Aston Martin has just celebrated both its 100th birthday, and more to the point some much-needed good news on sales. During 2013, the maker of James Bond’s car of choice sold around 4200 cars, up around 11 per cent on 2012.
. Profits were up by 22 per cent at £85 million.
The boost was especially good news as the firm had been losing market share in recent years. It posted a pre-tax loss of almost £25 million for 2012 with sales down by nine per cent to £460 million.
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Part of Aston Martin’s struggle has been down to the fact that the firm was loaded with debt after it was sold off by Ford. The cost of servicing this debt in turn impacted on new model development.
The underpinnings of its current range of cars date back to the VH platform from the early 2000s and some pretty dated Ford technology. They may have looked cool but the Aston Martins of late needed more than just a style make-over. Put simply, Aston Martin had fallen behind rivals.
But things picked up in 2013, with the boost to sales and profits coming on the back of new models like the Vanquish, expansion into ‘MINT’ countries like Mexico and Thailand, as well as its ‘Q by Aston Martin’ service, whereby Aston buyers can personalise their cars.
The good news is that the profits, along with investment by its owners Investindustrial and Investment Dar, and the recent £100 million bond issue reported by the Birmingham Post, should finance what is for Aston a significant investment programme.
That investment will at last cover the development of a new platform to replace its venerable VH platform and which will underpin the firm’s next range of models.
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It will also cover the purchasing of engines and electrical systems from Mercedes-Benz’s through its AMG arm.
However, there is as yet no confirmation of any platform sharing deal between the two even though this possibility was flagged up by the Post recently. Indeed, it has been reported that discussions have taken place to give Aston Martin access to the next-generation Mercedes GL platform. This would enable Aston Martin to get a new SUV to market more quickly and much more cheaply than by going it alone.
The Merc GL will have a facelift next year, ahead of a completely new model being launched in 2018. If Aston Martin could craft an SUV off the same platform (as Porsche does with VW), it would save Aston huge amounts in developments costs and speed up getting the car to market. It might just make the investment programme go much further.
That could come on the back of the current engine deal which may see a new Aston SUV use a smaller, more fuel-efficient V8 Mercedes-Benz AMG rather than Aston’s powerful V12. A Merc V8 could easily be adapted for an Aston SUV and used in a GL platform with an Aston body.
Beyond the SUV, Aston could also use the ‘modular sports car architecture’ (MSA) that Mercedes will use to underpin the next generation SL and SLK models which will appear in 2019 and 2020.
Meanwhile, Standard & Poor’s, the credit rating agency, has downgraded Aston Martin. It has lowered its rating on the car maker’s debt to B from B+ and handed a ‘junk’ CCC+ rating to Aston Martin’s recent financing package.
S&P expressed concern about the capital expenditure needed to roll out the new models and also said that it believes Aston Martin is in the early stages of negative free cash flow, which will consume its available liquidity within two years.
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S&P also stated that the recall of 17,000 cars earlier this year over a defective accelerator could “undermine the company’s reputation and brand”.
I wouldn’t read too much into S&P’s downgrade. S&P is playing catch up given recent concerns over the state of the firm’s finances, and the downgrade reflects in large part the fact that the firm will have to undertake major investment in new models.
As far brand damage, S&P seem to ignore the fact that recalls are common in the industry. As long as the recall is handled well, there should not be lasting brand damage.
The real issue is that developing genuinely new cars is now so expensive that even the luxury sports car brands have been snapped up by bigger players. £100 million – or even £500m – doesn’t buy you very much in car industry terms: JLR spent over £440 million on the new Range Rover for example.
So longer term, I can see Aston being acquired by Daimler in the way that BMW has acquired Roll-Royce and VW now owns Bentley, Lamborghini and Porsche. I expect Aston to go the same way at some point.
Meanwhile, Investindustrial, appear keen to keep their stake in Aston for the next decade, so as to give them enough time to build up the brand and then sell their stake for a profit. It took control of the Italian motorbike firm Ducati in 2005 before selling it to Audi (via Lamborghini) in 2012, so has experience of selling on to the right owner.