CFO in the fast lane

There are few people who are privileged enough to be photographed posing with a gleaming red Ferrari, let alone have the chance of a spin on a Grand Prix circuit. But then, there are not many accountants in the financial driving seat of one of the most famous and influential sports car brands in the world. I imagine that is why Fang Qian, CFO of Ferrari Maserati Cars International in Shanghai, is beaming during his photo shoot. I cannot say I blame him. “There are so few brands worldwide that have such recognition,” begins Qian. “I think almost everyone has a notion of what Ferrari is about, whether through experience or imagination. So, when I received the job offer, I decided it was too good an opportunity to miss.”

Qian joined Ferrari in September 2004, in the month of the inaugural Chinese Grand Prix in Shanghai. A fan of Formula One, Qian had even bought tickets to attend the event. It was an auspicious occasion, not only for China, which unveiled its new Grand Prix circuit and put itself firmly on the map for Formula One racing, but also for Ferrari, whose driver Rubens Barrichello won the Grand Prix and helped boost Ferrari’s standing in the country. At the opening ceremony of Ferrari’s new showroom in Shanghai, Ferrari F1 general director Jean Todt reportedly said: “We really wanted to win here today. China is a very important country for our future. Our goal is to make China the fourth largest market in the world for Ferrari.”

From scratch

A joint venture between the Italian sports car company and China’s Poly Group created the Ferrari Maserati Cars International Trading (Shanghai) Company Ltd, which serves as the only importer of Ferrari and Maserati cars in China. Qian, newly-installed as CFO, recalls that when he joined the company, the head office in Shanghai was under decoration at the time. “Part of the excitement of joining a company like Ferrari is the brand... but also because it was a start-up company in China, everything had to begin from scratch and that was an experience I didn’t want to miss.”

With a team of seven, Qian is responsible for the finance, administration and human resource management of the company, which means that as CFO he is much more hands-on than he was in his previous jobs with Unilever and General Electric, both large, international manufacturing companies with offices in China. But Qian argues that developing expertise, and understanding the minutiae of the business, is vital in an industry with complex rules governing importation. He cites the reams of legislation and tax rules introduced by the Chinese Government to satisfy its WTO commitment on imports and to tackle environmental hazards from high emission vehicles.

“Taxes and legislation have changed a lot in the past two years. Previously, anyone could import a car into China from any source, but that has since changed. A dealer has to be appointed by the factory and cars must come from an identified source, which means no grey imports. And, with China’s WTO commitment, the import quotas, which were previously set by the Government, have been abolished,” says Qian. Both developments allow foreign car companies to enter the Chinese market and set up dealerships in key cities, including Shanghai, Beijing and Guangzhou, but Qian notes that the lengthy process of delivering a custom-made sports car into China brings with it a plethora of red tape. He continues: “Just to make things a bit more complicated, the two taxes governing imports change so often, which makes the budgeting process difficult and involves constant communication between the dealer and customer on potential costs.”

This year has seen two further tax changes that have affected car imports. In July, customs duties on imported cars fell to 25%, half the level it was 10 years ago. The move was welcomed by the car industry, which is attempting to ride out a difficult period with rising oil prices and an appreciation of the Chinese yuan affecting sales. The same could not be said of the Ministry of Finance’s decision in April to raise the top tax rate for cars with an engine size of four litres and above from 8% to 20%; small-engine vehicles are taxed at 3%. This particular tax hike was in response to China’s recognition that it has a growing pollution problem. Moreover, the Government is accelerating plans to impose a tax on fuel to curb soaring consumption. According to the China Association of Automobile Manufacturers, the efforts have made an impact: low emission economy cars were among the best-selling cars in the first five months of 2006. Interestingly, the Association also noted that luxury cars sold well in the same period.

Potential Ferrari buyers are unlikely to be fazed by the Government’s consumption tax or the impending tax on fuel; after all, if you are going to invest a sizeable sum in a luxury vehicle, then you probably will not be persuaded by the Government’s attempts at attracting drivers to more economical cars. However, Qian defends Ferrari on its environmental impact in China. “I think we should concentrate on the fact that China has a lot of polluters and far more inefficient cars on the roads and that’s why the Government is looking into the issue of emissions,” he argues. “Ferrari owners don’t use their sports car for going to work or getting out and about; it’s a weekend car that doesn’t get taken out that much. And besides, there are a limited number of people in China who own Ferraris.”

In 2005, Ferrari imported 80 cars to order for customers in its first full year of operation in China through its 10 dealerships; this year, sales are expected to double. It is a far cry from the level of sales recorded by luxury car stalwarts Bentley and BMW, both of which are established brands in China, says Qian. “The sports car culture in China has not been growing to the level seen for luxury sedans. The wealthy still prefer comfortable, luxury cars driven by a chauffeur but things are changing. People are starting to drive at the weekend and want some fun with their car, and that’s why the sports car market is there.”

Although still in its infancy, the sports car is starting to capture the hearts of China’s elite. The Hunan Report, aimed at China’s richest individuals, issued its 2006 Best of the Best list earlier this year in which Ferrari was voted the best sports car among the 500+ high net worth individuals surveyed. And late last year, Lamborghini opted to get a piece of the luxury car market by opening a showroom in Shanghai.

The potential is certainly there. According to Merrill Lynch and Capgemini’s World Wealth Report issued in June this year, more than 320,000 mainland Chinese have a net worth of over $1m (10m yuan) and, with China’s GDP continuing to nudge double digit figures (this year’s GDP is expected to be 9.6%), the number of millionaires is likely to increase. That, coupled with China’s enduring fascination with luxury goods, bodes well for Ferrari. “We’re confident that China can be the second biggest market in Asia (after Japan) in three to four years time,” says Qian.

Raise profile

He points to a growing awareness of the brand in China through the Grand Prix but also other events held by the company to raise its profile. In 2005, Ferrari completed its 15,000 Red Miles Tour: two 612 Scaglietti travelled all over China, covering more than 24,000 miles and crossing 37 towns in 45 days. The historic journey ended in a glittering celebration in Shanghai marking the end of Ferrari’s first year in China. Less ostentatious, but equally effective, are events organised by the team in Shanghai, from track events on the Shanghai Grand Prix circuit where customers are invited to race, to invitations to view the paddock during race weekend, all of which aim to promote a sporting club spirit among existing and potential Ferrari owners. “We’re doing a lot to generate demand. For our targeted customers, a Ferrari is a status symbol in China; the roar of the engine and the colour – red is the most requested not only because it is the colour of good luck in China but it is also the colour you see on the race track. If you want to show off, it’s ideal.”

Aside from the challenges of operating in a competitive luxury market in China, and grappling with evolving legislation and tax law governing the car industry, Qian confesses that he enjoys his job because he thrives on working for a dynamic and unique business, which he describes as being part of an exclusive club. “Selling a Ferrari is an intensely personal experience. You get to know the customers and you also need to communicate with the factory in Italy because the orders are custom-made, both of which gives a human touch to the job. Also, the exposure to the media is enormous. Ferrari is a small company and the phone lines are often buzzing. Plus, we get tickets to the Grand Prix and the paddock, to which we invite VIPs and journalists. It’s a very unusual environment in which to work. I’m fortunate because I have a role that allows me to combine my skills and expertise as an accountant with my personal interest in Ferrari.”

Qian’s garage is not home to a Ferrari; he owns a sensible Mazda, but he has experienced first-hand the allure of being in the driving seat of a Ferrari on the Shanghai circuit. “I drive a family car, but once you’re behind the wheel of a Ferrari and put your foot down, ah the power. It’s like steering a 250km per hour go-cart,” he says, bursting into peals of laughter. “There’s nothing quite like it.”