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Today's WSJ on Cayenne and Porsche stcok

THE BOTTOM LINE: Porsche Cayenne Not Sleek But Will Sell

By CHRISTIAAN HETZNER

Of DOW JONES NEWSWIRES
FRANKFURT -- Conjure up images of a Porsche and one envisions sleek aerodynamics and sporty curves that instantly whet the appetite for a tear down the German autobahn at breakneck speeds. But have you seen Porsche AG's (G.POR) new Cayenne yet? Many did Tuesday - and the automaker's stock quickly dipped.

The Cayenne, the newest entry in the sports utility vehicle market, will be built by a venture between Porsche and Volkswagen AG (VW), and it looks every bit the product of its two very different parents. While most industry experts and analysts admit that the look of the Cayenne takes some getting used to, they also say it's a shrewd move by Porsche that will rev up good sales.

Its 4.5 liter, eight-cylinder engine makes it the only SUV on the market to accelerate from 0 to 100 kilometers per hour in 5.6 seconds and reach top speeds of 266 kph. But inevitably it is the un-Porsche-like design that raises eyebrows particularly when a Porsche-like price tag of roughly EUR75,000-EUR110,000 is attached to it.

A picture of the Cayenne graced the cover of Porsche's shareholder newsletter, which promptly sent shares 4.9% lower to EUR510.50 on Tuesday. Shares have since recovered. Early Friday they were EUR537.50. "The shareholder newsletter with its photo of the Cayenne was the catalyst for profit-taking in the stock," Stefan Reck, an institutional sales trader at DZ Bank said that afternoon. "At first sight, it wasn't exactly electrifying."
A Duesseldorf-based trader and self-described Porsche enthusiast was far more blunt. "Porsche is not doing itself a favor by selling such a dreadful thing, and certainly not at that price," he said. The German automaker has taken a bold step from its tradition lineup of flashy sportscars - a move market watchers are closely eying.

"There is so much ambition built into the stock, and all of it is based on the Cayenne," says an analyst at Commerzbank, which has a reduce rating on the stock. "It would have to be the most successful SUV in the world to justify the current valuations," he says, referring to a price earnings multiple of 30 that dwarfs an auto industry average of eight or nine.

Othmar Wickenheiser, director of the International Design Center in Berlin, agrees that there is little room for mistake. "Porsche has achieved cult status with its 911 (model), and designers are only allowed to very minimally alter its appearance," Wickenheiser says. As soon Porsche started to move from this model, they have played with fire, he said. "None of its other sports cars like the 924, 928, 944 or 968 ever became a real success," he said, adding that "even the Boxster is merely an extension of the 911 design."

He admits that designing the SUV must have been a challenge. Regardless of whether the company focused the design on utility or lifestyle, the Cayenne was bound to confront problems because of Porsche's strong association with pure sports cars.

"It won't be an instant success - the Cayenne definitely requires some getting used to," Wickenheiser says.

Deutsche Bank analyst Lars Ziehn added, "There was so much hype surrounding this model that it was impossible for Porsche to fulfill everyone's fantasies. There's bound to be some disappointment." "The same thing happened with the Boxster and that became an absolute smash," said Ziehn, who rates Porsche a buy.

Expected To Sell Well

James Kelly, Professor of Auto Design at the Pforzheim Technical College, is confident that the Cayenne will be a success due to Porsche's "bullet-proof image." But, while it includes some snazzy features like elegant headlights, graceful hood and snazzy brake cooling inlets, he said "it looks as if the designers had their hands tied."

This is primarily the result of Porsche's decision to circumvent enormous development costs by manufacturing the body in a Volkswagen factory, while installing the engineering, interior and hood at its Leipzig factory. The result looks to be a picture of a conventional SUV superimposed onto that of a Porsche chassis.

Industry expert Peter Schmidt of U.K.-based Automotive Industry Data said Porsche hit the nail right on the head, sharing the risk and cost of launching a new product with VW while targeting a niche in the SUV segment of the North American market. This market has been characterized in recent years by high margins and rapid growth rates, previously dominated entirely by Detroit's Big Three. "This is targeted at status conscious Americans who want the image of a Porsche and the power of a four-by-four, but would never even dream of actually going off-road with it," Schmidt said. "Give the customers what they want, it's classic marketing and really extremely clever of Porsche."

In fact, Schmidt's only criticism is the company's failure to come up with the idea sooner. Dresdner Kleinwort Wasserstein auto analyst Thomas Aney said performance is more important than design for the success of the model. "A lot more is riding on what's inside the Cayenne," he said. The company itself is a good investment, Aney said. "No other carmaker comes even close to generating the 40% revenue growth we expect over the next two years," he said, basing estimates on expected high demand for the Cayenne. Aney has a buy rating on Porsche. The company is also confident and says the Cayenne has "no predecessor."

Porsche believes it includes enough to convince the market that the Cayenne is from the same manufacturer as the Boxster and 911. "With its deeply drawn hood and striking headlights, the Cayenne is immediately and unmistakably recognizable as a Porsche in its design," the company said.
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Old 03-08-2002, 07:22 AM
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