Porsche Changes Tack

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Porsche Changes Tack
“Yes, of course we have heard of shareholder value. But that does not change the fact that we put customers first, then workers, then business partners, suppliers and dealers, and then shareholders.” Dr. Wendelin Wiedeking, CEO, Porsche

An Overview of Porsche AG, 2005
• • Porsche is a publicly traded family controlled company Porsche is a relatively simple company by product line, having three existing and one newly proposed products: • • • • 911 – the only model produced and assembled completely by Porsche Boxster – licensed manufacturing with Valmet of Finland Cayenne – co-manufactured with Volkswagen of Germany Panamera – to be completely Porsche (at least that’s the plan)

Will Porsche’s new strategy actually create shareholder value?

• • • •

Porsche’s profitability has been extremely impressive over the past decade – particularly for an automaker Porsche has followed a strategy with both the Boxster and the Cayenne which uses a combination of licensing, out-sourcing, and in-sourcing to leverage other people’s money As a result of its strategy, Porsche has enjoyed an industry leading return on invested capital (ROIC) But two major announcements in the summer and fall of 2005 seemingly indicate that Porsche is changing directions: • The Panamera will be manufactured in-house, with Porsche’s own money • Porsche has invested 3 billion in taking a 20% interest in Volkswagen (Germany), one of the worst performing automakers in the world

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Porsche Changes Tack: Case Questions
1. What strategic decisions made by Porsche over recent years had given rise to its extremely high return on invested capital? 2. Vesi wondered if her position on Porsche might have to distinguish between the company’s ability to generate results for stockholders versus its willingness to do so. What do you think? 3. Is pursuing the interests of Porsche’s controlling families different from maximizing the returns to its public share owners? 1-3

Exhibit 1 Porsche’s Growth in Sales, Profits and Margin

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Porsche’s Expanding Platforms and Growing Sales
The Cayenne was the single most successful new automobile launch in history. Units
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04

Corporate Governance at Porsche
• Porsche’s focus is on stakeholder wealth
• It has followed what is generically referred to as stakeholder wealth maximization over its history, rather than the increasingly common focus on stockholder wealth maximization common in the Anglo-American markets • Stakeholder wealth maximization attempts to balance in theory the needs and returns to the multitude of corporate stakeholders – stockholders, creditors, management, employees, suppliers, customers, community – rather than focus solely on stockholders

911

Boxster

Cayenne



Porsche’s focus may be one of self-interest
• Porsche has frequently been accused of operating the company for the primary benefit of the Porsche and Piëch families, and management, over all other stakeholder groups • Rewards management in the company primarily on the basis of sales, profits, margins, and other financial measures of corporate performance rather than stock or stock options based on market performance



Porsche has continued to fight industry standards for reporting and disclosure • It has continued to report according to German accounting standards long after most other German companies, publicly traded companies, have moved to international standards • It has continued to report only semi-annually, not quarterly, arguing that it does not see its business quarterly, and does not want to add to the short-term thinking common among equity investors in today’s equity markets

Note: Excludes sales of the discontinued 928 and 944/968 models in 1994-1996. These models totaled 1005 in 1995 and 104 in 1006.

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