I've always loved Porsches and I think I've - at least on some level - always admired that they seem to always be able to do the right thing at the right time as a business. When the crisis hit, Porsche was in such better place than many other manufacturers simply because it's production was mostly handled by outside companies (a certain Finnish company comes to mind), but now I'm reading that they've posted a 6.6 billion dollar loss for the fiscal year yet somehow they are managing to maintain that they are actually making money on selling cars - they blame the loss on the options they had to settle for cash, when the VW takeover fell through - cash they had to borrow apparently... and it is all beginning to look like some irresponsible guy, who borrows from one friend to pay another friend back for last week. Or are they just trying to be "politically correct" and don't want to say "we are making money, while the rest of the auto manufacturers are douchebags"? IDK what do you think?

 

Nope, that's basically correct. Porsche would have pulled off the mother of all takeover strategies were it not for a) the credit crunch and b) some archaic rules in Germany that let the state of Lower Saxony hold a blocking vote in VW with only 20% ownership (the so-called "VW Law"). At one time, Porsche got to close to effective ownership of VW, but the thing began to fall apart when the economy went down the crapper.

Porsche used to be legitimately described as a hedge fund that happened to make the odd car on the side, and they were, for a long time, the most profitable automaker on the planet (and as they say, if you take exclude the investments used in the attempt to buy VW, they still are). Trouble is, it all went down the toilet when the markets collapsed and left Porsche having bitten off more than it could chew - and their former target turned the tables and ended up acquiring the acquirer... Anyway, the net result was the same, as Porsche and the VW family of brands are now happily united.

 

I'm not familiar with the Lower Saxony's blocking vote - I sort of assumed it was some kind of a auto-workers' union-type situation that ultimately led to the demise of the Porsche takeover. You live and you learn, thank you. If you can elaborate in any way on that, I'm very curious to learn the history.

Then there's another thing I don't understand - where is VAG in all this? I thought that VW had been a major holder in Porsche anyway before the whole thing. And Porsche's attempts to takeover VW were in fact attempts to get out from under it's influence and gain the upper hand - which it must've felt was critical enough in the changing economy. So now that they've not been able to gain control, could this financial statement be a sign of things to come - a proverbial "tip of the iceberg"?

 

yeah, there's been cross-investment and resource sharing between them for years (and there are strong family ties, Porsche and Piech, between the companies in any event). The financials seemingly took that big one-time hit (and gave VW the opportunity to turn the tables) but things should start to get back to normal from this point...

Some of the background is covered here: http://en.wikipedia.org/wiki/Porsche#Relat...with_Volkswagen and here: http://www.nytimes.com/2009/06/20/business...mp;emc=wheelsb1

 

Gotta love the Times for vague conclusions, like "...But as time passed, it became clear that Porsche wanted full control of VW, so that the tiny carmaker could share the costs of developing new technologies with the much larger VW..." or "...the story of Porsche and its overreaching ruling family..." neither is substantiated by any facts in the article, btw

 

Porsche did some crazy things to get their VW stock ownership levels up so high. They were borrowing money left and right. They were "talking up the stock price" by revealing their plans to buy up every public share available and that was driving the price up and up and up. They couldn't lose. Kind of reminds me of that Eddie Murphy movie where he takes down those two old guys over futures prices. The more the VW price went up, the more Porsche would borrow and buy more stock. Occasionally they'd sell blocks of stock as well (cashing in on the gains they'd make) and then the price would dip a little and they'd buy back at slightly discounted prices and continue their strategy. At one point the VW share price was up 1000% for the year. A stock can't fall as long as there's someone there with an infinite budget buying up every share for sale. Eventually they got the % they needed and then came the bad news that Saxony and VW themselves didn't want to be bought and I guess Porsche ran out of money for buying shares. The price tumbled and maybe Porsche themselves sold some (I don't know about that part though).

 

Short squeeze my ass!


Reading all of this stuff now, in somewhat of a "retrospect", I guess, I can't help but observe that even the biggest players on the options scene make the most rookie mistakes - how could they go "all or nothing" into this VW thing - still boggles me...

 

While he was on the rise, the Porsche boss was being hailed as a genius because of what had happened to Porsche's own stock price. It seemed like everything he touched turned to gold. There was even people saying he should be the new Chancellor of Germany. Then it all turned ugly and there was lots of people calling for his head. I don't know if he got fired, it was around that time I lost interest in the story and stopped my RSS feed that was giving me the Porsche and VW news.

 

Like they say "they bigger they get - the harder they fall"... I don't know though, something tells me that kind of people always find an advantageous approach in any situation, so I'm still kind of believing in him...

 

Yep. You are correct!