Porsche, the brand today, is synonymous with luxury and style. It’s often mentioned in the same breath as Ferrari and other luxury brands that have emerged from Europe. However, in the past two decades, the company has transformed itself from an elite brand to a mass manufacturer of vehicles without eroding any of its brand value. Despite all the chaos that the company went through from 1990 to 2010, the Porsche family has come out on top.
Porsche was one of the many luxury brands that emerged out of post-war Europe in the ’50s. A German company that aided the German war efforts was all but lost to history. But thanks to the efforts of British Army Major Ivan Hirst, and Porsche’s own initiative to set up a base in Austria, it was revived. The name Porsche comes from the founder Ferdinand Porsche, an automotive genius. He designed the VW Beetle, which became the symbol of the Hippie movement in the ’60s and is among the most beloved cars in the world. Post-war, when the Beetle was revived, VW offered Porsche a sweetheart deal that the family couldn’t refuse. VW gave royalties to Porsche for every Beetle sold, in return for access to distribution channels across Europe. The Beetle exceeded both companies’ wildest expectations, making Porsche cash-rich. German laws dictated that most of the cash earned by the rich had to be invested back into creating jobs, leading Porsche to invest heavily in R&D
Porsche’s first mass-market sports car, the 356, followed by the 911, helped the company make steady profits for several decades. The 911 remains Porsche’s most iconic brand to this day and is among the most well-recognized sports cars in the world. In the ’70s, acrimonious family disputes over the successor of Porsche led to an interesting decision: the family would keep a controlling stake in the company but wouldn’t be involved in day-to-day operations. A series of bad decisions, including scrapping their most popular brand, the 911, led to the company becoming dependent on a niche segment. Still, things were looking good for Porsche, with sales topping 30,000 units in the mid-’80s.
That’s when crisis struck! Due to an economic slowdown, an aging product portfolio, and increasing competition—first from the Americans and then the Japanese—the company almost went bankrupt. From almost selling 30,000 units in the mid-’80s, Porsche was barely able to sell a few thousand throughout most of the ’90s. The turnaround from here on is most intriguing!
To survive, Porsche embraced a radical transformation. They turned to Japanese manufacturing techniques, specifically “lean” manufacturing, to overhaul their production process. This move was met with resistance but ultimately led to significant improvements in efficiency, quality, and cost control. The Japanese consultants, known as the Shin-Gijutsu group (ex-employees from Toyota), implemented significant changes in Porsche’s manufacturing process. They reduced assembly time, cut errors by 50%, and shrunk the workforce by 19%. The factory space itself was reduced by 30%, and the company began producing more cars at a lower cost.
At the same time, Porsche embarked on some intriguing side projects to generate extra cash. They collaborated with Audi to create the RS2, a sporty station wagon that marked the birth of the hot station wagon. With components shared with the Porsche 964 and powered by Audi’s 2.2-liter turbocharged engine, the RS2 became a symbol of Porsche’s innovative spirit. Audi, a division of VW at that time, helped Porsche out due to long-standing ties it had with the company. In the ’50s, when VW wanted to mass-market the Beetle, it turned to Porsche for distribution, and they delivered. Ferdinand Piëch, who became the CEO of VW in 1993, was the grandson of the founder Ferdinand Porsche. Essentially, VW, a rival car company, had a Porsche family member at its helm. Piëch, at the same time, had a large stake in Porsche.
Another unique collaboration was with Mercedes-Benz to manufacture the 500E. Based on the W124 E-Class and powered by a five-liter V8 engine, the 500E was built by Mercedes and then assembled at Porsche’s factory. This partnership helped jumpstart the “fast sedan” game and showcased Porsche’s adaptability. It has been quoted by sources that while Mercedes could have built the 500E on their own, it gave Porsche this project to literally keep the lights on for the company.
Along with this, the company took on many consultancy projects to keep it afloat. These collaborations, along with the adoption of Japanese manufacturing techniques, played a crucial role in Porsche’s survival. The transition was far from smooth. German craftsmen were initially shocked and resistant to the Japanese approach, which was seen as aggressive and demanding. Wendelin Wiedeking, Porsche’s CEO at the time, recognized the necessity of this radical change and embraced it, even though it meant challenging long-held German traditions of craftsmanship.
The transformation was not just about efficiency; it redefined craftsmanship. The traditional German method of filing and fitting parts was replaced with a focus on making things simpler and easier to assemble. This new approach to craftsmanship emphasized thinking and innovation rather than manual labor.
The turnaround was dramatic. Porsche reported its first profit in 1996 after $300 million in losses. The company’s independence was secured, and it emerged as a new entity, ready to focus on product development and new markets. However, the story does not end here.
By the early 2000s, the company had a lot of cash and an ambitious CEO in Wiedeking. Wiedeking’s plan was audacious from the start. He aimed to take over Volkswagen (VW), a company 15 times the size of Porsche. The takeover bid lasted two years, and for a while, it seemed like Porsche was on the verge of achieving this goal. Porsche had secured over 50% of VW shares, aiming to own the 75% required for the merger of the two companies.
The global downturn and credit crunch hit Porsche hard. The company took on massive debts to buy up VW shares, and as the financial crisis deepened, it became increasingly difficult to extend credit lines. Interest payments were rising, and Porsche announced a debt of €9 billion ($11.9 billion). Wiedeking’s plan started to unravel, and he never managed to get beyond 51% of shares. In a spectacular about-face, Porsche opted for a merger with Volkswagen, abandoning the talk of takeovers. By 2012, VW completed its buyout of Porsche for $5.6 billion.
Today, Porsche’s largest market is Europe, followed by China and the United States. It is not only known for its sports cars but also for its SUVs, demonstrating the brand’s versatility and continued innovation. The legacy of Porsche stands as a testament to resilience, adaptability, and the relentless pursuit of excellence.