In the context of auto companies, what sort of images does the term “bankruptcy” bring to mind? If you are prone to reading most any periodical nowadays then no doubt thoughts will turn to the troubling challenges facing homegrown brands like GM and Chrysler. Perhaps your mind would even picture parking lots full of unsold Pontiac G6s and Dodge Calibers. Oh, the horror! For the sake of this article you really needn’t go that far.
But would your mind ever dare associate Porsche, the most profitable car maker in the world, with bankruptcy? Well, unbeknownst to many the German automaker was mere hours away from declaring bankruptcy as recently as March 24th of this year. How did this happen to a car company that as recently as a few months ago was on the verge of buying a controlling stake in Volkswagen?
Apparently the problem stems almost entirely from this takeover attempt. Porsche, like most manufacturers, did not anticipate the bottom falling out of the luxury new car market. (It doesn’t help that they spent a huge amount of money engineering a $100,000 four door super sedan that is going to go on sale at a time when no one is buying $100,000 four door super sedans.) Like a devastating tsunami, recent events have not only decimated Porsche profits but have also caused the huge portion of VW that they already purchased to suddenly become worth a great deal less.
As Porsche leveraged this VW buyout with billions in borrowed Euros, the unstable worldwide markets then caused panicky bankers to suddenly want their money back with interest. And Porsche didn’t have the cash to pay back these loans. The only reason Porsche didn’t declare bankruptcy back in March was that the German government, a couple of international banks and even Volkswagen (which still has cash) all chipped in with a 1.7 billion Euro loan guarantee.
Why, pray tell, did even the object of Porsche’s takeover efforts chip in? Well, Porsche is a great source of national pride and to allow it to falter so publicly was an unthinkable prospect. There was actually great fear that there would be some sort of violent public revolt if Porsche was allowed to go bankrupt. Heck, if we think the generally value-less brands at GM are worth saving, the no doubt Porsche is too.
This has now turned the entire VW/Porsche deal on its ear. Before the takeover attempt VW and Porsche peacefully (and sometimes not so peacefully) co-existed as partners. They shared occasional platforms (like the Cayenne and Touareg) and used many of the same parts suppliers to keep costs down. But as Porsche has now shown that it will not be able to survive the choppy waters ahead on its own, it appears that VW and Porsche will now merge. This means that Porsche, after years of fierce independence, will now just be a VW subsidiary like Audi, Lamborghini, Skoda and Seat (the last two budget brands are only sold in Europe). That giant whooshing sound you hear is hundreds of thousands of worldwide Porsche-philes hyperventilating at the mere thought of this happening.
True Porsche-philes still talk with utter disdain about the 914 sports coupe having a Volkswagen engine. They stopped building this car in 1976 and they still talk about it. Like any good German, fans of Porsche cars have very long memories and can carry grudges for even longer. They are not going to be pleased that the fate of their prized 911s will no longer be decided by the engineers in Zuffenhausen but by beancounters at VW headquarters.
Okay, if you have ever owned a Porsche this section is for you: Seriously, you just need to put your head between your knees and breathe deeply. The world doesn’t want to see every Porsche-phile suddenly pass out. Can you imagine what that would do to the stock market? Also, if you don’t like the term Porsche-phile, let’s see you come up with a better term for someone who is obsessed with Porsches! Porsche dude? Porsche chick? Porsche person? Regardless, all current and ex-Porsche owners are obsessed with these cars. Due to their highly addictive nature they really should have warning labels printed on the side.
Alas there has been absolutely no word as to how this financial deal will work out between VW and Porsche. Both sides have been in talks for quite some time but this attempted buyout is having more than just financial ramifications. It has called into question the ability of Wendelin Wiedeking, chairman of Porsche since 1993 and one of the most highly paid auto executives in the world, to run the historic sports car maker. Even though he took what was essentially a piddling automotive basket case and turned it into the world class economic powerhouse it is today, rivals like Ferdinand Piech (ex-chair of VW who holds a great deal of stock in both firms) are still gunning for his ouster from Porsche.
Considering the ultra-secretive nature of Porsche when it is launching its new models I find it highly doubtful that we will know anything about a possible merger with VW until the ink is dry on all of the contracts. Let’s just hope that no matter what happens the brilliant engineering and manufacturing staff will at least be allowed to maintain their independent spirit. Porsche’s very future depends on it.