The carmaker synonymous with Ian Fleming’s fictional superspy is in a tight spot. Just how bad does it look for Aston Martin?
It really wasn’t supposed to go this way. Following in the footsteps of Ferrari, in the wake of their highly successful floatation on the stock market, Aston Martin’s fortunes, while shining fleetingly, increasingly look like reverting to all too familiar type. But this time the stakes are much higher.
Ever the British second fiddle to the eternally gilded Maranello stallion, Aston’s Martin’s balance sheets can only be viewed as consistent insofar as they inevitably end up drowned in scarlet ink. Last year AML was floated on the stock exchange, its management attempting to reposition Aston Martin Lagonda alongside Ferrari as a luxury goods business as much as a high-end carmaker, but since then its market value has halved. Has Aston CEO, Andy Palmer’s bold gamble to follow the money markets backfired?
Certainly, confidence was running high in the run up to Aston Martin’s floatation last year, Palmer outlining to journalists the rationale behind his gambit, saying, “Richer people are getting richer and there are more of them, and the area which is growing quickest and represents their biggest spend is luxury and ultraluxury cars.” According to figures compiled by JATO Dynamics, sales of high-value automobiles over the period 2002 to 2017 increased by over 456%.
But in business as with most areas of endeavour, timing is everything, and it does appear that timing has not been on Mr. Palmer’s side. Indeed it’s difficult to envisage a more fearsome battalion of misfortunes, with deteriorating Global trade tensions, the very real prospect of a highly disruptive UK departure from the EU, and what some observers are suggesting are signs that the so-called ‘supercar boom’ is nearing its end.
Professor Karel Williams at Alliance Manchester Business School certainly seems to be of this mindset, telling the UK’s Telegraph newspaper recently, “The wholesale production of millionaires and billionaires since the financial crisis which has fuelled demand for these cars is ending. Every decade prior to 2008 has been cyclical but after the [financial] crisis the industry assumed things had changed… there would be continuous demand – now we are seeing signs that there aren’t the buyers.”
While this ought to send a chill down the spines of every high-margin specialist carmaking CEO, but for Aston Martin in particular who have invested heavily in new platforms and a bewilderingly wide range of new model lines, it could well prove their undoing.
In July AML reported to the stock market that UK sales had slumped 22% in the second quarter, with a 28% drop across the remainder of the EMEA region – an announcement which wiped almost a quarter off AML stock values. The sole bright spot has been the US, where sales have reportedly shot up over 80%, with the land of the free now Aston’s largest market.
How the remainder of the year pans out for AML will prove pivotal as to whether the situation in which the carmaker finds itself can be arrested. According to a recent Automotive News report, Aston Martin’s gross debt by the half-year point amounted to $1.05 billion, and by current reckoning it appears that Mr. Palmer has utterly exhausted his scope to borrow more.
This is particularly significant as AML struggles to start production of its DBX SUV model, to be built next spring in a brand new factory in St Athan, Wales. Automotive News reports that Aston has negotiated what is termed an insurance policy against the prospect of the carmaker depleting its cash reserves before the new car comes on stream. Many analysts are suggesting that the forthcoming crossover will need to be an unqualified Worldwide success for Aston Martin to emerge with its balance sheet, not to mention its credibility intact.
While unquestionably an illustrious and well-loved marque, AML has never exactly been a consistently profitable one. In 1972, David Brown, Aston’s perhaps most fondly remembered owner gave up the uneven struggle. His successors fared little better. It really wasn’t until Ford assumed partial control in 1987 (taking full possession in 1991) that Aston Martin’s fortunes stabilised, but this, like so many periods of relative calm would prove short-lived. So if nothing else, these current developments are cleaving to the marque narrative.
And on the subject of narrative, it could equally be argued that without the now indelible link to celluloid’s greatest fictional UK spook, the Aston Martin legend might well have faded out decades ago. Certainly, the Bond link hasn’t hurt, nor indeed has the Royal warrant it attained in 1982 from the Prince of Wales, himself a longstanding Aston Martin owner. And of course it is the marque’s association to the English aristocracy that has been a founding pillar of its snob appeal.
But no amount of high-profile product placement or establishment endorsement will save you if your business is in trouble, but if Aston Martin is indeed in peril, are they simply victims of circumstance or contributory negligence?
A case can be made around the question of execution, especially with the more recent range. Certainly, neither the current DB11, nor especially its smaller Vantage sibling are entirely convincing from a visual standpoint, either externally or from a cabin design perspective. There also now appears to be too many, ill-defined models, lending the suspicion that Palmer and Co have been spreading themselves thinly, or have simply co-opted the supercar handbook as written by their more successful rivals, without necessarily reading the small print.
Aston’s new DBX crossover arrives next year into a market which is still very much weighted in favour of the SUV. However, recent sales data has seen high-end models like Maserati’s Levante and Bentley’s Bentayga post notable sales reversals, leading some to suggest that there might be something of a shift against the largest and most profligate of the breed.
However, there may be more plausibility in reading this as a reaction to two underwhelming products from storied marques, neither car truly living up to their respective brand’s principle or promise. Either way, there appears to be little quantum of solace here for Andy Palmer – if anything it only further raises the stakes for the DBX, heralded by Aston Martin as being the first ‘beautiful’ SUV.
Where does this leave Aston Martin? It’s probably a little premature to speculate, but the challenges facing the British luxury carmaker are sobering. Some analysts have suggested Palmer should swallow his pride and take AML back into the private sector, since the exposure to the slings and arrows of investor expectations is proving highly damaging to both his and AML’s standing.
One thing is certain, for catastrophe to be averted, the DBX must succeed. But while matters might appear somewhat grim, one writes Aston Martin off at one’s peril. Because regardless of how matters play out, the brand is as much a survivor as the British superslueth himself. I wouldn’t be so certain about Mr. Palmer though.