PORSCHE, the German sports-car maker, is ready to take control of the
Volkswagen group, the world’s fourth-largest motor manufacturer.
Porsche chief executive Wendelin Wiedeking has confirmed that his company is
prepared to increase its shareholding if, as expected, Germany’s so-called
“Volkswagen law” is ruled illegal next week by the European Court of Justice.
Porsche swooped on Volkswagen in March and acquired 31% of the motor giant.
Since then, a sharp rise in Volkswagen’s share price has increased the value
of this holding more than threefold.
The Volkswagen law was introduced to guard against takeover when the present
company was transferred to German control by the British after the second
world war. It prevents any one shareholder from exercising more than 20% of
the voting rights and gives both the federal government and the state of
Lower Saxony the right to two seats on Volkswagen’s supervisory board.
The European Commission gave notice of its intention to test the law in the
European Court of Justice four years ago. The case will he heard on October
23.
Dámaso Ruiz-Jarabo, the EU advocate-general, has said that he believes the
Volkswagen law restricts the free movement of capital within the EU. His
view is not binding, but in 80% of cases the European Court of Justice
accepts his opinion.
Previously, Volkswagen has resisted calls for a change in the law, as has IG
Metall, the powerful labour union, whose chairman, Jürgen Peters said: “The
Volkswagen law has proved its value because it has contributed to the
well-being of the company and its employees.”
When Porsche started to build a stake in Volkswagen in 2005, an understanding
with the major shareholder, the state of Lower Saxony, seemed to guarantee
that the company would stay in German hands. But now Porsche wants direct
control. It recently raised €8.6 billion (£5.9 billion) with a share issue
to fund its next move.
In an interview with The Sunday Times, Wiedeking said that Porsche was eagerly
awaiting the court’s decision on the law.
“I believe they will write it off. And if they do, we will look at what makes
sense,” he said. “We already have a lot of options to purchase shares at
less than their current price. We are prepared.”
It was recently revealed that Wiedeking, 55, was the architect of Porsche’s
move into Volkswagen. Commentators had assumed that this was the work of
Ferdinand Piëch, a member of the Porsche family who retired as chief
executive of the Volkswagen group in 2002 and is now chairman of its
supervisory board.
Wiedeking, who is reputed to be Germany’s highest-paid executive but has no
voting shares at Porsche, said that the controlling Porsche family was
initially surprised by his suggestion.
“I am an entrepreneur,” he said. “I look for opportunities and constantly
check what’s coming up.
“We were working with Volkswagen on the next generation of the Cayenne (the
Porsche 4x4 that shares its structure with Volkswagen’s Touareg and Audi Q7)
and I wanted a clearer connection to safeguard Porsche’s interests. We could
not do this or the Panamera (the four-door Porsche sports saloon that will
appear in 2009) alone.”
He insisted that these projects and the protection of undervalued Volkswagen,
Porsche’s partner and supplier, from a raid by private-equity companies if
the Volkswagen law were repealed, were the motivation for buying the shares.
But he is pretty smug about the outcome. He said, with a chuckle: “We paid
€5 billion for 31% of Volkswagen and now that stake is worth €16-€17
billion. Not a bad investment, eh?”
As befits the leading shareholder, Wiedeking and his management team at
Porsche are an increasingly strong influence at Volkswagen. He and Holger
Härter, chief financial officer, sit on the supervisory board. Härter is
chairman of the audit committee and Wiedeking is a member of the executive
committee that decides Volkswagen’s strategy.
IG Metall is already disconcerted by Porsche’s suggestion that there could be
changes to pay and worker representation.
Wiedeking said that there is no intention to merge the operations of the two
companies: “Believe me, if you mix the Porsche guys with the Audi guys and
the Volkswagen 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.”
Wiedeking said the relationship between Porsche and Volkswagen is a two-way
street. Technology originating at Porsche’s famed Weissach engineering
centre can filter into the volume cars of Volkswagen, while Volkswagen
plants supply body-shells for the Cayenne and Panamera. There are also
useful cost savings to be achieved.
“Electronics account for 30%-35% of our development costs. Spreading this
investment over, say, 2m cars instead of Porsche’s 100,000 will make a big
difference – and the components will be cheaper,” said Wiedeking.
Faced with the threat of EU regulations limiting the carbon-dioxide output of
cars, Germany’s manufacturers are desperately keen to show their green
credentials. Volkswagen, like BMW and Mercedes, has presented new models
with all manner of fuel-saving devices and promises low-emission hybrid
power units in the future.
Porsche has a prototype Cayenne hybrid, but Wiedeking knows that this is one
area where his company cannot make an impact. Environmental campaigners
attack Porsche for offering only powerful, gas-guzzling, petrol-engined cars.
The chief executive points out that Porsche has reduced the car-bon-dioxide
output of its cars by 1.7% in each of the past 15 years, but makes no
apology for producing some of the world’s fastest sports models and most
powerful engines.
He is unconcerned by the backlash against big 4x4s; Porsche sold more Cayennes
last year than in the previous 12 months and the order book is overflowing.
In its last financial year (to July 31), Porsche set a new sales record of
97,515.
The 911 sports car – in concept, 40 years old – is still its most successful
model. Its cheapest car is the Boxster, starting at £33,170. The most
expensive is the 911 at more than £100,000.
Of the European Commission’s call for an average carbon-dioxide limit,
Wiedeking said: “Porsche doesn’t do average. We are top.
“The EC has to accept our business case. We have a special situation where the
emissions of our cars should be compared not with Fiat but with Ferrari and
Maserati. Then I would feel fairly treated.”
Wiedeking is not asking for exemption from the carbon-diox-ide regulations,
simply for Porsche to be treated as a niche manufacturer that does not have
small city cars to compensate for the top-end luxury models.
But that is also a contentious point. Production of 100,000 cars a year
(increasing to 125,000 when the Panamera arrives) may be small in world
terms, but is almost double that of Jaguar. Add the best profit-per-unit in
the car business and it is clear that Porsche has ceased to be a niche
player in the accepted sense of the term.
But then Porsche has changed much conventional thinking under Wiedeking’s
direction. Who would have imagined, when he assumed command of the company
15 years ago and Porsche was in deep trouble, that in 2007 it would be
poised to take control of a motor giant 50 times its size?
WIEDEKING TO THE RESCUE
THE jovial, moustachioed Dr Wendelin Wiedeking first arrived at Porsche’s
Stuttgart-Zuffenhausen headquarters in 1983.
He was seen as a whiz-kid in production engineering, and oversaw the
installation of a new body shop and paint plant.
In 1988 he left Porsche to join the Glyco metals company and two years later
became its chairman.
Wiedeking came back to Porsche in 1991 as production director when the company
was at its lowest ebb.
Porsche, established by Professor Ferdinand Porsche and his son Ferry in 1950,
is majority-owned by the Porsches and the Piechs, two families related by
marriage. After Ferry retired in the 1970s, it was agreed that future chief
executives should come from outside the families, but successive appointees
failed to turn the company round. In 1992 it lost $150m (£74m).
In October 1992, aged 40, Wiedeking was made “spokesman for the board of
directors” – a prelude to his appointment as chief executive and chairman
the following August.
Porsche’s share price has increased more than 60-fold during his tenure.
