Got text? with that Forbes Cayenne picture.
01-23-2002, 12:35 AM
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Got text? with that Forbes Cayenne picture.
Porsche Goes Soccer Mom
Robyn Meredith, Forbes Magazine, 02.04.02
It survived recession and survived Sept. 11. Can it survive a brand extension?
In past global economic shocks--like the Iraqi invasion of Kuwait and the Russian debt crisis--Porsche's stock price got stripped as bare as a set of racecar tires. The Sept. 11 terrorist attack was no exception. Porsche's stock price skidded to the equivalent of $183, half its summertime high. Who in these times would want to buy the $68,000 Porsche 911, especially given its unlucky name?
Yet Porsche sold 2,856 of its 911s to U.S. drivers between Sept. 1 and year-end, up 23% from a year earlier, and its stock price quickly followed, jumping to $393 by mid-January. Merrill Lynch says the stock should be trading for at least $480.
What's so hot about Porsche? Expansion. The brand synonymous with sports cars will appear on a burly sport utility vehicle this fall. Called the Cayenne, the Porsche SUV will be priced between $45,000 and $65,000, will be about the size of a BMW X5 and is expected to boost annual unit sales by nearly 50%, to 80,000 worldwide.
But that's just part of what's going on at this German company. The SUV is the most extreme example of Chief Executive Officer Wendelin Wiedeking's bet to remake Porsche and transform nearly everything behind the rearing-stallion badge. Porsche used to consist of a stable of proud engineers almost hand-building masterpieces and not always being very attentive to profit. Now it is a modern car company--meaning it outsources everything it can get away with. Suppliers now manufacture at least 75% of every Porsche sports car.
Has Porsche sold its soul? Rivals hope the public will think so. But so far the financial results show that Porsche was able to maintain its mystique while it overhauled its manufacturing methods. In the fiscal year that ended last July Porsche earnings rose 29% to $237 million on revenue of $3.88 billion. That 6.2% net margin put Porsche in a league of its own; the industry average (as tracked by Value Line) was 1.9% last year. Even classy BMW netted only 2.9% in its last fiscal year.
Porsche made some mighty profits on each of the 55,000 cars it sold last year. On the 911 Turbo, which starts at $111,000, the company makes a 45% average gross margin. On the low-end Boxster S convertible (starting at $51,600), Porsche pulls in a still-rich 23% gross margin. If Wiedeking is to be believed, a new 205mph sports car, the Carrera GT, will be profitable from its first sale next year. Price tag on that one: $350,000 to $400,000.
The Cayenne SUV is a metaphor for the company's transformation. It will be assembled in a Porsche factory being built in Leipzig, in the former East Germany. But only 12% of its content, chiefly the V8 engine, will come from Porsche. The bodies, prepainted and preassembled, will arrive from a Slovakian Volkswagen factory after a 22-hour train ride. Indeed, Porsche and Volkswagen cooperated on developing SUVs. VW's new Touareg SUV has the same chassis as the Cayenne, though of course they will look quite different.
Ever brash, Wiedeking insists, "Our Cayenne is 100% Porsche." That can't be, of course, if you mean that all its parts are lovingly built in German factories. But Wiedeking means that Porsche maintains control over creating the design, building the engines and sewing some of the interiors, as well as overseeing vehicle assembly and marketing.
Porsche's late entry to the SUV market may be an advantage. If it had been the first luxury brand to get into what started out, after all, as a modified pickup truck, it might have sullied its name. But Cadillac, Mercedes, BMW and Acura now have paved the way.
Still, Porsche hasn't always had luck extending its model line. It failed with the 914, introduced in 1970; the 924 in 1977; and the 928 in 1978. An exception to the pattern is the successful six-year-old Boxster, which is basically a cheaper, convertible knockoff of the 911.
Today's Porsche, however, is better positioned to roll out new models. In the early 1990s Porsche was near bankruptcy. Its factory was inefficient, the dollar was weak and its extravagant supercars were losing so much money it tried to make up the difference by raising 911 prices--to the point where even the wealthy buyers who were attracted to that car began to balk.
Joining the Club
Porsche is the latest luxury brand to add a sport utility vehicle to its stable of cars. Cayenne prices are expected to range from $45,000 to $65,000. Porsche hopes to sell at least 25,000 a year, 15,000 in the United States. It will face stiff competition: -John Turrettini
MODEL STARTING PRICE U.S. UNIT SALES
2001 2000
Acura MDX $35,180 40,950 9,750*
BMW X5 39,545 40,622 26,760*
Lexus RX300 34,530 77,391 89,864
Mercedes M-Class 36,965 45,655 52,764
(*)Partial year.
Wiedeking, 49, joined Porsche's management board in 1991 and was named chairman in 1993. He is no diplomat. He's the kind of man who gets indignant at the notion of filing quarterly financial reports. He pooh-poohs engineers who want to smell the gas and roasted tires of racing. Fielding a Formula 1 team, he says, would cost Porsche $350 million a year. "Do you know the balance sheet of Ferrari?" Wiedeking says smugly about the moneylosing company, owned by Fiat, which has a Formula 1 team.
Wiedeking hedged against currency swings. He laid off workers, adopted Japanese production techniques and began to buy ever more components from outsiders. Today 80% of the 911's content is bought--axles, hood, doors, brakes and most of the other 5,000 pieces. The Boxster is even less of a genuine Porsche experience; nearly all of these cars are assembled in Finland by a company called Valmet.
What Porsche has gained from this is a massive reduction in fixed costs and a huge increase in productivity. Assembling an entry-level 911 now takes 30 hours of expensive Porsche labor, down from 120 in 1993, and the quality is far better. The Cayenne will take just three to four hours to assemble, Merrill Lynch estimates.
Parts are delivered--not only just in time but just in sequence--to Porsche's storied Zuffenhausen factory in Stuttgart. While the building is old and quaint and most of the 3,560 workers have gray hair, the production techniques are modern. The flexible manufacturing system allows 11 different versions of the 911 to be assembled on the same line.
Porsche still sweats some of the small stuff: The last of five layers of paint is sprayed on by hand. (A quarter of Porsche buyers choose silver.) Wiedeking isn't about to mess with the engines. Most 911s have a 3.6-liter engine, which delivers 273 foot-pounds of torque at 4,250 revs and 320hp. A single worker at Zuffenhausen hand-assembles an engine, snaking his way past hundreds of parts bins. (The company encourages buyers to pick up their Porsches, so they can see the hallowed spot where their engines are attached to components.)
Wiedeking's redefinition of the company is also hitting Porsche's engineering department. Unlike most other automakers, Porsche rents out its engineers to other companies. In the past these engineers have come up with the Opel Zafira, a minivan General Motors sells in Europe, and Harley-Davidson's new V-Rod engine. Porsche now gets $95 million a year in revenue from such contract labor, but Wiedeking wants to win a bigger chunk of the $6 billion market for engineering services, in part by buying or taking stakes in engineering firms.
So far car-lovers and shareholders can agree that Wiedeking is making the right moves. He's just got to make sure he doesn't jettison too much of what makes a Porsche a Porsche.
Robyn Meredith, Forbes Magazine, 02.04.02
It survived recession and survived Sept. 11. Can it survive a brand extension?
In past global economic shocks--like the Iraqi invasion of Kuwait and the Russian debt crisis--Porsche's stock price got stripped as bare as a set of racecar tires. The Sept. 11 terrorist attack was no exception. Porsche's stock price skidded to the equivalent of $183, half its summertime high. Who in these times would want to buy the $68,000 Porsche 911, especially given its unlucky name?
Yet Porsche sold 2,856 of its 911s to U.S. drivers between Sept. 1 and year-end, up 23% from a year earlier, and its stock price quickly followed, jumping to $393 by mid-January. Merrill Lynch says the stock should be trading for at least $480.
What's so hot about Porsche? Expansion. The brand synonymous with sports cars will appear on a burly sport utility vehicle this fall. Called the Cayenne, the Porsche SUV will be priced between $45,000 and $65,000, will be about the size of a BMW X5 and is expected to boost annual unit sales by nearly 50%, to 80,000 worldwide.
But that's just part of what's going on at this German company. The SUV is the most extreme example of Chief Executive Officer Wendelin Wiedeking's bet to remake Porsche and transform nearly everything behind the rearing-stallion badge. Porsche used to consist of a stable of proud engineers almost hand-building masterpieces and not always being very attentive to profit. Now it is a modern car company--meaning it outsources everything it can get away with. Suppliers now manufacture at least 75% of every Porsche sports car.
Has Porsche sold its soul? Rivals hope the public will think so. But so far the financial results show that Porsche was able to maintain its mystique while it overhauled its manufacturing methods. In the fiscal year that ended last July Porsche earnings rose 29% to $237 million on revenue of $3.88 billion. That 6.2% net margin put Porsche in a league of its own; the industry average (as tracked by Value Line) was 1.9% last year. Even classy BMW netted only 2.9% in its last fiscal year.
Porsche made some mighty profits on each of the 55,000 cars it sold last year. On the 911 Turbo, which starts at $111,000, the company makes a 45% average gross margin. On the low-end Boxster S convertible (starting at $51,600), Porsche pulls in a still-rich 23% gross margin. If Wiedeking is to be believed, a new 205mph sports car, the Carrera GT, will be profitable from its first sale next year. Price tag on that one: $350,000 to $400,000.
The Cayenne SUV is a metaphor for the company's transformation. It will be assembled in a Porsche factory being built in Leipzig, in the former East Germany. But only 12% of its content, chiefly the V8 engine, will come from Porsche. The bodies, prepainted and preassembled, will arrive from a Slovakian Volkswagen factory after a 22-hour train ride. Indeed, Porsche and Volkswagen cooperated on developing SUVs. VW's new Touareg SUV has the same chassis as the Cayenne, though of course they will look quite different.
Ever brash, Wiedeking insists, "Our Cayenne is 100% Porsche." That can't be, of course, if you mean that all its parts are lovingly built in German factories. But Wiedeking means that Porsche maintains control over creating the design, building the engines and sewing some of the interiors, as well as overseeing vehicle assembly and marketing.
Porsche's late entry to the SUV market may be an advantage. If it had been the first luxury brand to get into what started out, after all, as a modified pickup truck, it might have sullied its name. But Cadillac, Mercedes, BMW and Acura now have paved the way.
Still, Porsche hasn't always had luck extending its model line. It failed with the 914, introduced in 1970; the 924 in 1977; and the 928 in 1978. An exception to the pattern is the successful six-year-old Boxster, which is basically a cheaper, convertible knockoff of the 911.
Today's Porsche, however, is better positioned to roll out new models. In the early 1990s Porsche was near bankruptcy. Its factory was inefficient, the dollar was weak and its extravagant supercars were losing so much money it tried to make up the difference by raising 911 prices--to the point where even the wealthy buyers who were attracted to that car began to balk.
Joining the Club
Porsche is the latest luxury brand to add a sport utility vehicle to its stable of cars. Cayenne prices are expected to range from $45,000 to $65,000. Porsche hopes to sell at least 25,000 a year, 15,000 in the United States. It will face stiff competition: -John Turrettini
MODEL STARTING PRICE U.S. UNIT SALES
2001 2000
Acura MDX $35,180 40,950 9,750*
BMW X5 39,545 40,622 26,760*
Lexus RX300 34,530 77,391 89,864
Mercedes M-Class 36,965 45,655 52,764
(*)Partial year.
Wiedeking, 49, joined Porsche's management board in 1991 and was named chairman in 1993. He is no diplomat. He's the kind of man who gets indignant at the notion of filing quarterly financial reports. He pooh-poohs engineers who want to smell the gas and roasted tires of racing. Fielding a Formula 1 team, he says, would cost Porsche $350 million a year. "Do you know the balance sheet of Ferrari?" Wiedeking says smugly about the moneylosing company, owned by Fiat, which has a Formula 1 team.
Wiedeking hedged against currency swings. He laid off workers, adopted Japanese production techniques and began to buy ever more components from outsiders. Today 80% of the 911's content is bought--axles, hood, doors, brakes and most of the other 5,000 pieces. The Boxster is even less of a genuine Porsche experience; nearly all of these cars are assembled in Finland by a company called Valmet.
What Porsche has gained from this is a massive reduction in fixed costs and a huge increase in productivity. Assembling an entry-level 911 now takes 30 hours of expensive Porsche labor, down from 120 in 1993, and the quality is far better. The Cayenne will take just three to four hours to assemble, Merrill Lynch estimates.
Parts are delivered--not only just in time but just in sequence--to Porsche's storied Zuffenhausen factory in Stuttgart. While the building is old and quaint and most of the 3,560 workers have gray hair, the production techniques are modern. The flexible manufacturing system allows 11 different versions of the 911 to be assembled on the same line.
Porsche still sweats some of the small stuff: The last of five layers of paint is sprayed on by hand. (A quarter of Porsche buyers choose silver.) Wiedeking isn't about to mess with the engines. Most 911s have a 3.6-liter engine, which delivers 273 foot-pounds of torque at 4,250 revs and 320hp. A single worker at Zuffenhausen hand-assembles an engine, snaking his way past hundreds of parts bins. (The company encourages buyers to pick up their Porsches, so they can see the hallowed spot where their engines are attached to components.)
Wiedeking's redefinition of the company is also hitting Porsche's engineering department. Unlike most other automakers, Porsche rents out its engineers to other companies. In the past these engineers have come up with the Opel Zafira, a minivan General Motors sells in Europe, and Harley-Davidson's new V-Rod engine. Porsche now gets $95 million a year in revenue from such contract labor, but Wiedeking wants to win a bigger chunk of the $6 billion market for engineering services, in part by buying or taking stakes in engineering firms.
So far car-lovers and shareholders can agree that Wiedeking is making the right moves. He's just got to make sure he doesn't jettison too much of what makes a Porsche a Porsche.
01-23-2002, 01:22 PM
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There is no doubt that Porsche has changed its ways significantly. It had to or it would not exist today. Personally, I like the older cars a lot better.
01-30-2002, 12:35 AM
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Did anyone else catch the incorrect reference in the Forbes article above in the 4th paragraph about "the rearing stallion badge" ?! Ummm, last time I checked, that badge belongs to that Company down in Italy, not Porsche.
01-30-2002, 04:50 AM
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Excellent article. Sometimes the survival of a company and what it's current customers want to see are at odds. When I first started looking into a used Porsche I was told by an old timer German mechanic to stay with 92 and older. He told me that everything after that was mass produced the Japanese way because they came in and showed them how. At the time I didn't pay it much mind, but last Thursday I walked into a dealership in Santa Monica and sat in a new Carrera and it just felt cheap. The seats were thin and everything was plastic. This is not to say that the cars don't perform superbly or that this transformation need not have taken place in order to keep Porsche around in the future. It is simply my observation. Fact is the new Porsche's are well balanced cars that make my 928 feel old. Even 993's didn't do that. Right now, it seems that if you buy a new Porsche you're really buying heritage because the new cars don't appear to have the build quality of the older ones. Time will tell of course.
On the other hand what does it really matter with 3 year leases etc...who cares? Buy it, drive it, enjoy it, then dump it.
K
88 S4
On the other hand what does it really matter with 3 year leases etc...who cares? Buy it, drive it, enjoy it, then dump it.
K
88 S4
