By William Boston
SANT'AGATA BOLOGNESE, Italy--Italian super-sports car maker
Lamborghini is about to test the allegiance of drivers and fans
with radical changes to its product line and production
methods.
Automobili Lamborghini, which since 1998 has been owned by the
Audi unit of Volkswagen AG, currently makes just two sports cars:
the Aventador, starting at $404,195, and the Huracan, at $241,945.
With its next model, the iconic brand is attempting the delicate
maneuver of broadening its market while maintaining a cachet and
price tag few others in the industry can match.
Its new model will be a superluxury sport-utility vehicle.
Code-named "Urus" and slated for sale in 2018, it could potentially
double the company's annual output to more than 5,000 vehicles.
Lamborghini, which is famous for making limited-edition versions
that customers compete to own, recently broke ground on a factory
for the Urus and is preparing to hire 500 employees to build the
new SUV. But artisanal car-making is expensive in Italy, so for the
economics to work, management is tapping the Volkswagen group for
much of the vehicle's basic structure. That means it will be the
first Lamborghini that is substantially not Lamborghini.
"This will radically change Lamborghini," Chief Executive
Stephan Winkelmann said in an interview at the auto maker's
headquarters.
Mr. Winkelmann, a 50-year-old native of Berlin who grew up in
Rome and speaks English with an Italian accent, said a car giant
like Volkswagen, with its multitude of models, can easily add one
more design. But for Lamborghini, going from two models to three
poses big risks.
"This is a major effort and you have to have a rock-solid
business case and a clear idea of how to digest this," he said.
Part of that is managing customer reactions. Mr. Winkelmann
knows the shift could upset many Lamborghini lovers, who value the
car's exclusivity. Every single Lamborghini has been crafted by
hand amid postcard-beautiful fields of grain. They are still tested
on oak-lined country lanes in the area--sleek bursts of color
screaming past farm vehicles and unhurried locals.
To satisfy purists, the Urus will be built at the company's home
base near Bologna, where one-time tractor maker Ferruccio
Lamborghini in 1963 dramatically shifted products.
The changes attending the Urus follow years of gradual
acceleration for the business under Audi ownership. Since 1998,
Lamborghini has boosted production more than eightfold, to 2,530
cars last year. In the past five years it has more than doubled its
workforce, to roughly 1,200 employees, and recently completed a
EUR400 million ($437 million) factory in Sant'Agata
Lamborghini's customers traditionally were an elite club of
extremely wealthy men, mostly in Europe and the U.S. With the rise
of China and other emerging economies, the market for
ultra-high-end products ballooned.
Now, Lamborghini and rivals are betting that the wave of global
luxury consumers is about to merge with another global trend: the
shift away from sedans and hatchbacks to sport-utility
vehicles.
Global SUV sales across all segments totaled 12.3 million
vehicles last year, nearly double sales in 2010, according to JATO
Dynamics Ltd., an automotive researcher. Its analysts say the U.S.
and China now account for three of every four SUVs sold globally
and that world-wide growth in the segment remains solid except in
France, Russia and Turkey, which show signs of weakening.
Mr. Winkelmann and his bosses show confidence in the Urus partly
because Volkswagen group pioneered high-end SUVs, first with Audi
and then more extravagantly with Porsche, which is also owned by
Volkswagen. Now Volkswagen's Bentley unit in England is preparing
next year to roll out the first hyper-luxury SUV, the Bentyaga.
Bentley CEO Wolfgang Dürheimer understands skepticism about the
new concept because he faced it at Porsche in spearheading the
Cayenne SUV, which made its debut in 2002.
"When we proposed this at Porsche, no one thought it could be
done," he said in an interview. Mr. Durheimer expects Bentley will
repeat Porsche's success. "Our wealthy customers who want an SUV
for skiing trips to Aspen will buy a Bentley."
Porsche last year sold more than 100,000 of its Cayenne and
smaller Macan SUVs. Porsche and Audi share the premium SUV market
with BMW AG, Daimler AG's Mercedes-Benz, Jaguar Land Rover Ltd. and
car makers in the U.S. and Japan.
Prices for the overpowered vehicles haven't been announced. Mr.
Winkelmann said it is premature to set a price for the Urus but
expects it to be in the range of the Huracan.
While likely to be eye-popping, the lofty numbers mask a paradox
of luxury SUVs: They are generally less profitable for
manufacturers than their sibling top-end sedans and sports cars,
due to a mix of high production costs, low volumes and pricing
dynamics.
Producers of more mass-market models, including Porsche, offset
that by spreading costs across greater volumes.
But volume isn't an option for ultraluxury brands, which bank on
exclusivity. Lamborghini expects the Urus to double the company's
total vehicle sales. But that still means producing fewer than
3,000 SUVs annually. Bentley expects to sell about 4,000
Bentyagas.
Lamborghini aims to lower its costs by using the same automotive
platform on which Volkswagen group builds all its premium SUVs,
including the Bentyaga, Porsche's Cayenne, Audi's Q7 and planned Q8
and even Volkswagen's Touareq. The approach is part of Volkswagen
group's effort to leverage its modular manufacturing system to
achieve scale even with low-volume models.
Many Urus parts will be manufactured at Volkswagen and Audi
plants in Germany and Slovakia and shipped to Sant'Agata for
assembly.
Acknowledging the risk of diluting the brand, Mr. Winkelmann
said integration is the only way he could afford to build an SUV
and contends the Urus will still be uniquely Lamborghini.
"There is no surviving for a brand like ours if you don't
maintain the DNA, but this is only possible if you have a group
that allows you to make synergies and scale," he said. "Otherwise,
if you have to go it alone," he said, "you would have to go in big
volumes," which would cheapen the brand.
It took Mr. Winkelmann more than a year to win approval from
Audi and Volkswagen to build the SUV at Lamborghini headquarters.
Sant'Agata competed against bids from other Volkswagen group plants
that promised lower costs. Mr. Winkelmann won out with favorable
terms from Italian unions and subsidies from the Italian
government.
"Let's try to learn from Lamborghini," said Gian Luca Galletti,
Italy's environment minister, at the recent opening in Sant'Agata
of Lamborghini's new energy-efficient factory. "This shows that it
is possible to attract investment to Italy."
Mr. Winkelmann said Lamborghini is considering building its
first electric vehicle, a later plug-in version of the SUV.
Write to William Boston at william.boston@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires