There’s never been any doubt about the industrial and financial heft of the Porsche and Piëch families. Their dynasty, descended from the son and daughter of protean engineer-executive Ferdinand Porsche, controls Europe’s most profitable car maker and its largest independent vehicle-distribution company. Between Porsche cars in Stuttgart and Porsche Holding in Salzburg the family has the means to do pretty much what it wants. Nevertheless its decision to acquire a 20-percent share of Volkswagen, Germany’s largest car company, came as a shock, writes Karl Ludvigsen.
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This action, which could only have been carried out with the complete agreement of dozens of Porsches and Piëchs, has several dimensions. One is that they see it as a good investment. When you have as much cash in hand as they do, it’s not easy to find places to invest it. Leaving it in the bank has little appeal. Thus the share acquisition is seen as a good bet by the family for the medium term. It’s an investment in a company that they know and understand.
They should understand it, with a grandson of Ferdinand Porsche chairing Volkswagen’s supervisory board. The share-purchase initiative is that of Ferdinand Piëch, also a member of Porsche’s supervisory board. Never shy of the grand gesture — witness his 250-mph Bugatti Veyron — Piëch serves notice with this deal that he hasn’t retired with his double-digit offspring to the family acres in Austria’s Zell am See. This is a clear indication that Piëch, the ultimate insider, both has confidence in the course of recovery that Volkswagen has set and was able to communicate that confidence to other family members.
The Porsche investment, to the limit of 20 percent allowed under German’s “Volkswagen Law”, is also one in the eye for a fellow member of Piëch’s Wolfsburg supervisory board: the minister president of Lower Saxony, Christian Wulff. In the job since 4 March 2003, in just over two years Wulff has managed to rub Piëch the wrong way. He’s been publicly outspoken about VW’s problems, saying that it has capacity to make 6.0 million vehicles but has been producing only 5.1 million and highlighting its shortcomings in personnel costs and what Wulff calls “sales stagnation”. This can’t go down well in Wolfsburg.
Nor are Piëch and Porsche boss Wendelin Wiedeking happy about Christian Wulff’s campaign for greater transparency in financial reporting. As deputy chairman of the CDU, Wulff is among those who’d like to see German corporate reporting more on the American model. VW has in fact made some changes in this direction, but like other German companies it prefers an opaque accounting style that permits the husbanding of reserves for a rainy day. Nor is quarterly reporting seen as desirable in the highly seasonal motor industry. Specifically to avoid this burden Porsche withdrew from the M-Dax in 2001.
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By GlobalDataChristian Wulff sees it as his mission to keep the pressure on VW. “One thing’s clear,” he says: “When VW gets the sniffles a flu epidemic breaks out through all of Lower Saxony. Thus the state government has a vital interest in keeping the cost structure competitive in VW’s West German factories, in bringing its quality to the top level again and in matching its model policy closer to customer requirements. We want VW to become fully competitive again. We want to keep all its enterprises in Lower Saxony. Last but not least for that reason we will continue to hold the state’s participation in the future” — a reference to its 18-percent share of Volkswagen Group.
If I were Ferdinand Piëch I’d deeply resent the implications of such public assertions that VW needs the state’s help to get its act together. Rather the state, obsessed with joblessness reduction, has been the dragging anchor that keeps VW from making the deeper workforce cuts that it knows are needed to improve competitiveness. In Europe, said, one CEO, “Volkswagen is the last enclave of communism”. VW would clearly be better off if Lower Saxony divested its shareholding.
If however the state sold its shares, and if the EU is successful — as many expect — in its current effort to strike down the Volkswagen Law, which it sees as restraining trade, the VW Group would be exposed to predators. The interests of some of these could be inimical to the many mutually beneficial arrangements between Porsche/Piëch and VW. They might have other means of selling VW, Porsche and Audi cars in Austria and the east than through Porsche Salzburg, for example. They might not be keen on the platform sharing practised between the VW Touareg and Porsche’s Cayenne, a successful strategy which may be repeated with a new smaller SUV in the future.
Most of all, the Porsches and Piëchs fear an attack on Volkswagen by DaimlerChrysler, against which their ownership of one-fifth of the company acts as a fresh deterrent, one that will remain in place if the state’s share is sold. For they detest DaimlerChrysler. Even in its present globe-girdling form the Stuttgart neighbour of Porsche is clearly “Mercedes”, an enterprise against whose past actions they hold an implacable grudge. In particular they haven’t forgotten that Daimler-Benz fired their dynasty’s founder in 1928.
Having joined Daimler in 1923, Ferdinand Porsche was in charge of its engineering during one of the most turbulent episodes of its history. Taking the job had been a bit of a comedown for Porsche, who’d previously been managing director of Austria’s Austro-Daimler, but he was determined to make a good fist of product policy at Daimler. But then in 1924 Daimler and Benz began to combine their interests, followed by a full merger in 1926. This brought the combined company huge product and technical challenges, plus a passel of Benz engineers who lost no opportunity to criticise Porsche’s work.
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Ferdinand Porsche, at the wheel of the Austro-Daimler with which he won the 1910 Prince Heinrich trophy, Europe’s most prestigious contest for touring cars |
With the company moving too quickly to introduce new smaller cars, some of Porsche’s Daimler-Benz entries were bug-ridden. Launched in 1926, his 2-litre 8/38 was popular, priced at well under 10,000 marks and selling in four-figure annual volumes. The bad news was that early cars suffered problems with valves, gearboxes and erratic braking. A later audit indicated that the 8/38 cost Daimler-Benz a minimum of six million marks in warranty repairs, an average of 570 marks per car produced based on 10,504 cars produced from 1926 through 1929.
The warranty cost per car was high but may be seen as less than astronomical for a model selling at around 7,500 marks. Because the 8/38 was the first model ever produced in four-figure yearly volumes by Daimler, Benz or Daimler-Benz, its problems and their resolution placed unprecedented pressures on its dealer and service networks that had their echoes in the boardroom. Nevertheless the 8/38 evolved successfully into the 200 and 260 Stuttgart models, which were produced well into the 1930s.
The buck for the 8/38’s maladies stopped at Porsche. Informed that the technical director hadn’t been responsible for the 8/38’s detail design, the supervisory board rejoined that it was created under his stewardship and thus was his responsibility. Coping with the company’s huge range of models, produced at dispersed locations and exported throughout the world, tested Ferdinand Porsche’s capacity for organisation and oversight beyond its previous limits.
Meanwhile in 1926 Ferdinand Porsche initiated work on a new small car. In 1928 it matured as the four-cylinder W01 of 1.6 litres. Plans were laid down for production of this promising new model at a rate of 1,000 cars per month, an order of magnitude more than the company had ever essayed and a sign of its confidence in Ferdinand Porsche’s design. Whether this would happen depended on the ability of the company’s consortium of banks to provide credit lines for the 10 million marks needed to fund the tooling and machinery.
To their dismay — for they believed strongly in Porsche’s design — the Daimler-Benz board was rebuffed by the banks. Although they agreed that such a car was needed, the banks hadn’t the courage to stump up the needed investment. They blamed the bad experience with the passenger cars that the company had most recently introduced. Here was a direct reference — and a negative one — to the problems with Porsche’s 8/38.
Instead of defending the car and its designer, the supervisory board decided that the Austrian engineer had to go. Matters came to a head in a stormy October 24, 1928 board meeting from which Porsche drew the clear conclusion that his services were no longer required. Thus were the engineer and his career sacrificed by the Swabians for the greater good of Daimler-Benz.
The board tried to engineer a genteel transition that would keep Porsche’s skills within the house and out of the hands of rivals. He should take a longish study trip to America, they suggested, to learn more about the US-built cars that were causing ructions in Europe’s markets. When he returned, they promised, he would be a senior advisor and “would be involved in all the major and difficult projects.” Such a passive role, however, was never Ferdinand Porsche’s cup of tea, not even at the age of 53.
Porsche’s exit from the Daimler-Benz management board was anything but amicable. He’d just started a new contract with the company after his first one expired the previous April. Anton Piëch, newly minted as his lawyer son-in-law, led a lawsuit against Daimler-Benz over the dismissal which was settled out of court in 1930. This Anton Piëch, married to Porsche’s daughter Louise, was the father of Ferdinand Piëch.
During the 1930s, to meet the exigencies of the Third Reich and to ensure the employment of the engineers in his new consulting company, Porsche worked with Daimler-Benz again. It built prototypes of the Volkswagen and funded Porsche’s design of a land-speed-record contender. But theirs was a shotgun marriage. The way Porsche was kicked out of the company rankled then — and still rankles.
In the last half of the 20th Century Daimler-Benz tried to kiss and make up. It assigned some design contracts to Porsche’s engineering consulting arm. Early in the 1990s, when Porsche had capacity to spare, Mercedes asked it to engineer and produce its 500E model as a gesture it hoped would be interpreted as friendly.
In the mid-1990s Daimler-Benz came close to forging an alliance with Porsche. Both had decided to produce SUVs and there seemed good reason to co-operate in their design and manufacture. Toward the end of 1996 the deal was on track for signing. There would be a Porsche version of the coming M-Class, with the two companies sharing engineering costs and certain components.
The parties sat for a final discussion. Across the table from the Porsche contingent, said Porsche boss Wendelin Wiedeking, “someone on the board said they would want a small piece of the company.” This was as a red flag to a bull. Wiedeking knew that the Porsches and Piëchs would never entertain such an idea.
“I’m not spending a second to discuss this,” rejoined the Porsche chief. “Let’s close the books on this right now.” The other party was dumbfounded that Wiedeking wouldn’t even talk about the idea of a Mercedes shareholding in Porsche, but for the Porsche man “even one share would be too much. I didn’t even speak to the shareholders about it.” He knew well that they wouldn’t tolerate even a chink that might give Daimler-Benz access to ownership in Porsche.
Nor do they want to see DaimlerChrysler buying into Volkswagen, the company that was managed during the war by Ferdinand Porsche and Anton Piëch. For 25 years afterward Porsche acted as VW’s engineering office. Major sports-car programmes such as the 914 and 924 were shared between VW and Porsche. VW covertly funded major racing programmes at Porsche when Ferdinand Piëch was the latter’s technical board member. In the cosy industrial world of Germany such ties are not easily broken. Small wonder that they have been reinforced, indeed, by Porsche’s investment in Volkswagen.
– Karl Ludvigsen
Readers who are interested in knowing more about Porsche’s business history are invited to read Karl Ludvigsen’s new book, Porsche — Excellence Was Expected, published by Robert Bentley (www.bentleypublishers.com) and available at specialist booksellers.
Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.
