Powering its way down the track: Ferrari is back on top, giving McLaren a run for its money in the F1 championship and again making arguably the most exciting sports cars in the world. Photograph: David Sleator

Hired to revive a flagging Ferrari, Luca di Montezemolo, ex-World Cup organiser, says a car must make you fall in love at first sight

Luca di Montezemolo is the kind of man you expect to find driving a Ferrari. Good-looking, flamboyant, charming in that easy, jet-setting manner. You would expect him to dabble either in the film or fashion business perhaps both. Yet Mr Montezemolo has run for the past eight years what he himself concedes is a most peculiar manufacturing company.

After organising the 1990 soccer World Cup in Italy, he was brought in by Fiat, the Turin automotive conglomerate, to revive the flagging fortunes of Ferrari. Fiat's pedigree sports car subsidiary had fallen on hard times, both on the Formula One circuit and in the commercial market.

Its legendary founder, Enzo Ferrari, died in 1988 and the company had lost its way. It was battered by the crisis that hit the world car industry in the early 1990s, and if it was selling cars it was solely because of its name.

This is no longer the case. Ferrari is back on top, giving McLaren a run for its money in the F1 championship and manufacturing again what are arguably the best and most exciting sports cars in the world in spite of growing competition from bigger rivals such as Porsche, BMW, Mercedes, Jaguar and Aston Martin.

As Michael Schumacher screeches around the nearby FI test track, Mr Montezemolo explains why Ferrari is unusual. It does virtually everything in-house at its small plant in Maranello, outside the central Italian city of Modena: from the foundry to the final assembly line. "We are like General Motors with the same problems but on a smaller scale," he says.

"We sell our cars in 40 markets, accounting for about 90 per cent of the world automotive market. And we export 90 per cent of our production. In this we are similar to the fashion industry, except they only export design while we also export technology."

After reorganising and re-engineering, the plant won important labour concessions which improved productivity through a system of performance-pay related to quality of output. Ferrari then renewed its car range, "keeping the key elements of a Ferrari but addressing new market demands".

The three main characteristics of a Ferrari, Mr Montezemolo explains, are extreme performance, design and emotion of driving.

"Extreme performance is not just speed. These days you can buy a Golf GTi with super speed. It means you can do anything such as braking in one centimetre. The car also has to be like a woman making you fall in love at first sight. As for emotions, the engine must sing to you and the car must make you feel you are driving something unique."

At the beginning of the 1990s, Ferrari's range was based on two models, "with two seats, very uncomfortable, very extreme", he says. "We decided to do a number of things: build cars that were less difficult to drive, keeping the basic Ferrari characteristics but which were not just for rich collectors but something for enthusiasts to enjoy. We then developed a small range of products with the slogan "different Ferraris for different Ferraristi": one with the engine in the front, another in the back, a two-seater, a two-plustwo seater. We also now offer 17 different colours and you are no longer obliged to buy the Ferrari red."

As a result, Ferrari's market broadened. Mr Montezemolo toyed with the idea four years ago of building a smaller, less expensive Ferrari. "But I've decided I'll never do a small Ferrari. It would destroy the concept just as I will not produce more than 3,500 cars a year in spite of far greater demand because I want to preserve the marque's exclusivity. I don't want to take any risks on quality and I don't want to lose control of the used-car market."

There is strong technological support. "We spend more than any other car manufacturer on research and development as a percentage of sales," he explains. Ferrari last year spent about 150 billion lire (£59.7 million) on R&D on sales that topped the 1,000 billion lire mark for the first time in the company's 51year history. Pre-tax profits were also sharply higher at 37.8 billion lire, compared with 12 billion lire in 1996, reflecting the company's turnaround.

To consolidate its position in the super sports car market, Ferrari continues to glean new technology from its motor racing activities. It recently adapted its F1 transmission system, whereby the driver changes gear by flicking small panels on each side of the steering wheel, to its 355 sports cars. Mr Montezemolo believes the system will eventually "revolutionise the way we drive". Already BMW is considering introducing such a system and Fiat is also planning to adapt it to some of its models.

The problem for Ferrari is that there is a limit to extremes. "You can't keep pushing the prices up (they start at $150,000 [£105,455]) because you might as well then buy a helicopter and you can't keep pushing up performance because you will end up with a jet and not a car," Mr Montezemolo says.

For this reason, he has also been nurturing the Ferrari "numero uno" image. The idea is to make Ferrari owners feel special. Thus customers since last year can customise their cars to make them unique. Customers can also tour the plant, take special driving courses and gain a "pilota Ferrari" certificate, and acquire a range of products from expensive watches to golf bags developed under careful licensing and merchandising agreements to protect and enhance the famous brand.

"It's also quite a good little business," he says. Merchandising last year earned Ferrari 20 billion lire in royalties. Displaying on his desk samples of his catalogue, Mr Montezemolo quickly adds he has no intention of turning Ferrari into "a supermarket".