Porsche principle

Porsche is set to take total control of fellow German car manufacturer Volkswagen after the European Union’s top court ruled last week that a law which protects VW from a takeover should be scrapped.

Porsche owns 27.4% of VW but has the same voting rights as the German state of Lower Saxony, the second-largest shareholder with 20.5%. However, the European Court of Justice (ECJ) has said that the so-called Volkswagen Law contravenes EU rules on the free movement of capital.

In a move that further paves the way for Porsche to tighten its grip on Europe’s largest carmaker, Lower Saxony said it would no longer oppose the re-election of Ferdinand Piech, the VW chairman and descendant of the Porsche family, for a further term despite previous objections. It had been expected that Lower Saxony Premier Christian Wulff and Porsche chief executive Wendelin Wiedeking would clear the way for a neutral candidate to be elected chairman.

The news confirms Porsche’s position as one of Europe’s most powerful carmakers, despite the fact that it sells less than 100,000 cars a year globally. Its association with VW goes back to the 1930s, when Ferdinand Porsche, Piech’s grandfather, designed the iconic Beetle. Porsche has been building up its stake in VW since September 2005 and in November last year its supervisory board authorised it to increase its stake to 29.9% – just short of the threshold necessary for a mandatory takeover.

Diversified product range
Porsche – with revenues about one-fifteenth the size of VW but with profits only slightly less – is the world’s most profitable carmaker by a margin. It has diversified its product range in a way that rivals such as Jaguar have failed to do and, even with a business model that is seen by some as out of date, it still sits at the top table of the European car industry despite being a niche player.

Jaguar’s move into the mass market with the launch of the X-Type was met with outcry from car enthusiasts, who said it resembled a Ford Mondeo and diluted the prestige of the famous British marque. When Porsche brought out its first sports utility vehicle (SUV), the Cayenne, four years ago, purists thought it had made the same mistake.

But Wiedeking has gone on record as saying that the Cayenne secured Porsche’s long-term future and former Toyota GB commercial director Mike Moran, who now runs motoring consultancy The Automotive Partnership, says/ "Porsche absolutely does not sacrifice its engineering principles. Although people might criticise the Cayenne, nobody criticises the way the actual vehicle performs. It’s a true Porsche with the Porsche DNA."

The Cayenne now accounts for more than a third of all Porsche’s sales and is the company’s second best-selling model after the iconic 911. A company spokesman says the move into the SUV market has given Porsche stability, which is particularly important given the cyclical nature of the sports car market.

The second-generation Cayenne goes on sale this weekend and Guy Masters, UK managing director of global motoring consultancy and executive search company Courland Automotive Practice, adds: "Wiedeking recognises that Porsche can’t sustain only the 911 in the long term. I don’t think the 911 will ever die because it’s an iconic brand that will always have desirability. But people are more likely to have a Cayenne as a first car."

Porsche is a minor advertiser in car terms, spending an estimated £400,000 a year in the UK. It works with integrated agency CMW rather than a retained above-the-line agency and eschews TV ads in favour of print.

The Porsche spokesman says: "Our advertising is very concentrated around the product. We tend to steer clear of the more lifestyle-led marketing that some of our competitors use. We don’t underestimate how lucky we are to have a brand as strong as Porsche and we try to let that speak for itself rather than over-promote it."

Customer service
Moran calls it an "unimaginative" marketing strategy but says that one of Porsche’s biggest strengths is its customer service. Every new Porsche owner gets taken on a free track day before they get their car and Moran adds: "They do customer engagement really well in a way others aspire to. That creates a very personal and engaging brand experience. It’s a slightly old fashioned approach but if the model isn’t broken why change it?"

However, it will be Porsche’s interest in VW, rather than its marketing strategy, that will be under the microscope in the coming months. The ECJ ruling has opened the door for Porsche to seize full control of VW, but some industry experts have suggested that it could damage a luxury carmaker like Porsche to be associated too closely with a mass-market player like VW. It is an argument dismissed by Masters, who points out that Ferrari is owned by Fiat. "It only becomes a threat when people end up thinking a Porsche is just a dressed up Audi or Skoda, and I don’t think Wiedeking or Piech would ever let that happen," he says.

Director of search at Unite Search Marketing Matthew Mills, who ran the global Nissan business when he was a managing partner at Tequila London, agrees. "Ferdinand Porsche invented Volkswagen so the heritage of the Porsche brand is intrinsically linked to VW."

New generation
Mills believes a far greater challenge for Porsche is keeping the brand relevant for a new generation of car buyers. He says: "As Porsche extends its range and moves slightly more down the market, other brands are moving up the market. That’s where the problem will come – not from any association with VW."

But perhaps the biggest threat facing Porsche, which is launching a four-door sports saloon called the Panamera in 2009, is the European Commission’s plan to force vehicle manufacturers to cut greenhouse gas emissions from new cars by 20% within five years.

Wiedeking recently accused French and Italian makers of smaller cars of waging a "war" on German manufacturers. The likes of BMW, Mercedes and Porsche are a long way above the proposed limits and are much more threatened than Renault and Peugeot in France and Fiat in Italy.

Some industry experts believe the strict limits could even threaten the existence of luxury carmakers, but Masters says: "There will always be people who want high performance. Whether Porsche will use hybrid technology or something else I don’t know, but it will continue."

With its burgeoning model range and increasingly strong position in the VW boardroom, Porsche’s core business is in good shape, but like the rest of the car industry, it seems success depends largely on how it negotiates the emissions challenge.

 

Porsche global sales figures

2005/06
Total 96,794
Cayenne 34,134
Carrera GT 368
Boxter* 27,906
911 34,386
*Cayman included in Boxter sales because it is made on the same platform

2004/05
Total 88,379
Cayenne 41,884
Carrera GT 660
Boxter 18,009
911 27,826

2003/04
Total 76,827
Cayenne 39,913
Carrera GT* 222
Boxter 12,988
911 23,704
*First year of Carrera GT production

2002/03
Total 66,803
Cayenne* 20,603
Boxter 18,411
911 27,789
*First year of Cayenne production

2001/02
Total 54,234
Boxter 21,897
911 32,337