Running Head: PORSCHE GROUP FINANCIAL AND SWOT REPORT 1
Running Head: PORSCHE GROUP FINANCIAL AND SWOT REPORT 7
HISTORY
As stated in the introduction, Dr. Ferdinand Porsche founded Porsche as an automobile design and engineering company in Germany in 1930 (History of Porsche – Funding Universe, nd.). Dr. Porsche’s reputation for innovative car designs did not go unnoticed, attracting the attention of Adolf Hitler. The collaboration between Porsche and Hitler resulted in the 1939 production of the Type 60 KdF-Wagen (Price, 2006). Porsche, who designed this car, preferred to call it the Volkswagen, or “people’s car (Price, 2006). The German people, however, referred to the car as the Beetle, the iconic name that the car is known as to this day (Price, 2006). While the early history of the company may be controversial, Porsche moved on to start manufacturing by 1948 its own “expensive, handmade, high performance sports car” (History of Porsche – Funding Universe, nd.). Using the design of the Volkswagen Beetle as a platform, Porsche started production of a handmade lightweight sports car, making five cars a month (History of Porsche – Funding Universe, nd.).
By 1956, Porsche had produced its 10,000 car (History of Porsche – Funding Universe, nd.). As the Porsche Company entered the 1960’s, it developed its most iconic and popular sports car, the 911. Introduced in 1964, the 911 was a two-seat sports car that had a rear mounted air-cooled flat engine, and featured a “low waistline and expanded glass areas [that] gave the new design a more elegant look” (History of Porsche – Funding Universe, nd.). The decades of the 1970’s and 1980’s saw the export market grow for Porsche, with Japan and the United States being major customers. In fact, 70% of the vehicles manufactured in 1981 at the Stuttgart plant were exported, with the United States accounting for almost 40% of Porsche’s total sales (History of Porsche – Funding Universe, nd.) By the 1990’s the export market for Porsche had collapsed, with over 30,000 sports cars sold in the United States in 1986, dropping to only 4,133 sports cars sold by 1992 (History of Porsche – Funding Universe, nd.). Porsche reacted to this by hiring a new CEO in 1992 who was charged with reducing costs and increasing efficiency (History of Porsche – Funding Universe, nd.). This had the desired outcome, with care sales rebounding in the United States rebounding to over 18,000 in 1998 (History of Porsche – Funding Universe, nd.). In 2005, Porsche expanded its footprint by merging with Volkswagen, in an effort to leverage Volkswagen’s resources in the joint development of new technologies (Ewing, 2005).
FINANCIALS
Since merging with Volkswagen in 2005, the Porsche Group seems to be on sound financial footing. One method to determine the financial health of a company is by using financial ratios, which pinpoints “ratios of key financial statement accounts that are helpful in identifying financial performance that merits further analysis” (Hickman, Byrd & McPherson, 2013). One area to look out when using financial ratios is liquidity. In regards to the Porsche Group’s liquidity, the current ratio and quick ratio will be examined. The current ratio is a measure of short-term debt paying capacity (Hickman, Byrd & McPherson, 2013). The formula for current ratio is the company’s current assets divided by current liabilities. With this rate, the higher the number the better. For the Porsche Group, the rate as of December 2013 was 6.48 (Mergent Online, 2013). In comparison, Ford Motors current ratio was only .60 during the same time frame (Mergent Online, 2013). The quick ratio formula, which measures short-term liquidity, is current assets minus inventory divided by current liabilities (Hickman, Byrd & McPherson, 2013). The quick ratio as of December 2013 for the Porsche Group was 6.48 (Mergent Online, 2013). Once again, in comparison, Ford Motors quick ratio was .49 during this time frame (Mergent Online, 2013). Another area of financial health to look at is long term debt. As of December 2013, the Porsche Group had no long term debt (Mergent Online, 2013). Using Ford in comparison again, 54.32% of its invested capital was long term debt (Mergent Online, 2013). Working capital is another area that indicates financial health. To determine working capital, the current liabilities are subtracted from the current assets (Hickman, Byrd & McPherson, 2013). The ratio for this measure is current assets / current liabilities, with a rate over 1 being considered positive (Hickman, Byrd & McPherson, 2013). Using this formula, Porsche has a working capital rate of 6.81 as of December 2013 (Mergent Online, 2013). Ford’s rate for the same time frame was .59 (Mergent Online, 2013). While not all financial indicators were looked at, the ones that were showed the Porsche Group to be sound financially at this point, especially when compared to the Ford Motor Company.
SWOT ANALYSIS
STRENGTHS
Engineering and Design – Porsche is renowned for its engineering and design in the automotive industry. Under the Porsche Engineering Group (PEG), the company has shared its research and development (R&D) capabilities with outside companies (Henderson & Reavis, 2009). Since merging with Volkswagen, Porsche now has the ability “draw on Volkswagen's resources as they jointly develop new technology, such as gasoline-electric hybrid technology” (Ewing, 2005). Financials – Porsche continues to be sound financially. This is illustrated by the fact that Porsche leads the industry on profit per unit basis. Porsche’s average revenue per car was $91,974 in 2007 (Henderson & Reavis, 2009). Also in 2007, the companies income “income topped $9.4 billion on revenue of $10 billion” (Henderson & Reavis, 2009).
Quality – J.D Power and Associates rated Porsche the top brand in “Initial Quality Study” (based on fewest problems per 100 vehicles) for 2006-2008 (Henderson & Reavis, 2009). Porsche spends 12% of revenue on R&D, while the rest of industry only averages about 5% on R&D (Henderson & Reavis, 2009).
WEAKNESSES
Porsche’s merging with Volkswagen could possibly dilute the Porsche brand. Customers have concerns over outsourcing assembly and engineering to Volkswagen facilities. Collaboration on the Porsche Cayenne and Volkswagen Touareg has highlighted these concerns. While the Volkswagen portion of the company has an abundant production of vehicles, the Porsche brand could suffer because of the limited amount of vehicles produced, along with the price sensitivity of the high performance sports car market. Another weakness is the fact that Porsche vehicles use premium gas only.
OPPORTUNITIES
While collaboration with Volkswagen on the Touareg was listed as a weakness, the Porsche Cayenne has been a success. Porsche can make inroads into the SUV market if it can leverage the success of the Cayenne into both larger and smaller vehicles. Porsche can also capitalize on the hybrid technology of Volkswagen by introducing this technology into the sports car platform. This will, in turn, have the effect of positioning Porsche as an environmentally friendly company.
THREATS
The external threats to the Porsche Group will continue to be governmental policies, competitors, the economy, and natural disasters. Internally, the company has to guard against brand deterioration. In other words, a Porsche must remain a Porsche, and a Volkswagen must remain a Volkswagen. While collaboration between the brands can be beneficial, too much cross-pollination will dilute the characteristics that make each brand unique.
RECOMMENDATIONS
In the mid-1980s through the mid-1990s, the Porsche Company was about to go through bankruptcy (Henderson & Reavis, 2009). A new CEO took over and turned the company around, emphasizing lean manufacturing and building new core competencies (Henderson & Reavis, 2009). As this turnaround has shown, the way forward for Porsche is to focus on Total Quality Management, lean manufacturing, and staying true to the brand. By concentrating on the core competencies and values of the Porsche brand, the company can stay viable well into the future. In turn, the Porsche Group must let Volkswagen and its brands continue to define their own identity. Maintaining brand identity, while continuing to synergize on processes and technology, will be a challenge for Porsche.
References :
Ewing, J. (2005). Porsche's Risky Ride with VW. Businessweek Online. Retrieved on September 29, 2014 from http://web.b.ebscohost.com.proxy-library.ashford.edu/ehost/ detail/detail?vid=10&sid=73bd0608-929a-45ce-bd81-8c848a12ae10%40sessionmgr 198&hid=126&bdata=JkF1dGhUeXBlPWlwLGNwaWQmY3VzdGlkPXM4ODU2ODk3 JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bsh&AN=18460466
Henderson, R., & Reavis, C. (2009). What’s Driving Porsche? Retrieved on September 28, 2014 from https://mitsloan.mit.edu/LearningEdge/CaseDocs/08-075- What%27s%20Driving%20Porsche.Henderson.pdf
Hickman, K. A., Byrd, W. J., & McPherson, M. (2013). Essentials of Finance. San Diego: Bridgepoint Education, Inc. Retrieved on September 28, 2014 from https://content.ashford.edu/books/AUBUS401.13.1/
History of Porsche AG – FundingUniverse, (n.d.). Retrieved on September 28, 2014 from http://www.fundinguniverse.com/company-histories/porsche-ag-history/
Mergent Online, (2013). Ford Motor Co. Financial Highlights as of 12/31/2013. Retrieved on September 29, 2013 from http://www.mergentonline.com.proxy-library.ashford.edu/ companydetail.php?pagetype=highlights&compnumber=3424
Mergent Online, (2013). Porsche Automobile Holding SE. Financial Highlights as of 12/31/2013. Retrieved on September 29, 2013 from http://www.mergentonline.com. proxy-library.ashford.edu/companydetail.php?pagetype=highlights&compnumber=32767
Price, R. (2006). The Beetle in Battle. World War II [serial online]. May 2006; 21(2):58-64. Retrieved on September 28, 2014 from http://web.b.ebscohost.com.proxy- library.ashford.edu/ehost/pdfviewer/pdfviewer?sid=73bd0608-929a-45ce-bd81- 8c848a12ae10%40sessionmgr198&vid=6&hid=126
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20181126012437bus_402_week_2_assignment.docx
