TRACING TROUBLED PATHS by John Crawford

ASTON MARTIN’S ROCKY ROAD

In 2000, when my friend Ulrich Bez (below) revealed he was going to become CEO of Aston Martin (then owned by Ford Motor), I wished him luck. My long experience in the luxury vehicle market told me that small, independent car makers constantly struggled to maintain viability, market share, revenues and, subsequently, profits.

By 2003 Ulrich Bez had driven the introduction of the Vantage coupe; a new Corporate headquarters and manufacturing facility at Gaydon; and launched the DB9, replacing the ten year old DB7.

Aston Martin DB9

At Pebble Beach in 2006, Dr. Bez told me of his plans to ‘buy’ the company from Ford’s Premier Automotive Group. Later it was revealed that the consortium backing Bez was led by Prodrive’s David Richards, plus Kuwaiti investment group INVESTMENT DAR (which would hold 50%); the balance taken up by Kuwait-based ADEEM INVESTMENT, and American banker JOHN SINDERS. The purchase price was USD$925 million.

However, just a few years on, and with the impact of the GFC, Investment Dar defaulted on a $100 million Sutuk (an Islamic investment bond), and had applied to the Kuwait government to change a specific piece of legislation to protect the company whilst it re-organized its finances.

Then Adeem Investments began selling its Aston Martin stock, along with other assets, in order for it to re-organize its funding and loan repayments.

In 2012 Italian private equity fund INVESTINDUSTRIAL acquired a 37.5% share, also investing $150 million in additional capital. It was also announced that Ulrich Bez would leave his post as CEO and become non-executive Chairman, and David Richards would play a larger role in the company’s plans, urging the Board to appoint Andy Palmer as CEO.

Between 2012 and 2014, Aston Martin suffered a large drop in sales - Palmer blaming the state of Aston Martin’s poor cash position on the fact that the DB9 had not sold as many cars as expected, having a dramatic effect on revenue and cash flow.

In 2014 Aston Martin suffered a pre-tax loss of USD$90 million, three times the loss in 2013, and sales declined to only 3500 cars. The company had to ask its investors for an additional USD$260 million to fund the development of new models. Pre-tax losses in 2016 increased by 27% to USD$211 million.

AMG V8 destined for Aston Martin

News of, and production of, new models boosted Aston Martin’s appeal and in 2017 the company sold in excess of 5000 cars posting a pre-tax profit of USD$113 million.

Back in 2014 Aston Martin had agreed a deal with Daimler AG, to acquire a 5% shareholding in the British Company, and also to supply AMG-produced engines to power the Vantage and DB11.

In 2018 sales plunged again, to 2296, and in the final three months it suffered a loss of USD$18 million. Revenues fell 11% to USD$325 million, and wholesale sales (to dealers) fell 17%, while retail sales fell 6% over the same period.

To better illustrate Aston Martin’s blood-curdling roller coaster ride, it racked up a USD$120 million loss over the first nine months of 2019, compared with a profit in the same period in 2018 of USD$31 million.

In addition new models literally flooded onto the market, such as the beautiful DB11 Superleggera and the Valkyrie - all of which soaked up millions in development funds.

Following its public float in October 2018, which valued the company at USD$5.6 billion, the company’s shares have plunged, and its valuation is now slightly over USD$1.5 billion.

It appears my cautionary warning to Ulrich Bez in 2000 was prescient, but it wasn’t a risky prediction.

This scenario set up the opportunity for Lawrence Stroll and his buddies to pony up enough dosh to take a controlling interest in Aston Martin. Stroll maintains that his motor industry experience, plus his skill at ‘revitalising and improving global brands’ is just what the carmaker needs.

We’ll see. Watch this space.

ASTON MARTIN FORMULA ONE – FROM ONE MONEY PIT TO ANOTHER

Okay, so Lawrence Stroll has announced to the staff at Racing Point F1 (nee Force India) that their jobs are safe, because in 2021, Racing Point F1 will become Aston Martin F1. No changes for this year, but with new livery and new owners, the formula one team is headed for success from next year. Oh yeah?

If independent carmakers represent a money pit for investors, let’s take a look at a Formula One team – say Racing Point, or Force India, or whatever….

In 2010 I was interviewing Vijay Mallya, then owner of the Force India team which he acquired in 2007 for USD$100 million. At the time I was impressed with the Indian billionaire, and his corporate empire, which he inherited from his father. I proffered that old saying “How do you make a small fortune in motor racing? Start with a big one.”

Mallya replied that his global empire generated such large revenues that this wouldn’t happen. History tells a different story, and nothing illustrates this better than tracing the chequered history of this team from its inception as Jordan F1.

Irishman Eddie Jordan’s eponymous F1 team debuted in 1991, but it finally went broke in 2005. It promised to be a success story, winning four Grands Prix, two of them in the 1999 season. Jordan F1 was bought by the Midland Group in 2006 for USD$60 million, but after a lacklustre year, it was sold to Dutch sportscar maker Spyker Cars for USD$106 million. That deal barely lasted a year.

One Team of Many Colours
From top left: Jordan; Midland; Spyker; Force India; Racing Point; Aston Martin 2021

In 2007 along comes Indian billionaire Mallya and businessman Michiel Mol, who paid Spyker USD$100 million. Force India won its first podium place in 2009 when Giancarlo Fisichella finished second at Spa.

In following years its number one driver, and major financial donor, Sergio Perez, scored podiums in 2014, 2015, 2016 and 2018. Since acquiring Mercedes-Benz engines, the team has improved year on year, but such improvement costs money.

Mallya became known for his lavish parties, and also spending big on facilities for the F1 team. Then came his undoing. His Kingfisher Airlines went bankrupt, then Kingfisher Beer sales flagged, then his liquor division (built from scratch by his father) began to lose money big time. As the cash cows ran dry, Mallya was forced into swapping money between divisions, to keep the wolf from the door, and the F1 team continuing to appear on the grid.

But, it was not only not enough, much of his double-dealing had caught the eye of the Indian financial regulators.

Diageo, the global drinks company, stepped in and bought Mallya’s United Brewing – and basically his father’s empire had been pissed away, on parties and formula one.

Then Mallya suffered troubles of a more personal nature. The Indian government issued a warrant for his arrest in 2017 on fraud charges. He holed up somewhere in Europe, but the next time he stepped onto English soil, in 2018, the UK government honoured the Indian government’s request for extradition and Mallya returned to his home country to face the music.

In his final remarks on Force India’s participation in formula one, Mallya said they had enjoyed ten good years, and steady improvement. Maybe so, but when there’s no money in the bottom of the barrel, you’re toast.

In 2018, enter Lawrence Stroll and his consortium of investors, which acquired all of Force India’s assets for USD$117 million, renaming it Racing Point F1, and Stroll’s son, Lance, swapped from the Williams F1 team to become number two driver to Sergio Perez.

If Sergio Perez takes his toys and leaves, this F1 team will struggle to make up the enormous sponsorship Perez brings with him from Mexico, simply adding to the financial pressure to keep the team on the grid.

Racing Point may well have a name and livery change to Aston Martin F1 in 2021, but the sportscar maker will not be injecting cash, just its image. Will that be enough?

John Crawford