Case Study: MV Agusta’s turnround strategy

The story

In August 2010 Claudio Castiglioni, a motorcycle aficionado and serial entrepreneur, bought back the iconic Italian motorcycle brand MV Agusta from Harley-Davidson. It was the third time in 20 years he had owned MV Agusta, a high-end brand that enjoyed huge success in races from the 1950s to the 1970s. He had twice relinquished this prize asset because of financial difficulties in the Castiglioni-owned portfolio of companies.

Mr Castiglioni had revived other motorcycle brands such as Ducati, and he hoped it would be third time lucky with MV Agusta

The challenge

The financial crisis had hit an already declining motorcycle market and MV Agusta’s sales had fallen sharply.

The company’s financial situation was dire. In 2009 it had revenues of just €30m and by the year-end it was losing €3.5m a month. Unsold inventory had reached €22m because customers were reluctant to buy MV Agusta bikes while the company’s survival was in question. MV Agusta had to delay payments to suppliers, which were rapidly losing patience with the manufacturer. .

The situation became even tougher when the charismatic Mr Castiglioni died in mid-2011, leaving his son Giovanni to try and turn their vision into reality.

The strategy

Claudio Castiglioni had assembled a strong management team to oversee a turnround. His son’s strong sales and marketing background made him a suitable chief executive and, crucially, Claudio had persuaded Massimo Bordi, the celebrated motorcycle engineer who had helped him revive Ducati, to leave his CEO position at Same-Deutz-Fahr and join MV Agusta in late 2010.

The immediate priority on taking ownership was to improve the company’s finances, so the directors began weekly meetings to monitor revenues and working capital. Within weeks they had laid off 60 of the 250 employees and cut incentives and bonuses. These were unusual steps in the Italian automotive industry but possible because of the workforce’s low unionisation and deep commitment to the brand. These were bikes made by fans for fans.

The directors also set ambitious medium-term financial goals. MV Agusta aimed to sell more than 7,500 bikes by 2012, and generate total revenues of €75m, with a 10 per cent operating profit margin.

MV Agusta decided to maintain its traditional sport motorbike focus and introduced a powerful new €23,000 Supersport race bike. But the turnround would actually hinge primarily on new, cheaper three-cylinder models, the F3 and the Brutale 675.

The company cut its Italian dealers from 100 to 80 and rebuilt its overseas distribution network to focus on high-potential markets such as Australia, China, South Africa and Brazil (where it started production with a local partner in 2011).

Giovanni Castiglioni opted for a niche marketing strategy that emphasised the brand’s speed and racing heritage, its premium pricing and its Italian design and performance.

In addition, celebrity customers such as actors Tom Cruise, Brad Pitt, Angelina Jolie and former Formula One world champion Michael Schumacher were pictured in magazines with their new bikes.

The results

The new F3 was very well received by the press and customers. At the end of 2010 monthly losses were €1.5m and by March 2011 the company was breaking even.

The new models, including the Brutale 675, were ready for the spring 2012 season. The company had total sales in 2012 of €70m, with operating profits in the mid-single digits in millions of euros: below target, but still a dramatic turnround.

The lessons

MV Agusta’s management relied on their previous experience with the brand, but were not afraid to adapt to tougher financial conditions.

While keeping the essence of the brand and focusing on high-quality product development, they introduced greater financial discipline to cope with the impact of the crisis.
- Financial Times, Mar 25. 2013