Porsche buys more into VW; Economy Tough!
Just about every automaker today is suffering from a poor economy. Most are wistful that they didn’t start producing small, fuel-efficient cars sooner, but the auto industry was caught off-guard before – anyone remember the late 1970s/early 1980s? Perhaps a read of Steve Miller’s The Turnaround Kid would be require reading for current auto industry execs. Granted most are not in as dire need to assistance as Chrysler was, but they could be if the downturn continues.
But this downturn could prove much more difficult than ever before because we see three issues at work. First, most consumers rely on financing and leasing to purchase vehicles. Even with a huge government investment, banks are using the money to cover themselves for past mistakes, rather than using the monies to start new auto loans. Second, the price of oil remains high and has effectively ended the “we love SUVs” craze. Spending $500 per month on petrol has certainly dried up that part of the auto industry. Third, and finally, government regulation is coupling with the second factor to require significant reduction in CO2 emission and greater gas efficiency. Some automakers have been successful in making changes to drive trains to comply to 130g/km regulations, but even Porsche, which makes among the most efficient sports cars is far from the target.
Bloomberg reports:
Porsche SE, the maker of 911 sports cars, said it will take steps to increase the supply of Volkswagen AG shares after their price surged more than fourfold in the past two days.
Porsche, which said Oct. 26 it has options equivalent to 31.5 percent of Volkswagen’s common stock “to hedge against price risks,” may settle as much as 5 percent of those options, it said in a statement to the German stock exchange today.
“Porsche SE intends — depending on the state of the market — to settle hedging transactions in the amount of up to 5 percent of the Volkswagen ordinary shares,” the statement said. “This may result in an increase in the liquidity of the Volkswagen ordinary shares,” Porsche said.
Autocar Magazine reports:
Porsche has announced that it has increased its stake in Volkswagen Group to nearly 75 per cent, an amount which will allow the sportscar maker to gain full control of VW’s cash flow.
The announcement helps to explain why Volkswagen’s share price has been fluctuating wildly in recent weeks. The German state of Lower Saxony still owns 20 per cent of the company which, alongside Porsche’s increased holding, means that only around five per cent of VW shares are still in ‘free float’.
Under German law, taking a 75 per cent stake will allow Porsche to impose a ‘Domination Agreement’, allowing it to put Volkswagen’s assets and revenues onto its balance sheets. Porsche has stated that it intends to reach this figure sometime next year.
Volkswagen says that it continues to welcome Porsche’s investment, but unions representing the group’s German employees remain bitterly opposed to the takeover, which they fear will lead to cuts and a shift of production capacity to lower cost countries.
By gaining full control of cash flow Porsche can now bring VW’s more gas-friendly diesel cars into the product portfolio. This allows Porsche to claim an overall decrease in CO2 emissions. It also allows them to share certain costs, particularly in procurement and R&D.
GM and Chrysler have been discussing a similar merger of sorts in the USA, but this has yet to come to fruition.
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