Porsche and VW | In the driving seat | Economist.com

Porsche and VW | In the driving seat | Economist.com

Mar 6th 2008 | FRANKFURT
From The Economist print edition

A European automotive titan is on its way


FERDINAND PIËCH is two steps closer to realising his dream: the creation of a new European automotive giant. On March 3rd he and his colleagues on the supervisory board of Porsche Automobil Holding gave the go-ahead for Porsche, a maker of sports cars, to buy another 20% of Volkswagen (VW), Europe's biggest carmaker. Porsche already owns 31% of VW, so this will give it a controlling majority. A few hours earlier VW itself, of which Mr Piëch is chairman, announced a takeover of Scania, a Swedish truckmaker, paying €2.9 billion ($4.4 billion) to increase its stake from 31% to 68.6%.

The resulting concern, under the umbrella of Porsche Holding, will have sales of around €120 billion and will sell 6.7m vehicles a year. Its biggest markets will be Europe, Asia and South America; cracking North America may be a job for the 70-year-old Mr Piëch's successor. MAN, a truckmaker in which VW owns a 29.9% stake, may be rolled in later.

Porsche has plenty of cash. In the 18 months to January 31st it earned €4.5 billion in windfall profits from options it bought on VW shares. It has also lined up €10 billion in credit (roughly the amount needed to buy 20% of VW) from friendly banks. A remaining obstacle is Germany's VW Law, which limits any shareholder's voting rights to 20%. Last October the European Court ordered Germany to abolish it. The new draft of the law is not exactly capital-friendly: Brigitte Zypries, Germany's justice minister, wants Lower Saxony, which has a 20% stake in VW, to retain the right to veto big commercial decisions, such as relocating factories.

But even that clause is not likely to deter Mr Piëch and Wendelin Wiedeking, Porsche's tough-minded chief executive. Mr Wiedeking has not disguised the fact that he wants to change VW's culture from a socialised, semi-protected concern to a capital-efficient machine like Porsche. That means putting an end to the cosy relations between VW's management and workforce.

This week's news paves the way for Porsche's takeover of VW and puts an end to the long-running tussle between VW, MAN and Scania. But the balance of power between Mr Piëch, who holds 46.3% of Porsche Holding, the Porsche family, which owns 53.7%, and Mr Wiedeking remains unclear. So there is still plenty of scope for drama.