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Volkswagen's Ferdinand Piech's Porsche Connections: The Clash of Interests?



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Code : GOV0023

Year :
2006

Industry : Automobile

Region : Germany

Teaching Note: Not Available

Structured Assignment : Not Available

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Excerpts

The Clash of Interests? Wiedeking underlined that therewas no conflict of interestwith Fredinand Piëch and his demand for board representation was in line with corporate governance guidelines. “Where are the rules that we are breaking? This criticism is non-sense. Most people don’t even know what they are talking about.”

But there were few takers forWiedeking’s comments. Analysts say that Porsche’smove to control Volkswagen has triggered a crisis in German corporate governance.According to a BusinessWeek article, “Piëch and the Porsche family own 100%of the voting shares of Porsche. So the sports carmaker’s $4 billion investment inOctober to raise its VWstake to 18.5%(with the intention of reaching 20%), gives Piëch strong influence at VW, which is both partner and competitor to Porsche.”12 Analysts and auto industry experts figured out that without the investment in Volkwagen, Porsche risked trouble-finding allies thatwould offer the same generous terms as in the past, since the benefits of such agreements seemed to have flowed disproportionately to Porsche.ArndtEllinghorst, analyst at the global investment banker,DresdnerKleinwort Wasserstein in Frankfurt, said, “The Cayenne is making huge profits. But for the next-generationmodel, Porsche risked suddenly standing there without a partner.”13 Ferdinand Dudenhöffer, director of the German Center for Automotive Research at the University of Gelsenkirchen, said, “Porsche, for example, invested $420million in the development of the highly profitable Cayenne. That’s very, very little for a new car. If Porsche had done it by itself, itwould have needed to invest between $1.2 billion and $1.8 billion. There’s no question, VWhad all the risks and Porsche earned the greatest profits.”14 Philippe Houchois, a motor analyst at JP Morgan said, “You can’t make cars without investing your own money into manufacturing. They are pushing cash into VWto use its assets rather then building their own. It is a logic themarket doesn’t like but it is a long-termlogic.”...

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