Brandon B o atcallie, Austin Chase, Bobby Salehi, Ivo Skrisovsky, Alfredo Volio Texas A&M University

I couldn't find the sports of my dreams, so I built it world to not only the first hybrid (petrol/electric) vehi- myself. cle but an all-wheel-drive racecar as well. This splashl- introduction 's Frn-onraryo Ponscrr.e was merely the beginning of unprecedented success. 1 Introduction Ferdinand had what seemed to be the perfect ratio of brains to passion when it came to designing sports . After over 100 years as an independent and highly suc- The German citizen, born and educated in the Czech cessful car maker, in 2008, Porsche fell victim to the town of Liberec, not only engineered but aiso raced his financial crisis when it failed to secure the capital needed own models. In 1910, an Austro-Daimler sports car of to acquire a controlling stake in VW Auto Group (VW). his design won the prestigious Prince Henry Trials- During a reverse takeover in 2010, Porsche was forced with Ferdinand behind the wheel. to hand over its keys to VW. Subsequently, VW man- On April 25, 1931, opened an agement, eager to use Porsche's expertise to assist other otfice for "engineering and consultation on engine and brands under the VW umbrella, began moving Porsche vehicle design" in , . The compan1., executives into key roles with other automotive brands. Dr. Ing. h.c. F. Porsche KG, did not have to wait long for As part of the Porsche corporate restructuring ini- contracts to build vehicles for German manufacturers tiative, VW appointed former executive Matthias such as , Zindapp, NSU, and . In Mueiler as Porsche's new CEO. Mueller had consider- perhaps a bit of irony, Ferdinand's company designed and able experience with Vw-the world's third largest sent into mass production the "Ur Beetle"-the first V\4. automobile manufacturer controliing the Audi, , "Bug" and the basis for a design that has not lost its appeal , , Scania, Seat, Skoda, VW, and some 75 years later. Ferdinand clearly possessed the abilitr. now Porsche brands. Mueller's mission was straightfor- to anticipate and envision the future, maintain organiza ward: integrate Porsche into the VW family, extend the tional flexibility, and empower others to create one of the Porsche product line, and increase production. world's most valuable car brands. He was a racecar driver However, because of Porsche's successful track at heart, an engineer by trade, and employed his entrepre- record, there were many things to consider in the tran- neurial spirit on a daily basis in a growing company that sition of Porsche. Should Porsche diversif' and extend proudly carried his name. Ferdinand's son, known by all its product line while expanding production? How could as Ferry, began running the company tn 1946 and, upon Porsche effectively combat possible brand dilution? his father's death in 1951 and with his own son at his side. Should Porsche acknowledge the trade-offs and focus officially took the wheel. on its pure play products-sports cars? How would the Without question, Porsche was a powerhouse in rac- market react to multiple sports cars offerings from Audi, ing, collecting victories in virtually all major racing events Lamborghini, and Porsche? throughout the world including the Can-Am racing series, Paris-Dakar Rally, Pharaoh's Rally, Rally Monte Cario, History 24 Hours of Le Mans, and the World Championship of Makes. On the consumer side, in 1964, Porsche began Ferdinand Porsche, the engineering genius and founder producing what would become its most famous sports of Porsche, began carving his name in car history early car-the 911. Throughout the 70s and 80s, the 911 (and on. In 1900, at the age of 25, Ferdinand introduced the variations ot) kept Porsche in the black.

336 makers simplv absorbed the reiatir-elv minor fee' r) In i.ts efforts to provide variety in both design and car Boxster' The However, the 2009 legislation rmposes not only a sig- o :rice, in 1996, Porsche introduced the N nificantly higher mpg requiren-rent, but a significantly 9.0 3oxster was the first mid-engine production sports car ! as well: CAFE mandates that, by 2020, a ever manufactured and a big hit-selling as higher penalty ?orsche had t automobile manufacturers and importers must have an o r.rany in its first year as the entire 911 line-up combined' mpg rating of 39 for cars end -10 ior trucks or .r.2002, Porsche surprised many purists by presenting a average for each individual car in violation' Upon sports-utiiityvehicle-the Cayenne' Once again' Porsche's pay $35,700 pur.ng., Porsche commented that if the 2020 C'\FE poli- rewest offering outsoid al1 other models in its first two n.. enforced, it simply won't be able to sell cars in .,'ears. In 200S, the Cayman was launched as a hard-top ii., the US. ..'ersion of the successfui Boxster and Porsche once again On a more positive note, economic support tor .urprised the automotive world in 2010 by introducing Porsche is strong in its German homeland' Germanv is .he first four-door Porsche sedan ever-the Panamera' largest exporter in the world.T Union workers By 2011, the company produced five models with a the third are protected by strong labor laws and wide support' :ombined total of 40 different trim levels' This increased approximately 93 percent.cif the German workforce liversification brought higher shareholder returns-one and unionized.s Manufacturing employees constitute of Porsche's main objectives. is approximately 30 percent of the nation's workforce'e Economic and Political Challenges Though Germany has not been immune to the global recession, Porsche has continued to enjoy a supportive climate -\s it was for most automakers, the economic manufacturing infrastructure. beginning in 2007 was challenging for Porsche' Oil prices ,vele at record highs, topping $100 a barrel' For every I nd ten cents that gasoline prices rose, approximately 1'000 ustry Characteristics econ- trucking companies went bankrupt'2 The global The sports car industry faced its share of economic recession the omy strirggled to step out of the deepest woes throughout the latter half of the 20th century with US and Europe had experienced in decades' Consumers many sports car makers experiencing fatal cash flows' in the rr.ere extremely price sensitive and unemployment Lamborghini declared bankruptcy in 1978' It was later concern US hovered around 10 percent' Of particular revived and sold to Chrysler only to then be sold to the car manu- to Porsche were gasoline prices: as a sports Suharto family in 1994 and sold again to Audi in 1998'10 of a gas-guzzling t-acturer, it was fighting the stereotype In that same year Bentley, Bugatti, and Audi (and thus automobile segment. Lamborghini) were acquired by VW. Aston Martin' many of its Consequently, Porsche re-engineered which had sold a controlling share to Ford in 1987, was gasoline effi- offerings to provide (relatively) higher bought outright by Ford in 1994 and then sold again in 911 Turbo had an EPA estimate 1990 ciency.lor example, the 200i." Jaguar was also bought and sold by Ford in of the 90s; of 18 miles per gallon (mpg) throughout most and 2007, respectively. Getting out ofthe gate even ear- (depend- however, the 2010 estimate was 24 to 25 mpg lier, acquired in 1969, in 1986' as a bonus' came ing on cylinders and auto/manual) and, and Maserati in 1993.1'] Even so, through it all, Porsche addition' u,iih roughly 75 percent more horsepower' In managed to not only stay independent but, more impor- offered the hight soughi after Carrera (a 911 variation) tantly, financially buoYant. '-pg, even the 2+ toiZ tn. Boxster 26 to 29 mpg' and Porsche competes in a market segment where rel- SUV Cayenne boasted 22 to 23 mpg'3 a car of any l=, four-wheel diive atively few can iompete. Manufacturing ]F rekindled Unaccustomed to traiiing the pack, Porsche caliber-no less the caliber of Porsche-requires size- E Ca1'enne and its hybrid roots by engineering a hybrid able capital investments. Additionally, the engineering respectively'a Panamera S with mpg ratings of 25 and 35' expertise required to design a car capable ofcompeting F fuel And yet, even with Porsche's efforts toward wiih famboighini, Ferrari, Aston Martin, Porsche' and even more efficiency, US government actions have put others keeps utt Uot the truly intent from entering the the direc- pressurs on the Bavarian carmaker' Under field. Traffic iio,-, of President Obama, the National Highway Though there seem to be several supercarloptions the mpg Safety Administration and the EPA increased like the Mclaren MP4' Ferrari FXX, and Ferrari Enzo requirements for ali cars in the US through an old emis- that cost more than $500,000, consumers have few sions policy known as Corporate Average Fuel Economy levied small fines on is hiqhly (CAF-E). In the past, CAFE had A supercar is typically an exotic or rare sPorts care whose perfomance Cars TopSpeed com carmakers with mpg ratings that didn't meet specified super ative to contemPorary spotls cars (Supercars/Exotic rslsu percars-exotic cars/ke 1 77 htm l)' regulations and Porsche and other high-performance http:,/,/www.topspeed.com/ca

G obe: @ Jan Rysavy/iStockphoto com alternatives-if any-for g100,000 a mid to low car believes China like will be the largest consumer segment the Turbo_particularly one that for Porsche within two or thre-e r1.- supercar pe.formar.ce. years.ts To encourage loutl: Co-pa.ri., includ_ this new market, porsche ing BMW, has even begun building race Nissan, and GM have each produced one or tracks for Porsche drivers on the ma"inland two cars comparable in price and performance of China. to the Depending on this level Porsche line, but their and pace of expansion in China offerings do not present the pres_ is not porsche,s without risk, howev... Th" Chinese government tige or variety of emblem or firll lineup.,, has increased scrutiny of foreign operation's Sports car enthusiasts are few and fickle; within its trend con_ borders and firms investing scious buyers are in China face uncertainty inherent to lurury and high_end mar_ wfren dealing kets. That porsche with the undervalued yuan.i6 yet, with means must constantly innovate to plans to alloW a gradual increase ir, ,ralue of local keep up with trends. As evidenced by the short cur_ lifetimes rency and boasting the most of independent sports rapid economic growth of car manufacturers over the last any country at the time, China has too much potential 30 years, sutviving in this tlpe of a market as is extremely an export market to challe-nging. Despite porsche's ignore. this, greatest challenge Typrcally, in a capital-intensive industry, efficient would appear to lie in the impending CAEE regulations_ international expansion of productior-, regulations that could spell an end io porsche yi.iJ, greater saies in its economies of scale and increases number one market, the markei penetration. US.ra Other automakers, such as VW and GM, .-ptoy a trans_ national strategy by modifying current -od.l, according to the demands Toward Emers ins in international regions. porsche, how- ECOnOmies$l:!l_Ire_nd ever, employs a global strategy whereby it offers the same models for the Many automotive whole world. This lower risk trade_ofT firms have sought international expo_ helps protect the porsche brand from international sure to increase their market share. In 2010, porsche diiu_ tion and enables porsche to remain sold 14 percent of its volume consistent with regard in Germany and, over 26 to costs in its percent strategy forged in Germany. of its volume in the US. Given the possibility of Porsche has always expanded CAFE regulation enforcement, porsche . to international mar_ hai been diver_ kets exclusively through si$zing its exportation_a Iess expensive international scope. China, for example, has option as compared to greenfield ventures become an area ofextraordinary expansion porsche, or establish_ for ing new bases of operation. accounting for approximately Inherent to multinational 15.6 percent of overali expansion are increasingiy sales (see Exhibits complex economic and lA and 1B). Curient management political risks. Porsche's strategy hedges against such Exhibit 1A Units Sold per Multi_Geographic Market: 2OO9 to 2O1O

United States 18,958 22,181 Lhrna 17.0% 7,708 13,254 Germany 7 2.0"/o 12,506 11,911 Olher European Countries -4.8% 6,7 49 8,407 24.6% Middle East/Africa 5,941 6,27 5 5.6% United Kingdom 4,926 6,157 25.0% 3,930 3,655 Japan 2,915 2,775 -4.8% 2,010 2,432 Canada 21 .0% 1,622 1,823 As a Dacific 12.4% 1 ,116 1,660 48.7% -a:i^ Anrerica (excluding Brazil) z,tlJ 1,441 Russia 1,278 1,302 1.g% Austraiia/New Zealand 1,076 1,148 6.7"/" n/a ao4 Total n/a 72,858 85,202 16.9% Sou -ce l::a adaoted from http:/,/quote.morn in gstar.com =

Exhibit 1B Percentage of Sales per Multi-Geographic Market: 2009 to 2010 o o N 9.D T United States 26.0"/o 26.0"/" o

15.6% J China 10.6% o Germany 17 .2"/" 14.0o/" Other European Countries 9.3"/o 9.9% Middle East/Africa 8.2"/" . Un'ted Kingdom 6.8"/" Italy 5.4% 4.3% Japan 4.0"/" J.J /O a oo,l France 2.9% Canada L,a /o 1. | /O Asia Pacific 1.5% 1.9"/" Latin America (excluding Brazil) 2.9% 1.7% 1 00/ 1 trO/ Russia 4 trO/ 4 )O/ Australia/New Zealand t.J/o Brazil n/a o.9%

Source: Data adapted from http://quote.morningstar.com

complexity by focusing solely on exportation rather lnnovation than manufacturing expansion, acquisition, and licens- generates innovative technologies ing. With the exception of its contract with Valmet in Porsche iargely programs. According to Porsche Austria for the Boxster/Cayman, Porsche produces all through its racing Motorsports, Porsche "is the most successful manufac- of its cars within its labor union dominated, Bavarian turer by far in the history ofinternational sports cat rac- borders. ing."L With over 50 years of racing experience, Porsche has accumulated a wealth of technological expertise Product Ouality and employs some of the brightest engineering minds class- Porsche. There is no substitute. in the world. Porsche has consistently developed leading technologies that competitors find diffi- Totw Cnursn cult to imitate. For example, the seven-gear Porsche Rrsrv Busnsrss, 1983 Doppelkupplung (PDK) system allows drivers to shift High-performance sports cars are generaily high- between gears without interrupting the flow of power. maintenance, low-reliability vehicles. To consistently The Porsche Torque Vectoring (PTV) system can sense perform as intended, most sports cars need frequent the vehicle steering angle and speed, accelerator pedal and expensive attention and maintenance. In March position, yaw rate, and vehicle speed to vary the torque ensure more predictable 2010, J. D. Power and Associates ranked Porsche as distribution to rear wheels to providing the best long-term reiiability of any brand in and stable vehicle maneuvers at all speeds. Ceramic com- such the US.17 What makes this designation truly exceptional posites are utilized in various vehicle components, is that the comparison was not made solely within the as brakes and clutch piates, to provide lightweight, dura- high-performance sports car segment, but was extended b1e performance.20 The technology Porsche has devel- to all automobile lines including sedans, SUVs, trucks, oped-and continues to develop-produces exception- i etc., offered by such reputable brands as Toyota' Ford, ally reliable performance at comparatively low prices. BMW, and Honda: truly an extraordinary accomplish- i ment for any vehicle within any segment, but even Porsche Strategic Partners more so for one within the notoriously temperamen- tal high-performance sports car segment. Additionally, Clearly, depending on racecar technology for the lion's in many |. D. Power and Associates market researchers hailed share of innovation can serye a car maker well nor hesitant the Porsche production plant in Stuttgart as "the best ways. Nevertheless, Porsche is neither above particular car factory in the world."t8 to develop strategic alliances as needed when technologies are not within its immediate grasp. Whether US-Porsche's biggest export market-the SUV began o through its highly seiective paid internship program2' to dominate the road. Porsche had to decide if it would (-) + or alliances formed with other automakers to receive a continue focusing on its traditional two-door sports car models further diversi$' its product line by offering L crash course in hybrid technology,22 Porsche has forged or partnerships to keep its business on the cutting edge. new models that departed from the historic Porsche In one of its more forward-thinking moves, in 1999, image. Purists argued that extending the product line Porsche bought a 49 percent interest in Miseschke would dilute the Porsche brand name and ultimately Hofmann und Partner (MHP), a specialty IT technol- dbstroy the distinct Porsche image. Others argued that ogy and process improvement group and SAP (Systems, economic growth made it worth the risk, as existing Applications, and Products in Data Processing) product sales were flat. In the end, Porsche decided to Implementation and Service Partner. Initially, the ven- extend its product line to include a SUV-the Cayenne. ture was an equity strategic alliance in which MHP sub- Despite the radical departure from its niche, the 2002 contracted to consult and improve Porsche processes. introduction of the Cayenne was extremely profitable This vertical complementary alliance helped Porsche and helped fuel Porsche's growth for several years. As Iearn new business techniques and technologies. for its reception in the auto world, Porsche bought a controlling interest of Subsequently, On one level it is the world's best 4x4, on another it is (74.S percent) and MHP served as the exclusive MHP the cynical exploitation of a glorious brand that risks improvements and process engineering provider of IT long-term damage to that brand's very identity in the for Porsche23while continuing to serwe outside clients- pursuit of easy money.. . So 1 applaud the extraordinary mostly the . In 2001, SAP AG in Cayenne and wish it every success while at the same MHP as the first Special Expertise Partner SAP named time still wishing, in part at least, that it had never been for the automotive category. MHP was also rated SAP built." Silver Partner Service and SAP Channel Partner Gold. MHP's contributions to the Porsche manufacturing pro- Having weathered the stigma of introducing a SUV, cess allow several manufacturing advantages, including in 2009, Porsche offered another first: the four-door the ability to produce the Cayenne, Carrera GT, and Panamera sedan. With global economic tensions increas- Panamera at the same plant and on the same line in ing in 2008 and 2009, consumer tastes for Porsche's tra- Leipzig, Germany.2a ditional high-performance two-door models flattened. Porsche also engages in alliances not requiring equity Nevertheiess, sales of the Panamera and Cayenne mod- ownership. Concurrent with its launch of the Boxster els grew significantly. in 1996, Porsche announced it would sub-contract pro- duction to a non-German manufacturer for the first Loyalty time. With Porsche building the engines and various other components in its main factory in , When Porsche decided to enter the SUV market with the state-owned Finnish manufacturer-Valmet- its luxury Cayenne model, it surprised the auto industry produced the majority of the Boxster line, adding pro- by locating its new assembly plant in Leipzig, Germany. duction of the Cayman in 2005. In 2008, and with the Many observers believed Porsche should iocate the Cayman/Boxster production contract set to expire in plant in either central or eastern Europe where labor 2012, Valmet announced it would begin production on costs were very low, or even perhaps in the US (as had the Fisker Karma piug-in hybrid sports car beginning in Mercedes and BMW) where it could be close to its major 2012.25 Porsche's Deputy Chairman, Holger P. Haerter, market. The critical issue driving Porsche's Leipzig plant confirmed the Valmet contract would end in 2012, and decision appeared to be the primacy of Porsche's strat- announced that Magna Steyr Fahrzeugtechnik (MSF) of egy of quaiity, craftsmanship, and engineering excel- Graz, Austria would take over production of the Boxster ience. Ultimately, maintaining brand image (while, par- and Cayman.26 A year later, Porsche paid MSF an undis- adoxically, simultaneously upsetting that brand image) closed sum to cancel the contract and it is now expected was much more important to Porsche than saving on that production will move to the factories of bankrupt labor costs-especially when assembly costs comprise Karmann Ghia-now the property of VW.27 only a small portion of overall vehicle cost.2e In the end, Porsche emphasized design, research and technology Sedans development, and marketing to maintain its reputation Diversification: SUVs and for a commitment to excellence.to While the Porsche brand name and product quality In North America, Porsche aficionados tend to be never wavered, in the mid to late 90s it became clear that college-educated men between 36 to 55 years of age customer preferences were changing' Particularly in the with an annual gross income in excess of $380,000 per ffili"

'

year. They value innovation and independence and with only a handful of focused car-making companies o are often senior executives, medical professionals, and remaining, Porsche led the pack. o entrepreneurs.3r This N customer segment buys Porsche !.0 T because of its innovative features, exceptional styling, The Prestigious Competition o and European origin. t o Introduction ofnew features and innovative technol- The sports car manufacturing segment faces a compli- ogyby BMW, Mercedes, and Lexus prompted Porsche to cated, competitive environment. Changing industry -dynamics implement lean production practices. However, because frequently present Porsche's management Porsche produces a limited number of models, its switch team witl-r rigorous obstacles to overcome. Porsche to lean production practices was somewhat easier than offers several product lines of sports cars available in that of its competitors. In addition, Porsche engineers many geographic markets. Porsche focuses on quality have been able to keep vehicle performance and han- and not quantity and as a resuit and fully B0 years after dling of their vehicles at the forefront of the sports car its founding, Porsche only offers five different car mod- segment. As a result, Porsche has enjoyed record sales els: the Boxster, the Cayman, the 911, the Panamera, and and profit (see Exhibits 2A and 2B). In early 2010, the Cayenne.

Exhibit 2A Income Statement of Porsche Automobi/ Holdinq SE

Revenue 0 5 Other operaLing income 641 52,790 Personnel expenses ,18 -77 Other ooerating expenses oJt *55,407 lncome from investments 9,850 2 aa) lnterest result -851 -7 46 lncome from ordinary activities 8,991 -443 Taxes 0 trtrt Profit/loss after tax 8,991 -996 Withdrawals fro.n retained earnings 0 1,004 Transfer to retained earnings LAq -L O Net profit available for distribution 4,496 8

Source: Data adapted from http://quote.mornlngstar.com

Exhibit 28 Balance Sheet of Porsche Automobil Holdlng SE

Assets

Financial assets 24,171 24,838 l-(ecerva bles 4,348 2,703 Olher receivabres ano assets 230 1,202 Cash and cash equivalents B87 2,164 Prepaid expenses F) 263 Equity and liabilities 30,289 31 ,170 Equity 16,977 7,993 Provisions 1,572 a 241 Liabilities to banks 7,000 10,561

Other liabilities 4,7 40 9,245 30,289 31 ,170

Source: Data adapted from http://quote.morningstar.com

,,-ffirm year. They value innovation and independence and with only a handful of focused car-making companies .) are often senior executives, medical professionals, and remaining, Porsche led the pack. o N segment buys Porsche !! entrepreneurs.3l This customer t because of its innovative features, exceptional styling, o The Prestigious Competition t and European origin. o Introduction ofnew features and innovative technol- The sports car manufacturing segment faces a compli- ogy by BMW, Mercedes, and Lexus prompted Porsche to cated, competitive environment. Changing industry implement lean production practices. However, because dynamics frequently present Porsche's management Porsche produces a limited number of models, its switch team with rigorous obstacles to overcome. Porsche to lean production practices was somewhat easier than offers several product lines of sports cars available in that of its competitors. In addition, Porsche engineers many geographic markets. Porsche focuses on quality have been able to keep vehicle performance and han- and not quantity and as a result and fully 80 years after dling of their vehicles at the forefront of the sports car its founding, Porsche only offers five different car mod- segment. As a result, Porsche has enjoyed record sales els: the Boxster, the Cayman, the 911, the Panamera, and and profit (see Exhibits 2A and 28). In early 2010' the Cavenne.

Exhibit 2A Income Statement of Porsche Automobil Holding SE

Revenue 0 5 Other operating income 641 52,790 Personnel expenses -to -77 _.631 Other operating exPenses -55,407 lncome from investments 9,850 2,992

I 46 lnterest result -of, -7 lncome from ordinarY activities 8,991 -443 tr82 Taxes 0 Profit/loss after tax 8,991 -996 Withdrawals from retained earnings 0 1,004 Transfer to relained earnings -4,495 0 Net profit available for distribution 4,496 8

Source: Data adapted from http://quote.morningstar.com

Exhibit 28 Balance Sheet o{ Porsche Automobil Holding SE

Assets

F nancral assets 24,771 24,838 Receivables 4,348 2,703 Other receivables and assets 230 1,202 Cash and cash equivalents BB7 2,164 Prepaid expenses 5J lb3 Equity and liabilities 30,289 31 ,'170 7 002 Eou ity 16,97 7 Provisions 1,572 3,371 '10,561 -;abilities to banks 7,000 Other liabilities 4,7 40 9,245 30,289 31 ,170

:l!rce: Data adapted from http://quote morntngstar.com Two of Porsche's three most recent additions, the Porsche's fifth and most recognized offering is the Cayenne and Panamera models introduced rn 2002 and iconic Porsche 91 1. The 9l I was introduced in 1963 and 2009 respectively, compete mainiy with other prestige boasted an air-cooled rear-engine design, independent brands.i'The Cayenne is offered in four different models rear suspension, and a swing axle pioneered by porsche. ranging from the stock Cayenne to the Cayenne Turbo Over its aimost SO-year lifetime, the 911 had undergone S. Its main competitors are the BMW X6 M, Mercedes- continuous development, though the basic concept had Benz ML63 AMG, and Audi Q7, among others.32 The remained mostly unchanged. Among its many awards, BMW X6 M is slightly faster than the Cayenne Turbo the 911 ranked fifth in the 1999 international poll for S a porsche.33 with 0-60 of 4.0 compared to 4.1 for the the Car of the Century award. Today, the 911 is offered The Mercedes-Benz ML63 AMG is less expensive than in over 20 stock models. Most models are variations of the Cayenne but siower with a 0-60 of 4.6 seconds. The the Carrera, Targa, Turbo, Black Edition, or GT. The Audi is the Q7 slowest of the pack but has more interior Porsche 911 competes with the Ferrari Enzo, Aston space and torque than the Mercedes.3l Each model has Martin V12 Vanquish, Lamborghini Murcielago, and distinct advantages and disadvantages when compared Bentley Continental GT, among others.3e These super- to the Cayenne, making it a very competitive arena. cars offer outstanding performance but are extremelr. The Panamera is offered in seven different models expensive with price tags in the range of $250,000 to ranging from stock to the Turbo panamera S. The was $400,000. Porsche on the other hand has been able to introduced 2009 in to compete against the BMW M5, produce equal performance and prestige, yet at more Mercedes-Benz 565 AMG, and Audi S8, among others.35 affordabie prices ranging from $130,000 to $145,000 The BMW M5 is a sporfy luxury sedan but significantly for the Turbo trims and up to $245,000 for the GT2 RS. slower than the Panamera Turbo S with a 0-60 of 4.4 In addition to the supercars, the 911 competes against compared to 4.0 for the Porsche. However, only the M5 the BMW M6, Mercedes-Benz SL-Class, and Audi Rg, offers a standard gear box. The Mercedes 565 AMG among others. These competitors have similar brand offers the smoothest ride of the four and garners higher prestige as Porsche but lack in some aspects of sport rankings on spaciousness and comfort. The Audi Sg is performance. Furthermore, the 911 faces competition again slowest the of the group but offers exceptional from less prestigious brands that deliver comparable interior quality. The Panamera competes directly against performance. The Nissan GT-R and Dodge Viper, for these models and has been touted to be the fastest luxurv example, both boast excellent performance figures and sedan in the world.36 lower price tags than the 91 I but lack the pedigree of the The Boxster and Cayman are also relativeiy recent Porsche line.at) additions to the company's offerings. The Boxster was The price range and performance varies greatlv first introduced as a roadster in 1996, the same year among the five model lines and their respective trim BMW launched lames Bond's 23. The Cayman was levels. Boxster, Cayman, and 911 models target sports launched ten years later, in 2006, as a coup6 derived car enthusiasts, whereas Panamera and Cayenne target from Porsche's second-generation Boxster convertible. luxury vehicle and SUV market segments, respectively. Today, the Boxster is offered in four different models: Each model not only meets but with additional sports Boxster, Boxster S, Boxster Black Edition, and Boxster performance, exceeds the standards of their respective Spyder. The Cayman is only offered in three different automobile class. In addition to the five production models: Cayman, Cayman S, and Cayman R. These models, Porsche also manufactures track-ready race- Boxster and Cayman models compete against the BMW cars. Taken together, Porsche's model offerings provide 24, Mercedes-Benz SLK models, and Audi TT, among a wide selection for many needs and different stages of others.rT The 24 is considered to have a more luxurious liie. angle when compared to the Boxster or Cayman. The -\lercedes offering in this roadster class has significantly less horsepower and fewer sport options. Overall, the lnfluence of the Bo\ster and Cayman models compete well against their Group competitors, most notably in reliability as, in 2010, the In 2010, VW employed about 400,000 Borster rvas rated the most reliable car, regardiess of employees, oper_ ated 62 production facilities worldwide, produced 200 :rtrdel. in the world3s (see Exhibit 3). different vehicle models at a rate of 30,000 vehicles per day, and was active in more than 150 countries. VW i-:::,:: :-:^:s are rve 1 estab ished as status symbols, represent the high- consists of two main divisions: the automotive division ::: ': -- :' :-::s-a-shlc, and command a loya consumer fo/lowing that (VW Group) and the financiai services division. The : -:: :-::::: :r :':-is {Roume/iotis, J.D. eA11, February 10). Defining . -. :-:-:,. :-: -::s ,/,/ClV /ns,ght. http:,//www.whitefieidconsulting.com/ automotive division is comprised of 10 different auto- motive brands: VW passenger cars, Audi, Skoda, SEAT, :i:riii!l

#iliil il'-

Exhibit 3 Porsche Awards and Accolades

201 1 911 Auto P acifi c Best Sportscar-Veh icle Satisfacti on Awa rds [VSA)

201 1 911 Car and Driver Editor! Choice

2o1o Boxster Car and Driver Best Handling Car in America

2010 Boxster/Cayman Car and Driver Editor's Choice

2010 91 B Spyder Edmunds.com Insideline Most Wanted 2010 Cayenne MotorTrendSUV ol the Year

2O10 Panamera About.com Cars-Best New Cars of 2O1O

2010 Panamera Car and Driver Editor's Choice 2010 Porsche Brand Kelly Blue Book Brand lmage Awards-Coolest Brand

2010 Porsche Brand J.D. Power and Assoclates #1 : lnitial Quality Survey

2010 Porsche Brand Auto Pacific ldeal Vehicle Awards (lVA) #1

2010 Porsche Brand J.D. Power and Associates APEAL Study-#1

2009 Panamera Bloomberg Car of the Year

2009 Cayman Motor Trend Best Drivers Car

2009 911 Automobile Magazine'sAll-Stars Award

2009 911 Robb Reporf Best ol the Best 2008 Boxster/Cayman Car and Driver Magazine's 10 Best Cars Sold in America

2008 911 Edmunds Edilors' Most Wanted Award 2008 Porsche Brand Luxury Institute! Top Luxury Automotive Brand

2008 Porsche Brand J.D. Power lst in lnitial Ouality Survey

2007 Porsche Brand J.D. Power and Associates APEAL Study-#1

2001 Boxster/Cayman J.D. Power and Associates Best Premium Sports Cars

2007 Boxster/Cayman Car and Driver's "Ten Best"

Sou'ce: Dara adaplod'ron r-tp://q -ote.no'ni.gsrar.com

Bentley, VW commercial vehicles, Scania, Bugatti, local customization, production facilities are located Lamborghini, and Porsche. Each brand within the auto- in various markets including China, Russia, the Slovak motive division is led by a brand CEO and Board of Republic, the Ukraine, Kazakhstan, Spain, France, the Management. The financial selices division is the larg- US, Brazil, and Argentina. est automotive financial services provider in Europe and The Porsche brand will play a key role within the offers dealer and customer financing, leasing, banking VW family in various global markets. VW's execu- activities, insurance activities, and fleet management. tive team plans to fully integrate the Porsche brand At the corporate level, VW is charged with becom- into the group by the end of 2011 via a muiti-stage ing the "leading automotive group globally." VW's transaction. It is expected that Porsche will contrib- Strategy 2018 sets forth the roadmap to achieve this goal ute to the group synergy and help other group brands using its unrivaled distribution capabilities, best-in-ciass improve in innovation, manufacturing, and quality manufacturing and technology, and superior quality. by sharing technology, research and development, Best practices are leveraged across brands, and purchas- components, and platforms. Product line extensions ing, production, and distribution synergies develop as are planned to produce new Porsche vehicles that rvi1l brands work together. meet emerging customer demands in various markets. While the VW brands compete in a number of con- Production goals are aimed at increasing Porsche pro sumer markets and segments, VW's flexible engineer- duction from 80,000 units to 150,000 units annuallr' ing design and architecture processes allow its brands within five years. VW's distribution network will be to share compatible components to customize vehicles leveraged to introduce the Porsche brand into ner' and meet regional customer preferences. To promote markets.al :i!, ;flr, ffi'

However, Porsche has traditionally been a top-tier O Overview of Strategic Challenges () sports car company, producing variations of the leg- + VW's Strategy 2018 calls for the company to become endary 911 platform. Its newest product offerings-the "the most successful and fascinating automaker by L Cayenne and Panamera-were the hands-down sporti- 2018." Over the past 15 years, VW Group has acquired est options within their respective segments. For exam- more than half a dozen brands including Porsche, ple, the Panamera Turbo S was the fastest sedan in the Lamborghini, and Bentley. Porsche wiil help VW world after less than two years of production. Further achieve its goals by sharing its technology with other extension of the sedan or SUV lines could lead to per- VW brands, increasing production, and diversifying formance dilution. the Porsche product line. For example, VW has already By complying with VW's Strategy 2018, the Porsche announced its plans for Porsche to launch the Cajun brand would evolve from a focused approach to a (pronounced CAY-OON) a smaller, more fuel-efficient broader brand of car segments. Porsche would no ion- version of the Cayenne SUV. Also, rumors have been ger solely focus on its traditional target customer but circulating that an even smaller version of the Boxster would instead be forced to appeal to multiple consumer will begin production by 2013. VW has seen the success segments. As such, Porsche faces the risk of diluting of Porsche's recent diversification and is looking for an its brand, alienating its customer base, and potentially even broader offering. destroying its competitive advantage.

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