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14 October 2015

Stock-market driver 

Ferrari, builder of some of the planet’s most coveted sports cars as well as the most successful motor-racing team in Formula 1 history, is revving its engines in the USA and is on the brink of an unprecedented step – becoming a public company through a US initial public offering that aims to raise up to $1 billion.

If the Fiat Chrysler subsidiary can convince investors that it is a ‘luxury’ brand, it will justify a value of as much as $10 billion – and become the first car manufacturer to join a luxury sector dominated by consumer goods companies.

At first sight, the label seems seem self-evident – what could be more luxurious than a Ferrari? But almost every other leading luxury brand is a consumer goods company, a list headed by Louis Vuitton, Hermès, Gucci, Chanel and Rolex, according to statistics provider Statista. None is a capital-intensive business like Ferrari.

The real question is why luxury brands are valuable. Is it because they command higher margins? Buyers are paying both for the item and the brand associations, whereas a conventional consumer goods company can only charge for the item itself. Because if goods are luxurious simply because they cost more to manufacture, the advantage may be lost.

In addition, the Volkswagen emissions controversy has come at an inconvenient time for Ferrari by demonstrating how quickly a car manufacturer’s reputation can be damaged or even destroyed.

The Italian marque is pulling out all the stops for an investor roadshow, beginning with a lunch in the rooftop ballroom of the St Regis Hotel off New York’s Fifth Avenue and concluding at the Dorchester Hotel on London’s Park Lane, long the hub of the UK’s high-end sector.

If the company founded by racing driver-turned-automobile entrepreneur Enzo Ferrari in 1947 succeeds in obtaining its $10 billion valuation, it will not only represent a financial success but demand a rethink of exactly what constitutes a luxury brand.