Tag Archives: Volkswagen

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The Ghosts of Christmas Past

The phone rings, Oh God, another snake oil salesman? The voice is clear and distinctive,

“Mis-ter Brooks”

Ok it is Porsche Guru, Bill Oursler, there goes an hour at least. After the usual discourse on the happenings in the world generally and the world of endurance racing in particular we get to the nitty gritty.

“What do you know about former Porsche guys being charged this week?”

Nothing, like most folks in the motorsport business I have tunnel vision when it comes to events outside my narrow range. Still two minutes of Google unearthed this:

Ex-Porsche CEO Wiedeking Charged Over Failed Volkswagen Bid
By Karin Matussek – Dec 19, 2012 1:19 PM GMT
Former Porsche SE Chief Executive Officer Wendelin Wiedeking and ex-Chief Financial Officer Holger Härter were charged with market manipulation over the use of options in a failed bid to take over Volkswagen AG. (VOW)
The indictment was filed after more than three years of investigations into claims Porsche misled investors in 2008 when it denied that it sought to buy VW. The company in October of that year disclosed a plan to take control of the carmaker.

 

I suggest you read the rest of this excellent summary from Bloomberg

HERE

 

My thoughts drifted back five years to a time when I ran another website, SportsCarPros with my old buddy, Kerry Morse. We were the Becker and Fagan of our part of the sport, or so we imagined. To be fair we did tweak a few tails and were generally just about tolerated by the grown ups. I recall certain folks getting more than a bit tetchy with one of our posts, I mean what did the Pros from Dover know?

Gardening in Stuttgart: Porsche Hedges It’s Future

As an auto enthusiast and a Porsche fan, I remember when the most important, relevant, and exciting discussion surrounding this unique and successful manufacturer revolved entirely around its cars. However, today it seems the cars are yesterday’s news.

The most intriguing articles about Porsche in recent weeks involve comment and speculation surrounding the company’s financial results and have nothing to do with their cars. This is not to say that Porsche’s commitment to its iconic sports cars has in any way wavered, but we can scarcely be surprised that the market’s attention lies elsewhere. After all, if any manufacturing company in its past fiscal year made 3.6 Euro trading stock options with allegedly, a further three and a half billion of additional profits in its pocket for the current fiscal year, compared with 1 billion Euro from the operating business, it’s not surprising that the operations are overlooked. Time to trade the automotive engineering degree for an M.B.A.

I do not pretend to understand the analysis in the press concerning the nature of Holger Harter’s option strategy. However, while writers in the Financial Times and other journals are clearly pulling their punches in deference, presumably, to the marque and its legacy (hey it’s also a profit, not a loss!), they raise some legitimate questions which non financial readers (and Porsche car fans) should take note of. It’s been suggested, for examples, that, given loopholes in European stock exchange reporting regulations and Porsche’s ability to deflect pressure for greater transparency in financial reporting, they used their credibility, reinforced with a bid (a bid allegedly designed from the outset to fail), to increase the value of VW stock, the value of their VW holdings acquired in 2005 and 2006, and, unseen to outsiders, the profit of their option trading strategy. The announcement in November that they would postpone their acquisition offer (the stock price was too high!!) took that card off the table but by then it appears the 3-4 billion Euro of option profits was in the bag. Some might construe this as a little too cute. At a minimum, most observers, while restrained in their comments, construe this as a spectacularly aggressive trading strategy which has little to do with making cars and makes many of the world’s hedge fund managers look like underachievers.

With no more information with which to better explain the future options or hedging strategy of Porsche A.G., most financial writers have advised caution aimed at Porsche management and, presumably, analysts and followers of Porsche and VW. Quite apart from the impact that deteriorating economic conditions may have on consumer spending or credit and equity markets, it is virtually certain that these extraordinary returns cannot be repeated and that the “hedging in the normal course of business” explanation cannot be justified by the underlying activities of the group (if you exclude the possibility of ‘Texas hedging’, of course).

There can be few, and I suspect no, industrial companies in the world that in the last few years have, with or without hedging, generated the same ratio of financial profits to operating income that Porsche demonstrated in its recent fiscal year (and is likely to demonstrate in the current fiscal year). This alone should serve as a warning that any continued earnings from this source and of this magnitude suggest far higher levels of pure financial risk than can be possibly be warranted. Hopefully, that will not be the case and we can instead give credit to Porsche for having used this one off strategy to finance, at essentially no cost, a significant increase in its VW stake, now worth 14 billion Euro. No harm, no foul – the market has a tendency to forgive speculation if it’s successful, despite all the initial tut-tut ting.

If indeed this was a one-time phenomenon, it is good news for us automobile types. We can now get back to evaluating Porsche as an auto company, confining our interest and even our concerns to the preservation of that brilliant heritage built around its legendary sports cars and honed with studied diversification into vehicles like the Cayenne. We can also focus, as we should, on the strategic decisions Porsche faces given its now substantial 31% holding in VW. What is the role of this strategic stake? Is it merely a financial play or is this to become Porsche’s platform for a global footprint as a volume manufacturer? In the latter case the nature of Porsche may change forever. The investment could prove to be a major distraction from the company’s past and present mission; note for example, current rumblings from Berlin aimed at protecting VW’s labor force. This might militate against attempts by Porsche management to restructure parts of VW and divert important management energy away from the sports car business. To Porsche followers this should perhaps be the question of the hour.

Whatever happens I hope we will see less of these financial profits and more of Porsche as the company we know and cherish. However, and just in case, I will re-subscribe to the Financial Times that will join the raft of auto magazines which arrive every month.

Lindsey Harcourt-Lathrop
January 2008
Sandy Bay, Gibraltar

So what has this to do with anything in our sport? Well the vultures are circling as hedge funds and other investment groups aim to recoup their losses, remember for Porsche to make a profit, someone else had to take a loss. The sums involved are counted in the billions and if the charges against the ex Porsche pair are proved, then some very heavy hitters will be looking not only for their pound of flesh but also an arm and a leg, perhaps even the whole carcass.

The immediate or short term future of the FIA World Endurance Championship could be in question, given that the current intention is to have both Audi and Porsche duking it out in the top category with anyone brave enough to challenge them. What happens if the money men come calling, they will not be satisfied with two sacrificial lambs doing time, they will want serious amounts of hard cash. The Volkswagen Group has been on the crest of a wave in the past few years, strong sales growth reflected in sustained profitability and extremely positive cash flow. They probably have the resources to ride out any tsunami but the flag should at least be waved. Maybe it will all be a storm in a tea cup, but that’s what “folks in the know” told us five years ago. Maybe it’s time to call Lindsey again.

MERGERS and ACQUISITIONS

Motorsports has its own language, just as does the other endeavors of mankind. So why, then, am I having to learn and deal with the language of the financial world when it comes to racing? The obvious answer, of course, is money: the ingredient without which neither motorsport, nor the rest of the planet would function, or even exist.

Anyone want to sit on my boat?

 

 

Clearly, the basis for Formula One is more greed than sport; a fact that might sadden and frustrate F1’s fans and true believers, but reality nevertheless. The sandbox that is sports car racing is perhaps less obviously based on greed. However, it too is financially driven these days as manufacturers increasingly are turning to it as a viable marketing tool not only to promote what is built now, but the technologies of the future which will reshape not only the sport, but the automotive industry itself.

Heavy Metal

 

America, where Detroit continues to try and rebound from the monetary crisis of 2008, there is less emphasis on performance than there has been in the past, the U.S. public more concerned with gas mileage than horsepower. Nevertheless, the real issue facing the Michigan-based manufacturers is their size and influence within the industry itself. With Chrysler now owned by Fiat, and General Motors having been forced to cut its brands down to just three to survive; only Ford remains a true global automotive powerhouse. However, there’s no need to worry for there is another global giant building up a head of steam in Europe, name Volkswagen.

Flying Start

 

Conceived by Hitler to provide Beetles to the German masses, the Volkswagen Group now embraces such prestigious brands as Bugatti, Porsche, Audi and Bentley, not to mention Lamborghini in its portfolio. And, it is this wealth which, friends and neighbors, leads us to the motorsports dilemma now facing VAG.

Racing Green?

 

 

Although the Italian nameplate has not won Le Mans’ Holy Grail, the other four marques have. Moreover, three of the remaining four could be in the running to do so again. However, those notorious bean counters are unlikely to allow Audi, Bentley and Porsche to compete for the same prize at the Sarthe, much less run against each other for a whole season. So, who goes where? That is the unanswered question.

When We Were Kings

 

 

Normally, it would be an interesting, maybe even a somewhat humorous discussion. However, in this case the future of the sports car competition universe could well hang in the balance. The reason for that is simple: the retrenchment by many of the participants on which the enclosed bodywork set of depended, particularly among the Japanese car makers, has drastically reduced the number of potential players down to just a few.

Vive La France

 

 

For the moment, only Peugeot appears committed to the sports car scene, with BMW perhaps moving to join the French manufacturer.  Two other likely candidates, Mercedes and Renault, are far more focused on F1, and will probably remain so. That leaves VAG’s Audi, Bentley and Porsche camps as the only resources for the two seat scene to draw on. But, what about Ferrari, you say? The Italians, in this case, likewise appear to want make F1 the mainstay of their motorsports efforts, providing only privateers oriented GTs machinery for the sports car arena.

Jump for Joy

 

 

So, who gets the brass ring at VAG? Is it Porsche, which needs, and has announced it will run a prototype at Le Mans in 2014; or will it be Audi, which, has, with the exception of 2003 and 2009, the latter occasion marking Peugeot’s only 24-Hour triumph in this century so far, has dominated at the Sarthe since the year 2000?  And, what about Bentley, which took the top prize at Le Mans in 2003, and which now, perhaps is ready to jump back into the fray? While it would be a tremendous boost to see all three fight it out, as we would put it in America, “it just ain’t going to happen folks.”

Wild Things Run Fast

 

 

Closing matters let me again introduce another possible scenario. Assuming that Porsche will take the lead at Le Mans, and assuming that Audi will continue in the German Touring Car Championship and with the R8 programs, could the be-ringed brand then follow Mercedes into F-1?  Perhaps? However, perhaps not. What if Bentley became VAG’s Formula One standard bearer and Audi returned to a rejuvenated rally arena where it could demonstrate the new automotive technologies now being developed just as it did with four-wheel-drive in the form of the Quattro during the first part of the 1980’s?

Some would suggest that all this is outlandish thinking on an old fart’s part. But, then again old farts have been known to occasionally get it right. In this case it is a case of “pays your money: takes your choice.”

Bill Oursler, August 2011