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Porsche vs VW: Driving through the recession

Updated Thursday, 22nd January 2009

Professor Garel Rhys from Cardiff University discusses who the real winners and losers will be after the recession.

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High revs in the recession?

This video extra has been produced alongside the Money Programme episode Fast Bucks: How Porsche Made Billions.

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The Porsche takeover of Volkswagen and the recession.
Prof Garel Rhys of Cardiff University

Professor Garel Rhys: Volkswagen has entered the recession in a better state than most of its rivals, and the strategy that’s going to be put in place, presumably by Wiedeking and Piech, should continue that state of affairs because you’ve got a bigger model range than anybody else, you’ve got more economies of scale so, presumably, you could trim your prices more than anybody else and still make profits. Your break even position has improved a great deal. Porsche will not escape the downturn - no car maker will - but their reserves make it pretty inviolate.

So it all comes together in that position, in that way, quite beautifully. And, given that a lot of the car makers are going to be in a worse state coming out of the recession than they went in - clearly financially but also in terms of market share - it’s quite interesting that, in five years’ time when, I think that’s when we’re going to see us really out of the recession, to just be there fast forward and see possibly what the market share is of Porsche. It’s quite possible with the continuation of excellent product range that it could be touching about 25%, and under those conditions you might get the Cartel Office in Brussels beginning to look at you rather seriously and saying, “hang on, if you're doing that you’ve got to hive off something, Audi and Seat and Skoda.”

What Porsche CEO Wendelin Wiedeking might do to Volkswagen.
Prof Garel Rhys of Cardiff University

So it’s going to be quite an interesting period. They can’t afford to get too successful because it then might actually be something that the anti-trust agencies in Europe might find has become too big in the market.

You’d certainly take out the products that are not making money and have not been able to make money, although they might find it impossible to take out Bugatti products because of what it is, and all the money’s been spent anyway, it’s a bygone. But things like the Phaeton, now that wouldn’t be allowed again. Many of the other models that are in ranges but don’t wash their face, you know, as a lot of them do.

You see, around the world only about 30% of all the cars that are made truly wash their face. They make a contribution. But firms make them because you want a full range. You want people into the showroom. So all car makers make more or less profit, or even losses on some of the models. Now it does seem that perhaps Volkswagen has gone a bit too far in terms of the models they’re prepared to stand, to make losses, and I can’t see Wiedeking accepting that for a moment.

Who wins?
Prof Garel Rhys of Cardiff University

I think Wiedeking wins because most of the votes around the Porsche side of the house, they own 45% of the company, after all and, let’s face it, Piech is getting older and he needs a lot of people to support him for him to have the top job in his empire. They might find a job like a president of the company or something, almost a roving ambassador where you give him tremendous status but, if I was a betting man, I would put my money on the Porsche side of the house, and it would be Wiedeking.

 

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