On 18 April, the Supervisory Boards of Audi and Volkswagen approved Audi’s plan to acquire Ducati from Investindustrial, a private equity firm. The deal is to be completed as quickly as possible subject to approval by competition authorities – and it’s hard to imagine there being any competition issues. The purchase price was reported by Reuters to be around €860m (US$1.1bn).
Investindustrial bought a stake in Ducati in 2006. Under its ownership, Ducati’s revenue has increased by 37% to €480m in 2011 when earnings before interest, tax, depreciation and amortisation were €51m.
So we know what Audi is purchasing, and we know (roughly) when, but from a purely commercial perspective it remains a puzzle as to why.
Whatever Ducati’s undoubted merits, there is no commonality between its activities and Audi’s; nor will there be.
In its announcement, Audi said Ducati “…has great expertise in high-performance engines and lightweight construction, and is one of the world’s most profitable motorcycle manufacturers. That makes Ducati an excellent fit for Audi.”
This is a non-sequitur. Whatever Ducati’s undoubted merits, there is no commonality between its activities and Audi’s; nor will there be. Ducati’s high-performance engines are great – for motorcycles – but they won’t be appearing in Audi models any time soon.
Ducati doesn’t hold any unique insights into lightweight construction or engine technology which are applicable to cars – if there were lessons Audi’s engineers needed to learn, they could easily have bought a few of the motorcycles and performed tear-down analyses.
The idea that worthwhile synergies exist between different transportation sectors has, in the past, seen vehicle manufacturers diversify into sectors such as aerospace and rail. However, most companies have realised that synergies are, at best, extremely limited and, at worst, negative.
Thus, the past couple of decades have seen more and more OEMs abandoning diversification strategies to focus on their core competencies. Companies have not only abandoned the more esoteric sectors like aerospace, but have also chosen to focus solely on either car- or truck-manufacturing activities, having previously participated in both (e.g. Fiat, Mitsubishi, Renault, Scania and Volvo).
VW Group is the main exception to this trend. Having acquired control of both MAN and Scania, it is now targeting the opposite end of the road transport spectrum.
From Ducati’s perspective, the takeover is likely to be a positive development. Audi is a large, well-resourced global operator with a long-term approach.
BMW does not only provide an analogy. It also provides the key to the real motivation for Audi’s purchase: its desire to compete across the board with its closest rival.
From Audi’s perspective, Ducati is a minor concern which will make a trivial contribution to the division, let alone the whole VW Group. Ducati’s 2011 revenue equated to about 1% of Audi’s and 0.3% of VW Group’s. So Ducati is unlikely to affect Audi’s core business in to any significant extent.
Of course a broadly similar comment could be made about BMW‘s motorcycle division (2% of group revenue and 0.5% of pre-tax profit in 2011), though in BMW’s case there are good historical reasons for the motorcycle division’s existence.
BMW does not only provide an analogy. It also provides the key to the real motivation for Audi’s purchase: its desire to compete across the board with its closest rival.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
The AutomotiveWorld.com Expert Opinion column is open to automotive industry decision makers and influencers. If you would like to contribute an Expert Opinion piece, please contact editorial@automotiveworld.com
