Dr Wendelin Wiedeking must have been bursting to explain the Porsche investment in VW for ages. All those months ago, when the announcement was first made and the conspiracy theories were thick on the ground, there was very little guidance as to why on earth a small, successful, independent, sports-car company would want to be heavily exposed to the vagaries of a volume car company saddled with an arcane shareholder structure and with an obsolete trade union power block on the governing body.
Go deeper with GlobalData
Reading between the lines, the reasons are clearer. Porsche’s recent surge in profitability has been built on the back of the Porsche Cayenne, and the cracks are now beginning to show in the structure of that sector.
In addition, the whole luxury car sector is overdue a shock. There are not many who now remember the three-day week in the UK and petrol rationing in America. Those were the days when a Porsche dealership was visited only by property redevelopers and Rolls was giving cars away with Cornflakes.
If and when the demand turn comes, Porsche has already selected VW as the safe haven in which it can weather the storm. It’s quite clever to choose who the successful takeover bidder should be before the bidding starts.
But for now, the mood is entirely one of satisfied celebration. The announcement yesterday of the Porsche financial results to the end of July 2006 was just one superlative after another.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataWhat was there about the VW investment to query when so much money had been made from the transaction? Dr Wiedeking was beside himself with excitement. “David chose to play a role he was not supposed to play under traditional wisdom: our acquisition of a stake in Volkswagen was seen by many as a provocation. And although we did not attack anyone some prominent players felt they were under attack…now everyone not acquainted with the tactics we carefully considered in advance is feeling nervous.”
There is advantage, he declared triumphantly in wrong-footing everyone – or as it was translated for us by Porsche out of the original German – giving everyone involved “the problem of all of a sudden realigning their system of co-ordinates.”
“For as long as the outsider cannot quite understand what is going on there is sufficient room for vivid imagination and all kinds of ideas.” For some of us, there is a vivid picture of Dr Strangelove in a nuclear bunker.
Money talks. There will be no naysayers at the annual general meeting of the Porsche shareholder faithful when the AGM is held after Christmas. So much money has been made from the VW investment – more than EUR1bn – that there are backhanders for all. The shareholders are being offered a one-off dividend lift of 60%. Employees are to get an EUR3,500 bonus. And there will be a bonus to employees’ retirement schemes.
This is a one-off bumper handout in all probability. Most of that money was made on a straightforward stock market punt – a stock price hedging strategy is the polite way in which it is described.
Wiedeking says that there should be another stock valuation gain this year but that the operating profit booked will at best be at the same level of last year’s record. Then, wait for it: “A quantum leap of the kind we saw last year…is not necessary in any way at all considering the confidence we have in our own skills.”
Blimey. There’s a confident boy for you. But yet all in the world of the playboy’s plaything is not exactly rosy as the good doctor himself describes. His financial results are all the more “astounding” given that his competitors were giving “absurd” discounts in the US. Why, in the Boxster class, there was an unnamed player offering a US$10,000 discount.
“Customers spoiled by discounts of this kind will never again pay the list price of a car. Clearly this is destroying a business system that still functions today. And I can only warn everybody from continuing a policy of this kind since ultimately it will never lead to success but rather to pyrrhic victory at best.”
Anybody from the Cartel Office out there reading this? And might we not argue in looking at the 21.5% operating margin in these results that maybe the good doctor’s company was making excess profit at the expense of gullible consumers?
I think we see the trouble. Porsche 911 is unassailable. It is a superb concept superbly presented. The Cayenne however is a heavily compromised machine now facing formidable opposition from all of the world’s premium carmakers and it’s not even pretty. There is a refreshed Cayenne in February that blows the cobwebs off the five-year-old, but sales in the first four months of the new financial year are down 29%. Total Porsche sales in the US are down 18%. And the dollar is so worthless it is barely worth taking.
In the US and in the UK demand for SUVs has slumped disproportionately as consumers take heed of high fuel costs, and local politicians plan fines for people who disregard the Inconvenient Truth that generating double the carbon necessary on every car journey might be a bad thing.
Celebrate while you can gentlemen. There may be hard times ahead.
Rob Golding
See also: GERMANY: Porsche “moderately confident”
Related Company Profiles
Porsche Holding GmbH
AGM, Inc.
Rolls
VW Company Limited
Volkswagen AG