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Volkswagen Group was already Europe's top-ranking carmaker, but it seized the top spot globally in 2016 ahead of Toyota and GM, two years ahead of target despite the shadow of the diesel emissions scandal which emerged a year earlier. The group was found to have installed sophisticated software in some of its diesel engines to cheat emissions tests, making its vehicles appear more environmentally friendly than was in fact the case. The repercussions of that scandal are wide-ranging and very expensive, but don't appear to have dented the popularity of Volkswagen's cars. The group controls a broad portfolio includes VW itself, Audi, Seat, Skoda, Lamborghini, Bentley and now Porsche. Towards the end of 2009 it agreed to acquire a strategic shareholding in Japanese company Suzuki, but that partnership failed to deliver significant results and was later dismantled. The group has also built a dominant position in trucks through controlling stakes in MAN and Scania. Yet despite its range, Volkswagen has struggled to combat flat performance in its home market and especially in the US, as well as fierce competition in its biggest market, China. Many of those problems have been addressed with an aggressive expansion strategy initially inspired by luxury sports car manufacturer Porsche, which had attempted to engineer an unsuccessful reverse takeover of Volkswagen in 2008. The tables were turned after Porsche suffered the full force of collapsing credit markets, forcing it to concede the upper hand in a merger to Volkswagen. That whole experience awakened a far more dynamic and combative spirit within Volkswagen Group itself. Perhaps a little too dynamic in the light of the diesel emissions scandal. See also:
Click here for a listing of Volkswagen Agency Account Assignments from Adbrands.net. In the US, Kantar (in Advertising Age) reported measured expenditure of $652m for 2016, out of an estimated total of $912m. Biggest spending brands were VW (measured spend $422m), Audi ($188m) and Porsche ($15m). In France, Kantar (in Strategies) estimated measured media spend of €233m for the Volkswagen brand in 2014 and €97m for Audi.
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Traditionally quite a conservative company, Volkswagen has tried more recently to enliven its strategy to reflect the broad requirements of its customers, while also attempting to prune costs. As a well-established manufacturer, Volkswagen has been faced with a number of significant threats, not least flat performance in its home market, and uneven sales growth in both the US and, most important of all, in China, a market in which it once enjoyed an unrivalled lead. It has by and large resolved the competitive issues facing it in the US and China, but Europe as a whole remains difficult, not just for Volkswagen but all manufacturers.
Those difficulties were almost insignificant, however, compared to the scandal which erupted in Sept 2015, in which the group was found to have used software to manipulate test results for its diesel vehicles, which were revealed to emit levels of pollutants far above approved standards during regular driving. A massive recall is under way, covering as many as 11m vehicles. The scandal subsequently widened to encompass 3.0 litre diesel engines in the group's top-of-the-range cars, and also some petrol-powered cars, where carbon dioxide emissions were deliberately understated and fuel economy overstated to take advantage of emissions-related tax breaks in the EU. By Nov 2015, models from all passenger car brands in the group's portfolio had been implicated.
In early 2017, the group agreed to plead guilty in the US to criminal charges over the scandal, and pay a penalty of $4.3bn on top of compensation payouts to owners and recall costs. It has set aside $10bn to compensate owners of US 2.0 litre cars, and agreed at least another $1.26bn for a smaller number of owners of 3.0 litre luxury vehicles. Total costs to-date in the US alone are around $22.5bn. A recall or refit operation is also underway in other countries, but emissions regulations in Europe, for example, are significantly less stringent. As a result, costs are unlikely to be high. Evidence suggests, also, that without the cash incentives offered in the US many international drivers are not taking the trouble to get their cars fixed.
The group's brand range is generally perceived as one of its biggest strengths, offering multiple buying points to attract all types of customers, but its main manufacturing base in high-cost Germany is a significant limitation on the core VW brand. Until recently, the company was prevented from shifting more production abroad because of its unusual and politically charged ownership structure. That framework was steadily dismantled between 2005 and 2008 by Porsche as it built an ever larger shareholding in its larger cousin.
Volkswagen now has a powerful and wide-ranging portfolio of marques, rising from mainstream Seat and Skoda to mid-range VW, premium Audi to super-premium Lamborghini and luxury Bentley and finally super-luxury Bugatti. Newest addition to the main auto portfolio is premium sportscar brand Porsche. Several years of sometimes acrimonious relations between the two family-linked companies came to a head in 2008 with Porsche's ill-fated attempt to seize control of its larger rival. Instead, Volkswagen succeeded the following year in securing a controlling shareholding in the smaller company, as well as management control of its sportscar business. After three years of protracted negotiations, Volkswagen finally took full control of Porsche in August 2012. (See below and also Porsche profile).
Even without that deal, the Volkswagen Group has been steadily breaking new records each year for unit sales. Total vehicle sales topped 10m for the first time in 2014, with a 4% increase in deliveries to 10.14m cars and trucks. Sales to the group's dealer organisation were almost 10.22m units. The diesel scandal emerged towards the end of 2015, prompting a noticeable decline in full year sales. Customer deliveries slipped 2% to 9.93m vehicles, while sales to dealers fell by the same percentage to 10.01m vehicles. Those issues were largely resolved by 2016, with final unit sales recovering by almost 4% to a total of 10,391,113 vehicles. That put Volkswagen firmly in the #1 position worldwide ahead of Toyota.
Europe remains the group's biggest market. Volkswagen is the leading auto manufacturer across the region, well ahead of second-placed PSA. More than one out of every four new cars bought in Western Europe is made by the group. Inevitably Germany is the biggest individual territory in that region, with deliveries of 1.09m cars in 2014, an increase of 5% after several years of poor performance. Volkswagen remains the clear local leader in Germany with market share of more than 35% across its various brands. The UK is the next largest market in the region at a little over half those volumes. Combined vehicle deliveries to Europe in 2016 were 4.62m units, up 2.5%.
Asia Pacific overtook the US in 2003 as the group's #2 region, as a result of dynamic performance in China, now the group's single biggest market by far. In the 1980s, VW was the first Western manufacturer to begin full-scale production in the country, through an extremely successful joint venture with local partner SAIC, followed in 1991 by a second joint venture with FAW. These established VW as China's best-selling car. Since then, other manufacturers have piled into the market, not least General Motors, which overtook Volkswagen as the single biggest manufacturer in the country in 2010 as a result of multiple joint ventures.
Volkswagen's deliveries in China broke through the 1m barrier for the first time in 2008 and have almost quadrupled since then, topping 4m units in 2016, out of a total for the Asia Pacific region of 4.32m. The VW brand accounts for the lion's share of sales in China but Audi and Skoda are also popular with local buyers. Several models are built specially for the local market. As only part-owned businesses, Volkswagen's Chinese joint ventures are not included in the group's financial results.
Despite its strength in China, Volkswagen's profile is much lower in other Asian markets. At the end of 2009 it agreed the terms of a strategic alliance with Suzuki of Japan. A key market was intended to be India, where Volkswagen previously had only a limited presence, but where Suzuki is the #1 carmaker. In return, Volkswagen offered help to develop Suzuki's operations in Europe and China, as well as use of its diesel technology. In addition, Volkswagen paid €1.7bn for a near-20% shareholding in Suzuki. However by summer 2011, no joint projects had been sanctioned by the two companies, and indeed the Japanese company appeared to have breached the arrangement by purchasing diesel engines, not from Volkswagen, but from rival Fiat. When the German group complained about this, Suzuki formally demanded the dissolution of the partnership and requested the repurchase of its shares. However no such action was taken and the row dragged on for several years. In Sept 2015, a court of arbitration fianlly ordered Volkswagen to divest the shares.
Brazil is Volkswagen's #4 global market, accounting for more than three-quarters of total sales across South America as a whole. However, South America is currently one of Volkswagen's most troubled markets, with deliveries plunging more than half since 2013 from almost 1m units to just 422,000 in 2016.
The market where Volkswagen is still, compared to other manufacturers, a little underweight is the US. Combined sales fell sharply during the 2000s as the group failed to apply itself to maintaining a strong presence, slumping to just 314,500 units in 2008. That year the world's biggest car market ranked a lowly 6th for Volkswagen behind the UK and Spain. Considerable work has been done to improve this situation since then, and the US is the group's #3 passenger car market overall, but it remains a problematic territory. Passenger car sales for 2014 slipped 2% to 600k vehicles, not much higher than Brazil. The emissions scandal has also hat a more lasting impact here than in other markets. For 2016, total vehicle sales in the US were up marginally to 939,000 units.
Volkswagen itself is the group's biggest passenger car marque, with total deliveries hitting a new high of 6.35m units in 2016. It receives strong support from Audi. The group's footprint in Europe is enhanced by two supporting regional brands, which VW has successfully strengthened and internationalized.
Czech manufacturer Skoda has been shifted firmly upmarket with a marketing campaign which acknowledges but also mocks old-fashioned perceptions of the brand as being of poor quality because of its Eastern European heritage. A new brand message was introduced in 2008: "Simply clever". The range is split between smaller cars like the Fabia and Rapid, the biggest sellers in Eastern Europe, and the high quality Octavia sedan, the flagship model in Western markets. The latter is the overall group's #7 best-selling car, and the top-selling non-VW model (with 389k units in 2014), above even Audi. These two are complemented by a top of the range limousine, the Superb, and the Roomster small car, introduced in 2006, and the Yeti compact SUV, launched in 2009. The Rapid was introduced in 2012 as a mid-point between the Octavia and Fabia, but unit sales are still very low. The brand's lower cost manufacturing base in the former Eastern Europe enables pricing to be kept low, allowing Skoda to be presented as value for money brand. Marketing has concentrated for several years on emphasising the brand's high quality despite its low cost.
Skoda's deliveries slipped slightly in 2013, but then recovered strongly the following year as a result of a spectacular surge in China, now its single biggest market. Deliveries topped 1m units for the first time in 2014, reaching 1,156,041 registrations in 2016. (Volkswagen Group reported 1.13m deliveries). Other key markets are Germany, Russia and the Czech Republic. Divisional revenues for 2016 were €13.71bn, including sales of other group brands in the Czech Republic, with operating profit of €1.20bn.
Spanish manufacturer Seat also leans on its national heritage but in a more straightforward way, emphasizing a fiery nature summed up in the tag line Auto Emocion. Celebrating its 60th anniversary in 2010, the brand is best known for affordable city cars led by the Ibiza - which alone accounts for more than half of volumes - and Leon. The portfolio was broadened in 2004 with the launch of the new Altea (or Toledo) multisport vehicle, and the marque has continued to move upmarket with the sporty mid-range Exeo saloon, introduced in 2009, the Alhambra compact launched in 2010. A key benchmark was the introduction of the brand's first full SUV, the Ateca, in 2016. At the bottom end of the range is the entry-level Mii, launched in 2011 and already the third top-seller. However, the Seat brand overall remains under pressure because of its focus on troubled Southern European markets. Combined unit sales fell sharply in 2009, reflecting difficult economic conditions in Seat's home country, and have remained weak ever since, although the brand regained its position as the top-selling automobile brand in Spain in 2010 for the first time since the 1980s.
After years of steady decline, deliveries increased in 2013 for the first time since 2008, and have been growing steadily ever since. Final figure for 2016 was 415,280 registrations. (The group reported 409,000 deliveries). More than 60% of sales are in Europe - Seat's biggest market in 2012 was Germany, overtaking Spain for the first time in the brand's history. However, there has also been a big push into other regions to compensate for economic weakness in Europe. Mexico is one of the brand's most important developing markets. Divisional revenues, including sales of other vehicles, were €8.89bn in 2016, and the unit was back into the back after several years of losses with an operating profit of €153m.
The group's portfolio is rounded off by two luxury brands. Bentley, still produced in the UK, has been modernized as a stylish but weighty ultra-deluxe marque. Sales broke the 10,000 unit level in 2007, but fell sharply after that, hitting a low of 4,600 cars in 2009. There has been a solid recovery since then, helped by the launch of the Bentayga luxury SUV in 2016, with deliveries reaching 11,023 cars in 2016. The division reported an operating profit of €112m on sales of €2.03bn. Also true to its heritage, Bugatti has been relaunched with new manufacturing premises in France. Its Veyron super sports car was introduced at the end of 2005, with a top speed of more than 400mph. Prices start at €1.2m per car.
The newest addition to the luxury portfolio is Porsche. After several years of sometimes acrimonious relations between the two companies, Volkswagen succeeded in August 2009 in negotiating the purchase of a 49.9% shareholding in the smaller company, and management control of its sports car business. That deal was completed in December 2009. A full merger of the two businesses was announced at that point, but was delayed repeatedly by various legal and tax rows. It was finally completed in July 2012, after which point Porsche's unit sales and financial performance have been consolidated within the group as a whole for the first time. (See below and also Porsche profile).
The portfolio of commercial vehicles is led by a dedicated Volkswagen-branded business, with vehicles ranging from light truck Caddy to heavy duty Transporter. VW also controls Swedish heavy truck and bus manufacturer Scania, as well as its German equivalent MAN, as a result of a series of complex corporate transactions since 2005. VW acquired a controlling minority stake in Scania in 2001 from Volvo. In September 2006, rival group MAN launched a hostile takeover for Scania, but this was rejected by the latter's board with support from VW. Instead, VW subsequently acquired a separate holding in MAN of just under 29%, so that it now itself effectively controlled both businesses. In 2007, VW increased its voting stake in Scania to over 35%, and then to 68% in early 2008. As a result, VW became the world's biggest manufacturer of commercial vehicles, overtaking both Volvo and Daimler. It raised its voting stake in MAN to almost 56% in 2011, and offered to buy out the 37% of Scania it didn't already own in 2014 for up to €6.7bn. Despite opposition from Scania's board, Volkswagen had acquired more than 90% by May. Scania delivered 86,000 vehicles in 2016 and revenues of €11.3bn; MAN added 102,000 trucks and revenues of €10.0bn.
Like other carmakers, Volkswagen has diversified into subsidiary businesses. The group has a substantial financial services division which houses leasing arm Volkswagen Bank, telephone banking business VW Bank Direct (now with around 1m customers and €20bn in savings deposits), VW Immobilien real estate and medical insurance company VW-BKK. Car rental company Europcar was originally a joint venture between VW and French hotel and travel company Accor. VW took control at the beginning of 2000, but put the business up for sale at the end of 2005. It was acquired in 2006 by French investment group Eurazeo for €3.3bn. Volkswagen strengthened its presence in the contract leasing market in 2004, buying a controlling 50% stake in LeasePlan, Europe's largest vehicle financing and fleet management business. It put that stake up for sale again in 2015. Gedas, Germany's third-largest IT consulting group, was sold to Deutsche Telekom in 2005 for €450m. Combined sales for the financial services division were €27.6bn in 2016.
Financially, the group has gone from strength to strength in recent years. For 2012, revenues jumped by 21% to €192.68bn while net profits soared 39% to a new record of €21.88bn. That figure included substantial gains from options and other investments relating to the Porsche takeover. Operating profits, excluding such accounting adjustments, were up a more modest 2% to €11.51bn. The group's single biggest market by volumes is China, followed by Germany, Brazil, the UK and the US.
Growth was less dramatic in 2013, though revenues continued to climb by 2% to €197.0bn. Operating profits hit a new high of €11.7bn, but the absence of the previous year's exceptional accounting gains from Porsche led to a steep fall in reported net profits to €9.1bn. Revenues topped €200bn for the first time in 2014, at €202.46bn. Group net profits jumped 22% to €11.07bn.
Publication of results for 2015 was delayed pending negotiations with regulators over how to fix the vehicles fitted with the diesel defeat device. Figures were finally released in April, with a €16.2bn charge to cover costs associated with the scandal. As a result, the group reported a net loss of €1.36bn. Revenues rose 5% to €213.29bn.
For 2016, revenues rose by a further 2% to €217.27bn. Despite an additional €7.5bn charge to cover the Dieselgate scandal, net earnings rebounded to a profit of €5.38bn. Operating profits before special items were up 14% year-on-year.
Volkswagen Group reported spectacular results for 2017, despite another €3bn of charges associated with its diesel-related recall in North America. Shrugging off any negative sentiments from that protracted and embarrassing saga, Volkswagen's revenues rose by another 6% to €230.7bn, around $40bn or $50bn ahead, in equivalent sales, of its closest competitor Toyota, while net profit more than doubled to €11.6bn, the best result since 2012. Deliveries to customers hit a new high of 10.7m vehicles.
After almost eight years as group CEO, Martin Winterkorn resigned from the group in the wake of the manipulated diesel emissions scandal. (He was later indicted by the US Justice Department for consiracy to commit fraud in connection with the case). He was replaced by Porsche chief Matthias Mueller, who oversaw the group's handling of the fallout from the scandal but also established it as the world's biggest auto manufacturer. In April 2018, however, he too was unexpectedly ousted by Volkswagen's supervisory board - reportedly by mutual agreement - and was replaced by Herbert Diess, who also retained his previous role as chairman of the core Volkswagen passenger cars brand.
Volkswagen Group is overseen by a supervisory board headed until April 2015 by Ferdinand Piech, former group CEO and also a member of Porsche's controlling family. Renowned for his combative and autocratic style, Piech instigated a short-lived crisis within the group's board when he made public comments that seemed to criticise then-CEO Winterkorn. Piech was reported to be concerned by the VW brand's disappointing performance in the US and low overall profit margins. Following Piech's comments, other board members hurried to Winterkorn's support, isolating the chairman, who resigned two weeks later. Labour representative Berthold Huber became acting chairman in his place. However, the Piech and Porsche clans later reunited in their support for group CFO Hans Dieter Poetsch to become the new permanent chairman. The departure of Martin Winterkorn allowed Ferdinand Piech to reassert some of his influence over the group even if he is no longer chairman.
The board also includes representatives from the State of Lower Saxony, labour unions and VW management, many of them with widely differing views on how the business should be run. One unidentified board member told the Financial Times in November 2006 that managing VW was "like trying to ride a chariot with four or five horses each of which pulls in a different direction". In 2015, even one of Germany's own biggest newspaper, the Suddeutsche Zeitung, compared the group's autocratic leadership tradition to that of North Korea.
Porsche SE, now a holding company for the Porsche and Piech families, has a controlling stake of over 52% of Volkswagen Group's voting shares, and just under a third of equity. The regional government of Lower Saxony has 20%, and investment group Qatar Holding has 17%.
Volkswagen's growth over the last 50 years is an impressive achievement, although a shadow still falls over the company's early history because of its pre-war links to the Nazi Party. In 1934 engineer Ferdinand Porsche (father of the founder of the sportscar marque) persuaded Germany's new Chancellor Adolf Hitler to underwrite his vision of producing a car for the masses. Most other German auto manufacturers, such as Daimler-Benz, targeted only wealthy buyers, but the idea of a "volkswagen" (literally, "people's car") fitted perfectly with the Nazi ideal as well as the development of the new autobahns. Hitler liked the designs for the car and commissioned the building of the Volkswagen factory in Wolfsburg in 1937 with the aim of turning out a million cars a year. In fact, although the first Volkswagen car was manufactured in 1938, the outbreak of war prevented full production and instead the factory was turned over to the German war machine, with labour provided by 10,000 concentration camp prisoners. The plant was later destroyed by Allied bombing raids.
After the war, the demand from Germany's newly impoverished population for a low cost car was greater than ever before. British occupation forces oversaw the rebuilding of the Volkswagen factory, as well as the launch of series production of the original no-frills Volkswagen model, which soon earned the nickname of the "Beetle" because of its unusual shape. In 1949, ownership of the company was transferred to Germany's newly created federal government, with management of the business overseen by the local council of the state of Lower Saxony. Sales of the Beetle were strong and steady, and during the 1950s Volkswagen also launched the VW Transporter or Microbus, the original people carrier. The company also took its first tentative steps abroad, with factories in Canada (1952), Brazil (1953), South Africa (1956) and Australia (1957). Volkswagen went public in 1960, and bought Audi from Daimler-Benz in 1965. At the same time, sales of the Beetle rocketed in America, supported by an iconic campaign from New York agency Doyle Dane Bernbach. As a complete opposite to traditional American cars in both appearance and features, the Beetle was quickly adopted by the country's counter-culture movement, and by 1972, the Beetle had become the best-selling car ever made.
Despite its success, however, the Beetle had changed little since its launch in 1945 and VW began to cease production during the 1970s. The last German Beetle was produced in 1978, after sales of 20m cars in total. (Small numbers of Beetle cars continued to be produced in Mexico until 2003). Instead the company launched the first models of the Passat (1973) and Golf (1974) and embarked on an ambitious global expansion strategy, reinforcing a long-held belief in developing emerging markets. In 1982, the company was the first Western auto manufacturer set up a full production facility in China, as a joint venture with local company Shanghai Tractor & Automobile Corporation. Also that year it assigned a license for local production of Volkswagen models in Spain to local manufacturer Seat. Four years later it acquired a 75% shareholding in Seat, and in 1987 took control of Ford's local operation in Argentina to form Autolatina. In 1990, it took up the remaining stake in Seat and spent £3.8bn buying and modernizing Czech manufacturer Skoda. In 1991, VW inked a deal with Toyota licensing the Japanese carmaker to distribute VW and Audi cars in Japan through its Duo subsidiary.
In 1998, the group flexed its corporate muscle again, tussling with BMW to capture the iconic Rolls Royce marque, put up for sale by British company Vickers. However, the negotiations ended in some embarrassment for VW. Although the company outbid BMW for the Rolls-Royce-Bentley manufacturing business with an agreed deal of £480m, it was denied ownership of the Rolls Royce name and logo. These reverted to their original owner, engine manufacturer Rolls-Royce plc, which then sold the license to BMW for £40m. As a result VW was allowed to make Rolls Royce cars under license until the end of 2002, when the brand transferred to BMW. The same year, VW spent £30m on the luxury Italian sports car manufacturer Lamborghini and classic brand Bugatti. The company also unveiled the new Beetle, a remodelled - and more expensive - update of its much-missed classic.
In an ironic twist to this rivalry with BMW, a year later VW recruited ousted BMW chairman Bernd Pischetsrieder, initially as head of a newly created quality assurance division. The group moved into the heavy trucks sector in 2000, acquiring a controlling stake in Sweden's Scania The German company paid Investor, the company which owned 49% of Scania, nearly SKr14bn ($1.6bn) for 34% of its voting shares and almost 19% of its capital. (Scania was to have merged with arch-rival Volvo earlier in 2000, but the latter's bid was blocked by the EC). Also that year, the group relaunched the famous Bugatti brand, establishing a new manufacturing facility in France to develop a hyper-luxury sportscar capable of reaching 248 mph.
Pischetrieder eventually became group chairman in 2002. He launched a restructuring of the group's rather dated and conservative structure, and also divided the group's portfolio into two main operating divisions under the VW and Audi brands respectively. In 2004 VW was obliged to issue a product recall of more than 870,000 VW Passat, Audi A6 and Audi A8 cars worldwide as a result of problems with front axles. In 2005, several senior executives left the group in the wake of a bribery and fraud scandal, in which it was alleged that the company had paid for luxury trips and prostitutes for members of Volkswagen's works council in order to influence decisions and avoid industrial action. Two VW managers were also reported to have requested bribes from suppliers. Peter Hartz, the board member responsible for human resources, resigned in July 2005, and subsequently admitted his role in the affair, which was conducted apparently without the knowledge of other board members. There was further turmoil in November 2006, when Bernd Pischetrieder resigned as CEO as a result of a long-running dispute with group chairman Ferdinand Piech over strategy and VW's increasingly close relationship with Porsche.
The two companies had maintained close links for most of the second half of the 20th century, not least because the Porsche family had negotiated exclusive rights to distribute Volkswagen vehicles in Austria and other markets. More recently, the two companies had worked together on the design of Porsche's Cayenne SUV, for which VW makes the outer bodyshell, and had a joint venture to develop petrol-electric hybrid technology. Several members of the family also secretly harboured the desire to reunite the two businesses. In September 2005, Porsche announced plans to acquire up to 20% of Volkswagen for around €3.3bn. That plan initially met with considerable opposition from minority non-family shareholders in Porsche as well as several board members of VW, led by the state premier of Lower Saxony, who challenged the dual role of Ferdinand Piech, chairman of Volkswagen's supervisory board but also a prominent member of the Porsche family. Nevertheless, VW was able to push through the deal, and Porsche had accumulated an 18.5% voting stake by mid-October.
This created a major new source of friction with Lower Saxony, where VW is headquartered. The biggest obstacle in the way of cost control at Volkswagen had for many years been the unusual nature of its ownership structure. The so-called "Volkswagen Law", passed by Germany's regional government in the 1950s, prohibited any individual shareholder from owning more than the 20% of Volkswagen's voting rights held by the local state government. Although this prevented any possibility of takeover by a foreign company, it also effectively blocked VW from transferring jobs out of Saxony to lower-cost markets in eastern Europe and Asia.
In 2006, Porsche renewed calls for the VW Law to be scrapped. Eventually, in February 2007, Lower Saxony gave in on condition that it retained a veto on major structural changes. This left the way clear for Porsche to increase its holding to just under 30%. A month later, Porsche issued a largely symbolic bid for the entire group. Under German law, 30% is the barrier beyond which buyers must make a formal bid for 100% of a target company's equity. Porsche's offer was well below the larger group's share price, and few minority shareholders accepted that deal. Nevertheless it allowed Porsche to continue adding to its VW stake without needing to increase its overall bid.
By September 2008, Porsche's shareholding had risen to 35%, and was expected to reach 50% by the end of the year. As financial markets began to fall as a result of the growing economic downturn, many institutional investors anticipated that Volkswagen's share price would also drop as Porsche slowly increased its stake, and hedged their portfolios accordingly. Instead the smaller company mounted a secret raid on the larger group's shares, suddenly announcing at the end of October 2008 that it had acquired an effective 74% holding through a complex series of derivative options. This created a panic among hedge funds holding short positions on VW shares, causing the price to soar dramatically. In the ensuing mayhem, several large investors were ruined. To appease regulators, Porsche was forced to relinquish some of its own options, settling for a 51% shareholding in January 2009.
In the meantime, there was an growing rift between VW chairman Ferdinand Piech and his cousin Wolfgang Porsche, chairman of Porsche. At its heart was the comparatively simple question of which of the two men would be the senior partner in a combination of the two companies. Porsche saw his own business as the effective parent, while Piech believed the much larger Volkswagen Group should prevail. This friction had reached unworkable levels by the end of 2008, with Piech apparently refusing to have any dealings with Porsche Group's CEO Wendelin Wiedeking, the architect of that group's creeping takeover of Volkswagen.
By early 2009, the friction had begun to threaten any resulting group's future stability. At the same time, however, the burden of debt incurred by Porsche had also begun to create problems for the smaller company. A truce was called in May 2009, in which the two groups agreed to merge as a single company, with terms of the precise structure to be decided by a committee which includes representatives from Lower Saxony and the VW workers' unions. After several months of further argument, Volkswagen succeeded in turning the tables on its cousin, and instead agreed to acquire management control of the sports car company for €3.3bn.
Last full revision 5th June 2017
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