When Ferrari first announced that they were going public back on October 29th, 2014, there seemed to be a bit of backlash throughout comment sections on various websites. Many were claiming that going public would be the kiss of death for Ferrari. However, I found these claims and fears to be misguided, maybe the commentors were just being reactionary, or maybe they truly didn’t understand how this process works.

For me, it provided a sense of entertainment, I enjoyed reading these comments, many of which were comical. Some said that Ferrari would be the next Lamborghini because they will end up being owned by the Germans. Their quality will go down the shitter to appease Wall Street executives. Their current profits won’t be enough and they will have to find ways to cut costs (parts from China), which totally makes sense because Ferrari is already a highly profitable company.

The list goes on, but it became clear that people A) didn’t read the articles in full or B) They didn’t understand what offering up 10 percent of ownership really meant.

B) is why I am writing this, to clear the air, but more importantly, explain what it really means.

As it stands, the FCA or Fiat Chrysler Automobiles, currently owns 90 percent of Ferrari S.p.A, and Piero Ferrari owns the remaining 10 percent.  It is the FCA that will be offering up 10 percent of ownership, which will leave the ownership breakdown as such:

FCA: 80% Piero Ferrari: 10% IPO: 10%

What does this mean?

Well it’s quite simple actually. FCA still remains the majority owner, and we have no idea what voting rights Piero Ferrari maintains. I’d venture to guess that he has quite a bit of say in voting though. For instance, Google has private Class B shares that have 10 to 1 voting rights, which means holders of those shares get 10 votes per 1 share.

Big time Wall Street investors don’t want a measly 10% because that means they won’t have the power to change things. When I say change things, I mean, force Ferrari to find ways to increase profit margin. Increasing profit margin could be done a couple different ways.

First, Ferrari could increase the price of their cars, which just makes already expensive cars even more expensive. In turn, it could negatively impact sales, erasing the gains from increasing their profit margin. Second, Ferrari could find ways to lower their cost on parts. The problem with this is that cheaper parts is going to likely mean cheaper quality. Now, Ferrari’s are already expensive to maintain and when people hear the name Ferrari they think of high quality. Lowering the quality would not be in the best interest for the brand, but it would help increase profit margins. Again, there is a trade off. If you keep selling garbage that breaks down constantly eventually the press and negative attention will hurt sales numbers.

The issue with the two reason stated above is linked back to ownership. If either of those options were ever voted on they would likely be shot down by the majority owners. It’s simple, 10% of the vote cannot overrule 80% of the controlling vote. There would have to be a major shift in thought process by the majority holders for anything to get done.

Are there other things that Ferrari could to to make more money?

Sure, but they’re already in a great position as a company. You’re talking about a car company that is one, if not the most iconic brand in automotive history.

Now, I’ve been asked if I would buy into Ferrari when they go public. I’m not going to lie, I would, but it would be more of a novelty holding more than an investment, but that’s besides the point.

My goal in writing this was to clear the air. No, going public will NOT be the death of Ferrari, nor should it really change the company structure. The purpose of the IPO is to generate money for research and development, which if done correctly, may help increase profitability in the future without hindering the brand.

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