavirus will have on different parts of the economy.  Looking at the three major independent supercar manufacturers, Aston Martin, Ferrari, and McLaren (Lamborghini as part of the Volkswagen Auto Group is in a very different situation) the question is what challenges do they face and can they survive?

I am a firm believer that you need to not only understand the situation today but also have a firm grasp on history to be able to even remotely predict the future.  A strong, healthy, well-run company isn’t something that happens overnight, it takes years to build.  On the other hand, baring a crisis, a poorly run, sick company can crawl along on life support for years.  The difference is right now we have a crisis, and the risk to a poorly performing business in this environment is significant.  

Below are the financial indicators that I normally start with on any company I am taking a look at:

Manufacturer(US $) Market Cap (as of April 9, 2020) 2019 Group Sales D% vs. 2018 2019 Cars Sold 2019 EBITDA D% vs. 2018
Aston Martin $825 mil. $1,241 mil. -10% 5,862 $167 mil. -46%
Ferrari $37.9 bil. $4,118 mil. +10% 10,131 $1,002 mil. +11%
McLaren ‘ $2.5 bil.* $1,800 mil. (est) +19% 4,800 (est) $211 mil. (est) +140%

*Based on last round of investment in 2018.  

‘McLaren will release their full year 2019 results on April 23rd

Starting with the strongest of the three, from a financial perspective, Ferrari is clearly performing well and has been for multiple years.  The stock market values Ferrari as a luxury good manufacturer with a P/E ratio of 35, much more in line with Hermes or LVHM than FCA or Ford.  In fact, Ferrari’s market cap today is more than 2X that of its former owner, FCA.  Ferrari sells 0.2% the number of cars FCA currently sells but makes 15% of FCA’s EBITDA.  Hence why it is viewed by the financial markets as a luxury goods manufacturer.  Ferrari’s $38 billion market cap also gives it a very strong currency for acquisitions, which could prove to be critical as cars move from internal combustion engines to electric.  

Ferrari in general is well run and has been consistently executing against Luca di Montezemolo’s business plan which turned Ferrari around in the early 1990s.  However, there have been a few deviations from di Montezemolo’s basic strategy, both fairly recent.  These can be traced back to when Sergio Marchionne, CEO of Fiat Chrysler, forced di Montezemolo out over disagreements on increasing production to drive the increased profitability that Marchionne badly needed to prop up other parts of the Fiat Empire.  Di Montezemolo always advocated that Ferrari should produce at least 1 car less than market demand.  This drive for profits over long term brand development has led to the increase in the number of enormously profitable limited edition and hypercars, resulting in market saturation (Too Much of a Good Thing).  In addition, Ferrari has ramped up production of its base models for the first time in decades.  This has resulted in Ferrari dealers courting buyers today vs. the old approach of letting you know how fortunate you were to be allowed to buy one of their cars (Dealing with Ferrari).  Ferrari’s F1 team is a net profit contributor to the company and this should increase even further when the Formula 1 spending cap takes effect in 2021.  The biggest risk Ferrari faces right now is to its market cap should it need scale back on production, especially of the highly profitable limited-edition models.

Financially, Aston Martin’s situation is just plain ugly, again.  It’s gone bankrupt 7 times in its history and an 8thdoesn’t seem out of the realm of possibility.  From its IPO in Oct 2018 which valued Aston Martin Lagonda at a little over $5 bil, 18 months later AML’s value sits at 16% of that.  Versus 2018, sales dropped 10% and operating profit dropped $147 mil. to a loss of $46 mil.  In December 2019 the Group held $98.1mil. of contractually refundable deposits, up from $62.6 mil. in 2018 so they are using customers money to help prop up a very weak balance sheet.  If more customers like ourselves, pull their deposits on the Valhalla, this will deteriorate fast.  Net leverage soared in 2019 to 7.3x adjusted EBITDA, up from 2.3X in 2018: 2.3x and ROIC was an anemic 0.3%.  Net net, it’s a pretty ghastly situation so it’s no surprise that Aston Martin had to bring in a major outside investor, Lawrence Stroll, to provide badly needed liquidity.  With Stroll taking over, this represent the 3rd change of control since Ford sold Aston Martin off back in 2007.  If stability and continuity are key attributes of a successful business, Aston Martin feels like it was built on the side of an active volcano that sits on top of an earthquake fault line.  Given these constant changes in control, it’s not hard to figure out why Aston Martin has always been a “slow follower” in the sportscar industry.  Aston’s first mid-engine car is coming 47 years after Ferrari’s and its entry into the SUV segment is “only” 17 years behind Porsche.  Aston has bet the house on its SUV, the DBX, and given the current situation, I can’t imagine a worse economic climate for it.  Given its dire financial position, Aston lacks the resources to invest in the next generation electric power trains and in fact took a $50 mil. write off in 2019 when it cancelled the Rapide E project. Aston Martin’s multi-million dollar sponsorship of the Red Bull team in recent years is another questionable investment as I believe Aston gets little to no brand credit for Red Bulls performance on track.  To the world at large, it’s the Red Bull F1 Team, not Aston Martin Red Bull.  Its anemic share price, along with a very significant $1.2 bil. debt pile are barriers to any acquisitions.

So why is a smart successful businessman like Lawrence Stroll investing in Aston Martin?  It can’t just be to get his son out of that silly pink Racing Point race suit and into something more masculine.  Stroll made his money in fashion and luxury goods.  My guess is he is looking at Ferrari’s $37 billion market cap and betting he can transform Aston from being a niche, poorly performing, car manufacturer with a great global brand name into a luxury goods manufacturer along the lines of Ferrari.  Even if Stroll just drives Astons share price back to where it was at the IPO 18 months ago, he’s gotten a 5X plus return on his investment.  If Stroll can someday match Ferrari’s market cap, he will make billions.  How does he get there? My guess is by taking Aston into an 8th bankruptcy and using it to clear the $1.2 bil. of debt off the balance sheet, write off a large part of the massive investment in the DBX program, and re-privatizing the company.  Stroll then focuses on building a luxury brand around the F1 Team, a mid engine sports car, front engine GT, and sport luxury SUV.

Which brings us to McLaren.  On the surface, McLaren’s financials look quite respectable.  It has a growing business, the ten-year-old supercar business makes money, and as a privately held company, has been able to attract outside investment whenever necessary including $250 mil. in 2018.  This latest investment largely washes with the $340 mil. McLaren paid to buy out Ron Dennis when he departed in mid 2017.   The long-rumored IPO is now likely pushed back to mid this decade given both the current market situation along with blow back from Aston’s disastrous IPO.  McLaren has now been in the car business for a decade and its currently annual production of 4,800 cars is not too far off the long-stated goal of 6,000 units by 2025.  The company, to a large extent, still represents the vision of former longtime CEO, Ron Dennis.  McLaren today is shaped not only by his brilliance but also still suffers from a few of his misfires.  On the car side, marketing was not exactly Dennis’ strong point, and his lack of interest in the “driving experience” vs. outright focus on performance metrics negatively impacted the reputation of the early models.  McLaren also has a bit of a negative reputation for quality and reliability.  Personally, we have never had any issues (McLarens & Reliability) and on these sort of things you tend to only hear when there is a problem.  I believe the quality issues that have occurred are both related to the way McLaren builds cars and should be now mostly resolved for the same reason.  McLaren builds cars on a fixed assembly line with the same team building the entire car.  As production was ramped up in the last several years, many new hires were added to the production teams.  In any job there is a learning curb and mistakes are made during that process.  With planned production for 2020 reduced well head of any Coronavirus impact, mistakes leading to reliability issues should largely dissipate as all the assembly teams now have a fair amount of experience.  McLaren has been the most proactive of the three manufacturers in terms of reducing supply to meet demand, even cutting production on the latest Elva hypercar from 399 units to 249.  

However, Ron’s greatest misfires ironically were on the Formula 1 side of the business which he had nurtured and built since 1981.  The failure to find a new title sponsor after Vodafone departed in 2013 combined with the disastrous switch to Honda engines in 2015 (as forever enshrined by Fernando Alonso’s “GP2 engine” comment), has left the McLaren F1 team both uncompetitive for most of the last decade and as a financial drain on the overall Group.  Unlike Ferrari, where the F1 team is a major contributor to the bottom line, the McLaren F1 team is a drag on McLaren’s bottom line to the tune of around $60-80 mil. a year.  In recent years, and for the first time since 1981, McLaren has sold off a number of historic F1 cars to partially offset the cost of the current F1 Team.  Improved recent results on the track, along with the Formula 1 spending cap which takes effect in 2021, should significantly help McLaren’s bottom line going forward.  

While relatively healthy now, going forward McLaren has a three key challenges it needs to overcome to persevere.  A new Group Executive Chairman, Paul Walsh, was recently installed to guide McLaren through these challenges and my guess is then to an IPO several more years down the road (I met Mr. Walsh at a private business dinner where he spoke years ago.  He was both very impressive and a commanding presence.)  First and foremost, I believe, McLaren’s Formula 1 Team needs to again become a net profit contributor to the group.  Second, the next generation Sport and Super series McLaren’s need to be launched flawlessly and deliver segment leading performance.  Third they will need to fill the profit gap left by the longer timing now necessary between Ultimate series models given the recent market saturation in this segment. 

In summary, all three supercar manufacturers have their challenges.  For Ferrari these are not outside what one would expect for a highly successful company in a challenging environment.  McLaren is a bit more of a mixed bag as half of its business is in relatively good shape and the other half challenged but with a pathway back to health.  What happens to Aston Martin is anyone’s guess.  It’s in dire straits but like a phoenix, Aston Martin is exceedingly good at rising from the ashes to live yet another day.

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March 2020

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