Q&A with Ducati’s CEO – September 4, 2006

SALT LAKE CITY, Utah — Federico Minoli, Ducati’s chairman and CEO, sat down with Powersports Business to talk about events of the past year, including the Italian company’s new owners and what steps the company will take to become more profitable in the coming years.
Powersports Business: In the dealer meeting, you made it clear to dealers just how important the United States is to Ducati.
Minoli: I think the United States right now is the second largest market for Ducati after Italy. While Italy is flat and most of the northern European countries are declining in terms of market, the U.S. is booming. We follow with a lot interest the shift toward sport motorcycles in the U.S. We see the cruiser market as kind of flat and the sport market is booming. And this is clearly the best environment for us to make a stand. So all our focus, attention and money is toward the U.S. right now. Of course, we will defend our positions elsewhere, but I think the return for the money invested is potentially much higher in this country.
PSB: From looking at blog.ducati.com, it’s very clear your “Desmoblog” has been well received.
Minoli: The blog started as a way for me to have fun. You know, you are in this business in a long time. Most of the people in this business make a decent living, but you don’t become rich with motorcycles. But you can have a lot of fun. So I thought the blog could add to my fun, and it does. I kind of underestimated the success. We have now about 250,000 people that read my entry and then I get answers that go from a few to 1,500 when we were talking about the races for the next season. It’s an interesting way for me to be in touch with other members of the Ducati community. We like to say that we’re using community marketing, meaning there is no real difference between the people that work at Ducati inside the plant to build and market Ducati and the people outside that are racing or riding Ducati. We are all Ducatista. We love what we do. We love the brand. They love what they do and they love the brand. So there is no reason to have a barrier. And what’s better than for anybody than to talk to me, the CEO of the company, and for me to talk to them? So it’s a great tool to foster the sense of being a family or a community.
PSB: Can you talk about the different bidders that tried to purchase Ducati before Italian private equity firm Investindustrial Holdings purchased it in December 2005?
Minoli: When they (previous controlling owners Texas Pacific Group) opened the door to potential buyers, we got some buyers that we did not particularly like. The more aggressive bidders were Chinese and Indians. Those are very respectable, very powerful firms that wanted to use as a bridge to bring their product to Europe and eventually to the U.S. Their thinking was not correct, because we’re not the right way for them to bring their product here. I thought it was a danger to the brand, to the identity of Ducati, to what we’ve built from 1996 and before to now. So I managed to convince TPG to sell at a much lower price to another group of investors that were, one, buying the brand and buying our dream. And second, they were willing to put money into the company rather than in TPG’s pockets. So TPG accepted a lower price than the Indians or Chinese were offering in exchange for the guarantee that the people they were selling to would put money into the company, which is what happened. So TPG did us a great last favor by putting the company into a much more solid financial standing. Now our debt is basically negligible and our equity is much higher than it was before.
PSB: With the change in ownership behind you, what can you look forward to now?
Minoli: We need to look at the market, and the market has changed significantly. The bar has been raised quite a lot by Japanese manufacturing. And we need to be in the forefront of this. In order to do that, we have to make choices. We have to go more for the margin and less for the volume in a way. We cannot follow the Japanese in the low-displacement product. So a 600 sport bike is not a market where we can successfully compete. Our cost base is much higher than the Japanese and we would have to demand a premium that is too high. But I think in the 1000 displacement and up, we have a lot to say. We have a lot of character to bring to the table. We have an innovative and unique technical solution to bring to the table that is derived from our experience in GP. And I think we will be a player in that type of market. At some point, we thought we could do a 60,000 to 70,000 unit volume. I think now we are more looking at 40,000, maybe 45,000 with higher displacement and higher margin motorcycles.
PSB: Will outsourcing to Far Eastern companies play a factor in rising profit margins?
Minoli: The profit margin will come from two sources: one is focusing on higher margin motorcycles and second, implementing a global sourcing network. We have been very late at doing that. Right now, 75 percent of our componentry comes from Italy and only 25 percent comes from equally high-cost countries, like Japan. And we go there for quality reasons. When we cannot find adequate quality in Europe, we go to Japan. I think there is the opportunity to transfer, of this 75 percent in Italy, at least 25 percent to low-cost countries. We will never do that for components that qualify the bike. The brakes will remain Brembo, the wheels will remain Marchesini and we’ll keep Ohlins and you name it. But cables, plastics, the front lights, stuff like that could be outsourced to the Orient with dramatic savings that exceed 50 percent.