UVA-S-DRAFT For internal use only - July 2017

Aston Martin – The Crossover Conundrum

In crisis periods, such as the one we survived in 2008 and 2009, first and foremost you need strong leadership and judgement. -Ulrich Bez, CEO & Chairman, Aston Martin

In March 2009, Ulrich Bez, CEO of legendary British carmaker Aston Martin Lagonda Limited (Aston Martin), found himself grappling with some tough news he received from Switzerland. The company had just debuted a novel car concept, its first crossover1 model under its rarely used historic “Lagonda” brand, at the Geneva Motor Show, but the negative press criticizing the four-wheel drive, four-seater car’s design and concept were troubling and unexpected for Bez. One popular industry blog went so far as to mock the model car’s visual identity:

“These first images of the Lagonda caused a collective sigh from [us] here in Geneva, perhaps largely because it takes the form of a crossover – something we weren't really expecting (and something we don't typically associate with either Lagonda or Aston)… Aston wanted an outlet to expand beyond sports car and GTs2…and the Lagonda's designers took that mandate and ran with it – some might say into a bluff-faced wall.”3

Before the Motor Show’s reveal, Bez was highly optimistic about the future of the crossover model. In fact, he was projecting “a strong presence in 100 territories, vastly increasing the global brand reach of the company and extending to new customers”4 in Russia, the Middle East, South America, India and China, while

1 A crossover, or CUV, is a vehicle that combines features of both a Sport Utility Vehicle (SUV) with a passenger vehicle. 2 A GT, or grand tourer, is an automobile in the style of a coupe, usually with two seats but occasionally four, designed for comfort and high speed. 3 Damon Lavrinc, “Geneva 2009: Aston Martin Revives Lagonda to Questionable Effect,” Autoblog, March 4, 2009, http://www.autoblog.com/2009/03/04/geneva-2009-aston-martin-revives-lagonda-to-questionable-affect/ (accessed Jun.20, 2017). 4 Aston Martin (2009). “Lagonda: Revival of a Luxury Brand” [Press Release]. Retrieved from: https://www.astonmartin.com/en/archived-content/media-centre/press-releases/2009/03/25/lagonda-revival-of-a- luxury-brand.

This field-based case was prepared by Jenny Craddock, Senior Case Writer, under the supervision of Professors L.J. Bourgeois, Yiorgos Allayannis, Morela Hernandez and Luca Cian, with contributions from Dr. Ulrich Bez. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2016 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Page 2 UVA-S-Draft

also catering to customers in Europe and North America. He even went so far as to describe the Lagonda crossover as the “the car of the future.”5 In the backlash of the negative press, however, those lofty visions suddenly felt unrealistic.

This was not the first time Bez found himself facing a critical decision for the boutique carmaker since he assumed the role of CEO in 2000, but the stakes for this decision felt particularly high. Not only were the automotive press and Aston Martin’s competitors around the world eagerly awaiting the company’s next move, but Bez would also have to convince the company’s shareholders that the crossover was worth a projected investment of approximately £339 million, £220 of which was needed before a single sale could take place. Was it strategic to push forward with Bez’s visions for the industry’s first luxury crossover vehicle or time to cut his losses and pull the plug altogether?

Aston Martin – A History6

Aston Martin’s roots trace back to 1913, when engineer Robert Bamford and entrepreneur Lionel Martin founded a business then called Bamford and Martin Limited in the exclusive London neighborhood of South Kensington, thus beginning a long history of the company being controlled by hobbyists as opposed to profit- seekers. The first car was assembled the following year in a small garage-turned-workshop on an unassuming mews street not far from the prestigious Kings Road, and Martin decided to christen it an Aston Martin, including references to both his last name and his favorite automobile race, the Aston Hill Climb in Buckinghamshire, which he had previously won. Production halted and the partnership fell apart during the First World War, and in 1919 Bamford withdrew from the partnership. Tumultuous years and financial problems for the company followed, and in 1926 Martin departed, leaving the company to a group investors led by engineer Bill Renwick. Under Renwick, production was moved to Middlesex County in England, but financial problems and ownership changes continued to be the norm over the next decade. Signs of growth finally emerged when production rose to 140 cars in 1937, but the Second World War forced the company to produce aircraft parts instead of cars, and a difficult transition back to peacetime production left the company on the verge of collapse. With bankruptcy nearly imminent, in 1947 English investor David Brown stepped in to buy the company for a bargain price of £20,500, and under his leadership, the prosperous years for the carmaker finally began.

Several months before Brown’s Aston Martin purchase, the industrialist had bought fellow British luxury carmaker Lagonda, which, like Aston Martin, had passed through several owners’ hands since its founding by American Wilbur Gunn in 1906. With the two niche brands in his grasp, Brown renamed the merged company Aston Martin Lagonda Limited. Combining the strengths of the two original companies, Brown wasted no time in combining the internal frame of the Aston Martin with the engine of the Lagonda to create the first of many iconic cars to bear his initials, DB, out of the company’s new production facility at Hanworth Air Park, also in Middlesex. Even though only fifteen DB1 models were made, the initials and subsequent generations of the car would go on to leave a lasting mark as icons of the motoring company. As Bez put it, Brown deserved credit as “the creator of the brand’s cachet.”

Aston Martin (2009). “Lagonda: Revival of a Luxury Brand” [Press Release]. Retrieved from: https://www.astonmartin.com/en/archived-content/media-centre/press-releases/2009/03/25/lagonda-revival-of-a- luxury-brand. 6Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. Page 3 UVA-S-Draft

As car sales increased under Brown, the company pushed into competitive racing as a means of gaining broader recognition. After some racing success with the DB1 and DB2, Brown decided to build a purpose- built sports car, and the resulting DB3S made its debut at the annual race held near Le Mans, France, in 1952. The crowning achievement of Brown’s racing program came in 1959, when the Aston Martin DBR1 achieved a sweeping triumph at Le Mans, taking both 1st and 2nd place.7

1963 proved to be an especially seminal year for the company, when the acclaimed Aston Martin DB5 was introduced, a model that went on to become “the most famous car in the company’s history” 8 despite its limited run of 1,0599 cars only being sold for two years. (For images of the DB5 and subsequent models, see Exhibit 1). A large part of this fame derived from the global stage the DB5 was given in 1964, when a specially designed model with spy features (such as rotating license plates and an ejector seat) was selected to be James Bond’s car of choice in the film GoldFinger, the third movie in the popular series. The Bond films at the time starred debonair Scottish actor Sean Connery in the title role and achieved not only commercial success but also left a lasting impact on cinematic history and pop culture, even making the British spy’s preferred preparation of his martinis (“shaken, not stirred”) famous. As Bez later said of the relationship between Bond and Aston Martin, “It would be no exaggeration to say that it was one of the best examples of product placement of all time; no marketing specialist in the world could have done a better job.”10 With the increased visibility of the Aston Martin, sales boomed, and Brown was able to grow the company from one that had only produced 681 vehicles before he took over to achieving roughly 7,941 sales under his leadership.11

Brown moved global headquarters to Newport Pagnell in Buckinghamshire in the early 1960s, a site to which Aston Martin-lover HRH Queen Elizabeth II paid a visit several years later. Despite the brand’s growing visibility and prestige, however, the economic downturn of the early 1970s forced Brown to sell Aston Martin, and, after being briefly owned by Company Developments, a Midlands property company, the automaker was sold out of bankruptcy to North American businessmen Peter Sprague and George Minden in 1975. Under the new owners, the car line was modernized, and a four-door saloon, or sedan, under the Lagonda badge was introduced. After a brief resurgence, the company fell victim to poor global economy, and the company was sold again in 1981 to Victor Gauntlett, an Englishman who’d been successful in the petroleum industry. Devoting himself to the sales and marketing efforts and relying heavily on external investments, Gauntlett helped the company remain stable, but “its long-term financial status was far from certain. Thus, in 1987, Gauntlett agreed to the sale of a 75% controlling stake in Aston Martin to Ford Motor Company”12 (Ford).

Ford Years13 The interest of a high-volume, mass-market automotive company like Ford in a low-volume, premium brand like Aston Martin was not an industry anomaly. The same year that Ford took a stake in Aston Martin, for example, its competitor Chrysler Corporation acquired Italian sport car company Lamborghini, and in 1998 Italian mass-market car company, Fiat, grew its 50% stake in sports car legend Ferrari to 90%. Similarly,

7 Aston Martin Company Timeline, Gaydon Headquarters, United Kingdom 8 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. p 50. 9 Aston Martin Company Timeline, Gaydon Headquarters, United Kingdom 10 Bez, Ulrich. Making Aston Martin. TeNeues Verlag, 2013. p 61. 11 Bez, Making Aston Martin, 57 12 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. p 50. 13 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. Page 4 UVA-S-Draft

German mass-market specialist Volkswagen acquired British luxury maker Bentley in 1998, the same year that BMW acquired the rights to produce Rolls Royce vehicles. In addition to Aston Martin, Ford’s portfolio of luxury vehicles included a second British luxury vehicle maker, Jaguar, which it acquired in 1989, and more luxury brand acquisitions would follow over the next decade.

From the perspective of a specialist firm like Aston Martin, the Ford ownership provided several immediate advantages. While Aston Martin was able to keep a dedicated management team and its autonomous branding, it was also able to benefit from Ford’s research and engineering know-how, marketing capabilities, and capital base. In 1989, when Gauntlett left the company, experienced Ford executive Walter Hayes took control, and the increased Ford oversight allowed significant manufacturing investments into Aston Martin’s Newport Pagnell facility. A huge victory came in 1993, when David Brown gave permission to the company to revive the famous DB series, and the DB7 resulted the following year. In order to build the DB7, the company built a new facility in nearby Bloxham in 1993,14 and the retail price on the car was set at £78,500. The revival of the DB line, and the DB7 in particular, was a sales and branding success, in large part due to the artistic eye of eminent, award-winning designer Ian Callum, and Aston Martin increased its global sales from 66 cars in 1992 to nearly 700 in 1995. By 1996, Ford decided to increase its ownership to 100%, and Aston Martin re-entered the U.S. market after a three-year hiatus.

As the company continued to expand its reach, the breadth of the product portfolio expanded. In 1996, the V8 Coupe was introduced, and the corresponding V8 Volante was unveiled in 1997, priced at £169,500.15 (Aston Martin used the word “volante” – Italian for flying – to describe car models in the convertible version.) During these years, no single Ford executive played an extended role in the company’s direction, with Ford frequently sending an executive from Detroit to the top job at Aston Martin for a few months or a year at a time. “At Ford it was the norm for management positions to change on a regular basis,” Bez explained.16

There was, however a larger current of change occurring at Ford towards the end of the century. After recovering from a difficult start to the 1990s, prompted by the increased foreign competition facing all U.S. car manufacturers, Ford started to make some philosophical changes towards the end of the decade. With the appointment of a new, Australia-born CEO in 1998, Jacques Nasser, the company “attempted to replace the corporate culture of its past with a new way of thinking for the future.”17 In addition to Nasser’s focus on slashing costs, he sought to embed the company with an “an entrepreneurial style that placed a much more intense emphasis on the customer.”18

One of Nasser’s strategic moves was to transfer the company’s historic, higher-end Lincoln-Mercury subsidiary from Detroit to Irvine, California. “Nasser wanted the division to breathe new life into itself away

14 Aston Martin Company Timeline, Gaydon Headquarters, United Kingdom 15 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. p 51. 16 Bez, Making Aston Martin, 318. 17Covell, J., Stansell, C., and Greenland, P. (2013) Ford Motor Company. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 141 (pp 229 – 238). Farmington Hills, Michigan: St. James Press. p 235. 18 Covell, J., Stansell, C., and Greenland, P. (2013) Ford Motor Company. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 141 (pp 229 – 238). Farmington Hills, Michigan: St. James Press. p 235.

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from the scrutiny of company headquarters, to benefit from a more entrepreneurial-driven perspective.”19 To achieve this distinct corporate culture for its luxury brands, Ford formally created its Premiere Automotive Group in 1999 and put Wolfgang Reitzle, a former product development whiz at BMW, in charge. Reitzle grew the group to include not only existing Ford brands Aston Martin and Jaguar but also Swedish automaker Volvo (acquired in 1999) and British maker Land Rover’s SUV business (acquired from BMW in 2000).

Bez Hire By early 2000, Aston Martin had only built around 15,000 cars, half of which were produced during Brown’s prodigious run that ended almost three decades earlier.20 In 1999 alone, the company only sold 622 cars,21 and Detroit was keen to make the company both “profitable and viable.”22 Indeed, it was no small matter that Aston Martin hadn’t made a profit since it had been founded in 1913. It was then that Bez, who was working as the Head of Engineering at Porsche at the time, received a phone call from Reitzle, his former colleague at BMW, and to be offered the CEO job at Aston Martin. To say that the offer was unexpected would be an understatement – at the time, Bez had never driven or even touched an Aston Martin. In fact, his only associations with the company were the DB5, DB6, Bond and Goldfinger. “I had no interest in the brand,” he recalled.

Prior to the surprising phone call from Reitzle, Bez had a long career in the automotive business. Born in Stuttgart, Germany in 1943, Bez spent his young years facing his fair share of challenges. He repeated two classes in grade school because he was, in his words, “bad at English,” and he claimed he was not a standout student while studying Aircraft Engineering at Universität Stuttgart (the University of Stuttgart). Despite mediocre grades, Bez knew his strengths were in his ability to simplify complex situations, and he described himself as “always full of ambition.” Alongside his engineering studies, he was also appreciative of the creative side of life. He often wondered what his life would have looked like if he’d pursued a more artistic path. “In my early years, I used to love experimenting, welding my own sculptures and pursuing my passion for photography, even developing my black and white photos in my own darkroom,”23 he recalled. Ultimately selecting the engineering and production path after university, Bez’s extensive career in the automotive industry garnered him fifteen years of experience at Porsche, where he worked on and off in increasingly senior jobs before eventually becoming a member of the management board. “At Porsche, I learned how to make sports cars,” he explained. While at the famous German automaker, Bez also made time to graduate with a Doctor Degree in Engineering from Technische Universitat (Technical University) of Berlin in 1981. Prior to his latest role leading Porsche’s entire engineering function, Bez worked at Porsche competitor BMW, leading the pre-development of all car lines on the engineering side, in addition to spending five years as the VP of Engineering for Daewoo Motors in South Korea. The company was eventually taken over my General Motors, but the experience abroad gave Bez an opportunity not only to absorb a work culture different from that of his home country, but also to produce vehicles for the mass market. The hours in Korea were grueling, and Bez was usually in the office seven days a week.

19 Covell, J., Stansell, C., and Greenland, P. (2013) Ford Motor Company. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 141 (pp 229 – 238). Farmington Hills, Michigan: St. James Press. p 235. 20 Bez, Making Aston Martin, 57 21 Bez, Making Aston Martin, 169 22 Bez, Making Aston Martin, 169 23 Bez, Making Aston Martin, 276 Page 6 UVA-S-Draft

As Bez later pondered the surprising Aston Martin offer from Reitzle, he eventually became excited by the challenged state the British automaker was in. He wondered, “Can I go and try to make this brand a global, visible brand?” and ultimately asked Reitzle for five years to make the company profitable. “I didn’t want to get transferred to any other division at Ford, no matter how attractive it might be,”24 Bez explained. Reitzle agreed to Bez’s stipulations, and a start date was arranged for July 2000.

New Direction – Bez’s First Three Months On Bez’s first day as CEO, a car picked him up at the Ford offices in Mayfair, London and dropped him off at his new office in Bloxham, approximately two hours North by car. When he arrived, he was escorted to an office on the ground floor of a small brick farmhouse, and the contrast to the sleek, modern facilities at Porsche was startling. In fact, Bez viewed his new employer’s production facilities at Bloxham and Newport Pagnell as “close to what I used to describe as a cottage industry; even the roofs were leaking.”25 He almost felt like he was visiting a “quaint country pub instead of an automobile manufacturer.”26

Bez’s rustic surroundings served as a harsh reminder of the challenge that awaited him. “I had no illusions about the parlous situation that the firm was in,”27 he said. Determined to see Aston Martin survive, he made up his mind that “the traditional British car manufacturer would simply have to improve.”

To drive the company’s survival, Bez spent his first few weeks as CEO simply understanding where the company was, including its strengths and weaknesses, and then developing a way forward. “I had to build up in my mind where I wanted the company to be in five to ten years,” he said. “I had to decide what the future of Aston Martin was, and whether it was compatible with what the employees were doing” at that time.

Having taken some time to study the marketing, production and promotion practices active in the business, Bez’s first move was to call his bosses in Detroit to tell them he was planning a radical departure from the company’s existing production activities. “Tomorrow I’m stopping the product program you’ve advised, because this is not right,” he told them. Bez credits the Ford executives for trusting his judgement and giving him full license to proceed as he saw fit. Bez then called a mandatory strategy meeting for all employees. Even before a word was spoken, he knew he was walking into the room without the optimal amount of respect and understanding from his team. One challenge was the cultural differences that existed between the British engineers and plant workers and their new German boss; there was simply an inherent difficulty in “being introduced as a German to lead an iconic brand of the English,” Bez explained. Efforts to win the English workers’ deference were also constrained by the rotating CEO norm that the workers had grown accustomed to over the years. Bez recalled that “everybody thought, ‘Oh, if he’s from Ford, he’ll be gone after six months.’” Despite these misperceptions floating around the room, Bez wasted no time in delivering some jarring news to his team – that work on all future projects would be stopped immediately. The projects that Bez shut down included work on the future DB7, a car that Ford had previously intended “to form the cornerstone of the brand until 2006,”28 due to its inability to meet upcoming safety standards. Bez “wanted to create a better ‘end of life’ model” before work on DB7 continued. Bez also told his colleagues he would be postponing the sale of Aston Martin’s new “super sports car”, the Vanquish, which “was supposed to take over the role of a

24 Bez, Making Aston Martin, 51 25 Bez, Making Aston Martin, 65 26 Bez, Making Aston Martin, 65 27 Bez, Making Aston Martin, 75 28 Bez, Making Aston Martin, 71 Page 7 UVA-S-Draft

super sports car, far above the DB7”29 and was set for sales later that year; the press had even been invited to the car’s imminent launch. Bez planned to delay the launch of the car until 2001, however, due to the fact that it “obviously didn’t fulfill my quality criteria.”30 At the time, there were plans for an expensive “toy” with a mid-engine to hit the market in 2003. Bez, however, saw the car as a plaything and “decided to pull the plug”31 with Reitzle’s blessing.

Finally, Bez announced he’d be “switching the company to a modular system of production “on which all future car models would be based.” This meant a full range of models, diverse in vehicle size, would be able to use the same components for the first stages of their production, leaving the company with increased volumes, spared engineering costs, and improved consistency and quality. This advanced engineering system, which ultimately came to be known as VH (vertical/horizontal) architecture, centered on a bonded aluminum platform, which eventually underpinned all cars produced by Aston Martin. On deciding on this production change, Bez explained his reasoning:

“The answer is very simple: because I wanted it. We have a modular system, because I wanted it. I was convinced a modular system was right for the company, so that was my target.”

These were a lot of sudden changes for the British engineers and blue collar workers to hear. Bez gave his employees two weeks to process the news and come back to share their thoughts and ideas on his decisions, but, ultimately, “there wasn’t much choice,” he said. Bez had made up his mind that the company had to carry out these changes in order to survive, and, despite giving his employees an opportunity to question him, he knew his decision would not change.

Bez applied the same decisiveness that he employed at Newport Pagnell towards his bosses in Michigan. That fall, Bez travelled to Detroit to give Ford executives a better understanding of the crisis their British subsidiary was facing. Bez concluded by offering them three choices – they could close Aston Martin, sell it to Bez for a symbolic million dollars, or give Bez $300 million to invest and turn the company around. Ford ultimately gave Bez the $300 million and reminded him of his five-year timeframe to turn the company profitable. Bez wasted no time getting to work.

Long Term Changes

Company Culture One of Bez’s first priorities in setting out to turnaround Aston Martin was to construct a company culture. Before he arrived, many of Bez’s senior colleagues had come up through the ranks at Ford, meaning no true and distinct identity of the Aston Martin employee had been created. Determined to give his team a unifying vision and work environment, Bez simplified his goals for the company into a 4-pillared strategy, which he presented as an image of a temple on small, embossed cards and then distributed to all members of the team (for a depiction of the strategy temple, see Figure 1). On one side of the cards was the so-called strategy temple, and on the other side was Bez’s definition of Aston Martin. On coming up with the definition for the company, Bez explained: “This was of course my definition, but there was no argument. It included the three groups of people making Aston Martin – the customers, the dealers, and the employees.” Bez expected his employees to mimic his own practice of keeping the card tucked in their shirt pockets. “They had to put it against their heart,” he explained.

29 Bez, Making Aston Martin, 71 30 Bez, Making Aston Martin, 77 31 Bez, Making Aston Martin, 73 Page 8 UVA-S-Draft

The culture at Aston Martin was also influenced by a demanding expectation Bez had of himself - a commitment to excellence. “I don’t think you can afford a great weakness [as a leader],” he explained. “If you completely fail in something, you are not a leader.” Bez applied his expectations for excellence to the general workforce, evidence of which was found in the impact Bez had on the way his employees treated the shop floor. Before 2001, workers ate their breakfasts and lunches in the production line, often exposing finished cars to their “crumbs and greasy hands.” In 2001, however, Bez offered to build workers a cafeteria where they could eat their meals. The employees were not happy about this disruption to their habits and threatened to strike if a cafeteria was imposed. Bez’s desire for a pristine production facility led him to construct the cafeteria anyway, and the threats to strike remained when the cafeteria was complete. Bez ultimately replied to his disgruntled employees with “a very simple exchange: ‘Ok, you can go on strike. That’s fine for me. But when you come back from the strike, you’ll eat in the cafeteria.’” After a weeklong strike, the employees returned and adapted to mealtimes in the new cafeteria. The shop floor became, in Bez’s words, “so clean you could eat off the floor there.”32

Branding Another primary focus for Bez was to overhaul the perception of the Aston Martin brand; or, to borrow his words, to transform the company from “cottage to cool.” Bez’s vision for the “cool” branding was to include not only Aston Martin’s historic tradition but also to add “a new twist - a love of craft and modernity” and “free-thinking inventiveness” to the automaker’s image. Bez hoped to conjure a slogan for the company to drive this subtle change, and he was initially drawn to “The Best of English.” As he discussed this idea with “members of the upper class, politicians, royals, and [his] employees”33 around him, however, they informed him they had associations of “football fan hooligans, failing trains, and the tube system. This was nothing,” Bez said. Bez’s next “great idea” was to transform the language to “The Best of British.” Suddenly, he noticed pride in “the glory days of the British Empire” and associations of “discipline with creativity. This was where I thought Aston Martin belonged,”34 he said. In order to further exemplify the creativity and modernity that the new Aston Martin brand would exude, Bez initiated the construction of a new company headquarters and production facility in 2001. He wanted the facility to be “more than a building” and function as a key way of sending a new message about Aston Martin’s vision to the world. What resulted by 2003 in the town of Gaydon, Warwickshire, was a stunning structure with a curved, modern facade and “dynamic shape,” where “everything was functional and high-tech”35 and potential customers and partners alike could be stunned by Aston Martin’s new corporate image. (For an image of the building façade, see Figure 2.)

32 Bez, Making Aston Martin, 79. 33 Bez, Making Aston Martin, 69. 34 Bez, Making Aston Martin, 69. 35 Bez, Making Aston Martin, 142. Page 9 UVA-S-Draft

This striking physical structure was especially important for the British carmaker, which, as Bez explained, “never really had any money for advertising. Therefore, Aston Martin simply didn’t exist in the promotional jungle.”36 As a means of working around these constraints, Bez focused on various “indirect marketing” initiatives, which could create buzz and interest in the company at no cost. He explained:

“Our products had to attract sufficient attention without being backed by a huge advertising budget. Product awareness is mainly created in the automotive press, which has an important multiplier role, although it’s only read by car aficionados. When you go down that route, you have to come up with a constant string of exciting news items that are worthy of coverage. ‘Halo’ products are best suited for this purpose: cars that, in terms of innovation, are...only produced and sold in limited numbers. In 2000...I was determined to build the first halo model straight away.”37

Bez’s first “halo car”, a collaboration between Aston Martin and legendary Italian coachbuilder Zagato, yielded 99 DB7s under the Aston Martin-Lagonda names. The special model, for which Zagato produced the body and whose paint work came from Aston Martin, was ultimately presented at one of London’s most famous bespoke tailors on Savile Row in 2002. Several years later, Bez continued his push into these special projects by releasing the One-77, 77 of which were sold for a million pounds each, beginning in 2009.

Another source of publicity came from Aston Martin’s return to motorsport and international competition in 2005, with the formation of Aston Martin Racing, and the team scored a victory that year at its first race in the opening round of the American Le Mans.

Design

Bez considered Aston Martins to be a “work of art,” and this perspective inspired his intense focus on car design. Before Bez joined the company, Aston Martin had no design capabilities of its own and was using Jaguar’s design studio to design its cars. One of Bez’s first missions was to inject a striking new look into the brand’s cars, and so he urged Ford to allow him to create a separate Aston Martin “design capability and someone [whom he] could work with in a creative atmosphere.”38 With Ford’s blessing, Bez soon recruited an experienced designer from BMW, and with that, Aston Martin “finally got [its] own design department” working out of Jaguar’s Design Centre. “That was the germ of Aston Martin’s new design,”39 Bez explained.

With an independent design capability finally in place, Bez was able to play a strong role in the Aston Martin aesthetic and work closely with his design team on the look of the DB9, the highly anticipated update on the DB7 that also benefitted from Callum’s design expertise. Bez explained his role in the car’s design decisions:

36 Bez, Making Aston Martin, 85. 37 Bez, Making Aston Martin, 85. 38 Bez, Making Aston Martin, 117. 39 Bez, Making Aston Martin, 119. Page 10 UVA-S-Draft

“In the case of the DB9, my taste was satisfied: it should look like this, it should drive like this, it should feel like this, and it should even smell like I wanted it to.”40

When the artful, sculpted model emerged in 2004, the car was met with much critical acclaim, and, as Bez recalled, “a new era began for the firm.”41 Bez remained equally focused on design as work on other cars commenced, as was the case for the much larger Rapide, a four seater, four-door sports car with ample storage. “The Rapide’s introduction [as a concept car in 2006] confirmed Aston Martin’s leading role in design,”42 Bez said.

To support his artistic vision and design focus, Bez built an in-house design studio at Gaydon, which opened in 2007, and worked together with the designers there on a daily basis. He even put the studio “seconds” from his office door so he could check in on a design anytime, often dropping in on his way home at 10pm. This close relationship with the designers allowed Bez’s design decisions to be made much in the way that his production and pricing decisions were made – intuitively. “You have to get a feeling…it’s a judgement,” he explained.

Using this philosophy, multiple design developments came from Bez’s singular vision. When he arrived to work one winter morning, for example, Bez noticed a morning snow had left an Aston Martin in the parking lot completely white, and inspiration struck. “It looked absolutely stunning,” he said. “So I went into the office and said, ‘Okay, I want this color and we will name it morning frost.’ And everyone said, ‘That’s impossible.’” Despite the resistance, Bez had his team create the color, and it eventually became a lasting success. Similarly, Bez decided to offer the first Aston Martins in red, a color once unofficially reserved for Ferrari.

Bez explained his preference for making design decisions without seeking out customer input: “You cannot ask customers for their thoughts on this…If you get a hundred customers with a hundred opinions, it’s impossible to get a clear decision…For me, a car design or detail is good if I like it. If I do not like it, we don’t do it. It’s a very simple approach to pricing too. If I think it’s good, it doesn’t matter if three are other people who think it’s bad, because a luxury product does not need to meet everybody’s expectations.” Once a car became perfect in his mind, Bez compared it to an Eames chair – timeless. “You don’t need to make a change, because in its simplicity and flawless proportion, it’s perfect, so leave it.” Under Bez’s direction and the drastic changes he brought to Aston Martin, the company finally turned a corner, and production volumes soared. (For yearly production volumes, see Exhibit 2). “From 1994 to 1999, under Ford’s ownership, 3,442 vehicles were built. From 2000 – when I arrived – to 2006, 17,745 cars were sold,”43 Bez recalled.

Return to Independence Despite the progress Bez made in Gaydon, Aston’s parent company in Detroit was facing a large dose of tumult during this time. Throughout 2005 and 2006, Ford faced huge financial losses and weak sales

40 Bez, Making Aston Martin, 119 41 Bez, Making Aston Martin, 117. 42 Bez, Making Aston Martin, 35. 43 Bez, Making Aston Martin, 169. Page 11 UVA-S-Draft

performance and, by late summer 2006, was even looking to reduce its North American workforce by nearly 30%.44 Amidst this chaos in its core market, it hardly came as a surprise when Ford announced that it was considering the sale of its premiere British automakers45 in support of a turnaround in North America. Bez, however, did not like the idea of Aston Martin being sold or given away as a “sweetener” for another deal, so he went to Ford Chairman, Bill Ford, in Detroit to ask for permission to make a Management Buy Out, offering $1 billion for the company. As a result, Ford agreed to auction Aston Martin, and that August, the company was the first subsidiary to be put on the market; the price tag was set at a billion dollars.46

Ford laid out a timeframe for the sale for anywhere from six months to a year. After an initial frenzy and multiple interested investors’ visits to Gaydon, six bidding groups made it to the final round,47 and by March a deal was struck that valued Aston Martin at $925 million. On the 12th of that month, the contract was signed that sold the business to an investment group from Kuwait, made up of Investment Dar Company and Adeem Investment Company (led by Rezam Al Raoumi) and John Sinders, a Managing Director at Jeffries LLC in Texas, under the leadership of David Richards, a founder of British motorsport group Prodrive. “Under the terms of the sales agreement, Ford retained a $77 million stake in Aston Martin – not enough to have any say in its operations, but enough to retain a modicum of the prestige associated with the mark.”48 By May, all due diligence and legal checks were complete, and Aston Martin could “really act as an independent company,” Bez recalled. Additional capital from the purchase allowed Bez to pursue the construction of the design studio, heavy investments in quality assurance, and the production of the four-door Rapide and One-77 special project.49 Most notably, the company achieved profitability in 2007 and 2008.

Lagonda Decision

By late 2008, however, the tides had turned. The global economy was in crisis, and demand for premium luxury vehicles was at a low. To cut costs, Aston Martin reduced its work force from 1,850 to 1,250,50 and opportunities for further funding from the company’s shareholders were limited. In fact, the company’s very survival was in question. Bez, however, entered 2009 with a vision for the company’s growth. “I was of the opinion that a luxury SUV was missing,” and if Aston Martin were to build one, “it would be the first luxury SUV,” he explained.

Bez certainly had reason to believe there was a huge opportunity in the luxury SUV space. (For projected SUV growth by segment, see Exhibit 3). Furthermore, customers seeking luxury SUVs with top speed, power, and base prices above €140,000 faced a lack of options at the time. (For competitive vehicle

44 Covell, J., Stansell, C., and Greenland, P. (2013) Ford Motor Company. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 141 (pp 229 – 238). Farmington Hills, Michigan: St. James Press. p 236. 45 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. p 51. 46 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. p 51. 47 Bez, Making Aston Martin, 195. 48 Hoffman, Bryce G. American Icon: Alan Mulally and the Fight to Save Ford Motor Company. Crown Business, 2012. p 199 49 Bez, Making Aston Martin, 201 50 Dinger, E. (2015) Aston Martin Lagonda, Ltd. In J.P. Pederson (Ed.), International Directory of Company Histories, Volume 169 (pp 49 – 52). Farmington Hills, Michigan: St. James Press. p 51. Page 12 UVA-S-Draft

selection criteria and an analysis of their speeds, power, pricing, and size options, see Exhibits 4, 5, 6, 7, 8, 9 and 10. For geographic spread of competitive SUV sales in 2009, see Exhibit 11). A luxury SUV, however, was a radical and untested concept in 2009, and the customer target groups and their needs could only be approximated. (For estimated target customer size, see Exhibit 12. For potential customer needs, see Exhibit 13.) In addition to an unclear customer response, one of the issues Aston Martin faced as it considered the risky move into SUVs was the integrity of the brand. Aston Martin was historically known as a GT and sports carmaker, and there was some internal debate around whether the company could support the novel concept of a luxury SUV, particularly if there was a negative public reaction. Bez’s solution was to introduce the car as a Lagonda. “Lagonda was always a big car, and the crossover wouldn’t damage the Aston Martin brand,” he explained. In fact, the brand had been out of circulation since the early 1990s, and Bez hoped the Lagonda name would be able to depart from the Aston Martin sports car association and “reach into new markets.”51

After conducting a thorough analysis examining both the investments required and potential profits to come from a Lagonda crossover concept (for projects costs, sales volumes, and projected profits see Exhibits 14, 15, 16, 17, and 18), Bez wanted to seize the opportunity to be the first super-luxury SUV to hit the market. Against this optimism, the reaction from industry peers at the Geneva Motor Show came as a shocking blow. (For selected reactions from the press, see Exhibit 19.) “People did not understand it,” Bez recalled. “‘How can you make such a big car when everyone is worried about the environment and a financial down turn?’ And the press said, ‘Never, ever will this work.’” Hearing this, Bez had to acknowledge the difficulty in convincing people to invest when there was an inherent challenge in making reliable predictions in “a global market that [was] volatile and sometimes difficult to get a handle on, with different and constantly changing buying patterns.”52 Furthermore, the Rapide saloon was due at the end of the year, and there was some concern that sales of the four-door model might eventually be cannibalized by the subsequent release of the Lagonda. Considering the unknowability of a public reaction and the negative press surrounding the Lagonda’s first presentation, was it time for Bez to acknowledge the project was simply too risky to pursue, or was the potential upside from a Lagonda too big to ignore?

51 Aston Martin (2009). “Lagonda: Revival of a Luxury Brand” [Press Release]. Retrieved from: https://www.astonmartin.com/en/archived-content/media-centre/press-releases/2009/03/25/lagonda-revival-of-a- luxury-brand 52 Bez, Making Aston Martin, 315. Page 13 UVA-S-Draft

Aston Martin – The Crossover Conundrum

Exhibit 1

Selected Aston Martin Models – (1964 – 2004)

1. Aston Martin DB5; 1963 – 1965. 1,059 produced.

2. Aston Martin DB7; 1994 – 1999. 2,461 produced

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3. V8 Coupe; 1996 – 2000. 101 produced

4. V12 Vanquish; 2001 – 2007. 2,578 produced

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5. DB7 Zagato - 2003 – 2004; 99 produced

6. DB9 – unveiled in 2004

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7. One-77; 2009 – 2012. 77 produced

Source: http://www.astonmartin.com/heritage/past-models

UVA-S-DRAFT For internal use only - July 2017

Aston Martin – The Crossover Conundrum

Exhibit 2

Aston Martin Yearly Vehicle Production Volumes – (1995 – 2008)

Production Year Volumes 1995 651 1996 644 1997 644 1998 625 1999 622 2000 1,029 2001 1,470 2002 1,462 2003 1,476 2004 2,067 2005 4,461 2006 7,052 2007 7,383 2008 6,487

Source: Ward's Automotive Yearbooks (59th - 71st Eds., 1997-2009); Divison of Penton Media Inc.

This field-based case was prepared by Jenny Craddock, Senior Case Writer, under the supervision of Professors L.J. Bourgeois, Yiorgos Allayannis, Morela Hernandez and Luca Cian, with contributions from Dr. Ulrich Bez. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2016 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Page 18 UVA-S-Draft

Aston Martin – The Crossover Conundrum

Exhibit 3

Projected Growth for Global SUV Sales, by Segment1 – (2010 – 2015)

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 4

Selection Criteria for Competitors to Lagonda

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 5

Competitive Analysis – Vehicle Acceleration and Top Speed Characteristics

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 6

Competitive Analysis – Vehicle Acceleration and Power Characteristics

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 7

Base Price Pricing of Competitive Vehicles

Source: AM Company Documents; Prices derived from German websites of Company pages Page 23 UVA-S-Draft

Aston Martin – The Crossover Conundrum

Exhibit 8

Pricing of Competitive Vehicles - Price Walk from Base Price to Fully Loaded (%)

Source: AM Company Documents; Prices derived from German websites of Company pages

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Aston Martin – The Crossover Conundrum

Exhibit 9

SUVs above €70K – Base Price vs. Performance

Source: AM Company Documents; Prices derived from German websites of Company pages Page 25 UVA-S-Draft

Aston Martin – The Crossover Conundrum

Exhibit 10

Competitive Landscape According to Car Size

Source: AM Company Documents Notes: A coupe is closed, usually two-door but occasionally four-door car, shorter than a saloon of the same model, that either seats two people or has limited space in the back seat. “Saloon” is a chiefly British term for a sedan, a closed car with either two or four doors that seats four or more people on two full- width seats.

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Aston Martin – The Crossover Conundrum

Exhibit 11

Competitive Vehicle Sales by Country (2009, Thousands)

Source: AM Company Documents Page 27 UVA-S-Draft

Aston Martin – The Crossover Conundrum

Exhibit 12

Global Market for Luxury SUV Customers – 2008

Notes: “HNWIs” refer to high net worth individuals. Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 13

Customer Needs for Lagonda

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 14

Projected Annual Sales of Lagonda Crossover - In thousands, from 2011

Source: AM Company Documents Assumptions: 1) Total market of luxury SUVS and high luxury sports cars (HLS) was basis of calculation 2) Target market consisted only of high-powered SUVs and 4-door HLS vehicles

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Aston Martin – The Crossover Conundrum

Exhibit 15

Lagonda Sales Projection – Distribution of 5-year lifecycle volume* - Thousands of vehicles

*Average 5-year market share of 6% indicated 37.6k vehicles sold within 5-year lifecycle

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 16

Project Costs for Lagonda – £m, 2010-2018

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 17

Revenues and Operating Profitability (EBIT) Forecast - £m, 2010-2018

Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 18

Cash Flow & Net Present Value Evaluation - £m, 2010-2018

Based on assumptions of 6% average market share and company WACC of 9%, cash flows discounted to the end of respective year with year 2010 as base period. Source: AM Company Documents

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Aston Martin – The Crossover Conundrum

Exhibit 19

Selected Press Reactions to Lagonda Concept Reveal – March 2009

“While styling inspiration is said to come from the elegant LG6 Lagondas of the 1930s…we’re not convinced. The concept is brutal and blocky and was universally loathed by every designer we spoke to.” - Car and Driver53

“Aston Martin’s conceptual attempt to revive the Lagonda brand with the blandly named concept was one of the top attention-grabbers at the 2009 Geneva Motor Show. However, this was mainly due to the concept’s controversial (to the say the least…) styling and because no one actually understand what the…vehicle represents – is it a sedan? Is it a crossover? Is it a mix-mash of ideas?” - Carscoops54

“The biggest surprise at this year’s Geneva show? Aston Martin’s…new Lagonda concept, and, well, you need a minute to take it all in. Huge isn’t it?...Fans of the brand who have just got their head round the Rapide saloon (due at the end of the year) might struggle with the idea of a big luxo-barge.” - Top Gear55

“With styling that mixes a modern…front end with a retro rear end based on a classic 1930s Lagonda, the..SUV possesses plenty of presence, but it can’t be described as beautiful. The retro rear styling, in particular, doesn’t sit well with the SUV proportions.” - Autoweek56

53 Mark Gillies, “Aston Martin Lagonda Concept,” Car and Driver, March 2009, http://www.caranddriver.com/news/aston-martin-lagonda-concept-auto-shows (accessed Aug. 3, 2017). 54 “Lagonda Concept Crossover Life Photos and Video From Geneva,” Carscoops, March 9, 2009, http://www.carscoops.com/2009/03/lagonda-concept- crossover-live-photos.html (accessed Aug. 3, 2017). 55 “Aston Martin Lagonda news – Geneva: Lagonda returns,” Top Gear, March 4, 2009, https://www.topgear.com/car-news/concept/aston-martin-lagonda-news- geneva-lagonda-returns-2009 (accessed Aug. 3, 2017). 56 “Geneva Motor Show: Lagonda Reborn as SUV Concept,”Autoweek, March, 3, 2009, http://autoweek.com/article/geneva-motor-show/geneva-motor-show- lagonda-reborn-suv-concept (accessed Aug. 3, 2017).