THE MAN OF DUCATI TALKS

WELL, ACTUALLY HE BLOGS

Ducati is known as an “internet savvy” company. Their site is rich and interactive and Ducati saw the value of the Internet early in the commercial life of the web. In fact, Ducati uses the web to sell some of its limited edition motorcycles

The CEO of Ducati, Federico Minoli, has an on-line blog, Desmoblog, on the Ducati website. http://blog.ducati.com/. The general public, Italians, Europeans, Americans, and other planetary folk can post questions or replies on Mr. Minoli’s blog.

DUCATI AND ANOTHER ROUND OF FINANCING

Ducati just acquired an additional 80 million euros in a private offering. In support of this offering, Ducati senior management made the rounds of European banking capitals, London, Milan, Zurich, Geneva and Frankfort. (In the Desmoblog, Mr. Minoli shares some of the common questions and responses. The blog contents are reprinted below. The raise some interesting issues and the Author inserts a few comments.

After an unforgettable Sunday at the SBK race in Monza. I knew I was going to have too pay a high price for my enjoyment… and that is how it was: I had an incredibly long week travelling to Milan, London, Zurich, Geneva and Frankfurt presenting Ducati to all of the possible signatories for our 80 M Euro capital increase. It was a week spent talking about the future of Ducati with banks and analysts, investors and lawyers.

Looking for the positive light in the whole ordeal, it is interesting to take a close look at the opinions people have about Ducati when they are looking at us from the outside –and without the passion for the bikes or the brand.
Everyone – really everyone - was in agreement that Ducati has a great name: a symbol of technology, modernity and youth. Their main question was: how come, with a name like Ducati, you aren’t selling more motorcycles? The people with more knowledge about the company also asked: how come in recent years your income margin for motorcycle sales has gotten smaller? At this point, the bankers had all sorts of interpretations and suggestions for us. Here are some of the main ones and some of my responses:
- It costs too much to produce motorcycles in Italy – you al should make Ducati motorcycles in India. (No thanks – we really can’t imagine the “Reds of Bombay”)

- You spend too much on your technology. You should be more like Harley Davidson. (No thanks, have you all ever tried riding an Electraglide on the Mugello track?) [AUTHOR’S NOTE: Only Harley Davidson can succeed by making obsolescence a virtue. It is not a business model that is often repeatable.]

- You have too many different models. You should simplify the offer. (it’s true – we are working on it.)

- You sell more Monster 620s than 999s and this brings your margin down. (You are right – we will work to improve our top of the line bikes.)[AUTHOR’S NOTE: Tough issue. Ducati is an “aspirational” brand, and as such, must keep the first rung of the ladder pretty high. Still, the Monster is an amazingly successful motorcycle. If Ducati upscales the Monster and still loses Superbike sales, it will lose revenue. Keep the Monster 620 and maybe dump the Supersport? Ducatisti, what do you think?]

- You are growing too much in the United States and the decreasing value of the dollar is hard to digest. (True, very true.) [AUTHOR’S NOTE: Not much near-term help here, Stephen Roach, Chief Economist at Morgan Stanley sees another 15-20% decline in the dollar. http://www.investorsinsight.com/otb.aspx

- You buy brand name parts that are too expensive (Brembo, Showa, Ohlins, Termignoni) No one makes a product so rich with parts. [AUTHOR”S NOTE: And the stock parts still aren’t sufficient for many Ducatisti. They (and the Author) could buy two Ducatis for the component upgrades many owners make. This is an area where Ducati could take some lessons from Harley-Davidson. Harley Davidson dealers are very successful with the “drag”, the value and volume of HD factory upgrades they sell to HD buyers. Many Ducati owners go with non-OEM pieces.]

- You focus your expenses on racing and have huge bills to pay to keep up participation in the MotoGP. Superbike and AMA. (They are wrong – the total upkeep cost for Ducati Corse is 1-2% of our total turnover thanks to the support from our main sponsors.)

The questions got a bit more interesting – and the discussion a bit more lively – when we met with bankers that were also a Ducatisti (a total of around 6 in the 50 meetings we had over the course of the week). In these meetings, the questions and comments were mainly focused on the product, such as:

- The Multistrada is the best bike that I have ever ridden – but - why don’t you change the front?
- When the Hypermotard gets here, I want one.
- Why don’t you make a single cylinder entrance level motorcycle?
- Don’t even think about making the error to change the design of the Monster.
- I want a SportClassic – two seater.

And on and on. Luckily it is all over. The refinancing is guaranteed and we can now calmly look towards the future. And then there was the disappointment after Sunday’s race. Well – let’s hope for more in the week to come!

KENNY BOY, WHY DIDN’T Y’ALL SPEAK UP WHEN YOU HAD THE CHANCE?

Such interaction is welcome and refreshing. Can you imagine if in the late 1990s Ken Lay of Enron had gone online with investors, workers, and utility regulators and explained its operations, financial arrangements and business model?

Statements from corporate management must be viewed skeptically, but the observations of the European investment bankers and Mr. Minoli’s responses sound credible.

LISTEN WITH AN OPEN HEART, EVALUATE WITH AN OPEN MIND, AND SPEAK WITH AN OPEN SOUL IN THE DESERT OF THE REAL! IT’S EASIER, AND USUALLY AS PROFITABLE, AS LYING.