Porsche (with Doug DeMuro)

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it's definitely Porsche Porsche Porsche yeah definitely don't say Porsche definitely don't say the family says it more like like because 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 a little yeah that's probably exactly what it is who got the truth is it you is it you is it you who got the truth now [Music]

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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 Porsha 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

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or a Lamborghini of course these are expensive daily drivers with the average Porsche costing a hundred and ten thousand dollars 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

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features you're going to 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 acquire Doug thank you for having me it's wonderful to have you here well listeners if you want to know every time

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an episode drops sign up for email updates at acquire.fm join the slack we'll be talking about it after this episode acquired.fm slack and without further further Ado David take us in and listeners this is not investment advice Dave 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

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Engineering in Germany and Austria it goes all the way back to the Scientific Revolution and Johannes Kepler and actually before World War II Germany had produced more Nobel laureates in scientific Fields than any other nation in the world folks like Max Planck Irwin Schrodinger Kurt godell and you know Albert Einstein these are all German and Austrian scientists and uh 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

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probably because nobody really knows because Marcus was Jewish and the Nazis destroyed all records related to him during the war we're going to 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 motor wagon and that was made in 1885 by Carl Benz I recognize that name Benz indeed you probably do as do 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

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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 yeah yeah crazy so Benz and Daimler end up merging in 1924 and that's 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 Prize winner the putting prize was for Austria's Automotive engineer of the year to come be their new chief engineer at Daimler one doctor engineer

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honoris causa Ferdinand Porsche now the uh 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 Dr 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 going to talk about all of the things the amazing things that this guy

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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 were 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

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they kind of just got you know coerced or they collaborated it's like no this dude he was always a buddy he was definitely a Nazi so when Ferdinand takes this uh 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 uh 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 Porsha 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

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it's not even much like Detroit it's not even just the car companies but all the Flyers and the subconscious 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 Porsha Ferdinand it's not a short period of time it's two decades like that he is running the engineering and the card 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 II he comes up with a concept he thinks that he can produce a small affordable car that can really become the first

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German and European Mass Market automobile now back in the U.S 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 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 two percent 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

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person to buy it and indeed it was a challenge because the board of Daimler Ben's uh rejects it uh 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 worked your portrait you have content like I think to this day the Rivalry between Mercedes-Benz and Porsche like there's some bad blood it 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

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also you know you hang you have beers with this 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 bands but other car companies in Germany in 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 bow I apologize to any German speakers that is that's but to be fair to you it's a lot it's it's a mouthful I studied

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French in college you know like and uh that translates as the doctor engineer honors calls it Ferdinand Porsche Consulting and Design Services for Motor Vehicles company and this is the beginning of Porsche of 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

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of two people one is his son-in-law his daughter Louise's husband one Anton piesh 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 piesh 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 Porsha and he's written out of History wow okay so this

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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 Volks wagon 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 like a Nazi connection here like

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Adolf Hitler founded Volkswagen it's bigger than a connection yeah there's not a connection because it's the same person that's right it is it 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 like I just gotta say this early in the episode we may as well like point it out already it is crazy how comfortable we all are driving Volkswagens 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

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the German Brands I mean you know most of them use Jewish labor in 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 a pretty incredible re-founding of Volkswagen after the war um and I think if it were not for this refunding that we'll talk about in a minute it would not exist today yeah um but uh yeah just wild friggin Adolf Hitler compounded Volkswagen so the

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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 I tried to think I could not think of

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any other model I believe the beetle the original Beetle was is likely the single longest produced and largest uh both in terms of length of time and number of units produced of a single generation model of a car 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 1999 it's interesting what do 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

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get to post-war but like in Germany at the time as 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 uh 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 Carr that was the what they wanted to call the beetle originally the straight through Joy the strength that was like a Nazi yeah much more German than that no yeah yeah and um this is Wolfsburg uh like this is the city that uh Volkswagen is still located

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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 out of Wolfsburg so Hitler creates Volkswagen he creates Wolfsburg they do start production of the beetle before World War II starts they only make about 200 units these are super rare today you find a pre-war Beetle then World War II begins in on 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

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mentioned earlier forced labor concentration camps this was the Nazi war effort It All Happened we're gonna 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 or are they no well or are they that's the question and the funny thing is also they always they danced around even in

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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 is 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 II given what we now know by the guy right the company so what happens is Wolfsburg ends up in the hands of the British at the end of the war uh and there's this whole crazy thing in Germany of like all the Allied armies are coming in in literally Germany and Berlin ends up getting split into East Germany West

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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 appropriate the Volkswagen technology and operations like the beetle was almost a British car yeah but supposedly the British didn't want it the British saw the plans for Volkswagen for the Beetle and said No One's Gonna ever want to buy that car

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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 draw you know they feel the models that they had a few that they had built and 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 territory where the factories were like on the ground managing it major Ivan Hurst a legendary figure in Volkswagen history he finds

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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 I think we can maybe do something with this here he also season this because comes increasingly obvious as the post World War II 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

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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 beetles 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 Ivan Hearst yeah totally now one of the things that I find thing about the beetle is that each Europe was so war-torn after World War II was the all these places were in

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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 many Italy had the Fiat 500 France had the Citron 2cv 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 re-mobilize 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

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countries it was more you know in their area you don't see a lot of uh citrians and yeah no but the 2cv 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 uh because there's a lot more to say on on Volkswagen in 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

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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 trains 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 more than 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

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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 piesh 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 lately 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 crime that were stacked against them

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ended up not being charged and so quick trip in and out of prison 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 um 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 gotta 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

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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 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 gemund we're talking about like a couple thousand people maybe that live in this area yeah and David are you

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getting all this from I know you read like 500 worth of textbooks on Porsche so there is this incredible history of Porsche called Excellence was expected that was written by Carl ludwigston 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 911 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 our normal amount of research on all this stuff is in

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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 a choir right okay so fairy and Louise go back to Austria they're there in gamunde 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 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 Porsches the services business the

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the second Porsche company Porsche Construction in gmbh which is an Austrian company that they start let's do this so 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 and there weren't a lot of cars so pretty quickly they're like huh we don't have any more cars to fix up and uh Bad Business yeah well not not a large Market uh shall we say at this point Ferry 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 uh you know small

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car a car for the masses a 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

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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 around and say no there were a lot of sports cars before but it was really a thing of uh real enthusiasts wealthy people that sort of thing would buy cars to go motor racing and the era 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 and others as well I

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went in and researched it when I looked up you know some of those sports cars pre-porsha and you look at them and yeah 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 like 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

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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 an air and that's kind of air helps air mixes with the fuel and it creates this big combustion and more or less that's how a combustion engine works a 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

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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 Porsches 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

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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 liked 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 gabund 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 they're a bunch of beetle parts around the beetle was the main kind of chassis platform for a lot of military vehicles for for

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Germany during the war what if we take a lot of those parts and um the basic architecture of the beetle which is a rear mounted 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 15 000 at auction maybe even a beetle like a classic one from the 50s or 60s 356 is regularly sell for about 300 000 at auction and special ones go for well well above a million this is a big idea the gulf between a beetle and a 356 totally different thing is large right Doug why is the desirability of these

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cars so different today the well I mean production numbers is probably the biggest component of that one right they made literally a zillion beetles um and the 356 is special because it really kind of was one of 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

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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 gaboon and then and then even when Porsche moves back to Stuttgart here in a minute um their production capability is not nearly as large as Volkswagen so they need to price these things pretty high they price them at three thousand seven hundred and fifty dollars the German equivalent of three thousand seven hundred fifty dollars in the late 40s that's about forty two thousand dollars today but we're talking about war-torn Europe that you're trying to sell this

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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 forty thousand dollar 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 him 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

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coming out of World War II 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 who know how to work them but like post-world War II there was a lot of optimism there was more in in Britain it was happening too mg was coming out with their sports cars Austin Healey 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 you

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know the late 40s here they're starting to produce the 356 in gaboon at the end of 1947 Ferdinand Porsche and Anton piaschke released from French prison they come back to Austria the families 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 Hurst 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 Porsches 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 uh even more than it was before the war because we could

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still really use you know technical design Consulting work and really leadership from you individual Porsches here at Volkswagen I mean after all you designed the beetle two 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 uh we'll recreate the German Porsche company it'll resume doing the technical design

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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 yep so sorry the deal is we want your Austrian company to distribute our Volkswagens 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

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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 right amazing it right nobody knew that the beetle was going to become the international hit that it would but but it also the German government did know that this was a lot of value and 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

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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 distribution right to Volkswagens and they're in countries not just in Austria they're all not Place yeah they're all over the place in

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Europe and even more incredibly so what the family decides is that Ferdinand and fairy 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 gonna 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

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the manufacturer there is no direct to Consumer was that already like obvious at this point in history when Porsche could have 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 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 um even though this new Volkswagen was

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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 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 company literally to operate in other states other countries in Europe they probably needed third parties yeah wow yeah wild right all right listeners for our first sponsor of this episode we have our good

39:28-39:90

friends at tiny tiny as you all know by now is the Berkshire Hathaway of the internet they have built and acquired the world's Premier collection of truly wonderful internet businesses it's so awesome they're like now a public company they're the ogs they started 10 15 years ago doing this and now they're doing deals up to 100 million plus in size that's crazy I never thought we would be saying that I mean back when we started working with tiny we always positioned it as if you have a wonderful small business on the internet that might be doing a couple million in operating profit things are very different now they still love buying

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those businesses but they have real scale to be sort of the buyer of choice for internet businesses of any size yeah tiny has always been a great destination for bootstrapped and founder-led businesses but now they're also at a scale where they can work with Venture firms too so for companies in your portfolio that aren't going to make it IPO on their own shoot tiny an email and that could be a great exit option for your portfolio yeah and Tiny really is the poster child for durability long-term thinking compounding because the whole thing started just with the profits of their very first business the design agency meta lab and everything

40:53-41:16

sense is really just reinvesting positive cash flows in attractive investment opportunities be it internally inside of the businesses themselves or externally by buying new companies and just continuing to grow and compound it's just like what we talk about here on acquired in so many episodes totally so if you run a company or on a board of a company or know of a company that might make sense for tiny just shoot them a note at high tiny.com and when you do tell them that Ben and David sent you and also for those of you who aren't following tiny founder Andrew Wilkinson on Twitter out there make sure you give him a follow he has some great

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great Twitter content he's one of my favorite great people in my feed yep grab the popcorn all right listeners back to the episode 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 car as 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 rates to distribute it it's a crazy deal so

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here's what's going on um it actually as crazy as it sounds makes sense so we talked about a minute ago the Iron Curtain and the Soviets like it's 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 and importance so like the Marshall Plan that people probably know about like this is why the Marshall Plan happened and this is essentially part of this philosophy of like we don't care that these people used to be Nazis but for

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Porsche for Mercedes-Benz for lots and lots of German industrialist companies the reason that they get restarted and re-reinjected with steroids so to speak is like hey we got an existential threat next door we gotta rebuild we gotta 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 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

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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 of your income but for these new old industrialists above a certain income Germany sets the marginal tax rate at 95 percent whoa they basically cap your income yeah like people are complaining they live in California oh my gosh paying 13 state income tax on top of federal like imagine if the marginal tax rate were 95 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 side sure

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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 Portia and others set all this up and we're 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 r d 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

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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 r d 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 nother branch of the automotive industry so here we're in the late 40s early 50s

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racing in this era doesn't look at all like it looks today it hadn't professionalized yet so the line between consumer enthusiasts 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 Le Mans 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 Le Mans 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

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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 they were also professional race car drivers like yeah professional as it were at the in the time period yeah they competed in like real races in addition to new Masters imagine imagine Brad Pitt jumping into the Le Mans right they'd uh they'd come well it was about to joke they'd kill themselves um James Dean did kill himself in a Porsche 550 spider which Porsha would make a kind of dedicated Racing type

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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 five million dollars plus today they only made 90 of them in the end and so like it was a card 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 um but like you said you could a person could walk into it not a dealership necessarily but like just

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order one yeah um but it is a it is an absolute Legend it totally is yeah do you kind of see this trend this moment where you see the bifurcation between anybody can do it and what the very best in 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 bars stage is flying a Cessna and the Machinery to do so is entirely different in the same way that you're talking about car racing

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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 Doug to your point 356 is in 1951 in 1952 win their class at Le Mans they don't win it outright like other bigger powerful cars win it outright but they win their engine classes at Le Mans and these are you know yeah they're modified a little bit but like you basically buy them right yeah and 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

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and I think this was pretty unique to Porsches at the time certainly you could go buy Ferraris and Ferraris competed and whatnot but like again like we were talking about the Ferraris were a different thing yeah these weren't 356s 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

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he hated his customers 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 I'm done with this crap whereas Porsche was selling three I mean 356s were like being sold like as a in pretty good volume there's this great great great fairy Porsche quote about this uh which he would say later about the 911 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 Le Mans then to the theater

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and then to the streets of New York and like that's such a unique thing especially in this era like in one car it remains true it's kind of like Porsche's thing yeah to this day like how relatively usable the car is in just about any setting like you can drive it to work you can actually take it on a race track 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 right um kind of other luxury brand analogy is here Porsche definitely is a luxury brand it's not like we're uh making uh

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apples and oranges here um it's kind of like a Rolex to me is that really good yeah 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 and Ogle at 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 remote 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

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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 Birkin bag 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 now 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 spider is one of them there have been some portions that kind of go one way or another in the philosophy but

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like generally speaking it's sort of the middle of the road going back to fairies quote about this exact thing can do all these things yeah Doug one question for you I'm gonna keep going to you for terminology David mentioned Le Mans what is that Le Mans is like there are various car races that are considered sort of the big car race right like the Indy 500 is the car race of that racing series Le Mans 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

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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 Le Mans like the Monaco Grand Prix the Super Bowl if you will of like Vehicles racing in that sort of racer there's also this like um you know a Porsche 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 doesn't matter it's also a road race so it's not on a race track it's literally on the closed down roads in the French Countryside and

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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 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 would I 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 content goes way up for a while in the

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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 of portrait 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 one one 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 will die 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

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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 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 app 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

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sure if it's a Roi positive speculative because we know we got the money coming in and Beetle continues to be more and more and more popular it only continues to embolden them to reinvest right so speaking of reinvesting as we get to the 1960s like the 356 is great this is amazing car but it's kind of I don't know Doug 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 it's it's not uh right it's not a 911. 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

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was clearly starting to happen was other sports cars were showing up that were refining some of the principles yes so we're now in the 60s Ford announces the Mustang Jaguar's 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 heal 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 gotta invest profits and replace it with a new model so for a couple of years Porsche had actually been working on a design for a

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sedan for a larger model seems heretical now right I mean people look at the Panamera right you know it was actually like gonna be the second model of Porsche um 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 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 Bootsy named Ferdinand named after his grandfather founder of Porsche I was working in the company and he had been leading the body design for this larger

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sedan that Porsche was going to make Ferry decides for a bunch of reasons that to cancel the sedan project um probably the most important reason was um 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 tariff we'll keep our turf in sports cars and like everybody will be happy here anyway they decide to cancel the project and uh double down on sports cars at the same time Ferdinand Porsche Boots the

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grandson his cousin from the Austrian side of the family Louise and Anton's son also named Ferdinand for Nam piesh he's also joined the company these two young Turks the grandsons Ferdinand are here in the company and piesh 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 proportion now he didn't invent the six cylinder Boxster engine but the engine that ends up in

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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 is working on let's weave them together take the styling that bootsy's 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 the 901 David I'm not familiar with that model yeah what is that

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well uh this is why I mean Doug I'm sure you do this oh this is the famous famous story I had no idea I think most people have no idea yeah 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 0 x and in fact all Peugeot 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 is like well what do we do we can't really not sell in France I mean

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France wasn't like the biggest Market but it wasn't a small market for it now the story that I hear have heard about this is that they said well we got these badges that say nine zero and one why don't we do 9-1-1 because we have the nine and the one already hence the nine eleven hence some of this may be more Pocketful than others one of the things that I don't understand is why they want 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

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projects between 36 and 901 so a couple details that I got on this from uh Excellence was expected I believe could be wrong on this but I believe 901 was the name of the engine project that Ferdinand piash was working on and I think I I think that's the origin of it two yes in Porsche lore it's that like the reason these model numbers are like these the engineering projects right they start but that's totally apocryphal like they jump around and now they go forward and backward yes going back to the very very beginning of the consulting company they started with type 7 or project number seven because they didn't want to look like they were

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brand new companies they're like oh yeah we've already done six projects this is Project number seven I forget who they were working 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 Lure is that you know all of our projects have model numbers in 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 do basically nothing about the company roads lineup I've certainly never owned one and it took me a long time in the research to realize that there are a lot

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of car designs that start with nine that are all nine elevens there was like yes I don't know I didn't write them all dead but the 964 and the 959 and it gets complicated because what ends up happening just like happens to every car is they start to get redesigned as they get you know as the years go on they need newer models they still call it 911 they let me distinguish the newer version from the older version is to call it by the project number which is 964 993 etc etc and so if you're really into it you got to know not just that it's a 911 but which you know version it is and not all 911 say 911 on the back so you can't even like use your no

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reference that's part of the success 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 911 you know instantly yeah that it's a 911 it is Iconic it's one of the most iconic designs in the world and partly because they've essentially kept the shape the same for the sense since this since 1962. yeah so pretty immediately like this car

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is a big hit um 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 911 for portrait production they sell almost 13 000 cars in 66 which that's what what did we say 10 12 years ago they only sold yeah 40 of their products so they're now 13x in 10 years and that number of almost 13 000 911s they sell was 15 more than their best year with only the 356s like Doug how would you characterize like what is what what makes the 911 so special it's important to keep in mind at the time you didn't know right it was just like this thing

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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 911. it just has become like the car and it was it like you say here it was clear very early on that it that it had something special in this great combination of you know reliability Comfort practicality just like the 356 had been but just the better yep to my thinking the flat six boxer engine which was a great engine that for an MPS designed to go in this

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first 911 there's something like cool and unique to like we've been talking about the difference between Porsches and other cars here this is a Performance Engine but it's a six right it's not an eight and it's rear mounted right so the 356 had a boxer four it's to explain what a boxer engine is you know a lot of cars most cars have 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

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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 um 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 chord

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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 911 F6 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 356s this becomes super important from a business side for Porsche because they price the 911 about 50 percent higher than they had the 356. now what they do

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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 911 they also introduced the 912 and the 912 is a 911 with the old 356 four-cylinder engine in it so they they essentially kneecap the uh they downgrade the 911 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 912s the cheaper four cylinder ones and one quarter of their sales are the more expensive 911s the profit margins though on the 911s are so much

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higher so Ferry starts thinking like okay this is 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 gonna make great margins on those models that's going to be the 911. 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 uh the the the perfect end state of this strategy right here but for this new car fairy says hey we're not really equipped yet to be running multiple lines

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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 engines not rear engine 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 yes in charge of this joint

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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 their 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 So the plan was originally to have some of the 914s be branded VW and some of them rebranded Porsche Volkswagen had made a little sports car called The Carmen Ghia yeah previous to this like in the 60s and so

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the thought was they wanted to replace the Karmann Ghia Porsche wanted an entry-level car let's jointly develop it Porsche gets the more powerful one the 9 14 6 the six cylinder and Volkswagen 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 so he deepens the relationship with uh yeah 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 started re-intertwining these companies just a little bit that deal is an enormously wide-ranging partnership because you're

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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

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structured this way this is a merger well if history were a straight line what you're saying would uh 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 and Doug you can comment on this

70:52-71:07

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 was previous to this had all been rear engines the 911 the 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-engined that's how it's it's more

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difficult the engineering is more difficult than front engine but that's how it rear ended is just insane but Porsche made it work they've always been great at that but mid-enges 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

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say the Cayman GT4 RS which is the cabinet 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 yeah I don't know Doug I feel like I've seen multiple the best on your channel every car is the best when it comes out and then it's superseded by the next bit there you go yeah one of the differences between YouTube and um podcast world is uh titles and SEO is really important in the YouTube world right and I don't even take advantage of it as much as some of my my colleagues wow it's a while we're

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on this topic here of um engines I gotta imagine this is one of just the huge sea changes that is coming with electrification of performance cars right like uh yeah a whole different set of calculus like it doesn't matter there's no engine anymore although you still even on 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 doesn't it's gone it's gone okay so a minute ago Benny said like oh this naturally would lead to a merging of you know VW and Porsche and I was

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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 911 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

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the mid 70s uh 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 um 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 fairies getting older here like who's gonna take over the company we've got succession Vibes here

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on the one side you've got Bootsy Ferdinand Porsche he's got the name he's fairy's son and he's a great designer I mean he designed the 911 maybe the most iconic card design ever and this is German Ferdinand this is German working actually producing the cars but the other Ferdinand the son of Louise and Anton was hired by the German company 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 yep an incredible engineer

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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

75:51-76:08

family Summit they're like we're gonna settle things and I don't know I'm speculating here but I I suspect Ferry and Louise were didn't have a lot of acrimony over there I mean they're 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

76:08-76:67

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 conferdinand's 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 it'd 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

76:67-77:27

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 to 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

77:27-77:81

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 it's a rational it's still it's crazy crazy decision because like you said they were they were killing it they were the family business until this point and it had 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

77:81-78:45

happens different we'll get to but you've got him on this up and coming track where he's so legit oh my God and they 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 some Bootsy he goes off and he founds 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

78:45-79:05

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 yeah which is obviously what was happening here I think he also was a very talented I mean he designed to God in the 911 for God's sense like he's talented but but yes trading on the name here the other Ferdinand PS 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

79:05-79:68

start my own engineering consulting company and consult for other car companies he does do that for a little bit but pretty quickly thereafter remember VW and the new CEO really wanted to build this relationship with Porsche with piesh he gets recruited to come in and take over Audi for VW I don't think you originally I think he enters working within Audi but then very quickly becomes the head of the Audi brand for Volkswagen and Doug at this point in history what does the Volkswagen group own brand wise yeah that's an interesting question the brands that we

79:68-80:27

know I think it was just Volkswagen and Audi an Audi had been a separate company Audi had been a separate company and it's also important contextually here to to make one really important point about Pierson 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 it was not a brand that was desirable it would be like today um Infinity like I know you you owned a Kia right it's something like you know

80:27-80:77

Kia and Hyundai are trying to enter the luxury Market yeah 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 this reputation was like severely severely damaged by that um but that was this era that was this era Audi needed to turn around Volkswagens got out of there like we

80:77-81:42

don't know what the hell to do with this thing we got BMW Mercedes they're killing it so PS comes in and like I mean this dude is good like he's this was such a mistake to force him out of Porsche so he turns around Audi and like builds Audi into you know Doug like you said the Audi we know today and he's so successful that in 1993 he gets promoted and becomes CEO of Volkswagen so you have the situation where they kicked him out of running the company and then he goes and that's up running it's wild wild I mean he oversaw and launched the new Beetle uh like literally his grandfather's Legacy the

81:42-82:08

beetle he turned over the beetle model to the the new Beetle how long was Ferdinand PS running Volkswagen a long time 1993 I believe he was chairman until 2015 2016 maybe 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 but I think four different women a lot of kids yeah it was that typical you know how you think of like a

82:08-82:74

German industrial yeah around this time Volkswagen and started really gaining a lot of Brands so in the late 90s they bought Lamborghini 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 it I mean Doug you kind of said but to put a bow on it of what a baller PS was um in 1999 the Global Automotive elections Foundation they award him the car executive of the century

82:74-83:42

and by the way that's like uncontested in the car world fernandps has looked at as like exactly what you're saying the guy everybody knows his impact everybody knows how effective he was and the families pushing us just like yeah now 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 yeah wow so back to the Porsche side this decision was was just really not

83:42-84:14

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 uh Ernst Furman uh becomes the first non-family member CEO of Porsche he was actually part of the original Elite engineering crew back in the sawmill in gaboon 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 introduce 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 uh Doug you actually reviewed a 1944 which

84:14-84:79

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-engined water cooled 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 are like yeah we'll we'll take this as the entry portion of of the time but it wasn't a 911. it wasn't a 911 and it wasn't a 914 either really like it was a totally different thing and the 914 was a small

84:79-85:45

lightweight compact Roadster removable top the 924 was a it was definitely a different kind of situation so Furman had a quote on it when gonna you know asked about like what is this uh 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. I mean I guess that's true right that's also true of the 914 but like can you come up the right thing the way you want to position your brother this is the quiet part loud yeah 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

85:45-86:16

this is for the poor customers right right right and and again but also it's just like in in the whole philosophy of it it's not a Porsche even more concerning is the 928 so Furman makes a decision as the new CEO of the company that it's time to replace the 911. and uh I I 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 regulation 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 unsave

86:16-86:73

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 to 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 seat belts that you know were

86:73-87:34

very important and beneficial but at the time it was like how they're killing our fun it is astonishing how much safer cars have gotten astonishing you look at these like cute old Porsches that are 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 totally so in 1978 Furman introduces the Porsche 928 with the stated intention that this is going to eventually replace the 911. they keep selling the 911 he says we'll

87:34-87:91

keep selling the 911 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 928's on the market and demand dips for the 911 we'll stop making them now I want to defend the 928 a little bit here because it was a this is an important moment in Porsche's history would we look back on it now it seems insane that the 911 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

87:91-88:49

the 911. it only made sense at some point the 911 would also go away the crazy thing about the 928 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

88:49-89:08

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 it 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 911 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

89:08-89:84

direction also and start thinking about moving past the 911 just as they had moved past the 356 you know 20 years before there was some sense to it so the 928 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 um austerity oil crisis 17 interest rates and massive inflation uh the 80s was um not that shall we say not that it was a uh Rising tide that lifts all boats lots of disposable income Wall Street is ripping uh a lot of Pinstripes yeah it seems like actually a really good time for fast cars seems like a

89:84-90:55

good time for Fast Cars and indeed it was including for the 928 and the 924 succeeded by the 944 and still the 911 people still wanted them I think largely because of that although I'm sure there were other reasons too so the portion piesha 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 Furman they oust him and they bring on a new CEO an American as CEO of Porsche one Peter schutz famously he comes in and he redraws the 911 production line and Doug I know you

90:55-91:20

have some uh firsthand experience of the legendary great the great one of the great stories in the Auto industry the 928 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 911 had been in production now at this point for probably 20 years 25 years maybe and um the 911 was Porsche to a lot of these people and the fact that it was going to be replaced by the 928 was this sad thing and it had kind of really hurt morale uh in Stuttgart at the factory all the way up to the to some of the

91:20-91:78

people at the top and so the great story is that uh you know the 911 everybody knows the impending cancellation is coming it's still going but it's coming this beloved car and so uh shoots Peter shoots the American CEO is sitting in the uh the the office of helmuth 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 a timeline and this is like a like on a whiteboard yeah like on a whiteboard or something back 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

91:78-92:35

to keep the 911 even though it you know it should be replaced because it's old you know that's the thinking at the uh of the people and that's what was said like that's the thing in German culture where like when something has been decided it's been decided and edict has been given and the car's out I mean the 928 is on sale like it has shown up to replace the 911 in the spirit of these other cars of the time V8 front engine it made sense that was what they were gonna 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

92:35-93:01

all the way onto the wall and extends the 911'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 911 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 would be a good story to invent if you wanted to be around Houston right especially if you're you're trying to you're trying to like boost the uh the reputation of the CEO among the among the workers he drew the line right and there's a perfect line which says shoots just looks over

93:01-93:57

at the chief of engineering and goes do we understand each other and then he walks out I always wondered if the story was true I worked at Porsche 10 years ago and had become friends with Porsche's general counsel in North America when Peter schutz retired he moved to Naples Florida and the The General Counsel of Porsche and Peter schutz 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

93:57-94:16

we're gonna do this and it like really apparently related 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 we tell 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 your shoots you'd want to tell the story because it's become so famous but you know at least the story is real it's a great story yeah I mean literally he extended the line right of the production line right onto the wall right so do they keep making both cars yeah so

94:16-94:75

they kept making I think they made the 928 until 1995. 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 that the company was planning on ending the 911 and so by drawing that line symbolic though it was we're going to keep doing this it also committed a lot of the company's resources to now refreshing something that they hadn't planned on refreshing yeah so in the Go-Go years of the early through mid 80s no problem right more

94:75-95:44

let's we'll do a we'll do an Ico we'll issue some nfts yeah exactly 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 and success they're selling the 911. they're selling the 920 they're selling a lot of 944 it's 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 uh they did an IPO they thought they were being smart they sold I think a 30 stake in the

95:44-96:10

company but all non-voting shares like oh we're not gonna no 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's all and 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 below say you know the end of the Go-Go years the 80s not good not good for Porsche and not good in a lot of senses like age is period economic climate not

96:10-96:87

good for anybody B 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 920 and 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

96:87-97:61

continue production he reinvests especially in the 924 944 line they even refreshed it a third time to the 968 of insane 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 20 000 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 an economic

97:61-98:17

boom and as a result of that they started making these sports cars the exact sports cars are describing so the Nissan 300ZX you have 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 it's uh 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 pretty fast and the furious but not that pretty fast and the furious all those you know Japanese cars that like you know that got tuned up the

98:17-98:82

Supras especially yeah this is that 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 race like nobody's buying those and the 928 by then was so old that sales were a trickle by 90. there were three products which was the night 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 it only makes things even more confusing

98:82-99:45

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 Porsche was 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 911s all said Carrera on the back so everybody's like you know is this on 911 why does it say Carrera never made any sense and all Carreras are 911s but all 911s are not Carreras today that has changed over the years then there was a trim level of

99:45-100:10

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 huh so as all this happens Porsche is now a public company the stock price starts to decline precipitously and they've floated 30 percent of it they inflated 30 now no voting control but the company they're really like uh 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

100:10-100:67

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 but one of the most valuable Brands and it's only 30 years later only 30 years later it was Dire Straits I pulled up the U.S sales figures for Porsche from this era which is so insane to me they dipped in 91 92 to 4 100 units that was

100:67-101:40

worse than 1965 sales they had routinely sold between 13 and 30 000 cars a year throughout the 60s 70s 80s 13 and 30 000 and in the US at 92 they dipped to 4 100 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 is going to get bought out one equity research analyst actually 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

101:40-102:02

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 four three or four more CEOs brutal none of which really figure it out there is one bright spot though however which If This Were a normal acquired episode we would just skip but we've got Doug um the 959 yeah 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

102:02-102:57

keeping with Porsche's world at the time but it did uh it was kind of a test bed for some new technology including four-wheel drive and 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 500e it was a midsize 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 zhufenhausen

102:57-103:07

in Stuttgart like 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 it just sold it last year it was a station wagon and

103:07-103:58

that was the conditions under which Porsche agreed to build the car they said we'll do it but we don't want to compete with our cars as a coupe you know a sports car so we bullied if you build the 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

103:58-104:09

it literally kept the lights on in Stu card it it's zoofen housing so when you use this is mortgaging the brain they were desperate they were lit 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 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

104:09-104:58

helped save Porsha 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 Contra I mean maybe this was part of the circumcision you have Union contracts you 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

104:58-105:11

we'll keep your lines going instead of going 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 law it wasn't like this was in the 50 s we were alive this was real stuff all right listeners our next sponsor is one of our favorite companies vanta and on the last couple episodes of the

105:11-105:76

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105:76-106:31

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106:31-106:87

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106:87-107:46

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107:46-108:09

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 and this year I really loved this paint you can pay them something like fifteen thousand 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 grand for a color people are like falling all over themselves to do it yeah why not the other thing that it's emblematic of which I think we

108:09-108:76

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 years and years 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

108:76-109:37

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

109:37-109:89

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

109:89-110:57

like oh my God Furman wanted to kill the 911 what a dumb idea but it was like natural they killed right the natural thing would have been to kill me we'll get 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 Porsches in this tailspin the two eras that happen next are both equally amazing so in 1993 a guy named vendolyn Vita King gets appointed as the CEO now he had actually started his career with Porsha in the 80s as all this crazy

110:57-111:23

stuff is happening he was like a loud voice of protest against all the you know shoots and um fermentera decisions he resigned and left the company they recruit 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 automation I don't know if 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 that like the Tim Cook of Porsche here

111:23-111:99

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 911. so this is the right thing that needed to be done but it's also kind of crazy he kills the 944 968. he kills the 928. he takes everything back down to just the 911 and like analyst people like car you know magazines ask him um 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 a good line such a good line

111:99-112:64

so by the 95-96 production year the 911 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 right like how 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 cussed everything down like he is much like he he has big Ambitions okay 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

112:64-113:41

think this is pretty brilliant and certainly for the financial performance of the company was brilliant and it's survival I think 911 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 911 and so what he does is he says let's take the front end of the 911 of the Next Generation 911 the 996. and use that exact same front end same headlights same Hood same everything and then made it with a new entry-level burrito back end through the rest of the

113:41-114:00

chassis of the car revive the old 914 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 is the booster was a full convertible yeah yeah and and it's also important to point out the Interiors were almost entirely shared as well ah 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 911 had a coat hook on the back of it you can't put a coat in a Boxster the seat is right up against the but they shared everything

114:00-114:58

ah 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 911 and don't care about our performance this is like no no this is a freaking Porsche it's shared the design language it shared the design language and I think vitikin's 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

114:58-115:14

do we make it not look like a second-class citizen the answer is make it look like a 911 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 911 and the new Boxster the thinking was that they would continue to move the 911 up Market more expensive more power so the Boxster comes out in 97 for the 97 model year

115:14-115:79

and it was a huge deal I mean it was on the cover of every car magazine the whole Porsche has a new car this is incredible they did 200 horsepower and the 911 of that era had about 300. so it was a significant difference plus the 911 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 Denon and I think maybe even especially now with the Boxster and the Cayman that came in as 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 911 is kind of playing more of a

115:79-116:38

luxury car like touring car roll almost where you know with the special colors and the stitching and all that and it seems like the more Porsche is focused more of its sort of true sports car efforts on those the mid-engine cards as they call in the boxer in 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 Porsches you know entry-level car felt like that

116:38-117:02

in decades yeah so Vida 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 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 Vida 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 Vena King like I don't know how much this was his thinking all along or that

117:02-117:63

he was just emboldened by the success of the Boxster he really means it he gets into SUVs and this I mean hi even as like a teenager at the time I'm not being that much of a cargo but I just remember people like Porsches making an SUV and 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

117:63-118:16

has not grown on me yeah the Macan looks really good the new the new kinds look great too honestly ever since they redesigned in 2011 but those early kinds 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 slapping 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 you're called the m-class which was like

118:16-118:72

that was a revolution and they built in America which is 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 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 Audi Audi didn't come out in the SUV till 07. Porsche was there like early early so what the problem was Porsche had no clue because they were early they had no clue what to do and so I remember at Porsche when I worked there talking to

118:72-119:26

some of these people about the early clients Porsche literally didn't know what to offer in an SUV to the point where they actually legitimately asked some of their American employees do we need to offer gun racks as an option for the American Market they just didn't they literally they were only building sports cars and they just they had no concept no concept of like what people would want and what the early cayennes had an optional spare tire on the back like like Jeep Wranglers do like you couldn't get that part of this was a cultural you know German thing for sure but uh like not understanding America but um I don't

119:26-119:77

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 Cayenne was ugly when it first came out is because Porsha decided we're Porsche we're gonna do it best and so they come out with an SUV that is both amazing on-road and off-road and the early Cayenne actually have an unbelievable off-road capability they have the two-speed transfer case they can go high low gearing off-road they have air suspension they can lift them up and lower them they had all these off-road Hardware that like you would

119:77-120:32

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 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 uh I can spend a hundred thousand dollars on an SUV right this was before the days of an Escalade even Cayenne came out no three Escalade came out 99 so it was it was the

120:32-120:84

escalated those guys were like 40 50 Grand and they were just at that time they were just Tahoes that looked nice like now Escalade has become a real thing but at that time it wasn't Porsche was really pushing into some new territory like it was a crazy decision and SUVs 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 100 Grand on like hell yeah take my money and also there's a practicality of I kinda need a minivan but I don't want to drive a minivan and so I'm driving this

120:84-121:40

new emerging class of SUV but if I have money I kind of want the Porsche version and Porsche must have been thinking hey we've got all these customers who love our sports cars 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're 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

121:40-122:09

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 993 911 and then also done the SUV which they partner with Volkswagen with Ferdinand PS it kind of makes peace between the two is running Volkswagen at the time comes out with the Touareg

122:09-122:70

which was Volkswagen's SUV and that's 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 uh to make it and then ultimately shortly thereafter 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

122:70-123:24

cool stuff reinvesting 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 they're like they're just listening to the audio this is the career GT sitting behind us the career so okay we've alluded to this amazing machine behind us like what is this thing the Carrera GT in my mind is the greatest driving car ever built and a lot of people actually said it it's not objective by any means but a lot of people who have driven you know this and a lot of other

123:24-123:84

cars feel that way about this car it was a true analog Supercar which means manual transmission the 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 Le Mans 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

123:84-124:37

original 911 engine that for an MPS design for racing but then only made it into the right that'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 Le Mans or Formula One engine homologated for Road use is just like mind-blowing so that's that's the cool thing and this car has um 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

124:37-124:97

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 all that sort of thing and this was kind of the end of the end my sense is this car too has a reputation partly because Paul Walker died in it it was like unlike a lot of Porsches than the 911 like this is something that you need to be really know what you're doing to operate this thing you can't 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

124:97-125:52

standards car's gotten so much more powerful than this you know a new Audi RS3 which is just an Audi high performance Audi sedan that you can buy for 65 70 000 it's faster than this car 0-60 like it's not that crazy about modern standards but at the time it certainly was something yeah um but I guess like today cars like there's so much stuff technology in cars to keep 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's like the last of these cars that really you could get into trouble and and Paul Walker

125:52-126:07

died in one um 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 it's like an artist it's like paintings yeah I think that car people had always known the car had kind of this reputation they weren't like lawsuits against Porsche about this Porsche got

126:07-126:57

sued yeah when we went to jury trial Porsche was found liable at least partially liable wow and that's a big deal if you're an automaker because they got 1300 of these out there right okay 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 they had some some weird issues happen 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

126:57-127:17

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 that's a crazy thing wow should have all invested in Korea are GTS what about Apple stock or career current GT would be a lot more fun to own that I don't need 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 career GT but I realize now actually this is a super important point to the business history while they were drawing on the brand Equity to make the SUV this

127:17-127:71

was a big part of putting cash back in the Bank of the brand Equity yeah and to do it on the same production line you don't still have that effect it also helped legitimize that facility because up until that point except for the ones built in Austria all the Porsches 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

127:71-128:38

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 100 000 200 000 special handbags that were new products or new collaborations with other designers that sort of told you no we're still Louis Vuitton we all we just have this other way to be a part of our brand right 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 turn around and success by vitake I mean he becomes a legend and Porsche goes

128:38-129:17

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 scrape that bottom of whatever it was 400 million dollar market cap nope portion is saved it will be independent forever families will never have to sell that equity research analyst can eat his words not quite uh there's another chapter to the story so that's a 100x market cap growth is that right did you say 300 million to 32 billion yes that is 100x market cap growth in a

129:17-129:76

decade occasionally there are these 100 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 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 even 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

129:76-130:40

get out of this stock like because he was the fourth CEO or whatever right it would definitely yeah I don't want him collecting its draw as it would seem but uh it's like buying Amazon in 2001 or two when things look the absolute Bleak it's like that's how you could have gotten 100 bag around the public markets maybe even a thousand at this point but like come on who would have actually would have done that yeah and the 32 billion Euro market cap it's not crazy because by this time Porsche is doing almost 2 billion euros a year in operating profit turns out these SUVs and making only supercars uh is a very profitable a lot of merge in there and

130:40-131:13

China was starting to take off at this time too so the final sort of chapter to the Veda King era on the product production side was the Panamera the sedan Porsche makes a sedan now Doug I'm curious here your thoughts on the Panamera I had always also been looking for me to 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

131:13-131:62

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 full product Suite just like everyone else probably that 100x uh growth don't you think I mean I think they looked at it and said holy crap boxer

131:62-132:18

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 Kion and honestly it would have worked 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

132:18-132:91

no like this worked uh yeah 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 uh spinning off cash flow and incentivizes reinvesting at this point under Vida King Porsha 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

132:91-133:58

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 piesh we're now in work the first time to pull together the best guy over at Porsche over let's do it again so I think uh Ferdinand piesh took over as CEO of the whole VW group I believe in the same year the Vita king became CEO of Porsche in 1993.

133:58-134:18

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 Vida 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 uh sort of Justin Timberlake social network moment of you know million dollars isn't cool you know Billy you know what'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

134:18-135:01

group when I buy you uh remember though for an MPS is Chairman and CEO of Volkswagen group he's also a PS 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 piesh family has voting shares in Porsha 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 uh turns out there's there's another chapter so isn't it obvious then that it would be hard for Porsha to take

135:01-135:66

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 be the 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. Porsha spends 4 billion

135:66-136:37

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 Vita 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

136:37-136:99

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

136:99-137:72

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 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 EU regulations in 2007 vitican creates a new separately publicly traded holding company for the family's ownership of Porsche so

137:72-138:47

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 Porsche Porsche SE holding and here's where things start to go awry Vita King 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 PS signing off on this right like why would PS go along with this

138:47-139:14

I think the bestest I could figure out is that PS 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 be the king too so like he was benefiting from this too right yeah he was gonna have his cake and eat it too I guess right head sidewind tells you lose yeah so as Porsha 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

139:14-139:76

Saxony still holds 20 percent Porsche now owns more than 50 percent because they had kept buying after that 25 using all the cheap debt and they got all the way up to 50 right so that only leaves 30 left then you've got all the Insiders like you know PS 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 um we know that you know markets are supply and demand uh just like this car sitting behind us if there's not a lot of Supply available prices are gonna go

139:76-140:52

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 Vita King couldn't have predicted like he's not dumb he knew he was taking risks here but like yeah salima 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 because

140:52-141:11

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 Portia and Vita King they now own more than 50 percent of the most valuable company in the world they're Invincible I believe the threshold that they needed to get to was 75 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 Porsha and Vita King because they've got this debt Lehman's just happened so like

141:11-141:78

clearly they're not going to be able to refinance any of that and yes VW 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 gonna 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 uh so they're just kind of like stuck in stasis at this point in time

141:78-142:39

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 and they're not going to be able to sell that many shares at this price before the the price craters right so they basically can't get because who's going to be buying Lehman just happened right wow fascinating so at this point PS 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 CEO but he's still chairman of VW this is when he turns on Vita King

142:39-143:20

so he and Volkswagen announce publicly to the market that they no longer believe that Porsha is a financially viable entity uh as a deep trusted partner we believe and uh they say that they have to say this because Porsha 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 Porsha and save them by purchasing the Porsche operating company for you know the neighborhood of three to four billion euros to you know get them out of this predicament wait

143:20-143:92

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 to try buying our shares that they can't service that debt and are now about to be insolvent and default on loans so therefore we will help them out by what is it buying them for they they floated a price of three to four billion euros which remember like a couple months ago this company unfortunately was trading at 10x whoa this is literally Ferdinand saying to Vida King if you come at the king that's not this

143:92-144:70

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 yeah 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 really 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

144:70-145:46

being about eight and a half billion euros total so between that opening value 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 yup 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

145:46-146:35

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 it 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 of the VW group which remember now also owns Porsche but they have over 50 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

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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 and 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

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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 help to introduce um like plug-in hybrid technology which Porsche knew it would be going in that direction and so the 918 was like another 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

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them say hey we're going to make hybrids which is viewed as this like cheap you know like little car the Prius that's how you think 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 super cars 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

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production facility and and the 918 was the plug-in hybrid technology and how many years did they make them for when they decide they're going to 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 its biggest Rivals at the time uh which were the McLaren P1 and the LaFerrari they didn't combine to make 918 of this WOW but the the 918 spider is what a two million dollar car these days yeah it was it was new it was like 9900 or so maybe a million after you got bunch of stuff and it's double it's done well all the supercars have

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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 gonna spend like 40 more than that but even at even if you figure at 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 costs 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 Spyder was Porsche saying we're gonna go

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into this plug-in world because they knew what was coming up and we'll get to in a second with the taikon but they knew what was coming out the hybrids and electric cars were going to be a thing so instead of introducing that with a with a SUV for example which is where they should have right because that's where the market wants it they said no we're gonna do with the super car and show people we're gonna do it 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 that 92 teen spider being a plug-in hybrid it had a electric component but it also still had a massive V8 in it that had a

149:80-150:30

zillion horsepower screaming and all that you know and it was the same with the LaFerrari and the McLaren P1 they still had massive engines also so it was fine it was the 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 LaFerrari and so like no one's really sure how that's gonna age oh those are going to be orphaned cars exactly orphaned multi-million dollar

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cars yeah exactly it's a scary situation if you own that car and the battery's 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's the smart brand thing it is the smart 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 the next one like they keep finding rich people they only make what 13 000

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cars a year at Ferrari yeah it's a small operation so like Ferrari just it 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 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 Finance 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 it's kind of a very German thing yeah but um yeah that was a

151:31-151:78

real bad situation also all none of those companies were independent anymore it's not it's not really possible either because of the way that regulations are structured um 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 Porsha 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

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spread in it and it works a little bit easier well listeners this is a great moment for our final installment of this season of founder tips from Waseem daher the CEO of pilot.com pilot of course is the Premier accounting and bookkeeping service for startups and growth tech companies and here's Waseem now there is no right way to fund a company so yeah so this is something I feel really strongly about and I understand why it happens people really fetishize venture capital and Venture Capital backed startups and I think it's a really misguided Obsession which is your company is not

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worse or less interesting if you haven't raised a BC fundraising is not the same as success VC funding is not right for everyone and that's not a reflection of your self-worth or an indictment of your caliber as an entrepreneur or the quality of your business your company has made it when you provide a service that people really love that they're willing to pay you for and where you're growing at rates are excited to grow and our first company is when we totally bootstrapped it was right out of school we were all like 22 we graduated from MIT we were on the computer club together and if we wanted to buy

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equipment or hire new employees like we had to First make money by selling our service to our customers and yeah it was frustrating but it actually instilled in us some really really healthy discipline and that's an instinct that has served us super well in our subsequent companies and I do have to say the goal of business is not to be cool it's to have the highest net present value of all of your future cash flows so whatever lets you do that is the way to win at business I think there's also a corollary to this which is that there's no right time to fund a company either some companies don't make sense for Venture Capital at

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one point in their lives but may at another Point Venture Capital opens doors for you but it also closes doors for you and our first startup which we bootstrapped and we exited you know at a value that would have been completely uninteresting to the Venture Capital investor but was actually very life-changing for me and my co-founders and I think had we run that company's adventure-backed business we would not have been able to achieve that same outcome and I think that would have been a big mess our thanks to Pilot the largest startup-focused accounting firm in America providing Finance accounting

154:21-154:87

bookkeeping and tax prep to companies of all sizes they are now doing open AI airtable scale like these are huge companies the pilot is powering their accounting and bookkeeping yep you can click the link in the show notes or go to pilot.com acquired to get 20 off your Finance accounting and tax prep needs for your first six months yeah okay well great so this is perfect to wrap up on the the history of Porsche here um 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 midsize and the Macan is

154:87-155:40

the compact okay exactly and a lot of Volkswagen stuff shared with all these cars engines are shared across tons of model lines now so yeah interesting 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 and the Cayenne Turbo which is the best Cayenne is in the Lamborghini Urus an Italian car the Bentley bentega a British 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 there's a little bit Echoes of our our Lockheed Martin episode that we just did the heritage of

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the great airplanes the great Porsches is this independent annual engineering small team culture but to operate today within the content you have to be part of this so the mccon's big hit um and then we just alluded to it with the the taika and the the mission e is the concept uh that they introduced in 2015 so like yeah pretty early I guess the the Tesla Model S came out 2013 12 2012 model year so Porsche was pretty early with the concept for for Mission yeah yeah not everybody was sure that was going to catch on electric vehicles I don't know I don't know I don't know lots of people were slow as a result yeah

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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 were like oh my God this is gonna happen in the car world I mean at least five years but Toyota just started just came out their first electric car like yesterday like I'm not exaggerating it was like eight weeks ago wow we gotta talk about that another day unacquired like how did that happen I mean they were there how did that happen 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

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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 ticon 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

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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 rivian 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 got to 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 maccon is coming soon so they say and so it'll be fine um and taikon I mean one could argue that Porsche needs to come out with an electric sporty car first because they

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need to if you come with electric SUVs that's your first one it's like ah they have no plans for an electric 911 right I mean 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 electrical versions of all these cars and probably within our not so distant lifetimes they will be purely Electric thing about the taikon 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 into I'm like what do you what else do you need to do to make this a Supercar you

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know the thing about electric cars is they all can accelerate incredibly well and that's like insane and taikon is faster than this it's faster than everything it does zero to six in like two seconds ridiculous isn't it also like tuned to drive like a track car where your 15th lap is gonna be just as performant as your first yeah and so it's beneficial in 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 on like really showing people what a brand can like do and so they will I suspect in the next couple

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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 two million dollars and it will be fully electric into 0 to 60 in one and a half seconds what are the performance characteristics of the next generation of supercars gonna look like what do you humans can't go yeah zero to 60 in like a second 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

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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 RAV4 okay but this is the high performance version it does 0 to 60 and like 3.2 seconds it's faster so yeah like what does a Supercar even mean anymore like ultimately like what does it offer that a Kia uv6 GT for by the way 51 000 wow 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

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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 0-60 in three seconds right and so I don't know it'll be interesting to see how the sports car responds well so that brings us to today um when or or I guess more accurately last fall September 2022 when um VW group re-ipo'd uh Porsche the Porsche re-ipo is the largest European IPO of all time the initial market cap of Porsche at

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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-mingle it with a bunch of other stuff and so like all shareholders of Porsche can purely just be shareholders of Porsche 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

161:12-161:64

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 type of commission there's an Audi version of the ticon 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 you're like okay value was unlocked by just looking at the market caps but like

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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 Ludwig's and Carl levickson 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 Porsche is is done like this is a completely different company now and I can fully put a bow on that original portion so even though there was a re-ipo of Porsche it's never gonna be the same old independent Porsche yeah and by the way you can choose to buy Porsche AG the independent spin out of uh VW or you can also on the stock

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market go and buy Porsche SE the family I didn't realize that it's still on the market so uh some other interesting things about Porsche today the family as we mentioned is complete control both of VW and Porsche so in some ways it's still the same old Porsche even though it's all coming gold here's the sort of nail in the coffin in my opinion argument on is it a separate company or not all of her Bloom is both the current CEO of VW group and Porsche yeah when you share production facilities and you share distribution and you share a CEO and you share components and you like at what point in what way are these separate companies right I guess Vita

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King was right he was right in everything that he was doing he just um he didn't win the Game of Thrones right it's 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 911 has sort of grown slowly over time in the 718 that's the Boxster Cayenne not a lot of Revenue coming from that yeah that's Sports Car Sales just slow it's just not the same but it helps give them more legitimacy yes and the

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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 Porsche would account for it their largest market but the reason that I put that caveat in there because it's at 26 is is China they split out Germany from Europe and call them two different regions so they have Germany Germans like a true German would like Germany is 10 and rest of Europe excluding Germany is 23 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 only buy four doors they only

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want four-door cars there's almost no because there's no Heritage Porsche 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 Porsche as such a sports car brand that'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 Porsche SUVs it's like well that's it's a sports car brand this is weird right but for them they never had the sports car brand so it's just like

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normal it's crazy North America is very close to China it's 24 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 year over year so that's quarter the delivery thousand yes wow so last year they delivered about 350 000 cars so this really is a scale organization at this point this is not Ferrari this is not Lamborghini these are mass manufactured vehicles and I

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know they would say oh we're not a mass Market thing which is true in some ways when you your average selling price is 110 000 but like if you're making 350 000 of something that's a mass-market brand yeah it's interesting I 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 up Louie 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

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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 Air Max they were once Hermes but as soon as they started making the SUVs that's not who they are they have tiered access to luxuries 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 Lisa mccon for I

166:95-167:57

don't know 750 a month whatever it 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 hoi toyiness associated with it when you get to drive it 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

167:57-168:16

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 if it doubles 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

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that is insane three X's three x Porsches 3x portion how many Ferraris are made every year or so thirteen thousand thirteen thousand versus 350 000 yes it's so funny because the Enthusiast world is 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 or 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

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spinning out just there like hyper cars the 911s yeah like just the stock ticker is p911. is it really yeah yeah in Germany man that's crazy fries 3 30 you said Ferrari's average selling price is 330 000 330. it's interesting right like I mean you're Doug demiro um you won't occur a GT you don't own a mccon yeah well yeah I mean I I uh but they're cool I mean I would get one I'd 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

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things of that name brand like on a daily like my wife would never be seen in a like a Porsche you know do you know what I mean it's the funniest thing because I'm I'm one of my David my closest friends drives a portion of a can and his wife drives an Audi oh this is totally different thing this says something very different about who I am she was driving his car the other day and she was saying ugh I hate being seen 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 an interesting point I never really considered that I just I like to be casual for my normal cars

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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 we were connoisseur if you have a sports car if you buy the SUV it's like [Music] I love them by the way they're awesome cars I just didn't offer me right it's like getting um like the Masters logo embroidered on your golf clubs you know it's like okay okay I know you didn't play in the Masters but like okay that's cool right it's it that's exactly how I look at it like okay that's that's fine but I just it's not I'm gonna I'm gonna stay kind

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of low-key in my normal life what do you think I drive uh uh it's got a model three that's a good guess that's what 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 Concepts the Japanese Porsche Macan and if you ask my colleagues they would say that but I think it just isn't normal but I like them they're good I recommend those to people too uh okay some more uh back to Porsha uh so a couple other interesting observations just for listeners trying to keep track of home of like what are

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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 BMWs sold than Porsches uh are down at 17 in terms of gross margins so they they really aren't marking up much above their cost of goods in order to to um ship those cars uh Mercedes a little bit better at 23 Porsche is at 29 so about 50 higher than BMW Ferrari is 48 percent

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so people who are buying Ferraris do not care what it costs people just pay and pay and 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 uh to 50 if you have 50 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 is 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 Ferraris you get

172:37-173:07

the idea yeah not Ferrari options list will go 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 eight 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 unbelievable price premiums in all the

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stuff lvmh owns if you can touch it uh 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 Bernard Arno and lvmh ever made a run in any of these yeah

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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 it's a it's a different business and it's a lot and distribution's 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 or engineer but it's CR no it's crafts yeah it's it's Craftsmen yeah so if I were to guess I would say maybe Bernard or no has kicked the tires

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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 I'm the same way like you gotta you gotta own a factory that makes these cars you got to do all the r d plus scalability is harder and you alluded to the the dealerships and the distribution distribution's hard you're shipping stuff on giant boats all the way across the world and all that should we talk power yeah so for any listeners who are new um and based on the Lockheed episode a lot of listeners are new there uh is a section we do called Power which is a

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way that we try to figure out uh 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 fairer like direct comparison in terms

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of who they're 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 is kind of In A League of Their Own in making the number of cards 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 SUV is in a way that Ferrari can't I think you're right that scale economies enable

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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 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 the brand is the obvious 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 Acuras and the lexuses of the

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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 Dems 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 Porsches 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 reliability is still excellent supposedly based on the JD Power studies and all that now the

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question of whether it's actually important for people making the decisions by The Cars I'm not so sure how many of those SUV customers are Leasing and don't really care if everything 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 and it's just not as nice it's not the same like you have this feel 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

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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 they're literally making any more 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

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there will 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 other genese Aqua about it that's like the equivalent of racing versus production cars you could imagine at some point Tesla is a Heritage brand I feel gonna 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

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it would have to be for something else 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 economy is 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 uh just brand advertising of all time and they were Brash the reason it's counter positioning is because a lot of car like

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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 well the most famous one of course is the 993 turbo the arena red 993 turbo um in the at the portion they would put up one picture of the car and then there was always a tagline that was like the thing for decades that the famous one was kills bugs fast that's what everybody remembers so good so good the other one um that I'm thinking of is nobody's perfect that ad was great I had one for my 996 turbo that I owned 911 years ago and I

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had it framed and it said calling it transportation is like calling sex reproduction yes which is a great example of no other luxury brand no way wouldn't touch that yeah 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 ten and it's just Porsche Porsche Porsche Porsche Porsche like numbers yeah yeah all right so that's a modest counter positioning but not really anymore um switching costs I actually don't

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think there are switching costs in the car industry I think this is 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 like 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 lesson 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

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Porsche there for Iona Porsche and I get value out of you owning a Porsche it's not particularly a thing other than I can like go to Cars and Coffee together right uh 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

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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 um 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 because Porsche has invested billions in racing in all sorts of racing but it's not like there's like uh software competitions out there that you

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know you could enter your software into like build your brand Prestige yeah right 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 uh is like this is the Athletic Apparel industry um 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

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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 gonna 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 like 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

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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 right 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 a grub 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 you kids 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

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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 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 we killed grading but we do have Doug demira with us so we are going

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to give Porsha a Doug score and it's an acquired adjusted Doug 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 yeah no not really all right so David what what criteria we acquired adjusted Doug score we simplified this down to um to just three categories for the acquired Doug score um Revenue growth profitability and defensibility like would you want to own Porsche as a stock uh and I think those

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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

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EVS relative to other traditions yep so I think they're strong as they Electrify the rest of their lineup strong uh bulk case for Revenue growth there I also think that even as we're heading into a more depressed macro environment in the past few years I suspect Porsche will be more resilient in their growth than other uh 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 uh them versus other luxury manufacturers it sort of depends how you define luxury like I think they'll fare better than

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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 SUVs that probably will not be as resilient as right there are Macon 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 uh in America for you know all the Ford Brands the Chevy Brands oh yeah I think that's very well positioned

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Porsche in a recession than 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

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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 Apple's 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 go seven again on profitability

189:35-189:89

it's a nine for the Auto industry yeah and it's like a four compared to most businesses that we study on acquired 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 higher margins are pretty impressive considering that's the car business yeah 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 five feels like a good score and honestly like I think five is the

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highest score you can give in the audio industry on profit unless you'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 just happens to make cars so I am giving um uh because cars you cannot give a ten nine eight seven or six I am going to give Porsha a five right in terms of profitability yeah right that makes sense what 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

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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 worked 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 the used ones the vintage ones have just shot up in value to an unbelievable level Porsche is more love 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 Porsche's rise

191:06-191:60

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 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 right nobody's asking are you Alexis person it's like they're getting away with murder by being lumped in right right somehow they're able to both produce an SUV that gets them 350

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000 units annually yes but also mention 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 911 the everyday Supercar to now they're like an everyday Supercar company right they have a whole gradient of everyday super cars 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 the love

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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 lvmeh 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

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always be resurrected right because he is always your individual still has this thought of Gucci as like holy crap you can never completely eradicate it Porsche is the same the 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 Bankers huge value is still there yeah all right 10 out of 10. so that gives the acquired Duck score

193:42-194:08

for Porsche a 22 out of 30 out of 30. which by Doug Grayson it's pretty good that's pretty good your highest Doug score ever 72 or 74 or something like that somewhere in that range yeah 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 resortpass.com have either of you ever been to resortpass.com it's like um Airbnb for uh amenities at

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Resorts oh this is awesome so how did I not know about that 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 Airbnb 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 100 bucks a day or 200 bucks a day you can go and get a day bed or a cabana or you know

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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 feel like yeah or we'll book a massage at the spa and be like Oh and then with the massage you get the like right but now it's the analog Resort pass over there you're like the Carrera GT Resort yes oh great uh my Carvel is um I go down these YouTube rabbit holes uh which is probably how originally I got to you um but I've been on a Seinfeld cast interview oh Rabbit Hole yeah and there is an amazing compilation of all four of the cast members doing Charlie Rose

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interviews and he was so good I mean problematic person but like his 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 talk 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 so different so he's the biggest difference of all of them for sure have you seen that that bit on curb

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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 uh 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

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named whistling Diesel have you guys heard of him no no I'm not surprised neither neither 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 that went viral like on Twitter and elsewhere of the Tesla that was on like 20 foot tall Wagon Wheels he like has done that he bought a Ferrari and put it in a um 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 ax and like a sledgehammer to see if it would like

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break the bubble and like damage the car he dropped a Mercedes G Wagon through a house um 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 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 Backwoods 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

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destruction of something that a lot of people hold dear and then you're going to see a lot of complaints in the comments of people being like I can't believe you would do that 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 oh I'm so sorry sir I feel 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 that's a good episode I highly recommend I gotta watch that these are this is all just like trash TV but it is so good to

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watch so highly 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 stuff and then like you must you've talked about this a lot that like you feel when we're gonna do a whole nother episode of just you and us uh chatting but um that like you started at a time and we started at a time where you didn't have to right I feel bad do this stuff like whistling Diesel's out there dropping g-wagons through houses oh my gosh it's a different thing but highly recommended

199:00-199:56

it's great content that's actually a great uh Doug we have not talked about like everything that you do give us like a little bit of insight and I I think David tease we're gonna do an interview together as a as a separate episode but like give us a little insight into the Doug demuro Empire and what do you have going on to 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 Doug dimiro and then I also run an automotive like a car auction website for enthusiast cars

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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 Porsches and BMWs 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 uh incredibly impressive thank you for spending so much time with us doing this

200:15-200:80

collab that's 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 like I don't think there's anybody else we could have done this with maybe King himself uh he would be a little biased I think yeah it's the bias that you gotta worry yeah good job totally imagine 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

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great so fun thank you guys with that listeners are thanks to vanta the best way to become compliant and stay compliant to pilot.com the best way for tech companies to handle tax bookkeeping and accounting and Tiny truly the buyer of choice for wonderful internet businesses of any size yes the Warren and Charlie of the internet check out our second show acq2 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

201:45-202:03

perhaps are too current for the main show since what we try to do here is uh 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 uh to the B2B SAS landscape right now and where profit pools May emerge in that yeah or avoid Coley the CEO evangelist that was a great conversation with him we had David Sue 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 acquire.fm slack and if you would like to come deeper into the acquired kitchen you

202:03-202:78

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 codes 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 acquire.fm LP if you would like to become NLP now without 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 [Music] foreign [Music]

Key Themes, Chapters & Summary

Key Themes

  • Leadership and Management

  • Strategic Decision-Making

  • Corporate Evolution and Growth

  • Market Competition and Dynamics

  • Operational Discipline and Profitability

  • Regulatory Navigation and Shareholder Management

  • Technological Innovation and Service Optimization

  • Global Expansion and Market Adaptation

  • Crisis Management and Organizational Challenges

  • Future Outlook and Expansion Strategies

Chapters

  • Introduction and Pronunciation Clarification

  • The Early Years of Porsche

  • Ferdinand Porsche: The Founder's Story

  • Transition to Civilian Car Manufacturing

  • The Rise of the Porsche 911

  • Business Evolution and Family Influence

  • Porsche in the World of Racing

  • Balancing Performance with Practicality

  • The Interplay between Porsche and Volkswagen

  • Porsche's Legacy in Luxury and Sports Cars

Summary

The document provided is a comprehensive transcript of an interview with Doug DeMuro, conducted by Ben Gilbert and David Rosenthal for their podcast "Acquired." The discussion delves into the storied history of Porsche, exploring various aspects from its origins to its current status as a luxury car brand. The narrative is rich with details about Porsche's evolution, key figures in its history, and its significant models and innovations.


The conversation begins with a clarification on the pronunciation of 'Porsche' and swiftly transitions into the historical context of the brand. It highlights Porsche's roots in Germany and Austria, noting its deep connections with the scientific and engineering excellence prevalent in these regions, particularly before World War II.


A significant portion of the transcript is dedicated to Ferdinand Porsche, the founder, whose association with Adolf Hitler and the Nazi regime is discussed in detail. The narrative sheds light on the development of the Volkswagen Beetle, conceptualized by Ferdinand Porsche and commissioned by Adolf Hitler, establishing the profound connections between Porsche, Volkswagen, and the socio-political landscape of the time.


The interviewers and Doug DeMuro explore the post-war era, focusing on Porsche's transition from military vehicle production to civilian car manufacturing. This period marks the birth of iconic Porsche models and the brand's growing popularity, especially in the American market. The development and success of the Porsche 911, a model that became synonymous with the brand's identity, are discussed extensively.


The conversation also covers the business strategies, family dynamics within the Porsche lineage, and the brand's foray into racing. Porsche's approach to balancing performance with practicality, making their cars suitable for both racetracks and daily driving, is a recurring theme. The interview touches upon the intertwined history of Porsche and Volkswagen, detailing various collaborations and business decisions that shaped both companies.


Throughout the discussion, there is a focus on Porsche's engineering innovations, design philosophy, and its ability to maintain a prestigious brand image while expanding its market reach and product lineup. The narrative concludes with reflections on Porsche's enduring legacy in the automotive world, emphasizing its contributions to sports car design and the luxury vehicle market.