Automobili Lamborghini S.p.A.

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Automobili Lamborghini S.p.A.

via Modena
12-40010 Sant’Agata
Bologna
Italy
011 051 956171

Wholly Owned Subsidiary of MedTech, Ltd.
Founded: 1963M
Employees: 415
SICs: 5012 Automobiles & Other Motor Vehicles

Automobili Lamborghini S.p.A. is one of the world’s most renowned manufacturers of high-performance sports cars; owning a Lamborghini Countach, of which only 1,997 were produced over a period of 25 years, is a dream of every sports car aficionado. The company has fallen on hard times since the mid-1970s, but its recent acquisition by Medtech, Ltd., a conglomerate based in Indonesia, has provided the company with both the financial stability and management acumen to regain its place among the most successful international sports car manufacturers.

The founder of Automobili Lamborghini, Ferruccio Lamborghini, was born in 1916 in the village of Renazzo, near Bologna. As a boy he was fascinated by the mechanics of revolutionary machines such as the automobile and airplane. As soon as he could, he went to Bologna, and he completed studies in mechanics just before the start of World War II. During the war he worked as a supervisor of the Italian Army’s vehicle maintenance unit in Rodi, Greece.

Lamborghini’s experience in the motor pool prepared him to assume the role of entrepreneur when he returned to Italy after the war. He immediately purchased old military vehicles and collected abandoned German tanks in order to reconfigure them and produce tractors, equipment that was essential for Italy to rebuild itself after the destruction caused by the war. The young businessman was so successful with this enterprise that he purchased a large factory and workshop in Centro during the early part of 1948.

During the 1950s, Lamborghini focused on his tractor business. Sales expanded rapidly, not only in Italy, but soon in other war-ravaged European countries. As revenues increased, he traveled to the United States to acquire technology for the manufacture of heating systems, air conditioners, and automobile parts. During the late 1950s, one of the company’s most innovative products was an air-cooled automobile engine. The company’s financial stability provided Lamborghini with the opportunity to pursue one of his life-long ambitions: the manufacture of helicopters. Unfortunately, the Italian government refused to grant him a license.

A well-circulated tale describes the genesis of Lamborghini’s sports car company during the early 1960s: As he grew more interested in automobiles, Lamborghini purchased a Ferrari, one of the most prestigious, high-performance sports car in the world. One day, while taking a pleasure drive, he noticed a sound in the front of his car and discovered a faulty part. He drove the car to Modena, the headquarters of Ferrari, and asked them to repair or replace the faulty part. He was kept waiting for such a long time that he finally demanded to see Enzo Ferrari, the founder. Ferrari, already a great man in the international race car circuit, also kept Lamborghini waiting. Angry and frustrated with the way he had been treated, Lamborghini decided to establish his own high-performance sports car company.

Situated in Sant’Agata, near Bologna, the Lamborghini car factory began operations in 1963. Lamborghini hired a brilliant automotive engineer by the name of Paolo Stanzani and asked him to establish one of the most technologically advanced car-making facilities in the world. The first Lamborghini sports car was delivered in 1964 and created a sensation in automotive circles. The 350 GT, an aerodynamic sports car with a four-cam VI2, five-speed transmission, four-wheel disk brakes, and four-wheel independent suspension, was soon competing for customers that had previously purchased such high-performance cars as Porsche and Jaguar. Especially gratifying to Lamborghini was the fact that his cars were as well received by automobile critics as Enzo Ferrari’s.

In 1966 the company produced the 400 GT, while at the same time building its own transmissions. During the same year, Lamborghini S.p.A. produced the Miura P400, which created a buzz in the crowd during the Geneva Motorshow due to its compact 3929 cc transverse VI2 powertrain and bare chassis. In 1968 the Islero 400 GT was introduced, featuring a luxury interior, four-wheel independent suspension, disc brakes, and an all-aluminum quad cam V12 engine. Also in 1968, Lamborghini produced the Espada, a four-seater engineered with a one-piece, solid steel body. Within a short time, the Espada became one of the most popular of all the Lamborghini models, and sales of the model remained brisk for years. The company was now known around the world for its sleek, low-slung sports cars, and sold models to celebrities including Grace Kelly and Frank Sinatra, who ordered a custom-made Lamborghini and requested that the interior decoration include genuine leopard skin.

From 1970 to 1972 the company was at the height of its success. A new version of the Miura P400, the Miura P400 SV, was introduced and featured a completely redesigned suspension system and leather interior. Another new prototype, the Countach LP500, had its debut at the Geneva Motor Show in 1971. The design included a handmade aluminum body, aerodynamic contours for high-speed performance, and a dramatic new “wedge” look. In 1972 the company introduced the Ur-raco P250 at the Turin Motor Show, and later introduced the Jarama 400GTS. With a unique hood scoop, five bolt wheels, and significantly increased horse power, the Jarama was the last Lamborghini sports car to exhibit a front engine. With such new and exciting models, the company seemed destined for even greater financial rewards and international recognition.

Unfortunately, the year 1973 was a turning point for the company. Automobili Lamborghini was hit hard by the oil embargo and by the crisis created by the worldwide recession. The market for high-speed, gas-guzzling sports cars suddenly dried up, and the firm was confronted with rapidly decreasing sales. Disappointed, Ferruccio Lamborghini decided to sell his shares of the company and retire to a 740-acre estate on Lake Trasi-meno. Lamborghini Automobili was controlled by the government for a short time, then suffered the indignity of compulsory liquidation.

Yet, due to the determination of the remaining employees, the company continued to manufacture sport cars. In 1974 the Countach LP400 went into production with a 3.9 liter V12 engine and a tubular chassis. In 1975 the Urraco 300 was manufactured and, one year later, the Silhouette was introduced at the Geneva Motor Show. In 1977, in an attempt to revive the company’s profitability, production of off-road vehicles for the military was initiated. However, the design of the prototype vehicle was altered when management discovered that the general public was more interested in purchasing the models than was the military.

Despite the seemingly fast-paced production schedule, the companay’s fate remained uncertain throughout the decade. In 1980 the Bologna Court sold the firm to the Mimram brothers, young and famous entrepreneurs in the food industry who had a passion for sleek sports cars. They immediately started a comprehensive restructuring program, including the infusion of large amounts of capital to rehabilitate the dilapidated manufacturing facilities in Sant’Agata, and then initiated a worldwide search for highly qualified automotive engineers and designers.

Results from the investment made by the Mimram brothers began to pay off immediately. In 1982 the Countach LP500S was introduced with a new 5-liter, 375-horsepower engine. A brand new model, the Jalpa, was also introduced during the same year. The Jalpa, a two seater, included a 5-speed transmission and a new transverse-mounted V8 engine. In 1985 the Countach underwent its third major redesign and was renamed the LP500S QV. Unfortunately, the rapid production pace did not generate increased income, and the Mimram brothers soon realize that the amount required for capital expenditure was beyond the financial means of individual investors such as themselves. Looking for an experienced and financially stable and partner, they met with representatives of Chrysler Corporation.

Chrysler Corporation was attractive to Lamborghini due to the company’s committed management, its ability to introduce new models in a relatively short time and, of course, the mystique of the Lamborghini sports car. Chrysler paid approximately $25 million for Automobili Lamborghini and took control of the company in April 1987. Chrysler management immediately poured $50 million worth of capital into the Italian automobile manufacturer, primarily to increase production and to expand into the United States.

Under Chrysler management, the most popular and successful of all Lamborghini models, the Countach, went out of production after 25 years. The Countach was replaced by the Diablo, the fastest car in the world made on a production line (202 m.p.h.), at a base price of $239,000. In 1990 sales of the car were so brisk that Lamborghini showed a profit of $15,000. During this same time, Chrysler established an American branch to sell Lamborghini’s new models. Chrysler developed Lamborghini’s U.S. network from a disorganized and loosely connected jumble of private distributors into a highly efficient franchise with support services such as maintenance and service agreements and spare parts distribution. Under Chrysler’s direction, Lamborghini also began to manufacture marine engines for the off-shore racing circuit. In addition, a new factory was opened in Modena, Italy, called Lamborghini Engineering, to design and produce Formula One racing cars. For its diligence, Chrysler saw Lamborghini production rise to 673 cars in 1991, and profits increase to $1.32 million.

For all Chrysler’s efforts, however, its success with Lamborghini was brief. By 1992 production had dropped to 166 cars, and the company lost nearly $19.3 million. Sales had dropped precipitously, in spite of an expanding franchise network in the United States. Americans just weren’t buying the $239,000 Diablo, so plans were initiated to develop an exotic car with a price of $100,000, a range more accessible to American sports car enthusiasts. Yet development of the car lagged, and Chrysler became more and more frustrated with the difficulties involving Lamborghini production methods. Total production for the company amounted to just 215 cars in 1993, a figure that did not satisfy the executives at Chrysler who were used to high-volume car production. As a result, Chrysler began to look for an investor to take Automobili Lamborghini off its hands.

In late 1993, Chrysler reached an agreement with MedTech, Ltd., to sell Lamborghini for approximately $40 million. MedTech Ltd. was a holding company registered in Bermuda and wholly owned by SEDTCO Pty., a large Indonesian conglomerate. SEDTCO, headed by Setiawan Djody and Tommy Suharto, the son of the premier of Indonesia, had extensive worldwide holdings in mining, manufacturing, and shipping. The agreement included the sale of Automobili Lamborghini in Sant’Agata, Lamborghini Engineering, the manufacturer of Formula 1 race cars, and Lamborghini USA. Djody owned a 35 percent stake in Vector Automotive Corporation, a manufacturer of sports cars with an average sticker price of $450,000, and he thought Vector and Lamborghini might collaborate on the design and marketing of new models for the high-performance sports car market.

With Djody acting as chairman, the new owners hired Michael J. Kimberly as president and managing director of the company. Kimberly had worked with Jaguar and Lotus and finally as executive vice-president of General Motors in Malaysia before he was hired for the position at Lamborghini. Kimberly began a comprehensive analysis of the entire Lamborghini operation. He concluded that the company needed more than just one or two models to sell, and he began to make plans for the development of Lamborghini cars at a price accessible to the American ment of Lamborghini cars at a price accessible to the American car enthusiast. At the same time, he implemented a marketing strategy to raise awareness of the attractiveness and mystique the Lamborghini sports car.

By the beginning of 1995, sales of Lamborghini models had jumped 14 percent in the United States and 34 percent worldwide. With an assured flow of investment capital from Med-Tech, and guided by management with extensive experience in the high-performance sports car market, Automobili Lamborghini was poised for success it has not seen for 25 years.