Driven By Design

But Pininfarina, which leaped into the engineering and low-run production of cars as far back as 1954, when it turned out 27,000 Giulietta Spiders for Alfa Romeo, is by far the largest design house to have pivoted to the contract-manufacturing business. And it may have had little choice. Beginning in the late 1980s and early 1990s, major U.S., Japanese, and European automakers invested massively in developing their own in-house design facilities. As a result, the big manufacturers were far less inclined to turn to outside consultants like Pininfarina for design proposals. At the same time, say automotive consultants such as Geoff Wardle, director of advance mobility research at California's Art Center College of Design, Pininfarina was "very privately" facing up to a knotty truth: Even when major car-makers did decide to outsource a niche model's design, they "no longer automatically assumed that they would get the best design by going to Pininfarina."

Around 2000, with the global economy deteriorating and the competition heating up, Pininfarina's fancy bloodlines were starting to look a little thin. The imperative was clear: diversify and grow--fast. Andrea Pininfarina remade his design studio by boosting its head count to more than 3,000 employees; launching a sleek, 129,000-square-foot engineering center on its Turin campus; and expanding its engineering and manufacturing operations to Germany, Sweden, and Morocco. (The company also ramped up Extra, its industrial-design subsidiary, which has churned out more than 300 projects since its 1986 launch.) "No European design studio moved to niche car building on a scale like Pininfarina," says Ken Okuyama, who was the company's design director until last year. "Many in the business thought it was moving too fast, too soon. But Pininfarina saw before most that outsourcing production was the future."

If Andrea and his team found this new work to be less glamorous than penning all of those Ferrari and Maserati bodies, there were compensations: Developing an entire vehicle pays a lot more than simply styling it--by about a 10-to-one margin.

But the risks are equally nasty. Pininfarina declined to comment on its deals with Ford and Mitsubishi. Analysts say, however, that contract manufacturers typically bear a significant portion--and sometimes the entire cost--of the up-front financing to produce their niche models, and Pininfarina has reportedly invested more than $900 million since 2003 to build its current lineup: Alfa Romeo's Brera and Spider, the Ford Focus Coupe-Cabriolet, the Mitsubishi Colt CZC, and the Volvo C70. Meanwhile, the ultimate fate of a contract-produced model remains in the carmaker's hands, which means the contractor can find itself stuck with a slowing assembly line--or worse--if the model doesn't sell well. To take one grim example, Michigan-based ASC, the only prominent specialty-vehicle producer in the United States, reportedly ponied up $250 million to produce General Motors ' retro-styled Chevrolet SSR, only to be left holding the bag when orders stalled. GM eventually dumped the model entirely, and this past May, ASC filed for bankruptcy.

Pininfarina's deep relationships with its customers and current crop of big contracts leave it in relatively good shape in the near term, but BCG's Mosquet predicts that at least three competitors are headed for "serious difficulty."

"Companies like Pininfarina reflect the obstinacy and ego that you find in unparalleled quantities in this industry," says consultant Wardle. "Only a car company would be proud enough--and stupid enough--to think that it could do everything." And while analysts predict that the demand for contract automotive manufacturing will grow considerably during the next decade, the industry is grappling with a bout of overcapacity as ailing carmakers like Ford and GM have been reluctant to outsource production. The result is that carmakers, short term, can squeeze niche manufacturers even harder.

"It's a tough business," says automotive consultant Ron Harbour, president of Harbour Consulting in Troy, Michigan. "The bigger the potential profits, the bigger the potential losses." For Pininfarina, that's where the burnish of its brand helps the most: as a catalyst for keeping its assembly lines running at capacity. Design may account for only a mouse-size share of the company's revenues, but its true value to the organization is almost incalculable, since the cachet of the Pininfarina look remains a powerful lure for the likes of Ford, Mitsubishi, and Volvo. "You use the halo of Pininfarina's design mystique to sell the car," says David O'Connell, chief designer for Mitsubishi Research and Design America. "To be able to say the car is developed in conjunction with Pininfarina adds a lot of status to the vehicle."

Similarly, Pininfarina benefits from its association with Maserati, which may explain why Andrea beamed as he stood next to Maserati's Ronchi at the Geneva auto show, witnessing the GranTurismo's rapturous reception. He knew that one next-generation Maserati would, more likely than not, pull in a far bigger pot of gold--a contract to crank out 20,000 or 30,000 humble-but-profitable cars for Detroit or maybe even Beijing. It's a cold, brutal bit of business logic, all dressed up in fine Italian style.