VW wedding - and a brand in peril
BIG DEAL TIME: Porsche CEO Matthias Mueller (left), Porsche Automobil chairman Wolfgang Porsche and VW CEO and Porsche Automobil CEO Martin Winterkorn at the annual general meeting in Stuttgart on June 25, 2012. Image: AFP
Author: Estelle Peard
FRANKFURT, Germany - The road to success for German automakers, a key engines driving Europe's biggest economy, is a bumpy one: VW and Porsche are tying the knot but Opel is fighting to survive.
The courtship between Europe's biggest auto group VW and its long-time partner, luxury sports-carmaker Porsche, has not always been an easy one though it has long been the dream of Ferdinand Piech, VW's supervisory board chief and patriarch of the Porsche family, to integrate the two businesses in a bid to overtake US giant General Motors as the world's No.1.
BEATING THE TAXMAN
However, when Porsche first tried to swallow the much larger VW, it failed. Then, when VW acquired 49.9% of Porsche in 2009 with a view to a full merger, the complex deal ran into numerous legal and tax hurdles. So it came as a surprise last week when the two announced they had finally found a way to bring the merger forward by two years, the deal unlocking hundreds of millions of euros in untapped synergies.
Under the terms of the agreement, VW will buy the 50.1% of Porsche that it does not already own from holding company Porsche SE for €4.46-billion ($5.5 billion) plus one VW share. The two companies say the deal will generate €320-million in economies of scale and is being structured in such a way that VW will not have to pay huge amounts of tax.
The fact that part of the payment is being made in a single VW share means the deal counts as a corporate re-organisation rather than a straightforward sale, saving VW as much as €1.5-billion in taxes.
At the end of the day, the operation will cost just over €100-million, according to finance chief Hans Dieter Poetsch, and VW chief executive Martin Winterkorn said the merger will "benefit customers, employees and shareholders".
"The unique Porsche brand will now become an integral part of the VW Group. That is good for VW, good for Porsche and good for Germany as an industrial location," Winterkorn added. "Combining their operating business will make VW and Porsche even stronger - both financially and strategically.
"We can now co-operate even more closely and jointly leverage new growth opportunities in the high-margin premium segment."
VW's brands currently include VW, Audi, Skoda, SEAT, Bentley, Bugatti and Scania and MAN trucks.
Ferdinand Dudenhoeffer, industry expert and head of the Centre for Automotive Research at the University of Duisburg-Essen, said VW, with Porsche, Audi and Bugatti, would command a 40% share of the high-end car segment worldwide.
Porsche would enjoy shared production savings and gain access to technologies developed by VW's other brands.
"Porsche will benefit, VW will benefit," Dudenhoeffer said. "The only ones who won't will be German taxpayers."
MEANWHILE, AT OPEL...
This merger will bring VW closer to its goal of becoming the world's most prolific automaker but another German manufacturer - GM-owned Opel - is struggling to steer itself back to profit. At the end of June, 2012 Opel's supervisory board approved deep restructuring, huge investment in the Opel and Vauxhall (UK) brands and a fresh marketing strategy.
Opel said material, development and production costs would all be cut and "better use made of synergies arising from the tie-up between GM and PSA Peugeot Citroen".
Opel is under pressure from its US parent to cut costs; the automaker has high production costs and is vulnerable to the eurozone crisis since GM will not allow it to export outside Europe so as not to compete with its own brands.
Stefan Bratzel, auto industry expert at the University of Applied Sciences in Bergisch Gladbach, said the reorganisation was Opel's last chance but warned "it will be a few years before Opel is back on track".
Dudenhoeffer agreed, forecasting that Opel will not return to profit before 2015, "since demand in Europe will remain very weak in the next three years".
...AND AT GM SOUTH AFRICA
Opel is a major part of GM SA's operation. Here's what GM SA had to say about the situation:
"Opel has a co-ordinated and clearly defined export strategy within the GM family focusing on important growth markets. This includes plans for rapid market share growth in markets such as Russia, Turkey and China, and entering further markets such as Australia in the fourth quarter of 2012.
"GM is committed to ensuring the success of Opel as demonstrated by the key actions it is taking to ensure the profitability of its operations in Europe.
"Opel has a strong heritage in South Africa with its products been sold in this market since the 1930's. Opel remains an important brand for us and evidence of our commitment is the recent launch here of the Opel Meriva and Opel Astra GTC. These are two great new additions to our Opel portfolio which features a strong line-up of quality German engineered products."