Why do people keep buying Ferraris?
Pose this question to a random person, and you’re likely to get the clichéd, “Because they have small [expletive deleted]s.”
I’d say that given the percentage of professional football and basketball players who buy these cars the moment their signing bonus checks clear, that presumption is mostly myth.
The simpler reason people buy Ferraris — more now than ever before, despite ever-increasing prices — is that they can.
The Ferrari, like the 10,000-square-foot mansion, the 12-carat engagement ring, and the 80-foot cigarette boat, is just one of those things that a certain percentage of wealthy individuals buy as an afterthought the moment they can afford one.
It’s status of the highest order.
Yes, a nice, new Mercedes or Porsche might get you a few looks while driving slowly down Main Street on a Saturday night, but the Ferrari, since its inception, has been the benchmark of automotive exclusivity.
There simply is no car brand around today that projects wealth and prestige in the same way… and I’m not just saying that because I have a fanboy-esque crush on the manufacturer and just about everything it’s produced in its 70-year history.
I’m saying that because a Ferrari has consistently been the most expensive car in the world.
The current record for the most expensive car ever to sell at auction belongs to the legendary 1962 Ferrari 250 GTO, which sold at Monterey last year for $38,115,000.
And of the last 10 record-holders in this most rarified of markets, the Ferrari brand occupies eight spots.
Antiques, these cars are rolling Van Goghs or Monets — usually existing only in singular numbers per car model.
For billionaires, no price is too much to pay to own one, at least for a while — until the next big buyer comes around and makes it worthwhile to part ways.
Mass-Producing Art… But Only Just
However, when it comes to Ferrari’s stock, which IPO’d yesterday under the appropriate symbol RACE, the antique market isn’t as important as current and future model sales.
And in the age of high-powered Teslas, what exactly is the future of Ferrari and similar super-exotic, super-exclusive, super-impractical cars with house-sized price tags?
The answer is good. And it hardly takes a financial analyst to understand why.
Ferraris belong to a category of commodity known as Veblen goods.
The most distinguishing characteristic of a Veblen good is that its demand is proportionate to its high price, not inversely proportionate, as the usual law of supply and demand dictates.
Few brands known the world over can claim the same level of Veblen effect as the legendary prancing horse.
Even during the recession, the wait time for a brand-new Ferrari — from order to delivery — was more than two years.
The well-heeled and impatient would then have the option of paying more for a lightly used car built to somebody else’s specifications — and taking delivery as one usually would, that day, from a dealer that had one in stock.
If you wanted a model that was new for that year, however, you’d be out of luck… But Ferrari’s best customers, the ones who drive the brand and business model forward, are those who order new models before they are even announced, years ahead of time, to be the first on the block to get one — parking it next to the previous model.
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Growing in Price; Growing in Popularity
Today, Ferrari is bigger than ever, offering a wider range of models than ever.
They’re also more expensive than ever.
Back in 1981, Ferrari’s base model 308 — the one made famous by Magnum, P.I. and Tom Selleck’s mustache — retailed for $51,000.
Today’s base model, the California, starts at $200,000.
Adjusted for inflation, the California is still 53% more expensive.
What’s even more telling is that the California isn’t even its bestselling model. That honor goes to lighter, faster, more ridiculous 458 Italia, which starts at $239,000.
A couple carbon-fiber engine components, carbon-fiber sill covers, and those essential carbon-ceramic brakes will run you about $40,000 more.
And still, the backlog runs in the years.
Tesla’s backlog only runs a few months.
But car companies need to innovate to survive, right?
Tradition + Technology = Market Transcendence
Yes, even if you’re making very limited numbers of very expensive cars for a very narrow segment of the market, you still need to keep up.
Ferrari, however, is more than the builder of overpriced automobiles. It’s also the world’s most successful Formula 1 racing team.
Ironically, the cars most people associate with the Ferrari name — the road cars — were only a side project for company patriarch Enzo Ferrari.
He built road cars reluctantly to finance his racing team. The synergy of race and road-oriented performance, however, has paid off.
Today, Ferraris are among the most advanced cars ever made, with great effort going into making the cars the best-performing but also among the most reliable and comfortable of all luxury brands.
Ferrari was the first carmaker to integrate the Formula 1-style shifting paddles into its street-legal machines.
Today, the vast majority of Ferraris rolling off the Maranello assembly have this feature, forsaking the traditional but functionally inferior stick shift.
Ferrari’s most expensive production model ever, the LaFerrari, came with a KERS (kinetic energy return) system, which allowed the car to tap into the energy released during braking — also borrowed from F1 technology.
The resulting hybrid system boasted 950 horsepower and zero-to-60 acceleration times of just over 2.5 seconds… on a car weighing less than a Honda Civic.
That model, by the way, which is now going for about $2 million, was sold out long before it went into production — all 499 units.
The Rich Get Richer… And They’d Better, for All Our Sakes
The economy may sputter; it may even recede… so long as there are people out there capable of affording these machines, they will continue to sell.
So when, if ever, can this company and this stock fail its investors?
Well, that’s a day none of us want to see — because if it comes, I can guarantee that the rest of your portfolio would have suffered first, and worse.
As much as people like to complain about the excesses of the ultra-rich, the moment those excesses stop will mark economic Armageddon for the rest of us.
The company’s stock priced its initial public offering at $52 a share after market close on Tuesday, with sources saying the demand for shares was “well oversubscribed.”
The price is at the top of the previously indicated range of $48 to $52 per share.
When the stock opened for the first time Wednesday morning, trading began at $60 — 15% above IPO.
Fortune favors the bold,
Alex Koyfman
Check us out on YouTube!His flagship service, Microcap Insider, provides market-beating insights into some of the fastest moving, highest profit-potential companies available for public trading on the U.S. and Canadian exchanges. With more than 5 years of track record to back it up, Microcap Insider is the choice for the growth-minded investor. Alex contributes his thoughts and insights regularly to Energy and Capital. To learn more about Alex, click here.
