Porsche buy launches VW drive for world domination

17th August 2009, Comments 0 comments

Volkswagen, already Europe's biggest automaker, and Porsche, maker of the legendary 911 sports car, agreed to a tie-up after nearly four years of brinkmanship and infighting.

Berlin -- Volkswagen's triumphant bid to take over luxury German carmaker Porsche marks the end of a bitter family power struggle and the start of a drive to become the world's top auto manufacturer.

"VW and Porsche are entering a new era -- the company has the means to become number one," Japan's Toyota by 2018, chief executive Martin Winterkorn said Friday at company headquarters in Wolfsburg, northern Germany.

Volkswagen, already Europe's biggest automaker, and Porsche, maker of the legendary 911 sports car, agreed to a tie-up late Thursday after nearly four years of brinkmanship and infighting.

The full acquisition, which will also entail the Gulf state of Qatar taking a stake in Porsche and which VW estimates will produce three billion euros (four billion dollars) in synergies, should be complete by 2011.

It closes an ugly chapter in the history of Germany's illustrious auto sector that began in late 2005, when two of the industry's biggest names crossed swords in a duel for control of the empire.

In the beginning, it was Porsche that sought to buy VW in a bid to drive down the average carbon dioxide emissions of its fleet before new European anti-pollution legislation comes into effect in 2012.

VW's efficient Polo and Skoda models were to offset Porsche's greenhouse-gas-spewing muscle cars.

Porsche, which already uses VW assembly lines, also aimed to protect its powerful but insular partner against potential foreign investors.

The Stuttgart-based manufacturer tried to acquire 75 percent of the shares in VW but the attempt backfired in May against the backdrop of the financial crisis, which hit the auto market hard and produced a crippling credit crunch.

Porsche, with just 12,000 employees compared to VW's 360,000 staff, ended up nine billion euros in debt as it built up a controlling stake in VW.

That burden ultimately weakened its own position and the red ink will continue to hurt the company in this fiscal year.

Meanwhile powerful trade union IG Metall and the works council at Volkswagen fought the takeover by Porsche tooth-and-nail.

Hard-charging Porsche chief executive Wendelin Wiedeking inflamed tempers when he said he would go after the "sacred cows" at Volkswagen, where labour has a strong say in the company's management.

Wiedeking's bold attempt to take over the much bigger VW also made an enemy of Ferdinand Piech, the fearsome 72-year-old chairman of VW's supervisory board and a scion of the Porsche clan who holds a major stake in the company.

Piech emerged top dog from a nasty months-long scrap with Wiedeking and Piech's cousin Wolfgang Porsche, another major Porsche shareholder who had backed the VW takeover bid.

Wiedeking was forced to resign, and Porsche is now to become just one brand in VW's sprawling stable which also includes Audi, Bentley, Bugatti, Lamborghini, Seat, Scania, and Skoda.

Analysts warned that although the giant company would likely benefit from synergies in the long-run, it could pose a few immediate problems for VW as the economic crisis rages on.

"One problem I see is that too much of the liquidity that Volkswagen still has will be spent on the deal," an automobile industry expert at the University of Applied Science Bergisch-Gladbach, Stefan Bratzel, told the daily Berliner Zeitung.

He said VW needed the cash in the next two years for pressing concerns.

"In that time, VW will have quite a few expenses that we do not know about now. In addition, the group needs to invest heavily in future technology," he said.

Nevertheless, he added, "VW has a strategic size that is extremely important in global competition. That is why I see the future of the company very optimistically."


0 Comments To This Article