L.A. Auto Show: Porsche acquired VW to save itself

Largely overlooked in the Detroit Big 3 death watch/three-ring circus has been one of the most incredible examples of clever stock trading in modern history. And it happened at a car company!

Last month, Porsche AG surprised the world by announcing it had acquired a nearly 43% stake in Volkswagen AG with an option to buy 32% more. Without anybody noticing, wee little Porsche, maker of scarcely 100,000 cars per year, had cornered a 75% position in VW, which cranks out nearly 6 million vehicles. And since nobody guessed how large Porsche's position was beforehand, short sellers suddenly got caught with their pants down, driving VW stock into the ionosphere. VW shares quintupled, peaking at over 1,000 euros, and making VW, briefly, the most valuable company in the world.

Needless to say, Porsche found itself in the catbird seat, able to sell part of its position without having to cede control of the bigger carmaker. It was a great example of the business acumen of a company that has the highest profit margins in the world of cars.

How high? About 12% high, according to Klaus Berning, a member of Porsche's board and head of sales and marketing for the company, who helped introduce Porsche's new Boxter and Cayman models at the L.A. Auto Show on Wednesday. But the highlight of his speech was ...

the revelation that, incredibly, Porsche's acquisition of VW isn't about the money. Apparently it's about saving Porsche. "Our VW strategy is part of protecting Porsche," said Berning. "It is our guarantee that Porsche will remain Porsche."

The startling remark -- that without Goliath, David was imperiled -- largely fell on deaf ears because the audience was more concerned with the new double-clutch gearbox on display than, well, a multibillion-dollar acquisition that shook the financial world, or the fact that one of the company's execs suggested that hugely profitable Porsche was somehow in trouble. 

Approached afterward, Berning elaborated. Apparently, Porsche is not on the verge of bankruptcy. Instead, the acquisition would allow the smaller automaker to rely on VW's considerable engineering capacity to help it develop a new hybrid drivetrain for its Cayenne SUV, as well as on other technological advances in development. "A company of our size needs a technological partner," he said. "To secure our projects, we had to make sure [VW] would not go to some sort of investment fund.

"That we made money out of the hedges is a nice thing," Berning continued, "but the main objective was to get the technology."

Let's get this straight. Porsche, which made 3.6 billion euros last year from investments and 1 billion euros from selling cars, bought the profitable Volkswagen AG, one of the world's top six producers of vehicles, and a regional powerhouse in Europe, South America and elsewhere, just because it can help it make a hybrid version of the Cayenne, only about 10,000 of which  (without the hybrid option) have sold in the U.S. this year?

As the old saw goes, when someone says it's not about the money, it's about the money.

--Ken Bensinger

Photo of Wolfgang Durheimer, Porsche's head of R&D, and Klaus Berning, Porsche's head of sales and marketing, unveiling the Porsche Cayman at the L.A. Auto Show by Reed Saxon /Associated Press.

Comments

[sandra]

But does this mean that it was able to increase its leverage to buy Audi? I heard that although Audi is owned by VW, it would resist efforts to be taken over by Porsche.

[Bob Graham]

It's certainly about a lot more than the Cayenne part. All kinds of things in Porsches have always been bought off VW's parts shelf... Simple things like knobs and such. Porsche doesn't want to have to waste their time designing simple little things. VW's size is also more conducive to the development of more complex technologies like fuel injection and electronics.

[Ugo]

I read about this the day it happened and it was nothing short of brilliant, given the market conditions. Whoever runs Porsche's finances is a genius as far as I'm concerned...its amazing how you can first admire a company for its engineering (the 911 is the worlds best engineered car, ever) and then to turn around and realize they're brilliant financially as well.

My hat goes off to Porsche. Well played gentlemen.

[Sophie]

The main difference between VW and the American automakers is that VW makes cars people want to buy.

[Michael Goetz]

I imagine Porsche bought VW in response to pending EU policy that would require automakers to include economy cars in their fleet to combat global warming. Porsche was very upset when this was proposed and did not want to offer high gas mileage Porsches. Now millions of economy VWs will balance out a hundred thousand Porsche performance cars a year.

[adracer]

Porsche uses no VW parts.

[Michael Sin]

In other words, Porsche rescued themselves from corporate average fuel economy (US) and CO2 (EU & California) standards.

With cars like the high-volume 41-mpg Jetta TDI offsetting low-volume cars like the 16-mpg 911 Turbo - one of the more efficient supercars, by the way - Porsche can continue building powerful, road-hugging sports cars without having to further dilute their brand with four-cylinder economy "Porsches."

Remember the 914?

[356man]

Picture Daimler pulling this off. Ferdinand is laughing in his grave.

[H Tran]

Porsche TDI anyone? The Cayenne excuse is telling since it began as a VW-Porsche joint initiative (Toerag spawn). What happens with Audi and Lambo is going to be interesting.

afaik Aston Martin now is the sole independent sports automaker. Not a great sign.

[Asim]

This was one of the few feel-good stories to come out from the stock market this past 6 months.

[Das Porsche]

Porsche created VW for Hitler, now they're just taking it back..no they're buying it back.

[Northerner]

I wonder how much the execs at Porsche make? Probably not nearly as much as the "all-stars" at Chrysler. However, that's besides the point.

I don't think any of the domestics were in a position to purchase large stakes in VW since they were all shedding assets at the time. So, to be far, its not that the domestics failed to think about doing this, its that they weren't financial able.

[Willie Rosenthal]

My 911 has had $8,000 in repairs since I've owned it. Maybe the Volkswagen acquisition can help them shore up their shoddy engineering and terrible paint jobs. Porsche does have nice interiors though, with enough room for my girlfriend and basketball equipment.

Really, the only thing that can "save" Porsche is a resurgence in desire for muscle. Not too likely in the face of CAFE standards, greenies and tree-huggers in the Pacific Northwest and California.

[H Tran]

Was purely a snarky comment but a Porsche Cayenne TDI is in the works! Supplied by Audi and to be available in the Euro market early 2009. http://www.guardian.co.uk/business/feedarticle/8050363

Mention of a 3.0 V6 unit, no talk of the 4.2 V8 in the Q7 (0-60=6.5sec).

[MichaelL]

I have some 33000+ miles on a 2006 997 2S Cabrio. A couple minor glitches on convertible top & windows. The drivetrain, suspension & brakes are bulletproof under vigorous driving.

[Broward VW Repair]

The post is really interesting. The last time I went for my VW repair I picked a service provider that assured me a 12 month or 12,000 mile warranty on labor and parts installed and provided by them. Isn’t it wonderful? I think if you are looking for a service provider for VW repair, make sure that they provide warranty on their services.