Sell? Grow? IPO? Marchionne ponders Ferrari's future

To prevent "contamination from mass brands," Sergio Marchionne rules out closer ties between Ferrari and Fiat Chrysler Automobiles as he prepares to take direct control of the independently run Italian sports car maker.

But what will the Fiat Chrysler CEO do with Ferrari -- a gloried brand with a gleaming image and double-digit profits -- when he replaces longtime chairman Luca di Montezemolo next month?

And what are the implications for Chrysler?

Marchionne no doubt has different ideas from the ousted Montezemolo, who prized Ferrari's exclusivity and guarded its independence for 23 years.

His options include:

• Sell Ferrari.

• Take Ferrari to the stock market in a separate listing.

• Blend Alfa Romeo, Maserati and Ferrari in a luxury group that could raise a boatload of cash in a stock listing, putting Chrysler in the driver's seat in the remaining Fiat-Chrysler combination.

• Allow Ferrari's sales to grow to 10,000 a year from the 7,000 cap imposed last year by Montezemolo.

• Simply let Ferrari be Ferrari. Though 90 percent owned, the virtually autonomous supercar maker accounts for 12 percent of FCA's operating profits on just 0.16 percent of its sales.

Marchionne says Ferrari could teach other brands a little something about luxury. He called it a "good school" to help Maserati and Alfa Romeo improve their lineup.

But might he split FCA into two groups: Fiat/Chrysler and an Italian luxury-brand equivalent of Ford's defunct Premier Auto Group -- and then taking the luxury unit to the market?

"Let us first see how Alfa will restart," said Marchionne when asked about it. "The first model [in FCA's new plan] will appear on June 24, 2015," a reference to the Giulia midsize sedan.

Analysts like the idea of a luxury-brand listing.

"The stock market is continuously searching for premium brands, which are not fully exploited from a geographic or product point of view," said Massimo Vecchio, auto analyst at Mediobanca Securities in Milan. "Ferrari/Maserati/Alfa would constitute an attractive portfolio of brands."

Marchionne's plans for the three brands call for nearly a half million sales by 2018 (400,000 Alfas, 75,000 Maseratis and almost 10,000 Ferraris), as well as double-digit operating margins.

Spinning off a luxury group would leave FCA as a North America-centered, mass-market group consisting of Chrysler Group and Fiat.

Chrysler would take the lead role in product planning and development because, except for a family of small cars based on the 500, the bulk of global volume would come from Chrysler, Dodge, Jeep and Ram.

Marchionne has split up business units before. Two years ago, he pulled the Case New Holland farm equipment and Iveco heavy truck businesses from the Fiat auto business, using a share split. As with that arrangement, FCA shareholders could conceivably receive a share in a new luxury entity for each FCA share they own.

The luxury entity could then seek a substantial capital infusion, probably between $3 billion and $5 billion, analysts say. With the fresh cash, Marchionne could fund the relaunch of Alfa Romeo and sustain the plan for Maserati to multiply its record sales of 15,400 units last year to 75,000 by 2018.

But there are complications. For example, Marchionne's plan to take FCA to 7 million units by 2018 comes with about $12.5 billion in net debt, which the CEO has described as "excessive."

Saddling low-margin FCA with a big chunk of the debt means the company could struggle to achieve even modest financial returns. But shifting most of the debt to the luxury unit could undermine its chances to take off.

And bankers who loaned billions of dollars to Fiat and Chrysler might oppose removing Ferrari from the assets guaranteeing their loans.

As for a separate listing of Ferrari, Marchionne said it is "not included but also not excluded" by FCA's current five-year plan, adding that a decision on a Ferrari IPO should come from the FCA board and not by him.

Marchionne even hinted last week that FCA could live without Ferrari.

"Do I think [Ferrari] is essential to the configuration of FCA forever? The answer is no, but they represent the best of what a carmaker can be."

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Luca Ciferri