The Porsche Story A Fierce Family Feud

Volkswagen looks set to acquire Porsche, the troubled German sports car manufacturer. At the core of the companies' tightly intertwined histories is a deeply divided family engaged in a power struggle worth billions -- and which could determine the fate of two of Germany's most famous carmakers.

This is part one of SPIEGEL's history of Porsche and Volkswagen and the troubled relations between the Porsche and Piëch families. You can read part two here. 

In the end, the two men shook hands after all. When Ferdinand Piëch encountered his rival Wendelin Wiedeking last Thursday evening at an event to celebrate the 100-year anniversary of Audi, they greeted each other briefly.

The battle had been decided. Piëch had fought hard, as he enjoys doing when something really important is at stake. "Either I'm shot dead, or I win," he says.

This time he had faced a formidable foe: Wendelin Wiedeking, the man who had saved Porsche and then, in the style of a true turbo-capitalist, had tried to take over the much larger Volkswagen Group. With an annual compensation of about €80 million ($112 million), he was Germany's highest-paid corporate executive -- and one of its most controversial. "For many people, I am a nightmare," Wiedeking says about himself.

Now it's time for Wiedeking to go  and Porsche production chief Michael Macht to take his place. The Porsche brand will be absorbed by the VW Group,  in which the emirate of Qatar would then also purchase a stake. But the next set of conflicts is already taking shape.

Wiedeking himself is leading the fight for his severance package. At issue is a sum in excess of €100 million ($140 million), an amount that will catapult the debate over executive compensation in Germany into a new dimension. It will likely be the largest golden parachute in the history of German business. Ironically, it will be paid to the manager who, despite having saved Porsche, has since maneuvered it into a crisis that almost bankrupted the luxury carmaker.

In this discussion, some of the things the Porsche boss has said in the past may come back to haunt him, including the statement: "You can assume that I won't be going to the poorhouse."

A Dynastic Feud

Another ongoing conflict will also continue, namely that between the Porsche and Piëch families. Wiedeking was merely a proxy in a dynastic feud of a kind that has rarely been seen in German industry.

On one side of this conflict is the Porsche family, led by Wolfgang Porsche, an amiable businessman who was always in the shadow of his father, engineer Ferry Porsche, and his brother Ferdinand Porsche, and who only assumed the chairmanship of the Porsche supervisory board at the age of 63. He is normally the kind of man who prefers reconciliation whenever possible. He likes to defuse tense situations by telling jokes. Wiedeking was among those who fought on his behalf.

On the other side is the Piëch family, led by Ferdinand Piëch, who fought his way to the top, first at Audi and later in the VW Group, battling intrigues for decades, creating some of his own and eliminating dozens of rivals in the process. For Piëch, life has been a struggle to survive since his childhood. He once said: "When I have lost confidence in people, I deliberately allow them to fall by the wayside."

Until now, it was always an unevenly matched battle, from which Piëch usually emerged victorious.

The Porsches employed a pinprick strategy. They once characterized the Piëchs as the "rival family." And yet the only reason their surnames are different was that the progenitor of the clan, Ferdinand Porsche, had a son, Ferry, and a daughter, Louise. As a result, Ferry Porsche's children ended up with the mythical surname Porsche, while Louise's children acquired her husband's surname, Piëch.

Whenever Wolfgang Porsche wants to annoy his cousin, he refers to him as a "non-namebearer."

The psychological games and foibles of this industrial dynasty would be little more than laughable, if only they had remained a family matter. But the rivals are now battling over who is to control their combined assets, which in the future will include more than half of a merged VW-Porsche Group. The new organization will employ 370,000 people and aims to become the world's largest carmaker. At the same time, it will encompass two symbols of German industrial history that are burdened with particularly strong emotions.

On the one side is the Volkswagen Group, with its Beetle, which Hitler planned as the "people's car" and which later became a symbol of Germany's post-war Wirtschaftswunder ("economic miracle"). On the other side is Porsche, with its 911, revered worldwide as the quintessential sports car and a pinnacle of German engineering achievement. The myth of the Porsche brand was even enhanced by a horrific accident: the death of the actor James Dean in 1955, who was driving a Porsche when he died.

American comedian Jerry Seinfeld, who collects Porsches, is apt to lose his sense of humor the minute someone drops so much as a crumb in one of the more than 20 cars in his collection. A Porsche always makes you feel "like you're in the future," he says. VW, on the other hand, represents the somewhat more mundane present.

The two brands could hardly be more unlike. Porsche sells dreams, while Volkswagen sells reality. Porsche is the glossy icon of exclusivity while Volkswagen represents the sturdy, reliable vehicle of the masses. Luxury versus affordability, the moneyed elite versus the new middle class, golf aficionados versus "Generation Golf," as those who grew up in West Germany in the 1980s have been dubbed. And all of this is to be united under one roof in the future, and run by two deeply divided branches of the same family?

Part Comedy, Part Drama

The two companies have been connected by the Porsche clan since they were founded. Many of the elements of bitter power struggles between Porsche managers in the southwestern city of Stuttgart and their VW counterparts in the northern city of Wolfsburg, between the employee representatives of both companies and even between the governors of the two German states where their respective headquarters are located, are rooted in the history and genes of this family.

Its history is a mirror image of German history, one in which Hitler and forced labor played a role, as did Germany's postwar economic miracle and, more recently, Anglo-American-style capitalism. It was with methods more typical of a hedge fund than a small sports car manufacturer that Porsche embarked on a campaign, beginning in 2005, to acquire the VW Group, a company 15 times its size.

The family clan behind the takeover effort has had decades of experience in an ongoing feud -- a struggle that revolves around power and billions, as well as strong emotions, minor humiliations and, in some cases, women.

The entire affair is bizarre and amusing, part comedy and part drama. But the conflicts within the Porsche clan also demonstrate that the kind of family businesses which play a key role in the German economy are not always entirely a good thing. They can, admittedly, have a stronger long-term orientation than publicly traded corporations, which are forced to distribute profits as quickly as possible. But they can also descend into chaos when their owners devote too much time to their own affairs, to the detriment of the companies themselves.

In the case of Porsche, each side has already inflicted so many wounds on the other that a rational discussion between the two is hardly feasible anymore. And even if the two families have now come to an agreement over the future of the merged organization, the VW-Porsche Group and its employees can expect something of a bumpy ride in the months to come.

That, at any rate, is the lesson to be learned from the history of the Porsche family's two main businesses: the sports car manufacturer in Stuttgart and the dealership network based in Salzburg, Austria.

Ferdinand Porsche had once divided his estate into these two companies, with his son Ferry at the helm in Stuttgart and his daughter, Louise Piëch, in control of the dealership company in Salzburg.

The history of the two Porsche companies must seem deeply ironic to the employees and shareholders of Volkswagen. For decades, the Stuttgart and Salzburg businesses were only able to grow into corporations with billions in sales because they cooperated with -- and benefited from -- the VW Group. And then, when Porsche had accumulated enough capital, it tried to take over the Wolfsburg-based giant.

"We fed two little monsters," comments one VW executive. "And now they want to devour us."

A Fight to Survive

Ferry Porsche laid the foundations for those later developments on Sept. 17, 1948. At the time, Beetles were being built again at the Volkswagen plant in Wolfsburg under the supervision of the British, who were then in control of the state of Lower Saxony where Wolfsburg is located. This was strictly speaking illegal, because the Porsche design firm, Porsche Konstruktionen GmbH, still held the patents for the model.

Heinz Nordhoff, VW's managing director, met with Ferry Porsche and Anton Piëch in the Bavarian town of Bad Reichenhall to establish a proper basis for relations between the two companies. The representatives of the Porsche-Piëch clan came to an agreement on three issues:

  • Porsche would receive a licensing fee of five German marks for each Beetle produced up until the end of 1954. This provided the company with fresh capital.
  • The Volkswagen plant was required to supply Porsche with the parts it would need for its planned automobile production plants. This enabled the Stuttgart-based company to build its own sports cars, despite having few employees and small production facilities.
  • Porsche became the authorized dealer for VW models in Austria, establishing the foundation for a commercial enterprise that now sells cars from almost all the VW Group's brands and has annual sales of €13 billion ($18.5 billion).

Since their founding, the companies have been plagued by disputes between the Porsche and Piëch families, which are divided by more than just their names. The families are fundamentally different in their mentalities and even in their approaches to raising children.

Louise and Anton Piëch sent their children to a boarding school. Ferdinand Piëch describes it as a "typical boarding school experience, meant to toughen you up -- elitist, Spartan and strict." He had to fight and struggle to survive. According to Piëch, who would eventually become head of VW, the experience left him with "an extremely strong mistrust of others" and the realization that many things "can only be achieved by doing them yourself, because you can't rely on others."

Ferry Porsche, on the other hand, sent his four sons to alternative Waldorf schools. Their education was based on the principles of the Austrian thinker Rudolf Steiner, who founded the spiritual movement known as Anthroposophy: "Receive the children in reverence, educate them with love and send them forth in freedom." A member of the Piëch clan derisively characterizes the educational emphasis in the Porsche family as "crafts, crocheting and singing."

'We Have a Few Percent More than You'

Nevertheless, the Piëchs long benefited from the fruits of this upbringing. Whenever there were conflicts, the Porsches consistently sought compromise or simply gave in. But this approach had ceased to work by the early 1970s, when sharp differences developed among the four descendants of the families who were working at Porsche: designer Ferdinand Alexander Porsche, who had designed the successful 911, production chief Hans-Peter Porsche, distribution chief Hans Michel Piëch and R&D chief Ferdinand Piëch.

The conflict began with Ferdinand Piëch, who had backed the extremely costly development of the Porsche 917 racecar. His approach at the time was the same one he would apply in his subsequent career at Audi and VW: He insisted on the best technology possible, at any cost. The others accused him of wasting money, while he in turn scoffed that, in a family business, one's career can suffer a setback "if you don't say a proper hello to a family member at breakfast."

'We Quarreled Terribly'

In 1970, Ferry Porsche summoned the family members to take part in group therapy at Schüttgut, a farm in the Austrian town of Zell am See where he and his sister Louise Piëch had taken their children during World War II. He hoped that the building alone, as well as the memories of their shared childhood experience, would have a calming effect on the rebellious offspring.

But the outcome of the gathering was not what he had expected. "We quarreled terribly," says Ferdinand Piëch. The family decided that none of its members would work at Porsche in the future, and that outside managers would run the company.

Since then, most of the family members have only played within the auto industry the role of relatively invisible Porsche owners, but no longer as active managers. However, for Ferdinand Piëch, the changes jump-started his career, which first led to the top post at Audi and then to the chairmanship of the VW Group.

The fact that Piëch became the central divisive figure in the family early on was partly attributable to his turbulent private life, which is reflected in numbers: He has 12 children from four different relationships.

He was first married during his student years, and that marriage produced five children. In 1972, he had an affair with, of all people, Marlene Porsche, the wife of his cousin, Gerd Porsche. The transgression turned the Porsche clan against the Piëch scion. The Porsches objected to the affair, partly on moral grounds, but also because it upset the carefully balanced equilibrium between the two families.

The estate of Ferdinand Porsche had been equally divided between the Porsches and the Piëchs. Ferry Porsche and his four children each had a 10-percent share of the sports car manufacturer and the dealership organization. His sister Louise Piëch and her four children also owned 10 percent each. But when Marlene Porsche divorced Gerd Porsche, he was forced to relinquish a portion of his share to her.

This led some members of the family to accuse Ferdinand Piëch of trying to secure a larger share in the company through his liaison with Marlene. Piëch says: "For that reason alone, marriage would never have been an option for me."

Creative Energy

Ferdinand Piëch lived "more or less together" with Marlene for 12 years, during which he fathered two children with her -- and two more with another woman. "I can identify with both the ascetic and the oriental way of life," he later said, commenting on his lifestyle. "At any rate, I know that I derived my creative energy from the quieter times."

He eventually left Marlene for a nanny, Ursula Plasser, to the renewed chagrin of the other branch of the family. Piëch had three children with Plasser, and the couple is still married today.

The way he treated Marlene still enrages some members of the Porsche family when they encounter Ferdinand Piëch today. His older brother Ernst also caused his share of distress when he tried to sell his shares in the company to Arab investors in 1983. The remaining family members had to raise close to 100 million German marks to prevent the sale. Because the two sides of the family split Ernst Piëch's shares, the Porsche side has held more than half of the shares since then.

The incident, which the family refers as the "Ernst case," still affects internal conflicts today. Admittedly the families have committed themselves to voting in unison on the Porsche supervisory board and in the Salzburg-based network of dealerships, which requires that they come to an agreement beforehand.

However, whenever there is discord, Wolfgang Porsche is fond of reminding the "other family" that "we have a few percent more than you."

Read part two of SPIEGEL's history of Porsche and Volkswagen. 

Translated from the German by Christopher Sultan.
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