Aston Martin may need a real-life hero to save it
JAMES Bond’s favourite carmaker, Aston Martin Lagonda, recorded a £13 million loss for the last quarter, pointing to tough trading conditions in the UK and Europe along with disappointing sales of its Vantage two-seater sports car.
Less than a year ago, Aston floated with shares priced at £19, valuing the company at some £4.3 billion. Things soon turned sour.
Since October last year, the firm’s shares have nose-dived and now trade at around £4, valuing the firm at just over £900 million.
The firm’s Second Century Strategy Plan envisaged seven new models in seven years, starting with the DB11, followed by the Vantage, Vanquish and DBX, the latter being its first
SUV, revealed this week.
The two-seater Vantage costs from £120,000 and was the second model in the pipeline.
So far sales have been weaker than expected because the two-seater luxury sports car market is in decline.
The firm’s £13.5 million loss in the three months to September 30 compares with a profit of just over £3 million a year earlier.
Revenues fell 11 per cent to £250 million as wholesale volumes – cars sold to dealers – fell 16 per cent to around 500 cars. Retail sales were down six per cent.
Over the first nine months of 2019, Aston Martin has so far stacked up a loss of some £92 million compared with a profit of £24 million in the same period of 2018.
The company had to borrow
£120 million at an eye-watering interest rate of 12 per cent a few months ago, ostensibly to help fund DBX production.
In reality, most of the money went on paying off existing loans with just £30 million of new funds going into the firm.
The bond gave Aston the option to arise another $100 million if it takes 1,400 DBX orders.
The firm’s net debts have grown to £800 million from £560 million at the start of the year. Don’t be surprised if the firm has to raise extra cash.
In an effort to cut costs, Aston has cut R&D spending (never a good sign) by £45 million to £300 million – according to chief executive Andy Palmer by “doing things smarter”.
It is also cutting back on the use of casual workers at its Gaydon plant.
The flotation by Aston a year ago had anyway been criticised for costing £136 million which might have been better spent on developing new models.
That cost pushed the firm into a £68 million annual loss last year.
Mr Palmer recognised that Aston had hit several bumps in the road:
“We didn’t expect the downturn in the market, we didn’t expect the delay of Brexit….. We are working to the plan and DBX is a key part of that plan.”
Critical to the firm’s hopes of engineering a turnaround will be its new DBX SUV model.
Aston hopes to make up to 5,000 DBXs a year, priced at £158,000.
On a tour of its factory a couple of years ago, the guide told me Aston didn’t make SUVs as it wasn’t in the market for “tractors”.
That rather neglected the firm’s historical link to the entrepreneur David Brown (he once owned an eponymous tractor company) which can still be seen in the ‘DB’ name attached to models.
Palmer noted recently that the SUV market was growing globally and that more than 70 per cent of Aston Martin customers already had an SUV in their garage, hence were an “obvious target” for the new model.
The firm hopes the DBX will appeal more to women in countries such as China and the US and so help it diversify its customer base.
“Tough trading conditions, particularly in the UK and Europe, persist,” Palmer has stated.
“We prepared for Brexit all year and have £15 million of stock in our Brexit preparations.
“We continue to be ready for whatever Brexit throws at us.
“Our hope is that on the 12 December [after the general election] we’ll have a clearer view what Brexit will look like.”
The firm had previously said it was setting aside £30 million to prepare for a no-deal Brexit including £2 million for new supply chain routes.
The firm had hired a new supply chain chief and had stockpiled five days’ worth of components and pallets for carrying engines.
The next James Bond film is set to feature four Aston Martin models which the firm hopes will help with sales.
Aston’s high-end ‘specials’ operation continued to deliver a boost to results.
In the last quarter, it sold six DB4 Zagato Continuation cars at £6 million a go (sold as a pair along with new 2019 DBS Zagato).
In recent years, Aston has bought in engines and electrical systems from Mercedes-Benz through its AMG arm. The latter’s owner
Daimler has a five per cent stake in Aston.
The real issue is that developing genuinely new cars is now so expensive that even the luxury sports car brands have been snapped up by bigger players.
So, longer term, I can see Aston being acquired by Daimler in the way that BMW has acquired Roll-Royce and VW now owns Bentley, Lamborghini and Porsche.
I expect Aston to go the same way at some point.
Professor David Bailey works at the Birmingham Business School and is a senior fellow at the UK in a
Changing Europe programme
Developing genuinely new cars is now so expensive that even the luxury sports car brands have been snapped up by bigger players