Lamborghini's rise from its tractor origins to supercar is part of automotive legend. Founder Ferruccio's ambition was to improve upon Enzo Ferrari's creations, to produce useable, 'liveable' supercars that created a formula for sales success on the street, whilst on the track a mantra of only privateer team racing, so as not to undermine the purely commercial raison d'etre of the operation.
The disruption of the 1973 oil crisis to sales and consequential commercial 'de-railing' means that Ferrucio's ambition still being chased some 47 years later – though at last with increasing success.
Sportscar and (bull-badged) tractor operations were completely separated in 1972 entities, the latter sold to SAME [latterly Same Deutz-Fahr] to retain Italian ownership. The car company, in a very different sector to tractors, experienced the extremities of the economic cycle: the typical norm for what are capital intensive, yet high reward entities, only as long as company stewards can judge the economy and its correlated marketplace vagueries.
However, today in a manner 2010 revisits 1962 in as much as there is the requirement to 'stretch' the company's internal activities and capabilities, but this time instead of jumping sectors very much centred on expanding the automotive success story this decade.
[NB Lamborghini Holding SpA is the holding company of Automobili Lamborghini, and holds as seperate sister sub-divisions the previously linked elements of Lamborghini Merchandisng and Lamborghini (V12) Marine engines and portions of VW Italian retail interests.
VW Group parent and Sant'Agata executives are hoping to radically extend the capabilities of the Bolognese enterprise; essentially forced to do so in light of an increasingly competitive, able and high-profile peer set. This the case relative to both the traditional external foes such as Ferrari & Aston-Martin, 'resurgents' such as Maserati, McLaren & Lotus and relative newcomers such as Koenigsegg (now holding SAAB) and others, and indeed the ever increasing internal threat from internal brands within the VW empire such as Porsche, Bentley & Bugatti.
Lamborghini Cars, having seen success over the last decade with a renewed 2-tier product portfolio – Murcielago & Gallardo – is now considering its instrinsic future strategy beyond replacement and range extending vehicles – such as the 4 door Estoque. It is having to look beyond normative marketing practice that build-up its fan and client base via efforts such as typical merchandising (ie Collezione), a factory-linked museum, track-days (ie Lamborghini Academy) and brand convoy drive events (ie GiroLamborghini) which incorporates charity fund-raising, so adding a 'do-good' CSR dimension to such conspicuous consumption.
Now beyond the outward-looking Marketing platform which has created the success to date, is a renewed inward-looking stance, reviewing at a much deeper level the manner in which it must evolve within its own being to take charge of its own destiny. In doing so to progress onward from overt reliance on inward capital & technical flows from its VW-Audi parent to create the basis of self-sustainability.
Thus, assessing its own in-house, and probably globally networked 'capabilities-base'- something very necessary amidst (and in line with) similar ever-strengthening actions of its peers.
Set within the big picture of combative global sales, perhaps at the core is the battle between VW Group and FIAT Group, their respective sportscar divisions their corporate halos and so cultural leverage across the prime battlegrounds of Europe, the US and China. And thus for Lamborghini the eponymous 'creative friction' versus Ferrari.
Yet even with its 21st century success story, headwinds are amassing for Santa'Agata, its cars effectively aging versus a broader, more market-reactive and quickly refreshed Ferrari model portfolio. Ferrari's commercial balance comes from offering both mid-engined sportscars (F458) and front-engined GT cars (California, 599 GTB/GTO, 612 Scaglietti) in V12 and V8 guises. Importantly Ferrari has been able to gauge the market dynamic very well, the introduction of the cheaper, more versatile California reflecting the relative downsizing and economising of recent times for established and conquest clients.
The question of Lamborghini's future came back into focus recently, pricking investment minds when the FT's European View - hosted by Paul Betts – re-highlighted it relatively new research activities within Washington University. Since October 2009 its remit to develop general research knowledge across processes and applications that span and inter-feed automotive and aeronautical engineering realms which is envisaged to underpin the development of composite-centric future generation parts to supersede steel, aluminium and low-grade plastics in structural and surface applications.
[NB the Reventon concept car, with 20 production units, reflects this auto-aero ideology given its reportedly F-22A Raptor fighter jet inspiration].
This is a good indicator that the company seeks to unhook itself from overt reliance on VW Group R&D, so as to build an independent stock of technical weaponry which provides brand distinction in the marketplace and ideally cannot be replicated by external or internal competitors.
[NB see note* below as post-script]
However, although such mid-long term goals remain valid, it cannot be ignored that the prosaic context for the 'Lambo Lab' news, is one in which VW Group/Lamborghini gains access to Seattle-centric aero-derived knowledge, and as such enables UW-Lamborghini to access green-tech funding from the Obama administration; made available from the Energy Bill and other similar prompters. The cognitive inter-connectedness of Washington state and Washington DC is not lost in either Wolfsburg or Sant'Agata, and is very probably a Wolfsburg directive, possibly from Dr Piech himself recognising the ground gained by Marchionne at FIAT within the corridors of US power.
Moreover, even with the understandable lack of detail regards the R&D context and content – for confidentiality reasons – the 'Lambo Lab' will serve a secondary, if more 'surface' PR, goal. That is to provide the company with a greater level of gravitas within the US, something very necessary if it is to be seen as a credible, stable competitor, and thus sales alternative, versus the almighty Ferrari in North America.
Its own financial woes and the poor US performance of all the Italian brands (except Ferrari) during 1970s & 80s set Lamborghini back, for a time overtaken by the Japanese with cars such as Honda NSX, aswell as other British and US homegrown offerings, such as TVR and Calloway.
As stated, in Europe, Japan and Asia, the eventual comeback and sales success was thanks to Audi division's assisted development of Murciellego and Gallardo, the original remit to enhance product capability, reliability and improve procurement efficiencies via the use of Audi division's R&D, development methods including latest version release CAD platforms and the required German pedantry regards programme progression only when criteria 'gateways' have been properly satisfied.
In the same vein, the 4-dr Evoque concept is very probably well matured 'on paper' given a type of 'lend-lease' arrangement regards the Audi A8 platform and the improved mutual understanding between parallel German and Italian development teams. But it will obviously require resource which Piech et al may feel is better utilised elsewhere within VW Group.
Press reports and informal 'read between the lines' conversation with a Bentley representative indicates that the A8 platform will help spawn not only the debuted Mulsanne, but also a possible Bugatti saloon. The fourth natural derivative being the Lamborghini as Evoque, allowing VW Group to fight against AML's Rapide in a pincer movement with both Porsche Panamera and Lambo Evoque; the Lamborghini very probably sculpturally similar to the rear-heavy, mid-engined concept car, but ultimately packaged as front-engined as per Audi A8. However, much depends upon capital & labour resource spread between Sant'Agata - exploring the next generation mid-engine cars - and Ingolstadt
Whilst revenues and profitability over the last 8 years grew apace, in 2009 sales took a severe hit, down 50% YoY, a poorer result than the general market sector decline of 35%. Critically, Ferrari sales declined by only 5% thanks to a mix of new product introduction and improved Asian demand 'off-setting'. Hence Sant'Agata took a heavy comparative toll, though presumably expected given the point in both cars' lifecycles (8 & 6 years respectively), fewer Asian dealers, and so high elasticity of demand. As a result, commercially Ferrari has put greater space between itself and its notional rival.
Yet there would have been wranglings inside Audi-Lamborghini given that it appears that Lamborghini was prohibited from marketing a V8 Gallardo, so as not to inadvertently compete with Audi's own Gallardo derived V8 R8 car. Adding insult to injury, the R8 was latterly made available in V10 guise thus directly vied against Gallardo. So whilst Ingolstadt did indeed assist Sant'Agata, it has been seen to have done so with its own interests at heart.
The bigger question is whilst undoubtedly there are proven and potential synergies to be leveraged by VW Group's stablemate brands, just how they are managed to maintain relative distance is important. In this instance, Audi's growth strategy to chase BMW & Mercedes was rightly put before Lamborghini's requirement, yet the execution (especially regards V10) may have been rather
more sensitive, given the relatively little additional exposure and revenue R8 V10 would have brought.
Ultimately, internal and external expectation is that Lamborghini's cars have proven themselves enough to set firm foundations under the marque, the requirement now for deep appreciation of what needs to be done across the board both strategically and operationally to buoy as much as possible the former sales momentum. However, the natural sales and revenue decline of both cars indicates that the company should have since 2008 been seeking full spectrum cost efficiencies and leveraging any low cost external funding. The UW 'Lambo Lab' points to the latter, presumably something similar being mirrored in Italy also. But the issue of Sant'Agata's operational streamlining at fixed and variable cost levels will have been key over 2009/10.
Typically from an organisation undergoing such pressures little has been formerly announced, Lamborghini management being 'challenged' by the Audi division (with VW Board acquiescence) to show its in-house ingenuity relative to reduced formal assistance and in the face of declining revenues and margins until the Murcielago replacement (nominally code-named Jota) arrives in 2011.
The evolution of Lamborghini technical development for sub-structures can be seen between the 'body-on-steel frame' Murcielago and the (Audi derived) aluminium space-frame of Gallardo. The nomenclature 'Superleggara' has been applied to one Gallardo limited edition car which - whilst not conforming to the true original build method as invented by Carrozzeria Touring of Turin in 1937- does reflect Lamborghini's focus on improving the basic construction method using advanced metals and composites to enable cross the board vehicle performance improvements.
Today then is a time that combines both the need for step change yet partially constrained in execution by financial frustration. However the change is necessary given the increasingly out-dated legacy methods of Sant'Agata which effect not only the build-method and so efficacy of the vehicle dynamic, but also commercially critical, the innate efficiency of production and thus capacity and per unit cost.
The following impression of the in-house build process for the 2009 Murciellago LP670/4-SV is taken from a National Geographic documentary film, and as such cannot be considered truly meaningful appreciation, yet perhaps broad enough to provide useful observations regards the 'legacy' factory methods which Sant'Agata is endevouring to improve. Recognising the importance of the construction method relative to farming-out cost via larger bought-in sub-systems, the level of assembly difficulty, thus level of labour input and so degree of factory efficiency and indeed efficiency variability. Here Gallardo and presumably NG 'Jota' demonstrate the required step change from the old world Italian carrozzeria mentality to that of VW's more systematic approach.
The Murcielago assembly process consists of 14 stages, and delivers only 2.7 cars per day, so inadvertantly limiting Murcielago availability, yet ideally the process should be flexible enough to work with seasonal & annual demand fluctuation, as opposed to imposing a client wait time. This may be acceptable for the likes of Morgan Cars given its history and materials, and indeed almost a delight to highly status orientated Chinese clients that delight in the expectation (and associated extended pre-delivery bragging time, but whilst the ideology of under-supplying demand is by its very nature commercially sub-optimisation of capital and resources – the question is just by how much? Firms must always seek to balance the supply-demand flow marginally under par, so that both client expectation is raised yet not at the overt expense of commercial (and thus financing) optimisation.
The following conveys the broad impression:
Starting with the construction of a steel frame with secondary structural and non structural panels as its central body on frame' BIW (body-in-white) solution. This then creates a shell which for build-up purposes appears like a normative monocoque. Similarly the engine, gearbox and trim builds are done on site.
Without a paint-shop that factory built shell is transported 35 kms to Auto Carrozzeria Imperiale to undergo outsourced painting - a typical characteristoc of the old Piedmont and other regional local works network. Esentially a multi-phase surface treatment from initial bare-metal inspection to build-up of undercoat to new surface inspection and rub-down to undercoat rebuild to multi-phase repeat painting which dictates that only one man undertake the task to ensure quality. ( Apparently no 2 sprayers work in the same manner, and so the use of 2 or more painters supposedly results in a less even and lustrous finish). Lastly comes the polish routine, viewed as the 'silver bullet' finale. If understood properly, this process takes a total of 250 hours (31.25 days / 6.25 weeks) per shell. Obviously not are all 'man-hours' given that a portion of that time is for primer & paint curing, but compared to mass-manufacture, commercial auto-body sprayers and even other niche manufacturers, the time required appears extra-ordinary. Of course there is the 'quality' aspect, and the idea that the firm wants to highlight the time taken by the 'craftsman', but the lengthy process may in itself be causing additional inefficiencies as sprayers alter between work on differing shells of differing colours at different paint phase points, so possibly increasing the level of 'switch-over' downtime. (This could be seen in a similar vein to the press factory re-tooling which in the 1950s took a whole day, yet by the 1990s was reduced to 45 minutes thanks to Japanese lean production / sigma six methods). Simply to state that an innately lengthy process can generate additional inefficiencies. The adoption of certain advanced structure parts such as the carbon fibre floor and transmission tunnel on SV of course obviate paint coverage as lessen process time, but the innate process is one that is ripe for re-evaluation – assisted by Gallardo's latter day learning – given the future volume ambitions sought and relative improvement in throughput numbers.
This highly valuable shell (in terms of labour cost and fragility) is then rolled-out of the paint-shop for sub-assembly fitment in what is realistically an exposed condition, to be protected as necessary by work-over covers at each build station. Essentially the car is built in a 'outside-in' manner, instead of the ideal of 'inside-out' which logically layers the process and avoids the constant danger of damaging the exposed painted bodywork. Thus from the beginning this approach theoretically requires proportionately greater use of costly man-power given the need to thenceforth fit the multitude of cabin items (from dashboard to seats to carpets etc) through a small body-contorting aperture even with doors off (typically requiring a smaller framed person, thus female), the insertion of bulky powertrain mass into the rear aperture via a moveable (unstable) hoist/winch, and lastly inside what are termed the 'closures' the fixing of under-bonnet ancillaries, etc etc. Fitment of under-body components such as prop-shafts and front trans-axle is enabled with use of a 90 degree swing frame to roll the body over to provide the under-floor vertically to the fitter. This obviously improved ergonomic access, but the very task of securely fitting the car to the frame in the first place, rolling it over to vertical position, thereby exposing the body to the costly consequences of frame or fitment failure, fitting the components, rolling it back laterally and de-coupling the body is a time consuming process with ultimately inherent risk, no matter how well designed the process itself to mitigate that risk.
One, singular build-action appears to be telling of Lamborghini's quandary between appearing 'crafted' and delivering a repeatable faultless build process.
The fixing of the revered company badge on front closure (front bonnet) appears by typical industry quality standards as somewhat haphazard, open to process failure for even the relative 'craftsman' let alone any stand-in, less skilled substitute. In short, the process consists of the fitter drilling by eye a hole into the badge recess of the painted finished aluminium front cover (on the finished body) so as to provide a location point for the bolt/spur on the reverse of the Lamborghini badge, before gluing and bolting. The badges are locked away given their value, yet potentially the drill action is once again open to process failure if the hole is misaligned or drill-bit slips so scratching the painted recess or surrounding panel, thus incurring damage that would require costly repair/refurbishment, add to build time and possibly clog the through-put system. A better alternative practice would see the hole drilled whilst the cover was in an unprimed, unpainted condition so that the inner ring of the newly exposed raw-metal hole is primed and painted fully. This done using a template to ensure that any fitter - not necessarily the supposed 'craftsman' - could perform the task/ At the very least a template should be used 'as is'.
At the other end of the build process, as part of the quality validation procedure, the cars are taken on a 60 km road-test over local roads given the fact that the factory lacks its own test-track. Things are appreciably different at Ferrari SpA, and a world apart at group stablemate Porsche AG.
[NB investment-auto-motives believes that FIAT-Ferrari executives have intended the 'infiltration' of ex Ferrari management into Lotus to probably deny
VW-Lamborghini possible acquisition of, or alliance with Lotus, and so access to its more comprehensive R&D facilties, including a test-track].
Thus, seemingly today, Lamborghini executives allow a freedom for processes to be done in a lassaiz-faire (some would say “very Italian”) manner, which necessitates a level of fitter knowledge (as we see with the drilled badge point) which supposedly conveys a hand-built, craftsman ethos. This may be the case for some areas, but others as described clearly demonstrate that the crafted ability only derives from making the process harder and concomitantly 'mystifying' it. Ultimately the build method should be a combination of best practice from both mass-manufacture and crafted build to improve risk-avoidance and build-in quality. This mantra would have been a constant call from Audi and VW Group, with undoubtedly fitters begrudging the commoditisation of their stock-in-trade, but Lamborghini management must continue to rationalise the build process both through designed-in assembly ease at the engineering concept development stage and by questioning the factory's legacy methods.
2010 onwards appears to be a period of strategic and operational change at Lamborghini, a time when the core capabilities of the enterprise have to be reconsidered across the board from R&D to final assembly so as to strengthen the company both vertically throughout its in-house value-chain and laterally relative to its functionally relative business partners, such as the initiative in Washington state. All the old methods reviewed and improved so as to maintain philosophical and commercial 'track-pace' with its counterparts in Maranello, Stuttgart, Woking and elsewhere that are simultaneously strengthening their own strategic & operational selves.
This of course includes the brand's expansion plan across the ever growing, BRIC+ countries, part of this the issue over regaining licensing rights of the brand – for vehicle build and merchandising -
in Mexico, sold-off in 1995 to a third party with his own sportscar knowledge network, and probably implicitly agreeing the use of the already in-place production centre – with required upgrades - to assemble Sant'Agata specified cars so as to leverage the lower local cost base and NAFTA regulations for US market access with improved unit margins.
Another important element of the growth path will be the centralised control of used vehicles, given that credible sources estimate that 25% or so of all Ferrari's built to date are sold 'turned-over' annually, so making for a very profitable downstream official-dealer activity.
As Alitalia and Air France planes ready themselves for take-off through European skies after the chaos of the Icelandic volcano, utilising aero-influence – real or indeed otherwise perceived - Lamborghini seeks an increasingly independent and prosperous future. It may not be immediate given economic sluggishness and unspoken VW Group internal friction, but relative to the bigger VW vs FIAT battle, it still has seeming cause to be optimistic.
In time, with ongoing balanced self-determination, the world may be conquered , but as many in Sant'Agata recognise, the raging bull spirit dictates that “there is no place like home”. And as part of that innate culture, that is where the bull will stay, close to its roots. Yet it will also need to evolve and grow on all fronts, incorporating driven emotionality with pragmatic rationality to serve the founder's single-mindedness of purpose.
To regain its successful run over the last decade Lamborghini will need to be cognitively aware yet consciously oblivious to others people's (ie Ferrari's) 'red rag-top' cars who's accomplices and fans repeatedly shrill their horns. The race continues, 2010 and ever onward.
Post Script
[NB*. as a relevant aside, in 2006 investment-auto-motives in its 'Auto-Antenna' report previously called that Ford would be ideally suited to nurture such a cross-industrial and inter-academic R&D base. Given CEO Mulally's previous connections to Boeing, it was suggested that seat engineering be explored to provide single seating system solutions applied to both surface vehicle and air vehicles.
The basic hypothesis (to be remoulded as necessary), was that car and private light aircraft could share a similar structural solutions, whilst private passenger coaches and commercial airliners could share an alternative solution. As 'functionally intermediate', Bus and Train public seating could be simultaneously used as technology demand stimulator – giving additional scale economies -, with possible latter-day refurnishing incorporating any relative higher-cost electronic-systems integration once proven-out in car and plane use – thus viewing a 20 year plus time-horizon to harmonize the eco-tech solutions for private and public transportational seating. It is understood that part of Aston Martin's remit regards the cabin refurbishment of British Airway's fleet includes the far horizon, costly topic of seating.]
