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Veni, vidi, Vespa

Boosted by swelling sales and a successful IPO at home, the Italian manufacturer that invented scooter chic looks Stateside to sustain growth.
The Vespa GTS 250.
The Vespa GTS 250.Piaggio Press Office / AP
/ Source: BusinessWeek Online

Marcello Mastroianni would be proud. And not just because his countrymen at Vespa's parent company, the Pontedera, Italy-based Piaggio Group, pulled off a financial coup on July 11: A stentorian initial public offering on the Borsa Italiana thoroughly beat expectations, defying a weak market by rallying 14 percent on its first day of trading.

Like Mastroianni's sexy, swaggering cinema persona, Vespa has managed to maintain its classic image through a period of 8½-proportioned chaos and confusion.

Three short years ago, a successful IPO was the last thing on Piaggio observers' minds. Decades of mismanagement, a failed venture in China, and severe market-share incursions by much larger Asian firms like Yamaha and Honda had brought the iconic scooter maker to the brink. Then, in October, 2003, maverick Italian entrepreneur Roberto Colaninno stepped in, beginning the robust turnaround that led to the winning stock play.

Colaninno and his deputy, chief executive Rocco Sabelli, modernized production facilities and reorganized the factory such that any scooter could be produced on any assembly line. They brought tough-minded Italian unions on board by promising not to cut jobs, a pledge they kept. Engineers, meanwhile, were given firm deadlines, and bonuses for all employees, from the factory floor to executive suites, were tacked to customer satisfaction.

Sales rev up
With its coffers replenished and management firing on all cylinders, Piaggio's challenge now is growth. To meet that challenge, executives are targeting untapped markets such as India, China, and North America. But the U.S., with its car-dominated cities, presents plenty of challenges. Piaggio's two-pronged plan to broaden U.S. market share includes increased direct-to-consumer marketing — a new initiative for the famously hands-off company — as well as an aggressive campaign to court the country's mayors and municipal development officials. These branding initiatives are aligned with a raft of new products headed over from Italy.

Even before these new products hit the market, Piaggio's global sales have been on the upswing. In the first quarter of this year, the company recorded a worldwide net profit of $12.9 million, on revenues of $473.1 million, up from losing about the same amount the year before. In the U.S. market, where Piaggio has just a 1 percent market share for two-wheelers, the company made about $63 million in revenue, up 25 percent from last year. And the company believes it can push market share up to 2 percent or 3 percent, with revenues up to $190 million.

With the right marketing, that goal should be within reach given the rapid growth of the scooter market in the U.S. According to the Irvine (Calif.)-based Motorcycle Industry Council, a trade association of manufacturers and dealers, overall scooter sales jumped more than 15 percent last year to 113,000 nationwide. That's a small percentage of the total 1.1 million two-wheelers sold, but scooter growth has clearly been outpacing other segments. "Over the past decade, in terms of two-wheel vehicle sales, the scooter segment has been the fastest growing," says Mike Mount, a spokesman for MIC.

The fuel-economy angle
For Piaggio, the question is, what is driving that trend and how to capitalize on it. While it's not yet clear whether or how the current spike in gasoline prices is affecting sales, between Q3 2004 and Q3 2005, as the cost of gas started climbing, scooter sales jumped 64.5 percent. Dealers across the country anecdotally reported more customers inquiring about fuel economy.

In February, in response to the consumer concern — and to the President's State of the Union quip about the U.S. addiction to oil — Paolo Timoni, CEO of the Piaggio Group North America, wrote an open letter to the nation's mayors. Published in The New York Times, the letter urged local officials to look to scooters as a solution to energy and transportation woes. "If Americans were to utilize one of the latest eco-friendly models available today, they could, in aggregate, reduce national fuel consumption by 14 million gallons of gasoline a day and reduce carbon-dioxide emissions by 324 million pounds per day," the letter read.

Scooters do impress with their miserly fuel consumption. Vespa scooters that can achieve speeds between 40 mph and 100 mph get fuel economy as good as 70 mpg. Many Vespa owners, posting on scooter-themed Internet message boards, report only needing to fill up once or twice a month. Carbon-dioxide emissions for Vespa scooters, meanwhile, are about 80% lower than for regular commuter cars.

Direct marketing
Since the high-profile call to arms, Piaggio executives have been working privately with municipalities across the country to make major cities more amenable to scooting. Vespa's game plan involves working with mayors, public officials, and transportation experts to increase scooter-friendly city features, notably parking. "In most cases, we just need a few champions that will leap ahead and implement in their own cities," says Timoni. "It takes a little bit of time to crack the first one or two."

Last month, Vespa took a similar conservation message to the public with its "Vespanomics" campaign. A dedicated Web site explains how scooting can save on fuel costs and reduce emissions, and asks consumers to sign a "Vespatition" in support of more parking. Those testimonials are intended to be another piece of leverage in Timoni's negotiations with mayors around the country.

Executives say, though directed at different constituencies, the company's various plans are part of the same project. "They're different strategies to hammer on the same nail," says Timoni.

Such direct-to-consumer marketing — including last year's Vespa-themed blog — signals a shift for the trendy manufacturer. When Vespa first re-entered the U.S. market in 2000, it left marketing largely at the discretion of local dealers. Results raised some eyebrows, particularly when one dealership chose a transvestite as its official unofficial spokesperson. Of the incident, Timoni remarks: "Sometimes people take their own direction. We need to find a way to keep brand consistency and also act in a localized way."

Three wheels good
The growth of the scooter market also has a downside: As ridership grows, so do safety concerns. According to the National Highway Transportation Safety Administration (NHTSA), fatalities on two-wheel vehicles were up 18 percent to just over 4,000 deaths last year. Though motorcycle and scooter fatalities make up less than 10 percent of all vehicle-crash deaths, 2005 was the seventh consecutive year that fatalities had risen. Although Umesh Shankar, a mathematical statistician with the NHTSA's Center for Statistics and Analysis that puts the fatality numbers together, suggests those fatalities mostly involve larger vehicles, it's still an issue for the scooter company.

Piaggio's safety answer? A head-turning new scooter intended to allay concerns. The MP-3, which goes on sale in Europe this month, has two small wheels in front and one in back. The striking design, which will be available here in January, 2007, improves balance and makes cornering sharper and more nimble. "People are concerned about balancing of the vehicles, being able to brake, having stability in turns, et cetera," Timoni says. "And so, addressing some of these concerns, the MP-3 was born."

But, the company's biggest upcoming play builds on its environmental campaigns with what some consider the über-scooter: a hybrid Vespa. Execs haven't yet given the production green light to the prototype presented to the mayor of Milan last year, but, in a moment of exuberance, Timoni says, "I think sooner or later, we'll see a hybrid Vespa."