Thursday, March 18, 2010

Ducati / Piaggio merger? The Scooter Maven speaks

So you've probably heard the rumors about a possible Ducati / Piaggio merger. As much as I love the idea I don't think it's going to happen. Two dealers called me today to talk about it and I had already been talking about it with my friends in the industry when I saw some posts online about it. It's something I've often thought about myself since having worked in retail, importation, and distribution I've thought of ways of making the industry more efficient. You can always daydream can't you? Beyond the daydream which cannot happen for legal reasons let's argue a couple of points as to why a merger wouldn't work and then I will make a suggestion as to what Ducati / Piaggio should do.

Here's my take on it and I have to say it's more a of personal opinion on these great brands. It's like one of those dreams where you let your mind get the best of you and you want to dream about the possibilities. Aprilia and Ducati living side by side. Cats and Dogs breeding making a Thundercat or something weird that your motorcycle mind cannot conceive. It's like the Malaguti Drakkon 50cc AM6 bike below, its a hybrid that gets a lot of attention. Just the mere idea has people talking.

We'll it won't happen.

Now don't get me wrong if it weren't for Vespa many of us would not be in the industry. I know I wouldn't because let's face it that's the brand that created the modern scooter in the eyes of the world. Still you can't live in the past so to me Aprilia was always the brand about innovation and Ducati was the iconic "Italy" brand. I would ride an Aprilia and it was like someone was designing the Italian version of the Akira bike. Ducati was more emotional for me like Moto Guzzi something about racing and the Italian lifestyle. Ducati by nature puts images of powerful engines, raw freedom, and lots of passion in your brain. Don't forget good food and excellent coffee and that's what Ducati does to me when I ride one. To see them under the same ownership would be pretty cool. A company with all these famous brands would put the "sexy" back into being a corporate motorcycle guy.

Ducati means something different to everyone, but to me it's the story of American guys trying to sell the finest in Italian bikes.

My personal experience with the brand is one of relationships in the industry and it leads me to think of how the Ducati and Piaggio culture in America are totally different. It took a lot of time and money to merge Aprilia to Piaggio. So to see these two companies merge would be interesting. You look at the Ducati history in America and it's always been about human stories. I cut my teeth with some of the Ducati North America sales people out in the field and learned some of my marketing skills from the guys at the company. One of the best marketing experts in this country is Jim Viola and when I say he showed me how to market scooters I mean it. He applied that to Ducati and during his tenure there we always talked of what the company could accomplish if it had a bigger range of vehicles. His advice helped me launch Malaguti Scooters and got us thousands in product placement, so I owe that older team a great deal. I have memories of people who knew Joe Berliner and the employees at Berliner Motor Corp. I've met Federico Minoli and Carlo Di Biaggio over the years and have the fondest respect for what they did with the brand in general. During their years they made Ducati the global brand it is today largely in part by focusing on marketing in the states.

Piaggio is now a worldwide manufacturer. Most of its profits come from Europe and now Asia. I've met both the CEO of Piaggio and their partners in China Zongshen. I can say I've seen this industry from the outside and inside and it would be an incredible undertaking to merge those two cultures and companies. Ducati and Piaggio are very different companies both in the US and in Italy. The cultures would clash in a way. Nothing money can't solve, but for it to work Ducati would have to remain a company on its own and that is difficult to do in the Piaggio Group. Look what happened to Derbi as a brand in America (It's off the market.)

So ideally it would make sense, but it would violate so many laws that these rumors online just don't make any sense.

I know first hand having asked Mr. Colamino two years ago why he didn't buy Malaguti ( who he supplies engines to and is the only other manufacturer of scooters left in Italy ) and he replied "Mo-no-po-lio" meaning even his friend Prime Minister Silvio Berlusconi wouldn't approve it. So he would go from making 50% of Italian motorcycles to probably a good 80% overnight having a stake from the basic engine all the way to the final product.

Just to give you an idea back in the early 80's there were over 80 companies making scooters in Italy. Today there are only two. See Piaggio Group purchased Aprilia so that leaves only Malaguti which is a small family business of 300 people compared to a global Giant like Piaggio Group. The last few famous companies Benelli, Garelli, Italjet, Cagiva, and Beta all got out of the scooter business in Italy for one reason or another in the early 2000-2004 period. If you see anything with a badge other than Vespa, Malaguti, or Piaggio it is likely made in China. All the new 2009 Garellis are made by Zongshen and other Chinese OEMs. Same for Italjet ( CF MOTO / QJ ) and Italjet ( CF MOTO )

Keep the brands seperate:
The Piaggio Group brand identity to me is about Global Production and being a leader in transportation. Ducati is about all things Italian and Racing. Piaggio would slowly try to have Ducati become a global OEM. My advice to Piaggio is to focus on strategic growth in those high volume areas, bring the quality back in the US, and make sure your partners in Asia keep the quality up.

Why do I bring this up? Because Piaggio Group is about the bottom line, where Ducati takes risks. Even the famous Aprilias 50cc models are made by Jincheng in China now. Piaggio is about global production with plants in Vietnam, China, and partnerships in Taiwan and Thailand. Ducati to me is about Bologna and world class racing, to grab that culture and start outsourcing things to make them more efficient might not work well for the brand. I think the fact that many of the Aprilia scooters are made in China has killed their sales in certain markets outside of Italy.

Having purchased Moto Guzzi and Aprilia they also control the motorcycle segment. Merging with Ducati would break what little laws are left in Italy. Not that Italy doesn't have Monopolies ( ask Silvio on how you control 90% of the media ) So on a personal note I wouldn't want to see a corporate Ducati. Everytime I have ever visited the factory I was treated well, they even let me borrow a motorcycle, and the company is about People. In the last 9 years I cannot keep track of the hundreds of people I have met at Piaggio or the employees that left Aprilia. So there is no human connection to me there. I could always walk up to Minoli or one of the Ducati guys at Laguna Seca and they would know who you are. Unless Piaggio kept that culture it would loose something not just in Italy, but in the US as well.

My other contention as to why this won't happen is the supply side. You would kill suppliers in Italy which has already been ravaged by the global markets in 2008 - 2009. First the commodity issues and now poor sales all over the world.

Both Ducati and Piaggio buy from many of the same small companies that depend on them for survival and if one or the other pays late it affects them. So imagine if you have three clients and two like to pay late and all of the sudden they merge you could go out of business. This is exactly what happened when Aprilia was about to close and the Italian industry had to accept the Piaggio takeover because if they didn't hundreds of small suppliers would have closed. So those little grip and handle makers found themselves with two big clients Ducati and Piaggio now imagine if those two merge? It would be even worse.

So if Piaggio purchased Ducati would they make new Ducati scooters? That would make even more sense because then you have your own competition for Aprilia scooters, you could cut costs, share sales reps in Italy etc... it would save millions in expenses. In any case it's not going to happen. I remember back in 2003-2004 when Texas Pacific Group was trying to have Ducati purchase Malaguti scooters and that didn't happen because of labor laws and regional issues. Let's forget Malaguti probably wanted a premium for the company since the market was still doing ok. So for a US firm to suggest this would happen just sounds like someone is trying to rally the stock market to raise the share prices like Harley is doing these days and nothing else.

The brand identity that Ducati present to me says " We are Italian 100%!" that would be compromised if merged with Piaggio Group. The same way they did with the Aprilia scooters and slowly the motorcycles. Outsourcing and changing things slowly changes the product itself. Yes, they are more efficient now, but can you say the brand is 100% Italian? Ducati has certain values and strategic manufacturing decisions whcih are consistent with its heritage that everyone can recognize. The logo, the product, the advertising campaigns, and the racing legacy are the foundation of the brand. To keep that you have to keep any scooters or new products made by Ducati made in Bologna. You can license all sorts of other things made in China like backpacks, but if you put a Ducati scooter in the market make sure its made in Italy.

Now Ducati needs scooters to compete. For years Ducati and it's sister company in Italy Malaguti have shared former employees, engineers, friends, suppliers, and they license the Ducati replicas to Malaguti. This makes sense because everyone in Italy starts on a scooter so you might as well sell them on the idea of a Ducati when they turn 15. It's terrible when you walk on to a race track and see dealers or riders with a Honda or Yamaha scooter that say Ducati so why not sell them an official replica. I think it would be sacrilege for Ducati to import Chinese scooters and call them Ducati replicas and thats probably what Piaggio would do. So my argument here is to keep them Italian with Malaguti.

Maybe I am a little biased here since I have a relationship with these two companies, but I also have an argument towards the brand identity being "MADE IN ITALY." It took me four years to convince the Malaguti family to put a sticker on it's bikes that said "Made in Italy" becuase they didn't understand the power that has outside of Italy. Can a new Piaggio scooter in the USA do that? Actually no, because it's a global brand and the new Piaggio is made in China.

My experience with the Ducati replicas is they sold well and made us a lot of money. These sold like hot cakes in America when we imported them between 2000 - 2005. In Japan Ducati sells them to its dealer base and I've always told Michael Lock the US CEO that he should consider it. The company is no stranger to mopeds or scooters having made some, but it would be easier for them to buy a smaller company down the street than to make it themselves.

Gas is about to go up again, it would only make sense for Ducati North America to have scooters, they missed the boat in 2007 so why not? It would make sense for the investors in Italy, it would bring value to the brand, and it would revamp Malaguti before it fades as a brand. The company cannot become a global player on its own and will be buried by the Asian OEMs unless it finds an Italian or Chinese partner. The family can work 24 / 7 and have the best people working for them and they still would not be able to change the global vehicle landscape. So instead of allowing a Benelli style Chinese takeover why not merge with Ducati before the brand looses its value?

Under new management and with new investment I would argue the safe thing for Ducati to do would be to acquire Malaguti. The company needs to expand its range and it could benefit from the worldwide Ducati network. It would expand Ducati's ability to produce and target the smaller 15-20 year olds in Italy. The company is 15 minutes away plus they all have the same Bolognese culture. So it would be a much easier integration. Bring over the world class management of Ducati and keep production of the scooters in Italy.

Could it happen? Why yes it could.

It would take an act of powers far beyond blogs and the Italian stock market. They basically would have to allow another monopoly in Italy. It would make a lot of people rich and Mr. Colamino will make a ton of money, but it won't happen. I do think Italy still needs more consolidation. I think it was a stupid move on HDs part to spend all that money buying an Italian company only to close Buell and to dump MV / Cagiva. There are still too many Italian brands out there and in the long run I don't think MV or Cagiva can make it on their own without partners. Same goes for Malaguti, the Asian players will swallow them ( just look at Italian scooter sales ) so it makes sense to all these brands to find a home with either Piaggio or Ducati before they get taken over and end up like Italjet, Benelli, or Garelli. Companies that just stick stickers on Asian made scooters.

I think it was pretty much covered by Guidos Powersports Blog today.
Check the link to see his report which is pretty accurate on the numbers. If you ever want a good report on whats happening make sure to check his blog.

Check out the link

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