Volkswagen-Porsche: On the Right Road?

by J Kraus

1970 VW-Porsche 914-6

1970 VW-Porsche 914-6

While members of the Porsche and Piech families gather today in Salzburg to confront the reality of the €9 Billion of debt they have assumed in taking control of Volkswagen, search for Arab investors to ride to their rescue and decide how to integrate the two companies, there is another long-term issue within the VW-Porsche empire.

While Toyota concentrate their efforts and resources developing and marketing three major automotive brands (Toyota, Lexus and Scion); Volkswagen-Porsche is currently host to no less than eight (Skoda, VW, SEAT, Audi, Porsche, Lamborghini, Bentley and Bugatti.) What no one seems to notice is that VW is following the classic GM playbook to the letter, only with even more brands. This strategy worked well for GM…until it didn’t.

At the heart of the market, VW covers most sizes and price points with overlapping offerings from Skoda, VW, SEAT and Audi. VW make all manner of marketing justifications and will describe how each brand is unique and appeals to different slices of the market, just as we heard from a succession of managements at GM. As an example, VW profess that the SEAT and Audi brands appeal to the more sporting driver. If one accepts that rationale, than one must ask why VW offers GTI versions of the Golf and Polo, and are reintroducing the Scirocco. Are those models not sporting?

At the end of the day, the more mainstream Volkswagen products are basically VW’s under the skin. Dressed down in jeans and a tee shirt, they are sold as Skodas. Wrapped in Balenciaga jackets they are proffered as SEAT’s. Clothed in Hugo Boss suits they are offered as Audis. You can fool some people some of the time… but for how long?

In the luxury sedan market, to compete with its own Audi A8, VW brought us the VW Phaeton. Later this year, the Porsche Panamera will battle against the Audi S8.

In the sports car market, they now have the various versions of the Porsche 911, the Lamborghini Gallardo, and the Audi R8 all competing in the same arena.

The Panamera is the second recent Porsche to utilize VW engines. As the sought-after consolidations and cost reductions continue (VW chief Martin Winterkorn stated that VW offers a “gold mine of savings potential”), the ensuing cross-sharing and badge-engineering will continue to slowly erode remaining brand distinctions.

President Obama’s Automotive Task Force noted that GM’s many brands “distract the focus of its management team, demand increasingly scarce marketing dollars, and are a lingering drag on consumer perception…” This same observation could be applied to the current state of affairs at VW-Porsche. Besides GM, there is only one other company in automotive history to offer this many brands: British Leyland. It did not end well for them.

In 2006, VW spent considerable funds in an attempt to launch the SEAT brand in South Africa. It failed and they left the market in 2008. The Phaeton was withdrawn from the U.S. market. First signs of trouble? Will Porsche continue to allow in-house competition from Audi and Lamborghini?

As an automotive enthusiast, I believe that the more brands to choose from, the better. Unfortunately, experience has shown that when too many brands are brought under one roof, they inevitably become more and more alike until they are all but indiscernible.

Advertisements

10 thoughts on “Volkswagen-Porsche: On the Right Road?

  1. While some of the VAG Group models are still distinctive, many of them are indeed just clones of each other, and I fear it will get worse and that there will be much more powertrain sharing.

  2. As they strive to reduce costs and consolidate components, I hope the narrow-angle V and W engines survive.

  3. Long-term, I wonder who will be allowed to be top dog in performance – Porsche or Lamborghini?

    I doubt that Bugatti will survive in the long run – they have probably lost money on every one.

  4. In the states, VW buyers don’t cross-shop Audis. As close as the Passat is to the A4, there is little cannibalism. Same as A3/GTi. Price gaps, dealer experience, etc are different.

    Same with Porsche and Lambo. Not much crossover. If there is… the fella has enough to buy one of each. If anything, VW making a mid-engined roadster should have Porsche bent… Audi’s version would be creeping into Boxster/Cayman territory. (The Porsche -should- get one and call it a 914.)

    Phaeton may have been a mistake in the US, but it’s a glorious car. A Bentley in a plain wrapper.

  5. Used Phaetons are the best luxury car bargain in the US. Especially nice if you can find one with the rare 4-bucket seat option.

    Like JayP, I also find their ‘incognito’ character appealing. It’s too bad they didn’t offer a similarly discrete sport version in the spirit of the old Mercedes 6.3 or or the early six-cylinder M5’s. I don’t care much for the current ‘look at me’ M’s and AMG’s with their quartets of oversize exhausts and boy-racer styling cues.

  6. UPDATE: My Economist arrived in the mail yesterday with an interesting article on the VW-Porsche situation. The Porsche takeover attempt has failed and it looks as if Porsche will end up joining the VW group as just another one of it many brands.

    Porsche as a company will in all likelihood cease to exist and will be demoted to a ‘division.’ Porsche CEO Wendelin Wiedeking is not expected to survive the transition.

    No matter what happens at this point, it is the end of Porsche as an independent concern. This leaves BMW as the sole remaining financially secure independent automobile manufacturer.

  7. One might also look at the situation in a different way. Car manufacturers are seeking to move their production facilities to low wage countries. Volkswagen did have a problem there, with strong German unions and a German state being a 20 percent owner of the VAG group, with the right to veto any decision.
    So instead of moving VW production out of Germany, they have set up facilities in Spain (SEAT) and the Czech Republic (Skoda), building cars which are essentially Volkswagens under the skin. So they have their low cost production plants, without moving a single VW job out of Germany.
    JanH

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s