Case Study #15: Porsche SE and Volkswagen AG – Das Auto Merger

The light duty, personal use vehicle (cars and light duty trucks) industry is rapidly evolving in this economic environment. Car and light duty truck manufacturers must adapt to new competition from alternative energy vehicle manufacturers, government-opposed emissions mandates, corporate restructuring, “cash-for-clunkers” policies, changes in customer demand and several other challenges. Car and light duty truck experts say that the industry will start to rebound in the 2011 timeframe. One German manufacturer reports a ten-year horizon of market opportunity and then proceeds to pocket a premium brand that tries to buy them earlier!

In April, I read that Volkswagen expects the U.S. auto market to total 17.3 million vehicles in 2018 compared to 13.2 million last year, and aims to expand its market share to more than 6% from about 2% now. It plans to triple its annual U.S. car sales to one million a year, with its premium brand Audi AG accounting for 200,000 cars (Rauwald, Christoph. “Volkswagen to Raise U.S.,Mexico output by 2018”. Wall Street Journal April 28, 2009). I sometimes see three-year and five-year forecasts published in business trades, but Volkswagen really sticks its neck out there by reporting a ten-year forecast.


Volkswagen’s forecast assumes a 31.1% growth over ten years (or 3.1% a year). Excluding the impacts of cyclicality, normal gross domestic production (GDP) growth in the United States is within 2% to 3% a year. There will be more recessions than this one, so there is inherent risk in Volkswagen forecast. Of the one million vehicles sold in 2018, 20% will have the “premium Audi AG brand” and 80% will have the “VW passenger car” brand.

In recent news, we learn that Porsche and Volkswagen will be merging: “The measure shall create the foundation of building an integrated car manufacturing group with Porsche SE and Volkswagen AG”, says Porsche. Essentially, Porsche will become the 10th brand in Volkswagen’s brand architecture. If Porsche is Volkswagen’s sports car product brand, why aren’t the projected sales of the brand represented in the 2018 sales forecast? Are they lumped in with Audi or Volkswagen, assuming that Audi or Volkswagen may be the nameplate on Carrera, 911 or Boxster models? A 2% to 6% increase in market share, even over a ten year period, is very aggressive in the competitive, light duty personal use vehicle industry. This will mostly be accomplished with the acquisition of a niche brand to drive incremental sales to the parent company and the potential conversion of some models of the niche brand into the flagship brand.

Volkswagen’s decision to absorb Porsche into its brand portfolio is a sound operational strategy. While their industry forecast and market share projections are aggressive, I commend the organization to provide transparency about its success metrics over a ten year period. Volkswagen compliments its existing product portfolio and generates profits from the high-margin sales of Porsche sports cars. There may be manufacturing, distribution, design and engineering synergies across Porsche and certain Volkswagen brands. However, business structures arrangements like the one between Volkswagen and Porsche do not necessarily keep total stakeholder value in the heart of the plan.

Managing perception to large deal announcements is what would make this event more “stratelytical”. Based on the reports I see, there is some ambiguity behind the deal’s intent. Several perception scenarios need to be extensively researched. One perception is that Volkswagen may put its own nameplates on lower-end Porsche models and sell them through its channel or absorb the entire Porsche model line-up into theirs (could this be the re-birth of Karmann Ghia with a Porsche chassis and body?). Another perception may involve cross-channel distribution implications (Porsche dealers may sell Volkswagen products; Volkswagen dealers may sell Porsche products). Most importantly is Volkswagen’s brand perception – The company is known for its unique and entertaining commercials for mid-premium car, SUV and van products. Can Volkswagen be positioned on Das Auto, or does it have to be bold and reflective now that it is also a sports car manufacturer? Reviving the Type 34 Karmann Ghia to be the “spokescar” for a Porsche 911 to an adult driving a BMW Z3 may be very confusing to Porsche target customers or Volkswagen customers aspiring to be Porsche owners.

By no means should we expect immediate answers from Volkswagen over the next few days, however if the company does its due diligence in reporting a ten year forecast to the business community, there is an expectation that it should also provide a commitment to understanding certain deal points at a high level. Before it does that, the company needs to support its ambitious strategic intent with greater research, analysis and teamwork.