When Ducati Corse announced that it had “partnered” with Mercedes-Benz’s in-house tuning brand AMG at the LA Auto Show, the deal raised a few eyebrows and sent shock waves across the keyboards of journalists as everyone asked themselves “what could this all mean?!” At the time it was obvious that the AMG brand would be featured on the Desmosedici GP11 race bikes of Nicky Hayden and Valentino Rossi, and that the sponsorship was just one of many that Ducati had secured, likely having something to do with a certain nine-time World Champion.
However the deal still stuck out as more than a straight advertisement transaction, with Ducati even saying that the relationship would be reciprocal, with the Bologna Brand helping hock a few Stuttgart Sleds in Mercedes-Benz’s ad campaigns. We got our first taste of how that cross-pollination of a partnership would look almost immediately after the announcement, with the two brands engaging in a sort of teaser video of what was to come further down the road (road…get it? ha!).
Then of course more recently we got another taste as the Ducati Superbike 848 EVO made a cameo appearance in a commercial that pitted it against a Mercedes-Benz C63 AMG Coupe. A lesser known fact to the public, but one readily apparent to journalists who attended the Ducati Diavel launch in Los Angeles, was that Mercedes-Benz has been supplying AMG-tuned vehicles to Ducati to use at press, media, and public events.
While it would seem that the two premium brands are exploring the limits of their marketing synergy, and how two wheels can compliment four wheels, and vice versa, reliable sources close to Asphalt & Rubber have revealed that the partnership goes deeper than just a joint-marketing campaign, and is in fact a part of an elaborate purchasing agreement that sees Mercedes-Benz acquiring Ducati Motor Holdings should certain criteria be met.
Starting at the beginning of this rather involved plot line is the fact that Mercedes-Benz is keen on taking-on BMW not only on four wheels, but also on two. Seeing the success of that other German car manufacturer, and its ability to successfully extend its brand from beyond just automobiles, and into the various other facets of transportation, Mercedes-Benz is not only trying to keep up with the Joneses with its interest in Ducati, but is also thinking of its bottom line profitability.
Mercedes of course has no history of motorcycles, and would have to virtually start from scratch on such an endeavor if it chose to do so; however the acquisition of a two-wheeled brand allows the German car maker not only to rapidly enter into the motorcycle industry, but also capitalize on an already established name, product line-up, and dealer network (three very valuable things when starting a premium motorcycle company). While the logic in this argument is sound, it’s really timing that’s the key element in making this idea actionable — enter the global recession.
Unless you’ve been hiding under a rock the past few years (and not reading Asphalt & Rubber daily like you should be), you already know about the slogging the motorcycle industry took in the recession, something the industry is still recovering from to this day. Despite posting encouraging numbers throughout the event, industry insiders were wary of the otherwise optimistic reports that Ducati was publishing on its sales figures. And while the Italian company fared better than many of its competitors, Ducati was rumored to be below its break-even point on an estimated 30,000 yearly units.
On the wrong end of the balance sheet, Ducati finds itself in a precarious position, as do many motorcycle manufacturers. While some companies are looking towards consolidation to help assure their future incomes (a vertical acquisition if you will), Ducati and Mercedes are seeing the value in having a corporation that spans more than one market (effectively a horizontal acquisition).
Presumably Ducati would benefit from having a pool of free cash that isn’t tied to just the motorcycle market, while Mercedes-Benz sees the advantage created by the two brands being able to catapult Ducati’s sales in good years to an estimated 60,000 yearly unit. For those doing the math, that’s 30,000 units of poor profit — pick your estimate average purchase price, and count the zeros.
If you’ll pardon the expression, it’s not clear when Mercedes will move its hand off Ducati’s ass, and finally make its move to consummate this relationship. Bu what is known is that its acquisition of the motorcycle brand would not only bring stability of capital to the Italian motorcycle maker, and grant the German company a way to keep BMW in its sights; but the acquisition could potentially have significant synergistic qualities that could create a situation where in fact 1+ 1 = 3.
This point brings us to the present, as Ducati and Mercedes take a low-risk assessment on how their customers and stake holders respond to seeing an Italian motorcycle standing next to a German car. With obviously loyal consumers and prestigous brands at stake, our sources say both companies are reluctant to play Russian roulette with their most valuable assets (part of the reason it’s AMG partnering with Ducati, and not the major MB marque), thus the subterfuge and slow-play to finish off the M&A. Also key to the deal is what sort of extra value, besides merely adding profits together, would create for Ducati and Mercedes if they more formally joined forces. Both of these are lofty questions, and are central to the deal.
While some are having a hard time seeing the two brands intertwined, there does seem to be a positive force between the two brands. Don’t be surprised to hear in the coming months that this domestic partnership starts looking move like a civil union.
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