Opinion column: Porsche and Volkswagen
Let me tell you a story about how to get rich in the motor industry – it doesn’t involve making cars. In July, Volkswagen, the world’s biggest car maker, announced that it would buy the remaining 50.1 per cent of Porsche for €4.46 billion (£3.6 billion). So Volkswagen will end up with Porsche, and here ends an epic saga of super egos, lucrative share dealing and money making on a grand scale.
It still seems almost unbelievable that this tiny sports car maker from Zuffenhausen could make profits of €8.57 billion (£6.8 billion) in 2008, with €6.83 billion (£5.41 billion) as a direct result of trading in Volkswagen shares. I was there in November 2008 at the Porsche shareholders’ meeting when then-chairman Wendelin Wiedeking announced that Porsche Group’s profits in 2007/2008 exceeded the €7.5 billion (£5.9 billion) revenue it made from building sports cars. I’ve still got the pen they gave us – a modest biro, but a salutatory reminder of motor-making hubris. “We cannot have profit exceeding revenue every year,” said Wiedeking. “This is the last year we will do this.”
He and the board had effectively turned the 60-year-old car maker into a hedge fund in an attempt to buy Volkswagen, and his personal bonus for this piece of financial wizardry amounted to about €7.74 million (£6.1 million). It took Wiedeking’s 2008 compensation package (which is what motor-industry plutocrats call ‘wages’) to an estimated €80 million (£63.4 million), an amount which he defended incessantly. “We’ve been treated adequately,” he joked, asserting that Porsche’s profits were the result of the “industrial logic” of taking a controlling interest in Volkswagen.
But was it really logical? German journalists at the meeting thought not. Three weeks before the meeting, there had been a short-selling trading spree in VW shares – which hit the buffers after the hedge funds and banks that had bet that those shares would fall in value – found themselves unable to cover their positions when it became known that Porsche either owned or controlled through options a huge amount of the available shares. Millions were lost in the single day’s trading, and after losing an estimated £400 million in trading short, Adolf Merckle, one of Germany’s richest men, committed suicide by throwing himself under a train.
Wiedeking was unapologetic. Referring to the hedge funds and banks that lost millions, he said: “we have not and will not take any steps deliberately to harm them… [but] he who speculates on the opposite, despite better knowledge, should not be surprised at the result.”
Yet less than a year later, Wiedeking was out (with an estimated payoff of €50 million/£39 million), to be replaced by his production director Michael Macht, as the Lehman Brothers collapse and the recession saw a flight from the luxury car market. Like its rivals, Porsche cut back and struggled to maintain the loans it had taken to trade in VW shares.
VW stealthily and steadily closed in on Porsche. Macht moved on in 2010, and was replaced by Matthias Mueller, the former product planning genius at VW. In his first interview, Mueller asserted the benefits Porsche could bring to VW’s brands, particularly Bentley. Since then, Porsche engineers have been transferred across the VW Group brands and vice versa. Assimilation has begun.
Does any of this matter to Porsche owners? An examination of Wiedeking’s history shows he virtually saved the company. Bringing in Macht and his Toyota-style cost-cutting and lean production techniques, together with satellite production facilities in Finland and Austria and a new plant in Leipzig set Porsche up as a lean, mean production machine. A controversial model strategy might not have pleased Porsche purists, but the Cayenne SUV, developed with VW, was a mighty profit maker, with over 100,000 sold in ten years. Without it, the 911 might not still be here.
Wiedeking’s biggest mistake was failing to carry VW’s principle movers and shakers with him. His abrupt management style alienated the state of Lower Saxony and VW trade unions. He clashed with VW chairman Martin Winterkorn and, most fatally of all, Ferdinand Piech, chairman of the supervisory board. He effectively split the Porsche and Piech families, who control large parts of VW and Porsche. Spare your tears, though – he’s counting his money at his leisure.
But is VW ownership a good thing? The jury is out, but don’t expect to wave goodbye to SUVs. A smaller SUV, the Audi Q5/Volkswagen Tiguan-based Macan, is slated for launch next year, and Audi, Volkswagen and Porsche are arguing over the future for a small, mid-engined sports car based on the VW BlueSport concept, which debuted at the 2009 Detroit Show.
What will help Porsche are the resources of the VW empire, with access to base engines for hybrid models, turbodiesel technology and the widgets and parts car makers need to keep unit costs low. Economies of scale will help keep costs down on a raft of smaller models, but they also chip away at their distinctiveness, and Porsche’s brand equity will die a little.
What about the 911? The badge will live on. The 911 is regarded as inviolate by Porsche and VW, and those who tamper with it do so at their peril. But what is the core of the 911? Does it matter if it shares air conditioning units with the VW Passat or radio innards with the koda Superb? VW is bent on sharing structures and parts, and Porsche is not immune to integration.
Climb into a 1989 964 model, however, and you’ll see what can be lost and gained in the process of assimilation. Those rubber-edged pull switches, the haphazard dashboard layout, the floor-mounted organ pedals and the bent lolly-stick steering-column stalks might not be the last word in ergonomics, but they were statements of individuality. As Groove Armada sang, “If everybody looked the same, we’d get tired looking at each other.” Let’s hope that fate doesn’t beckon for the 911.