Dr. Porsche’s 1,001 Horsepower “Beetle”
In the early days of the automobile, Ferdinand Porsche, himself an Austrian, served as a designer at the Daimler motorcar manufacturing branch there. He was a top-notch engineer, as well. In those days, car makers’ reputations relied significantly upon the success of their products on the race tracks; and Porsche’s own creations for Daimler were remarkably adept at winning. His record had a direct and positive bearing on the sales of Daimler’s compact cars for everyday use. He had a love affair with little cars that stayed with him for life.
In 1923, Porsche moved himself and his family to Daimler’s headquarters in Stuttgart, where he was appointed technical director of the entire company. His son (also Ferdinand, nicknamed “Ferry”), then only 16 years old, was recognized as having a special talent for design and was given special permission to work at the factory with his father. Ferdinand Sr. continued to pursue his main interest in designing small cars, but ran afoul of management’s changing imperatives after the merger of Daimler with Benz, and the ensuing focus on large, luxurious automobiles. The relationship could no longer be sustained, so Porsche departed and opened his own design office in Stuttgart in 1931. Meanwhile, his son Ferry had been working for Bosch while studying physics and engineering; and when Ferdinand Senior left Daimler-Benz to strike out for himself, Ferry joined him there. From that time forward, the two remained a father-and-son team of uncommon talent.
Of course, the twenties and the early thirties were years of great difficulty in Germany. The Weimar Republic had failed. Hyperinflation ruled the day. My grandmother, who was born near Munich, told me of returning to Germany in 1922 and seeing, with her own eyes, people hauling paper money – loaded into wheelbarrows!
Hitler’s National Socialist party did not enjoy a majority in the Reichstag in the early Thirties, but it was the largest minority. President Hindenburg thought, mistakenly, that he might be able to co-opt this charismatic troublemaker by appointing him Chancellor of Germany. It proved to be the opening wedge in a power-grab which overrode democratic impulses by means of fear, intimidation, and sheer physical force. The deed was done; there was no turning back. The designs of the tyrant were enabled in some measure by the felt need of an exhausted populace for stability and the promise of better times to come.
One of Hitler’s early domestic priorities was the design and production of a small car for the masses, a “people’s car.” A design competition ensued. Porsche was there. He was able to draw upon his experience in designing and engineering small cars for the former Daimler company. Even so, he was not alone; his son Ferry was with him, together with a group of talented engineers whom he recruited from past years. One entrant proposed a small car with a radial engine, which proved impractical, possibly from a cooling standpoint. Porsche’s design called for a very small two-door, four-passenger car with an air-cooled “flat four” cylinder engine mounted in the rear. Hitler liked it; enough said. The “people’s car” was born as a State enterprise, featuring a one-liter engine churning out 23.5 horsepower.
Porsche became one of Hitler’s favorites. He was showered with recognition and munificences. Ferry continued to rise in importance and prominence in the company, which designed and produced successful race cars in addition to the “Volkswagen” and vehicles for the German military.
Hitler had taken a fancy to Grand Prix race cars as a propaganda tool. Daimler entered the competition to design and build a new generation of the breed. The existing Audi automobile company and three others combined to form the new “Auto Union” Grand Prix race car manufacturing and racing company. Porsche became Auto Union’s chief designer, on contract, while still managing Volkswagen. The resulting Daimler and Auto Union race cars blew away the competition in the 1930’s, overseas and here in the United States. I even remember the name of one of the premier German drivers of that time: Maury Rose. I remember those cars, too. They were huge. And they were loud. They didn’t sound like the high-pitched buzzing bumblebees of today’s race cars; the engines were much slower-turning. The locus must have been Roosevelt Raceway on Long Island. The Auto Union cars sported the four intertwined circles on the grille, just as Audi cars do today. (I had also been present at the adjacent Roosevelt Field when Lindbergh took off for France some years earlier. I was present, but I hadn’t been born quite yet. My parents told me and my siblings later, many times, that Lindy j-u-u-u-u-s-t cleared the telephone wires at the end of the runway).
An entire new Volkswagen factory was built and opened at Wolfsburg. Although the car enjoyed considerable sales success in Germany, Hitler’s greater ambitions got in the way; which, of course, led to massive destruction, the end of the “thousand-year Reich” fantasy, the suicide of Hitler in a Berlin bunker, and – unfortunately – the imprisonment of Ferdinand Porsche as a war criminal for 20 months in a dank old jail in Dijon, which adversely affected his health. No doubt, Hitler never knew that Porsche had helped a Jewish employee escape from Germany. A fellow prisoner was his son-in-law Anton Piëch, a Viennese lawyer who was married to Louise Porsche, Ferry’s sister.
Ferry Porsche was able to raise the 500,000 francs bail which was required for his own release from custody. (The State-owned Volkswagen enterprise was booty of war. The British Government delivered ownership of the company to the German State in 1948, which offered shares in the company on the public stock market in 1960). Ferry moved back to Austria and set up a machining and repair shop in Gmund with his sister Louise. Eventually, he won a contract to design a race car for the Cisitalia racing team, and then for another, to be called the Porsche 360 Cisitalia. This car was to have a mid-mounted engine and four-wheel drive. It marked the first time that the family name had ever been attached to a vehicle.
Ferry could not forever divorce himself from his father’s love affair with small cars. Accordingly, while working on the Cisitalia race cars he also found time to design the Porsche 356, and arranged with the Volkswagen company to allow him to build it on the “Beetle’s” chassis and mechanical underpinnings. Meantime, the engine had been enhanced so as to produce 35 horsepower. The first 50 cars were built by hand at Gmund, with aluminum bodies. 6 more were sent to Switzerland, where cabriolet bodies were installed on the chassis. Ferry also eventually assembled sufficient bail in order to effectuate release of his father Ferdinand and of Anton Piëch from prison, which was accomplished on August 1, 1947. Upon arrival in Austria, Ferdinand inspected Ferry’s designs for the Porsche 360 Cisitalia and for the Porsche 356, and announced that he would have created the same designs. Although he was back again in the midst of the car manufacturing business, his months in prison had damaged his health. He died in January 1951.
(The Porsche 356 was a success! Almost 78,000 were made and sold by 1965).
Meanwhile, the Beetle design was aging. It needed serious upgrading. The general manager of Volkswagen came to Ferry with a proposal that was too good to turn down:
Ferry would improve the Beetle.
In exchange, Volkswagen would provide to him:
A percentage of the profits derived from the sale of every improved Beetle;
All of the raw materials for building Ferry’s sports cars;
Use of Volkswagen’s worldwide network of dealers for sale of Porsche cars;
Use of Volkswagen’s worldwide network of technical support;
Ferry would be the only Volkswagen dealer in Austria.
Done! That sealed a co-dependency which persists to this day. Ferry brought his company back to Stuttgart. He resumed production of the Porsche 356 and started work on a new engine which was to be called the Carrera. He raced a special version of the 356 at LeMans in 1951. The car won in its category. He won again at Targa Florio in 1959 and at LeMans in 1970 with a model called the 917.
By now, the 356 was aging too; and there was demand for a new model. The result was the acclaimed 911, which has been the longest-running sports car in production, ever. The 911 was basically the 356 fitted with the new liquid-cooled six-cylinder Carrera engine, which featured an astounding 300 horsepower.
Ferry continued to run the company, which he changed from a limited partnership to the German equivalent of a “corporation” in 1972. Even so, the two related families – Porsche and Piëch – continued to retain and maintain effective control of the company. When Ferry died in 1998, his son Ferdinand Alexander took his place at the helm.
Meanwhile, Anton and Louise (Porsche) Piëch’s son Ferdinand Karl Piëch, also an automotive engineer, had served at the Porsche company, where he was instrumental in the development of the Porsche 917. He developed a Diesel engine for Mercedes while in private engineering practice, moved to the Audi subsidiary of Volkswagen, and then, in 1993, to the Volkswagen Group itself, where he became Chairman and CEO. He retired from the Board of Management in 2002, but he still serves in an advisory capacity as Chairman of the Supervisory Board. In other words, he is very much On The Scene at Volkswagen. All of this, it may be noted, proceeds apace while he himself still owns about 13% of the Porsche company. He has thirteen children by four women, so the family tradition may continue for a while. There is a strict unwritten rule in the family that nobody talks to the press.
While Mr. Piëch was in Management at Volkswagen, he was at least partly responsible for several successes: the New Beetle in 1998 (really a Volkswagen Golf in disguise), increased market penetration by Audi, creation of a perception in the public mind of justification for premium pricing, and the acquisition of the Bentley, Bugatti, and Lamborghini brands. His biggest gaffe was the acquisition of Rolls-Royce. The devil was in the details. He thought he was buying both the car manufacturing facility and the name; but as it turned out, the right to the name belonged to BMW. Another probable mistake is the Volkswagen Phaeton, a super-luxury car intended to compete with the Mercedes-Benz Maybach. (Ah, there’s another memory-jogger. I remember the low growl of the Hindenburg’s Maybach Diesel engines as it passed low over my house).
At Volkswagen, Piëch laid the groundwork for repeated doses of quite sensational news. The Bugatti marque claimed a fine record in racing, but had lain dormant for decades. He set in motion a reinvention of the name. Independently (?), the Porsche company, for reasons of its own, possibly at least as defensive in nature as it may have been geared to the hope of profit, acquired 18.5% of Volkswagen in October 2005. Thus, for the first time, the Porsche family had (indirectly) become part owners of the ongoing business which had produced Dr. Porsche’s first Beetle. For the first time, “their name was on the building,” though in small letters. Then, in March 2007, Porsche raised that ownership interest almost to 31%. It announced that it had done so in order to preclude any competitor from buying a large ownership interest in Volkswagen and to preclude any attempt to sell off the Volkswagen Group in pieces, which might have been a threat to Porsche’s dependency on Volkswagen. In March of this year, 2008, Porsche announced that it intends to increase its ownership of Volkswagen to 51%, at the same time that it announced its intention to acquire more than a half-interest in Scania, the Swedish truck manufacturer controlled by the Wallenberg family. Last month (September 2008), Porsche announced that it already owns 35% of the Volkswagen Group, which is probably a controlling interest by anyone’s reckoning; and that it would acquire Audi from Volkswagen outright! (All by itself, that maneuver might have given any raider pause). Probably some of those additional Volkswagen shares were acquired via the open Frankfurt market; but my guess is that substantial blocks were acquired in private transactions. (In Germany, cross-ownership interests are much more common than they are in the United States, quite possibly to an extent which would be illegal here. Deutsche Bank’s fingers are everywhere; Lufthansa’s are not far behind). There are legal issues outstanding; but Porsche has made its moves aggressively and it is up to others, whether governments or companies or common folk, to say them nay. “Fait accompli.” The Porsche family name now sits (figuratively) in bright lights atop Volkswagen’s headquarters building. The sign is invisible, but it’s there, just like the little people who scurry around in the Black Forest not all that far away.
All the while, that Bugatti adventure has been strumming along in the background. Mr. Piëch’s vision was to build an over-the-top superfast luxury car bearing the revered Bugatti nameplate. Volkswagen has done that. The result is the Bugatti Veyron, featuring an 8 liter, 16-cylinder, quad-turbocharged engine delivering 1,001 horsepower while delivering a top speed of 253 miles per hour, all of this bargain-priced at 1.1 million Euros, more in North America. The car, which is named after a driver for the original Bugatti company who won the 24 Hours of LeMans in 1939, is handmade in Alsace. Only 500 will be built. Two have been wrecked. At top speed, the car achieves a fuel economy of 2.05 miles per gallon, which would drain the tank in less than 13 minutes. But take comfort: there’s a safety factor built-in there, since the Michelin tires would last for a full 15 minutes.
(It may be self-satisfying to make fun of the sheer excess of the thing; but honestly now, mate, wouldn’t you love to have that car in your hands even for ten minutes?)
So there you are, Dr. Porsche. Your family still has a controlling interest in the Porsche sports car business, and now it also controls the thriving company which made your original Beetle. On the way by, they raised the horsepower of your car a bit, from 23.5 to 1,001. But that’s really a side issue. The big story is that Porsche plus Volkswagen must be considered, effectively, as a single enterprise. If you and Ferry could just come back for ten minutes and look around……
William Kurtz October 17, 2008 http://www.candlewave.com
Author publishes his free investment newsletter three times weekly. Retired corporate CEO and atty. Creator of “Candelaabra” technical analysis system for use in all financial markets. Stop by for free newsletter, which you can cancel at any time if you so choose. Our emphasis is on protection of your portfolio, making money in the stock market regardless of its direction, and identification of trend reversals as they are happening or in the process of formation. Candelaabra is a champ at calling reversals!