Posted Sunday, July 18, 2004; 8:34 BST
Since Ferdinand Porsche began making automobiles in 1948, the company has built its brand on sleek, high-performance sports cars that appeal to high-earning males with a taste for luxury and a need for speed. So in 1998 when the company announced it was building a sport-utility vehicle later dubbed the Cayenne, fans and critics alike were stunned. How could a company known for its two-seaters make the transition to a big, family-friendly car? But Porsche downshifted smoothly into the SUV market, with the Cayenne winning praise for its sporty off-road performance. Now every second Porsche sold in the world is a Cayenne. "The Cayenne has all the Porsche charisma," says Karl Ludvigsen, a London-based auto consultant. "They pulled it off extremely well."
They also pulled it off in Germany, where conventional wisdom held that innovation in the manufacturing industry was permanently stalled. Porsche president and CEO Wendelin Wiedeking thought otherwise. He launched detailed surveys of Porsche owners and found that fans of the brand might buy the firm's SUV if it was German designed, high performance and — crucially — made in Germany. (Mercedes and BMW, Porsche's main rivals in the luxury market, make their SUVs in the U.S.) So Porsche designed a high-performance, 4.5-L, 8-cylinder engine, built a state-of-the-art factory in the eastern German city of Leipzig, and advertised the car as "Developed and made in Germany." By 2003, the 240 employees on the Cayenne production line in Leipzig were cranking out 34,000 SUVs a year in a third of the time a Porsche used to need. That works out to 141 cars per employee; the number is 10 for BMW and 46 for Volkswagen. But Wiedeking did one very un-German thing: he refused a €50 million government subsidy "to send a signal to the government that we have to change this mentality" of business taking handouts, he says.
With the success of the Cayenne, Wiedeking, 51, also sent a signal that Germany was back in the innovation business. Over the years, Germany has lost its edge as a manufacturing base because of cheaper wages in Eastern Europe and elsewhere. But Wiedeking is convinced that "Germany is still the best when it comes to manufacturing. The foundation for this is excellent education and know-how," he says. "Our politicians have to guarantee through clear, fast reforms that we'll keep our world-class manufacturing status."
When he took over as CEO in 1993, Wiedeking slashed management, adopted lean production techniques and reinvigorated the sales force. The company was even removed from the Frankfurt stock exchange's MDAX index because Wiedeking refused to issue quarterly reports, as the exchange demanded. "We believe in a long-term decision process," he says. "Bankers and markets want to have quarterly reports because it generates volatility in the markets. I don't want to be part of their business."
The changes paid off. Last year, Porsche earned €933 million on sales of €5.6 billion, compared with €829 million on sales of €4.9 billion the year before. It has a market value of €9.6 billion, up from €300 million in 1992. And the new Leipzig factory has brought jobs and growth to what was once an economic black hole. The company is "one of the most profitable auto manufacturers globally," says Michael Dean, an industry analyst at stockbroker Merrill Lynch in London, which forecasts 15% earnings growth this year thanks to the Cayenne. No wonder Porsche is so eager to wave the MADE IN GERMANY flag.
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