Branding:Luxury marque Ferrari is cashing in on its popularity with the masses. But can merchandising an exclusive marque have a positive outcome?

FERRARI HAS THREE problems. First, it could sell more cars, but it can’t put more on the road without losing the rarity that makes us all want one. Second, there are plenty of devoted, wealthy customers who would happily pay double what they do now for their cars, but Ferrari can’t rack up the prices without looking greedy. And third, there are millions who cannot afford a car but will happily buy anything plastered with the prancing horse, but Ferrari can’t cater for them all without looking tacky.

All three problems spring from Ferrari’s central, eternal, business dilemma: how to eke more profit from one of the world’s greatest brands, when being seen to exploit it just might kill it stone dead. And the problems have just got more pressing.

To raise the cash to take control of troubled US car giant Chrysler, Ferrari’s parent company Fiat is seriously considering selling what amounts to the Italian national team, with an initial public offering (IPO) likely later this year.

So you might not be able to afford a Ferrari, but you might soon be able to buy a slice of the company. The pressure is on to boost sales and profits to maximise its value in advance of a flotation, but without harming that storied brand. Can it be done? And if you buy into Ferrari, what will you be getting? A supercar maker and Formula 1 team? Or a merchandising operation?

Ferrari’s first problem – how many cars it can build without losing the exclusivity – is being solved by geography. Until recently Ferrari said it would never build more than 5,000 cars a year, but that cap has been dropped quietly. The firm knows it can sell more cars in markets where there were previously very few Ferraris without devaluing the brand in western Europe and America. In the first half of last year, sales in China rose 20 per cent.

This year it will build more than 6,000 cars; pundits predict volumes will climb beyond 7,000 in the next few years as the global economy recovers, with almost all the additional cars going to emerging markets.

The second problem – finding new and imaginative ways for spendthrift clients to throw money at Ferrari – is being solved with a series of new activities. (Clients buy cars; fans buy mugs. Ferrari’s marketing effort makes a clear distinction between the two.)

The average client spends about €17,000 customising his or her car, but that’s only the beginning. In addition to the simple purchase of a road car, clients can now buy and run an old Formula 1 car with the Corse Clienti programme; become a factory test driver by buying an extreme, track-only FXX or 599XX; do a season’s racing in a F430 Challenge; have their vintage Ferrari restored at the factory; learn to drive better on a Pilota course; and choose from a range of lavishly-tooled and immensely expensive accessories. Ferrari acknowledges that these non-core activities have a significant impact on its profits.

But it’s Ferraris approach to the third problem – what to sell to fans and how much access to give them – that is causing the most controversy. From the first official Ferrari store outside the gates of the factory in Maranello, there are now nearly 40 around the world, selling everything from Ferrari-branded deodorant to surfboards. And it has just entered the bizarre, slightly tacky, lowest-common-denominator world of the theme park, with Ferrari World in Abu Dhabi.

Opened late last year by Fernando Alonso and Felipe Massa, the park has received some very mixed reviews. Formula Rossa is the world’s fastest rollercoaster, using a 20,800bhp winch to accelerate you to 60mph in less than two seconds and on to about 240km/h. But there are also rides the Ferrari faithful won’t like quite as much, such as Junior Grand Prix, in which kids can drive miniature electric F1 cars into each other at very low speeds, get stuck and cry.

The tifosi, Ferrari’s notoriously obsessive fans are perplexed. They desire Ferrari because it wins world championships and builds fast, sexy, unaffordable cars.

But for most of its history, other than doing what it did best, Ferrari did nothing to encourage that desire. It was aloof and inaccessible. Ferrari didn’t advertise, sponsor celebrities or attempt to persuade us to want it – until now. Mystique doesn’t work that way. So it’s not just Ferrari’s decision to build a theme park that tifosi find perplexing, but the absolute about-face in its attitude to access.

If Fiat has ordered Ferrari to open up to boost its value, it’s because of opportunism rather than desperation. For once, Fiat isn’t in trouble. Fiat Group Automobiles, which includes Fiat, Lancia and loss-making Alfa Romeo, makes about €600 million each year, mostly from its Brazilian operations.

But Fiat’s iconoclastic chief executive Sergio Marchionne is convinced the company needs to be truly global to survive. So he negotiated a keen deal to take a stake in Chrysler, left bankrupt as the downturn ravaged the American car market, in return for the small-car technology that Fiat does so brilliantly and that American buyers, recession-battered and newly frugal, badly want. Marchionne has the option to increase Fiat’s stake in Chrysler to 51 per cent, but he needs cash to do it.

Ferrari is the obvious source. Fiat Auto makes more than two million cars a year and is valued by Morgan Stanley at about €3 billion. Ferrari makes just 6,000 cars each year, but is worth €3.6 billion, because its sales and profits are growing, and its brand has what one analyst described as “magic dust”.

“Selling part of Ferrari to invest in bankrupt Chrysler doesn’t seem like a great trade, does it?” says Max Warburton, the respected automotive analyst with Sanford Bernstein. “But their view is that they’re buying Fiat a future. Fiat’s management has a very clear plan to take control of Chrysler and it needs a couple of billion dollars to go to 51 per cent. Other than selling Alfa Romeo, which it is also actively pursuing, a Ferrari IPO is the only logical way to raise money quickly.”

So how much of Ferrari’s business is now cars, and how much is mugs? Ferrari’s full-year results for 2010 are likely to show profits of more than €250 million on sales of about €1.8 billion. It has made some efficiencies in how it makes its road cars, and has had some forced upon it by the rule changes designed to make F1 more affordable for smaller teams.

But Ferrari won’t say how much of its business is in racing and selling cars, and how much is merchandising.

There are a few clues in the figures it chooses to release. In the third quarter of 2010, car sales were up 4 per cent but profits were up 46 per cent. It doesn’t state any absolute figures, but income from licensed, Ferrari-branded products was up 10 per cent, Ferrari Store revenues 30 per cent, and online sales of merchandise 55 per cent.

“We know exactly how much the other activities are worth, and it is significant,” said Ferrari managing director Amedeo Felisa when we asked him. “But if I told you how much it is, you’d be able to work out how much we make on the road cars, and how much the Formula 1 costs us. And then I’d lose my job, and I have a family.”

Warburton, a man known to have the ear of Marchionne, doesn’t know either. “They’ve never revealed how the income breaks down. Some people talk about Ferrari’s non-car activities being 30 per cent of its revenues, which seems on the high side, but it could be that this new theme park is a game-changer.”

But does it matter if Ferrari is selling more mugs and umbrellas to its fans, opening more stores, and even a theme park? Won’t the new Chinese billionaires and old-world Ferrari obsessives keep buying every car the firm makes?

“I have a gut feeling that it is an extremely risky thing to do,” says Warburton. “But they’re not daft, these people. They must have done their homework and realised that selling more merchandise won’t affect the price point of a 599.”

But what first made you want a Ferrari? Probably the sight or sound of one. Future Ferrari buyers are unlikely to say that their obsession with the brand began with being bought a cuddly camel in a Ferrari World outfit.