Porsche's Plight: German Carmaker Narrowly Averts Bankruptcy

By Dietmar Hawranek

Luxury carmaker Porsche came very close to bankruptcy in March. Only a dramatic rescue operation saved the company, but it's still on the skids. Over the coming weeks, the sports car manufacturer -- which is up to its hubcaps in debt -- could find itself in an increasingly difficult financial situation if it doesn't swiftly merge with Volkswagen.

In fairytales, a fairy occasionally appears when the going gets really rough. The hero makes three wishes, extricates himself from various predicaments, and can look forward to eternal happiness.

In the harrowing tale currently embroiling Porsche, the good fairy is played by a sheik. Porsche managers say the company is conducting promising negotiations with the emirate of Qatar.

German luxury carmaker Porsche came close to bankruptcy in March.
REUTERS

German luxury carmaker Porsche came close to bankruptcy in March.

An investor could buy a stake in Porsche or help the carmaker, which is strapped for cash, by acquiring its troublesome Volkswagen stock options. In any case, he would give Porsche a cash injection worth billions and rid the company of all its problems.

But, for the time being, that is just a fairytale. No sovereign wealth fund that intends to safely invest its money is likely to be interested in buying a stake in Porsche or VW. Both companies appear to be in a totally chaotic state.

Merger negotiations have been broken off, then resumed. The shareholder families Porsche and Piëch are at each other's throats. Uwe Hück, a member of the Porsche works council that represents employees' interests inside the company, has called on the workforce to demonstrate against co-owner Ferdinand Piëch. And Piëch wants to sack Porsche CEO Wendelin Wiedeking.

But all backroom squabbling aside, the real problem is that Porsche needs fresh capital, or the automaker could become a total loss. "There still remains a risk of insolvency," says a VW manager. Porsche CEO Wiedeking told the supervisory board of Porsche Automobil Holding SE: The "critical situation" will continue even after an extension is granted on the €10 billion ($14 billion) in loans. And co-owner Piëch says: "None of the shareholders wants to see an insolvency."

Porsche CEO Wendelin Wiedeking: The brakes have been applied to a man widely considered to be a turbo capitalist.
DDP

Porsche CEO Wendelin Wiedeking: The brakes have been applied to a man widely considered to be a turbo capitalist.

The fact that Piëch even uses the word "insolvency" is an indication of the seriousness of the situation. But in its official statements, the company vehemently denies any such insinuations. "We certainly haven't lost our shirts," says a company spokesman. He added that Porsche is making interest payments from its ongoing business activities, and the workforce has received its union-negotiated pay increase on time, in contrast to other carmakers. Porsche will only have to seek new financing to the tune of €3.3 billion in March of next year, he said.

But that's only part of the truth. Actually, on top of this €3.3 billion, the Stuttgart-based company will very soon need additional loans of over €2.5 billion. So far they have only been able to secure €750 million of that amount.

Out of desperation, Porsche managers have even looked into the possibility of securing loans from Germany's state-owned development bank, KfW. Their application has been turned down, at least for the time being. Now the governor of Baden-Württemberg where Porsche is based, Günther Oettinger, has raised the possibility of his state granting loan guarantees.

Porsche CEO Wiedeking, a turbo capitalist who used to look down his nose at subsidies ("luxury and government handouts don't match"), Porsche CEO Wiedeking has long looked down his nose at government subsidies. Now, though, it seems unlikely that he would turn down such handouts. There are apparently no private banks in sight that are willing to grant Porsche a line of credit without government loan guarantees. And that's not all.

During the three days from March 22 to 24, according to the statements of a number of those present, Porsche had to ward off an impending bankruptcy. Even German Chancellor Angela Merkel intervened on the company's behalf.

A Porsche spokesman says that bankruptcy was never an issue. But the events were dramatic.

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