Porsche Downshifts For Economic Curves
BATTERED by tough economic times that forced its chief competitors to stall out and be swallowed up, Porsche AG is striving to become the little carmaker that could retain its independence.
The 1990s recession forced Porsche - whose cars enjoy renown for fine craftsmanship, powerful engines, and steep price tags - to sharpen its survival skills.
From mid-1991 to mid-1994, the company ran up losses of about $300 million. Wendelin Wiedeking, Porsche's chairman, likened the experience to being in ``a valley of tears.''
But now, after expending a little blood and a lot of sweat on restructuring, Mr. Wiedeking says he believes Porsche is poised to restore its profitability. He predicts fiscal year 1995, which ends July 31, will see a break-even balance sheet.
``We are on the right track in spite of weaknesses that still exist,'' Wiedeking told journalists recently.
That Porsche has made it this far as a small, independent sportscar maker should be considered a significant accomplishment, say auto analysts. Luxury carmakers tend to be among those who suffer most during downturns in economic cycles. And the roller-coaster markets of recent decades have proved especially volatile for luxury-item producers.
One by one, other small European automakers have found that the only way to survive was by merging with the Big Boys. Thus, America's Ford Motor Company took over Britain's Jaguar, and Ferrari came under the control of fellow Italian automaker Fiat SpA.
Now Porsche finds itself virtually alone in its specialized market category. And few at the company these days are taking their independent status for granted following the economic trauma of the early 1990s.
During the apex of conspicuous consumption roughly a decade ago, Porsche was selling as many as 50,000 cars annually, including the 911 Carrera, the 928, and the 968. But by the year 1992-93 - when recession hit many industrialized nations - Porsche's automobile sales dropped to just under 12,000. The company posted a loss of about $150 million that year. Figures rebounded in fiscal 1994, but the company still sold only about 16,000 cars, reporting annual losses of just under $100 million. Sales for this year are up an estimated 50 percent.
But the ultimate success of Porsche's revival strategy depends largely on two things: new product appeal and cost-cutting.
Porsche has invested close to $1 billion on developing two new models managers are counting on to restore sales to '80s heyday levels. One model, named the Boxster, will go on sale in 1996; the other should hit showrooms the following year.
``It would be easy for us to defer development expenditures, which would improve our operating result cosmetically,'' Wiedeking said. ``But that's precisely what we do not want to do because we have set our sights on the long-term, secure future of our company.''
`Boxster': a less-expensive model
The Boxster's list price is expected to be around $50,000, a lot less than the 911. The aim is to reduce the auto's vulnerability to recession-induced sales lulls.
The automaker has also made customer-service improvements designed to boost its product loyalty and attract new buyers. And Porsche is foraging in emerging markets, especially China.
Such efforts have been accompanied by significant cost-cutting. The work force has been slashed from more than 8,400 to about 6,900, and several hundred more layoffs are planned.
Porsche has also made significant changes in its corporate culture. Japanese consultants have been brought in. Auto-production times have been cut by one-third, from 120 hours to 80 hours. The goal is to slash assembly times by half. And to cement the changes in place, Porsche replaced 19 of its top 24 managers.
The changes have succeeded in making Porsche leaner and better able to withstand future recessions. Nevertheless, the automaker relies heavily on exports, and, thus, is vulnerable to fluctuations in currency exchange rates.
The recent nose dive of the United States dollar against the deutsche mark and other major currencies has hurt sales. The weak dollar, for instance, has reduced US sales - Porsche's most important market - by making these cars more expensive for American buyers. At the same time, economic recovery in Europe and Japan has yet to translate into a significant increase in Porsche sales in these regions.