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Opinion: Bye-bye Porsche?

2009-08-11 08:00

Lance Branquinho

Porsche has come full circle and is about to be gobbled up by VW. How’d that happen?

How did this renowned company, with its unmatched profit ratios per car, impeccable engineering pedigree and unmatched brand equity go from being an independent, performance car building icon to becoming just another brand in the VW organogram?

We delve into the companies' shared history, hunting for signs.

A notorious history

When company founder Ferdinand was appointed chief designer for Daimler, the Porsche family moved from Vienna, Austria to Stuttgart, Germany.

After a spat with Mercedes, Ferdinand started his own auto engineering design consultancy, enjoying particular success with the phenomenal Auto Union racers of the 1930s. He was closely associated with another Austrian who was to have a profound effect on Germany’s fortunes – Adolf Hitler – and started providing military design and engineering solutions for the Germany army during World War II.

As much as war tenders made the Porsche family considerably wealthy, allied bombing of Germany’s industrial zones left them in ruins by 1945. Before the war though, Ferdinand and his son Ferry controversially acquired (some say stole) a rear-engined, air-cooled design for the VW Beetle.

This design would propel a range of cars bearing the family name to stardom, even after the Porsches' plans for production of the VW Beetle were scuttled by domestic politics and a British army procurement contract.

In the ruins of WWII Europe, Ferry made the most of the Marshall Plan's economic benevolence on behalf of the allied forces, and decided the Porsche company’s future was in the design and production of a range of performance cars.

Fellow car-builders baulked, yet by the mid 1950s (patriarch Ferdinand died in 1951) Porsche’s 356 range was a rampant success.

The seeds of Porsche’s destruction as an independent manufacturer had already being sown though.

Ferdinand Porsche with grandchildren Ferdinand Piech (right) and Ferdinand Alexander (Butzi) Porsche after his release from French custody after WW II where he was held on charges of suspected war crimes.

Conflicting cousins

Ferdinand Porsche had only two children, Ferry and a daughter Louise. After the falling out with Mercedes in the 1920s, the old man hired a Viennese lawyer, Anton Piech, to help him administer affairs.

Anton married Ferdinand’s daughter (Ferry’s sister) Louise and they had four children – the same number as Ferry and his wife, Dorothea. As Porsche’s products gathered momentum and built a reputation during the baby booming 1950s, symbolising a resurgent industrial Germany, the ills of WWII slave labour and the family’s close relationship to Hitler were conveniently supplanted.

Of these eight grandchildren, four Porsches and four Piechs, only two showed any inkling or ability to shadow – perhaps even surpass – the technical acumen and design vision of their grandfather, Ferdinand, and father/uncle Ferry.

You see, the two anointed boys were not exclusively from Ferry’s side of the family. One, as he would always be cruelly reminded, was a non-name bearer, a Piech, from the lawyer's side of the family tree…

These cousins, Ferdinand (Butzi) Porsche and Ferdinand Piech, would both accelerate Porsche’s growth and expedite its demise.

Both were gifted and exceptionally driven, yet Piech’s determination had a dimension of obsessive zeal which would, in the fullness of time, fatefully outweigh that of his cousin, Butzi, and in fact, anyone else…

The original 911 design team. Guy in the white short-sleeved shirt is Ferdinand Piech, next to him, Butzi Porsche. Piech was educated in Austria's highly competitive boarding school system while Butzi blossomed at a Waldorf school. The clash of personalities was epic.

The root of this animosity ignited most spectacularly between Butzi and Ferdinand (Piech) when both worked on the car which would go on to ultimately define Porsche – its 911 range, arguably the most successful sportscar in history.

Penned by Butzi, Ferdinand felt he never received due credit for the design's fluidity granted by his flat-six engine solution.

Duly annoyed, the ambitious Ferdinand moved from road car development to motorsport within Porsche’s structure, with spectacular success. He designed the most notorious racing car of the post-WWII era - Porsche’s 917 - with a compulsive preoccupation for weight-reduction as a means to increasing performance.

Legend has it, once prototypes were finished, Ferdinand would crawl under them with a magnet to test surfaces for metal impurities, identifying areas which could be replaced with lighter, more exotic alloys. The 917 featured a Balsa gearlever too, indicative of Ferdinand Piech’s awesome faculties of lateral reasoning when addressing an engineering problem.

Unfortunately, at the peak of his powers (as head of engineering), a family counselling session conducted during 1970 at Schüttgut, the farm in Austria where Ferry and Louise had kept their children safe during WW II, brought the animosity levels between Butzi and Ferdinand to a tipping point.

Butzi’s father and 356 designer, Ferry, and Ferdinand’s mother Louise decreed no Porsche family member would ever again work for the company in a design or managerial position.

The princes are banished

It was a radical decision which would have far-reaching consequences – denying the two most obvious candidates an opportunity to ever lead their grandfather’s company.

By 1972 the company was publicly listed, which accrued a fair proportioning of shares between Ferry, Louise and their Porsche and Piech offspring.

An even more divisive event occurred during this period of housecleaning at Porsche AG, resulting in an epic domestic spat when Ferdinand’s affair with his cousin, Gerd Porsche’s wife, Marlene, led to a divorce settlement which saw a sizeable chunk of Gerd’s shares go to Marlene.

The Porsche family members bitterly accused Ferdinand of attempting to position the Piechs as majority shareholders courtesy of his affair with Marlene.

To the 917 designer’s credit, he never married Marlene (he had an affair with the nanny instead and fathered 12 children amongst three women), thereby never reaping full benefit of consequence from her share settlement from Gerd.

Piech kicking the tyres of some 917s. As an engineer/manager he is a once-in-a-millennium phenomenon. He always had the wrong surname, though…

By 1972 Butzi was on his way to founding his own design consultancy. Ferdinand was Audi-bound, where he practically conquered the world until his retirement (supposedly) as VW boss.

Although Buzti had undeniable design talent, the Porsche surname undoubtedly helped his design consultancy – there was no way a Piech bicycle, watch or industrial design item was ever going to have the same cachet as a Porsche one.

Ferdinand was understandably livid.

He had done so much to champion technology at the company his grandfather had founded yet now there no possibility of him ever being able to lead it. One of the first instances of Ferdinand’s sense of chagrin towards Porsche came with the launch of the criminally underrated 928 in 1978. He'd laid the groundwork for the car, and then labeled it as being too expensive after its launch…

The company flounders

After effectively being banished from Porsche, the two warring cousins encountered great success. The company though, struggled under a succession of outside managers.

By the early 1990s it was in severe financial trouble, sales in Porsche’s core market – the US – had dropped from 50 000 units in 1986 to only 21 000 in 1993. Acquisition vultures were circling the grey skies above Zuffenhausen.

The board then appointed a rather inconspicuous-seeming engineer, Wendelin Wiedeking, as CEO. Wiedeking had worked for Porsche from 1983 to 1988 in materials and application, before moving to a position at Glyco Metall-Werke (a Porsche supplier), where he remained until returning to Zuffenhausen in 1991.

During 1993 he was elevated to CEO. Wiedeking fired nearly half of Porsche’s workforce and paid meticulous attention to the company’s day-to-day running expenses and inventory issues at hand. If paid off extraordinarily.

By the time Ferry Porsche passed away in 1998, the company was, rather amazingly, posting record profits and in good fiscal health. Porsche’s supervisory board, consisting of family members, was so impressed by Wiedeking’s management acumen they announced he would receive around 0.9% of the company’s profits as a bonus in future.

A brilliant industrial engineering organiser? Yes. A victim of his own success? Probably. Wiedeking grossly underestimated the Porsche/Piech family rivalry.

Wiedeking ascends the throne

Into the new millennium things were going rather swimmingly all round. The company recorded ballooning profits year on year, Wiedeking was becoming Europe’s best paid executive (earning around €80 million annually) and the Porsche family, well, they were drowning in monumental dividend yields.

Flush with success, Wiedeking could do no wrong. When he proposed a Porsche SUV to the board, it was approved and the Cayenne was born.

Budget for a four-door Panamera? No problem.

Wiedeking was implicitly trusted by Porsche’s management, employees (the few thousand remaining he had not fired) and most importantly – the third and fourth generation Porsche family members themselves.

He even authored a book in 2002 – The David Principle. Wiedeking was fabulously quotable too and boundlessly popular with employees. He even won an award for humour in the office.

Then he started to shoot his mouth off.

Wiedeking canned the 968, made the 911 water-cooled, added the Boxster (which saved Porsche), an SUV and four-door saloon during his tenure. Busy man.

Wiedeking questioned VW’s premium brand acquisition strategy, especially the epic Bugatti Veyron project and VW’s forays into the top-end luxury markets. Wiedeking called these vanity projects.

At VW headquarters, Ferdinand Piech, nearing mandatory retirement age (which came and went with no consequence to him), was starting to brim with disquiet.

The Bugatti Veyron was a hallowed project to him, capping a career of impeccable technical achievement.

Piech had the 911 engine, 917 racer, signature five-cylinder Audi engines, Ingolstadt’s quattro all-wheel drive, its all-conquering S1 rally car and the proliferation of aluminium construction techniques within his engineering portfolio. Wiedeking, in his mind, had simply rearranged the shelves at Porsche, becoming very wealthy in the process.

Building the world’s fastest car with a 16-cylinder engine was Piech’s way of finally besting his grandfather’s achievement with those epic pre-war Auto Unions. Wiedeking’s questioning attitude was simply intolerable, especially as without VW research and development support, his risky Cayenne SUV venture would never have come to fruition.

Wiedeking, in fact, was so cognisant of the importance of joint venture technology and development agreements with VW, he started buying up shares in the company during 2005 to ensure future agreements – or to save VW from a take-over, which seemed highly unlikely…

The man who famously trumpeted the ability of Porsche, as the metaphorical automotive David, to slay larger Goliaths in the marketplace, was posturing himself as the major player. Huge mistake.

The Carrera GT was perhaps Wiedeking's finest hour? Don't expect another one...

Playing games with Piech

Porsche was spectacularly profitable and lean, yet accessing the credit (and debt) to buy up enough of VW for a take-over was awfully ambitious too. Ferdinand Piech, who had grown particularly attached to VW during his tenure there, was chairman and his influence was crucially left out of the calculation.

From the outset, there was only going to be one winner.

As the global economy started to contract towards the end of last year, traditional lines of credit were strained and Porsche was unable to access essential funds to further the VW take-over. The rest, as they say, is history.

Tallying the scores, Piech, at 72, remains chairman of VW, whilst Wiedeking has been sent packing – an extraordinarily wealthy man nonetheless.

His golden handshake was in the region of €50 million, of which half is being split between a Porsche employee benevolent fund and a welfare fund for journalists, would you believe. Nice bloke, this Wiedeking.

Wiedeking was never an all-out car guy. He preferred farming potatoes with his vintage Porsche tractor, distributing the produce to employees.

Where does this leave Porsche though?

On paper it becomes another of VW’s brands.

In reality though, Porsche’s agility in terms of development timetables and design freedom could suffer within the VW matrix. Whereas VW shouldered the burden for most joint technology ventures in the past, with Porsche benefiting handsomely, Zuffenhausen engineers will no longer have the free reign they enjoyed under Wiedeking.

Brand dilution is another issue too, especially as shared technologies are sure to render Porsches with more in common with Wolfsburg and Ingolstadt than Zuffenhausen’s heritage.

Remember how aghast Porschephiles were when the 911 range sacrificed air-cooling for liquid engine temperature control in the 1990s as 993 moved to 997 designation? Expect much more radical manufacturing rationalisation along these lines.

With Lamborghini, Bentley and Bugatti as sibling brands, the possibility of another Porsche hypercar is very slim too…

In the end then, the prince of Porsche, Ferdinand Piech, finally has control of the company he always deserved to lead, but never had the right surname for. Not a bad achievement for a non-name bearer, but at what price?


Bullet: Name, set and match!

2012-04-16 16:47

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