THE GRAY FERRARI

Karagouni MagdaKoutoulogeni AthinaMastori ChristianaSavva Ioulia

• The case is about Ferrari’ s Gray Market in the United States. A gray

market is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer.

• USA uses a unique set of standards and regulations for automotive safety and emissions, which differ significantly from the internationalized ECE Regulations used throughout the rest of the world.

• Vehicle manufacturers thus face considerable expense to type-certify a vehicle for U.S. sale. This cost particularly impacts low-volume manufacturers and models, most notably the makers of high end sports cars like Ferraris.

• National Highway Traffic Safety Administration and United States Environmental Protection Agency regulations criminalize the possession of a vehicle not meeting U.S. Federal Motor Vehicle Safety Standards.

The gray market provided an alternate method for Americans to acquire desirable vehicles, and still obtain certification

Question 1Gary Roberts, a Costa Mesa, California,

importer stated: “Ferrari’s control freaks ought to cooperate with importers

and let the free market take care of itself.” Comment.

Answer

• Gary Roberts believes that Ferrari is attempting to control demand by stopping gray imports into the United States . With this statement he makes an allusion of control for profit to Ferrari, accusing it as being “control freaks”.

• There were similar statements too. For example Doug Pirrone, president of Berlinetta Motorcars in Huntington, New York, alleges Ferrari’s goal is “to control the market, insure a monopoly, fix the prices and eliminate all competition.”

• Ferrari, was categorically rejected this abuse which was done both by the registered importers and the owners.

• With gray imports American buyers were able to gain 30 - 40% on Ferraris, as a result of the stronger dollar at the time.

• Buyers must receive the car through a registered importer that can convert the cars to satisfy the American safety standards for a fee.

• Ferrari claims that gray imports: Have no impact on authorized dealers’ profits Actions taken are really to protect the company’s

reputation.

• Ferrari’s Robinson said free trade isn’t the paramount issue-protecting Ferrari and its customers are what’s important. He claimed that “This is not a covert way of addressing gray importers. This is just a way of informing the proper authorities of our concerns

To conclude, since the majority of Ferrari’s success is mainly due to its reputation for race cars, Ferrari’s reaction seems as logical and truly their best option at the time

Question 2Does Ferrari’s case prove that requiring that products be delivered only through approved distribution channels ensures

the highest quality for the customer?

Answer• Ferrari’s case proves that requiring that products to be

delivered only through approved distribution channels ensures the highest quality for the customer, because:

When customers go through a registered importer of Ferrari they rely on importers' knowledge and skill of converting the automobile according to US regulations and safety standards.

For example, Ferrari has found that some unregistered importers stated that doors on all 550’s are identical, but doors on non-U.S. cars are not fitted with side-impact protection bars. A safety feature that a buyer of foreign race car would most likely want to take advantage of.

• “Ferrari has serious reservations whether modifications to non- U.S. cars proposed by importers are sufficient to meet U.S. safety and emissions requirements”, said Stuart Robinson, president and CEO of Ferrari North America.

• "We have some serious safety concerns, and ultimately at the end of the day, it's the Ferrari name that's on the car," said Wertheim.

So, only by going straight through Ferrari and its approved distribution channels will the buyer be assured of its product’s quality.

• When the customer buys

through distribution channels is more confident about the safety of the product.

• High quality is accompanied with high servicing offered by Ferrari

• The customer doesn’t have a personal contact with the automobile company and trusts his money in an independent business. This is a risk for him because he doesn’t have a clear view of how safe and authoritative is his investment.

Question 3Given its loss, what alternative actions

are open to Ferrari?

AnswerGiven the situation that has been created Ferrari has no other choice rather than adjust and find a way to protect it’s reputation.

1. An alternative action is to create a subsidiary which will deal with the adjustment of Ferrari to the standards of pollution and safety that America requires.

This company will manufacture an amount of parts (for example bumpers , seat-belt warning systems) that are appropriate for American standards for every different model of Ferrari.

These parts will be available through the already existing Ferrari’s distribution channel (through Ferrari’s dealers) and this will be a guarantee about their quality.

2. A second alternative action is the following:

Ferrari has a legendary reputation and consultant loyalty. So it can remain to the Ferrari purpose:

“The secret of profitability is not to sell a lot, but rather to sell a specific offering to a specific group”.

Client relationship: Cars should continue

to sell to specially selected exiting clients. Ferrari can find strong support through its

Web Site and its fun club, that have great

power and are very well structured.

Finally, there is a third alternative action for the company concerning gray markets:

3. Ferrari could buy out the unauthorized stores which sell registered imported Ferrari parts and add them in the official channel of Ferrari’s distribution.

THANK YOU