Porsche’s Stellar Profit Margins Difficult to Maintain Amid Planned Sales Boost

[carreraken]

from the WSJ:

Porsche is still in the race with its car sales and earnings growth echoing strong results from other luxury car makers. But what was really impressive was its underlying profit margin in the first half of the year.

Operating profit margins of around 20% are pretty much unheard of in the auto industry’s recent history. Volume car makers often eke out profit margins around 2%-3%, maybe around 5% or 6% if things are going well. Big luxury-car makers such as Mercedes-Benz and Audi currently reap between 9% and 13% margins (watch out for BMW earnings Tuesday)

Porsche’s margins have roared ahead in recent years, helped by a streamlined production system and strong pricing power. But maintaining profit margins of around 20% will become increasingly difficult, the closer Porsche gets to achieving its target of doubling annual sales to 200,000 cars by 2018.

Porsche is set to add a small sports-utility-vehicle to its line-up, and there has been some noise about an additional new model below its current Boxster roadster. This means there will be more overlaps with other car makers in segments where price pressure is more intense than, for example, for Porsche’s 911 flagship model.

Porsche can of course reap substantial cost savings through its tie-up with Volkswagen, specifically in the field of purchasing and by using VW’s modular toolkit to develop and produce new vehicles. Volkswagen currently holds a 49.9% stake in Porsche’s sports car unit and secured options to take over the rest at a later stage in case the merger with Porsche’s holding firm can’t be completed as planned.

But safeguarding Porsche’s iconic brand as a top-quality niche sports car maker, which is crucial for its extraordinary pricing power, will be difficult. Porsche’s former Chief Executive Wendelin Wiedeking, who was forced out two years ago after his plan to take over control of much-larger Volkswagen collapsed, once claimed that auto makers can’t reap decent profit margins in segments below the Porsche Boxster.

It will be interesting to see if Porsche and Volkswagen can prove him wrong.


August 1, 2011, 1:15 PM GMT


Source: WSJ

[pwd72s]

"exclusivity" sells...make the car too common, that goes away. I agree with the editorial. Mass production with big numbers? Well, I guess time will tell.

[KNS]

"exclusivity" sells... You took the words right out of my mouth. It just doesn't mean as much if you keep passing another 911 or Boxster as you're tooling down the road in your 911, Boxster, etc. You may as well buy a BMW - oh yeah, those are as common as Toyotas now.