Driven By Design

Cloaked in a silver canvas, the machine sat on the roof of a glass-and-steel box in the industrialized outskirts of Turin, Italy; at its side stood three senior designers from Pininfarina, the storied automotive-styling house. Jason Castriota, best known for his Ferrari exteriors, lifted a corner of the canvas and began a kind of vehicular striptease, casually revealing first the wheels, flanks, and hood, then ripping away the shroud to expose the entire body of a full-sized, hyperrealistic replica of Maserati's new GranTurismo coupe. The model, which functions as a prototype during the styling process, is literally a sculpture, crafted by hand from a milled resin called epoxy wood. As the three men took in the taut skin and graceful lines, Castriota recalled an insight from a former Pininfarina design director: "The difference between beautiful and ugly often comes down to one millimeter."

Castriota and his colleagues apparently nailed that last millimeter. In March, the world got its first full-frontal display of Maserati's new $125,000 GT coupe at the International Geneva Motor Show--and it was promptly hailed as "a sculpture on wheels" and "one of the year's most beautiful cars." That was music to the ears of both Maserati and Pininfarina--but for very different reasons.

Maserati saw it as a sign that its long nightmare might finally be over. The company, after all, hadn't turned a profit since the Fiat Group acquired it in 1993. But after a half-century hiatus, the Modena carmaker and the Turin styling studio reunited; Maserati has since sold about 10,000 of its 2004 Quattroporte sedans, and the first batch of 2008 GTs (400 cars will be hitting North America this fall) sold out almost instantly. For managing director Roberto Ronchi, the fate of those two models represents that of Maserati itself. As he conceded in an interview, his is a three-model company, "and there's no way to survive if these two models don't do well."

For Pininfarina, by contrast, the adulation that greeted the GT was something else entirely: a brand-building coup. Pininfarina may be fabled for its 77-year history of iconic silhouettes for the likes of Alfa Romeo, Ferrari, Jaguar, Lancia, and other first-in-class marques, but it has come to see that sort of high-end work as a powerful marketing tool for its real business--engineering and assembling far more modest vehicles for giants such as Ford and Mitsubishi. Many big automakers, looking to cut costs, goose development time, and feed the insistence on customizable components among even entry-level buyers, have begun farming out the development and production of specialty models that sell in small quantities (roughly 20,000 to 30,000 a year) to contract manufacturers in Europe, which assemble the cars in their plants.

It's a rapidly accelerating trend in auto manufacturing: outsourcing production. Pininfarina now offers a complete suite of services that can take an automaker's project from a blank sheet of paper to final delivery. And it has gambled a great deal to get there. The cost of ramping up for this sort of microbatch production ran to the hundreds of millions of dollars, pushing Pininfarina to a net loss of $29.5 million for 2006 (despite a 53.7% jump in revenues). This year, however, the company expects nearly 90% of its $1 billion--plus in revenues to come not from design, but from product-and-process engineering and the production of nearly 70,000 vehicles for Alfa Romeo, Ford, Mitsubishi, and Volvo. It also expects to be back in the black. "For us, design is just the tip of the iceberg," says Andrea Pininfarina, the mirthless third-generation chief of the company, a mechanical engineer by training. "Design gets most of the attention, but engineering and manufacturing is the massive part of the iceberg that sits underwater, invisible to everyone outside of our business."

Pininfarina wasn't the only company to see this trend emerging. Last year, the production of some 400,000 cars was outsourced to companies such as Canadian-owned Magna Steyr, which is based in Austria, and Germany's Karmann; the six largest European coach builders together generated revenues of roughly $11 billion. Indeed, the Boston Consulting Group estimates that the contract-manufacturing business will double in eight years. "We expect that this market will also develop in the U.S., as some of the factories that are being closed or sold will offer niche manufacturers low-cost opportunities to step in," says Xavier Mosquet, who heads BCG's automotive practice for the Americas.