httpwww.fundinguniverse.comcompany-historiesporsche-ag-histor.docx

http://www.fundinguniverse.com/company-histories/porsche-ag-
history/
I copied and pasted, you can also CTRL + CLICK to follow link
Company Perspectives:
The first sports car bearing the Porsche name rolled out of a
small test workshop in Gmund, Austria in June 1948. Back then,
none of its founding fathers could have imagined the success
story that more than one million descendants of this 'Porsche
Number One' have written in the five decades since then. It is
from this tradition that we draw the energy to face the
challenges of the future. As we understand ourselves (and as
countless people throughout the world perceive us), today,
Porsche is a mature and vigorous company. Over the past fifty
years, it has become the absolute definition of sports-car
driving. What is more: despite the zeal for mergers that the
large carmakers have displayed recently, we remain thoroughly
convinced that the world's smallest independent volume-
production automobile manufacturer has the potency and skill to
maintain its independence in the future as well. This conviction
is not mere hubris; it is based on the certainty that our company
is distinguished by a different and very special kind of logic.
Porsche is a vital piece of counterevidence that disproves the
commonly held theory that a small company can only survive if
carried along on the shoulders of a giant. We do not consider
size alone, or size at any price, to be a desirable goal; our
philosophy is aimed at keeping the company efficient and
flexible, both for today and for tomorrow, in all areas. Key
Dates:
Key Dates:
1931:
Dr. Ferdinand Porsche establishes his design firm; at the
subsequent request of Hitler, Porsche designs the Volkswagen
'Beetle.'
1948:

Manufacturing begins under Porsche nameplate.
1951:
Death of Dr. Ferdinand Porsche; his son 'Ferry,' Jr., continues
to run company.
1956:
Porsche builds its 10,000th automobile.
1964:
Introduction of the Model 911.
1973:
Porsche goes public.
1992:
Sales slowdown; company cuts costs under new CEO Wendelin
Wiedeking.
1996:
The lower-priced Boxster is introduced; demand outpaces
production.
1998:
Ferry Porsche dies; company celebrates 50th anniversary; joint
SUV venture is announced.
Company History:
Porsche AG is legendary for its innovative and beautiful
automobile designs. The Porsche 911, first manufactured in
1964, quickly became one of the world's most famous and most
recognizable automobiles. The company has also been on the
cutting edge of automotive engineering and technology, using
the sports car racing circuit to develop and improve products
renowned for their high performance and outstanding handling.
It is not surprising that Porsche has recorded more victories
than any other automobile manufacturer in such classics as the
24-hour LeMans and the 24-hour Daytona races. In 1997 the
company successfully introduced the Boxster, a newly designed,
lower priced sports car. Plans to design and manufacture a
suburban utility vehicle in conjunction with Volkswagen were
announced in 1998.
Early Years
The founder of the company, Dr. Ferdinand Porsche, was born

in Bohemia and studied mechanical engineering in Vienna. In
1923 he traveled to Stuttgart, Germany, and by 1930 the
ambitious young man had established his own engineering and
design firm there under the name Dr. Ing. h. c. F. Porsche KG.
The new firm garnered a reputation for innovative car designs,
and when Adolf Hitler came to power in Germany, he
summoned Ferdinand Porsche to meet with him, requesting that
he find a solution to some of the technical difficulties that were
delaying production of the 'Volkswagen,' or people's car. The
famous Volkswagen design had been created in Porsche's office,
and as early as 1935 Porsche had designed a special sports
version of the car. The Nazi regime initially rejected his
application to produce the sporting version, but during the late
1930s Hitler himself approved a contract with Porsche to design
a car for the 1939 Auto-Union Grand Prix, a famous motor race
from Berlin to Rome.
Porsche's idea for a racing car was based on expanding the
capacity of the utilitarian Volkswagen engine by using different
valves and cylinder heads and by including a new system known
as fuel injection. The car also included a significantly enlarged
wheelbase and a unique aerodynamic body design. Although
three prototypes of the car were built in early 1939, the
beginning of World War II in September of that year led to
cancellation of the race and halted further development of the
Porsche car. During the war years, the well-known engineer
remained in Germany while continuing to work on Hitler's
Volkswagen project. On various occasions, he also gave Hitler
advice on how to increase the production of military equipment
used by the German armed services. At the end of the war, Dr.
Porsche was imprisoned in France for a short time because of
his association with Adolf Hitler and the Nazi regime.
1948: First Production-Line Porsches
After World War II, the Porsche design firm relocated to
Gmund in Kärnten, Austria, and survived primarily by repairing
and servicing different kinds of automobiles. By 1946, however,
the Porsche design team was working on various sports and

racing car designs. Ferdinand Porsche's son, Ferry Porsche, Jr.,
insisted on conducting market research in order to determine
whether people were willing to buy an expensive, handmade,
high performance sports car. Ferry approached a circle of well-
to-do Swiss financiers who agreed to fund production. Working
from the basic design model of a Volkswagen Beetle, the
company created a lightweight sports car, and the Porsche
design office became an automobile factory. The prototype of
the Porsche sports car was on the road by March 1948, and
small-scale production was initiated by the end of the year. The
Gmund plant manufactured five handmade Porsche cars a
month, each with a single aluminum body hand-beaten for hours
over a wooden rig by a master craftsman of the art.
Also near the end of 1948, Porsche signed an important
agreement with Volkswagenwerk which allowed Porsche to use
the larger company's service organization throughout Germany
and Austria. In addition, a short time later Porsche moved its
growing car production facilities from Gmund to Stuttgart, and
occupied the Zuffenhausen factory recently vacated by
American occupation forces. This move provided the company
with more space and the ability to manufacture more cars. In
early 1950 the first Porsche 356 rolled off the Stuttgart
production line. By March 1951 the company had manufactured
its 500th car, and, a short six months later, the 1,000th Porsche
sports car was delivered. Ferdinand Porsche died that year,
having seen his vision come to fruition. More than 200
workmen were hammering out handmade Porsche sports cars,
and the company's reputation was growing rapidly. Porsche
customers included film and radio stars, as well as financiers
and shipping magnates. In a tragic accident, the American film
idol James Dean was killed while driving a Porsche Spyder.
By 1952 customers and distributors were frequently requesting a
trademark or symbol to adorn the hoods of their automobiles.
Dr. Ferry Porsche designed an emblem including both the coat
of arms of Stuttgart and the coat of arms of Württemberg, along
with the Porsche name. The emblem first appeared in 1953 on

the steering wheel hub of a Porsche 356 and has remained
unchanged to the present time.
1956: 10,000th Porsche Built
The Porsche company celebrated its Silver Anniversary in
March 1956 by unveiling the 10,000th Porsche car to leave the
production line. In the mid- and late 1950s, nearly 70 percent of
all Porsche cars manufactured were exported to eager customers
abroad, and between 1954 and 1956 Porsche cars won over 400
international motor races. As the car's popularity continued to
increase, different Porsche 356 models were developed,
including the 356A and 356B.
In 1960 the company expanded both its physical plant and the
number of its employees: a new sales department, service shop,
spare parts center, and car delivery department were added, and
more than 1,250 factory and office workers helped increase
production. Porsche was determined to guard its reputation for
reliability and high performance, assigning nearly one of every
five workers to quality control. In December 1960 the company
produced 39,774 cars, and each of them had earned four quality
control certificates, including a certificate for the engine,
transmission, general vehicle examination, and measurements.
For the fiscal year 1960, Porsche reported revenues totaling DM
108 million.
Introduction of the Porsche 911
During the early 1960s, the 356 Porsche remained similar in
design to the Volkswagen Beetle and continued to incorporate
many of its predecessor's parts. Dr. Ferry Porsche and his
management team decided that it was time for an entirely new
Porsche design, one that did not rely heavily on the Volkswagen
Beetle. They considered designing a four-seat sedan, but
ultimately decided to remain with a two-seat sports car. A low
waistline and expanded glass areas gave the new design a more
elegant look, and the air-cooled flat engine remained situated in
the rear of the car. With many other additions, the unique Type
911 Porsche was introduced in 1964 at a list price of DM
21,000. One year later, the last Porsche 356 model left the

factory after almost 20 years of increasing sales. With a total
production of 76,302, the Porsche 356 series had made the
company famous throughout the world. New Porsche models
such as the 912, 924, and 928 soon followed.
Until the 1970s, Porsche KG was under the joint ownership of
the Porsche and Piech families, headed by Dr. Ferry Porsche
and his sister, Louise Piech, who also owned Porsche
Konstruktionen AG in Salzburg, Austria. Dr. Ferry Porsche was
still head of the design office, while his two nephews,
Ferdinand and Michael Piech, worked in administration. In 1971
revenues reached DM 900 million, and the family decided that
the company was growing so rapidly that it needed a thorough
reorganization. As a result, the family incorporated its holdings
into a single organization with administration centralized in
Stuttgart. Dr. Ferry Porsche and his sister presided over an
expanded board of directors, and Dr. Ernst Fuhrmann was hired
as president of the company. In 1973 the firm went public and
became a joint stock company under the name Porsche AG.
During the mid- and late 1970s, Porsche AG committed itself to
large-scale research and development in fields related to
automotive design and production. Prompted by requests from
the German government and numerous private companies,
Porsche technicians began expanding their research in engine
development to include metrology and vibrations, metal
processing, plastics, and welding and bonding techniques. The
company opened a Development Center in Weissach, outside of
Stuttgart, at a cost of DM 80 million, to test cars and different
types of cross-country vehicles. Nearly 4,000 employees worked
directly on research and development projects, and data
compiled by Porsche was used to fight air pollution and improve
auto safety. Porsche's Development Center garnered such a
stellar reputation for its auto engineering design that even Rolls
Royce and competitor Mercedes-Benz contracted the company
for design work.
The Growing Export Market: 1970s--80s
During the 1970s, Japan developed into one of Porsche's most

important foreign markets. Although Porsche sold only 97 cars
in Japan in 1970, the repeal of Japanese import restrictions led
to a significant sales increase, with sales of Porsche cars
jumping from 122 in 1973 to nearly 500 in 1976. By 1978
Porsche was selling more than 900 cars in Japan, nearly the
same number sold in the United Kingdom and Switzerland.
These sales figures were even more impressive when the costs
of transport and modifications required by Japanese import law
were figured into the price of the cars. A Porsche 930 Turbo,
for example, which sold for DM 78,800 in Germany in 1980,
was priced at DM 148,000 in Japan.
The 1980s were boom years for Porsche AG. Despite a change
in management upon Ernst Fuhrmann's retirement, the company
increased production and revenues continued to soar: in fiscal
1981, revenues reached DM 1.5 billion. Of all the cars
manufactured in Stuttgart, a total of 70 percent were exported,
with the United States accounting for nearly 40 percent of the
company's total sales. This successful trend continued
throughout the decade: in 1986, for example, Porsche sold a
total of 49,976 sports cars, including more than 60 percent to
U.S. customers. Models such as the 924, 944, and 928 were
introduced during the late 1980s and--along with the 911,
perhaps the most popular sports car ever built--contributed to
Porsche's seemingly endless string of production successes. By
the end of the decade, the United States had developed into
Porsche's most important market.
During the 1990s, however, the market collapsed. From its peak
of 30,471 sports cars sold in the United States in 1986,
Porsche's U.S. sales amounted to only 4,400 by 1991.
Unfortunately, the slide continued. One year later, worldwide
sales for the company dropped to 23,060 units, with only 4,133
cars sold in the United States. Some automotive industry
analysts blamed a slowdown in the U.S. economy and its
negative impact on car imports, while others pointed to the ever
increasing prices for Porsche cars, from $40,000 to $100,000,
and growing competition from other sports car manufacturers

such as Mazda and Jaguar. A steady loss of top management in
the early 1990s exacerbated a deteriorating situation.
The Mid-1990s: A New CEO and a Porsche Revival
In order to reduce costs and increase efficiency, in 1992 the
Porsche and Piech families hired Wendelin Wiedeking, an
engineering and manufacturing expert, as chief executive.
Wiedeking immediately eliminated overtime for company
employees and convinced a majority of them to reduce their
daily working hours. He also brought in a team of Japanese
consultants who greatly streamlined manufacturing operations
and implemented 'just in time' parts procurement. Addressing
weaknesses in the company's product lineup, Wiedeking
initiated an updated version of the Porsche 911 and made plans
to introduce a new two-seater sports car with a completely
original design and shape. In order to make it more attractive to
U.S. customers, he promised that Porsche would sell the car at a
list price of less than $40,000. The Boxster, as it was named,
entered production in 1996. The new mid-engine car was an
instant success, with the entire first year's production run sold
out in advance. Porsche, after three years in the red, had broken
even in 1995 and turned a profit in 1996. The company also
discontinued production of its front-engine models 928, 944,
and 968 during this recovery period.
In March 1998, at the age of 88, Ferry Porsche died, just two
months before his company celebrated its golden anniversary.
During this year Porsche also announced it would be forming a
joint venture with Volkswagen to build suburban utility vehicles
(SUVs), with an anticipated production date of 2002. Sales of
the company's cars in the United States had climbed back to
18,200 for fiscal 1998, with total sales of vehicles worldwide
topping 38,000. The company reported profits of DM 324.4
million on sales of DM 4.9 billion for the fiscal year. The
popular Boxsters continued to be sold out in advance, and the
company announced the introduction of a more powerful 3.2
liter, 252 horsepower version for the fall of 1999.
As one of the few remaining small, independent automobile

manufacturers, Porsche AG hoped to remain competitive in a
volatile industry. The Porsche and the Piech families had the
financial resources to weather periods of economic difficulty, as
well as an unwavering commitment to the survival of Porsche
AG as an independent sports car manufacturer.
Principal Subsidiaries: Karosseriewerk Porsche GmbH; Porsche
Classic GmbH; Porsche Financial Services GmbH; Porsche
Financial Services Japan K.K. (Japan); Porsche Zentrum
Hoppegarten GmbH; Porsche Consulting GmbH; Porsche
Engineering Services GmbH; PIKS Porsche-Information-
Kommunikation-Services GmbH; Porsche Cars Great Britain,
Ltd. (U.K.); Enfina S.p.A. (Italy); Porsche Italia S.p.A. (Italy;
60%); Porsche Cars Australia Pty. Ltd. (Australia); Porsche
International Financing plc. (Ireland); Porsche Financial
Management Services Ltd. (Ireland); Porsche Japan K.K.
(Japan); PPF Holding AG (Switzerland); Porsche Enterprises,
Inc. (96.3%); Porsche Espana S.A. (Spain).
Principal Competitors: Bayerische Motoren Werke AG;
DaimlerChrysler AG; Fiat S.p.A.; Ford Motor Company;
General Motors Corp.; Honda Motor Co. Ltd.; Mazda Motor
Corp.; Mitsubishi Group; Nissan Motor Co. Ltd.; PSA Peugeot
Citroen S.A.; Renault S.A.; Saab Automobile AB; Volkswagen
AG.
09-075
August 25, 2009
This case was prepared from published sources by Cate Reavis
under the supervision of Professor Rebecca M. Henderson.
Professor Henderson is the Eastman Kodak Leaders for
Manufacturing Professor of Management. This case is based on

research conducted by Julien Heider, Jody Muehlegger and
Konrad Haunit (MIT Sloan MBAs, Class of 2008).
Copyright © 2009, Rebecca M. Henderson. This work is
licensed under the Creative Commons Attribution-
Noncommercial-No
Derivative Works 3.0 Unported License. To view a copy of this
license visit http://creativecommons.org/licenses/by-nc-nd/3.0/
or send a letter to Creative Commons, 171 Second Street, Suite
300, San Francisco, California, 94105, USA.
What’s Driving Porsche?
Rebecca Henderson, Cate Reavis
There are some customers who love the idea that an engineer
working on their project in the
afternoon was the same guy working on a 911 motor in the
morning.
—Managing Director, Porsche Engineering Group1
We were working with Volkswagen on the next generation of
the Cayenne (which shared its structure
with the VW Touareg and Audi Q7) and I wanted a clear
connection to safeguard Porsche’s interests.
We could not do this alone.
—Porsche CEO Wendelin Wiedeking, on decision to acquire
VW2
In early March 2008, Porsche’s supervisory board, which
included the chairman of the Volkswagen
Group, Ferdinand Piëch, agreed to raise its holding in
Volkswagen from 31% to 50% giving it a
majority stake.

Porsche’s takeover of VW was seen by many as a wise move for
the small, independent car company
that, unlike rival brands Jaquar, Ferrari, Lamborghini, and
Lotus, had managed to avoid being
gobbled up by the auto industry’s behomoths the likes of
General Motors, Chrylser and Ford. There
was, however, a key strategic question about Porsche’s
acquisition of VW that was not receiving a lot
of press: Would the long-term stability of Porsche’s engineering
and design prowess be at risk by
bringing VW “in-house”?
1 Scott Miller, “Road More Traveled,” The Wall Street Journal,
August 21, 2002.
2 Ray Hutton, “Porsche Set to Take the Wheel at VW,” The
Sunday Times, October 14, 2007.
WHAT’S DRIVING PORSCHE?
Rebecca Henderson and Cate Reavis
AUGUST 25, 2009 2
Engineering and design were considered the hallmarks of
Porsche’s competitive advantage, and rather
than keeping its R&D under tight wraps, Porsche shared its
R&D team of 2,300 engineers with
outside companies, and had built a lucrative engineering
services business based on this model.
Through its 100% wholly-owned customer engineering
development company, the Porche
Engineering Group (PEG), Porsche made its wide-ranging
expertise in the development and

production of vehicles available to clients from a variety of
industries. PEG was considered Porsche’s
“secret weapon, enabling it to employ more engineers than if it
worked alone, giving it an edge in
product development.”3 Porsche’s small size and market niche
made it easier for other auto
manufacturers to trust that Porsche would not use the
technology knowledge attained through its
engineering services division to compete head-to-head.
Bringing the R&D functions of the two firms too close together
could potentially weaken Porsche
engineers’ sense of belonging and demotivate them. While
Porsche was a company that thrived on
healthy profit margins, VW’s business model was all about
volume. Furthermore, if Porsche
engineering was too closely associated with the entire VW
portfolio, the company could lose its
ability to sell external engineering to other OEMs concerned
that Porsche would be sharing strategies
and innovations with VW. The question facing Porsche’s senior
leadership was how to ensure that the
integration of VW did not negatively effect Porsche’s outside
engineering business.
Porsche
Porsche was founded in 1931 by Ferdinand Porsche, along with
his son and son-in-law, Anton Piëch,
father of VW Chairman Ferdinand Piëch. Known in its early
days as the Porsche Engineering Office,
Porsche did not start off as an automaker, but rather a firm that
sold design and engineering services
to other carmakers. In 1934, Adolf Hitler commissioned Porsche
to make a “people’s car” or
“volkswagen.” The forerunner to the VW Beetle, the VW Type

60 hit the roads in the mid-1930s, and
in 1938 the first plant dedicated to the manufacturing of the VW
was opened. It wasn’t until 1948,
three years after the end of World War II, that Porsche produced
its first branded sports car. Within
two years, the Porsche 356 series rolled off the production
lines.4
By 2007, Porsche was the world’s most profitable automaker on
a per unit basis,5 a feat that was
especially impressive considering it produced just over 100,000
automobiles annually. The
company’s recorded average revenue per car of €62,568
($91,974) dwarfed that of Mercedes’s
€40,445 ($59,454), BMW’s €34,766 ($51,106) and was nearly
2.5 times Audi’s €27,500 ($40,425).6
In an industry where scale was usually considered a prerequisite
for reducing production costs, the
company’s operating margins of nearly 20%, double those of
Toyota,7 made Porsche an exception to
the rule. In 2007, Porsche’s income topped $9.4 billion on
revenue of $10 billion. (See Exhibit 1 for
3 Bret Orekson, “Engineering Is Porsche’s Secret Weapon,”
Automotive News, January 15, 2001.
4 Adler, Dennis, Porsche: The Road from Zuffenhausen, 2003,
p. 76.
5 Jeremy Cato, “Porsche Revs Up for Explosive Growth,” The
Globe and Mail, February 22, 2007.
6 €1 = US$1.47 (December 31, 2007)
7 Gail Edmondson, “Pedal to the Metal,” BusinessWeek,
September 3, 2007.

select financials of Porsche and the top automakers.) Ironically,
over 60% of Porsche’s pre-tax
earnings came from trading derivatives. All of the options
trading Porsche was involved in pertained
to its stake in VW. Porsche used the options to hedge against
the likelihood that VW’s shares would
rise after its interest was made public.8
Porsche was renowned for the quality of its products. For three
consecutive years (2006-2008),
Porsche was the top ranking brand in J.D. Power and Associates
“Initial Quality Study” (IQS). The
study ranked brands by the fewest problems per 100 vehicles.
Porsche spent about 12% of revenue on
R&D compared to an industry average of 4% to 6%. (See Figure
1.) Approximately 19% of Porsche
employees worked in its R&D facility compared to 6.6% at
Volkswagen.
Figure 1 R&D Expenditure as % of Revenue for Select Auto
Makers (2007)
0
50,000
100,000
150,000
200,000
250,000

300,000
To
yo
ta
G
M
(a
ut
om
ot
iv
e)
V
W
Fo
rd
(a
ut
om
ot
iv
e)
H

on
da
N
is
sa
n
Fi
at
G
ro
up
A
ut
om
ob
ile
s
P
or
sc
he
U
S

$
M
ill
io
ns
0
2
4
6
8
10
12
14
%
Revenue
% on R&D
Source: Annual Reports.
Turnaround
Porsche hit a speed bump in the early 1990s when production
processes described as “fat and

wasteful”9 and a weak U.S. economy sent orders plummeting.
Between 1986 and 1993 Porsche’s
sales had fallen from more than 50,000 units to 14,000 units.10
The company was teetering on the
verge of bankruptcy, and there were whispers about a possible
takeover.
8 Richard Milne, “Share Options Put Porsche on a Faster Path to
Profit,” Financial Times, November 12, 2007.
9 Tom Mudd, “Back in High Gear,” Industry Week, February
21, 2000.
10 Ibid.
AUGUST 25, 2009 3
Newly named Porsche CEO Wendelin Wiedeking orchestrated a
turnaround focused on building new
core competencies in lean manufacturing and synchronized
engineering. In the past, Porsche’s
celebration of craftwork encouraged individuals to work on
their own processes rather than
collaborating with the entire production line. But this soon
became a significant handicap for the
company. Engineers were tempted to ignore the need for cross-
department cooperation on Porsche’s
own car designs while making handsome profits for Porsche on
outside sales of engineering
services.11 As one industry observer put it, “Porsche didn’t
have a full-fledged, adult-rated
simultaneous engineering process in place. It was still

struggling to completely shed the rigid,
equential system upon which it had relied for decades.”12
Wiedeking introduced lean manufacturing
strategy is to go beyond the
ne-dimensional product range we have had so far.”13 As Figure
2 shows, Porsche’s production and
and Infiniti. The year the Cayenne was introduced, Porsche’s
vehicle production shot up from 50,000
s
and the team concepts and processes followed by industry giants
Toyota, Nissan and BMW.
Part of the turnaround included the decision to extend Porsche’s
product line beyond the sports car
niche it had dominated for many decades. As Wiedeking
explained, “Our
o
sales doubled in just six years as did its revenue through
organic growth.
Figure 2 Porsche Sales, Production and Revenue Results (1999-
2008)
0
20,000
40,000
60,000
80,000

100,000
120,000
AUGUST 25, 2009 4
Source: Porsche Annual Report.
In 2003 Porsche introduced the Cayenne, an SUV which was
entering into a crowded field of
competitors inhabited by Acura, Audi, BMW, Mercedes, Land
Rover, Volkswagen, Volvo, Lexus,
11 Womack, James and Daniel Jones, Lean Thinking: Banish
Waste and Create Wealth in your Corporation, 1996, p. 192.
t Journal Europe, December 6, 1995.
12 Christopher Jensen and Don Sherman, “The Porsche
Process,” Automotive Industries, November 1, 1997.
13 Brandon Mitchener, “Rebounding Porsche Seeks to Shift
More Output Abroad,” The Wall Stree
19
99
20
00
20
01
20

02
20
03
20
04
20
05
20
06
20
07
20
08
U
ni
ts
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0

6,000.0
7,000.0
8,000.0
E
ur
m
ill
io
n
Production
Sales
Revenue
AUGUST 25, 2009 5
to 75,000 units a year.14 The Cayenne, produced in
collaboration with VW at VW’s factory in
Slovakia and which shared the same frame and doors as VW’s
Touareg, was derided by many as a
“corruption of the brand.”15 In fact the day after Porsche
unveiled the first Cayenne prototype, the
company’s share price fell more than 4%.16 Porsche CEO
Wiedeking was aware of the risk the
company was taking in being so closely associated with a mass

production carmaker that produced a
heaper SUV.17 It was a risk he believed would pay off down the
road.
pied the No. 1 spot in the IQS which measured buyer
satisfaction in the first 90 days of
wnership.19
namera was being built in a low-cost part of East Germany and
was
cheduled to launch in 2010.21
ing
business, PEG, remained focused on selling services based on
Porsche’s strength in engineering.
c
Porsche’s first foray outside of its sports car market was not an
immediate hit. The early version of
the Cayenne was plagued with quality problems earning it the
least reliable rating from Consumer
Reports magazine. In its efforts to correct problems with the
Cayenne, the company went through a
cultural alignment of sorts. As one industry observer noted,
“Sports car engineers didn’t quite
understand the demands of the many female buyers who ended
up making the Cayenne their daily
runabout.”18 One of those demands was having the capability to
unlock the Cayenne from a much
further distance. Porsche key fobs were originally designed to
unlock sports cars at a very close
distance. Porsche went to work to fix this defect and other more
serious problems, and by 2006 the
Cayenne occu

o
In 2005, Porsche announced that it would be making another
move outside its sports car niche. In
partnership with VW, Porsche would produce a luxury sedan
called the Panamera (named after a
Mexican long-distance car race20) which would compete against
models produced by Mercedes,
Aston Martin, and Audi. The Pa
s
Despite the significant changes to the company’s product line,
Porsche’s outside engineer
Outside Engineering at Porsche
Providing outside engineering services for carmakers had
always been an important part of Porsche’s
business model. While clients owned the research that Porsche
conducted on their behalf, Porsche
reserved the right to use the research if the client chose not to,
with the understanding that it would
ruary 22, 2007.
ey Fear and Carin-Isabel Knoop, “Dr. INg. H.c. F. Porsche AG
(A): True to Brand?” HBS Case No. 9-706-018, Harvard
Business School Publishing,
y Cato, “Porsche Revs Up for Explosive Growth,” The Globe
and Mail, February 22, 2007.
14 Bret Okeson, “Engineering is Porsche’s Secret Weapon,”
Automotive News, January 15, 2001.

Globe and Mail, Feb
16 Scott Miller, “Road More Traveled,” The Wall Street
Journal, August 21, 2002.
17 Jeffr
2006.
18 Jerem
19 Ibid.
20 Stephen Power, “The Family Porsche,” The Wall Street
Journal, July 28, 2005.
AUGUST 25, 2009 6
not be sold to anyone else. Porsche could test or develop ideas
that the company would not have been
able to fund on its own.22
For several decades VW had been Porsche’s main client. In
1949, Porsche and VW signed an
agreement under which Porsche was forbidden to design a car
for any other company with an engine
between 1.0 and 1.3 liters through 1974.23 The formality of this
agreement, however, was in dispute
ith others characterizing the contract as a “loose agreement”
between Ferdinand Porsche and VW’s
rs. As
e CEO of PES explained, “We’re not a competitor to

automakers, due to the limited number of
, Porsche required all visitors to sign a confidentiality
greement, making them liable if any secrets learned at the
Weissach complex were revealed.26 In
r in the world, with the exception of those that produced
xury sports cars, and was also involved in projects involving
elevators, forklifts, earthmovers, and
ly for
w
chairman in which about 40% of Porsche’s development
capacity belonged to VW over a certain
number of years.24
By the 1980s Porsche was working with a variety of carmakers
as well as motorcycle producer
Harley Davidson. In 1991, the company founded Porsche
Engineering Services Inc. based outside of
Detroit, Michigan to serve the growing engineering demands of
the North American market. As a
wholly-owned subsidiary of Porsche AG, PES was able to work
with a wide array of carmake
th
vehicles we produce. But we try to convince them that two
OEMs working together, rather than one
OEM and supporters, makes a difference. We understand the
fundamentals of automaking.”25
In 2001, PES became the North American arm of the Porsche
Engineering Group. With 400
employees, PEG was based out of Porsche’s R&D center in
Weissach, a town of 7,000, 23 kilometers

from Porsche’s sales, marketing and production activities. PEG
engineers had direct access to
Porsche’s entire engineering team of 2,300 which was also
based at Weissach. To reassure clients that
their projects would remain confidential
a
addition, the company not only kept the names of its clients
confidential, but it also disguised the
vehicles tested on its private racing track.
PEG worked with virtually every auto make
lu
artificial knees.27 While revenues of PEG were not disclosed in
Porsche’s annual report, one source
indicated it accounted for 3% of turnover.28
Of significant help to PEG engineers was a pool of nearly 600
graduate student interns who worked
alongside Porsche’s staff engineers. A budget of $30 million
was allocated to finance paid internships
for the students as well as university or institute-based research
studies conducted exclusive
Leffingwell, Porsche 911: Perfection by Design,” (Osceola,
WI: Motorbooks, 2007), p. 68.
1994.
keson, “Engineering Is Porsche’s Secret Weapon,” Automotive
News, January 15, 2001.
22 Jeff Daniels, Porsche: The Engineering Story, (Somerset,
UK: Haynes, 2007), p. 129-131.
23 Randy
24 Ibid.
25 Gary Kobe and Lindsay Brooke, “How’s Outside

Engineering,” Automotive Industries, September 1,
26 Bret O
27 Ibid.
28 Scott Miller, “Road More Traveled,” The Wall Street
Journal, August 21, 2002.
AUGUST 25, 2009 7
Porsche. Porsche offered its top interns (typically about 10%)
full time jobs, and those students who
stry. Some of the big
layers for the automotive industry included Italy’s Stola and
U.K.-based Hawtal Whiting and the
for companies like us to provide that support.” As one industry
observer noted,
obalization was forcing many automakers to make the difficult
decision of “entrust[ing] core
Despite the up-tick in demand in the U.S. market, PEG sold PES
to automotive supplier Magna
006 for an undisclosed sum. In commenting on the transaction, a
Porsche executive
did not get a job offer became part of an alumni network that
would be called on to provide advice on
research and technology. A student intern cost 15% of what a
full-time employee would cost.29

Competitors and Market
The outsourcing of engineering services for carmakers was a
growing indu
p
two U.S. automotive engineering companies MSX International
Inc. and Modern Engineering Inc.,
each of which posted revenues between $100 and $500 million.
Lotus Engineering was the only
carmaker with whom Porsche competed for outsourced
engineering business.
These firms had seen their share of hard times. In the economic
downturns of the early 1990s and
2000s, a lot of outsourced activities were brought in-house
again. But by the mid-2000s, many of
these firms had their sights set on the U.S. auto industry where
demand for outsourced engineering
was growing in spades due to production challenges and
increased market segmentation. Between
1995 and 2005, the number of new car models produced by U.S.
automakers grew 50% while the
annual sales per model dropped from 100,000 to 75,000 units.30
As a CEO of a U.S.-based outside
engineering firm opined: “Outside engineering is a permanent
change in the way business is done.
There’s no manufacturing business that needs to be vertically
integrated anymore. It just costs too
much.”31 The CEO of PES echoed this sentiment in 2005:
“We’re following our customers’ changes.
The (automakers) have so many niche vehicles, it really
compounds their resources. The downsizing
and reduction of engineering means there are gaps in some
engineering programs. There are
opportunities 32

gl
engineering services, and even the complete end-to-end design
and development of a vehicle, to firms
with the experience, expertise and sheer innovative talent to
help create better products, faster and at
lower cost.33
International in 2
simply stated, “In the future, we will center all development
activities for external customers in our
development centre in Weissach for efficiency reasons.”34
w, December 2005.
2005.
005.
merican Engineering Services Unit,” Austria Today, August 10,
2006.
29 Sigvald Harryson and Peter Lorange, “Bringing the College
Inside,” Harvard Business Revie
30 Terry Kosdrosky, “Switching Gears Pays Off,” Crain’s
Detroit Business, October 10,
31 Stuart F. Brown, “New Products From Rented Brains,”
Fortune, September 4, 2000.
32 Terry Kosdrosky, “Switching Gears Pays Off,” Crain’s
Detroit Business, October 10, 2
33 Warren Harris, “Engineering Services Outsourcing,” PR
Newswire, January 13, 2009.
34 “Magna Buys Porsche’s North A

VW Takeover
With
60 billion
) and 340,000 employees, it was the world’s fourth largest
carmaker (based on units sold)
with a portfolio of eight brands that included Audi, Bentley,
Lamborghini, and truck manufacturer
Scania, with prices ranging from $18,000 to $250,000. It wasn’t
until the late 1990s that VW began
moving up-market purchasing Rolls-Royce, and Italian sports
carmakers Lamborghini and Bugatti all
in one year.38
Figure 3 Revenue and Net Income for Select Automakers, 2007
(US$ millions)
Porsche made its first move towards VW in 2005 when it
acquired a 20% stake igniting a rumor that
its eventual takeover of VW was not an “if” but a “when.” After
all, it was no secret that VW was an
important partner and supplier to Porsche. In March 2007,
Porsche upped its stake to 31% by paying
€5 billion ($6.6 billion),35 an investment that was worth €16-17
billion ($23.4 billion)36 by October
of that same year.37
On the surface, it appeared as if Porsche and Volkswagen had
little, if anything, in common.

12,000 employees, Porsche was a small independent player in
the auto industry focused on the
performance sports car market. It typically sold about 100,000
cars a year at prices that ranged from
$50,000 to more than $150,000. Historically, it had had few if
any direct competitors. Other high-end
sports car manufacturers like Ferrari, Maserati and Lamborghini
never had the production numbers to
threaten Porsche’s sales. Companies like Mercedes Benz, BMW
and Audi each produced more than
10 times the number Porsche did but for a wide range of
vehicles outside the sports car market.
The Volkswagen Group sold more than 6 million cars a year.
With 2007 revenue topping $1
(Figure 3
50,000U
S
100,000
150,000
200,000
250,000
300,000
$
M
ill
io

ns
-50,000
0
Revenue 262,394 180,000 160,285 154,400 121,200 108,242
39,433 10,060
Net Income 17,146 -39 6,030 -5 6,060 4,823 1,181 9,400
Toyota
GM
(automotive)
VW
Ford
(automotive)
Honda Nissan
Fiat Group
Automobiles
Porsche
35 €1 = US$1.32 (March 1, 2007)
36 €1 = US$1.42 (October 1, 2007)
38 Jon Ashworth, “Porsche’s New Empire,” The Business,
March 31, 2007.

AUGUST 25, 2009 8
AUGUST 25, 2009 9
Despite their differences, VW and Porsche’s histories were
intimately intertwined. It was Ferdinand
Porsche’s engineering company that, in the 1930s, designed the
first Volkswagen which later became
known as the VW Beetle. A few years later, the first Porsche
debuted with some of the same
omponents used on the VW Beetle. More recently, Porsche and
VW had built cars that shared
ith VW. As Wiedeking explained, electronics was one area of
articular interest: “Electronics account for 30% to 35% of our
development costs. Spreading this
to
urvive unless operating in the context of a larger OEM. Forming
closer ties with VW would also
On a more macro level, by acquiring VW, Porsche was helping
protect itself from the ups and downs
server wrote, “A huge mainstream global car company like VW
. As one
dustry observer wrote, “As we’ve seen at Daimler-Chrysler,
when cultural issues are in play, the
c
platforms and components. In addition to sharing research and

development, the two companies’
leadership shared familial bonds. Legendary German-Austrian
engineer Ferdinand Karl Piëch, the
grandson of Ferdinand Porsche, was the chairman of
Volkswagen’s supervisory board and the
Porsche and Piëch families together owned 50% of Porsche’s
shares and 100% of its voting stock.39
Their alliance based on old family relationships allowed both
companies to develop technology
jointly without concern for confidentiality.
The ability to scale and create synergies across a number of
areas were two driving forces that led
Porsche to secure its partnership w
p
investment over 2 million cars instead of Porsche’s 100,000 will
make a big difference and the
components will be cheaper.”40 Furthermore, the capital
intensity of R&D and required fixed assets
in new technologies would be increasing, making it increasingly
difficult for a premium-only OEM
s
enable Porsche to benefit from VW’s more fuel efficient
technologies at a time when new emissions
regulations would come into effect.
of the auto sector. As one industry ob
was in a better position to weather any marketplace vagaries
than a luxury brand like Porsche.”41
While Porsche looked at the VW takeover as a way to leverage
synergies, Porsche and VW would
exist as two separate companies that would sit under a new
holding company called Porsche SE. (See
Exhibit 2.)

A Repeat of Daimler-Chrysler?
While many in the industry believed that Porsche’s acquisition
of VW was a wise move, others
expressed concern that VW would prove to be a distraction for
Porsche, particularly at time when the
company was about to enter another new car market with its
luxury sedan the Panamera
in
products can suffer and when the products suffer, so does
everything else at a car company.”42
39 Michael Connolly, “Porsche Tightens Grip on VW,” The
Wall Street Journal, November 15, 2006.
007.
42 Mark Landler, “Porsche and VW: One Happy Family?” The
New York Times, December 23, 2
AUGUST 25, 2009 10
However, Wiedeking was adamant that the Porsche brand and
culture would remain well protected:

“Believe me, if you mix the Porsche guys with the Audi guys
and VW guys you will have trouble.
Each is proud to belong to his own company. My Porsche
people are very proud of what they have
achieved. They don’t want to build a bastard in the future. They
want to build a Porsche.”43
But whether keeping Porsche and VW as separate operations
under a Porsche holding company
ould adequately protect the engineering and design talents that
Porsche was known for was not
certain. And whether the carmakers that PEG had provided
services to in the past would rethink their
relationship with Porsche now that it would be producing a
number of competing car models was also
not certain. What was certain was that Porsche was no longer a
small, nimble, carmaker focused
solely on the luxury sports car market. With VW now under its
wing, Porsche would soon be
everywhere.
w

AUGUST 25, 2009 11
Exhibit 1 Selected Financials for Carmakers, 2007 (revenue and
net income in US$ millions)
Toyota GM
(automotive)
VW Ford
(automotive)
Honda Nissan Fiat Group
Automobiles
Porsche
Revenue 262,394 180,000 160,285 154,400 121,200 108,242
39,433 10,060
Net Income 17,146 -39 6,030 -5 6,060 4,823 1,181 9,400
% on R&D 3.6 4.5 4.2 4.9 4.9 4.8 2.8 11.8
unit sales 8,900,000 9,286,000 6,191,618 6,553,000 3,652,000
3,700,000 2,233,800 98,652
#
employees 299,394 266,000 329,305 246,000 179,000 180,535
50,542 12,202
Exhibit 2 Porsche SE
Source: Porsche Annual Report.

Porsche SE
Porsche AG
(100%)
Volkswagen
Porsche
Consulting
(100%)
Porsche
Engineering
(100%)
Porsche
Design
(65%)
VW (100%) Skoda
(100%)
Bentley
(100%)
Audi
(99.14%)
Seat (100%) Lamborghini
(100%)
Porsche Turnaround Outside Engineering at PorscheCompetitors
and MarketVW TakeoverA Repeat of Daimler-Chrysler?
Final Case Study

Final Case Study and Strategic Plan [CLOs: 1,2,3,4,5]
Read What’s Driving Porsche? and History of Porsche AG –
FundingUniverse. From the perspective of an executive with the
firm, prepare a strategic plan to grow the business over the next
three years.
Your strategic plan must be future-oriented and must:
· Describe Porsche’s history and its 4Ps (Product, Price, Place,
and Promotion).
· Explain the current situation of the organization in the market
(industry, market, and general environment analysis).
· Assess the financial performance and condition of the
organization.
· Conduct a SWOT analysis (strengths, weaknesses,
opportunities, and threats) to determine areas that offer
opportunities for change.
· Choose three or four areas from your SWOT analysis and
explain why the areas you have chosen are essential to your
strategic plan.
· Describe your recommended organizational structure.
· Explain your plan to measure the success of your strategic
plan.
Your paper must be 10 to 12 pages in length (excluding the title
and reference pages) and be formatted according to APA style
guidelines as outlined in the Ashford Writing Center. In
addition to the text, you must use at least five scholarly sources.
Remember to incorporate information that you have learned
from this course as well as your personal experience.
Carefully review the Grading Rubric for the criteria that will be
used to evaluate your assignment

httpwww.fundinguniverse.comcompany-historiesporsche-ag-histor.docx

httpwww.fundinguniverse.comcompany-historiesporsche-ag-histor.docx

Recommended

Recommended

More Related Content

Similar to httpwww.fundinguniverse.comcompany-historiesporsche-ag-histor.docx

Similar to httpwww.fundinguniverse.comcompany-historiesporsche-ag-histor.docx (20)

More from adampcarr67227

More from adampcarr67227 (20)

Recently uploaded

Recently uploaded (20)

httpwww.fundinguniverse.comcompany-historiesporsche-ag-histor.docx