With Ford and GM losing billions and millions respectively, one might think competition is turning the car game into one of slim pickings for profits. Not so, says Porsche, and posts profits of 2.7 billion dollars.
What’s their secret? One overarching design that’s been stable for 40 years and just three current lines: Cayenne, 911, Boxster/Cayman. That simple recipe has made Porsche the most profitable (per unit) car maker in the world.
They’re doing so well in fact, that this “little” sports-car maker has just increased its stake in the German giant VW to 30%. Not too shabby from a niche company that sold just ~2,500 cars in October for North America/Canada.
John Topley
on 16 Nov 06And I would argue that the Cayenne is a line too far and has devalued the brand. In design terms at least – it’s obviously not hurting Porsche’s bottom line. Porsche should make sports cars not SUVs!
Bernd Goldschmidt
on 16 Nov 06They increased it to “only” 29.9% because of regulation issues.
Another good example for “less car” is the highly successfull Renault/Dacia Logan. Available in Europe between 5000 € and 7000 €. Has everything a car needs today.
Benoit
on 16 Nov 06A stable design, few models. It makes me think about Apple. Two companies understanding the “Less is More” mantra :)
Matt
on 16 Nov 06I swear everyone’s doing it now just to drive me mental.
The word is LOSE. I don’t understand how all these people can apparently operate a computer and yet weren’t present in Elementary school when the teacher went over the difference between LOOSE and LOSE and LEAD and LED.
Jebus.
Nic
on 16 Nov 06As I commented a while ago, here in South Africa we can still by (sorry Matt) a Citi Golf which i essentially a Mark 1 VW Golf. Now with fuel injection and air-conditioning, and a best seller in the country for the last i-don’t-know-how-many years…
Joe Ruby
on 16 Nov 06Now the guys at 37S must be buying Porsches…
Ben Darlow
on 16 Nov 06...and good marketing? I don’t know anybody who drives who’d choose a Porsche over pretty much any other sportscar. They’re ugly and (by all accounts) don’t handle very well. The cheaper models like the Boxster don’t compare favourably to other competing sportscars, so I’m kind of wondering howcome they’re so popular?
At any rate, is a cookie-cutter approach to cars even appropriate? Car buying habits in different countries vary dramatically (compare the North American fondness for SUVs and pickups to the ‘super-mini’ class more popular in Europe and Japan). Then you have various preferences in terms of fuel type (petrol/gas, diesel, electric hybrid, hydrogen) and ‘luxury’ upgrades to consider. And when you realise that cars are still a product that can garner a significant profit margin, of course it makes more sense to cater to the particular whims of your customerbase. If anything, falling sales and profits in various car companies is more likely to be to do with rising fuel prices and consumer uncertainty coupled with falling production costs in the East.
Totally off-the-cuff and without-justification remark here, but I’d wager that small product ranges with fewer choices only work when you’re selling a commodity – or cheap – product. Why? Well, customers don’t want excessive choice when they’ve a roughly clear idea of what they want, and they’re comfortable with the cost. As soon as they cross a price boundary (whatever that might be) then they’re every bit as fussy over the details as your worst nightmare client.
Ed Byrne
on 16 Nov 06Argh – the Cayman is a totally separate line which only has the mid-engine in common with the Boxster, and a lot borrowed from the 911 !!!
Drives me nuts when people compare it to the Boxster … completely de-value’s it!
I actually prefer it to the 911 – there’s no back seat, but the rear-boot can take a set of clubs, a snowboard or kiteboard and enough luggage for a week away.
Daniel
on 16 Nov 06Matt >> How’s your Danish?
David >> I think you sometimes seems to draw to wide conclusions from incidents. Lada and Skoda (before VAG) did very much the same as Porsche – one design, few lines and no change …
Way back Porsche got some hype that made it’s status remarkably high. Maybe the design deserved it, but it also was a result of coincidents and luck. What I think can be learnt from their history is how to preserve success, not how to achieve it in the first place.
Phil
on 16 Nov 06Saab and Hummer (both part of GM now, yes) also has one overarching design, yet they are losing money hand over fist.
The reason Porsche is succeeding where GM and Ford is failing is the brand reputation. Even if GM made cars that ran on water and never broke down, people would still swear them off because of experiences in the past. GM and Ford have basically spent all their good will. Time to break up and start over with new brands and lower pensions.
dave
on 16 Nov 0615 years ago, Porsche’s line was even simpler than it is today (two lines, one overarching design that was largely stable for thirty years), and they nearly went bankrupt. The future holds no guarantees, either.
The point is that the The car business tends to be highly cyclical. 5 years ago, Ford and General Motors were raking in record profits of billions of dollars per quarter. IMO, their shortsighted product development planners led them astray.
Finally, I’ll just point out that a significant portion of this quarter’s profits were unusual and from sources that had LITTLE TO DO WITH THEIR CAR BUSINESS. Quoting from the article you linked to:
“The above-average surge in profit was, however, the result of one-off effects and special items, including the sale of CTS Fahrzeug-Dachsysteme GmbH, Bietigheim-Bissingen, with a book gain of 80.7 million Euros, profit from the Group’s investment in Volkswagen AG, Wolfsburg, accounting for 203 million Euros, and earnings from share price hedging in connection with the purchase of VW shares which alone made a contribution to profit easily of the order of triple digit millions.”
Michael
on 16 Nov 06North America/Canada?
Canada is still included in North America.
Dan Boland
on 16 Nov 06Even if GM made cars that ran on water and never broke down, people would still swear them off because of experiences in the past.
I don’t think that’s true. Look at Hyundai. They went from the days of being called “High ‘n Dry” to now being right up there with Toyota and Honda in terms of quality, and the sales figures reflect that.
CoryS
on 16 Nov 06For the folks that think the Boxster/Cayman are really that different, here… http://www.autofieldguide.com/driven/0902dri04.html. Of note, ”...the 911, with which the Boxster shares about 40% of its parts…”
In reality, the Porsche SUV is driving sales and profits and “is the best selling Porsche by far”. (http://www.forbesautos.com/reviews/2005/porsche/cayenne/comparison.html)
A reference on this phenomenom is a decent write up on the topic – Trading Up by BCG ( http://www.bcg.com/publications/trading_up/introduction.html ). Easy to talk of brand dilution, but BMW seems to be as profitable as Porsche, and better tuned to their audience with a larger line which does include a SUV, convertables, and even a lower end brand (the Mini).
On ‘simple’, this kind of reasoning is being utilized by Ford (on Jags) and by GM’s Saab (melding with the Malibu of all lines). Clearly the trend of consolidating the parts will continue, but that’s not creating tighter product lines, just tighter operations.
Consistent with Dave’s thoughts.
Mike
on 16 Nov 06Benoit: “A stable design, few models. It makes me think about Apple.”
How many versions of iPods are out there?
justin
on 16 Nov 06Maybe Porsche is profiting because they’ve own a big piece of Volkswagen. You said they increased their ownership to 30%, but it was already quite high (21%) before that.
justin
on 16 Nov 06oh yeah, Ben Darlow.. you’re crazy.
Phil
on 16 Nov 06Dan, Hyundai started out crappy and has slowly built it’s rep. Very few American’s overall have owned Hyundais, and thus there is still plenty of room to “grow” the brand, and for people to discover them for the first time. I’m betting someone that owned a 92 Accent may not go back to Hyundai.
On the other hand, I would wager that a vast majority of American’s have owned an American car, or driven one via rental fleets. Imperically, many GM/Ford brands are above average in reliability these days (while porsche and nissan have fallen dramatically), but Americans still think of GM/Ford cars as cheap, boring, and unreliable.
Mo
on 16 Nov 06Re: Hyundai.
Yeah, those designers at Hyundai are doing a great job. Great job at copying the designs of other cars.
Sonata looks like Audi A series 2003 Elantra looks like Toyoat Camry/Carolla 2002 Santa Fe looks like Volvo XC90 SUV
Justin N.
on 16 Nov 062.7 billion. Wow. I guess it’s all about focus and growing out of a niche. Really impressive.
Tim
on 16 Nov 06I’m glad to hear they are doing well.
Though personally, I lost respect for their brand when they released the Boxster. In my opinion, it extremely devalued the Porsche brand.
Daniel Lakier
on 16 Nov 06Almost 50% of Porsche’s sales are the new(ish) Cayenne, and they also have the highest margins.
I am afraid I disagree with the premis of this post. Porsche is doing well because :
1) They make good cars 2) Luxury buyers exhibit inelastic demand curves (they spend money, regardless of the state of gas, price of cars, inflation, etc., because they are rich enough) 3) They have a good brand 4) SUVs are lucrative
If Porsche did not have the Cayenne, Porsche we would not be talking about their success.
justin
on 16 Nov 06Because they are.
I guess the 914 didn’t bother you too much? Weird.
Scott
on 16 Nov 06Isn’t that comparing apples to oranges? I mean walmart doesn’t consider the sharper image to be a key competior. Don’t get me wrong, american car companies are really dissapointing, but to say that they could have per unit margins like Porsche is just plain sensational.
Neil
on 16 Nov 06I hear that VW cars are very popular in Europe/Holland. =P
TS
on 16 Nov 06Interesting to hear comments about porsche quality and performance from folks that only read about them in magazines.
The 911 has been an evolution of a product over 40+ years.
The Cayenne (Turbo) is an amazing vehicle – without the turbo its a yawner both in performance and details.
Looking forward to adding a panamera to the stable from germany.
John Topley
on 16 Nov 06Yeah, what were they thinking, bringing out an “entry-level” mid-engined sports car. Think goodness they rediscovered their heritage and brought out the Cayenne. It looks like a 911 that’s eaten too many pies and is on stilts. Definitely a contender for the most ugly car in the world and that’s before you look into its dreadful environmental credentials.
Andy
on 16 Nov 06Amazingly, there are serious rumors now about a full VW take over bij Porsche. http://www.forbes.com/markets/economy/2006/11/16/volkswagen-porsche-bid-markets-equity-cx_po_1116markets04.html
dave
on 16 Nov 06Daniel Lakier: Exactly. Porsche’s financial success is due largely to their decision to make their product line more complex and less focused than it had been in the past.
One of the chief reasons Porsche gave for the introduction of they Cayenne was that sports cars are are a highly seasonal business; without a year-round offering, they couldn’t convince dealers to really invest heavily in their franchise.
street
on 16 Nov 06Our soon to arrive Chinese overlords will take over the car market in a few years just like the Japanese did 30 years ago.
I’ve got my eye on a Beauty Leopard: http://www.geely.com/english/aoto/Beautyleopard_Function.htm
Raineri Bello
on 16 Nov 06You can’t compare Ford/GM to Porsche, they are completely different markets. Ford/GM target the general public, Porsche targets the upper class, that is why they can make so much money per unit and get off with sellingo less, they have a luxury product with good branding that gives them a good profit margin. That is all fine and dandy, but Ford and GM target the general market, thus while per unit they cannot make as much, in the end the can make much much more (Toyota had revenues of $173 Billion last year, compared to Porsches €6.57 billion).
Comparing them to Porsche is pretty silly. As few vehicles as they have that is not their secret, their secret is luxury… targeting the rich. If you want to sell less you have to charge more and for that the only market is the rich. If Ford/GM tries to make less cars/models and push them to the general public they will not succeed, because they need cars for every target market / niche that fit their customers. So while Porsche makes more per unit, Ford/GM has the potential to make more profit in the long run (like Toyota) - if they fix their mistakes that is.
dale
on 16 Nov 06I can’t believe you are comparing Porsche to the big three automakers. Even more idiotic is the fact you are trying to weave 37 sigs keep is simple moniker into the argument. It just shows a total complete lack of any knowledge of multinational businesses that supply various segments. In the future please keep the articles to subject matters you have an understanding of.
Ben Darlow
on 17 Nov 06Justin: sure, I am…. crazy like a fox!
This discussion is closed.