Transcript
Brandon B o atcallie, Austin
Texas A&M University
Chase, Bobby Salehi, Ivo Skrisovsky, Alfredo Volio
I couldn't
find
the sports car of my dreams, so I built it
myself.
Frn-onraryo Ponscrr.e
Introduction
After over 100 years as an independent and highly suc-
cessful car maker, in 2008, Porsche fell victim to the
financial crisis when it failed to secure the capital needed
to acquire a controlling stake in VW Auto Group (VW).
During a reverse takeover in 2010, Porsche was forced
to hand over its keys to VW. Subsequently, VW man-
agement, eager to use Porsche's expertise to assist other
brands under the VW umbrella, began moving Porsche
executives into key roles with other automotive brands.
As part of the Porsche corporate restructuring ini-
tiative, VW appointed former Audi executive Matthias
Mueiler as Porsche's new CEO. Mueller had consider-
able experience with Vw-the world's third largest
automobile manufacturer controliing the Audi, Bentley,
Bugatti, Lamborghini, Scania, Seat, Skoda, VW, and
now Porsche brands. Mueller's mission was straightfor-
ward: integrate Porsche into the VW family, extend the
Porsche product line, and increase production.
However, because of Porsche's successful track
record, there were many things to consider in the tran-
sition of Porsche. Should Porsche diversif' and extend
its product line while expanding production? How could
Porsche effectively combat possible brand dilution?
Should Porsche acknowledge the trade-offs and focus
on its pure play products-sports cars? How would the
market react to multiple sports cars offerings from Audi,
Lamborghini, and Porsche?
History
Ferdinand Porsche, the engineering genius and founder
of Porsche, began carving his name in car history early
on. In 1900, at the age of 25, Ferdinand introduced the
336
world to not only the first hybrid (petrol/electric)
vehi-
cle but an all-wheel-drive racecar as well. This splashl-
introduction
was merely the beginning of
porsche's
unprecedented success.
1
Ferdinand had what seemed to be the perfect ratio of
brains to passion when it came to designing sports cars.
The German citizen, born and educated in the Czech
town of Liberec, not only engineered but aiso raced his
own models. In 1910, an Austro-Daimler sports car of
his design won the prestigious Prince Henry Trials-
with Ferdinand behind the wheel.
On April 25, 1931, Ferdinand
porsche
opened an
otfice for "engineering
and consultation on engine and
vehicle design" in Stuttgart, Germany. The compan1.,
Dr. Ing. h.c. F. Porsche KG, did not have to wait long for
contracts to build vehicles for German manufacturers
such as Auto Union, Zindapp, NSU, and Wanderer. In
perhaps a bit of irony, Ferdinand's company designed and
sent into mass production the "Ur Beetle"-the first V\4.
"Bug"
and the basis for a design that has not lost its appeal
some 75 years later. Ferdinand clearly possessed the abilitr.
to anticipate and envision the future, maintain organiza
tional flexibility, and empower others to create one of the
world's most valuable car brands. He was a racecar driver
at heart, an engineer by trade, and employed his entrepre-
neurial spirit on a daily basis in a growing company that
proudly carried his name. Ferdinand's son, known by all
as Ferry, began running the company tn 1946 and, upon
his father's death in 1951 and with his own son at his side.
officially took the wheel.
Without question, Porsche was a powerhouse in rac-
ing, collecting victories in virtually all major racing events
throughout the world including the Can-Am racing series,
Paris-Dakar Rally, Pharaoh's Rally, Rally Monte Cario,
24 Hours of Le Mans, and the World Championship of
Makes. On the consumer side, in 1964, Porsche began
producing what would become its most famous sports
car-the 911. Throughout the 70s and 80s, the 911 (and
variations ot) kept Porsche in the black.
In i.ts efforts to provide variety in both design and
:rice, in 1996, Porsche introduced the Boxster' The
3oxster was the first mid-engine
production sports car
?orsche had ever manufactured and a big hit-selling as
r.rany in its first year as the entire 911 line-up combined'
.r.2002, Porsche surprised many purists by presenting a
sports-utiiityvehicle-the
Cayenne' Once again' Porsche's
rewest offering outsoid al1 other models in its first two
.,'ears.
In 200S, the Cayman was launched as a hard-top
..'ersion
of the successfui Boxster and Porsche once again
.urprised the automotive world in 2010 by introducing
.he first four-door Porsche sedan ever-the Panamera'
By 2011, the company produced five models with a
:ombined total of 40 different trim levels' This increased
liversification
brought higher shareholder returns-one
of Porsche's main objectives.
Economic and Political Challenges
-\s
it was for most automakers, the economic climate
beginning in 2007 was challenging
for Porsche' Oil prices
,vele at record highs, topping $100
a barrel' For every
ten cents that gasoline prices rose, approximately
1'000
trucking companies went bankrupt'2 The global econ-
omy strirggled to step out of the deepest recession the
US and Europe had experienced
in decades' Consumers
rr.ere extremely
price sensitive and unemployment
in the
US hovered around 10 percent' Of particular concern
to Porsche were gasoline prices: as a sports car manu-
t-acturer, it was fighting the stereotype of a gas-guzzling
automobile segment.
Consequently,
Porsche re-engineered
many of its
offerings to provide
(relatively) higher gasoline effi-
ciency.lor example, the 911 Turbo had an EPA estimate
of 18 miles per gallon
(mpg) throughout
most of the 90s;
however, the 2010 estimate was 24 to 25 mpg
(depend-
ing on cylinders and auto/manual)
and, as a bonus' came
u,iih roughly 75 percent more horsepower' In addition'
the hight soughi after Carrera
(a 911 variation) offered
2+ toiZ
'-pg,
tn. Boxster 26 to 29 mpg' and even the
four-wheel diive SUV Cayenne boasted 22 to 23 mpg'3
Unaccustomed
to traiiing the pack, Porsche rekindled
its hybrid roots by engineering
a hybrid Ca1'enne and
Panamera S with mpg ratings of 25 and 35' respectively'a
And yet, even with Porsche's efforts toward fuel
efficiency, US government actions have put even more
pressurs on the Bavarian carmaker' Under the direc-
iio,-, of President Obama, the National Highway Traffic
Safety Administration
and the EPA increased the mpg
requirements
for ali cars in the US through an old emis-
sions policy known as Corporate Average Fuel Economy
(CAF-E). In the past, CAFE had levied small fines on
carmakers with mpg ratings that didn't meet specified
regulations and Porsche and other high-performance
G obe: @ Jan Rysavy/iStockphoto
com
car makers simplv absorbed the reiatir-elv minor fee'
However, the 2009 legislation rmposes not only a sig-
nificantly higher mpg requiren-rent, but a significantly
higher penalty as well: CAFE mandates that, by 2020,
automobile manufacturers and importers must have an
average mpg rating of 39 for cars end -10
ior trucks or
pay $35,700
for each individual car in violation' Upon
pur.ng., Porsche commented that if the 2020 C'\FE poli-
ii., n.. enforced, it simply won't be able to sell cars in
the US.
On a more positive note, economic support tor
Porsche is strong in its German homeland' Germanv is
the third largest exporter in the world.T Union workers
are protected by strong labor laws and wide support'
and approximately 93 percent.cif the German workforce
is unionized.s Manufacturing employees constitute
approximately 30 percent of the nation's workforce'e
Though Germany has not been immune to the global
recession, Porsche has continued to enjoy a supportive
manufacturing infrastructure.
I nd ustry Characteristics
The sports car industry faced its share of economic
woes throughout the latter half of the 20th century with
many sports car makers experiencing
fatal cash flows'
Lamborghini declared bankruptcy in 1978' It was later
revived and sold to Chrysler only to then be sold to the
Suharto family in 1994 and sold again to Audi in 1998'10
In that same year Bentley, Bugatti, and Audi
(and thus
Lamborghini) were acquired by VW. Aston Martin'
which had sold a controlling share to Ford in 1987, was
bought outright by Ford in 1994 and then sold again in
200i."
Jaguar
was also bought and sold by Ford in 1990
and 2007, respectively. Getting out ofthe gate even ear-
lier, Fiat acquired Ferrari in 1969, Alfa Romeo in 1986'
and Maserati in 1993.1'] Even so, through it all, Porsche
managed to not only stay independent but, more impor-
tantly, financially buoYant.
Porsche competes in a market segment where rel-
atively few can iompete. Manufacturing
a car of any
caliber-no less the caliber of Porsche-requires
size-
able capital investments. Additionally,
the engineering
expertise required to design a car capable ofcompeting
wiih famboighini, Ferrari, Aston Martin, Porsche' and
others keeps utt Uot the truly intent from entering the
field.
Though there seem to be several supercarloptions
like the Mclaren MP4' Ferrari FXX, and Ferrari Enzo
that cost more than $500,000,
consumers have few
A supercar is typically an exotic or rare sPorts care whose perfomance is hiqhly
super ative to contemPorary spotls cars (Supercars/Exotic Cars TopSpeed com
http:,/,/www.topspeed.com/ca
rslsu percars-exotic cars/ke 1 77 htm l)'
r)
o
N
9.0
!
a
t
o
l=,
]F
E
F
alternatives-if
any-for a mid to low
g100,000
car
like the Porsche
911 Turbo_particularly
one that
loutl:
r1.- supercar pe.formar.ce.
Co-pa.ri.,
includ_
ing BMW, Nissan, and GM have each produced
one or
two cars comparable
in price and performance
to the
Porsche line, but their offerings do not present the pres_
tige or variety of
porsche,s
emblem or firll lineup.,,
Sports car enthusiasts
are few and fickle; trend con_
scious buyers are inherent to lurury and high_end mar_
kets. That means
porsche
must constantly innovate to
keep up with trends. As evidenced by the short lifetimes
of independent
sports car manufacturers
over the last
30 years, sutviving in this tlpe of a market is extremely
challe-nging.
Despite this,
porsche's
greatest challenge
would appear to lie in the impending
CAEE regulations_
regulations
that could spell an end io
porsche
saies in its
number one market, the US.ra
$l:!l_Ire_nd
Toward
Emers ins
ECOnOmies
Many automotive
firms have sought international
expo_
sure to increase their market share. In 2010,
porsche
sold 14 percent of its volume in Germany and, over 26
percent
of its volume in the US. Given the possibility
of
CAFE regulation
enforcement,
porsche
hai been diver_
si$zing its international
scope. China, for example, has
become an area ofextraordinary
expansion for
porsche,
accounting
for approximately
15.6 percent of overali
sales (see
Exhibits lA and 1B). Curient management
Exhibit 1A Units Sold per Multi_Geographic
Market: 2OO9 to 2O1O
believes
China will be the largest consumer
segment
for Porsche
within two or thre-e years.ts To encourage
this new market,
porsche
has even begun building race
tracks for Porsche
drivers on the ma"inland
of China.
Depending
on this level and pace of expansion
in China
is not without
risk, howev... Th" Chinese government
has increased
scrutiny
of foreign operation's
within its
borders and firms investing in China face uncertainty
wfren dealing
with the undervalued
yuan.i6
yet,
with
plans to alloW a gradual increase ir, ,ralue of local cur_
rency and boasting
the most rapid economic growth of
any country
at the time, China has too much potential
as
an export market to ignore.
Typrcally,
in a capital-intensive
industry,
efficient
international
expansion
of productior-,
yi.iJ, greater
economies
of scale and increases
markei penetration.
Other automakers,
such as VW and GM, .-ptoy a trans_
national strategy
by modifying
current
-od.l,
according
to the demands
in international
regions.
porsche,
how-
ever, employs
a global strategy whereby it offers the same
models for the whole world. This lower risk trade_ofT
helps protect
the
porsche
brand from international
diiu_
tion and enables
porsche
to remain consistent
with regard
to costs in its strategy forged in Germany.
.
Porsche
has always expanded
to international
mar_
kets exclusively
through
exportation_a
Iess expensive
option as compared
to greenfield
ventures or establish_
ing new bases of operation.
Inherent to multinational
expansion
are increasingiy
complex economic
and
political
risks. Porsche's
strategy hedges against such
United States
Lhrna
Germany
Olher European Countries
Middle East/Africa
United Kingdom
Italy
Japan
France
Canada
As a
Dacific
-a:i^ Anrerica (excluding
Brazil)
Russia
Austraiia/New
Zealand
Total
18,958
7,708
12,506
6,7 49
5,941
4,926
3,930
2,915
2,010
1,622
1
,116
z,tlJ
1,278
1,076
n/a
72,858
22,181
13,254
11,911
8,407
6,27 5
6,157
3,655
2,775
2,432
1,823
1,660
1,441
1,302
1,148
ao4
85,202
17.0%
7 2.0"/o
-4.8%
24.6%
5.6%
25.0%
-4.8%
21 .0%
12.4%
48.7%
1.g%
6.7"/"
n/a
16.9%
Sou
-ce
l::a adaoted from http:/,/quote.morn
in gstar.com
=
i
i
United States
China
Germany
Other European Countries
Middle East/Africa
Un'ted Kingdom
Italy
Japan
France
Canada
Asia Pacific
Latin America (excluding Brazil)
Russia
Australia/New Zealand
Brazil
26.0"/o
10.6%
17 .2"/"
9.3"/o
8.2"/" .
6.8"/"
5.4%
4.0"/"
a oo,l
L,a /o
1.5%
2.9%
1 00/
4 trO/
n/a
26.0"/"
15.6%
14.0o/"
9.9%
4.3%
J.J /O
2.9%
1. | /O
1.9"/"
1.7%
1 trO/
4 )O/
t.J/o
o.9%
Source: Data adapted from http://quote.morningstar.com
Exhibit 1B Percentage of Sales per Multi-Geographic Market: 2009 to 2010
complexity by focusing solely on exportation rather
than manufacturing expansion, acquisition, and licens-
ing. With the exception of its contract with Valmet in
Austria for the Boxster/Cayman, Porsche produces all
of its cars within its labor union dominated, Bavarian
borders.
Product Ouality
Porsche. There is no substitute.
Totw Cnursn
Rrsrv Busnsrss, 1983
High-performance sports cars are generaily high-
maintenance, low-reliability vehicles. To consistently
perform as intended, most sports cars need frequent
and expensive attention and maintenance. In March
2010,
J.
D. Power and Associates ranked Porsche as
providing the best long-term reiiability of any brand in
the US.17 What makes this designation truly exceptional
is that the comparison was not made solely within the
high-performance sports car segment, but was extended
to all automobile lines including sedans, SUVs, trucks,
etc., offered by such reputable brands as Toyota' Ford,
BMW, and Honda: truly an extraordinary accomplish-
ment for any vehicle within any segment, but even
more so for one within the notoriously temperamen-
tal high-performance sports car segment. Additionally,
|.
D. Power and Associates market researchers hailed
the Porsche production plant in Stuttgart as
"the
best
car factory in the world."t8
o
o
o
N
9.D
T
o
J
o
lnnovation
Porsche iargely generates innovative technologies
through its racing programs. According to Porsche
Motorsports, Porsche "is the most successful manufac-
turer by far in the history ofinternational sports cat rac-
ing."L With over 50 years of racing experience, Porsche
has accumulated a wealth of technological expertise
and employs some of the brightest engineering minds
in the world. Porsche has consistently developed class-
leading technologies that competitors find diffi-
cult to imitate. For example, the seven-gear Porsche
Doppelkupplung (PDK) system allows drivers to shift
between gears without interrupting the flow of power.
The Porsche Torque Vectoring
(PTV) system can sense
the vehicle steering angle and speed, accelerator pedal
position, yaw rate, and vehicle speed to vary the torque
distribution to rear wheels to ensure more predictable
and stable vehicle maneuvers at all speeds. Ceramic com-
posites are utilized in various vehicle components, such
as brakes and clutch piates, to provide lightweight, dura-
b1e performance.20 The technology Porsche has devel-
oped-and continues to develop-produces exception-
ally reliable performance at comparatively low prices.
Porsche Strategic Partners
Clearly, depending on racecar technology for the lion's
share of innovation can serye a car maker well in many
ways. Nevertheless, Porsche is neither above nor hesitant
to develop strategic alliances as needed when particular
o
(-)
+
L
technologies are not within its immediate grasp. Whether
through its highly seiective paid internship program2'
or alliances formed with other automakers to receive a
crash course in hybrid technology,22 Porsche has forged
partnerships to keep its business on the cutting edge.
In one of its more forward-thinking moves, in 1999,
Porsche bought a 49 percent interest in Miseschke
Hofmann und Partner (MHP), a specialty IT technol-
ogy and process improvement group and SAP (Systems,
Applications, and Products in Data Processing)
Implementation and Service Partner. Initially, the ven-
ture was an equity strategic alliance in which MHP sub-
contracted to consult and improve Porsche processes.
This vertical complementary alliance helped Porsche
Iearn new business techniques and technologies.
Subsequently, Porsche bought a controlling interest of
MHP (74.S percent) and MHP served as the exclusive
provider of IT improvements and process engineering
for Porsche23while continuing to serwe outside clients-
mostly in the automotive industry. In 2001, SAP AG
named MHP as the first Special Expertise Partner SAP
for the automotive category. MHP was also rated SAP
Silver Partner Service and SAP Channel Partner Gold.
MHP's contributions to the Porsche manufacturing pro-
cess allow several manufacturing advantages, including
the ability to produce the Cayenne, Carrera GT, and
Panamera at the same plant and on the same line in
Leipzig, Germany.2a
Porsche also engages in alliances not requiring equity
ownership. Concurrent with its launch of the Boxster
in 1996, Porsche announced it would sub-contract pro-
duction to a non-German manufacturer for the first
time. With Porsche building the engines and various
other components in its main factory in Zuffenhausen,
the state-owned Finnish manufacturer-Valmet-
produced the majority of the Boxster line, adding pro-
duction of the Cayman in 2005. In 2008, and with the
Cayman/Boxster production contract set to expire in
2012, Valmet announced it would begin production on
the Fisker Karma piug-in hybrid sports car beginning in
2012.25 Porsche's Deputy Chairman, Holger P. Haerter,
confirmed the Valmet contract would end in 2012, and
announced that Magna Steyr Fahrzeugtechnik
(MSF) of
Graz, Austria would take over production of the Boxster
and Cayman.26 A year later, Porsche paid MSF an undis-
closed sum to cancel the contract and it is now expected
that production will move to the factories of bankrupt
Karmann Ghia-now the property of VW.27
Diversification: SUVs and Sedans
While the Porsche brand name and product quality
never wavered, in the mid to late 90s it became clear that
customer preferences were changing' Particularly in the
US-Porsche's biggest export market-the SUV began
to dominate the road. Porsche had to decide if it would
continue focusing on its traditional two-door sports car
models or further diversi$' its product line by offering
new models that departed from the historic Porsche
image. Purists argued that extending the product line
would dilute the Porsche brand name and ultimately
dbstroy the distinct Porsche image. Others argued that
economic growth made it worth the risk, as existing
product sales were flat. In the end, Porsche decided to
extend its product line to include a SUV-the Cayenne.
Despite the radical departure from its niche, the 2002
introduction of the Cayenne was extremely profitable
and helped fuel Porsche's growth for several years. As
for its reception in the auto world,
On one level it is the world's best 4x4, on another it is
the cynical exploitation of a glorious brand that risks
long-term damage to that brand's very identity in the
pursuit of easy money.. . So 1 applaud the extraordinary
Cayenne and wish it every success while at the same
time still wishing, in part at least, that it had never been
built."
Having weathered the stigma of introducing a SUV,
in 2009, Porsche offered another first: the four-door
Panamera sedan. With global economic tensions increas-
ing in 2008 and 2009, consumer tastes for Porsche's tra-
ditional high-performance two-door models flattened.
Nevertheiess, sales of the Panamera and Cayenne mod-
els grew significantly.
Loyalty
When Porsche decided to enter the SUV market with
its luxury Cayenne model, it surprised the auto industry
by locating its new assembly plant in Leipzig, Germany.
Many observers believed Porsche should iocate the
plant in either central or eastern Europe where labor
costs were very low, or even perhaps in the US (as had
Mercedes and BMW) where it could be close to its major
market. The critical issue driving Porsche's Leipzig plant
decision appeared to be the primacy of Porsche's strat-
egy of quaiity, craftsmanship, and engineering excel-
ience. Ultimately, maintaining brand image (while, par-
adoxically, simultaneously upsetting that brand image)
was much more important to Porsche than saving on
labor costs-especially when assembly costs comprise
only a small portion of overall vehicle cost.2e In the end,
Porsche emphasized design, research and technology
development, and marketing to maintain its reputation
for a commitment to excellence.to
In North America, Porsche aficionados tend to be
college-educated men between 36 to 55 years of age
with an annual gross income in excess of $380,000 per
ffili"
'
year. They value innovation and independence and
are often senior executives, medical professionals, and
entrepreneurs.3r This customer segment buys Porsche
because of its innovative features, exceptional styling,
and European origin.
Introduction ofnew features and innovative technol-
ogyby BMW, Mercedes, and Lexus prompted Porsche to
implement lean production practices. However, because
Porsche produces a limited number of models, its switch
to lean production practices was somewhat easier than
that of its competitors. In addition, Porsche engineers
have been able to keep vehicle performance and han-
dling of their vehicles at the forefront of the sports car
segment. As a result, Porsche has enjoyed record sales
and profit (see Exhibits 2A and 2B). In early 2010,
with only a handful of focused car-making companies
remaining, Porsche led the pack.
The Prestigious Competition
The sports car manufacturing segment faces a compli-
cated, competitive environment. Changing industry
-dynamics
frequently present Porsche's management
team witl-r rigorous obstacles to overcome. Porsche
offers several product lines of sports cars available in
many geographic markets. Porsche focuses on quality
and not quantity and as a resuit and fully B0 years after
its founding, Porsche only offers five different car mod-
els: the Boxster, the Cayman, the 911, the Panamera, and
the Cayenne.
o
o
N
!.0
T
o
t
o
Exhibit 2A Income Statement of Porsche Automobi/ Holdinq SE
Source: Data adapted from http://quote.mornlngstar.com
Revenue
Other operaLing income
Personnel expenses
Other ooerating expenses
lncome from investments
lnterest result
lncome from ordinary activities
Taxes
Profit/loss after tax
Withdrawals fro.n retained earnings
Transfer to retained earnings
Net profit available for distribution
0
641
,18
oJt
9,850
-851
8,991
0
8,991
0
-L
LAq
4,496
5
52,790
-77
*55,407
2 aa)
-7
46
-443
trtrt
-996
1,004
O
8
Exhibit 28 Balance Sheet of Porsche Automobil Holdlng SE
24,171
4,348
230
B87
F)
30,289
16,977
1,572
7,000
4,7 40
30,289
24,838
2,703
1,202
2,164
263
31 ,170
7,993
a 241
10,561
9,245
31 ,170
Source: Data adapted from http://quote.morningstar.com
Assets
Financial assets
l-(ecerva bles
Olher receivabres ano assets
Cash and cash equivalents
Prepaid expenses
Equity and liabilities
Equity
Provisions
Liabilities to banks
Other liabilities
,,-ffirm
year. They value innovation and independence and
are often senior executives, medical professionals, and
entrepreneurs.3l This customer segment buys Porsche
because of its innovative features, exceptional styling,
and European origin.
Introduction ofnew features and innovative technol-
ogy by BMW, Mercedes, and Lexus prompted Porsche to
implement lean production practices. However, because
Porsche produces a limited number of models, its switch
to lean production practices was somewhat easier than
that of its competitors. In addition, Porsche engineers
have been able to keep vehicle performance and han-
dling of their vehicles at the forefront of the sports car
segment. As a result, Porsche has enjoyed record sales
and profit (see Exhibits 2A and 28). In early 2010'
with only a handful of focused car-making companies
remaining, Porsche led the pack.
The Prestigious Competition
The sports car manufacturing segment faces a compli-
cated, competitive environment. Changing industry
dynamics frequently present Porsche's management
team with rigorous obstacles to overcome. Porsche
offers several product lines of sports cars available in
many geographic markets. Porsche focuses on quality
and not quantity and as a result and fully 80 years after
its founding, Porsche only offers five different car mod-
els: the Boxster, the Cayman, the 911, the Panamera, and
the Cavenne.
.)
o
N
!!
t
o
t
o
Exhibit 2A Income Statement of Porsche Automobil Holding SE
Revenue
Other operating income
Personnel expenses
Other operating exPenses
lncome from investments
lnterest result
lncome from ordinarY activities
Taxes
Profit/loss after tax
Withdrawals from retained earnings
Transfer to relained earnings
Net profit available for distribution
0
641
-to
_.631
9,850
-of,
I
8,991
0
8,991
0
-4,495
4,496
5
52,790
-77
-55,407
2,992
-7
46
-443
tr82
-996
1,004
0
8
Source: Data adapted from http://quote.morningstar.com
Exhibit 28 Balance Sheet o{ Porsche Automobil Holding SE
24,838
2,703
1,202
2,164
lb3
31 ,'170
7 002
3,371
'10,561
9,245
31 ,170
24,771
4,348
230
BB7
5J
30,289
16,97 7
1,572
7,000
4,7 40
30,289
:l!rce: Data adapted from http://quote morntngstar.com
Assets
F nancral assets
Receivables
Other receivables and assets
Cash and cash equivalents
Prepaid expenses
Equity and liabilities
Eou ity
Provisions
-;abilities
to banks
Other liabilities
Two of Porsche's three most recent additions, the
Cayenne and Panamera models introduced rn 2002 and
2009 respectively, compete mainiy with other prestige
brands.i'The Cayenne is offered in four different models
ranging from the stock Cayenne to the Cayenne Turbo
S. Its main competitors are the BMW X6 M, Mercedes-
Benz ML63 AMG, and Audi
Q7,
among others.32 The
BMW X6 M is slightly faster than the Cayenne Turbo
S with a 0-60 of 4.0 compared to 4.1 for the
porsche.33
The Mercedes-Benz ML63 AMG is less expensive than
the Cayenne but siower with a 0-60 of 4.6 seconds. The
Audi
Q7
is the slowest of the pack but has more interior
space and torque than the Mercedes.3l Each model has
distinct advantages and disadvantages when compared
to the Cayenne, making it a very competitive arena.
The Panamera is offered in seven different models
ranging from stock to the Turbo S. The
panamera
was
introduced in 2009 to compete against the BMW M5,
Mercedes-Benz 565 AMG, and Audi S8, among others.35
The BMW M5 is a sporfy luxury sedan but significantly
slower than the Panamera Turbo S with a 0-60 of 4.4
compared to 4.0 for the Porsche. However, only the M5
offers a standard gear box. The Mercedes 565 AMG
offers the smoothest ride of the four and garners higher
rankings on spaciousness and comfort. The Audi Sg is
again the slowest of the group but offers exceptional
interior quality. The Panamera competes directly against
these models and has been touted to be the fastest luxurv
sedan in the world.36
The Boxster and Cayman are also relativeiy recent
additions to the company's offerings. The Boxster was
first introduced as a roadster in 1996, the same year
BMW launched
lames
Bond's 23. The Cayman was
launched ten years later, in 2006, as a coup6 derived
from Porsche's second-generation Boxster convertible.
Today, the Boxster is offered in four different models:
Boxster, Boxster S, Boxster Black Edition, and Boxster
Spyder. The Cayman is only offered in three different
models: Cayman, Cayman S, and Cayman R. These
Boxster and Cayman models compete against the BMW
24, Mercedes-Benz SLK models, and Audi TT, among
others.rT The 24 is considered to have a more luxurious
angle when compared to the Boxster or Cayman. The
-\lercedes offering in this roadster class has significantly
less horsepower and fewer sport options. Overall, the
Bo\ster and Cayman models compete well against their
competitors, most notably in reliability as, in 2010, the
Borster rvas rated the most reliable car, regardiess of
:rtrdel. in the world3s (see Exhibit 3).
i-:::,::
:-:^:s are rve 1 estab ished as status symbols, represent the high-
::: ':
--
:' :-::s-a-shlc, and command a loya consumer fo/lowing that
:
-::
:-::::: :r :':-is {Roume/iotis, J.D.
eA11, February 10). Defining
. -.
:-:-:,. :-: -::s ,/,/ClV /ns,ght. http:,//www.whitefieidconsulting.com/
Porsche's fifth and most recognized offering is the
iconic Porsche 91 1. The 9l I was introduced in 1963 and
boasted an air-cooled rear-engine design, independent
rear suspension, and a swing axle pioneered by
porsche.
Over its aimost SO-year lifetime, the 911 had undergone
continuous development, though the basic concept had
remained mostly unchanged. Among its many awards,
the 911 ranked fifth in the 1999 international poll for
the Car of the Century award. Today, the 911 is offered
in over 20 stock models. Most models are variations of
the Carrera, Targa, Turbo, Black Edition, or GT. The
Porsche 911 competes with the Ferrari Enzo, Aston
Martin V12 Vanquish, Lamborghini Murcielago, and
Bentley Continental GT, among others.3e These super-
cars offer outstanding performance but are extremelr.
expensive with price tags in the range of $250,000 to
$400,000. Porsche on the other hand has been able to
produce equal performance and prestige, yet at more
affordabie prices ranging from $130,000 to $145,000
for the Turbo trims and up to $245,000 for the GT2 RS.
In addition to the supercars, the 911 competes against
the BMW M6, Mercedes-Benz SL-Class, and Audi Rg,
among others. These competitors have similar brand
prestige as Porsche but lack in some aspects of sport
performance. Furthermore, the 911 faces competition
from less prestigious brands that deliver comparable
performance. The Nissan GT-R and Dodge Viper, for
example, both boast excellent performance figures and
lower price tags than the 91 I but lack the pedigree of the
Porsche line.at)
The price range and performance varies greatlv
among the five model lines and their respective trim
levels. Boxster, Cayman, and 911 models target sports
car enthusiasts, whereas Panamera and Cayenne target
luxury vehicle and SUV market segments, respectively.
Each model not only meets but with additional sports
performance, exceeds the standards of their respective
automobile class. In addition to the five production
models, Porsche also manufactures track-ready race-
cars. Taken together, Porsche's model offerings provide
a wide selection for many needs and different stages of
liie.
lnfluence
of the Volkswagen
Group
In 2010, VW employed about 400,000 employees, oper_
ated 62 production facilities worldwide, produced 200
different vehicle models at a rate of 30,000 vehicles per
day, and was active in more than 150 countries. VW
consists of two main divisions: the automotive division
(VW
Group) and the financiai services division. The
automotive division is comprised of 10 different auto-
motive brands: VW passenger cars, Audi, Skoda, SEAT,
:i:riii!l
#iliil
il'-
Exhibit 3 Porsche Awards and Accolades
Sou'ce: Dara adaplod'ron
r-tp://q
-ote.no'ni.gsrar.com
201 1
201 1
2o1o
2010
2010
2010
2O10
2010
2010
2010
2010
2010
2009
2009
2009
2009
2008
2008
2008
2008
2007
2001
2007
911
911
Boxster
Boxster/Cayman
91 B Spyder
Cayenne
Panamera
Panamera
Porsche Brand
Porsche Brand
Porsche Brand
Porsche Brand
Panamera
Cayman
911
911
Boxster/Cayman
911
Porsche Brand
Porsche Brand
Porsche Brand
Boxster/Cayman
Boxster/Cayman
Auto P acifi c Best Sportscar-Veh icle Satisfacti on Awa rds
[VSA)
Car and Driver Editor! Choice
Car and Driver Best Handling Car in America
Car and Driver Editor's Choice
Edmunds.com Insideline Most Wanted
MotorTrendSUV ol the Year
About.com Cars-Best New Cars of 2O1O
Car and Driver Editor's Choice
Kelly Blue Book Brand lmage Awards-Coolest Brand
J.D. Power and Assoclates #1 : lnitial Quality Survey
Auto Pacific ldeal Vehicle Awards (lVA) #1
J.D. Power and Associates APEAL Study-#1
Bloomberg Car of the Year
Motor Trend Best Drivers Car
Automobile Magazine'sAll-Stars Award
Robb Reporf Best ol the Best
Car and Driver Magazine's 10 Best Cars Sold in America
Edmunds Edilors' Most Wanted Award
Luxury Institute! Top Luxury Automotive Brand
J.D. Power lst in lnitial Ouality Survey
J.D. Power and Associates APEAL Study-#1
J.D. Power and Associates Best Premium Sports Cars
Car and Driver's "Ten Best"
Bentley, VW commercial vehicles, Scania, Bugatti,
Lamborghini, and Porsche. Each brand within the auto-
motive division is led by a brand CEO and Board of
Management. The financial selices division is the larg-
est automotive financial services provider in Europe and
offers dealer and customer financing, leasing, banking
activities, insurance activities, and fleet management.
At the corporate level, VW is charged with becom-
ing the
"leading automotive group globally." VW's
Strategy 2018 sets forth the roadmap to achieve this goal
using its unrivaled distribution capabilities, best-in-ciass
manufacturing and technology, and superior quality.
Best practices are leveraged across brands, and purchas-
ing, production, and distribution synergies develop as
brands work together.
While the VW brands compete in a number of con-
sumer markets and segments, VW's flexible engineer-
ing design and architecture processes allow its brands
to share compatible components to customize vehicles
and meet regional customer preferences. To promote
local customization, production facilities are located
in various markets including China, Russia, the Slovak
Republic, the Ukraine, Kazakhstan, Spain, France, the
US, Brazil, and Argentina.
The Porsche brand will play a key role within the
VW family in various global markets. VW's execu-
tive team plans to fully integrate the Porsche brand
into the group by the end of 2011 via a muiti-stage
transaction. It is expected that Porsche will contrib-
ute to the group synergy and help other group brands
improve in innovation, manufacturing, and quality
by sharing technology, research and development,
components, and platforms. Product line extensions
are planned to produce new Porsche vehicles that rvi1l
meet emerging customer demands in various markets.
Production goals are aimed at increasing Porsche pro
duction from 80,000 units to 150,000 units annuallr'
within five years. VW's distribution network will be
leveraged to introduce the Porsche brand into ner'
markets.al
:i!,
;flr,
ffi'
O
()
+
L
Overview of Strategic Challenges
VW's Strategy 2018 calls for the company to become
"the most successful and fascinating automaker by
2018." Over the past 15 years, VW Group has acquired
more than half a dozen brands including Porsche,
Lamborghini, and Bentley. Porsche wiil help VW
achieve its goals by sharing its technology with other
VW brands, increasing production, and diversifying
the Porsche product line. For example, VW has already
announced its plans for Porsche to launch the Cajun
(pronounced CAY-OON) a smaller, more fuel-efficient
version of the Cayenne SUV. Also, rumors have been
circulating that an even smaller version of the Boxster
will begin production by 2013. VW has seen the success
of Porsche's recent diversification and is looking for an
even broader offering.
However, Porsche has traditionally been a top-tier
sports car company, producing variations of the leg-
endary 911 platform. Its newest product offerings-the
Cayenne and Panamera-were the hands-down sporti-
est options within their respective segments. For exam-
ple, the Panamera Turbo S was the fastest sedan in the
world after less than two years of production. Further
extension of the sedan or SUV lines could lead to per-
formance dilution.
By complying with VW's Strategy 2018, the Porsche
brand would evolve from a focused approach to a
broader brand of car segments. Porsche would no ion-
ger solely focus on its traditional target customer but
would instead be forced to appeal to multiple consumer
segments. As such, Porsche faces the risk of diluting
its brand, alienating its customer base, and potentially
destroying its competitive advantage.
ro#Hffiffi
4.
10.
13.
tl
12
Milestones
-
Porsche History. Porsche.com. http://www.porsche
.com/usa/a boutporsche,/porscheh istory/mi estones/
Hoskisson, R. E., Hltt, M. A., and lreland, R. D. (2008). Competing
for Advantage. Mason, OH: Thomson South-Western.
Find a Car. FuelEconomy.gov. http://www.{ueleconomy.gov/fegl
{i ndacar. htm
Welsh, J. (2011, Feb 16). ls the Panamera hybrid the most fuel-
efficient Porsche ever? The Wall Street Journal. http://blogs.wsl
.com/drivers-seaI/ 201 1 /02/ 1 6/is the panamera-hybrid-the-most-
fuel-eff icient-porsche-ever/
Allen, M., and Javers, E. QOA?, May 18). Obama announces new
fuel standards. Polittco.com. http://www.politico.com/news/
stories/0509/22650. htm I
Schmitt, B. (2010, Feb 22). Ol>ama will take away your Porsche.
T h eT ruthAboutCars. com http://www.thetruthaboutca rs
.com / 201 O / 02/ obama-wi I l-take-away-you r-porsche/
The Wor d Factbook. Cl A. co m. https://www.cia. g ov / li5rary /
pub ications/the-world-factbook/geos/gm. htm 1
German labor unions. Photius.com. http://www.photius.com/
countries/germany/government/germany government abor-
un ions. htm I
Germany trade, Germany exports, Germany imports.
EconomyW atch.com. http://www.economywatch.com/world-
economy/germany/export-im port.htm I
Ferruccio Lamborghini. LamboWeb.com. http://www.lamboweb
.com/H istory. htm
History Timeline. AstonMartin.com http;/,/site.astonmadin.com/
eng/thecompany/historytimeline
Ferrari S.p.A. F undingUniverse.com. http://www.fundinguniverse
.com/company-h istories/Ferrari-SpA-Com pa ny-H istory. html
Porsche enjoyes unsurpassed prestige in US. (2006, f,/ay 5).
P o rsche. com. http://www. porsche.com/usa/a boutporsch e/
pressreleases,/pag/?pool:international de&id:2006-05-05
Porsche Annual Report 2009/2010. Porsche-se.com. http://www.
porsche-se.com/pho/en/investorrelations/mandatorypu bl ications/
annua report-09-1 0/downloadr'
ELLlott, H. 12011, Jan
'13).
Porsche plans small 'calun' SUV,
new sports car under Boxster. http://blogs.forbes.com/
hannahe tofi/ 201 1 /01 / 1 3 /porsche-plans-sma I cajun-suv-new-
sports-car-u nder-boxster./
Batson, A., and Fong, lV. (2006, Aug 30). China hits foreign
investors with new hurdles. Wali Street Journal via Pittsburgh
P ost-G azette. co m. http://www. post-gazette.com/
pg/ 0 6242/7 1 7 522 28stm
17. J.D. Power vehicle dependability study: Porsche ranked number
1. (2010, Mar 1B). Porsche.com. http://www2l.porsche.com/usa/
aboutporsche/pressreleases/pcna/?lang:none&pool:internatio
nal-de&id:201 0-03-'l B 2
18. J. D. Power and Associates names Porsche 91'1 the most rellable
sports car. (201 1, Mar 22). OnEightTurbo.com. http://www.
oneighturbo.com/porsche/j-d-power and-associates-names-
porsche-91 1 -the-most-reliable-sports-car/#more-1 6557
19. Motorsports. Porsche.com. http://press.porsche.com/motorsport/
2A. Technology Glossary. Porsche.com. http://www.porsche.com,/usa/
aboutporsche/porschetechnologyglossary/
21. Harryson, S., and Lorange, P. (2005, Dec). Bringing the college
inside. Harvard Buslness Review. httg:/ /hbr.org/2005/ 1 2/bringing-
the-co ege-inside/arl1
22. World's automakers embracing hybrid vehicles. (2005, Sep 14).
Autos on msnbc. com. http://www.msnbc.msn.com/idl9338664/ns/
business-autos/t/worlds-automakers embracing-hybrid-vehicles/
23. Porsche subsidiary MHP enjoys strong turnover growth once
again. (2008, Oct 9). Porsche.com. http://www.porsche.com/
I nternationa l/aboutporsche/pressreleases/a rchive20OS/
quarter4/?pool:international-de&id:2008-1 0-09
24. Company. Mieschke Hofmann und Paftner (MHP)
-
the process supp/ier.de. http://www.mh p.de/
Company. l0+ M5519f 1 87cad.0.html#/tabs-6)
25. Abuelsamid, S. (2010, May 27). Report: Fisker Karma full production
delayed to February 2011. Green.Autoblog.com. http://green
.a utob og.com/2 010/05/27 /Iisker-karma-fu ll-prod uction-delayed
to-february 201 1 /)
26. Valmet Automotive's current assembly contract with Porsche to
come to an end in 2A12.
{2008, Jun 26). Valmet Automotive.com.
http://www.va met-automotive.com/automotive/bu letin.nsf/PEBD
/B B EA6EBAD367 D2C5C2257 47 4A03900DF?opendocument
27. Schmitt, B. (2009, Dec 1 B). Porsche to N4agna: Take the money
and run. fheTruthAboutCars.com. http://www.thetruthaboutcars
.com/2009 / 1 2/ porsche to magna-take-the-money-and-run/
28. Frankel, A. (2002, Nov 1 7). Porsche Cayenne. Ihe Sunday limes.
http:/,/www.timesonline.co.uk,/tol/driving/new_car reviews/
article823701.ece
29. Contemporary Strategy Analysis (6th edition)
-
Notes
and suggestions on self-study questions. (2007, Jun 1B).
14
15.
16.