OK, Porscheâ€™s announcement to increase its share in VW is not really new any more. However, I have spent the last few days thinking about the strategic rationale behind that (among other things, of course). And still, I did not make up my mind. I am not sure if this is a smart or dumb move from Porsche.
By now I have come across a bunch of commentaries and analyses in various newspapers, which read as follows:
- Porsche is entering the mass-market. It is to become Europeâ€™s largest car and truck manufacturer â€“ well that sounds logic. Size matters. But is that true for niche player?
- I learned that Porscheâ€™s production already is heavily reliant on VW. Besides final assembly, they have a comparable small own production base and outsource part of their production to VW. There are also joint developments, like the Porsche Cheyenne / VW Touareg. If VW would fall to an other industry player or even a financial investor, Porsche would have a serious problem â€“ That actually is a good reason.
- A manager of Porsche was cited that this decision was not so much about what makes sense. It is about building a family empire for the Porsche and Piech families. â€“ Well, that may be a good reason for those families. But is it good for the other shareholders?
Another good point I see is that Porsche is highly profitable. In order to continuously increase shareholder value, they have to do something with these profits. The options within their strategic niche seem to be limited naturally. So it is probably not a bad idea to invest in another industry player with which they already closely collaborate.
However, there are a few things that make me a bit nervous about this move:
- Porsche is a leading player in the luxury and sports car segment. That doesnâ€™t necessarily mean that they know a great deal about the mass-market. So how much can they really contribute to their new investmentâ€™s success and vice versa?
- I am a strong believer in business cycle thinking. At the moment, VW is developing quite nicely. They have solved many of their largest problems. Their sales and profits are rising again and they have managed to increase their world market share from 9.1 % in 2005 to 9.7 % in 2006. However, the next downturn will come as sure as next Christmas will come. Imagine a situation in which Porsche has increased its share in VW to close to 50 % and VW is transferring losses to its largest shareholder. Porsche is significantly smaller than VW. With all their profitability â€“ how much loss will they be able to bear? How much turnaround management support can they provide?
In the end of the day I am still not sure if this initiative from Porsche is a brilliant strategic move or not. Maybe I missed something in my thinking. If anybody of you has some more ideas on this, I would gladly appreciate some comments.