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Peering Into Porsche's Future

The auto industry generates nothing these days that even remotely resembles good news.

Porsche
AP
Porsche

General Motors is teetering on the edge of official (as opposed to undeclared) bankruptcy. Chrysler is apparently being run by the Italians. The Detroit car business itself is conducting a dog and pony show for Washington's auto task force against a background of Motown homes selling for a buck (which is just slightly less than Ford's current share price). Even former stalwart profit machines like Toyota and BMW are struggling with declining sales and collapsed leasing offers.

Of course, no matter how bad the industry gets, there's always shelter in the storm, a shining light in the midst of the malignant gloom: the coolest car company in the world, Porsche.

The brand—for which, as it was famously phrased in Risky Business, "there is no substitute"—has just about everything going for it, even as the wider world of personal mobility crumbles. Its owner base is passionate and devoted, and the automotive press renders routine and justified fealty. Due to its compact portfolio of four vehicles, all engineered according to the unimpeachable values of high performance, Porsche is seemingly impervious to downturns. Its competitive racing DNA is stupendous. And finally Crown Prince of Cool Steve McQueen drove a Porsche (several, actually) in that great, Zenlike cinematic tribute to the marque, Le Mans.

Unlike historic rival Ferrari, there's nothing trashy, exotic, or flamboyant about Porsche. The cornerstone of its reputation is the 911, the distinctive, minimalistic, rear-engined sports coupe that the company introduced in 1964 and has steadily refined ever since. It's as close to a thoroughbred as you can buy, right now for around $70,000. That's obviously luxury territory, but no one really thinks of the 911 as a luxury car. The whole point is that you could capriciously decide to take an offramp to the racetrack and switch from negotiating workaday traffic at the legal speed limit to turning laps at 180 mph.

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Even an at-the-time questionable foray into the SUV market with the Cayenne in 2003 couldn't damage Porsche cred. Just as Porsche had built the best sports car money could buy, so did Porsche build the finest performance SUV on the road—in fact, Porsche transformed the very idea of a "performance SUV" into something that wasn't a jeer-worthy oxymoron. Appearing this year will be Porsche's first-ever sedan, the Panamera. A bold evolution, it will probably be jaw-dropping and make the BMW 7-Series seem like a Chevy Malibu.

Why, then, have some industry observers questioned the sustainability of Porsche's business model? And why, for the past few years, has Porsche, the small German carmaker that makes perfect cars, been buying up chunks of Volkswagen, the large German carmaker that produces a mixed bag of rides both good and bad?

For starters, the deal, which has included some deft hedging, has thus far been pretty lucrative for Porsche. But on another front, Porsche has a looming problem because it doesn't do green. Although the company plans to introduce a hybrid Cayenne in 2010, the core of the brand is performance, and performance isn't about meeting more stringent emissions targets, as mandated in Europe and the United States (a major Porsche market).

Performance is about achieving the ideal power-to-weight ratio while consuming premium gas, developing 350 horsepower from a six-cylinder engine, and putting a tachometer rather than a speedometer in the middle of the instrument cluster because you don't really need to know how fast you're going when you know you can go really, really fast and want to max your redline. Who cares what's coming out of the tailpipe as long as it's accompanied by an exhilarating exhaust note?

Unfortunately, Porsche knows it can't get away with thinking this way forever. If it keeps flying solo, at some point in the not-too-distant future, it will be forced to re-engineer its cars for reduced emissions, an unappetizing proposition. Better to take over VW and satisfy emission requirement by making Porsche's lineup part of a much larger corporate fleet of vehicles.

Then there's the melodrama, dredged in Teutonic manufacturing, political and business tradition. Ferdinand Piech, who owns most of Porsche and is also effectively the chairman of VW, wants to merge the two companies. Porsche and VW already share a mountain of history. Piech is the grandson of Ferdinand Porsche, who designed the original Nazi-era "People's Car" that was later rechristened the Beetle and went on to become inarguably the most important vehicle since the Model T. The aforementioned Cayenne was jointly developed alongside a less-expensive sibling, the VW Touareg. Piech wants to use the highly profitable but ultimately constrained Porsche to take over VW, Europe's largest automaker, and create a manufacturing juggernaut.

Piech has both public and private critics. The German state of Lower Saxony, where VW is based, owns a smidgen more than 20 percent of the company as a means of ensuring that the definitive German carmaker will remain German. (Germany has modified the so-called "Volkswagen Law," but the European Union and Porsche still want to see it changed.) Previously, outside suitors had been barred by law from owning more than 20 percent of VW, but Porsche has been allowed to build up its stake to more than 50 percent and intends to obtain 75 percent in 2009. Meanwhile, Porsche CEO Wendelin Wiedeking has been fighting a running battle against Piech, a former ally, to sustain his legacy and prevent labor unions from interfering with his plans to make VW a leaner operation.

Rumors of Wiedeking's demise have thus far been exaggerated, which is important because he's a hero of auto-industry management. He plays in the same league as the current superstars of the profession, Nissan/Renault's Carlos Ghosn and Fiat's Sergio Marchionne, swashbuckling outspoken types from the lands of social democracy who make the CEOs of Detroit look like chastened schoolboys. Although he and Piech seem to have their differences, the fact remains that they're both in it for Germany; among other things, Porsche's initial buy-up of VW voting shares put the kibosh on any outside investors getting in on the action. The merger also bodes well for renewed competition against Toyota and a bolder push into the American market.

This is captivating, borderline Machiavellian stuff—exactly what Detroit lacks. But of course the Porsche-VW blending is predicated on a single overarching factor: unshakable pride in national carmaking prowess. The Germans may not have succeeded in their horrific plans for world domination, but they reinvented themselves as masters of motoring. Americans have come to see their homegrown auto industry as a joke. That would be unimaginable to the Germans, and they're the ones laughing now as they close in on creating the ideal car company, with mass-market profits bolstered by thrills behind the wheel.