Aston Martin must tie up with a bigger player to raise the funds needed to compete, according to an automotive expert, after the sports car firm posted rising losses.
Plummeting sales in continental Europe and a failure to truly break into the Far East saw the century-old Gaydon firm post a pre-tax loss of £27.1 million – compared to £4.3 million last year.
Post columnist and automotive expert David Bailey said the firm, which has been the subject of takeover talk in recent years, has suffered from under-investment.
He said the global market for high-end cars had strengthened – with Ferrari enjoying a record year last year – but the owners of James Bond’s favourite car were struggling to break through.
However, he said the recent announcement of a partnership with AMG, the high-performance arm of Mercedes-Benz, could be the start of that.
Prof Bailey, Aston Business School’s professor of industrial strategy, said: “Aston Martin has indicated that it intends to invest £500 million over the next four years. But in car industry terms that doesn’t go very far at all – JLR, for example, spent well over £400 million just getting the new Range Rover to market.
“So Aston Martin needs a tie-up with a bigger player to access technology and components and Mercedes offers just that opportunity. Hence the optimism at Gaydon. This tie-up is critical for the long-term success of Aston Martin.”
Accounts filed at Companies House show Aston Martin saw turnover slip to £428.4 million in 2012, down from £497.7 million the year before.
Global sales volume fell to 67,500 units, having reached a peak of 110,000 in 2007, when profits neared £50 million. The company, which is in its centenary year, chose not to pay a dividend to shareholders, despite paying out £30 million to investors a year earlier.
In its directors’ report, the company blamed the “market segment [which] has been severely affected by recession” and pinpointed “weakness in European markets and vehicle launches occurring in the fourth quarter”.
The UK took over as its biggest market, at £119.6 million, after a 29 per cent slump in sales to the rest of Europe, to £114.3 million.
Sales to North and South America fell from £99.6 million in 2011 to £82.9 million. Revenue from Asia, rose slightly, from £66 million to £68.1 million and there was growth in the Middle East, from £21.4 million to £33.3 million.
After months of takeover talk, the firm revealed London-based Investindustrial had agreed to invest £150 million in return for a 37.5 per cent stake last December.
That was followed by news of the tie-in with Mercedes AMG, which will see the two parties collaborate on new engine and component programmes.
Prof Bailey said the company has suffered from a heavy debt burden since being bought out from Ford.
Investment Dar, which bought a majority stake for about £500 million in 2007, financed the deal through a £200 million loan facility with WestLB bank, repaid in 2011.
It has since issued £300 million worth of ‘senior secured notes’ at 9.25 per cent repayable in 2018.
He said there was evidence elsewhere in the market that it was picking up: “The luxury sports car market may well be down, and especially so in Europe, but that isn’t the whole story. In contrast, Ferrari, for example, posted records results in 2012, with its best ever trading period in the company’s 66-year history.
“Ferrari’s turnover was up eight per cent and trading profits 18 per cent. The first quarter of 2013 was equally impressive.
“The point is that other luxury brands have done well while Aston Martin has struggled of late.”
Meanwhile, Aston Martin will end production of its small car, the Cygnet, at the end of the year.
When production began in 2011, Aston targeted annual sales of 4,000 Cygnets, but ended up selling fewer than 150.
Analysts said the £32,000 selling price was too much for a car based on a Toyota. Ian Fletcher, an automotive analyst at consultancy IHS, said: “The Cygnet was intended to catapult the brand into a new market but at roughly double the price of many competing cars in that segment, it was misjudged by Aston Martin.”
Aston Martin said that no jobs will be lost due to the demise of the Cygnet.
Read David Bailey's blog on the UK economy here