7 ms·

Porsche on the financial brink

21 points by hardik 17y ago

eru 17y ago
Please correct spelling: Porche -> Porsche. Thanks.
anigbrowl 17y ago
A weak article, but the story is interesting. It has been better covered in the Economist: http://www.economist.com/finance/displaystory.cfm?STORY_ID=12523898 http://www.economist.com/finance/displaystory.cfm?STORY_ID=1... http://www.economist.com/business/displaystory.cfm?story_id=13649071 http://www.economist.com/business/displaystory.cfm?story_id=... And if you are really interested in capital machinations and strategy, I would recommend reading all the Economist stories in chronological order (use Google rather than their lamentable in-house search engine) for the blow-by-blow treatment. It's a great story which will likely become the subject of a book next year, and might even make a good movie. Sadly, one German investor was so badly hit by Porsche's aggressive financial strategy that he committed suicide after losing billions of Euro when Porsche made its famous 'short squeeze' play.
- sho 17y ago
  "Sadly, one German investor was so badly hit by Porsche's aggressive financial strategy that he committed suicide after losing billions of Euro" I just can't understand this kind of thing. If someone has enough money to be making bets in the billions, you'd expect them to have at least a few million put away somewhere for a rainy day. Why not just take that and run off to the Carribean or somewhere, start a new life? It's not exactly hard to get out of Europe. Killing yourself!? Geeze, it's only money.
  - TriinT 17y ago
    Many people value their own worth based on how much loot they have amassed. If you lose it all, then you're worth nothing. BTW, the german guy was an old tosser just waiting to see what kind of cancer would kill him. Not much of a loss to mankind, I'd dare to say...
alex_c 17y ago
More meat here (from New Mogul): http://www.bloomberg.com/apps/news?pid=20601100&sid=aMBkiI5gvZnA&refer=germany http://www.bloomberg.com/apps/news?pid=20601100&sid=aMBk... I'm still a bit confused as to what caused the takeover to fail. The Bloomberg article makes it seem that it was mostly a regulatory problem. Or is it more that Porsche doesn't have the cash to exercise its options in VW? Edit: the Economist article posted by anigbrowl explains it better. Three things thwarted Porsche. In January the firm increased its stake in VW to its present 50.8%, almost tripling its net debt to €9 billion in the process, just as sales at Porsche’s car business were tumbling—leaving less cash to pay the interest on the debt. Second, conditions in the credit markets made it harder to go on borrowing more. On March 24th Porsche was able to roll over its existing loan only by pledging its VW shares to the banks and promising to pay back €3.3 billion within six months. Third, Porsche was counting on the repeal of the so-called Volkswagen Law that restricts individual shareholders to 20% of the voting rights, regardless of the number of shares they own, and gives the state of Lower Saxony a veto on major decisions. The law’s abolition would have allowed Porsche to use its anticipated 75% stake in VW to get its hands on the bigger company’s cash reserves, which stood at €10.7 billion at the end of the last quarter. But despite a recent amendment by the German federal government, the law still guarantees Lower Saxony’s veto. The state’s premier, Christian Wulff, sees Porsche as an opportunistic would-be plunderer. With his support and that of Bernd Osterloh, the head of the powerful VW works council, Mr Piëch feels he is in a position to dictate terms to Porsche.
- eru 17y ago
  Yes. A problem of regulation and family feuds.
tybris 17y ago
One thing's for sure, after this crisis we'll all be driving Japanese cars.
- donw 17y ago
  I've been looking at new cars recently, and have to say that there's no way I would consider buying a BMW, or pretty much any car that isn't Japanese. The two- and three-year old used 3-series and Mercedes that I looked at seemed totally ragged, next to the condition of a used Lexus or even a Mazda. I could spend $40k on a 3-series, or half of that on a used Lexus, or a quarter of that on a used Mazda 3.
  - sho 17y ago
    What you say is pretty much true, except I think you're a bit harsh on the BMWs - maybe you just saw some bad examples? But societal pressure for visible evidence of success being what it is, it doesn't really matter how good the Mazda 3 is - people will pay for the BMW. And to be fair, BMWs are really good cars. There's a premium but it's not a total rip-off. Ask a girl sometime whether she'd rather date a man who drives a BMW, or a Mazda 3. That's all the information you need right there.
  - axod 17y ago
    Mazda are fantastic cars. Would recommend.
  - jarrodtaylor 17y ago
    Half that $40k would also buy an E46 M3, which would be a whole lot more fun that the Lexus or Mazda. For the whole $40k you may be able to find an early Porsche 997 (like an '05) with little if any noticeable wear.
jcl 17y ago
It's funny... To hear Ivan Krstic's story earlier this year, Porsche had made a brilliant financial coup: http://radian.org/notebook/porsche http://radian.org/notebook/porsche
- calambrac 17y ago
  They had. Things change.
  - paddy_m 17y ago
    I was just thinking of porsche's brilliant financial coup. I'm confused as to how they are now in this position.
    - calambrac 17y ago
      What's confusing? They've made some high-stakes financial plays. Their previous one worked, but this one didn't, and now they're in trouble. Is it really that mind blowing to see someone overplay their hand?
      - froo 17y ago
        I like to look at their "financial acrobatics" in a more metaphorical sense. Like driving a 911. The car is prone to oversteering, so if you push it too hard around a corner, you can lose control and spin out. Looks like this this is what is happening to Porsche. Quite ironic really, their financial position taking on the characteristics of their signature vehicle.
jpcx01 17y ago
Surprising to me. I remember reading the article a year back about how Porsche made off with billions of hedge fund dollars and remembering being amused at their brilliance in gaming those idiotic pack rat fund managers. http://www.time.com/time/business/article/0,8599,1854760,00.html http://www.time.com/time/business/article/0,8599,1854760,00....

21 points by hardik 17y ago

eru 17y ago

Please correct spelling: Porche -> Porsche. Thanks.

A weak article, but the story is interesting. It has been better covered in the Economist: http://www.economist.com/finance/displaystory.cfm?STORY_ID=12523898 http://www.economist.com/finance/displaystory.cfm?STORY_ID=1... http://www.economist.com/business/displaystory.cfm?story_id=13649071 http://www.economist.com/business/displaystory.cfm?story_id=... And if you are really interested in capital machinations and strategy, I would recommend reading all the Economist stories in chronological order (use Google rather than their lamentable in-house search engine) for the blow-by-blow treatment. It's a great story which will likely become the subject of a book next year, and might even make a good movie. Sadly, one German investor was so badly hit by Porsche's aggressive financial strategy that he committed suicide after losing billions of Euro when Porsche made its famous 'short squeeze' play.

sho 17y ago
"Sadly, one German investor was so badly hit by Porsche's aggressive financial strategy that he committed suicide after losing billions of Euro" I just can't understand this kind of thing. If someone has enough money to be making bets in the billions, you'd expect them to have at least a few million put away somewhere for a rainy day. Why not just take that and run off to the Carribean or somewhere, start a new life? It's not exactly hard to get out of Europe. Killing yourself!? Geeze, it's only money.
- TriinT 17y ago
  Many people value their own worth based on how much loot they have amassed. If you lose it all, then you're worth nothing. BTW, the german guy was an old tosser just waiting to see what kind of cancer would kill him. Not much of a loss to mankind, I'd dare to say...

alex_c 17y ago

More meat here (from New Mogul): http://www.bloomberg.com/apps/news?pid=20601100&sid=aMBkiI5gvZnA&refer=germany http://www.bloomberg.com/apps/news?pid=20601100&sid=aMBk... I'm still a bit confused as to what caused the takeover to fail. The Bloomberg article makes it seem that it was mostly a regulatory problem. Or is it more that Porsche doesn't have the cash to exercise its options in VW? Edit: the Economist article posted by anigbrowl explains it better. Three things thwarted Porsche. In January the firm increased its stake in VW to its present 50.8%, almost tripling its net debt to €9 billion in the process, just as sales at Porsche’s car business were tumbling—leaving less cash to pay the interest on the debt. Second, conditions in the credit markets made it harder to go on borrowing more. On March 24th Porsche was able to roll over its existing loan only by pledging its VW shares to the banks and promising to pay back €3.3 billion within six months. Third, Porsche was counting on the repeal of the so-called Volkswagen Law that restricts individual shareholders to 20% of the voting rights, regardless of the number of shares they own, and gives the state of Lower Saxony a veto on major decisions. The law’s abolition would have allowed Porsche to use its anticipated 75% stake in VW to get its hands on the bigger company’s cash reserves, which stood at €10.7 billion at the end of the last quarter. But despite a recent amendment by the German federal government, the law still guarantees Lower Saxony’s veto. The state’s premier, Christian Wulff, sees Porsche as an opportunistic would-be plunderer. With his support and that of Bernd Osterloh, the head of the powerful VW works council, Mr Piëch feels he is in a position to dictate terms to Porsche.

eru 17y ago
Yes. A problem of regulation and family feuds.

tybris 17y ago

One thing's for sure, after this crisis we'll all be driving Japanese cars.

donw 17y ago
I've been looking at new cars recently, and have to say that there's no way I would consider buying a BMW, or pretty much any car that isn't Japanese. The two- and three-year old used 3-series and Mercedes that I looked at seemed totally ragged, next to the condition of a used Lexus or even a Mazda. I could spend $40k on a 3-series, or half of that on a used Lexus, or a quarter of that on a used Mazda 3.
- sho 17y ago
  What you say is pretty much true, except I think you're a bit harsh on the BMWs - maybe you just saw some bad examples? But societal pressure for visible evidence of success being what it is, it doesn't really matter how good the Mazda 3 is - people will pay for the BMW. And to be fair, BMWs are really good cars. There's a premium but it's not a total rip-off. Ask a girl sometime whether she'd rather date a man who drives a BMW, or a Mazda 3. That's all the information you need right there.
- axod 17y ago
  Mazda are fantastic cars. Would recommend.
- jarrodtaylor 17y ago
  Half that $40k would also buy an E46 M3, which would be a whole lot more fun that the Lexus or Mazda. For the whole $40k you may be able to find an early Porsche 997 (like an '05) with little if any noticeable wear.

jcl 17y ago

It's funny... To hear Ivan Krstic's story earlier this year, Porsche had made a brilliant financial coup: http://radian.org/notebook/porsche http://radian.org/notebook/porsche

calambrac 17y ago
They had. Things change.
- paddy_m 17y ago
  I was just thinking of porsche's brilliant financial coup. I'm confused as to how they are now in this position.
  - calambrac 17y ago
    What's confusing? They've made some high-stakes financial plays. Their previous one worked, but this one didn't, and now they're in trouble. Is it really that mind blowing to see someone overplay their hand?
    - froo 17y ago
      I like to look at their "financial acrobatics" in a more metaphorical sense. Like driving a 911. The car is prone to oversteering, so if you push it too hard around a corner, you can lose control and spin out. Looks like this this is what is happening to Porsche. Quite ironic really, their financial position taking on the characteristics of their signature vehicle.

jpcx01 17y ago

Surprising to me. I remember reading the article a year back about how Porsche made off with billions of hedge fund dollars and remembering being amused at their brilliance in gaming those idiotic pack rat fund managers. http://www.time.com/time/business/article/0,8599,1854760,00.html http://www.time.com/time/business/article/0,8599,1854760,00....