What next for Aston Martin?
Aston Martin has a glorious history. Since David Brown took the reins in 1947, the firm produced highly desirable vehicles and boasted an even more desirable list of celebrity clients including Stirling Moss, James Bond and Michael Caine.
Sean Connery’s exploits in the simple, yet elegant DB5 in 1964’s Goldfinger secured Aston’s berth in 007’s garage for generations. In 2002, Bond fans were treated to the return of the evocative British brand, after Bond’s brief betrayal to BMW. With backing from parent company, Ford, Aston’s gorgeous new Vanquish diced with the drop top XKR of sister brand Jaguar, in ‘Die Another Day’. Little did the general public know that these two cars shared more than initially met the eye. If you flocked to buy a Ford Focus of the time, you played a part in funding this important revival of modern-day Aston Martin.
For all the grandeur that has followed Aston over the years, the firm’s financial fortunes have been turbulent, to say the least. To date, the firm has gone bust on seven occasions. In January 2020, the firm’s fortunes took another turn. Whether for better or worse, remains to be seen. One thing that can be established is that Lawrence Stroll’s consortium has bought the Gaydon based firm precious time.
The first domino fell for Aston Martin’s latest financial calamity back on the 8th of October 2018. On this day the company offered shares to investors, having listed on the London Stock Exchange. As with many IPOs in famous brands, initial response was positive amongst the general public. However, ‘The City’ smelt blood. Many analysts believed the stock to be grossly overpriced at £17 per share.
Whenever I meet those who work in the investment business, I find them either utterly fascinating or unbearably arrogant. However, if you look at the watch on their wrist, the car they drive or the house they live in, it becomes clear that they must rarely be wrong about such matters. Why else would a client trust them with their hard-earned money?
Of course, those investing in stocks can make money from share value rising but also from it falling. Also, known as a ‘short sell’. Short sellers, if successful, can sink the fortunes of a public company. Aston Martin fell victim to the lion’s den that is the public stock exchange.
Completely unconvinced by Aston Martin’s ambitious plans and alarmingly high leverage, the financial industry castrated the British firm’s stock value. In 2019, traders ‘shorting’ Aston Martin stock saw the value of shares drop by 70%, making a fortune in the process.
Compare this with Ferrari, who offered shares to the public in October 2015. Initially investors could buy in between $48-52 per share. In February 2020, the shares hit $177 each. Unsurprisingly, ‘The City’ were correct in their predictions. However, with the benefit of hindsight, what went wrong?
Firstly, studying Aston’s wholesale volumes reveals a possible red flag. In 2018, Aston Martin sales volumes jumped by 57% compared to 2016. 2016 remains a milestone year for record car sales of the century so far. Timing of this leap is curious, coinciding with the company going public in October 2018. Clearly keen to impress potential investors, sales had to be strong.
However, in a post-mortem of the current financial disaster for the company, Aston stated that 2019 “started with elevated levels of dealer inventory”. After a tough 2019 and unsuccessful launch of the overpriced Vantage coupe, Aston issued a profits warning in January.
Gambling on the new DBX SUV has certainly been too little, too late. With 1800 orders in hand, it doesn’t appear to be the saviour Aston needs. In 2019, Porsche sold 92000 units of its Cayenne SUV.
Couple this with £120m additional borrowing at an overbearing 12% interest, pessimism for the historic British brand’s future, was rife. Aston’s profits warning on 7th January 2020, was issued just weeks before luxury British motorcycle manufacturer, Norton, crashed into administration amid scandal regarding pensions and unpaid suppliers. Not a good news day for Boris Johnson’s bullish Brexit brigadiers, as the UK abandons EU membership.
With shares languishing at a quarter of their initial valuation (£4.30 at 18.2.20) and an “immediate” need to “improve liquidity and reduce leverage”, Aston and its investors needed a lifeline. Enter Lawrence Stroll and his “consortium”.
Canadian tycoon, Lawrence Stroll, made his fortune predominately in the fashion industry. Arguably his greatest boast being the successful IPO of Michael Kors, which continues to operate successfully as a public company. A sequence of shrewd decisions and hard work has led him to a significant fortune.
However, Stroll has a weakness. Cars. A renowned Ferrari collector and owner of Quebec’s Ferrari dealership are two examples of his automotive indulgences. However, his greatest motoring indulgence, is supporting his son Lance’s racing career.
No one can criticise Lawrence Stroll for supporting his son’s ambition. If you wouldn’t do the same, given the same financial might, you’re lying. For young Lance, a podium finisher in Formula 1, he must constantly fend off the typical ‘rich Daddy’ green envy from the racing paddock who refuse to admit that racing does require some financial backing from somewhere. If you can feel sorry for a billionaire’s son, this is your chance.
History proves that investing in a Formula 1 team or Aston Martin tend to result in a raid on the owner’s finances. Such is their hunger for cash. However, the world’s most successful entrepreneurs like Dietrich Mateschitz continue to pour money into F1. Do they do this for financial gain? Of course not. Entering a sport like Formula 1, as an entrepreneur, can only be driven by uncontrollable passion.
For the Strolls, their participation is fuelled by a Father’s vice and unwavering support of a son’s ambition.
In Lance Stroll’s early F1 seasons with William’s F1 team, Father Lawrence and a network of backers raised colossal funding to secure a full-time berth in F1 for Lance. However, clearly with a longer-term view in mind, Lawrence Stroll has diverted this funding. In a much a higher stakes version of a “pay your own mortgage rather than someone else’s” scenario, Stroll bought the Force India F1 team. Subsequently, the team was renamed Racing Point. Unsurprisingly, Mr L.Stroll esq. immediately joined the team.
With a relatively cost efficient Formula 1 team under his control and finance flowing in from title sponsor, BWT water, most would expect Lawrence Stroll to relax. His beloved son Lance now set up for the future in F1, should he wish. However, Lawrence Stroll doesn’t strike me as someone to rest on his laurels. With Aston Martin in the doldrums, the opportunity to acquire a significant stake in this heritage rich brand on the cheap presented itself.
Stroll’s consortium will initially invest £182m into Aston Martin, an amount which would have barely secured 5% of the company 14 months ago. Crucially, as a condition of the investment, Lawrence Stroll secures the vital executive chairman’s board seat. Thus, able to direct the company’s activities how he sees fit. This, is where F1 comes in for Aston Martin.
Currently, despite “severe pressure on liquidity”, Aston Martin continues to engage in a title sponsorship of the Red Bull Formula 1 team. At the end of 2020, this agreement will conclude and from 2021, Stroll’s Racing Point team will become the Aston Martin works team.
Aston Martin has announced that its new Formula 1 plans with Racing Point will involve spending “commensurate with its current Formula 1 expenditure.” Does this suggest that Aston Martin are currently paying enough to Red Bull to run an entire F1 outfit? Quite possibly.
However, a manufacturer works team is a far cry from a simple title sponsor arrangement. With a title sponsor agreement, the sponsor has deniability and less connection to the team’s results. They write a mammoth cheque for some stickers on the car and lavish their guests as the F1 circus travels around the world. Simple. However, for a manufacturer works team like Ferrari, Renault or Mercedes, results trace right back to the road car brand.
Therefore, if a car manufacturer enters Formula 1 as a works team, enormous finance is required to avoid humiliation. According to their report to the London stock exchange, Aston Martin needs to reduce its cost base, quickly. A works F1 team isn’t conducive to that objective. But, with Lawrence Stroll at the helm, the Canadian billionaire’s personal interests may be satisfied ahead of the long-term benefit of the business. In short, Aston Martin will be dragged into the dogfight of Formula 1, whether this is in greater interest of the companies future, or not.
So, where does all this leave Aston Martin’s successful works sports car racing division? In the premier GT class in global sports car racing, Aston’s rumbling Vantage GTE enjoyed wins at the Le Mans 24 hours and in the World Endurance Championship too.
At Le Mans in 2019, Aston Martin confirmed their commitment to, the new ‘Hypercar’ regulations. Tipped to be the most extreme road car ever built, Aston announced it would enter it’s Valkryie hypercar to the world’s most famous race. At the time of writing, it is rumoured that this promise will be unfulfilled.
Interestingly, Aston Martin have confirmed that despite the impending conclusion of the title sponsorship of Red Bull F1 team, they will continue their partnership with Red Bull Advanced Technologies. However, this will only stay in place until the revolutionary Valkryie Hypercar is delivered.
Given that Aston Martin Valkryie customers will have placed significantly chunky deposits, which the company cannot afford to have withdrawn, it is imperative this project is delivered promptly.
One must be concerned regarding the future of Aston Martin’s future involvement in sports car racing. Given the decline of the GTE/GTLM factory GT classes, little business case remains for Aston Martin to continue with their Vantage GTE apart from keeping up appearances at Le Mans.
However, what does make business case, is customer-based motor racing. With the much-loved previous generation Vantage, Aston sold 37 GT3 and 124 GT4 specification vehicles. Despite both GT3 and GT4 categories only hitting their stride in the latter stages of the Vantage’s life cycle.
Therefore, if the status quo is maintained, Aston Martin look set to enjoy even stronger demand for the new Vantage GT3 and GT4 race cars. Consider that the new specification Vantage road car has flopped in the show rooms due to overpricing, questionable design and most un-British underpinnings. Yes, the new Great British Aston Martin, has a Mercedes engine, electrics and interior framework. For those who buy into the Aston Martin brand values, this is a turn off.
Therefore, strong sales of higher margin Vantage race cars to the growing customer racing market, will help to prop up the Vantage in its current guise. Will investment in marketing through involvement in Formula 1, rather than sports car racing, present greater value to the business? Time will tell.
Lawrence Stroll’s personal interests in Formula 1 have undoubtedly led him to invest in an iconic brand notorious for its turbulent financial past. However, this changing of the guard could have drastic consequences on the firm’s successful sports car racing division. With cost saving high on the agenda but Formula 1 participation higher still, this leaves sports car racing at Aston Martin in a vulnerable position. We must hope that Lawrence Stroll’s four wheeled passion extends to the Mulsanne Straight and the vicious bumps of Sebring. Aston Martin would be missed far more there than on the F1 grid.
If Stroll and his consortium can recover from the company’s ailing fortunes, then maybe such an indulgence as an assault for honours at the 24 Hours of Le Mans may be granted. However, we may have to wait a little longer.