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Company
LVMH
LVMH is the big luxury company behind brands like Louis Vuitton and Moët. They’re bringing it up to compare how luxury businesses make money, not just car companies.
Company
Ferrari
Ferrari is being used as the example of a car company that makes a lot of money and feels more like a luxury brand. They’re saying Porsche is good, but Ferrari is in an even more exclusive class.
Concept
daily driver
It’s the car you can actually live with and drive all the time. They mean Porsche cars can be fun but still usable every day.
Concept
pricing power
Pricing power means a company can charge higher prices because people still want the product. Here it means Porsche can ask more for its cars than many rivals.
Company
Doug DeMuro
Doug DeMuro is the car reviewer joining the episode. He’s known for making videos about interesting cars and their quirks.
Car
Porsche Carrera GT
The Carrera GT is a super-rare Porsche supercar. People love it because it feels raw and special, more like a race car than a normal road car.
Concept
German engineering
This is the stereotype that German cars are especially well engineered. People use it to mean precise, carefully built, and technically advanced.
Term
platform sharing
This means different cars are built on the same basic hardware underneath. It lets companies save money by using the same bones for several models.
Concept
gas-powered transportation vehicle
They're talking about one of the first vehicles powered by gasoline. It was an early ancestor of the modern car.
Company
Mercedes-Benz
Mercedes-Benz is the car company that came from two older German companies merging. The hosts are explaining where the name came from and why it matters to Porsche’s history.
Brand
Volkswagen
Volkswagen is the car brand behind the Beetle and many modern cars. The hosts are talking about how the company started with a government-backed plan for a cheap car for ordinary people.
Brand
Ferdinand Porsche
This is the famous Porsche family name. In this episode, it comes up because different family members were competing for influence over the company.
Company
Stuttgart
Stuttgart is the German city where Porsche is based. In this story, it is where the factory workers were upset about the 911 potentially being replaced.
Concept
mass market automobile
This means a car meant for lots of regular people to buy, not a luxury or specialty vehicle. The idea is to make something cheap enough and common enough that it becomes widely used.
Concept
Model T
This is the famous early Ford that put lots of people into cars for the first time. The speakers are comparing Porsche's idea to that kind of breakthrough.
Car
Ford Model T
The Ford Model T is an early car made by Ford. It was one of the first cars many people could afford.
Concept
car ownership
This means how many people actually have their own car. They’re saying far fewer Germans owned cars than Americans did at the time.
Company
Daimler-Benz
Daimler-Benz was the old company behind Mercedes-Benz. In this story, it’s the business side that turned down Porsche’s idea for a cheaper car.
Company
Gestapo
This was the Nazi secret police. The hosts are talking about how one of Porsche's early backers was arrested during the war.
Car
Volkswagen Beetle
The Beetle is the famous little Volkswagen with the rounded shape. It started as a cheap car meant for regular people and became one of the most famous cars in the world.
Concept
people's car
This means a car meant for regular people, not a luxury or sports car. In this episode, it's the original idea behind the Volkswagen Beetle.
Topic
Beetle production history
They’re discussing how long the Beetle was made and why it was such a big deal. It’s basically a history segment about the car’s production and legacy.
Car
Ford F-150
The Ford F-150 is a pickup truck made by Ford. It is used for carrying people and cargo and is one of Ford’s most popular vehicles.
Brand
Ford Mustang
The Mustang is Ford’s famous pony car. They’re mentioning it because it showed up and changed the sports-car market in the 1960s.
Brand
New Beetle
The New Beetle was the modern version of the old Volkswagen Beetle. It kept the classic look but was a newer car underneath.
Topic
Wolfsburg
Wolfsburg is the German city where Volkswagen is based. The hosts are talking about it as the place where the company grew up and where its factories were located.
Concept
pre-war Beetle
This is an early Volkswagen Beetle from before World War II. The hosts are pointing out that very old Beetles still exist today, even though only a small number were built before the war.
Company
West Germany
West Germany was the part of Germany aligned with the West after World War II. The hosts are saying its government helped rebuild car companies and factories as part of the Cold War.
Concept
Marshall Plan
The Marshall Plan was a big postwar aid program from the United States. It helped rebuild Europe, including the factories and businesses that made cars.
Concept
commercially viable
This means whether something is likely to make money as a product. They’re saying the British thought the Beetle would not be worth selling.
Company
the British government
This is the government of Britain. In the story, it’s the group deciding whether the Volkswagen factory should be taken apart or kept running.
Concept
pre-war production Beetles
These were Beetles built before the war, before the car became famous. The hosts are saying there were only a small number made at that point.
Concept
Cold War
The Cold War was the long standoff between the U.S. and the Soviet Union. Here it explains why rebuilding German industry mattered so much.
Concept
economic revitalization
This means helping an economy recover and grow again. Here it’s about getting German industry moving after the war.
Car
Fiat 500
This is the little Italian car that became a classic. It’s mentioned because Italy had its own version of a small, affordable car for everyday use after the war.
Company
France
They’re talking about the French market and why Porsche had to change the name. Peugeot had already claimed a naming pattern in France.
Concept
postwar era
This means the time right after World War II. The hosts are talking about how car companies made cheap, useful cars because people needed transportation again.
Concept
hybrid and electric cars
These are cars that use electricity to move, either by itself or together with a gas engine. The point here is that Porsche was working on this idea very early.
Concept
battery technology
This means how good batteries are at storing and delivering power. Early car batteries were too heavy and not powerful enough to make electric cars practical.
Concept
war criminals
This means people accused of serious crimes during wartime. The hosts are talking about the legal trouble Porsche’s family faced after World War II.
Concept
car for the masses
This means a car designed so regular people can afford it. It’s basically the idea of making a simple, cheap, widely available car.
Term
supercharged
It’s a way to make an engine stronger by stuffing extra air into it. Think of it like giving the engine a forced-air boost so it can make more power.
Term
horsepower
Horsepower is a way of measuring how much work an engine can do. More horsepower usually means the car can accelerate harder.
Concept
sports cars
A sports car is a car made to be fun to drive, usually with better handling and quicker acceleration than an ordinary car. The conversation is about how Porsche helped popularize that idea.
Concept
professionalized racing
Back then, racing was still kind of a rough, early-stage sport. Cars built for the road and cars built for the track were much more closely related than they are now.
Concept
Brass era
This is an early chapter in car history, when cars had lots of brass trim and were very different from modern cars. The hosts are using it to describe the oldest sports cars.
Term
turbocharger
A turbo is a part that uses exhaust gases to help the engine breathe harder. That extra air lets the engine make more power.
Concept
chassis platform
It’s the car’s basic foundation — the structure and hardware underneath the body. Automakers often reuse a platform across different models.
Term
rear-mounted air-cooled engine
It means the engine sits in the back of the car and doesn’t use coolant like most modern cars. Air flowing over the engine keeps it from overheating.
Car
Porsche 356
This is one of the first cars Porsche ever made. It’s famous because it helped make Porsche what it is today, and old ones are now very collectible.
Concept
project numbers
This means the internal code Porsche uses for a car design while it is being developed. Fans often use those numbers to tell different versions apart.
Concept
production numbers
This just means how many of a car were made. Fewer built usually makes a car rarer and often more expensive later.
Term
technical design consulting
This means giving engineering advice and design help as a paid service. Volkswagen wanted Porsche's expertise, not just cars.
Company
German Porsche company
This is the German side of the Porsche business after the war. It was set up to do engineering and consulting work again.
Term
royalty
A royalty is a cut of each sale. In this story, Porsche would get paid every time Volkswagen sold a Beetle.
Concept
collector value
It means how much a car is worth to collectors, not just regular buyers. Rare or famous cars can become much more expensive over time.
Topic
the value chain evolved for selling cars
They’re talking about who actually sells cars to customers. Instead of the car company selling directly, dealerships often handle the retail side.
Concept
direct to consumer
It means buying straight from the company that made the car, not from a separate dealer. Tesla is the famous modern example in cars.
Company
Lower Saxony
This is a German state, not a car company. It owned a big chunk of Volkswagen and helped protect the company from takeover.
Concept
marginal tax rate
This is the tax rate on the next bit of money you earn. If it gets very high, people and companies may choose to keep money in the business instead of taking it out.
Concept
capital reinvestment
It means using the money a business makes to buy equipment, build factories, or develop new products instead of taking the money out as profit.
Concept
new models
This means making new cars or major redesigns of existing ones. The company keeps building fresh products instead of just selling the same cars forever.
Concept
consumer enthusiast car market
It means the market for regular people who really care about cars and want something fun or special, not just basic transportation.
Concept
Formula 1
Formula 1 is the famous international racing series with very fast, very specialized race cars. Those cars are built only for racing and are nothing like normal street cars.
Concept
gentlemen race
It means rich hobby racers who drove their own cars in races, not professional drivers. The car could be a street car and still be raced by its owner.
Concept
bifurcation
It means a split into two different directions. In this case, they're talking about how cars and racing started separating into everyday hobby cars and serious race cars.
Concept
engine classes
Racing doesn't always put every car together in one big group. Cars are split into categories, and winning your category can still be a big achievement.
Concept
racetrack
A racetrack is a place where cars are driven fast in a controlled environment. They’re saying Porsche is built so you can actually take it there and enjoy it.
Brand
Rolex
Rolex is a watch brand. They’re comparing Porsche to a luxury product people actually use, not something they just keep on a shelf.
Brand
Louis Vuitton
Louis Vuitton is the luxury fashion brand. They’re using it as an example of a company that sells both entry-level and very expensive products to keep the brand desirable.
Brand
Birkenstock
Birkenstock is a sandal brand. Here it’s just part of a comparison about products that are useful versus ones that are mostly for style.
Topic
Le Mans as the proving ground for Porsche
They’re talking about how Le Mans made Porsche famous. Winning there showed that Porsche cars were tough, fast, and advanced.
Concept
24-hour race
This is a race that lasts an entire day and night. Drivers take turns so the car can keep going without stopping for one person to drive the whole time.
Concept
endurance
Here it means how well a car can last through a very long race without breaking. It’s about toughness and staying reliable for hours at a time.
Concept
fuel efficiency
This means how far a car can go on a given amount of fuel. In a long race, using less fuel can be a big advantage because you may not need to stop as often.
Concept
road race
This is a race held on roads instead of a normal racetrack. The course can feel more like real streets than a closed racing facility.
Car
Chevrolet Corvette Stingray
The Corvette Stingray is Chevrolet’s classic sports car. They’re talking about the second-generation version that came out in the 1960s and competed with European sports cars.
Car
Porsche Panamera
This is Porsche’s big four-door car. People often find it surprising because Porsche is usually associated with sports cars, not sedans.
Concept
sedan
A sedan is the normal four-door car shape most people think of. Porsche making one was unusual because the brand was famous for sports cars.
Term
six-cylinder boxer engine
This is a type of engine where the cylinders lie flat instead of standing upright. Porsche made the flat-six famous in the 911, and that layout is a big part of why the car sounds and feels the way it does.
Car
Porsche 911
The 911 is Porsche’s most famous sports car. It’s the one people usually think of when they hear Porsche, and it became the model that defined the brand.
Topic
saving the 911
This is the story about Porsche deciding not to kill off the 911. The hosts are telling it like a legendary moment in the company's history.
Car
Porsche 901
This was the first name Porsche used for the 911 before it got renamed. The name changed because another car company had legal rights to that numbering pattern in some markets.
Brand
Peugeot
Peugeot is another car brand. They’re mentioned because Peugeot had already trademarked a similar model-number naming style in France.
Concept
apocryphal
It means a story people tell that might not be completely true. They’re saying the 901-to-911 explanation may be more legend than fact.
Concept
engineering project
This means an internal code Porsche used while developing a car. The story here is that some Porsche model names may have started as project numbers.
Car
Porsche 959
The Porsche 959 was an exotic supercar Porsche built in the 1980s. It mattered because it showed off new tech, especially all-wheel drive, before that was common.
Concept
tribe language
This means the special words and codes that fans use with each other. The hosts are saying Porsche has its own kind of insider language.
Term
flat six
It’s a six-cylinder engine with the cylinders laid out flat instead of upright. Porsche is famous for using this kind of engine in the 911.
Car
Porsche 912
It's basically a cheaper version of the early 911 with a smaller engine. Porsche sold it so people could still get into the new shape without paying 911 money.
Concept
entry-level Porsche
It means the cheapest or most accessible Porsche you can buy. The hosts are talking about how hard it was to make that car feel special instead of second-best.
Term
joint project
This means two companies are working together to make one car. In this case, Porsche and Volkswagen were sharing the work.
Car
Porsche 914
The Porsche 914 is a small sports car made by Porsche. It was built with help from Volkswagen and has the engine in the middle of the car.
Car
Volkswagen Karmann Ghia
This was an older Volkswagen sports car that came before the 914. The hosts are saying the 914 was meant to take its place.
Concept
mid-engine
A mid-engine car has its engine closer to the middle of the car. Car people like it because it can make the car feel better balanced in corners.
Concept
weight distribution
This is about where the car’s weight sits. If the weight is balanced well, the car usually handles better.
Concept
rear-engine
A rear-engine car has the engine in the back. That’s unusual and it changes how the car drives.
Part
rear axle
This is the part at the back of the car that the rear wheels are attached to. In some Porsches, where the weight sits relative to the rear axle is a big deal for handling.
LIVE
It's definitely Porsche Porsche Porsche. Yeah, definitely don't say Porsche the family
Does it do or like like cuz I met one of them at one point they say more like
Not like Porsche but more like Porsche like but it's hard
I think it's a German thing and I think it's difficult to but so we all say Porsche Porsche
Yeah, if you say Porsche with a German accent it comes out like Porsche. Yeah, so I think it's almost like yeah
Yeah, yeah, we will yeah, that's probably exactly
Is it you is who got the truth now?
Is it you is send me down say it straight another story on the way
Welcome to season 12 episode 6 of acquired the podcast about great technology companies and the stories and playbooks behind them
I'm Ben Gilbert. I'm David Rosenthal and we are your hosts today
We tell the story of Porsche if you liked our LVMH episode
You are gonna love this one and not just because it's a European luxury brand
There is possibly even more family drama creeping takeovers and complex corporate structures at play
But why is Porsche the brand and the product so special?
The company has struck an incredible balance of both building some of the world's finest supercars
While also being a great daily driver unlike say a Ferrari or a Lamborghini
Of course, these are expensive daily drivers with the average Porsche costing
$110,000, but they have managed to nail being a prestige brand with pricing power and
Make a ton of cars at 350,000 per year today
We'll study how they cultivated such a vibrant community which conveniently for them is comprised of extremely wealthy people
But it has not always been this way and it certainly didn't start this way today's story has Nazis tanks the first electric vehicles and
Like most luxury brands some misadventures in the 1980s
Oh, yes
And if you like quirks and features you're gonna be pumped about our partner in crime to help us tell this story
Doug Demiro Doug is one of David and my favorite youtubers and content entrepreneurs
He operates the largest independent YouTube channel focused on car reviews
With millions of subscribers
He also used to work at Porsche corporate and is about as big of an enthusiast of the brand as you'll find anywhere
In fact, we are filming this episode now sitting in his garage in front of a very special Porsche Doug's Carrera GT
Welcome to acquired Doug. Thank you for having me. It's wonderful to have you here
Well listeners if you want to know every time an episode drops sign up for email updates at acquired FM join the slack
We'll be talking about it after this episode acquired FM slash slack and without further ado
David take us in and listeners. This is not investment advice
David and I and Doug may have investments in the companies we discuss and this show is for informational and entertainment purposes only
To set the stage a little bit. I think that even though it's a marketing phrase the German engineering thing
It's worth sharing a little bit of history because it is more than just a marketing phrase, right?
So there's a pretty long and incredible history of science and engineering in Germany and Austria
It goes all the way back to the scientific revolution and Johannes Kepler and actually before World War two
Germany had produced more Nobel laureates in scientific fields than any other nation in the world
Folks like Max Planck Erwin Schrodinger Kurt Godel and you know Albert Einstein
These are all German and Austrian
scientists and
This tradition extends also of course to the auto industry. So it is very likely that the first gas-powered
Transportation vehicle this was looked more like a tricycle than a car but
predecessor of a car was created by a German inventor in 1864 named Siegfried
Marcus and I say probably
because nobody really knows because Marcus was Jewish and
The Nazis destroyed all records related to him during the war
We're gonna talk a lot about the Nazis here in a minute either way though. Germany
Definitely did create the first successful
Production consumer automobile. It was a vehicle called the Ben's patent
Motorwagen and that was made in 1885 by Carl Benz. I recognize that name Benz indeed
You probably do as the most listeners now around the same time
Another German inventor named Gottlieb Daimler sets up his own motor company and then in the early
1900s they have a model that they're producing goes on to be quite popular is
Named after the daughter of one of their biggest dealers in their dealer network, of course
We are talking about Mercedes. I had no idea. That's where the Mercedes name. Oh, yeah, yeah crazy
So Benz and Daimler end up merging in
1924 and thus Mercedes Benz is born, but okay, you might be asking what does this have to do with Porsche?
well turns out quite a lot because in 1906
Daimler scores a pretty big win in this fledgling German auto industry when they recruit
the current potting a prize winner the potting prize was for Austria's
Automotive engineer of the year to come be their new chief engineer at Daimler one doctor
engineer honoris causa Ferdinand
Porsche now the whole doctor
Engineer honoris causa thing
It's a bit of a red herring although Porsche the person and the company would make quite a big deal about it
The dude never even finished college let alone got a PhD
It was an honorary degree that he got later in life. Wait, the doctor Porsche is like doctor like the Seuss
doctor
Well, he had an honorary doctor. He was already doing stuff though. He was engineering and creating yes
Hence the honorary doctorate. Yes, nonetheless
He definitely was a badass engineer and we're gonna talk about all of the things the amazing things that this guy creates
But we also got to state this up front and this is as good a place as any
Ferdinand Porsche and many other folks in the family and in the early Porsche and Volkswagen as we will see days
We're also huge Nazis and Ferdinand himself not just was a Nazi
but was a very close personal associate of Adolf Hitler
he was a member of the SS and
You know, we're gonna glorify him and many of these other folks here of their business and engineering contributions
But like that doesn't mean that these are good people. So keep that in mind. Yeah, this isn't like one of those people that you hear
Oh, well, you know at that point in time the Nazis were so big and powerful. They kind of just got you know, coerced or they collaborated
It's like no this dude. No, he was always a buddy. He was there. Yeah, he was definitely a Nazi
So when Ferdinand takes this new post as the head of engineering at Daimler
He moves his family from Austria where he was the potting prize winner to Stuttgart in Germany and
Doug you probably have some more context on this
But Stuttgart is basically like the Detroit of the German auto industry and it certainly has become more that way since
Porsche was as we'll get to because Mercedes-Benz is there and it really does feel like yeah
Manufacturing cradle especially for cars. Yeah, and I think it's not even much like Detroit
It's not even just the car companies but all the suppliers and the subcontractors everybody you meet in Stuttgart
Just like when you go to Detroit works for Porsche or Mercedes-Benz or a supplier or something like that
It is like the industry town. Yeah, so
Porsche Ferdinand
It's not a short period of time. It's two decades like that. He is
Running the engineering and the car design for Mercedes-Benz
While he is there towards the end of his time kind of as we're getting into the lead-up to World War two
He comes up with a concept
He thinks that he can produce a small
affordable car that can really become the first
German and European mass market automobile now back in the US
There was the Model T and Henry Ford that existed
But Ferdinand's vision is a small car the Model T was a large car like a like a modern
Small automobile that Germans everywhere can can buy which was important because in Germany in that time
Car ownership was not anywhere near as as big as it was in the United States
Apparently only 2% of Germans owned a car versus 30% of Americans by the 1930s and so mobilizing Germans was
Not something that had happened in mass at that point
So this really was a challenge to build a car that could be affordable enough for the average German person to buy it and
Indeed it was a challenge because the board of Daimler-Benz
Rejects it. They're like no like we we can't do this. We make expensive cars for wealthy people
Right they get into a huge fight over this and Ferdinand ends up leaving the company pretty
acrimoniously in
1929
So much so that like and Doug you work to Porsche you have content like I think to this day the rivalry between
Mercedes-Benz and Porsche like there's some bad blood if heats up and it cools down
And there's there's more to discuss in that in the future for sure
But they ultimately do share that town too. So like there's rivalry, but like they're also, you know, you hang you have beers with
You know, you can't avoid hanging out with Mercedes-Benz employees also. Love it
So once he leaves Ferdinand bumps around for a little while and then in
1931 he starts a consulting firm to kind of advise other car companies not
Daimler-Benz but other car companies in Germany and Europe and I think in America too on their designs and like do some work for them
And maybe even design cars for them and he names it the doctor engineer honoris causa Ferdinand Porsche
construction and
Burton gin for motor and and
Farsian bow I
Apologize to any German speakers
But to be fair to you it's a lot
I studied French
You know like and that translates as the
doctor engineer honoris causa Ferdinand Porsche
Consulting and design services for motor vehicles company. And this is the beginning of Porsche the company and up until
2008 and 2009 which we will get to much later in the episode. That is the company that makes Porsches. Yeah, wow
Yeah, I mean if you look up like the stock of
Porsche and you pick the right Porsche and there's a couple we'll talk about that's still the full name of the company is all of his
honorary
Things so when he's starting this new company, he enlists the financial support of two people
One is his son-in-law his daughter Louise's husband one Anton Piech
Remember that last name because it is also going to be very important as we go along here and the other person is
Adolf Rosenberger
Now if you are a Porsche history nut, you probably know about Anton Piech
You probably don't know about Adolf Rosenberger
Because shortly after they start the company
Rosenberger was Jewish and he gets arrested by the Gestapo. He gets imprisoned
He eventually bribes his way out and escapes to America, but during the war Porsche and the Nazis
Totally appropriate his stake in Porsche and he's written out a history. Wow
Okay, so this new
Ferdinand company in
1934 they land
one very very
Very large contract that would go down in history both for the company and the world
that contract would be
to design
Ferdinand's vision
the small affordable
car for the people a
Volkswagen
You might say in German
That car would go on to become the Volkswagen Beetle and the company that contracted Porsche to build and design it
Was Volkswagen which was established to do so by Adolf Hitler
I hadn't heard rumors over the years like oh, yeah, there's there's like a Nazi connection here like
Adolf Hitler
Founded yeah, it's bigger than a connection. Yeah, there's not a connection because it's the same person right it is
Is the thing yeah Facebook. I feel like that has some kind of like Zuckerberg association, but I've never really put it together
Yeah, yeah, there's some there's some link between Mark Zuckerberg and Facebook
I just got to say this early in the episode we may as well like point it out already
It is crazy how comfortable we all are driving Volkswagen's and Porsches when it was like not just a little Nazi affiliated
like founded by Nazis and yet the way the world has evolved like
People kind of became okay with it all the German brands. I mean, you know, most of them use Jewish labor and their factories at that time and
Obviously very different people run the businesses now and so you just kind of put it out of your mind
And you know what generations have gone by also
Less so on the Porsche side of things more so on the Volkswagen side of things as we'll see with the history here
There is kind of like pretty incredible
Refounding of Volkswagen after the war
And I think if it were not for this refounding that we'll talk about in a minute
It would not exist today. Yeah
But yeah, just wild frigging Adolf Hitler
Founded Volkswagen so the beetle this this you know people's car Doug
You might know this did it go on to become the most popular car ever in the entire world probably yes
It is very hard to get actual production and sales data, especially for old cars especially for cars like the beetle which were
Produced in many countries over many years. I mean they were building them in Latin America through a couple of years ago
Maybe 2003 or something and so it's like difficult to figure out
But it obviously whether or not it was the most or one of the most it was obviously the effect of that car is is cleared
You know today. Yeah, and I am I
Tried to think I could not think of any other model
I believe the beetle the original beetle was is likely the single longest produced and largest
Both in terms of length of time and number of units produced of a single generation model
Like the Civic the Mustang the f-150
More than the beetle, but like those aren't the same cars right the beetle was the same freaking car until the new beetle in
Interesting when you think about the beetle because young people today look at it as like a cute classic car
But like at the time
It was what you drove to drive your family around and we'll talk more as we get to post war
But like it in Germany at the time is like a real
You know important
Practical family car this original Volkswagen the Hitler Volkswagen one of the things you can do when you start a company as a fascist dictator
You can create a new city to house this company in which he did
so
Hitler creates a new city in Germany known as the then called the city of the strength through joy car
That was the what they wanted to call the beetle originally the strength through joy
That was like a Nazi
Much more German than that. Yeah. Yeah, and this is Wolfsburg
Like this is the city that
Volkswagen is still located in today Hitler created it and not just Volkswagen
But like the Volkswagen group one of the largest car conglomerates in the world that owns many other brands you're familiar with
All out of Wolfsburg all
So Hitler creates Volkswagen. He creates Wolfsburg
They do start production of the beetle before World War two starts. They only make about 200 units
These aren't super rare today. They find a pre-war beetle
Then World War two begins in September 1st 1939 as you would expect Volkswagen all the Volkswagen and Porsche operations
Get repurposed to making military vehicles. There's a bunch of dark stuff everything Doug. You mentioned earlier forest labor
Concentration camps. This was the Nazi war effort. It all happened
We're going to skip over this period for our purposes today, but like note it happened
after the war though
a whole bunch of really interesting stuff happens that basically
fractures and separates out the Volkswagen operations from the Porsche operations for the next
The rest of the century and into the 21st century
So ironic given that they are now one company again, right first off. Where are they?
No, well, where are they?
That's the question and the funny thing is also they always they danced around even in this period and then in the decades after that
And then of course now there was always kind of flirting with each other. Yes
So first on the Volkswagen side. I alluded to this a minute ago
It's a pretty amazing story
What happens because you would think like there's no way you can't imagine that Volkswagen would survive
Post-World War two given what we now know the origin of the company
So what happens is Wolfsburg ends up in the hands of the british at the end of the war
And there's this whole crazy thing in germany of like all the allied armies are coming in and literally germany in berlin
Ends up getting split into east germany west germany east berlin west berlin
wolfsburg is in the hands of the british
And remember
Because it was a political organization. It wasn't a company before the war. Nobody owns it. It's this like orphaned
Organization. It's super unclear. There's no like proprietorship of it
So the initial plan that the british come up with they were going to dismantle the factory
and
ship it over to britain and essentially have
britain
Yeah, but supposedly
The british didn't want it
The british saw the plans for volkswagen for the the beetle and said no one's gonna ever want to buy that car
It's crazy to think about now and it gives you an idea of how the british would operate their car industries constant missed opportunities
But they literally looked at like this the drawing, you know, they have few the models that they had few built
They said nah, that is they literally said it is not commercially viable. Wow. Wow
So, okay, the british government kind of lacked vision for this
But a
singular british person
Did see the vision for this and that is the officer who was in charge of the the the territory where the factories were
Like on the ground managing it
Major ivan hurst a legendary figure in volkswagen history
He finds one of the pre-war
Production beetles the 200 that were made
He starts driving it around. He's like hey, this thing's actually pretty good
And I think we can maybe do something with this here
He also sees and this becomes increasingly obvious as the post world war two
State of world affairs takes place here in germany of like hey that like the cold war is about to start
He realizes that west germany needs an economic revitalization here
We need to restart german industry because hey the iron curtain is falling just to the east here
so he
Amazingly proposes and convinces the british command to leave the factory in wolfsburg
Maybe easier than I thought because the british didn't want it apparently
And also to place an initial order a seed order to restart the company for 20 000
Beatles
That the british military is going to adopt and use as their main military transport
So not as like a tank, but like not an armored beetle, but like they're going to use it to drive officers and stuff around
Yeah from that seed order like
That is now the new Volkswagen. So it's like yes hitler started it, but then ivenhurst
Yeah, totally now one of the things that I find interesting about the beetle is that each
Europe was so war torn after world war two was the all these places were in similar situations to germany and that like
The people needed to get back to work. They needed to be able to drive and go places and each european country had their own beetle
You know uk had the mini italy had the fiat 500
France had the citrone two cv. They all kind of looked similar. Wait, these are all based on the beetle
No, no, no, but they all came from the post war era where they needed something small and cheap to like
remobilize
The citizenry basically and so kind of each country developed had their own
You know car that did that for each country, but in germany, of course the beetle became a global hit whereas in those countries
It was more
You know in their era. Yeah, you don't see a lot of uh citrions in
Yeah, no, but the two cv was a huge huge car and the french just like the germans
Needed to get back to work needed to start building stuff again and also needed a cheap car to like
Cruise around it. Yeah, super interesting. So that's volkswagen, but put a pin in them. We'll come back to them in about 50 years
Because there's a lot more to say on on volkswagen and 50 years
That's about how long they would make that one model of the beetle
Yes, the new beetle would get introduced. I think in 1998
And the first ones post war were made in like 1948. So yeah
Crazy crazy. Isn't that wild? It's insane. Okay. So what about Porsche?
Well, they have a bit of a different path. So
After the war and we should say during the war ferdinand Porsche was designing tanks
Yes, and other military transform designed the elephant
Anti tank tank the most powerful land-based tank ever created
A terrible but B like just the range of design
Talent that he had like he designed the beetle and he designed the largest anti tank tank within a couple years
Yeah, and also some of the very first hybrid and electric cars in history
But at that time battery technology wasn't advanced enough
And so you're lugging around this huge weighted battery pack to get almost no juice out of it
And so it didn't really go into production
He was a genius. This is also it runs in the family too
Many of his descendants are both engines and cars geniuses
After the war ferdinand and the son-in-law Anton Piech are both arrested by the french as war criminals
Tried in france. They end up being imprisoned for two years in france
And uh, ben you did a little research on this, right?
Yeah, I think the technical thing they got him on which is why they only had two years was
For the forced labor that they took the
Imprisoned Jews and forced them to work in the factories
But all the other war crimes that were stacked against them ended up not being charged
And so quick trip in and out of prison quick to your trip out of war criminal prison. Yeah
so
Ferdinand's son fairy Porsche who had been working in the business
I think a little bit before the war and then and then during the war too
He's also arrested for war crimes too at the end of the war. He gets released after six months in the summer of 1946
And he and his sister louise are like
What are we gonna do? You know, we got to rebuild the family are we gonna restart the business?
Let's go figure things out
They return to the family's kind of ancestral home in austria and that happens to be quite convenient because
during the last days of the war as
Stuttgart and other large-scale german military production facilities were getting bombed by the allies
Porsche
took
about
20 or so of the
best most talented
Engineers and production people that they had
And they moved them out of stuttgart and they moved them to the austrian countryside
So that they wouldn't be, you know targeted by it so that the allied bombers wouldn't know where they are
And uh, this is pretty crazy. They are literally operating
Out of a sawmill in a farming village in southern austria named
Gmound
We're talking about like a couple thousand people maybe that live in this area
Yeah, and david, are you getting all this from I know you read like 500 dollars worth of
textbooks on Porsche. So there is this
Incredible history of Porsche called excellence was expected that was written by carl ledwig sun and we have to oh a big
thank you to him uh for the research for this episode this work is like
I mean the photos the archive work that are in this this volume it's it's incredible
I read a coffee table book that was like the complete illustrated history of the 9 11
Because for this episode and this topic
You want a visual history and so it's not like there's audiobooks and kindle books that we could do a normal amount of research on
All this stuff is in these like huge heavy bound pictorial books
These are amazing objects that like are being produced. There's just such a like um
Like visceral tangible quality to them that is that we don't usually cover on acquired
Okay, so fairy and louis
Go back to austria. They're there in gmound
uh, and uh, they're like well
What if we start a new company and
See what we can do around here. I mean there's some
Vehicles we can start fixing up. This is literally like the sony story if you remember uh when sony first got started in tokyo
At literally the same time they started by fixing radios
Right the services business the the second Porsche company Porsche construction in
Gmbh which is an austrian company that they start to do this
They start up like fixing old, you know military vehicles that are around there in austria
Unlike sony in tokyo though where there were a lot of radios in tokyo
There weren't a lot of cars in gmound
So pretty quickly they're like, huh, we don't have any more cars to fix up
And uh bad business. Yeah, well about it not a large market
Shall we say at this point fairy has an idea and it turns out it's a pretty damn good one
he
Definitely liked and agreed with his father's vision for a you know small car a car for the masses of volkswagen
But uh, he always had one major problem with the beetle
Which was
That it was slow
And it just was not fun to drive
So during the war he actually had a custom beetle made that he drove during the war
uh with a supercharged engine and uh fairy said uh later in a 1972 interview
I saw that if you had enough power in a small car
It is nicer to drive than if you have a big car
Which is also overpowered and it is more fun
On this basic idea we started the first
Porsche prototype to make the car lighter and to have an engine with more horsepower
Doug, can you contextualize what a big moment in like world history? This is yeah?
I mean it's an interesting concept because
Sports cars in general weren't a thing that much they were and there's going to be people who ran and say no
There were a lot of sports cars before but it was really a thing of
In real enthusiast wealthy people that sort of thing would buy cars to go motor racing in the air of you know
Brass era and that kind of stuff the concept of creating like something more affordable littler that was still fun was like
it was kind of an interesting idea that
you know
This was a real it was a touchstone of a concept that has really been taken obviously by them and refined in others as well
I went in research and when I looked up, you know some of those
sports cars pre-porsche and you look at them and these things are like franking cars. They are
Huge right and the engines are like the engine bays in the front of the cars are two-thirds of the length of the car
There's this one Ferrari from that era and I look at I'm like, how do you even steer this thing?
It looks like a boat the thought at the time really was
You want to go faster more more power, which of course creates more weight
Which of course creates the need for more power and they did that but it was unwieldy
Yeah, I mean even like to this type of Carrera gt sitting behind us
That's not a large car
Right and that was a Porsche thing and it was an even more of a Porsche thing at at this time
Totally and David you said a word there that if people aren't into cars
They may not know this supercharged dug. What does it mean to supercharge a car?
Basically, you know an engine takes in air and that's kind of air helps air mixes with the fuel and it creates a
Combustion that more or less. That's how a combustion engine works
Supercharger push like pushes in even more air to create more power basically
So the term supercharged would be referring to like takes the same engine
But adds this thing to kind of force more power through to like it literally force more air in yeah
And then I don't think turbos had been invented yet and turbos would obviously become a big thing for Porsche as much later
The concept of turbo is actually fairly similar to supercharging except that it spins something that adds even more air basically and and
Thus turbochargers
Result in power kind of being produced as the car makes more power
It makes more power if that makes any sense
It kind of like spins itself up in a faster way
Um, and there's kind of pros or cons to either either of them and for those following along at home
This is like end of the 40s 1947 type era
Yeah, those couple years after the war when everything was kind of getting figured out. Yep
So fairy has this idea. He's like, oh, I like driving my supercharged beetle
This is really fun to have a small car that also had a lot of power in it
What if we take this small operation of our, you know, elite team here in gamut and uh
We try and build a car that does that and hey, it also, you know turns out that um
Well, we built the beetle. Hey, so we know how to work with the beetle
There are a bunch of beetle parts around
The beetle was the, you know, main kind of chassis platform for a lot of military vehicles for for germany during the war
What if we take a lot of those parts and um, the basic architecture of the beetle, which is a
Rearmounted air cooled engine on a small car and we try and put something together here and this
becomes
The legendary Porsche
356
For some context on this you can buy an old beetle today for
I don't know 10 15 thousand dollars at auction
Maybe even a beetle like a classic one from the 50s or 60s
356 is
Regularly sell for about 300 thousand dollars at auction and special ones go for well well well above a million
This is a big idea the the gulf between a beetle and a 356 totally different thing is large
Doug why is the desirability of these cars so different today?
The well, I mean production numbers is probably the biggest component of that one, right? They made literally zillion beetles
and the 356 is special because
It really kind of was one of the the real touchstone moments of the sports car
Coming out of the war how we define the sports car today
It was a special thing and it was a special time and a special moment and
A lot of them also weren't treated all that well ultimately the 356
It was not affordable, but they made a decent number of them. They got to be relatively cheap
It was the old used Porsche for a while in the 60s and 70s
And so not that many of them were saved and now it's kind of revered as when we look back as as this major moment in Porsche history
Yeah, this was another thing so obviously in Camus and then and then even when Porsche moves back to Stuttgart here in a minute
Their production capability is not nearly as large as Volkswagen. So they need to price these things pretty high
They priced them at
$3,750 the the German equivalent of $3,750 in the late 40s. That's about $42,000 today
But we're talking about war torn Europe that you're trying to sell this in like that's a lot of money
Here's the crazy thing
There's a market for that even in war torn Europe for a $40,000 sports car
Like there are enough people
Who it turns out are interested enough?
in
fairy's vision for a small fun fast sports car
Initially, it was slow. It took them a while the first couple years
They only made like a couple hundred of them or something like that. It was initially pretty slow
But then things started to kind of kick around people in Germany started to get some money
And things started to take off. Yeah
It may be worth pointing out also in the context of the sports car like the 356
Coming out of world war two was kind of the beginning of the sports car really taking off
Like I mentioned before it was the earlier ones were these big giant things that were only operated by enthusiasts
You know how to work them
But like post world war two, there was a lot of optimism. There was more in in britain
It was happening to mg was coming out with their sports cars austin haley jaguar
These cars all kind of were born from this post war period of like
Hey, these cars have been refined to the point where we can use them and drive them and enjoy them
And that really became a thing and in germany. It was the 356
so
That takes us to the late 40s here. They're starting to produce the 356 in gamoon at the end of 1947 ferdinand Porsche
And anton piech get released from french prison. They come back to austria the family is all together and they kind of got to decide
What to do here?
Right around that same time volkswagen's getting back up and running, you know, herst is running it
It's it's like the vision. They're gonna, you know, make the beetle for for germany and for the world
They come back
To the porches and they say hey, we still want to do business with you
And in fact, we actually want to expand the scope of our business with you guys
Even more than it was before the war
Because we could still really use, you know, technical design
Consulting work and really leadership from you individual porches here at volkswagen
I mean after all you designed the beetle to though now, you know, we're not a
Government organization in the same way anymore
We need distribution and you guys have this new austrian
Porsche company that you've set up
So how about this they propose two things
One they say let's reinstate that old german Porsche company the doctor engineer honoris causa blah blah blah
We'll recreate the german Porsche company
It'll resume doing the technical design and consulting work for us here at volkswagen
In return
They give that german Porsche company
literally the sweetheart deal of a lifetime
A royalty on every beetle sold worldwide. No way. Yes. Yes. This is how intertwined these two companies are
Sorry, the deal is we want your austrian company to distribute our volks wagons
And in order to coerce you to doing that we're in the consulting work. We also want the consulting work. Okay
Yeah, but but ben you're on the right track. This is a hell of a sweetheart deal for the Porsche family. I mean
You are right to be saying
Why would the german government do this? Do you know what kind of royalty?
It was enough that it was it was very meaningful very meaningful cash flow
And probably not even at the time not even clear just how amazing it would be right?
Nobody knew that the beetle was going to become the international hit that it would but but it also the the german government
Did know that this was a lot of value
And they also may or may not have known that on the austrian Porsche side for the dealership distribution side
That was also a lot of value
so we're not going to talk as much about the austrian operations of Porsche for the rest of the episode but
It becomes a huge
business so by the time
In the early 2000s when it all gets consolidated back into one company
For most of the two separate histories. That was the larger company by revenue
So the austrian Porsche company becomes the largest
Car dealer network in europe not just for volkswagens, but for all types of automotive brands
They're doing billions of annual revenue within a few years here
I mean, what an opportunity to be given a distribution network just as the car is starting to become like a big thing exclusive
Right to volkswagens and they're in countries not just in austria. They're all over the place
Yeah, they're all over the place in europe and even more incredibly
So what the family decides is that ferdinand and ferry the original ferdinand and his son ferry
They're going to be back to stuttgart and take over retake over the kind of german operations of Porsche
Louise and anton the sunlaw they're going to stay in austria and run this dealership business
Anton dies in 1952 and louise is the one who builds this business like louise and her children
Turn that into this huge, you know, the largest car dealer network in europe
wow
Doug the way the value chain evolved for selling cars
There's this very clear delineation and in the us at least until tesla of separating the dealership from the manufacturer
There is no direct to consumer
Was that already like obvious at this point in history when Porsche kind of has these two different companies?
It's an interesting question. I suspect the answer is more or less in some brands
I bet they were selling direct to consumer and in some I bet they weren't some of the smaller ones
Maybe I suspect the reason this worked out is because
Volkswagen didn't I mean these companies didn't want to be the ones who were distributing all these cars across and doing all this
They were focused on manufacturing. I think there also might have been a technical reason which is
Even though this new Volkswagen was reconstituted as a company
It's only shareholders at this point in time were the german government
so both the national west german state
and the
State of lower Saxony within west Germany, which still to this day holds 20 percent of Volkswagen
Which is crazy. Yeah. Um, yeah, they would IPO Volkswagen. I believe in 1960 or 1961
So it was um, even though it was a company
It was a german national right company to operate in other states other countries in europe
They probably needed third parties. Yeah
Wow
Yeah, wow, right
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Okay, so ben you hit on this a minute ago
What the hell
Why is the new
western controlled
West german post nazi government
Giving this deal of a lifetime to these former nazis
And it's not just we'll pay you for the cars you distribute that we make we will pay you for
All cars that we make every beetle regardless of whether you distribute it or not. Yes. Yes
To the german company, and then the austrian company has exclusive rights to distribute it. It's a crazy deal
So here's what's going on. Um
It actually as crazy as it sound makes sense
so
We talked about a minute ago the iron curtain and the soviets like
So hard for us to remember now, but germany
Post-war was ground zero for the cold war like the battle against the soviet union was happening right there right next door
and so for the west
reconstituting the west german industrial base was of paramount importance
So like the marshal plan that people probably know about like this is why the marshal plan happened
And this is essentially part of this philosophy like we don't care that these people used to be nazis
but for Porsche for
Mercedes-benz for lots and lots of german industrialist companies the reason that they get restarted and re
Re-injected with steroids so to speak is like
Hey, we got an existential threat next door. We got to rebuild. make some cars the industrial base now
The deal that they give them
Does come with an implicit string attached
Which is they basically say
To to Porsche and other companies
We're not really going to give you a license to print money
Instead we will give you a license to essentially create enterprise value
So what west germany does is they create
One of the oddest tax
incentive systems i've i've ever seen
So for ordinary people in west germany post war
The tax rate was very low the maximum amount of taxes that any normal person would pay would be like 15 20 percent of your income
But for these
new old industrialists above a certain income
Germany sets the marginal tax rate at 95 percent
Whoa, so they basically cap your income. Yeah, like people are complaining. Oh you live in california. Oh my gosh
You're paying 13 state income tax on top of federal like imagine if the marginal tax rate were 95 percent
Right, you would just have no incentive to earn any additional dollars
Right, and that's on the personal side. It's it's equally bad on the corporate sector any profits or taxes
So what are they trying to do here? They're trying to incentivize
capital reinvestment
in
The industrial base so they're basically saying to portion and others
Set all this up and we are going to create all the incentives such that you will plow all of the money all these royalties
We're giving you from the Beatles, etc
into building up your
production capabilities and investing in rnd and new models and etc etc and
I mean it sounds crazy on paper, but like my god, it actually works. Like it works really freaking well
Do you think there was some guarantee that the tax rates would lower someday? Maybe and I think they did but um as we'll see
Porsche becomes like it becomes pretty institutionalized there of like don't take profits
Instead reinvest them in new models and rnd racing
Uh to the great benefit of the brand. Yeah, so I mentioned one of the things that Porsche invests in over the years is
race cars and racing
And this is is super interesting. None of us are
Racing historians. Uh, that's a whole another branch of the automotive industry. So here we're in the late 40s early 50s
Racing in this era
Doesn't look at all like it looks today. It hadn't professionalized yet. So the line between
consumer enthusiast
car market
And professional racing market was very blurry
Very very blurry, right and it turns out
That even though, you know manufacturers including Porsche would make special versions of cars for racing for lamans being the most famous race
At the time, um, you know and others around the world
It wasn't like like you look at an f1 car today or you look at a lamans car
Like like there is no connection between that and something you can buy
And you or I would not be able to even operate it. So a super obvious point to illustrate this is um
Folks are probably you know, no names like james dean or steve mcqueen these famous
Hollywood actors that were known as like, you know, they did all these race car films that they were also
Professional race car drivers. Yeah professional as it were at the in the time period. Yeah, they competed in like real races
In addition to be actors. Imagine brad pit jumping into the lamans, right?
They'd uh, they'd cut well I was about to joke they'd kill themselves
um
James dean did kill himself
in a
Porsche
550 spider which Porsche would make a kind of dedicated racing type vehicle
Although it was also a consumer production vehicle the 550
That car that never would have happened if Porsche wasn't incentivized to invest all their profits like
I mean, maybe you can say I'll do like
The
Legendariness of that car. I mean they sell for what 5000000 dollars plus today. You'll find 50 sparrows
They only made 90 of them in the end
And so like it was a car that in theory you could go and buy but
While the 356 was like the sports car that you could gentlemen race
The 550 spider was for people who like
Were really like let's go racing and like do it
But like you said you could a person could walk into it that not a dealership necessarily, but like just order one
Yeah, um, but it is it is an absolute legend. It totally is. Yeah
You kind of see this trend this moment where you see the bifurcation between
Anybody can do it and what the very best of the world kind of look like
That seems to be true across everything in the world today in the way that like what taylor swift is doing on the stage
On her tour has nothing to do with like a person who picks up their guitar and is talented and plays at the local bar like
She is the
SR 71 pilot and this you know playing on a local bar stage is flying a sesna and the machinery to do so is entirely different
In the same way that you're talking about car racing splitting at this moment in the early 50s
Yeah, so back to racing. We were talking about the spider a minute ago. I got so excited about james dean
but dug to your point
356 is in 1951 and 1952
Win their class at lamans. They don't win it outright like other bigger powerful cars win it outright
But they win their engine classes at lamans and these are you know, yeah, they're modified a little bit
But like you basically buy them, right? Yeah
Then that that was kind of a special thing
But that was that was the point of those classes
It was that there were cars for people who could kind of go buy a car off the street and modify it
and I
think
This was pretty unique to porches at the time
Certainly you could go buy ferrari's and ferrari's competed and whatnot
But like again like we're talking about the ferrari's were a different thing. Yeah, these weren't 356 is
And I think they were probably also a lot more expensive than you know, $3,700
Plus an important distinction between Porsche and Ferrari in this era
is that Porsche was
Largely focused on road cars and then the road cars went racing
Except for the 550 which was kind of built purpose built for racing and there were racing versions of the 356
But the goal was mostly road cars whereas Enzo very famously
He just wanted to race and he hated his customer his road car customers deeply
It wasn't his thing
He just wanted to race he only sold road cars to kind of finance racing
And a lot of the road cars that he ended up selling were either based on race cars or just former race cars that he would
I'm done with this crap
Whereas Porsche was selling three. I mean 356's were like being sold
Like it is in pretty good volume. There's this great great great
Ferry Porsche quote about this, uh, which he would say later about the 9 11
But I I think this also applies in early form to the 356
The quote is we have the only car that can go from an east african safari to lamans
Then to the theater and then to the streets of new york
And like that's such a unique thing especially in this era like one car it remains true
It's kind of like Porsche's
Thing yeah to this day like how relatively usable the car isn't just about any setting like you can drive it to work
You can actually take it on a racetrack that like has remained sort of an ether whether or not they're
It's constantly a north star for them. It is what they do more than anybody else. Yeah
I was trying to think of like what the rate um kind of other luxury brand analogy is here because Porsche
Definitely is a luxury brand. It's not like we're
Making apples and oranges here
Um, it's kind of like a Rolex to me. Is that really good? Yeah, that's a great. What do you think? Yeah, absolutely
It's uh, you buy those watches to wear them. You don't buy them to keep them in a case in agilat
You know, they're steel. They're originally made for people who are swimming the english channel or scuba diving
I think it's reasonable to also compare it to like
Continuing in the luxury world like a ramoa suitcase. Those aren't that expensive
They're three times four times more expensive than regular luggage
But like they're not a louis Vuitton truck right and so but they're a lot more usable you buy it to use it
It can kind of get a little beat up. That's why it's made out of stainless steel also
I think that's probably the right it's not a Birkenbeck like brands like this
Are so valuable because it has both the breadth and the depth
Like there are enough people who are like I love
Porsches because they're my
Cars I can actually drive but they are super cars. Yes this thing behind us goes
200 miles an hour. Yeah
No, this thing behind us is a little bit of a difference
And there have been and we'll get to and we and the 550 spiders one of them. There have been some Porsches that kind of go
One way or another in the philosophy, but like generally speaking it's sort of the middle of the road
Going back to fairy's quote about this exact thing can do all these things. Yeah, dug one question for you
I'm going to keep going to you for terminology. David mentioned lemond. What is that? Lemond is like
There are various car races that are considered sort of the big car race, right?
Like the nd 500 is the car race of that racing series
Lemond has always kind of been a place to prove technology
It's a 24-hour race
So you switch drivers
And it's always been a place where some of like it proves like the endurance and the capabilities of a car and of a manufacturer
Over that time period. It's really serious. It's always raining and it's always a disaster and it's in the middle of the night
And it's difficult and so like being able to win or win your class
Lemond is like the Monaco Grand Prix the Super Bowl if you will of like vehicles racing in that sort of race series
there's also this like, um
You know a portion would I think probably advance this argument that relative to the other races
It's closer to like what you want for a all-around car that would also be a drivable car because like fuel efficiency matters
It's also a road race. So it's not on a racetrack
It's literally on they closed down roads in the french countryside and and race on the road
And so there's like some component of like instead of purpose building a car for a circuit like
Cows were using this road, you know two days before. Yeah, right, right totally
So on the back of all this success and like james dean and steve mcqueen and all this as you would imagine
Porsches start to become quite popular in america. So in 1954
Porsche
I don't think ferdinand and fairy like envisioned like we're gonna sell cars in america. This wasn't part of the business plan
But in 1954 Porsche sells
588 cars in the u.s. Which was 40 of their entire production for the year
And that 40 basically stays constant goes way up for a while in the 70s and 80s
But um kind of never dips below that like america is a huge market for Porsches
It's amazing to think that 588 cars was 40 percent of Porsche production
I agree with you by the way by your your point that they didn't really have america in the business plan
It's 11 thing to provide some context is important to keep in mind the number of like sports cars startups happening in europe at this time
Was significant most of which listeners viewers will never really heard of because they died
These came out they they showed up they they raced a little they sold some cars they failed
And that there were tons of these there was no concept that Porsche would be more successful than any of
Obviously the the family hoped it would and it became that way
But so many families hoped theirs would too and they all failed and somehow Porsche, you know
grew and well uh
Part of it was the incredible success of the cars. Um, a big part of it too was the royalty on the Beatles
That's a nice steady source of cash flow that you can invest in your operation with forced reinvention
So you're doing stuff like racing you're doing stuff like looking international
You're like, what can we invest in that like we're not sure if it's a
ROI positive
Because we know we got the money coming and beetle continues to be more and popular
It only continues to embolden them to reinvest right so speaking of reinvesting
As we get to the 1960s like the 350 sex is great. This is an amazing car
But it's kind of I don't know Doug where where you would put it in my mind. It's kind of it's not quite a modern car
it's like
It's like close, you know, it's not a model t but it's not uh, right
It's not a 9 11
Right, right, right and and what was starting to happen was the 356 was one of the leaders of the charge of the sports car in that era
And what was clearly starting to happen was other sports cars are showing up that we're refining some of the principles
Yes, so we're now in the 60s. Ford announces the Mustang Jaguar has got the e type
Um, Chevy comes out with the second generation Corvette the stingray
And all these are starting to show up all yeah, Austin. He everything is like, okay, there's a lot of pressure
Yeah, so okay in 1962 fairy Porsche makes the decision like
356 is amazing, you know rebirth of the company
We got to invest profits and replace it with a new model
so
For a couple years Porsche had actually been working on a design
For a sedan for a larger model seems heretical now, right? I mean people look at the Panamera
Right, you know, you know, it was actually like gonna be the second model
of Porsche
I mean, I feel that way every time I see a Panamera drive by I'm like, why does Porsche make this car?
But I see them driving by so that's why they make the car
China is why they make that but we'll get to that later
So the next generation of Porsches fairy's son Ferdinand known as bootie named Ferdinand named after his grandfather founder of Porsche
What was working in the company and he had been leading the body design for this larger sedan that Porsche was going to make
fairy decides for a bunch of reasons that to cancel the sedan project
probably the most important reason was
Kind of I don't know how much of this was government motivated and how much of it was just sort of like a cabal of like
Mercedes and BMW like they were the sedan makers and
Porsche maybe could have challenged them, but it was like, hey, you know, they've got their turf
We'll keep our turf in sports cars and like everybody will be happy here
anyway, they decided to cancel the project and
double down on sports cars
at the same time
Ferdinand Porsche bootie the grandson
His cousin from the Austrian side of the family Louise and Anton's son
Also named Ferdinand Ferdinand Pieshe
He's also joined the company these two young Turks the grandsons Ferdinand are here in the company and Pieshe
is
working in the engine department
so
turns out
That he's a pretty brilliant engine designer. He comes up with
And I believe even as a young kid Doug you may know more about this history
like I think he really was the one that led the development of
The six-cylinder boxer engine
Now he didn't invent the six-cylinder boxer engine
But the engine that ends up in the 911 that is like still to this day the model for the 911 engine
Comes from him. I think he's working on it for a racing car project that ends up not coming together
Ferry says, okay, let's take these two kind of failed projects that you know, the next generation's working on
Let's weave them together take the styling the booties done for the sedan
Take this amazing engine that Ferdinand is built for the racing operations
And uh, let's see what happens when we put them together
and this
is the birth of the
portion 901
901
David, I'm not familiar with that model. Yeah, what is that?
Well, uh, this is why I mean I'm Doug. I'm sure you do this. Oh, this is a famous famous story
I had no idea I think most people have no idea the 911
Is only called the 911
Because pujo of all companies had a trademark in france for any
car with a model name of any number any roman number
With a zero in the middle and then any other number so x zero x and in fact all pujo cars even to this day are named
205 206 207 208
That's the two series the 308 408 508 and so they trademarked them all just knowing that eventually that would that would happen
unbelievable
So I mean it makes sense Porsche's like well, what do we do?
We can't really not sell in france. I mean france wasn't like the biggest market, but it wasn't a small market for me
Now the story that I hear have heard about this is that they said well, we got these badges that say 901
Why don't we do 911 because we have the nine in the one array
Hence the 911
Some of this may be more apocryphal than others
One of the things that I don't understand is why they wanted to call the car the
901 in the first place and I was never really able to get great information about that
The 356 was purportedly named because it was the 356 like engineering project
They did yeah, but did they really do 500 engineering projects between 36 and 901
So a couple details that I got on this from excellence was expected
I believe could be wrong on this
but I believe
901 was the name of the engine project that ferdinand pièce was working on and I think I I think that's the origin of it
to yes in
Porsche lore it's that like the reason these model numbers are like these the engineering projects that they start
but
That's totally apocryphal like they jump around all the time now they go forward and backward
Yes going back to the very very beginning of the consulting company
They started with type seven or project number seven
Because they didn't want to look like they were
Companies like oh, yeah, we've already done six projects. This is project number seven. I forget who they were working for
It's like when you're starting a new company and you're you're sending your first invoice. You don't call it invoice number one
It's exactly so like
Yes, the the lore is that you know all of our projects have model numbers and like the bs, right?
Uh, so funny and to be clear. So I
admired designs of Porsche cars before
Doing the research for this but knew basically nothing about the company or its lineup
I've certainly never owned one and
It took me a long time in the research to realize that there are a lot of
Car designs that start with nine that are all 9-elevens. There was like, yes, I don't know
I didn't write them all down with the 964 and the 959
It gets complicated because what ends up happening just like happens every car is they start to get redesigned as they get
You know, there's the years go on. They need newer models. They still call it the 9-eleven
The only way to distinguish the newer version from the older version is to call it by the project number
Which is 964993 etc etc
And so if you're really into it, you got to know not just that it's a 9-eleven
But which you know version it is and not all 9-eleven say 9-eleven on the back
So you can't even like use that as your reference
It's a little complicated
Maybe that's part of the success of there's like sort of a language you have to speak in order to like get Porsche to an extent
And there's something to that. Well, I think it's really brilliant. I don't know how much this is intentional versus
It's evolved this way with the brand but like to me. It's just so brilliant because
There is this tribe language to
Porsches if you see a 9-eleven, you know instantly that it's a 9-eleven
It is iconic. It was one of the most iconic designs in the world
And partly because they've essentially kept the shape the same
For the sense the sense this since 1962. Yeah, so pretty immediately like this car is a big hit
1962 is when they start working on it. They first start selling it in 1964. They sunset the 356 in 1965
And so 66 is the first year that's fully 9-eleven for Porsche production. They sell almost 13,000 cars in
66
Which that's what we would we say 10 12 years ago. They only sold yeah 40% of their products in total
So they're now 13x in 10 years and that number of almost 13,911's they sell was 15% more than their best year with only the
356's like Doug, how would you characterize like what is what what makes the 9-eleven?
So
Special it's important to keep in mind at the time you didn't know right?
It was just like this thing this like sports car they had come up with and again
There were a lot of sports cars and it was whatever but of course what has ended up happening is that this car has become symbolic
Of the sports car and I think a lot of people would if you were meant told to mention a sports car
They would say the 9-eleven it just has become like the car
And it was it like you say here. It was clear very
Early on that it had something special in this great combination of
You know reliability comfort practicality just like the 356 had been but just better. Yep to my thinking
the flat six
Boxer engine which was a great engine that for an mps design to go in this first 9-eleven
There's something like cool and unique to the lake we've been talking about the difference between porches and other cars here
This is a
Performance engine, but it's a sex right. It's not an a and it's rear mounted right so the 356 had a boxer 4
To explain what a boxer engine is
You know a lot of cars most cars had well these days
Most cars have inline engines where the cylinders are in a line a lot of other cars in the past have had v engines
Where the cylinders literally make a v for balance the boxer engine the cylinders are literally like across from each other
It's flat they call it a flat engine or a boxer because the cylinder heads look like they're
Boxing each other as they go back and forth and the benefit of the boxer engine was that it's got this great balance to it
Because it's like literally flat in the car
Yes, it was unusual
I don't think it was necessarily unusual to do a six cylinder engine although as time has gone on
It has started to become more unusual like that the police cars still have six cylinders even as v8s and v10s became
v12s became more popular
But it was the thing it was what they did and it was part of that ethos of keep it
relatively light relatively simple and like
Strip things down to the core or essentials of the car an average person can walk off the street buy one operate it
That's right drive to work. Have a great time. It wasn't crazy fast or anything else. Yep
Now the 356 the old 356
It had four cylinders
Uh, and so now the 9 11 have six cylinders and like you said like it's not a
World class powerful fast car, but it's it elevates the 356 into a much more like
You can really achieve a lot more with this than you could with the 356 is
This becomes super important from a business side for Porsche
because
They priced the 9 11 about 50 higher than they had the 356
Now what they do at first they realize this is going to create like a major
Price gap in our lineup here. We're going to lose a lot of customers by by elevating
So they do a stop gap at the same time that they introduced the 9 11
They also introduced the 9 12
And the 9 12 is a 9 11 with the old 356 four cylinder engine in it
So they they essentially kneecap the
They they downgrade the 9 11 to be the entry level model only as a stop gap
They don't want to do this permanently
They sell about three quarters of the units are the 9 12s
The cheaper four cylinder ones and one quarter of their sales are the more expensive 9 11s
The profit margins though on the 9 11s are so much higher
So fairy starts thinking like okay, and this was part of the plan all along. I think
Let's create a whole new model
The old 356 we're going to bifurcate it our performance
Real enthusiast customers who are willing to spend and that we're going to make great margins on those models
That's going to be the 9 11
Let's create a new car that can replace can be the entry level Porsche
Will eventually introduce the Boxster
20 plus years later takes Porsche a while to really get to the
Perfect end state of this strategy right but for this new car fairy says hey
We're not really equipped yet
To be running multiple lines
As just us Porsche the company we need a partner for this new car
Let's turn to our good old friends
at Volkswagen
And jointly engineer and produce this new car with them
So in 1967 Porsche kicks off a joint project with Volkswagen to produce a new
mid-engined
Roadster
Now which is a smaller more compact car and mid-engined not rear-engined
Called the 914
And the idea is that they're going to make both a four-cylinder and a six-cylinder version of this
The four-cylinder version is going to be a Volkswagen the six-cylinder version is going to be a Porsche
And a fairy puts his nephew Ferdinand Pietsch
In charge of this joint project with Volkswagen a very fateful decision
As we shall see now what ultimately happens with the 914
There's a change in CEO at Volkswagen and the new CEO
Definitely sees the value in deepening the relationship with Porsche and specifically the relationship with young ferdinand
So he wants to continue the project, but he's like I actually don't think that a sports car makes sense in the vw lineup
Why don't we just have all of these be portions?
So the plan was originally to have some of the 914s be branded vw and some of them be branded Porsche
Volkswagen had made a little sports car called the karmann guia
Previous to this like in the 60s
And so the thought was they wanted to replace the karmann guia
Porsche wanted an entry-level car. Let's jointly develop it Porsche gets the more powerful one the 914 6 the six-cylinder
And folks want to get the four-cylinder, but the decision was made like you said the new vw ceo
He actually gets a pretty good deal out of this. Um, so he deepens the relationship with uh, ferdinand
He gives the car fully to Porsche, but in exchange
vw takes over all of Porsche's distribution in america
Huge huge deal huge deal for vw. So we're starting to
Re-intertwining these companies just a little bit here that deal is an enormously wide-ranging partnership because you're trading
Distribution from one side of your business with the ability to create a product on your other side
I mean, it's it's basically merging the companies because it's so massively intertwined now in this partnership
Where it's not like, oh, yeah, we partner with them on this one small little thing
It's like no our car that we expect to sell
More of than any other car is made by this other company. Meanwhile on the vw side of things
It's like america the most important and largest growing car market in the world
We we now own the distribution for Porsche like this even if it's not structured this way. This is a merger
Well, if history were a straight line
What you were saying would come to pass, uh
Unfortunately, it's not a straight line or fortunately for for drama on our show
Uh, so you're absolutely right the 914 goes on to be a huge success
Sells way more units than the than the 911 which was the whole strategy. Porsche is cool with this
They're like great. We're making our profits on the more expensive 911. We've segmented out our market
The 914 is the entry-level Porsche sells 100 000 units in the eight years that it's on the market
And I think it really shows. I mean Doug you can comment on this there is
Also a market for mid-engine roadsters
I mean including the one sitting behind us regardless of price like these are pretty amazing sports cars
Yeah, Porsche's previous to this had all been rear engines the 911 the 356
And so this was a mid-engine which had was starting to really take hold in the car world as the right
Design because the engine in the middle is really the perfect balance
You kind of can put the engine right in the center of the car and it gives you like perfect weight distribution
When I always talk about sports cars in my mind like God intended sports cars to be mid-engine
That's how it's it's more difficult the engineering is more difficult than front engine
But that's how it and rear engine is just insane, but Porsche made it work. They've always been great at that
But mid-engine is how it should be
And when you say mid this basically means that it's still obviously behind where the passengers sit
But in front of the rear axle in this case now, there are technical mid-engine cars where the engine's in the front
But behind the front axle
But most people when referring to a mid-engine car are talking about a car that has the engine between
The passenger compartment and the rear axle. Yeah
I think you have a video where you say the Cayman gt4 rs, which is the capon of the boxster
The same it's the same lineage. We're talking about here
Is the best modern Porsche?
Yeah, I feel that way, but it's controversial because the 911 is the Porsche
Don't hate us in the comments
Yeah, I don't know Doug. I feel like I've seen multiple the best
On your channel. Oh, yeah
Every car is the best when it comes out and then it's superseded by the next day. There you go
one of the differences between youtube and um podcast world is
Titles and SEO is really important in the youtube world, right?
Very and I don't even take advantage of it as much as some of my my colleagues
Wow, it's a while around this topic here of engines. I gotta imagine this is
One of just the huge c changes that is coming with electrification of performance cars, right? Like
Yeah
Whole different set of calculus. Like it doesn't matter. There's no engine anymore
Although you still even an electric cars for a performance electric car
You still want the weight to be as close to the middle of the car as possible for a similar reason, honestly
But the engine component and all that other stuff boxer. Yeah. Yeah
It's gone. It's gone
Okay, so a minute ago Ben you said like oh this naturally would lead to a merging of you know vwm Porsche and I was like, well
So this was in the late 60s when the 914 launches
as we head into the 70s the oil crisis happens in the 70s and
sports cars become
Less of a thing people are really worried about this. This is like a challenge to Porsche
It's particularly a real challenge to the 914
interestingly
9 11 sales stay
relatively robust throughout the 70s
Because it's a luxury good, right? Like just like in any recession
And and even like sector targeted ones like the oil crisis and the auto industry
For true luxury goods like those people like the market for that is very resilient
The 914 though very different story. So as we head into the mid 70s
Even though it was a very successful car and project for Porsche as a whole
It starts becoming a real money loser
So this creates a lot of
Tension in the company. This is kind of a backdrop of stress
to
another
Family dynamic that's emerging which is you've got these two Ferdinand
grandsons
That are kind of vying starting to vie for control of the company, you know, they're now
Gosh, I don't know probably in their 30s. Maybe entering their 40s. Ferry's getting older here
Like who's going to take over the company? We've got succession vibes here on the one side. You've got
Bootsy Ferdinand Porsche
He's got the name. He's Ferry's son
And he's a great designer. I mean he designed the 9 11
Maybe the most iconic car design ever and this is German Ferdinand
This is German working actually producing the cars
but the other Ferdinand
The son of louis and anton was hired by the german company also
So, yeah, he's hopped over
He's you know in the one hand kind of like this dark horse kid, right? He's the austrian side of the family
You know, you've got the car dealership business. All right, go do that
But he's also proved himself as like an incredible
Engineer executive. He was in charge of this 914 project. He managed it with volkswagen
That was an incredibly successful car until the oil crisis, etc, etc
So he's like
yo
This should be my company
tensions of course start to rise
And something pretty incredible happens, you know, we've come across on the show
There are lots of stories out there of family businesses and succession and how all this happens
I don't think there's another case of anything going down like this that I've ever heard of
So in the fall of 1970
fairy and louise together
Call a joint family summit. They're like
We're gonna settle things and I don't know. I'm speculating here, but I suspect fairy and louise were
Didn't have a lot of acrimony over. I mean their brother and sister and they had louise had her company fairy had his company
They're both making a lot of money. They're both making a lot of money. Everybody's happy. This is between the children here
So they call a family summit
At the end of it. They come to a very very surprising
decision
They don't decide that one ferdinand or the other is going to take over
instead
They make the call
that the families
Are going to completely and jointly
exit
operating the business
Everybody out of the pool not the two ferdinands. What fairy fairy himself
Who's running the ferdinands long den at this point the original ferdinand?
They're going to continue owning the company, but they will no longer manage the company. They will no longer operate the company
They will no longer design cars. They will no longer make product decisions
Frankly, this is just insane. I mean because it's not like be one thing if they were like, oh, you know
We're really not that good at this like we should hire professional men. These are led the generational talents
In the car industry and the best solution they can come up with is you know what we're all done here
This is crazy
I would be so fascinated to get video footage of what actually went
Down in that room and the logic that they could walk themselves through to this is actually the best outcome
there's some direct quotes from a lot of them and excellence was expected and like
As you can imagine, it's a very delicate topic. Uh, and they're also german
so like they're very, you know prim and proper but um, I think fairy
He basically admits he's like, yeah, there probably was a better solution to this but like
It did mean that we could kind of reunite as a family and like
I think he said something like there were still tensions, but we could go to each other's birthdays again. You know something like that
So, I mean, I guess in that, you know, if you value family above all else
Crazy is a rational it's still it's crazy
Crazy decision because like you said they were they were killing it
They were the best family business until this point and it would have been a very successful one because of the efforts of the family
And especially you got for an mps now looking back on this
We know what happens to for an nps before we get to but you've got him on this up and coming track where he's so legit
Oh my god, he must have been so pissed. It's like no, you're out crazy
I mean, he definitely was so pissed. So let's talk about what happens here
bootsy
he goes off
and
He found Porsche design
So there exists these weird there's like Porsche sunglasses out there. You can buy Porsche designed laptops like all this stuff
That's him. That's a totally new company that he started. It has now been reabsorbed into
The broader Porsche conglomerate. Um, but that was started, right? He was like, all right, great
I want to be a designer
That's the path that he goes down the same thing happened in the Gucci family for anyone who's seen the
The gucci movie with adam driver. There's sort of a family member who wanders off and does some like effectively like brand licensing
He's like, I'm gonna take the family name and make some money off it
Which is obviously what
I think he also was very talented. I mean he designed the god in the 9 11 forgot six like he's talented
But but yes trading on the name here the other Ferdinand p. Yes
This guy. Oh my god. He's a he's a g
so
at first
He's like, I imagine inspired by his grandfather. He's like, I'm gonna go start my own engineering consulting company and
Consult for other car companies. He does do that for a little bit
But pretty quickly they after remember
VW and the new ceo really wanted to build this relationship with
Porsche with yes
He gets recruited
To come in and take over Audi
for VW
I don't think he originally I think he enters working within Audi
But then very quickly becomes the head of the Audi brand
for
Volkswagen and dug at this point in history. What does the Volkswagen group own brand wise?
Yeah, that's an interesting question the brands that we know. I think it was just Volkswagen and Audi
It's an Audi had been a separate company
Audi had been a separate company and it's also important contextually here to to to make one really important point about psh and Audi
At that time Audi was a joke
Audi was not what it is now like now you view Audi as a legitimate competitor Mercedes and BMW back then it was more like how
Saab would have been treated like it was a absolute second or third tier brand that no one could possibly
You know, it was not a brand that was desirable at that time. It'd be like today
Infinity like I know you you owned a Kia, right? It's a but like, you know, Kia and Hyundai are trying to enter the luxury market
Yeah, yeah, it was on that level of like, I'm gonna stick with Mercedes. Yeah
Was the Audi 5000 the thing that kind of saved them and
Brought them back on the contrary actually that car was the one that had the the famous scandal in the united states where the 60 minutes
Found that it unintended acceleration where it would accelerate which turned out to kind of be unfounded
But their reputation was like severely severely damaged by that
Um, but that was this era era. Audi needed a turnaround. Volkswagen's got out either like
We don't know what the hell to do with this thing. We got BMW and Mercedes. They're killing it
so Piesce comes in
And like
I mean, this dude is good
Like he this was such a mistake to force him out of Porsche
So he turns around Audi and like builds Audi into you Doug. Like you said the Audi we know today
And he's so successful then in 1993
He gets promoted and becomes CEO
of
Volkswagen
So you get this situation where they kicked him out of running the company and then he goes and that's up
Running the company
It's wild. Wild. I mean he oversaw and launched the new Beetle
Like literally his grandfather's legacy the beetle. He turned over the beetle model to the the new beetle
How long was Ferdinand Piesce running
Volkswagen a long time 1993. I believe he was chairman until
2015 2016 maybe
A long he develops this reputation of being this just iron fisted like I can only when you say I can only imagine
How upset he was when they made the decision to end the family involvement
He has this rep of being like incredibly angry and everything must be to his standard
And so I can only imagine how angry he was. He also, um, he had 13 children by I think four different women
A lot of kids
He was that typical, you know, how you think of like a german industrial
At around this time Volkswagen started really
Gaining a lot of brands. So in the late 90s, they bought Lamborghini
Um, they owned two europe only brands one for like spain and one for like eastern europe
And they repurchased the bugatti the rights to the bugatti name which had gone to an italian company
Um, and they brought it back to france where it was like initially
Existing yeah restarted. I mean
Doug you kind of said but to put a bow on it
Of what a baller p.s. Was um in 1999 the global automotive elections foundation
They award him the car executive of the century
And by the way, that's like uncontested in the car world for an nps just looked at is like
Exactly what you're saying the guy everybody knows his impact everybody knows how effective he was and
The family's portion is just like, yeah, no you got to get out of here
Unbelievable, maybe he wouldn't have had the motivation to do who knows who knows
Just wild but Volkswagen much bigger company than Porsche, right?
Yeah, he got kicked out of his own company
So he went and ran a much bigger one that competes with it and then he grew even bigger. Yeah. Yeah. Yeah
Yeah, wow. So back to the Porsche side
This decision was was just really not good really not good. So the first
CEO who comes in the first professional manager CEO
Actually is somebody who has been with the company for a long time
Ernst Furman becomes the first non-family member CEO of Porsche
He was actually part of the original elite engineering crew back in the sawmill in gamoon
So he has a long history with the company
Unfortunately, he was probably a better engineer than a manager though
His first move is to scrap the 914
And instead introduced the 924 the 924 was another joint project between vw and Porsche
The problem with the 924 I I think it actually was a decent car
Doug, you actually reviewed a 944 the nice way that which is the kind of next iteration of it
I think you can say I think it was a good car, but it's not a Porsche
It's a front engine
Watercooled like it suffered from that stigma for sure the saving grace was it was actually a pretty good car to drive
And so over the years and even at the time it was kind of accepted as
Hey, we all get that it came from a Volkswagen, but sort of the beloved 914 and it drives pretty well
Yeah, so like people people were like, yeah, we'll take this as the entry Porsche of the time
But it wasn't a 911
It wasn't a 911 and it wasn't a 914 either
No, it was a totally different thing and the 914 was a small lightweight compact roadster removable top
The 924 was it was definitely a different kind of situation
So firman had a quote on it when gonna, you know asked about like what is this?
He says the 924 is aimed at new clients
Who either can't afford a 911 or are not necessarily looking for the performance of a 911
Oof. I mean, I guess that's true, right? And that's also true of the 914, but like
Can you come up with something where you want to position your brain? It's the quiet part loud
Yeah, can you can you come up with something that is not using the word not to describe who wants it?
Like how about you say who would want it? Yeah, this is for the poor customers
Right, right, right and and again, but also it's just like in in whole philosophy of it. It's not a Porsche
Even more concerning
Is the 928 so firman?
Makes a decision
as the new CEO of the company
That it's time to replace the 911
and uh
Again, you know, maybe like let's give him some credit. This is the 70s the oil crisis is going on like there's
um safety regulations, this is post Ralph Nader and unsafe at any speeds like
It's maybe reasonable to think that a rear engine sports car
Isn't like a great strategy to be pursuing here and unsafe at any speeds. That was like a federal report that came out that said
Like basically all cars on the market are unbelievably unsafe and people our citizens should not be driving around at them
And so all cars need to change and regulations started to really show up
Like in this time period that in the car world the 60s are kind of viewed as like the last bastion of just like
Anything goes and some very special cars came out of that era
And the 70s everything started to get the oil crisis was a big factor because that started to screw with emissions
And then you had all these regulations about bumpers and safety and seatbelts that you know
We're very
Important and beneficial, but at the time it was like other killing our fun
It is astonishing how much safer cars have gotten. I mean astonishing you look at these like
Cute old Porsches. They're so much smaller, right and you look at the big ones today and you can lament
Oh cars have gotten so big but cars have also gotten so much safer far and they're faster than they were back then
So it's it's kind of the best of all worlds and in most cases. They're more efficient also. Hmm. Totally
so in 1978
Furman introduces the
portion 928 with the stated intention that this is going to eventually replace the 9 11
They keep selling the 9 11. He says well keep selling the 9 11 as long as
We get demand for I think it was at least like 10 000 units a year or something like that
But you know once the 9 28's on the market and demand dips for the 9 11 will stop making them now
I want to defend the 9 28 a little bit here because it was a this is an important moment in Porsche's history
When we look back on it now, it seems insane that the 9 11 would go away
Like how could that be?
But it's important to keep in mind that like the 356 went away and that was the Porsche
Like how now you say like oh, I have a Jeep and you're referring to the Wrangler
Like that was up the Porsche was the 356 and so that went away for the 9 11
It only made sense at some point the 9 11 would also go away
The crazy thing about the 9 28 in the Porsche world is that
It was a front engine v8 car which Porsche had never pursued before and was more kind of an American thing
But in the context of the time it's not that insane that they went after this
All sports cars were starting to get bigger and more powerful and because of the oil crisis and because of tightening emissions laws
It was getting very difficult to make any sort of power
From anything other than a big engine and even big engine cars at that time didn't really make a lot of power
Cadillac had like eight liter v8s that made like 150 horsepower
It was embarrassing stuff because they had to put so many
Emissions controls on that by the time you actually got the power out it was a disaster
So it didn't seem that insane and the jaguar e-type had just been replaced
That was the big competitor was another sports car that had been replaced by the xjs, which was now a v8
Comfortable automatic transmission car Mercedes-Benz did the same thing with the sl class
It went from like a little fun sports car like the 9 11 to a big v8
Kind of relaxed leather luxury cruiser that sort of thing
And so it made sense that Porsche would maybe want to head in that direction also and start thinking about moving past
The 9 11 just as they had moved past the 356, you know 20 years before there was some sense to it
so the 9 28 comes out in 1978
and
As we reach the end of the 70s and into the 80s
as we also have talked about a lot on this show everything that the 70s
was in terms of
austerity oil crisis
17 interest rates and massive inflation
The 80s was um, not that shall we say not that it was a
Rising tide that lifts all boats lots of disposable income
Wall Street is ripping
A lot of pinstripes. Yeah, it seems like actually a really good time for fast cars
Seems like a good time for fast cars and indeed it was including for the 9 28 and the 9 24 succeeded by the 9 44
And still the 9 11 people still wanted them
I think
Largely because of that, although i'm sure there were other reasons too
So the Porsche and piaccia families when they exit operationally from the business
They still own the business. So they're still like the supervisory board
They get fed up with firman. They oust him and they bring on a new CEO
an american
As CEO of Porsche when peter shuts
famously he comes in and he
redraws the 9 11 production line and dug
I know you have some uh firsthand experience of the legendary great the great one of the great stories in the auto industry the
9 28 though. I just provided an impassioned defense for it
Um
It never felt like the right car to Porsche
It never felt like the right car to especially the employees who had kind of fallen in love with this 9 11
I had been in production now at this point for probably 20 years 25 years maybe and um
The 9 11 was Porsche to a lot of these people and the fact that it was going to get replaced by the 9 28
Was this sad thing and it had kind of really hurt morale
In stuttgart at the factory all the way up to the to some of the people at the top
And so the great story is that uh, you know the 9 11 everybody knows the impending cancellation is coming
It's still going but it's coming this beloved car
and so
Shoots peter shoots the american ceo is sitting in the
The the office of helmut bot who's the chief of engineering for Porsche
And there's a line on the wall that shows where all the products stop and start and you know the timeline
And this is like a like on a whiteboard. Yeah, like on a whiteboard or something to the wall, right?
And so they're sitting there talking about it. They know that morale is low
They know that the company wants to keep the 9 11 even though
It you know, it should be replaced because it's old, you know, that's the thinking at the
Of the people and that's what was said like there's a thing in german culture
We're like when something has been decided it's been decided an edict has been given and the car's out
I mean the 928 is on sale like it has shown up to replace the 9 11 in the spirit of these other cars
Of the time v8 front engine it made sense. That was what they were going to do
But the morale was low and they knew this and so shoots stands up. He's got a marker in his hand
He stands up. He walks up to the timeline on the on the wall
And he draws a line on the timeline all the way onto the wall and extends the 9 11's timeline
You know indefinitely including on to the literal wall
Now this story, of course is this is like the stuff of legend in Porsche
Like peter shoots the american ceo saving the 9 11 in this moment
And a lot of talk about whether this actually happened like did he actually just draw the line and make the
Complete 180 and this is a good story to invent if you needed a morale boosting
Right, especially if you're trying to like boost the the reputation of the ceo among the among the workers
He drew the line right and there's a perfect line
Which is shoots just looks over at the chief engineer and goes do we understand each other right and then he walks out
I always wondered if the story was true. I worked at Porsche
10 years ago and um had become friends with Porsche's general counsel in north america when peter shoots retired
he moved to naples florida and
The general counsel at Porsche and peter shoots were neighbors in their homes in naples
And I one day he went over to his house and asked him
You know is the story real did it happen and apparently shoot said not only did it happen
But helmet bought was grinning like the cheshire cat when I drew that line
Like it was like this moment like we're gonna do this and it like really apparently really in in in his words
It really actually was a true story. Wow. So great
That's awesome to get that validation because there's so many of these stories that was held on the show
We're like we're like this is probably apocryphal and there's really no way to verify it
Now, of course if you're shoots you'd want to tell the story because it's become so famous, but
You know from his mouth at least the story is real. It's a great story
Yeah, I mean literally he extended the line of the production line
Onto the wall, right
So do they keep making both cars? Yeah, so they kept making I think they made the 9 28 until 1995
I think it was vita king who comes in in a minute who uh
Finally kills the damn thing the problem with this decision
You'll get into more economic realities of this situation as the 80s kind of draw to a close whatever
But the problem with this decision was the company was planning on ending the 9 11
And so by drawing that line symbolic though it was we're gonna keep doing this
It also committed a lot of the company's resources to now refreshing something that they hadn't planned on refreshing
Yep
So
In the go-go years of the early through mid 80s. No problem, right more
Let's
We'll do a we'll do an ICO. We'll issue some NFTs like in 2021. Yeah, exactly
In fact, I think shoots was like, let's make airplane engines. Yes. Yeah, I think he was. Yes. Oh my gosh
And on the back of you know these go-go years in success. They're selling the 9 11
They're selling the 9 28. They're selling a lot of 9 44s. Like they sold a ton of those things
The families take the company public
So just like a lot of these like we talked about on the lvmh episode a lot of these
European luxury brands craftsman brands
They did an IPO
They thought they were being smart
They sold I think a 30 stake in the company, but all non voting shares
Like oh, we're not gonna know, you know, no corporate raiders here
Nobody will have any voting control except the families
Like it is impossible that somebody could you know attack us
Because the family is all you know, it would have to be somebody inside the families who would attack us
Why would that ever happen? Hmm. Well
Everything goes great the stock, you know doubles within the first year that it's on the market, but
Then 1987 long-term capital management blows it. You know the end of the go-go years of the 80s
Not good not good for a Porsche and not good in a lot of senses like ages period economic climate
Not good for anybody be you're making luxury sports cars now as we talked about in the 70s
The oil crisis in the 70s was really was bad for Porsche. It was really bad for the 914
The 911 was pretty robust like it was very resilient
I think the same is again true here at the end of the 80s
But they've still got the 928 the 944 on the market and like those things started sucking wind big time
It's not a good situation because now you have three aged products
And so the economy is slowing and your cars are not really competitive. Yes
so
shoots though
He continues production of all three lines and not only does he continue production?
He reinvests especially in the 924 944 line. They even refreshed it a third time to the
968 I mean same basic car. Yeah, like they're investing resources in this car and at the
You probably have a better sense than me
But like another aspect of the kind of recession at the end of the 80s
Was the exchange rates with european currencies got hit really hard right and so
Relative to the asian currencies in the u.s. So it became
I don't know call it 10 20 thousand dollars cheaper to buy
An equivalent entry-level sports car from a japanese manufacturer and it just so happened that at this time
You know japan was kind of having a mech and boom and as a result of that
They started making these sports cars the exact sports cars you're describing
So the Nissan 300zx has to show up the Toyota Supra
You know all these cars are showing up and by the way, they don't have four-cylinder engines and they're not 25 20 year old platforms
Like the 968 was and there was very little reason to buy a 968. I mean is
I feel like I'm I'm sort of uh in my history probably all of us barely, you know starting to enter consciousness here
Uh, you know, this is pre-fast in the furious, but not that pre-fast in the furious all those, you know
Japanese cars that like, you know, they got tuned up the Supras especially. Yeah, this is they were all starting just starting to come in
Then and starting to blow up and they offered just as they do today this great great value proposition of like big power
For not as much money. Yeah, and again the 911 isn't threatened by this right, but the 944
968 hell
Yeah is threatened by these like nobody's buying those in the 928 by then was so old that
Sales were a trickle by 90. There were three products
Which was the nine the entry level which was the 944 that became the 968
Then there was the 911
Which was actually the 964 911 by that point only makes things even more confusing
And then there was the 928 which was the front engine v8 like flagship car
That nobody wanted that nobody wanted so they literally only made three cars and they were all
Three number nine cars. It was a complete disaster. I mean the Porsches never named cars well even now
But like yeah at the time you had again you had to like speak the language
You had to like and by the way the 911's all said Carrera on the back. So everybody's like
What the hell is the 911? You know, is this a 911?
Why does it say Carrera never made any sense and
All Carreras are 911's but all 911's are not Carreras today
That has changed over the years. Then there was a trim level of the 924 called the Carrera
It was actually called the Carrera GT, which they later named this car, right?
None of it. It was all confusing
No, you had to be like a German who was into this stuff to like figure out the precision level with which it made sense
So as all this happens
Porsche is now a public company
The stock price
starts to
decline
Precipitously and they floated 30% of it. They floated 30% now no voting control. Yeah, but the company
They're really like cresting the treetops here as they're you know beginning their descent at one point
Porsche's market cap was less than 400 million euros
Crazy to imagine like almost zero and I believe also at that time they didn't have any debt
So like truly like the markets believed that Porsche was worth nothing
It wasn't like oh, there's value here, but there's a big debt burden on the company
It was an unbelievably difficult time and it's kind of funny to think about because now people think of Porsche as Porsche
Like this crazy company. It's one of the hottest brands
Like you said probably one of the most valuable brands and it's only 30 years later
It was dire straits. I pulled up the u.s. Sales figures for Porsche from this era. So insane to me
They dipped in 91 92 to 4100 units. That was worse than 1965 sales
They had routinely sold between 13 and 30 000 cars a year throughout the 60 70s 80s
13 and 30 000 and in the u.s. At 92 they dipped to 4100 cars
That was the level that they that we were talking about. It was it was complete dire straits
so
Even though the public doesn't have any voting control
Um
Everybody starts to think the only thing that can happen here is this company's gonna get bought out
One equity research analyst actually in a in a research note said that he thought there was a 98% chance
That the families would have to sell and that they would accept, you know
Some amount of value for their stake rather than just have it go to zero. So
shoots gets fired, but it's not like that fixes anything
I think it was 1987 when he gets fired over the next six years they cycle through I think
43 or four more CEOs brutal none of which really figure it out
There is one bright spot though, however, which if there's where a normal acquired episode we would just skip but
We've got dug
um
The 959 comes out it's actually the 959 and another interesting component offshooting that but the 959 comes out at that time
Which is like their first supercar so sort of the predecessor to this car and it actually wasn't commercially successful
Sort of in keeping with Porsche's world at the time
But it did it was kind of a test bed for some new technology including four-wheel drive in a supercar
Which has now pretty much become standard fare the 959 was really the first car that had that
After the 959 Porsche was so desperate though that they started taking on projects for other manufacturers
And so it's known in the car world, but not as much in the general world Porsche built a Mercedes Benz
Which was called the 500 e it was a mid-sized sedan Mercedes didn't have the capacity or didn't really want to do it
They built a sedan
For Mercedes that's in the Porsche factory in zufenhausen in stuttgart
Who designed it? It was a Mercedes car
So it was a Mercedes e-class like a regular Mercedes sedan but with a larger engine
And Mercedes felt that having Porsche involved would give it some sports car credibility
Porsche literally produced the car and then Audi did the exact same thing
Audi needed more credibility because they were still kind of a fledgling luxury car brand
They wanted to get into the sports realm because that's where a lot of money was being made
And so Audi came to Porsche and said can you help us develop a car?
And it was called the rs2 and I actually had one and just sold it last year
It was a station wagon and that was the conditions under which Porsche agreed to build the car
They said we'll do it
But we don't want you to compete with our cars as a coop
You know a sports car
So if you build a station wagon which essentially touched off the like high performance station wagon thing
Which Audi is still known for to this day more than almost any other thing
But Porsche was so desperate they even allowed Audi to license their name and put it on those cars
So the the rs2 had Porsche brakes that branded Porsche the Porsche logo appears in the badge
Like the literal emblem on the side of the car Porsche was just like yeah fine because it literally kept the lights on in stuttgart
It it's zufenhausen. So when you say they're just mortgaging the brand they were desperate
They were they were completely desperate. So when you mentioned like the Porsche mercedes-benz relationship that 500e was an interesting thing because
Around Porsche at the time there were a lot of ways that it could have gone totally wrong
And I went there and I did a factory tour a couple years ago
And the guy who gave the tour had worked there for like 25 30 years through this time period
And he said that in his mind and in the mind of a lot of Porsche employees at the time mercedes-benz helped save Porsche
Mercedes could have built that car
But their brothers in stuttgart down the street were having really tough times
Here's a project that you can work on to keep the factory workers going wow
And it was literally like you have empty production lines
So even though you're not going to make a lot of margin on this let's at least like
You can be our contract manufacturer. Yeah, like when you have union contract
I maybe maybe this was part of the circumstance you have union contracts to get paid these people whatever
Here you're not going to make money, but like let we're doing it and it's something it's a project for you
We'll keep your lines go instead of losing money on having to pay though. Well, yeah, right wow
It was a tough era
It was like indescribably tough
And I think this is lost on a lot of younger people who have only seen Porsche in the world of
Crazy expensive cars and all the money they charge for colors now and all that
There was a period where it almost all came to and not that long ago
That's it wasn't like this was in the 50s like we were alive. This was real stuff
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So david this thing that doug just referenced to me the money they charge for colors
You can do a thing today where you go to buy a Porsche and their online configurator
And they have the paint from every single Porsche ever produced in history
And so you're like, you know, there was really something about this particular 911 in this year
I really loved this paint. You can pay them something like 15 000 dollars
For your Porsche to be in that particular it's like a library wine. Yes
That's exactly it. Imagine the Porsche of the 80s early 90s like commanding that kind of it would never have happened
But now the brand has changed so much that like 15 ran for a color people are like falling all over themselves to do it
Now, why not the other thing that it's emblematic of which I think we haven't really talked about yet
Of what makes Porsche special is this unbelievable heritage
Like the design language that they use
What the 911 is you mentioned earlier, they don't really change it that much from, you know, generation to generation
There's this sort of obsession with put something out there and then spend years and
Tiny little tweaks and refinements
Making it the like platonic form of what it can be and there's this like
Obsession with if you loved Porsche in any given year
We want to make sure that we keep you along for the ride and you can continue to love us today
Right if you as a child wanted a 911
Guess what it's still around it still looks about the same and it's still the same level of desirability that you wanted back then
It's so funny. I feel like the sales cycle for a 911 has got to be
40 or 50 years right like kids fall in love
And then you can't really buy one until you're in your 40s or 50s
It was always a weird aspect of the brand that like you actually weren't necessarily only marketing to like adults
you also had to market to like
People who would cultivate this passion that you knew
That would become a thing later when you weren't even in an executive or you weren't even working there
But like that's part of the brand is like hooking people young and making them feel like this is a cool thing
So Doug this thing that we're talking about this idea that if you loved Porsche ever we want to deliver on that promise today
Do you feel like that consistency?
Has been there since the very beginning or do you feel like that's something they learned in their like rise from the ashes after this 80s?
That's a good question, but you have to assume they didn't expect
You know in 1948 that they would ever even be in the position to deliver that right in 1950s
Also, like you said, I hadn't quite thought about but I was planning to tell this story of like
Oh my god, Furman wanted to kill the 911. What a dumb idea
It was like natural. They killed right at that time the natural thing would have been to kill looking back on it
It's insane, but at that time it seemed like you know now all these icons have emerged and all this lore has emerged over the years
But when you really think about you put yourself in the perspective of those eras
okay, so
Porsche's in this tailspin
The two eras that happen next are both
equally amazing
So in 1993
A guy named Vendolin Vita king
Gets appointed as the CEO
Now he had actually started his career with Porsche in the 80s as all this crazy stuff is happening
He was like a loud voice of protest against all the you know shoots and um
Fermanera decisions
He resigned and left the company
They recruited him back in the early 90s to take over as head of production
and he implements the Toyota production system at Porsche, which uh
They must have been like the last auto manufacturer in the world
I don't know Ferrari uses the Toyota production system, but like this wasn't um new technology at this point in time, right?
Remember Porsche's bleeding cash being more efficient and more profitable in your operations for whatever cars you can sell is pretty important
He's like the like the tim cook of Porsche here. He gets promoted to CEO
and
When he does speaking of apple
He kind of pulls a steve jobs return like moment. He cuts the product lines down to
Just the 9 11. So this is the right thing that needed to be done
But it's also kind of crazy. He kills the 9 44 9 68. He kills the 9 28
He takes everything back down to just the 9 11 and you know like analysts people like car, you know magazines ask him
What's your strategy for an entry-level Porsche and he says uh Porsche's strategy for an entry-level Porsche is a used Porsche
Such a good line such
So by the 95 96 production year
The 9 11 is the only Porsche model left on the market
Which hasn't been the case since the 356 like this is uh, this is kind of crazy. Also. What kind of company makes one product?
Like I mean seriously what are like
Do they believe that this is a transitionary period or do they believe like this is the long-term strategy?
No, it's not like we the king was like I am a cost cutter and I will cost everything down like he is
Much like he has big ambitions big big big ambitions. This is a transitionary moment
He does want to expand the Porsche model line as we shall see he greatly expands it
So I think this is pretty brilliant and certainly for the financial performance of the company was brilliant and its survival
I think 9 11 enthusiasts are less enthusiastic about this
But he decides that rather than the old strategy for the entry-level model of sharing a platform with
Volkswagen
What if we have the new entry-level model?
Instead share a platform with the 9 11
And so what he does is he says let's take the front end of the 9 11 of the next generation 9 11 the 996
and
Use that exact same front end same headlights same hood same everything
and then
Made it with a new entry-level
You know back and do the rest of the chassis of the car revive the old 9 14 concept that was so successful mid-engine
roadster model with a uh
How would you describe the
It's not a convertible. Yeah, no it is it the monster was a full convertible. Yeah. Yeah
And and it's also important to point out the interiors were almost entirely shared as well
Oh, the interiors were yeah, like the steering wheel and the wheel all the buttons
In fact, if you get into a Boxster, which was a two-seater car
It has a coat hook on the back of the seat because the 9 11 had a coat hook on the back of there
You can't put a coat in a Boxster the seat is right up against the but they shared everything
Interesting so Doug what you're alluding to this is the Porsche Boxster, which becomes a huge success
And I think the reason for it is that it genuinely is to anybody looking at it
Like this is a Porsche
Yeah, not that stupid quote that Furman had of like this is for people who don't want a 9 11 and don't care about performance
This is like no, no, this is a freaking Porsche. It shared the design language
It shared the design language and I think vedicans thought was
The the entry-level Porsche has always been looked at as a second-class citizen like like his like Furman literally said
Which was true. I mean everybody thought it but he said it
How do we make it not look like a second-class citizen? The answer is
Make it look like a 9 11 and make it literally
Literally share. I mean it didn't even just look like it literally had the same fenders the same
You know headlights and hood and also from a production and profitability and operation standpoint
This is so great. You're now sharing so many components not with another auto manufacturer, but with yourself, right?
So Doug, what's the difference then at this point in time between the 9 11 and the new Boxster?
The thinking was that they would continue to move the 9 11 upmarket more expensive more power
So the Boxster comes out in 97 for the 97 model year and it was a huge deal
I mean it was on the cover of every car magazine and the whole Porsche has a new car. This is incredible
They had 200 horsepower and the 9 11 of that era had about 300
So it was a significant difference plus the 9 11 was just more of a
It was bigger. It was wider. It was faster. You know, it was a more it was more of a muscle car
Is it fair to say that um
Then and and I think maybe even especially now with the Boxster and the Cayman the Cayman is the hard top model of the
of the Boxster
It's also a different kind of experience philosophy and it has over time
It has evolved even more significantly from 97
Now the 9 11 is kind of playing more of a luxury car like touring car role
Almost where you know with the special colors and the stitching and all that and it seems like the more
Porsche has focused more of its sort of true sports car efforts on those
The mid-engine cars as they call them the Boxster and the Cayman
Yes, it's the entry level Porsche for sure, but it's also it's not like you feel like crappy if you're buying one
You're like, oh, you know, I'm buying the best version on the market of this particular product
And it was mid-engine again. So you you know arguably it was
The correct place for it
It felt like a true Porsche sports car for the first time Porsche's, you know
Entry level car felt like that in decades. Yeah, so
Vita king has this awesome quote about the strategy for this
We didn't want to flee from the competition into higher prices meaning like not be in the entry level market at all
He says we don't want to be germany's Ferrari
We don't want to be a big fish in a pond that's shrinking
But rather a growing fish with more room to move in a larger lake
I feel like Vita king and don valentine of sequoia capital would be like brothers in arms here like they're targeting big markets
That is the strategy
But they're targeting them in a Porsche way
So Vita king like I don't know how much this was his thinking all along or that he was just emboldened by the success of the Boxster
He really means it. He gets into SUVs
And this I mean I even as like a teenager at the time
I'm not being that much of a cargo
But I just remembered people like Porsche's making an SUV of these people lost their freaking minds like who who on earth would buy a Porsche
SUV also
I gotta say like maybe all cars were kind of ugly in this period, but I remember when I looked at the first cayenne
I was like
So it's like a Toyota
It wasn't the most attractive car. There's no question about that. Everybody hated the design language. And you know what?
It's been 20 years. It has not grown on you
Yeah, the mcconn looks really good
I think the new the new cayens look great too, honestly
Ever since they redesigned in 2011, but those early cayens you see them now and you're like still ugly
It also just doesn't look like a Porsche to me
Like there's not enough that's brought through from the heritage of the how do you describe the back on a 911?
Right, that's sort of like
Looking what happened was the cayenne was an interesting situation because Porsche was kind of a first mover
They weren't exactly Mercedes came out with a suv first in nights for the
1998 model year called the m-class which was like that was a revolution and they built in america
Which was a really big revolution
BMW came out the x5 in 2000 and that was also a revolution the m-class
Mercedes never had the sporty pretense that bmw did so that car was just for suburban
Families the bmw x5 actually had to be sporty and it was like oh so not only can luxury brands build suvs
But they're sporty so Porsche comes out no three. I mean they beat outie outie didn't come out on the suv tillo seven
Porsche was there like early early early
so
But the problem was Porsche had no clue because they were early they had no clue what to do and so
I remember at Porsche taught when I worked they're talking to some of these people about the early cayens
Porsche literally didn't know what to offer in a suv to the point where they actually
Digitimately asked some of their american employees. Do we need to offer gun racks as an option for the american market?
They literally were only building sports cars and they just they had no
Concept no concept of like what people would want and what the early cayens had an optional spare tire on the back
Like like jeep wranglers do like you couldn't get that you see them driving around in it
Part of this was a cultural, you know, german thing for sure, but like not understanding america, but um
I don't think anybody understood like I don't think there were any
Super expensive suvs on the market the only ones were land rover
But they were focused so far on off-roading
But part of the reason the cayen was ugly when it first came out is because Porsche decided we're Porsche
We're going to do it best
And so they come out with an suv that is both amazing on-road and off-road and the early cayens actually have an unbelievable off-road capability
They have a two-speed transfer case. They go a high-low gearing off-road. They have air suspension that can lift them up and lower them
They had all these off-road hardware that like you would never put in a luxury performance suv now
But because Porsche didn't know what customers would want they decided to give them everything
And so the result was it was a big bulky heavy car to carry all this hardware
And so it looked that it just wasn't it didn't it wasn't executed that well from a styling perspective
But from every other perspective
It was a hit. Yeah, I think a few things to say about it
There wasn't anything else that was like a I can spend a 100000 dollars on an suv
Right, this was the four the days of an escalade even cayen came out no three escalate came out 99
So it was it was the escalator like 40 50 grand and they were just at that time
They were just tahos that looked nice like now escalate has become a real thing
But at that time it wasn't
Porsche was really pushing into some new territory. It was a crazy decision and suv's were becoming so important in america
I think there were just like a lot of wealthy people out there and a lot of status focused people that were like
Yeah, there's an suv. I can spend a hundred grand on like hell. Yeah, take my money
And also there's a practicality of I kind of need a minivan, but I don't want to drive a minivan
And so I'm driving this new emerging class of suv
But if I have money I kind of want the Porsche version of that in Porsche must have been thinking
Hey, we've got all these customers who love our sports cars and we have this brand name
That's always been associated with performance. How else can we hook these people? They have families, right?
And so and and by the way with those families, they're buying an x5 and it's like, why don't we?
right
Yeah, and the danger here if you're at home and you didn't know how this ended and you were a smart business person you'd be thinking
Well, this is going to borrow against their brand equity
Like this is going to drain the bucket not add new love to the brand bucket
and the magical incredible amazing thing about Porsche is
They have doubled down on this strategy. It has become a huge part of their business
They generate a ton of margin on the suvs and it has not
Borrowed against their brand equity. It has increased the love for the brand
I think because at the same time and just before
They had given a huge shot in the arm back to the performance with the Boxster and the 993 9 11
And then also done the suv which they partner with Volkswagen
With Ferdinand Piech
It kind of makes peace
Between the two just running Volkswagen at the time comes out with the Torregg which was Volkswagen's suv
And that's the that served as the basis for the original Cayenne really
Yeah, Porsche starts a new whole new production facility in a new part of germany and leipzig
To make it and then ultimately shortly thereafter
Makes this car the courage you at the same and you know production facility
That's right. They were built in the same place and you know, I think that goes back to the point
You just made that Porsche the the suvs. Yes, you'd think you come out with an suv. It destroys your brand credibility
We've seen this with Maserati come out with all these sedans and now nobody wants one
But Porsche always made sure to be making other cool stuff
And to keep coming out with other cool stuff reinvest in the performance like you said
And so they used this new factory that cayenne was built in to also create this supercar
And that was important. It really showed people. Hey, they might be making an suv
But they're also making this so they're legit for people who are just listening to the audio
This is the career gt sitting behind us the career gt. Okay, we've alluded to this amazing machine behind us
Like what is this thing the career gt in my mind is the greatest driving car ever built and a lot of people actually said
It's not objective by any means
But a lot of people who have driven, you know, this and a lot of other cars feel that way about this car
It was a true analog supercar, which means manual transmission. There's very few driver aids in this car
Like you'd get in a modern car stability control traction control that sort of stuff is either non-existent or heavily dialed down
Full carbon fiber body like no expense was spared basically and the coolest part was that the powertrain, which is a big v10
was shared with
Initially it was developed for formula one racing
And then it was evolved to lemaw racing
And in neither cases did it ever actually see the light of day. They created a formula one engine
It didn't work out
It's a little bit like the original 9 11 engine that for an mps design for racing
But then only made it into the right
It's exactly like that the crazier thing here though being in that time you could do that because there were no emissions regulations
The concept of taking a race car engine today and putting it into a road car is just non-existent
Like to get a lemaw or formula one engine homologated for road use is just like mind blowing
So that's that's the cool thing and and this car has
It originally came out, you know in this era and and was thought of as cool and special and whatever
But its legend has sort of grown since then as sports cars have moved away from some of the things that made this car
So special specifically this analog feel, you know all exotic cars now are
Automatics and hybrids and that sort of thing and this was kind of the end
My sense is this car too has a reputation
Partly because paul walker died in it. Yes like unlike a lot of Porsches in the 9 11 like this is something that you need to be
Really know what you're doing to operate this thing. Yeah, you can't like if you let it get away from you
It'll kill you. Yeah, it has a reputation for being
difficult to drive
Which I think is somewhat unfounded but also especially by modern standards cars have gotten so much more powerful than this
You know a new outie rs 3 which is just an outie
Hyperference outie sedan that you can buy for 65 70 thousand dollars faster than this car zero to 60
It's not that crazy by modern standards, but at the time it certainly was
something, um, but I guess like today cars like there's so much
Stuff technology and cars that is designed to keep you from like doing stupid stuff
And that this car was kind of the end of that era and I think that's why it's so special
It was like the last of these cars that really you could get into trouble
And paul walker died in one
And there were some other deaths too that weren't quite as high-profile, but there were some serious
Um accidents and some people died in them and and maybe still will you know, I don't it's it's still out there
And it's still a dangerous car
The weirdest thing about high-end cars that have lore associated with them is typically when someone high-profile dies in it
The value goes up. Right. It's like a like an artist. It's like paintings. Yeah
I think that car people had always known the car heads kind of this reputation. They weren't like
Lawsuits against Porsche about the Porsche got sued. Yeah
One went to jury trial Porsche was found liable at least partially liable
And and that's a big deal if you're an automaker because they got 1,300 of these out there
Right, right, right because production was um, and this is the value of the car now
Like production was initially intended to be
Higher than it ended up being they stopped it early and so they had a they had some some weird issues happened
There was a changing regulation that forced them to build a lot of them sooner than they thought
So they ended up flooding dealerships with them earlier than they expected to and the car didn't sell well when it first came out
The sticker price was $440,000 and they dropped fast. You could get them in 080708
You could get them for 250 all day long and now you can't there's they don't exist under a million dollars
It's a crazy thing should have all invested in Carrera GTs
About apple stock or Carrera GT
Carrera GT would be a lot more fun to own
Seven of them or whatever, but it would have they all completely took off. Wow. It's funny. I thought that this
You know was going to be a fun little digression about the Carrera GT
but I realized now actually
This isn't a super important point to the business history
While they were drawing on the brand equity to make the suv
This was a big part of
Putting cash back in the bank of the brand equity
And to do it on the same production line as it also had that effect
It also helped legitimize that facility
Because up until that point except for the ones built in austria
All of the portions had been built in stuttgart in zufenhausen in that factor that same factory for all these years
And so this car helped legitimize like oh, we might be making a factory in east germany
We're building suvs, but we're not straying too far. We're still doing our thing
So this point is an interesting one because it is something that other luxury brands do as well
I remember reading when Louis Vuitton first started coming out with the more approachable wallets and clutches and ways that you could
Tiptoe into participating in the brand story. They were also releasing 100000 dollar 200000 dollar special handbags
That were new products or new collaborations with other designers that sort of told you know, we're still Louis Vuitton
We we just have this other way to be a part of our brand right and Porsche would go on to do it again
Which I'm sure we'll talk about shortly. Oh, yes
so on the back of this like incredibly bold
plan and turnaround and success by vita keg, I mean
He becomes a legend and Porsche goes from death's door
less than 400 million euro market cap when he takes over to
by 2007
Porsche's market cap is 32 billion euros
Crazy a better investment than a Carrera GT in fact
So they never had to have any like help once they scraped that bottom of whatever it was 400 million dollar market cap
Nope, Porsche is saved. It will be independent forever
Families will never have to sell
That equity research analyst can eat his words
No, not quite. Uh, there's another chapter in the story. So that's a hundred X market cap growth. Is that right?
Did you say 300 million to 32 billion? Yes, that is a hundred X
Market cap growth in a decade
Occasionally there are these hundred baggers available in the public markets and like you only know about them looking backwards
But like it's crazy. You don't have to be an early stage venture capitalist to find these they exist elsewhere sometimes
Porsche it was Porsche of all things of all things. Oh, I suspect in most of these cases though to take advantage of it
You would have had to have kind of been insane like to have invested in Porsche at that point
Even if you would have told a person in 1993
Hey, this guy's coming in. He's gonna kill the entry level stuff
Go back to doing entry level stuff and then do an SUV. You'd be like, uh, how do I get out of this stack?
Like where do I? Especially because he was the fourth CEO or whatever
It would definitely I don't want to be any part of clutching its straws. It would seem but uh, it's like buying amazon in
2001 or two when things looked the absolute bleakest like that's how you could have gotten a hundred bagger in the public markets
Maybe even a thousand at this point, but like come on who would have actually done that?
Yeah, and the 32 billion euro market cap
It's not crazy because by this time Porsche is doing almost
2000000000 euros a year in operating profit turns out these SUVs and making only supercars
is a very profitable a lot of margin there and
China was starting to take off at this time too. So the final sort of chapter to the vita king era on the
product production side was the panamera
The sedan Porsche makes the sedan now
Doug, I'm curious here that your thoughts on the panamera
I could always also have been like Porsche made a sedan. It's kind of weird. It looks kind of weird. Um,
I think from
Doing the research now. I think a large part of the intention of it
Was to really target the china market and it became successful globally too
But I think the panamera and the cayenne too
Really helped Porsche enter china no question looking back that has become especially true as Porsche's business and all luxury brands
business grown in asia at the time though
I think they just
They had an suv they had done that so it was like all right, you know
Sedan is the next the next place we want to compete. Let's let's replicate the success we had in the suv
And what do you think changed in the corporate psyche going from
We have a very particular way that we do things in a very particular market
We serve with a very particular type of product to like let's have a pull a full product suite just like everyone else probably that 100x
growth
Don't you think I mean I think they looked at it and said holy crap
Boxer made us a ton of money came and came and it made us a ton of money
Cayenne showed up and made us a ton of money
We got cash
Let's like go after you know the mercedes s-class and the bmw 7 series the big luxury sedans from their german rivals
Because they knew there was profit there and they could do it better like they had done with the cayenne
And honestly it would have worked and and did work
Uh
It was not what brought down the company not at all
Like you think like if you were naively following along you might think
And then they got too big for their britches and you know, right?
They expanded the product strategy too much and the brand came crashing like no no no like this works
And it it worked beautifully. Um, just ultimately uh under different ownership
So let's talk about what we've been alluding to all episode here
The
german
tax regime
Still is not very favorable to
Distributing profits just the corporate tax rate alone disincentivizes
Spinning off cash flow and incentivizes reinvesting
At this point under vita king
Porsche is
Doing everything they possibly can to reinvest in new models new lines like they're building a new production facility
What more could they do internally with all the money they're making?
They can't do anything
So they start looking around for other places to put the cash now
At the time
There were rumors circulating in the auto industry
That volkswagen
Had their eye on vita king
And they were
Looking to recruit him to be the successor to ferdinand piech
We're now in work the first time to pull the best guy over at Porsche over. Let's do it again
So I think
Ferdinand piech took over as CEO of the whole vw group
I believe in the same year that vita king became CEO of Porsche in 1993
Ferdinand's obviously much older
Coming towards the sort of twilight years of his career. You can see how this would make sense if it were true
Whether it's true or not. I'm sure vita king gets rumors of it
Vita kings really, you know kind of feel it himself here at Porsche, right? Like he's uh hard to imagine a better run
He gets the idea
He kind of has like a sort of just in timber lake social network moment of you know
Million dollars isn't cool. You know, you know, it's cool billion dollar being the CEO of volkswagen isn't cool
You know what would be cool
If we at Porsche
bought
volkswagen
I'll become the CEO of vw group when I buy you
Uh
Remember though
Ferdinand piech is chairman and CEO of volkswagen group. He's also a piech
He's also on the supervisory board of Porsche
Because he's also a key member of the family that owns Porsche. Yeah, the
sitting active CEO of volkswagen as a family member of the Porsche piech family
Has voting shares in Porsche
Yes
And he's on the board the supervisory board of Porsche. So, uh, they thought they were done with the family drama here. It's uh
Turns out there's there's another chapter
So isn't it obvious then that it would be hard for Porsche to take over volkswagen?
Well, Porsche and thus the families needed something to do with the cash
And at the time when they start this
Vw shares are a pretty good investment like they're not trading super highly like it's pretty clear to them that it's undervalued
And vw is a critical partner to Porsche
So I believe certainly certainly to the public and probably also to the families veta king positions this as like
Hey, we're deepening the partnership. Uh, they don't announce like hey, I'm trying to take over vw
You know out of my seat of Porsche
September 2005 Porsche spends 4000000000
dollars
To acquire 20 of the vw group on the open market
Uh, it's kind of a little creeping takeover vibes that you alluded to in the intro
At this point veta king and Porsche's cfo joins the volkswagen board
And then they keep buying shares, but using another patented bernard arno technique
They do it mostly using various derivatives and options contracts
So they're buying like the rights to buy shares in the future
And that's usually ways to get around regulatory stuff, right?
Like then you're not exceeding caps if you're buying derivatives rather than the shares themselves
Yes, and in vw's case in particular there was actually a law in
On the books in german law called the volkswagen law
Oh, yeah, this is crazy that was designed to prevent a takeover of vw
Because the state of lower saxony still owned the 20 share in volkswagen still does to this day
And it was considered sort of a national
Treasure and they didn't want it to be taken over by corporate raiders
They didn't envision that it would be another german auto company that would try to take it over
So it was impossible
For uh, an actual direct takeover to happen
I'm literally going to read from the wikipedia here because the wikipedia is extremely well written
under the volkswagen law
No shareholder in volkswagen ag could exercise more than 20 percent of the firm's voting rights regardless of their level of stock holding
This law was supposed to protect the volkswagen group from takeovers in october 2005
Porsche acquired an 18.53 percent stake in the business and in july 2006
Porsche increased that ownership to more than 25 percent
Yes, and part of the reason this all was able to happen is there was a lot of speculation that this german
volkswagen law
Uh, would be illegal under new e.u. Regulations in 2007 vedicine creates a new
separately publicly traded
holding company
for
The family's
Ownership of Porsche. So it's there's still the Porsche operating company the old doctor engineer ag
Operating company. There's now a new holding company that owns a hundred percent of the operating company
And the vw shares that they've been acquiring and this is Porsche se holding
And here's where things start to go awry
Vedicine starts loading up the holding company with debt with cheap debt in 2007
To go buy more vw shares on the market
Ultimately 10 billion dollars of debt that he puts on this holding company
He's got Ferdinand piech signing off on this right like why would piech go along with this?
I think the best is I could figure out is that piech was not happy with the then current CEO of volkswagen
and was looking for a way to
get his
First successor out. So he clearly he was trying to recruit vedicine too. So like he was benefiting from this too, right?
Yeah, he was gonna have his cake and eat it too. I guess heads heads. I went tails you lose
Yeah
So as Porsche is
Buying all these vw shares on the market with the debt that they're loading up on the holding company
The float of vw shares that are actually available on the market
Starts shrinking precipitously because remember the german state of lower saxony still holds 20 percent
Porsche now owns more than 50 percent because they had kept buying after that 25 percent using all the cheap debt
And they got all the way up to 50 percent, right?
So that only leaves 30 percent left
Then you've got all the insiders like you know piech and everybody else like who knows how much equity they hold
Plus maybe some long-term holders or funds that aren't going to sell
The amount of vw shares trading hands on the open market shrinks to
pretty close to zero
And we know that you know markets are supply and demand just like this car sitting behind us if there's not a lot of supply available
Prices are gonna go up
Didn't they go up so much that volkswagen like briefly became the most valuable company by market cap in the world
Yes, they did
so
as all of this is happening
Lehman brothers collapsed
Which this is you know, this is the black swan event that veta king couldn't have predicted like he's not dumb
He knew he was taking risks here, but like yeah
So Lehman brothers collapses
And it's crazy what happens. So during the week after the collapse in october 2008, that's when
Volkswagen group becomes the most valuable company in the world
hedge funds have been shorting
Volkswagen you get a short squeeze that happens and the stock just goes
Through the roof. There's all the demand for borrowing the shares to do the short selling
So you would think that this is like the best thing that's ever happened to Porsche and veta king
They now own more than 50 of the most valuable company in the world. They're invincible
I believe the threshold that they needed to get to was 75 percent in order to consolidate vw's financials
Into Porsche and so they had announced that their intention was to buy up to that threshold and to get there
So you think this is great, but this is
Terrible this is the undoing of Porsche and veta king
Because they've got this debt
Lemons just happened. So like clearly they're not going to be able to refinance any of that
and
Yes, vw's share price is in the stratosphere, but it's not sustainable because if
Porsche were to start to sell any of their shares, which they're going to have to to service the debt really soon
The share price is going to completely crater because like this is this is like an artificial price
It's just because of the short squeeze that it's that high
so
Porsche now is like
Completely trapped they can't sell to service the debt
Because then the share price will crater they can't buy because they can't take out any more debt
So they're just kind of like stuck in stasis at this point in time
Why can't they sell because if they sell they get a bunch of cash
By not liquidating that many shares because it's so valuable
They're not going to be able to sell that many shares at this price before the the price right?
So they basically can't get because who's going to be buying Lehman just happened right?
Wow fascinating
So at this point
Piesh
Ferdinand good old Ferdinand who hasn't moved a single piece on the chessboard. No, he's just watching
He's on the Porsche board and he is still chairman of the vw board. He's no longer co, but he's still chairman of vw
This is when he turns on vda king
So he and volkswagen announce publicly to the market that they no longer believe that Porsche is a financially viable entity
As a deep-trusted partner, yeah, we believe and
They say that they have to say this because Porsche is a greater than 50 percent
You know owner of vw and so they you know have to disclose this in the market
And that as a result of this
extraordinary circumstance
vw led by ferdinand
is willing
To bail out their partner Porsche
And save them by purchasing the Porsche operating company
For you know the neighborhood of three to 4000000000 euros to you know, get them out of this predicament
Wait and then just to unpack the statement a little bit more what he's basically saying to like make it more explicit is
A key partner of ours
Went so deeply into debt
Buying our shares
That they can't service that debt and are now about to be insolvent and defaults on loans
So therefore we will help them out by
What is it buying them for?
They they floated a price of three to 4000000000 euros
Which remember like a couple months ago this company Porsche was trading at 10x that
Whoa
This is literally
Ferdinand saying to vita king if you come at the king you best not miss
This is exactly what is going on. Yeah. Whoa indeed
So there's a whole flurry of negotiations
You know, this is all against the backdrop of it being october 2008
Within a few months by january 2009
Vita king is gone as CEO of Porsche supposedly when he exits the building he exits to a standing ovation from Porsche employees, which
I mean he kind of deserves even though like all of this craziness. He did go a bridge too far like he did save the company
VW does end up buying
Porsche the operating company in two tranches over three years. They buy 50 up front
Three years later in 2011. Um, they complete the purchase
It ends up being about eight and a half billion euros total
So between that opening volatility of three to four and the 32 32
It lands at eight and a half
What's even crazier about this
The undisputed
Hands down
You know home run winner
in everything
is of course
The Porsche MPS families and Ferdinand
They emerge as the largest shareholders the families personally
In vw group. So Porsche se this new holding company they created that was buying vw shares. Yep
already owned 50 of vw
And then vw paid eight and a half billion dollars to buy Porsche
So the families own 50 of vw
And they just got eight and a half billion dollars for Porsche
So they already were pretty high up there in the rankings, but after this transaction
They are now in the top call at 15 wealthiest families in the world. Oh my god
So posts
both tranches
After Porsche AG the operating company is fully owned by vw
What does the family own?
32 percent of the vw group which remember now also owns Porsche
But they have over 50 percent of the voting power. So they control vw group
It's so crazy vw the company bought Porsche the company
But really Porsche the family
Owns it all owns it all and they just got an eight and a half billion dollar cash out
Wow
Yeah crazy
So here's the thing now. We're now in
2011 when the second tranche of the buyout happens
Um, you know, we're deep in the great financial crisis and the recession
Um
Porsche the business
It's fine. The drama is all around
Porsche the hedge fund, you know and the financial shenanigans
Um and the families the actual operating business the cars sales are fine
Porsche has one down sales year only one during the financial crisis
Um, and then everything else is is up a big part of that is the investment in china
Uh, and china starts really really growing through the early 2010s for Porsche
Also, this is when they come out with the 918 spider. Um, their next
Supercar at this moment in time. There's all this. Oh Porsche is now owned by vw and consternation. They're like
Yeah, we can still make the best cars in the world. Yeah, and the 918 helped to introduce
um
like plug-in hybrid technology
Which Porsche knew it would be going in that direction
And so the 918 was like a like example
We were talking about before of how they like covered the cayenne with the career gt by saying we're still doing this
The 918 helped them say hey, we're gonna make hybrids which is viewed as this like
Cheap, you know like little car the Prius and so you think of well, here's the hybrid and we're gonna do hybrids
But we're gonna start top down with this crazy crazy supercar
Talk about supercars for a minute because I think it's important to understand like they don't always make a supercar, right?
Right. It's like a once in every 10 or 15 year cycle. They're making one
But it's a very yeah
It's a rare and special thing that they do it and it seems to be they do it only to
Kind of prove something or prove a technology like the 959 was all-wheel drive
And this car was kind of this new production facility and and the 918 was the
Plug-in hybrid technology and how many years do they make them for when they decide they're gonna do it?
It's a short model run. So this car. They made 1270 which is considered a lot for a supercar the 918
They only made 918 units and in fact that was considered a lot for a supercar. It's biggest rivals at the time
Uh, which were the mclaren p1 and the la ferrari. They didn't combine to make 918 of those
But the the 918 spider
Is what a
$2 million car these days. Yeah, it was it was knew it was like 900 or so
Maybe a million after you got a bunch of stuff and it's double
It's done well all the supercars have done well. Well, I bet I'm sure you'll talk about this in a minute
But um Porsche is the master just of like you there is a base price
But you're not going to spend the base price
You're going to spend like 40 more than the but even at even if you figured the base price was like 900 grand
They made 918 you do the math
Doing a supercar is real money to be made fairly quickly as opposed to a cayenne
That's a long tail and you make them over a long time to spread out the cost and all that
Yeah, and so this supercar was a plug-in hybrid
I don't think I ever knew that all all supercars are now
But the 918 spider was
Porsche saying we're going to go into this plug-in world because they knew what was coming up
I mean we'll get to in a second with the tycon
But they knew what was coming out the hybrids and electric cars were going to be a thing
And so instead of introducing that with a with a suv for example, which is where the they should have right because that's where the market wants it
They said no we're going to do the supercar and show people we're going to do it and we can do it
Well, and then we'll trickle it down. What did the car world think of that?
It's important to keep in mind the 918 spider being a plug-in hybrid
It had a electric component, but it also still had a massive v8 in it that had a zillion horsepower
Screaming out you know and it was the same with the la Ferrari and the mclaren p1
They still had massive engines also
So it was fine it the next crop of supercars will probably be full electric
And so that transition I think is going to be more controversial
The interesting thing that setting seems to be setting Porsche apart now though is that they're
Standing behind it Ferrari has already said that the technology is old all the plug-in stuff
We don't want to be any part of the la Ferrari and so like no one's really sure how that's going to age
Oh, those are gonna be orphaned cars exactly orphaned
Multi-million-dollar cars. Yeah, exactly
It's a scary situation if you own that car and the battery is gone
You don't know what to do you go to the supplier
But Porsche has always been big about standing behind the cars in part to preserve resale value and to make sure that owners of the next
Supercar know that they'll be protected
And so like this car is already almost 20 years old all the parts are still available that kind of that's the smart brand thing
It is the smart brand thing to do but it's not easy like if you really think about it for plus Ferrari
They don't need to they don't care
They're gonna make the next one like they keep finding rich people
They only make what 13,000 cars a year at Ferrari. Yeah, it's a small operation
So like Ferrari just it's still don't really care about their customers all that much
What's the rule of luxury dominate your customer?
Ferrari was owned by somebody at some point though, right? Yeah, there were all these
Oh god Ferrari's a story that is a crazy one also
But the fiat group eventually had stepped in because Enzo had just driven the company
But in his pursuit of racing had like driven the company into a financial
It wasn't his pursuit of you know derivatives
No, it was quite different
It was actually a very Italian thing versus the pursuit of drugs is kind of a very German thing
Yeah, but um, yeah, that was a real bad situation also. None of those companies are independent anymore
It's not it's not really possible either because of the way that regulations are structured
Especially fuel economy you have to spread out your fuel economy over your corporation
Um, and you have to hit certain targets
And so actually this this in some senses may have worked out well for Porsche because um
It would have been difficult to get Porsche to kind of work on the corporate average fuel economy standards
Because all their cars are kind of inefficient, but because they're under the Volkswagen umbrella
You can kind of get that whole spread and it works a little bit easier
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Yeah, okay. Well, great. So this is perfect to wrap up on the the history of Porsche here
As part of the vw group they come out with the macan
Which is a huge success both in the america and china and this is the mini compact suv
Right the cayenne is the mid-size and the macan is the compact. Okay, exactly
And a lot of volkswagen stuff shared with all these cars engines are shared across
Tons of model lines now. Yeah
Interest which is such a departure for a Porsche, but that's right
It's for an engineering company to doing this kind of sacrilege
But the engine in the cayenne turbo, which is the best cayenne is in the lamborghini urus an italian car
The bentley bentega a british car, but volkswagen owns all of these. It's in the audi rs6 and the audi sq7
It's like it's everything is now just spread across all these brands
It's a little bit echoes of our our lockheed martin episode that we just did the heritage of
The great airplanes the great porches is this independent annual engineering small team culture
But to operate today with yeah in the content you have to be part of this
So the macan's a big hit um
And then we just alluded to it with the the tycan the the mission. He is the concept that they introduced in 2015
so like yeah pretty early i guess the
The tesla model s came out 2013 12 12 2012 model year
So Porsche was pretty early with the the concept for for mission. Yeah, not everybody was sure that was gonna catch on
Electric vehicles. I don't know
A lot of people were slow as a result. Yeah, um in fact like entire nations were like japan is five years behind everyone in electrics
It's the weirdest thing. It's like they just like woke up last year and we're like, oh my god
This is gonna happen in the car world. I mean at least five years by Toyota just started
Just came out their first electric car like yesterday like i'm not exaggerating. It was like eight weeks ago
We had to talk about that another day on acquired like how did that happen?
I mean they were the how did they were the forefront of hybrids totally the Prius that they invented it all and now they're like
Electric, I don't know. They're still like waiting and seeing on electric
Wild so the take on comes out. It's a very phenomenal car
Like I think people are a little unsure at first, but then it's super well received within like three years
Yeah, no, it's it is it's been well received it drives like a Porsche
Which I think was everybody's fear about an electric car that you'd lose the engine sound you'd lose the feel of it
But the take on does indeed drive like a Porsche. Why do you think they came out with a sedan? It was a mistake for sure
Yeah, yeah, I think I think probably because development started about when they started mission e
And that was in 15 and sedans were still a big part of the market
But most brands now that are coming out with electric cars as their first car are coming out with suvs
You look at revian pure suv and truck Hummer ev all there's a ton. Um, I think Porsche made a mistake. Yeah
But relative to the other traditional auto manufacturers
I get the sense Porsche. You gotta be in the top tier of like best positioned for an electric feature
Yeah, yeah, no, absolutely and and they'll continue to innovate. There's an electric macan is coming soon
So they say and so it'll be fine
And tycon, I mean one could argue that Porsche needs to come out with an electric sporty car first because
They need if you come out the electric suv, that's your first one. It's like
They have no plans for an electric 9 11, right? I mean, that's what they would tell you if you asked them
That's what they would say, but let's be honest here. Like
It's the future is electric
There will be electric versions of all these cars and probably within our not so distant lifetimes. They will be purely electric
Interesting thing about the tycon. So you mentioned the next supercar will be, you know, an all electric one
I haven't driven in a tycon. I have watched videos of people driving it
I'm like, what do you what else do you need to do to make this a supercar?
You know, the thing about electric cars is they all can accelerate incredibly well and that's like insane and tycon is faster than this
It's faster than everything. It does zero to six in like two seconds
Ridiculous, isn't it also like tune to drive like a track car where your 15th lap is going to be just as performant as your first
Yeah, and so it's beneficial on that too, but at the end of the day a four-door car, especially one that's made in
Not limited quantities is never going to have the effect that like a supercar halo car has
Unlike really showing people what a brand can like do and so they will I suspect in the next couple years
They will come out with a the next supercar, which will be
You know look like this and they'll only make a thousand and it'll cost 2000000 dollars
And it will be fully electric in 20 to sixty and one and a half seconds and even more
What do you what are the performance characteristics of the next generation of supercars going to look like like what are you?
humans can go
So I think that will continue to help the values of these cars increase because at the end of the day as cars age
They all get slow, right?
They this car is now mod that fast by modern standards
So you start to look for other things that make them special which is the feel the sound etc
I was I had a press car dropped off the other day a kia ev6 gt
Which is the electric kia crossover it is sized and designed to compete with like the toyota rav 4
Okay, but this is the high performance version does zero to 60 and like 3.2 seconds. It's faster than courage
So yeah, like what is a supercar even mean anymore like ultimately like what does it offer that a
Kia ev6 gt for by the way, 51 thousand dollars
Does not offer and the answer just has to be like it's lower. It's wider so it can it handles better
I mean that's one of the big missing things from a lot of these fast accelerating electric cars
Is that they're not necessarily like sports cars really they're fast, but they're not really sports cars
And so I guess that's going to kind of be the future, but you're right power is being democratized
Everyone can now access a car that does zero to 16 three seconds
Right and so I don't know it's it'll be interesting to see how the sports car responds
Well, so that brings us to today
When or or I guess more accurately last fall september 2022 when um vw
group
Re-ipo'd uh porcia the porcia re-ipo is the largest european ipo of all time the initial market cap of porcia at trading was about 75
billion dollars today that's up to about 115 billion dollars call it nine months later
As the investment bankers would say like there was a lot of value unlocked by making this its own company
Which I think is legitimate. I think there's an element to
Being able to own one of the premier luxury
Companies in the world without having to co-mingulate with a bunch of other stuff
And so like all shareholders of porcia can purely just be shareholders of porcia
And you when you look at the financials and you understand like okay
They have incredible margins relative to you look at the rest of vw's portfolio. Yeah, it's fine
It's interesting though like dug to your point
Operationally though you can no longer extricate these right companies. So you can financially extricate them purportedly
But even then how do you how do you?
Financially extricate like development costs of a powertrain that's used in multiple vehicles or a platform
I mean the tycon there's an already version of a type of the tycon called the e-tron gt. How do you you know?
It's all it's all intermingled. So yeah, if it's not actually operationally any different
Then you do have this question where you're like, okay value was unlocked by just looking at the market cabs, but like
Actually, what happened there is you got better at marketing a security
Right. Not you literally created value inside the company. So it's interesting
Ludwigson Carl Ludwigson who wrote excellence was expected
He published a new edition of it last year and in the forward to it
He said the reason I did it now is that the old independent porcia is is is done
Like this is a completely different company now and I can fully put a bow on that original porcia
So even though there was a re-ipo of porcia, it's never gonna be the same old independent porcia
And by the way, you can choose to buy porcia ag the independent spin out of
Uh vw or you can also on the stock market go and buy porcia se and the family
I didn't realize that that's still on the market
So uh some other interesting things about porcia today
The family as we mentioned is complete control both of vw and porcia
So in some ways, it's still the same old porcia even though it's all commingled
Um, here's the sort of nail in the coffin
In my opinion argument on is it a separate company or not?
Oliver bloom is both the current ceo of vw group and porcia
Yeah, when you share
Production facilities and you share distribution a ceo
And you share components and you like at what point in what way are these separate companies?
I guess mida king was right. He was right in everything that he was doing. He just um,
He didn't win the game of thrones, right?
fascinating
So digging into the business a little bit, uh, they do over 40 billion dollars a year in revenue right now
When you look at the breakdown of that interestingly enough
Two-thirds of it has come from suvs and there's a good amount of it that comes from the take-hand too
So the 9 11 has sort of grown slowly over time the 7 18
That's the baxter cayenne not a lot of revenue coming from that. Yeah, that's the sports car sales just slow
It's just not the same but it helps give them more legitimacy. Yes
And the panamera does have pretty decent sales, but still nothing compared to the monster. That is the the suvs
Yeah, when you look at where they're sold, this is quite interesting
china
Is as porcia would account for it their largest market
But the reason that I put that caveat in there because it's at 26 percent is is china
They split out germany from europe and called them two different regions
So they have germany germans like a true german one
like germany
Is 10 percent and rest of europe excluding germany as 23 percent
So, you know, it's all of europe together would be bigger than china, but germans one of the interesting things is
You know the chinese is only by four doors. They only want four door cars
There's almost no because there's no heritage of porcia in china. It's a luxury good
It's a it's a cool brand that sells suvs and there's a lot of chauffeur driven vehicles there
And so like they don't it's almost none as sports car sales in china
Wow hard to believe but
We think of porcia as such a sports car brand. It's like part of the ethos of it. They're just like a kind
Right. Wow. Yeah, I mean we're used to it now, but I remember the first time I was seeing porcia suvs is like, well, that's
That's a sports car brand. This is weird
Right, but for them they never had the sports car brand. So it's just like normal. It's crazy
North america is very close to china. It's 24 percent in terms of sales and then the rest of the world's about 16 percent
So interesting thing when you start to look at both the
Amount of cars that they make now because it's huge and the margin structure associated with that
So last quarter they delivered 80,000 cars and that's growing about 20 percent year over year
So that's quarter. They delivered. Yes. Wow. So
Last year they delivered
About 350,000 cars man. So this really is a
scale
Organization at this point. This is not ferrari. lamborghini. These are
Mass manufactured vehicles and I know they would say oh, we're not a mass market thing
Which is true in some ways when you use your average selling price is 110,000 dollars
But like if you're making 350,000 of something that's a mass market brand. Yeah, it's interesting
I compared the brand to Rolex earlier. I think from a brand perception. That's true
But from the operations of the company it really is it's Louis Vuitton
Like they make a Louis makes a lot of stuff. This is the correct analog. So I had this in my notes much later
But I want to bring it forward right now
Porsche is Louis Vuitton
Ferrari is Hermes. Yeah
And I think that this whole time I while researching I just had this like broken thing in my brain where I was like
How how do they make so much stuff when they're
Hermes and they're not Hermes. Yeah, they were once Hermes, but as soon as they started making the suvs
That's not who they are. They have tiered access to luxury
Like different luxury products with a shared brand that unifies them
Which is funny because people see it as such a high-end brand
It's almost like the suvs have managed to like get under the radar of the people who buy the sports cars
And the sports cars have this still have this elevated
viewpoint even though you can actually go to a Porsche dealer and lease a macan for
I don't know 750 a month whatever it is, you know, right?
Right on the scale thing though
There is another order of magnitude up and these these other brands do feel much cheaper
So at around two and a half million a year is BMW and Mercedes-Benz
And it does feel like Porsche is in a much different class than
BMW or Mercedes-Benz in terms of the sort of
Hoyy toyiness associated with it when you get to drive it and you get to own one
And I I think that that clearly shows and the question is if
They made 10 times as many Porsches would we all feel the same way that oh, it's just a BMW?
Probably like there there should be an inverse relationship between scale and brand perception
But they have managed to find this like
mismatch or like
To your points like skating under the radar where they are able to make a lot of suvs and still
Maintain right what they have and the question is for how long right or or at what scale at what?
It was if it if it doubled again
Like it's interesting about BMW because if you think about if you saw Porsches as often as you saw BMWs
Would it be special of course the answer is no so
What do you think the average selling price of a Ferrari is?
across all there
250 330 oh
That's insane
That is insane three x's three x Porsches a three x portion. How many Ferraris are made every year or so 13,000 13,000 versus 350,000
It's so funny because the enthusiast world there's often a are you a Porsche person or a Ferrari person?
Like they're not really
Right. These are two very different beasts. Yeah
And it's fair to be like are you a 911 plus supercar person for a Ferrari person?
But the rest of Porsche shares the name Porsche, but is a completely different thing
Right. Yeah, they're nowhere near each other. It's almost like Porsche
Should go get even more aggregate market cap by like spinning out just there
Like hypercar there and the 911s. Yeah, like just the real stock ticker is p911. Is it really? Yeah in germany
Man, that's crazy. Ferrari's 330 you said?
Ferrari's average selling price 330,000 330. It's interesting, right? Like I mean
You're Doug DeMiro. Um, you own a career at GT. You don't own a mccotton
Yeah
Well, yeah, I mean I I uh, but they're cool. I mean, I would get one. I recommend them to a lot of people
But that's a good point. Like I haven't went and got a Porsche SUV. Truthfully the reason is ridiculous
I I don't want to drive like things of that name brand like on a daily
Like my wife would never be seen in a like a Porsche. No, I think you know, do you know what I mean?
It's the funniest thing because I'm
One of my David my closest friends drives a Porsche mccann and his wife drives an Audi
Oh, this is a totally different thing. This says something very different about who I am
She was driving his car the other day and she was like, oh, I hate being seen
in the Porsche or that you don't want to be driving around a $75,000 Porsche and yet this thing that you have
It's ridiculous. I know it's it's interesting point. I never really considered that
I just I like to be casual for my normal cars
Also, I think that like having the Porsche SUV is kind of like a it's almost more in your face than this
Like if you bought us what you're a connoisseur if you have a the sports car if you buy the SUV, it's like
Yeah, that could be I love them by the way, they're awesome cars. I just did not for me
Right. It's like getting um, like the master's logo embroidered on your golf clubs
You know, it's like, okay. Like I know you didn't play in the master's but like
Well, okay, that's cool. Right. It's it. That's exactly how I look at it. Like, okay, that's that's fine
But it's not I'm gonna I'm gonna stay kind of low key in my normal life. What do you think I drive?
Uh
It's got I'm model three
That's a good guess. That's it. David drives and that's probably what I would
Uh, Mazda CX-5. Oh, yeah, okay. Yeah, those are good cars the Porsche Macan of the uh, mainstream
It's the Japanese Porsche Macan. If you ask my colleagues, they would say that but I think it just is a normal
But I like them. They're good. I recommend those to people too
Uh, okay, some more uh back to Porsche
Uh, a couple other interesting observations just for listeners trying to keep track of home of like
What are the profiles of these businesses look like?
I always think gross margin is an interesting place to look to understand the strength of a brand
Because it's basically showing like what can you mark up over your cost of goods sold and sell it to people
And still have them swallow that price, right?
BMW as we mentioned 10 times more units of BMW sold than Porsches
Are down at 17 percent in terms of gross margin. So they they really aren't
Marking up much above their cost of goods in order to to um ship those cars
Mercedes a little bit better at 23 percent Porsche is at 29 percent. So about 50 percent higher than BMW
Ferrari is 48 percent
So people who are buying Ferraris
Do not care what it costs
People just pay and by the way the 330 average price thing like
That's I'm just like still astonished by that's an unbelievable amount of money when you really think about it for 13 000 cars a year
and
To put it another way because let's round 48 percent uh to 50 percent if you have 50 percent gross margins
It means you go buy a bunch of stuff you assemble it and then whatever it costs you you double that to sell it to the customer
I mean Ferrari's still charging like two grand to put apple carplay as an option in their cars
I am dead serious like
Heated seats are like 800 bucks extra in ferrari's. Hmm. You get the idea. Yeah
Ferrari options look a little crazy
So switching gears but staying on gross margins because david you brought up lvmh earlier
lvmh's gross margins
68 percent
It turns out you can mark up leather way more than you can mark up cars interesting like
At some point there there is some sensitivity to like you can't just make every Ferrari cost 8 million dollars because like
There's so much real hard costs
In cars that are just not in other luxury goods. And so you have this opportunity to carbon fiber a cheap
unbelievable price premiums in
All the stuff lvmh owns if you can touch it
If it feels good on your hands or it looks good to your eyes or it smells nice
You have the opportunity to mark it up way more than sitting in something that is going to thrill you how interesting
This is really interesting trying to understand
Which of these businesses you'd sort of rather own and gross margin isn't everything
But it is amazing that lvmh is truly in a league of their own on on gross margins. Yeah
Going into doing this episode. I sort of wondered in the back of my mind
Has barnard are no and lvmh
Ever made a run at any of these. Yeah luxury auto companies
And if they have not maybe this is the reason why
Like they're just in a better business
Yeah, it's hard businesses
It's a lot of stuff. It's a lot of saying it's it's a different business than it's a lot
Distributions harder. Yes, and it takes a really special type of person and and and team to run it
I mean, it's it's engineering and art whereas there's not engineering in anything that lvmh owns
I mean, I'm sure there's people who work there whose title are engineer, but it's correct. No, it's crafts
Yeah, it's craftsmen
Yeah
So if I were to guess I would say maybe burnard or no has kicked the tires
on like
Ferrari Lamborghini, but more on like licensing agreements than trying to own those businesses because I just don't think it actually works into
The rest of the flywheel in the same way like you got to get a own a factory that makes these cars
You got to do all the r&d plus scalability is harder and you alluded to the dealerships and the distribution distribution is hard
You're shipping stuff on giant boats all the way across the world and all that should we talk power
Move a new house. Let's talk power. Yeah
So for any listeners who are new and based on the Lockheed episode a lot of listeners are new
There is a section we do called power, which is a way that we try to figure out
What enables a business to achieve persistent differential returns above their nearest competitors?
So why are they more profitable on a durable basis than other people who compete against them?
And this is always a fun thing to try to analyze because you're like what what actually is it?
For a business that has pricing power that that they get to mark up their goods
And so we just talked about Porsche having better gross margins than BMW or Mercedes
But not as good as Ferrari
Ferrari couldn't make the number of cars that Porsche does and maintain those margins
So that's not really a fair like direct comparison in terms of who their right who their competitor is
But BMW also makes 10 times more cars. So that may not also be the right
Comparison and this I think is an interesting point which is Porsche's kind of an league of their own
In making the number of cars that they do. It's like this magical sweet spot where they get to be a luxury brand
without
Making so few things that you can barely, you know, even work with the company. Yeah, they definitely
Especially relative to Ferrari have scale economies being part of the vw group right that they can be in suvs
In a way that Ferrari can't I think you're right that scale economies enable them to be in the suv business
Which has great margins. Yep, and that's a that's a thing that you would need to have all these deep partnerships with other
Other car brands in order to do that or so it's just by one. Yeah, I think that
Is a differentiating factor against Ferrari
But obviously lots of other car brands are in the suv right business
The heritage is obviously an enormous factor
The brand is the obvious big is the yeah the big one. I suspect that the german engineering thing also plays a role
Like I think now not against BMW and Mercedes Benz, but certainly against like the japanese
I'm sure their margins are much much higher than the accuracy and the lexuses of the world
and
They even though like when you really look at it on paper, it doesn't make sense
There's there is some level of like this is a the german engineering thing like you alluded to earlier has this incredible reputation
that helps
Them's okay. This car is just simply built better. It's european. It's german, you know
And does that I think for a long time that expressed itself in reliability of Porsche's relative to other
luxury car manufacturers
Today is that as much as reliability as much an advantage for Porsche as it was in the past relative to other brands
Reliability is still excellent
Supposedly based on the JD power studies and all that now the question of whether it's actually important for people making decisions by the cars
I'm not so sure how many of those suv customers are leasing and don't really care if the thing stays reliable. I don't know
Um, but there is some component of just like quality that you just feel
I mean, it's certainly true. So you get a BMW or Mercedes Benz. It's just not as nice
It's not the same like they you have this feel. It's it's it's certainly more special. There's a specialness to it
Okay, so moving through them branding. Yes, obviously like especially if if you're trying to enter
Uh any space and compete with a luxury brand
Uh
You don't have the heritage. There's just no way that you have the the 75 years of
People believing in your brand and thus willing to pay extra margin dollars for it
So that's the obvious one and you can't you can't manufacture it either. No, like there's there are like literally a fine wine anymore
Heritage automotive brands, right? They are they're just going to take 75 years, right?
Maybe I mean like the there is never going to be another situation where
the link between racing
and
production cars is like it was when Porsche was getting started
Yeah, but there'll be another racing like there's another thing
I think that's that's myopic to think that like 75 years from now people won't
obsessively care that some new brand was forged in the 2020s that had some others in a sequoia about it
That's like the equivalent of racing versus production cars
You could imagine at some point Tesla is a heritage brand feeling to be like there was this crazy eccentric founder
Yeah, no, I agree with that, but it will take
Yeah, as many decades as you think and it'll have to be for something else though
It can't be for racing like it's something else
Related to the cars right it would have to be for something
And to your point Doug performance is a commodity now
The Koreans have been around for 25 years and there's no like emotional attachment to any of those cars even the older ones
I don't know
brand is it
brand
Scale economies enabling the suv line. I think that was a good one. There's not really counter positioning
I don't think
There was in the younger days, especially the racing younger days
Especially with the aggression of Porsche's advertising
Porsche
ads have been some of the most iconic
Just brand advertising of all time and they were brash the reason it's counter positioning is because a lot of
car
Like very high-end cars would never dream of showing their brand in such a gritty way and giving their brand voice such a
Risky proposition. I'm thinking of two in particular. Do you have any favorite?
Of course is the 993 turbo the arena red 993 turbo
And the the tech fortunately would put up one picture of the car and then there was always a tagline
That was like the thing for decades. The famous one was kills bugs fast. That's what everybody remembers
So good. So good. The other one that I'm thinking of is nobody's perfect. Yeah
That ad was great. I had one for my 996 turbo that I owned at 9 11 years ago
And I had it framed and it said calling it transportation is like calling sex reproduction
Which is a great example of no other luxury brand would no way touch that
But that yeah, I loved uh, David
I had the same favorite one of nobody's perfect because what they did is the bulk of the ad
when you look vertically down is the top 10 winners at Le Mans and
Porsche has nine of the 10 and it's just Porsche like number
And that is Porsche Porsche nobody's perfect. He's perfect. Yeah, so good. Yeah, all right. So that's modest
counter positioning, but not really anymore
Um switching costs. I actually don't think there are switching costs in the car industry
I think this is a really interesting thing where like
uh
Doug you're gonna laugh my car before the Mazda cx-5 was a Honda crv and like I
I I completely reevaluated with flat with fresh eyes
There was nothing about being a part of that old ecosystem that carried forward to the new ecosystem
Unlike apple where you're dialed in everything. Yeah. Yeah lessen that is that's gonna become less true
I suspect with all the tech that's in cars, but yeah, I agree up until this point. It certainly hasn't been a thing
Yep, there's no network economies. There's like really no benefit to
You own a Porsche there for I own a Porsche and I get value out of you owning a Porsche
It's not particularly a thing other than we can like go to cars and coffee together, right?
Process power this is probably where I would slot german engineering
Uh of all the things that we've talked about and then the last one cornered resource
I don't think there's a particularly cornered resource here
It's not like the the square footage and stuttgart that they own is like some magical thing. Yeah
So
All right, that does it for power
Playbook we've talked a lot of playbook along the way
But I'm curious for ones that jumped out at you that we uh, we haven't hit yet
Yeah, I know we just talked about it a bit but um
For me the racing thing is interesting even though we didn't spend that much time on the details of it throughout the history
I don't know that we've covered any other companies where there is this kind of like adjacent activity to the core
Business of the company that adds so much to the brand value and is worth investing in
I'm just trying to think if there's anything else like this, but uh, I mean, yeah
Has invested billions in racing in all sorts of racing
But it's not like there's like a software competitions out there that you know, you could enter your software until like
Build your brand prestige. Yeah, that's right. That's an interesting point. Are there any other companies that
Do things like that or industries that have like a
Showcase right like a very expensive showcase where you have to go build a completely different product line or you know
What is like this is the athletic apparel industry?
And nike yeah, like they spend yeah all of their marketing budget on athletes
One of the biggest ones that jumps out for me is the brand continuity
This idea that if you loved anything we've ever done
We should be able to fulfill that dream for you today
And not with the exact same thing necessarily like we're not going to sell you the exact model that rolled off the line in
1977 but like
You get to participate in the feeling and you get to feel the same way about our brand today that you did then
And we're going to find all these interesting ways to provide you fan service
It's almost like going and watching the new star wars movies where if you liked the original films
even though these aren't like the highest
like
Highest grade directing and writing in the world like we are delivering all sorts of fan service moments to you
And i'm not saying that like Porsche is not making the best cars in the world
They make some of the best cars in the world, but they also provide all these opportunities for fan service
It's worth a huge multiple of what you invest in it if you can align everything correctly
It gets back to the 40 50 year sales cycle with this too, right?
Everybody dreams. I mean, it's your your whole life. You dream I grew up dreaming of owning a Porsche
Which is again kind of funny as we talk about the suvs and the volume they do
If you're a little girl or boy, you don't dream of winning a cayenne like like
Kids are getting dropped off in those at school is kind of my point
But you do dream of a Porsche even though it's the same thing, right?
Doug you've talked about this when you worked at Porsche a decade ago and you were much younger like
They didn't pay you much, but you got to drive a 911 and that was like the coolest freaking thing
And everybody wanted to work there we get unsolicited resumes all the time blah blah blah and like pay wasn't great and
But like you had that name, you know, I worked for Porsche. That's so cool
And just being a part of it and then yeah having the car was a huge deal. I love it
all right, well
Grading feels a little bit odd on this episode and and we killed grating
But we do have Doug DeMiro with us
So we are going to give Porsche a Doug's score and it's an acquired adjusted Doug's score. It's uh, you know
We can't grade the entire company on handling
So we got to figure out some categories that we can evaluate them on as a I don't know that there are any weekend categories for
All right, so David what what criteria you're thinking for acquired adjusted Doug's score
We simplified this down to um to just three categories for the acquired Doug's score
Revenue growth profitability and defensibility like would you want to own?
Porsche as a stock
And I think those are the three components sort of closing your eyes to where they're trading today because you always have to
Like evaluate entry price and all that but like yes
Are you excited about the company's prospects 10 20 30 years from now? Yeah. All right, so let's do revenue growth first
Growth has been
Impressive at this scale
Not at the rate of the highest growers that we have seen but still nonetheless impressive
Prospects going forward though for revenue growth. I think are still quite strong
We're obviously in a very different market environment than we have been the past few years, but
Porsche is
Incredibly well positioned on evs relative to other traditional that's actually my whole bullfice
Yep, so I think there's strong as they electrify the rest of their lineup
strong
Uh bull case for revenue growth there
I also think that even as we're heading into a more depressed macro environment than the past few years
I suspect Porsche will be more resilient in their growth than other
Other luxury brand manufacturers
so
I give it a seven on revenue growth potential
I basically agree with you numerically. I've won it on on
Them versus other luxury manufacturers. It's it sort of depends how you define luxury
like I think they'll fare better than
Mercedes and BMW in a downturn and like way worse than Ferrari
I think they're they're in this interesting place where like they have it's like Louis Vuitton. They have some
Cash-sensitive buyers right because so much of their revenue is based on those scvs that probably will not be as resilient as right
There are macan buyers who will become q7 buyers. Yeah q5 buyers. Yeah, yeah, totally
Uh, Ferrari really isn't a league of its own though the broader universe of
BMW Mercedes all the japanese brands
tesla, etc
Um in america at ford, you know all the ford brands the chevy brands
Oh, yeah, I think it's very well positioned Porsche and a recession then like almost any other car company. Yeah
Yeah, there's also this other thing of like you alluded to the colors the money they're charging for colors
Like they've done this
They've perfected this with so many options and people are just paying it and paying it paying it
And it seems like there's no end to like what Porsche can kind of fleece their customers for and it just seems like that's only
Going to continue to be more and more of a thing going forward
There's become this entire subculture around like specking your Porsche in this like perfect way
And that is obviously big margin stuff for them. Yeah, so i'm seven you're seven
I think we're pretty unified 777 out of ten. Yep, uh, next is profitability
Quite quite strong for the automotive industry. Yeah, very strong
um
Not strong relative to the technology industry and software or apple
That's right. We didn't say that earlier, but uh, Porsche is a 29% gross margin apples a 43% gross margin
Right, and I believe Porsche's operating margins are in the high teens low 20s
I mean, I'd love to own a business that has 20 of every dollar that I earn coming out the bottom
That's a great business when you're earning 40 billion dollars. Yes, that's a great business
I think I'd go seven again on profitability
It's a nine for the auto industry
And it's like a four compared to most businesses that we study unacquired because we only study the very best businesses in the world
It's not a media business. It's not a technology business
Right. I'm sitting here thinking it's seven might be a bit high margins are pretty impressive considering that's the car business
That's what i'm sitting here thinking the car business requires so much just so much cost
Yeah, i'm gonna revise my score down to five
For the ease of the episode we're agreeing on a score here. Oh, okay. I like this
Five feels like a good score and honestly like I think five is the highest score you can give in the auto industry on profit
Unless we're talking about Ferrari apparently. Yeah, which is like almost not in the auto industry
It's like a completely different luxury category. Yeah, that's so true
It just happens to make cars. So I am giving
Uh
Because cars you cannot give a 10 9 8 7 or 6 I am going to give Porsche a 5 right in terms of profitability
Yeah, right that makes sense
It was the last one defensibility. Yeah, so this is the biggest question
Does
Porsche's margin profile and customer love and brand value
Just only go down from here as they continue to grow
Like will we think of them as a BMW in 10 years when we see them around the streets?
I just don't think so from when I work there till now
It is amazing to me how much more people have become obsessed with Porsches
Every cars and coffee event has become sort of a de facto Porsche event
They used ones the vintage ones have just shot up in value to an unbelievable level
Porsche is more loved now. I think than at any other point in its history
Now will it diminish as a result of that probably right?
You can't you can only be at a certain level for so long at a high level for so long
But it's been incredible to me to watch Porsches rise
Even just over the last 10 years and how much people like love it and obsess over it compared to how it used to be
It isn't Ferrari
It doesn't have that brand equity that Ferrari does
But it's got more than you'd think and it's especially got more than you'd think for a
Company that mostly makes SUVs. I think you put it really well earlier when you said
People are like, oh, are you a Ferrari person or a Porsche person?
And like the fact that Porsche gets to be in that conversation is being asked, right?
Nobody's asking are you a Lexus person?
It's like they're getting away with murder by being lumped in right there
Right somehow they were able to both produce an SUV that gets in 350,000 units annually
Yes
But also mentioned the same breath as Ferrari in terms of like enthusiasts
I'm like literally a 10 out of 10 on this because I think this is a thing that I still
Don't really understand how they executed this so well and they've done it better than any other company in the world
Right, right. It's probably true. They went from making
The 9 11 the everyday supercar to now they're like an everyday supercar company
Right, they have a whole gradient of everyday supercars that you can buy
But they're all everyday supercars and yet people still dream. It's crazy. I agree. I completely agree
It's and it's and again, they love only seems to be growing
Even as their model line expands to what we would consider to be less desirable cars
It's amazing. Like you said, it's amazing. They pulled it off
I think that's right. So my barometer for this is uh,
Something I took from the lvmh episode of evaluating brand power
Can you kill it? Is there anything that could happen that would completely kill Porsche?
I I don't think so nothing that they would realistically do
I mean, but even okay, let's say they did because you know what this is what we learned from the lvmh episode Gucci
Everything you could think of to kill a brand they did that but the heritage there that it can always be resurrected
Right Gucci is always going to be the regular individual still has this thought of gucci as like holding practices
You can never completely eradicated
I think Porsche is the same thing brand gets to a certain level. Is it even possible to kill?
I don't think so and once you reach that
level
That's when you have real brand power
Yeah
And I think Porsche is at that level because let's say they make a bunch of decisions and they kill the company
It goes bankrupt somebody will buy it out of bankruptcy value still in the brand name huge value is still there
Yeah, all right 10 out of 10
So that gives the acquired dug score for Porsche a 22 out of 30
Which which by dug grading standards is pretty good. That's pretty good
Your highest dug score ever is 72 or 74 something like that. Somewhere in that range. Yeah out of 100
You can't get any better than that. Yeah, so Porsche is at the top. Yeah quick carve outs
I'll start
Uh because I've had no opportunity to consume any media in the last three months that is not specifically for acquired research
I have a
Random website that I haven't used in six months, but I used six months ago and it was awesome to recommend
And that is resort pass dot com have either of you ever been to resort pass dot com
it's like um air bnb
for
Amenities at resorts
Oh, this is awesome. So how did I not know about this when I go on vacation?
I typically won't stay in the really fancy hotel my wife and I will just like book a condo or an air bnb or something
um
And they're right next to
Really fancy hotels, right?
And so what resort pass does is they go to the hotels they say look
I know your pools are like not full most of the time
Can we have some and I don't exactly know how real time their inventory is or if they are able to like buy
Big blocks of it up front, but for like a hundred bucks a day or 200 bucks a day
You can go and get a daybed or a cabana or
You know
Have the amenities of the resort you've been holding out on me. So I jenny and I
Do this we will we'll do the same thing you do, but like I didn't know there was a platform for it
We just call the hotel and see what you're like
Yeah, or we'll book a massage at the spa. We're like, oh and then with the massage you get the like right
But now I'm the anal on resort pass over there. You're like the Carrera gt of resort pass
Oh
Great, uh, my carve-out is um, I go down these youtube rabbit holes, which is probably how originally I got to you
Um, but I've been on a
Seinfeld cast interview. Oh, yeah rabbit hole. Yeah, and there is an amazing
compilation of all four of the cast members
Doing charlie rose interviews and he was so good. I mean problematic person
But like he's he was one of the legendary best interviewers of all time
And he did a bunch of interviews with all four of them surprisingly
Uh naively for me coming in jason alexander is by far the best interview. He is
So articulate like incredible if you see him interviewed anywhere or talking talking anywhere like contemporaneous extemporaneously
He is pretty legit. Yeah, he is uh, you would never know because he's so different than the george character
Yeah, yeah, so different. So he's the biggest difference of all of them for sure. Have you seen that that bit on curb?
On curb your enthusiasm. There's this like whole arc of the show about how like
Jason alexander is not at all like george and how dare you perceive him that way and then it's like jason alexander is
Insinuating to larry david what a loser the george character is and larry takes it personally because it's based on him
I should have said five. Uh larry david is in this compilation of charlie rose conversations too. Yeah, it's so good
It's so good. I think it's about an hour 20 total, but it's worth it
Interesting jerry's in there too jerry's in there. Yep. They're all in there interesting
Okay, mine is a youtuber named wislin diesel. Have you guys heard of him? No, I'm not surprised
I neither either will anybody who is listening to this
He creates it's like he's a kind of a car youtuber, but mostly he just does crazy stuff
He lives in tennessee and has a big property and like
Did you see that the thing it went viral like on twitter and elsewhere of the tesla that was on like 20 foot tall wagon wheels
He'd like had done that he bought a ferrari and put it in a
One of those like bubbles that like boomers put inside their garages and and then he just started throwing stuff at it
Like a ladder and like an axe and like a sledgehammer to see if it would like break the bubble and like damage the car
He dropped a Mercedes g-wagon through a house
He got a he got a chevy pickup with with tires so big that he was able to drive it out into a bay in florida
Oh my god, he's the mr. Beast of the car. He's the mr. Beast of the car world sort of he's like it's like dude perfect on heroin
Right, it's like that and he's like this he's like from indiana and he lives in tennessee
So he's like just like kind of like backwards dude
But he's channel's gotten so big that it's allowed him to do just dumb stuff
And he has become my utter guilty pleasure because you put on his video
And you're gonna see like deep destruction of something that a lot of people hold dear
And then you're gonna see a lot of
Complaints in the comments of people being like I can't believe you would do that to him for us
Oh my god, as a youtuber
I also feel like this is like the greatest thing ever because he takes what the haters say and just like
Turns it up even more and I have to be like nice. I'm so sorry, sir
Like running a business here. He's like forget about these people. I'm just gonna blow it up
He flew a helicopter inside of his um garage
What that's a good episode. I highly recommend I gotta watch that
These this is all just like trash tv, but it is so good to watch. So I love that other people do this
Yeah, right, right. I do wonder sometimes about like the danger of youtube and like, okay, it takes now
Flying a helicopter inside your garage to get views like I started. I had a Ferrari. That was enough
Like you must you've talked about this a lot that like you feel when we're gonna do a whole another episode of just you and us chatting but um
That like you started at a time and if we started at a time where you didn't have to right? I feel bad
Do this stuff like whistling diesels out there dropping g wagons through houses. Gosh, it's a different thing
But highly recommended. It's great content. That's actually a great uh dug. We have not talked about like
Everything that you do give us like a little bit of insight and I think David teas
We're gonna do it an interview together as a as a separate episode
But like give us a little insight into the dug demure empire and what do you have going on at work?
Where can people check it out? Right? I make a youtube videos
My channel is my name which has become very complicated now that I have a business on a channel also
Maybe regret doing that
But um just dug demure and then I also run an automotive like a car auction website for enthusiast cars called cars and bids
Um, and we're selling something like 30 cars a day or auctioning 30 cars a day on cars and bids right now
Yeah, so all just all like enthusiast cars, you know porches and bmw's and things of that variety
You know the short version is like you are one of the most successful youtubers in the world
You are also an entrepreneur who built a tech marketplace internet marketplace business
And just took a very large investment from the churning group one of the best investors in
Marketplace and content businesses out there
Incredibly impressive. Thank you for spending so much time with us doing this collab. This is great
This has been super fun. It's it's really rare that um, we get to
Chat with somebody who is not an executive at the protagonist company
And also deeply gets both the products and the kind of business aspect of something
I don't think there's anybody else we could have done this way. It may be viking himself
He would be a little biased I think yeah, it's it's the bias that you get oriented. Yeah, totally imagined
Yeah, so thank you Doug. Yeah, thanks so much. Thank you. Thanks for for having me. It was a lot of fun
It really was and prepping for this was so interesting learning all this history that I didn't know even having worked there
It was great. So fun. Thank you guys
All right listeners now is a great time to talk about one of our
favorite companies
Statsig yes long time acquired partner
There is a reason why the best product teams at companies like open ai and notion atlasian figma rippling brex
And more rely on statsig whether they are iterating on their core product features or shipping ai powered experiences at scale
Yep in the crazy speed of today's ai world shipping fast is just table stakes now
It's basically trivial to build and deploy your app constantly
The real advantage is how quickly you learn
What changes actually created value for customers and how fast you can use that signal to guide what you ship next
Whether it's a feature tweak a pricing change a performance improvement or an ai update like a model change or prompt adjustment
They're not relying on instinct. They're measuring what actually moved engagement retention and ultimately revenue
And as more teams build with ai that learning loop becomes even more important
Building with llms introduces non determinism into your product experience
The same input doesn't always produce the same output and behavior can shift in subtle ways in real world use
So doing offline evals will give you part of the picture
But you can really only understand the impact once your product is live with real users
And then you can measure how their behavior actually changes
It's very different than the way that you would ship features in a pre ai world where you knew exactly what the
Software was going to do in production. Yeah, exactly
So this is where statsig comes in it brings experimentation feature flags and product analytics into one unified system
So teams can ship safely test rigorously and directly link what they changed to how users actually behaved
The result is a tighter feedback loop and learning that compounds over time
So you don't just ship more you ship better
So if you want to make learning your competitive advantage, whether you're building new ai experiences or just evolving your existing core product
Go to statsig.com slash acquired to get started
Check out our second show acq 2 if you want more acquired
We just recorded a couple more episodes actually that we have getting ready to come out that i'm very very excited about
That of course is a way for you to go deeper and nerdier into topics that just
Either aren't ready for the main show or perhaps are too current for the main show since what we try to do here is
Tell the big canonical stories
Oftentimes there are stories in flight where we just want to talk to experts about what's happening like jake saper in
Ai talking about what it's doing to the b2b sass landscape right now and where profit pools may emerge in that
Yeah, or avalok cole the ceo of angel list. That was a great conversation with him
We had david shoe from retool
All the hits david
We've got a slack. We would love to see you there
We're going to be talking about this episode acquired fm slash slack
And if you would like to come deeper into the acquired kitchen you should become an lp
Where we will at least once a season have you help us select one of the episodes in fact completely defer to you
To select one of the episodes and beyond that we also will be doing
bi-monthly zoom calls
So we can get some feedback directly from all of you and get to meet more of you
So acquired fm slash lp if you would like to become an lp
Now with that listeners and a huge thank you to our partner in crime on this episode doug demiro
We will see you next time. We'll see you next time
About this episode
Porsche’s story on Acquired starts with the brand’s unusual balance of luxury and daily-driver practicality, then zooms out to the German auto roots that shaped it—Benz, Daimler, Ferdinand Porsche, and the Nazi-era entanglements. From a consulting firm in Austria to Beetle royalties and the 356/911 blueprint, the episode tracks how racing, engineering, and corporate finance built Porsche’s identity. It also covers the 914/928/Boxster pivots, the Cayenne gamble, and the Volkswagen takeover saga—ending with Porsche’s modern EV and SUV-driven dominance.
24 hour race
Acura
air suspension
all wheel drive
analog feel
apocryphal
Apple CarPlay
Audi 5000
Audi RS 3
bailout
Audi e-tron
Audi e-tron GT
Audi RS2
Audi RS 6
Audi SQ7
Bentley Bentayga
BMW 7 Series
BMW X5
Cadillac Escalade
Chevrolet Corvette
Ferrari LaFerrari
Fiat 500
Ford F-150
Ford Model T
Honda CR-V
Hummer EV SUV
Jaguar E-Type
Jaguar XJ-S
Jeep Wrangler
Kia EV6
Lamborghini Urus
Mazda CX-5
McLaren P1
Mercedes-Benz 500E
Mercedes-Benz E-Class
Mercedes-Benz G-Class
Mercedes-Benz S-Class
Mercedes-Benz SL
Nissan 300 ZX
Porsche 356
Porsche 550 Spyder
Porsche 718
Porsche 901
Porsche 911
Porsche 912
Porsche 914
Porsche 918 Spyder
Porsche 924
Porsche 928
Porsche 944
Porsche 959
Porsche 968
Porsche Boxster
Porsche Carrera GT
Porsche Cayenne
Porsche Cayman
Porsche Macan
Porsche Panamera
Porsche Taycan
Tesla Model S
Toyota Prius
Toyota RAV4
Toyota Supra
Volkswagen Beetle
Volkswagen Golf
Volkswagen Karmann Ghia
Original notes
Nobody’s perfect — including Porsche. Despite that phrase appearing in their famous 1983 magazine advertisement, they managed to get damn-close to the perfect luxury business (even Bernard Arnault would be jealous!). Porsche is both quality AND quantity, owning the most prestigious brand in its market, while at the same time churning out almost half a million mass-market soccer mom/dad SUVs per year. And like any good luxury brand, it’s packed with enough juicy family drama and creeping takeovers to fill a Netflix series.
Yet, behind it all lies perhaps the darkest origin story we’ve ever told on Acquired. Not only was Porsche was started by Nazis, Adolf Hitler himself was deeply involved in its early fortunes. And, following WWII, the Allies simply looked past these facts and essentially bestowed a license to generate wealth on Porsche and its owners — setting the stage for them to become one of the top ~15 wealthiest families in the world today.
Joining us to explore it all is perhaps the very most-qualified person in the person in the world: the one & only Doug DeMuro. Not only is Doug the largest independent car reviewer on YouTube with millions of subscribers (we’re HUGE fans), he previously worked at Porsche corporate and owns a legendary Porsche Carrera GT — which served as the recording backdrop for this episode. Make sure you tune in to watch the video version! :)
Sponsors:
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- Statsig: https://bit.ly/acquiredstatsig26
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Links:
- Doug’s YouTube channel (which we HIGHLY recommend)
- Cars & Bids
- Episode sources
Carve Outs:
Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.
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Ben Gilbert and David Rosenthal
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