As the world sobers from the market on steroids mode there are some companies spared by the gods. We all heard of it and we all know about it, but as we discover every day new depths of recession it is frankly hard to look up and congratulate the blessed fortunate. But if we did so the first question would be what happened? And how did they make it? After all Volkswagen is not a high tech company as Google or doesn’t have celebrities CEO’s as Bill Gates. What is more outrageous is that the car industry is a graveyard where some bleed, others fight for life, and few (the American ones) are in coma or already dead. In a world shaken up by bad economic news this is something very odd. To add more drama please do not forget that Volkswagen has been a central stage of an epic civil war rarely seen in the corporate world.
2009 started for VW as usual: the ragging war for power. In one side Ferdinand Piech, grandson of Ferdinand Porsche, and on the other Wolfgang Porsche represented by Porsche’s CEO. For many the problem was the megalomaniac Piech that tried by many ways keep a tight grip on Volkswagen and shape it according to his vision: make it the best and bigger automaker in the world. According to him this was the vision of his grandfather. For Mr. Piech all the good superlatives you can find Volkswagen should have them all. But some were somehow scared of this grandeur and decided to oppose Piech. It has happened many times and so far all have lost. The simple reason is that Piech owns a big stake in VW and in Porsche as well. So he has his ways to make everyone understand who is the boss. When Arno Bohn, VW CEO, asked Piech publicly to resign he found out that he was ousted: Piech became the new CEO. His aggressive strategy brought him glory, failures and some more enemies but in 2002 he became chairman of the supervisory board and since then he controls the fate of VW.
On the other hand the Porsche’s. Their family saga is a classic. However already to prevent any family war the Porsches cannot interfere in the company management. So they have to play their game behind the scenes. Wolfgang does it as chairman of the supervisory board. His representative is Wideking, Porsche’s CEO. He saved Porsche from Armageddon in the early nineties and kept on building the most profitable auto brand in the world. His success was so big that he became Europe’s most well paid CEO.
So what brought those families into collision course? Ferdinand Piech wars for power. His ambivalent position on both brands helped him to call for support from his cousins. He needed to control VW at the time that there was a threat of a hostile take over from some turbo charged hedge funds or rich oil magnates. Porsche came to his rescue with a Trojan horse. They would help but they actually would buy VW. Piech realized the move too late. He ran to Wolfsburg to get the support from the crowds (the unions) and the state of Lower Saxony to stop Porsche.
On the other hand both companies were on testosterone mode reaching record profits. Martin Winterkorn the new VW CEO anointed by Piech was increasing the company’s output and laid out a very aggressive strategy for the years to come. The market answered enthusiastically bringing VW sales to record profits. A range of new models, filled with high tech gadgets, breathtaking engines and a very persuasive design were no match for any rival. Just to remember VW has under is belt Bugatti, Lamborghini, Bentley, Audi, Seat, Skoda and a 30% stake on MAN.
This was the beginning of 2009. Piech was on war as usual and the Porches were trying to tame down the wild beast. Besides, both companies had their profits going through the roof.
So if the businesses were so good why a war? There is only one answer: Ferdinand Piech and his dream of Volkswagen. No one would deter or stop him from achieving it and this year he is getting so close to achieve it. But it all started in a sour note. Porsche made a bold move to take over VW. No one knew if they were up to the game, but when Porsche revealed that a combined operation of stock acquisition and some non disclosed deals gave them the option of reaching 75% stake on VW it was supernova on the marketplace. VW shares went to the stars! With a market tanking everyday VW shares shoot to 1000 E becoming the most valuable company in the world. Hedge funds sunk and even some bullets were called to the game. In fact, hedge funds lost 30 billion dollars in a day and weeks later some hedge fund manager ended his life, as he couldn’t face is tremendous losses. The big looser was Ferdinand Piech, however. Porsche’s move was finally forcing him out. There was no doubt that this was the end of Pieche’s fight for VW. He would be an icon but not a player anymore.
But we got it wrong. The financial crisis crippled Porche’s position, as it was harder to get financing to take over VW. The snowball became bigger and bigger as it became official that Porsche had incurred in a 10 billion Euro debt. Wiedeking ship was in trouble. He needed cash to pay the outstanding debt. At that moment Piech came again out of the grave. Porsche tried to save his plan by asking for a stock for cash plan, but Piech brought the torpedoes and dictated the terms. They would lend about 700 million Euro and takeover Porsche or more politely merge with Porsche. At least Porsche could save its face.
So far there is no agreement, as Porsche needs time to find other alternatives. The big issue is Porsche’s 10 billion debt. VW doesn’t want to assume it. By doing this Piech increases pressure in Wiedeking forcing him out and defends VW financial stability. The rich oil middle Easterners have been called but the Porsches have the tradition of not selling their company to anyone. Piech said niet to such a move. There is no doubt that Piech will use Porsches fragile balance sheet to get rid of Wiedeking and Holger Harter, Porsche’s CFO. Than the debt will be paid: or both families use their savings or VW absorbs Porsche and calls the shots.
