Porsche (with Doug DeMuro) | Acquired

It's definitely Porsche.

Porsche.

Yeah.

Definitely don't say Porsche.

The family says it more like, because I met one of them at one point, they say more like,

not like Porsche, but more like Porsche.

But it's hard.

I think it's a German thing and I think it's difficult to, so we all say Porsche, Porsche.

If you say Porsche with a German accent, it comes out like Porsche.

Yeah.

So I think it's almost like...

Yeah.

That's probably exactly what it is.

Who got the truth?

Is it you?

Who got the truth now?

Is it you?

Sit me down.

Say it straight.

Another story on the way.

Who got the truth?

Welcome to Season 12, Episode 6 of Acquired, the podcast about great technology companies

and the stories and playbooks behind them.

I'm Ben Gilbert.

I'm David Rosenthal.

And we are your hosts.

Today, we tell the story of Porsche.

If you liked our LVMH episode, you are going to love this one.

And not just because it's a European luxury brand.

There is possibly even more family drama, creeping takeovers and complex corporate structures

at play.

But why is Porsche, the brand and the product, so special?

The company has struck an incredible balance of both building some of the world's finest

supercars while also being a great daily driver, unlike, say, a Ferrari or a Lamborghini.

Of course, these are expensive daily drivers with the average Porsche costing $110,000.

But they have managed to nail being a prestige brand with pricing power and make a ton of

cars at $350,000 per year.

Today we'll study how they cultivated such a vibrant community, which conveniently for

them is comprised of extremely wealthy people.

But it has not always been this way, and it certainly didn't start this way.

Today's story has Nazis, tanks, the first electric vehicles, and like most luxury brands,

some misadventures in the 1980s.

Oh, yes.

And if you like quirks and features, you're going to be pumped about our partner in crime

to help us tell this story, Doug DeMuro.

Doug is one of David and my favorite YouTubers and content entrepreneurs.

He operates the largest independent YouTube channel focused on car reviews with millions

of subscribers.

He also used to work at Porsche corporate and is about as big of an enthusiast of the

brand as you'll find anywhere.

In fact, we are filming this episode now sitting in his garage in front of a very special Porsche,

Doug's Carrera GT.

Welcome to Acquired, Doug.

Thank you for having me.

It's wonderful to have you here.

Well listeners, if you want to know every time an episode drops, sign up for email updates

at Acquired.fm.

Join the Slack.

We'll be talking about it after this episode, Acquired.fm slash Slack.

And without further ado, David, take us in and listeners, this is not investment advice

David and I and Doug may have investments in the companies we discuss and the show is

for informational and entertainment purposes only.

To set the stage a little bit, I think that even though it's a marketing phrase, the German

engineering thing, it's worth sharing a little bit of history because it is more than just

a marketing phrase.

So there's a pretty long and incredible history of science and engineering in Germany and

Austria.

It goes all the way back to the scientific revolution and Johannes Kepler and actually

before World War II, Germany had produced more Nobel laureates in scientific fields

than any other nation in the world.

Folks like Max Planck, Erwin Schrödinger, Kurt Gödel, and Albert Einstein.

These are all German and Austrian scientists and this tradition extends also of course

to the auto industry.

So it is very likely that the first gas powered transportation vehicle, this looked more like

a tricycle than a car, but predecessor of a car, was created by a German inventor in

1864 named Siegfried Marcus.

And I say probably because nobody really knows because Marcus was Jewish and the Nazis destroyed

all records related to him during the war.

We're going to talk a lot about the Nazis here in a minute.

Either way though, Germany definitely did create the first successful production consumer

automobile.

It was a vehicle called the Benz Patent Motorwagen and that was made in 1885 by Carl Benz.

I recognize that name, Benz.

Indeed, you probably do as do most listeners.

Now around the same time, another German inventor named Gottlieb Daimler sets up his own motor

company and then in the early 1900s they have a model that they're producing, goes on to

be quite popular, is named after the daughter of one of their biggest dealers in their dealer

network.

Of course, we are talking about Mercedes.

I had no idea.

That's where the Mercedes name came from.

So Benz and Daimler end up merging in 1924 and thus Mercedes Benz is born.

But okay, you might be asking what does this have to do with Porsche?

Well, it turns out quite a lot because in 1906 Daimler scores a pretty big win in this

fledgling German auto industry when they recruit the current potting prize winner.

The potting prize was for Austria's automotive engineer of the year to come be their new

chief engineer at Daimler, one doctor, engineer, honoris causa, Ferdinand Porsche.

Now the whole doctor, engineer, honoris causa thing, it's a bit of a red herring.

Although Porsche, the person and the company would make quite a big deal about it.

The dude never even finished college, let alone got a PhD.

It was an honorary degree that he got later in life.

Wait, the Dr.

Porsche is like Dr.

like the Seuss doctor.

Well, he had an honorary doctor.

He was already doing stuff, though.

He was engineering and creating.

Hence the honorary doctorate.

Yes.

Nonetheless, he definitely was a badass engineer.

And we're going to talk about all of the things, the amazing things that this guy creates.

But we also got to state this upfront, and this is as good a place as any.

Ferdinand Porsche and many other folks in the family and in the early Porsche and Volkswagen,

as we will see days, were also huge Nazis.

And Ferdinand himself not just was a Nazi, but was a very close personal associate of Adolf Hitler.

He was a member of the SS.

And we're going to glorify him and many of these other folks here of their business and

engineering contributions.

But that doesn't mean that these are good people.

So keep that in mind.

Yeah, this isn't like one of those people that you hear, oh, well, at that point in time,

the Nazis were so big and powerful, they kind of just got coerced or they collaborated.

It's like, no, this dude was a real big Nazi.

Yeah, he was definitely a Nazi.

So when Ferdinand takes this new post as the head of engineering at Daimler, he moves

his family from Austria, where he was the potting prize winner, to Stuttgart in Germany.

And Doug, you probably have some more context on this, but Stuttgart is basically like the

Detroit of the German auto industry.

And it certainly has become more that way since Porsche was, as we'll get to, because

Mercedes Benz is there and it really does feel like, yeah, manufacturing cradle, especially

for cars.

And I think it's not even much like Detroit.

It's not even just the car companies, but all the suppliers and the subcontractors.

Everybody you meet in Stuttgart, just like when you go to Detroit, works for Porsche

or Mercedes Benz or a supplier or something like that.

It is like the industry town.

So Porsche Ferdinand, it's not a short period of time.

It's two decades that he is running the engineering and the car design for Mercedes Benz.

While he is there towards the end of his time, kind of as we're getting into the lead up

to World War II, he comes up with a concept.

He thinks that he can produce a small, affordable car that can really become the first German

and European mass market automobile.

Now back in the US, there was the Model T and Henry Ford, that existed.

But Ferdinand's vision is a small car.

The Model T was a large car, like a modern, small automobile that Germans everywhere can

buy.

Which was important because in Germany in that time, car ownership was not anywhere

near as big as it was in the United States.

Apparently only 2% of Germans owned a car versus 30% of Americans by the 1930s.

And so mobilizing Germans was not something that had happened in mass at that point.

So this really was a challenge to build a car that could be affordable enough for the

average German person to buy it.

And indeed it was a challenge because the board of Daimler-Benz rejects it.

They're like, no, we can't do this.

We make expensive cars for wealthy people.

They get into a huge fight over this and Ferdinand ends up leaving the company pretty acrimoniously

in 1929.

So much so that like, and Doug, you've worked at Portia, you have content, like I think

to this day, the rivalry between Mercedes-Benz and Portia, like there's some bad blood there.

It heats up and it cools down and there's more to discuss in that in the future for

sure.

But they ultimately do share that town too.

So like there's rivalry, but like they're also, you know, you hang, you have beers with

them, you know, you can't avoid hanging out with Mercedes-Benz employees also.

Love it.

So once he leaves, Ferdinand bumps around for a little while.

And then in 1931, he starts a consulting firm to kind of advise other car companies, not

Daimler-Benz, but other car companies in Germany and Europe and I think in America too, on

their designs and like do some work for them and maybe even design cars for them.

And he names it the Dr. Engineer Honoris Causa Ferdinand Portia Construction und Bertungen

für Motoren und Farzenbau.

I apologize to any German speakers out there.

Wow, you are.

But to be fair to you, it's a lot.

It's a mouthful.

I studied French in college, you know, like, and that translates as the Dr. Engineer Honoris

Causa Ferdinand Portia Consulting and Design Services for Motor Vehicles Company.

And this is the beginning of Portia the Company and up until 2008 and 2009, which we will get

to much later in the episode, that is the company that makes Porsches.

Yeah.

Wow.

Yeah.

I mean, if you look up like the stock of Portia and you pick the right Portia and there's

a couple we'll talk about, that's still the full name of the company is all of his honorary

things.

So when he's starting this new company, he enlists the financial support of two people.

One is his son-in-law, his daughter Louise's husband, one Anton Piesz.

Remember that last name because it is also going to be very important as we go along

here.

And the other person is Adolf Rosenberger.

Now if you are a Portia history nut, you probably know about Anton Piesz.

You probably don't know about Adolf Rosenberger because shortly after they start the company,

Rosenberger was Jewish and he gets arrested by the Gestapo.

He gets imprisoned.

He eventually bribes his way out and escapes to America.

But during the war, Portia and the Nazis totally appropriate his stake in Portia and he's written

out of history.

Okay.

So this new Ferdinand company in 1934, they land one very, very, very large contract.

That would go down in history both for the company and the world.

That contract would be to design Ferdinand's vision, the small, affordable car for the

people, a Volkswagen, you might say, in German.

That car would go on to become the Volkswagen Beetle and the company that contracted Portia

to build and design it was Volkswagen, which was established to do so by Adolf Hitler.

I hadn't heard rumors over the years like, oh yeah, there's like a Nazi connection here.

Like Adolf Hitler founded Volkswagen.

It's bigger than a connection.

Yeah.

There's not a connection because it's the same person.

Right.

It is the thing.

Yeah.

Facebook, I feel like that has some kind of like Zuckerberg association, but I've never

really put it together.

Yeah.

Facebook.

I just got to say this early in the episode, we may as well like pointed out already,

it is crazy how comfortable we all are driving Volkswagens and Porsches when it was like

not just a little Nazi affiliated, like founded by Nazis.

And yet the way the world has evolved, like people kind of became okay with it.

All the German brands, I mean, you know, most of them use Jewish labor in their factories

at that time.

And obviously very different people run the businesses now.

And so you just kind of put it out of your mind.

And, you know, what generations have gone by, also less so on the Porsche side of things,

more so on the Volkswagen side of things, as we'll see with the history here.

There is kind of a pretty incredible re-founding of Volkswagen after the war.

And I think if it were not for this re-founding that we'll talk about in a minute, it would

not exist today.

But yeah, just wild frigging Adolf Hitler founded Volkswagen.

So the Beetle, this, you know, people's car, Doug, you might know this, did it go on to

become the most popular car ever in the entire world?

Yes.

It is very hard to get actual production and sales data, especially for old cars.

Especially for cars like the Beetle, which were produced in many countries over many

years.

I mean, they were building them in Latin America through a couple of years ago, maybe 2003

or something.

And so it's like difficult to figure out.

But obviously, whether or not it was the most or one of the most, it was obviously the effect

of that car is clear, you know, today.

And I tried to think, I could not think of any other model.

I believe the Beetle, the original Beetle, is likely the single longest produced and

largest, both in terms of length of time and number of units produced, of a single generation

model of a car.

Like the Civic, the Mustang, the F-150, definitely more than the Beetle, but like those aren't

the same cars.

The Beetle was the same freaking car until the new Beetle in 1998.

And it's interesting when you think about the Beetle, because young people today look

at it as like a cute, classic car, but like at the time, it was what you drove to drive

your family around.

And we'll talk more as we get to post-war, but like in Germany at the time, it was like

a real, you know, important, practical family car.

This original Volkswagen, the Hitler Volkswagen, one of the things you can do when you start

a company as a fascist dictator, you can create a new city to house this company, in which

he did.

So Hitler creates a new city in Germany known as the then called the city of the strength

through joy car.

That was what they wanted to call the Beetle originally.

The strength through joy car.

That was like a Nazi strength through joy.

That didn't get much more German than that.

And this is Wolfsburg.

Like, this is the city that Volkswagen is still located in today.

Hitler created it.

And not just Volkswagen, but like the Volkswagen group, one of the largest car conglomerates

in the world that owns many other brands you're familiar with, all out of Wolfsburg.

All out of Wolfsburg.

So Hitler creates Volkswagen.

He creates Wolfsburg.

They do start production of the beetle before World War Two starts.

They only make about 200 units.

These are super rare today.

You find a pre-war beetle.

Then World War Two begins on September 1st, 1939.

As you would expect, Volkswagen, all the Volkswagen and Porsche operations get repurposed to making

military vehicles.

There's a bunch of dark stuff.

Everything Doug, you mentioned earlier, forced labor, concentration camps.

This was the Nazi war effort.

It all happened.

We're going to skip over this period for our purposes today, but like, note, it happened.

After the war, though, a whole bunch of really interesting stuff happens that basically fractures

and separates out the Volkswagen operations from the Porsche operations for the next,

the rest of the century and into the 21st century.

So ironic, given that they are now one company again.

First off, where are they?

No, well, where are they?

That's the question.

And the funny thing is also, they always, they danced around even in this period and

then in the decades after that, and then of course now, there was always kind of flirting

with each other.

Yes.

So first on the Volkswagen side, I alluded to this a minute ago, it's a pretty amazing

story what happens.

Because you would think like, there's no way, you can't imagine that Volkswagen would survive

post World War Two, given what we now know, the origin of the company.

So what happens is Wolfsburg ends up in the hands of the British at the end of the war.

And there's this whole crazy thing in Germany of like all the allied armies are coming in

and literally Germany and Berlin ends up getting split into East Germany, West Germany, East

Berlin, West Berlin.

Wolfsburg is in the hands of the British.

And remember, because it was a political organization, it wasn't a company before the war, nobody

owns it.

It's this like orphaned organization, it's super unclear.

There's no like proprietorship of it.

So the initial plan that the British come up with, they were going to dismantle the

factory and ship it over to Britain and essentially have Britain appropriate the Volkswagen technology

and operations.

Like the Beetle was almost a British car.

Yeah, but supposedly, the British didn't want it.

The British saw the plans for Volkswagen for the Beetle and said, no one's gonna ever want

to buy that car.

It's crazy to think about now.

And it gives you an idea of how the British would operate their car industry, constant

missed opportunities.

But they literally looked at like this, the drawing, the models that they had, the few

that they had built.

And they said, nah, that is, they literally said it is not commercially viable.

Wow.

So, okay, the British government kind of lacked a vision for this.

But a singular British person did see the vision for this.

And that is the officer who was in charge of the territory where the factories were

like on the ground managing it, Major Ivan Hurst, a legendary figure in Volkswagen history.

He finds one of the pre-war production Beatles, the 200 that were made.

He starts driving it around and he's like, hey, this thing's actually pretty good.

I think we could maybe do something with this here.

He also sees, and this becomes increasingly obvious, as the post-World War II state of

world affairs takes place here in Germany of like, hey, the Cold War is about to start.

He realizes that West Germany needs an economic revitalization here.

We need to restart German industry because, hey, the Iron Curtain is falling just to the

east here.

So he amazingly proposes and convinces the British command to leave the factory in Wolfsburg,

maybe easier than I thought because the British didn't want it, apparently, and also to place

an initial order, a seed order, to restart the company for 20,000 Beatles that the British

military is going to adopt and use as their main military transport.

So not as like a tank, but like not an armored beetle, but like they're going to use it to

drive officers and stuff around.

Yeah, from that seed order, like that is now the new Volkswagen.

And so it's like, yes, Hitler started it, but then Ivan Hurst at least started it.

Yeah, totally.

Now, one of the things that I find interesting about the beetle is that each, Europe was

so war-torn after World War II was the whole, all these places were in similar situations

to Germany and that like the people needed to get back to work.

They needed to be able to drive and go places and each European country had their own beetle.

You know, UK had the mini, Italy had the Fiat 500, France had the Citroën 2CV.

They all kind of looked similar.

Wait, these are all based on the beetle?

No, no, no, but they all came from the post-war era where they needed something small and

cheap to like remobilize the citizenry, basically.

And so kind of each country developed, had their own, you know, car that did that for

each country.

But in Germany, of course, the beetle became a global hit, whereas in those countries,

it was more, you know, in their area.

Yeah, you don't see a lot of Citroëns in that.

Yeah, no, but the 2CV was a huge, huge car and the French, just like the Germans, needed

to get back to work, needed to start building stuff again, and also needed a cheap car to

like cruise around it.

Yeah, super interesting.

So that's Volkswagen, but put a pin in them.

We'll come back to them in about 50 years, because there's a lot more to say on Volkswagen.

And 50 years, that's about how long they would make that one model of the beetle.

Yes, the new beetle would get introduced, I think, in 1998.

And the first ones post-war were made in like 1948, so yeah.

Crazy, crazy.

Isn't that wild?

It's insane.

Okay.

So what about Porsche?

Well, they have a bit of a different path.

So after the war...

And we should say during the war, Ferdinand Porsche was designing tanks and other military

trains.

He designed the elephant anti-tank tank, the most powerful land-based tank ever created.

A, terrible, but B, like just the range of design talent that he had, like he designed

the beetle and he designed the largest anti-tank tank ever created.

And also some of the very first hybrid and electric cars in history.

But at that time, battery technology wasn't advanced enough, and so you're lugging around

this huge weighted battery pack to get almost no juice out of it.

And so it didn't really go into production.

He was a genius.

This is also...

It runs in the family too.

Many of his descendants are both engines and cars geniuses.

After the war, Ferdinand and the son-in-law, Anton Pièche, are both arrested by the French

as war criminals.

Tried in France, they end up being imprisoned for two years in France.

And Ben, you did a little research on this, right?

Yeah, I think the technical thing they got him on, which is why they only had two years,

was for the forced labor that they took the imprisoned Jews and forced them to work in

the factories.

But all the other war crimes that were stacked against them ended up not being charged.

And so quick trip in and out of prison.

Quick trip to your trip.

Out of war criminal prison.

So Ferdinand's son, Ferry Portia, who had been working in the business, I think a little

bit before the war and then during the war too.

He's also arrested for war crimes too at the end of the war.

He gets released after six months in the summer of 1946.

And he and his sister Louise are like, what are we going to do?

We got to rebuild the family, are we going to restart the business?

Let's go figure things out.

They return to the family's kind of ancestral home in Austria.

And that happens to be quite convenient because during the last days of the war, as Stuttgart

and other large scale German military production facilities were getting bombed by the Allies,

Portia took about 20 or so of the best, most talented engineers and production people that

they had.

And they moved them out of Stuttgart and they moved them to the Austrian countryside so

that they wouldn't be targeted by it so that the Allied bombers wouldn't know where they

are.

And this is pretty crazy.

They are literally operating out of a sawmill in a farming village in southern Austria named

Gmund.

We're talking about like a couple thousand people maybe that live in this area.

And David, are you getting all this from, I know you read like $500 worth of textbooks

on Portia.

So there is this incredible history of Portia called Excellence Was Expected that was written

by Carl Ludwigsson.

And we have to owe a big thank you to him for the research for this episode.

This work is like, I mean, the photos, the archive work that are in this volume.

It's incredible.

I read a coffee table book that was like the complete illustrated history of the 9-11 because

for this episode and this topic, you want a visual history.

And so it's not like there's audiobooks and Kindle books that we could do our normal

amount of research on.

All this stuff is in these like huge heavy bound pictorial books.

These are amazing objects that like are being produced.

There's just such a like visceral tangible quality to them that we don't usually cover

unacquired.

So Ferry and Louise go back to Austria.

They're there in Gmund.

And they're like, well, what if we start a new company and see what we can do around

here?

I mean, there's some vehicles we can start fixing.

This is literally like the Sony story.

If you remember when Sony first got started in Tokyo at literally the same time, they

started by fixing radios.

Right.

Portia.

It's a services business.

The second Portia company, Portia Construction in GMBH, which is an Austrian company.

That they start to do this and they start up like fixing old military vehicles that

are around there in Austria.

Unlike Sony in Tokyo, though, where there were a lot of radios in Tokyo, there weren't

a lot of cars in Gmund.

So pretty quickly, they're like, huh, we don't have any more cars to fix up.

Bad business.

Well, not a large market, shall we say.

At this point, Ferry has an idea and it turns out it's a pretty damn good one.

He definitely liked and agreed with his father's vision for a small car, a car for the masses

of Volkswagen.

But he always had one major problem with the Beetle, which was that it was slow and it

just was not fun to drive.

So during the war, he actually had a custom Beetle made that he drove during the war with

a supercharged engine.

And Ferry said later in a 1972 interview, I saw that if you had enough power in a small

car, it is nicer to drive than if you have a big car, which is also overpowered and it

is more fun.

On this basic idea, we started the first Porsche prototype to make the car lighter and to have

an engine with more horsepower.

Doug, can you contextualize what a big moment in world history this is?

Yeah, I mean, it's an interesting concept because sports cars in general weren't a thing

that much.

They were and there's going to be people around and say, no, there were a lot of sports cars

before but it was really a thing of real enthusiasts, wealthy people, that sort of

thing would buy cars to go motor racing in the era of brass era and that kind of stuff.

The concept of creating something more affordable, littler that was still fun, it was kind of

an interesting idea that this was a touchstone of a concept that has really been taken obviously

by them and refined in others as well.

In research, when I looked up some of those sports cars pre-Porsche and you look at them

and things are like Franken cars, they are huge and the engines are like the engine bays

in the front of the cars are two thirds of the length of the car.

There's this one Ferrari from that era and I look at, I'm like, how do you even steer

this thing?

It looks like a boat.

The thought at the time really was, you want to go faster, more, more power, which of course

creates the need for more power and they did that but it was unwieldy.

I mean, even to this day, the Carrera GT sitting behind us, that's not a large car.

Right.

That was a Porsche thing and it was an even more of a Porsche thing at this time.

Totally.

David, you said a word there that if people aren't into cars, they may not know this super

charged Doug.

What does it mean to supercharge a car?

Basically, an engine takes in air and that's kind of air helps air mixes with the fuel

and it creates a big combustion and that more or less that's how a combustion engine

works.

Supercharger pushes in even more air to create more power, basically.

The term supercharged would be referring to like takes the same engine but adds this thing

to kind of force more power through to like...

It literally forced more air in.

Yeah.

Then I don't think turbos had been invented yet and turbos would obviously become a big

thing for Porsches much later.

The concept of turbos is actually fairly similar to supercharging except that it spins something

that adds even more air basically and thus turbochargers result in power kind of being

produced as the car makes more power.

It makes more power, if that makes any sense.

It kind of like spins itself up in a faster way and there's kind of pros or cons to either

of them.

And for those following along at home, this is like end of the 40s 1947 type era.

Yeah.

Those couple of years after the war when everything was kind of getting figured out.

Yep.

So Ferry has this idea, he's like, oh, I liked driving my supercharged Beetle.

This was really fun to have a small car that also had a lot of power in it.

What if we take this small operation of our elite team here in Gomund and we try and build

a car that does that?

And hey, it also turns out that we built the Beetle, so we know how to work with the Beetle.

There are a bunch of Beetle parts around.

The Beetle was the main kind of chassis platform for a lot of military vehicles for Germany

during the war.

What if we take a lot of those parts and the basic architecture of the Beetle, which is

a rear mounted air cooled engine on a small car and we try and put something together

here.

And this becomes the legendary Porsche 356.

For some context on this, you can buy an old Beetle today for, I don't know, 10, $15,000

at auction.

Maybe even a Beetle, like a classic one from the fifties or sixties, 356s regularly sell

for about $300,000 at auction and special ones go for well, well, well above a million.

This is a big idea.

The gulf between a Beetle and a 356 is large.

Doug, why is the desirability of these cars so different today?

Well, I mean, production numbers is probably the biggest component of that one, right?

They made literally zillion Beetles and the 356 is special because it really kind of was

one of the real touchstone moments of the sports car coming out of the war, how we define

the sports car today.

It was a special thing and it was a special time and a special moment.

And a lot of them also weren't treated all that well.

Ultimately the 356, it was not affordable, but they made a decent number of them.

They got to be relatively cheap.

It was the old used Porsche for a while in the sixties and seventies.

And so not that many of them were saved.

And now it's kind of revered as when we look back as, as this major moment in Porsche history.

Yeah, this was another thing.

So obviously in Camune and then, and then even when Porsche moves back to Stuttgart

here in a minute, um, their production capability is not nearly as large as Volkswagen.

So they need to price these things pretty high.

They priced them at $3,750, the German equivalent of $3,750 in the late forties.

That's about $42,000 today.

But we're talking about war torn Europe that you're trying to sell this in.

Like that's a lot of money.

Here's the crazy thing.

There's a market for that.

Even in war torn Europe for a $40,000 sports car, like there are enough people who it turns

out are interested enough in fairies vision for a small, fun, fast sports car.

Initially it was slow.

They, it took them a while.

The first couple of years, they only made like a couple hundred of them or something

like that.

It was initially pretty slow, but then things started to kind of kick around.

People in Germany started to get some money and things started to take off.

Yeah.

It may be worth pointing out also in the context of the sports car, like the 356 coming out

of World War II was kind of the beginning of the sports car really taking off.

Like I mentioned before, it was the earlier ones were these big giant things that were

only operated by enthusiasts who know how to work them.

But like post-World War II, there was a lot of optimism.

There was more, in Britain it was happening too.

MG was coming out with their sports cars, Austin Healy, Jaguar.

These cars all kind of were born from this post-war period of like, hey, these cars have

been refined to the point where we can use them and drive them and enjoy them.

And that really became a thing.

And in Germany, it was the 356.

So that takes us to the late 40s here.

They're starting to produce the 356 in Gomun.

At the end of 1947, Ferdinand Porsche and Anton Piersch get released from French prison.

They come back to Austria, the families all together, and they kind of got to decide what

to do here.

Right around that same time, Volkswagen's getting back up and running.

Hearst is running it.

It's like the vision they're going to make the beetle for Germany and for the world.

They come back to the Porsches and they say, hey, we still want to do business with you.

And in fact, we actually want to expand the scope of our business with you guys even more

than it was before the war, because we could still really use technical design, consulting

work, and really leadership from you individual Porsches here at Volkswagen.

I mean, after all, you designed the beetle.

Two, though, now, you know, we're not a government organization in the same way anymore.

We need distribution.

And you guys have this new Austrian Porsche company that you've set up.

So how about this?

They propose two things.

One, they say, let's reinstate that old German Porsche company, the Dr.

Ingenieur Honoris Causa, blah, blah, blah, will recreate the German Porsche company.

It'll resume doing the technical design and consulting work for us here at Volkswagen.

In return, they give that German Porsche company, literally the sweetheart deal of a

lifetime, a royalty on every beetle sold worldwide.

No way.

Yes. Yes.

This is how intertwined these two companies are.

Sorry, the deal is we want your Austrian company to distribute our Volkswagens.

And in order to coerce you to doing that, we're in the consulting work.

We also want the consulting work.

OK, but Ben, you're on the right track.

This is a hell of a sweetheart deal for the Porsche family.

I mean, you are right to be saying, why would the German government do this?

So do you know what kind of royalty?

It was enough that it was very meaningful, very meaningful cash flow.

And probably not even at the time, not even clear just how amazing it would be.

Right. Nobody knew that the beetle was going to become the international hit that it would.

But also the German government did know that this was a lot of value.

And they also may or may not have known that on the Austrian Porsche side for the dealership

distribution side, that was also a lot of value.

So we're not going to talk as much about the Austrian operations of Porsche for the rest of the episode,

but it becomes a huge business.

So by the time in the early 2000s, when it all gets consolidated back into one company,

for most of the two separate histories, that was the larger company by revenue.

So the Austrian Porsche company becomes the largest car dealer network in Europe,

not just for Volkswagens, but for all types of automotive brands.

They're doing billions of annual revenue within a few years here.

I mean, what an opportunity to be given a distribution network just as the car is starting to become like a big thing.

Exclusive distribution rights to Volkswagens.

And they're in countries not just in Austria, they're all over the place.

Yeah, they're all over the place in Europe and even more incredibly.

So what the family decides is that Ferdinand and Ferry, the original Ferdinand and his son Ferry,

they're going to be back to Stuttgart and take over, re-take over the kind of German operations of Porsche.

Louise and Anton, the son-in-law, they're going to stay in Austria and run this dealership business.

Anton dies in 1952, and Louise is the one who builds this business.

Like Louise and her children turn that into this huge, you know, the largest car dealer network in Europe.

Wow. Doug, the way the value chain evolved for selling cars,

there's this very clear delineation in the U.S., at least, until Tesla of separating the dealership from the manufacturer.

There is no direct to consumer.

Was that already like obvious at this point in history when Porsche kind of has these two different companies?

It's an interesting question.

I suspect the answer is more or less in some brands I bet they were selling direct to consumer and some I bet they weren't.

Some of the smaller ones, maybe.

I suspect the reason this worked out is because Volkswagen didn't.

I mean, these companies didn't want to be the ones who were distributing all these cars across and doing all this.

They were focused on manufacturing.

I think there also might have been a technical reason, which is even though this new Volkswagen was reconstituted as a company,

its only shareholders at this point in time were the German government.

So both the national West German state and the state of Lower Saxony within West Germany, which still to this day holds 20 percent

of Volkswagen, which is crazy.

Yeah, they would IPO Volkswagen, I believe, in 1960 or 1961.

So it was even though it was a company, it was a German national company to operate in other states, other countries in Europe.

They probably needed third parties.

Yeah. Wow. Yeah.

Wow. Right. All right, listeners, this is a great time to talk about one of our big partners, ServiceNow.

ServiceNow is the platform for business transformation, helping automate processes, improve service delivery and increase efficiency.

Over 85 percent of the Fortune 500 runs on them.

And over the past few years, they've joined companies like Microsoft as one of the most important enterprise technology vendors in the world.

And speaking of Microsoft and ServiceNow, they just announced a huge expansion of their partnership,

specifically integrating the two companies, Enterprise AI Assistance.

Starting in the fall, customers will be able to interact with ServiceNow's NowAssist, AI assistant directly within Microsoft CoPilot.

Yeah, it's telling for the magnitude of this partnership to see Satya Nadella appearing in the keynote at ServiceNow's big annual event, Knowledge, last month.

Yes, ServiceNow's NowAssist will be integrated with Microsoft CoPilot and will be available directly from Office apps, starting with Microsoft Teams.

The AIs are integrated into one seamless user experience without actually sharing data.

So if, for example, a user asks CoPilot in Teams about how the company's laptop policy works, behind the scenes, CoPilot shares that request and context with NowAssist.

And NowAssist accesses internal company policy with the right permissions for that user and returns the answer to CoPilot in a rich card with options for the user to kick off a workflow via NowAssist.

In the future, Microsoft CoPilot will also be integrated the other way into NowAssist so it can automatically generate office files like PowerPoint presentations and Excel spreadsheets directly from assets and knowledge in the ServiceNow platform.

It's pretty awesome for both companies and especially awesome for enterprise users.

So if you want to learn more about the ServiceNow platform and how it can work with your company's Microsoft services, go over to servicenow.com slash required.

And when you get in touch, just tell them that Ben and David sent you.

OK, so Ben, you hit on this a minute ago.

What the hell? Why is the new Western controlled West German post Nazi government giving this deal of a lifetime to these former Nazis?

And it's not just we'll pay you for the car as you distribute that we make.

We will pay you for all cars that we make, every beetle, regardless of whether you distribute it or not.

Yes, yes to the German company.

And then the Austrian company has exclusive rights to distribute it is a crazy deal.

So here's what's going on.

It actually as crazy as it sounds makes sense.

So we talked about a minute ago, the Iron Curtain and the Soviets like so hard for us to remember now.

But Germany post war was ground zero for the Cold War.

Like the battle against the Soviet Union was happening right there, right next door.

And so for the West, reconstituting the West German industrial base was of paramount importance.

So like the Marshall Plan that people probably know about, like, this is why the Marshall Plan happened.

And this is essentially part of this philosophy of like, we don't care that these people used to be Nazis.

But for Porsche, for Mercedes Benz, for lots and lots of German industrialist companies, the reason that they get restarted and re re-injected with steroids, so to speak, is like, hey, we got an existential threat next door.

We got to rebuild, we got to make some cars, the industrial base.

Now, the deal that they give them does come with an implicit string attached, which is they basically say to to Porsche and other companies,

we're not really going to give you a license to print money.

Instead, we will give you a license to essentially create enterprise value.

So what West Germany does is they create one of the oddest tax incentive systems I've I've ever seen.

So for ordinary people in West Germany post war, the tax rate was very low.

The maximum amount of taxes that any normal person would pay would be like 15, 20 percent of your income.

But for these new old industrialists above a certain income, Germany sets the marginal tax rate at 95 percent.

Well, they basically cap your income.

Yeah, like people are complaining.

They live in California.

Oh, my gosh, I'm paying 13 percent state income tax on top of federal.

Well, like imagine if the marginal tax rate were 95 percent, right?

You would just have no incentive to earn any additional dollars.

Right. And that's on the personal side.

It's equally bad on the corporate side, any profits or taxes.

So what are they trying to do here?

They're trying to incentivize capital reinvestment in the industrial base.

So they're basically saying to Portia and others.

Set all this up and we are going to create all the incentives such that you will plow all of the money,

all these royalties we're giving you from the Beatles, et cetera, into building up your production capabilities and

investing in R&D and new models and et cetera, et cetera.

And I mean, it sounds crazy on paper, but like, my God, it actually works like it works really freaking well.

Do you think there was some guarantee that the tax rates would lower someday?

Maybe. And I think they did.

But as we'll see, Portia becomes like it becomes pretty institutionalized there of like, don't take profits instead,

reinvest them in new models and R&D racing to the great benefit of the brand.

Yeah. So I mentioned one of the things that Portia invests in over the years is race cars and racing.

And this is super interesting.

None of us are racing historians.

That's a whole nother branch of the automotive industry.

So here we're in the late 40s, early 50s.

Racing in this era doesn't look at all like it looks today.

It hadn't professionalized yet.

So the line between consumer enthusiasts, car market and professional racing market was very blurry.

Very, very blurry.

Right. And it turns out that even though manufacturers, including Portia, would make special versions of cars for racing,

for Le Mans being the most famous race at the time and others around the world, it wasn't like you look at an F1 car today or you look at a Le Mans car.

Like there is no connection between that and something you can buy and you or I would not be able to even operate it.

So a super obvious point to illustrate this is folks are probably, you know, no names like James Dean or Steve McQueen,

these famous Hollywood actors that were known as like, you know, they did all these race car films.

They were also professional race car drivers.

Yeah, professional as it were in the time period.

Yeah, they competed in like real races in addition to being actors.

Imagine Brad Pitt jumping into Le Mans.

Well, I was about to joke, they'd kill themselves.

James Dean did kill himself in a Portia 550 Spyder, which Portia would make a kind of dedicated racing type vehicle,

although it was also a consumer production vehicle, the 550.

That car that never would have happened if Portia wasn't incentivized to invest all their profits.

I mean, maybe you can say I'll do like the legendariness of that car.

I mean, they sell for what, five million dollars plus today.

Yeah, real 550 Spyder.

They only made 90 of them in the end.

And so like it was a car that in theory you could go and buy.

But while the 356 was like the sports car that you could gentlemen race, the 550 Spyder was for people who like were really like,

let's go racing and like do it.

But like you said, you couldn't.

A person could walk into it, not a dealership necessarily, but like just order one.

Yeah, but it is it is an absolute legend.

It totally is.

Yeah, you kind of see this trend, this moment where you see the bifurcation between anybody can do it and what the very best of the world kind of look like that seems to be true across everything in the world today in the way that like what Taylor Swift is doing on the stage on her tour has nothing to do with like a person who picks up their guitar and is talented and plays at the local bar.

Like she is the SR-71 pilot and this, you know, playing on a local bar stage is flying a Cessna and the machinery to do so is entirely different in the same way that you're talking about car racing splitting at this moment in the early fifties.

Yeah, so back to racing.

We were talking about the Spyder a minute ago.

I got so excited about James Dean, but Doug, to your point, 356 is in 1951 and 1952 win their class at Le Mans.

They don't win it outright, like other bigger powerful cars win it outright, but they win their engine classes at Le Mans and these are, you know, yeah, they're modified a little bit, but like you basically buy them, right?

Yeah, then that that was kind of a special thing, but that was that was the point of those classes.

It was that there were cars for people who could kind of go buy a car off the street and modify it.

And I think this was pretty unique to Porsches at the time, certainly you could go buy Ferraris and Ferraris competed and whatnot.

But like, again, like we're talking about the Ferraris were a different thing.

Yeah, these were 356 is and I think they were probably also a lot more expensive than the thirty seven hundred dollars plus an important distinction between Porsche and Ferrari in this era is that Porsche was largely focused on road cars.

And then the road cars went racing, except for the 550, which was kind of built purpose built for racing.

And there were racing versions of the 356, but the goal was mostly road cars.

Whereas Enzo very famously, he just wanted to race and he hated his customer, his road car customers deeply.

It wasn't his thing.

He just wanted to race.

He only sold road cars to kind of finance racing.

And a lot of the road cars that he ended up selling were either based on race cars or just former race cars that he would.

I'm done with this crap.

Whereas Porsche was selling three.

I mean, 356 is were like being sold like in pretty good volume.

There's this great, great, great fairy Porsche quote about this, which he would say later about the 9 11.

But I think this also applies in early form to the 356.

The quote is we have the only car that can go from an East African safari to Le Mans, then to the theater and then to the streets of New York.

And like that's such a unique thing, especially in this era, like one car.

It remains true.

It's kind of like Portia's thing to this day, like how relatively usable the car is in just about any setting.

Like you can drive it to work.

You can actually take it on a racetrack that like has remained sort of an ether, whether or not they're it's constantly a North Star for them.

It is what they do more than anybody else.

Yeah, I was trying to think of like what the right kind of other luxury brand analogy is here because Portia definitely is a luxury brand.

It's not like we're making apples and oranges here.

It's kind of like a Rolex to me.

Is that really good or what do you think?

Yeah, absolutely.

It's you buy those watches to wear them.

You don't buy them to keep them in a case and ogle at their steel.

They're originally made for people who are swimming the English Channel or scuba diving.

I think it's reasonable to also compare it to like continuing in the luxury world like a Ramona suitcase.

Those aren't that expensive.

They're three times four times more expensive than regular luggage, but like they're not a Louis Vuitton truck.

Right.

And so but they're a lot more usable.

You buy it to use it.

It can kind of get a little beat up.

That's why it's made out of stainless steel.

Also, I think that's probably the right.

It's not a Birkin bag.

Like brands like this are so valuable because it has both the breadth and the depth.

Like there are enough people who are like I love Portia's because they're my cars.

I can actually drive, but they are super cars.

Yes, this thing behind us goes 200 miles an hour.

Yeah, this thing behind us is a little bit of a different.

And there have been and we'll get to and we and the 550 spiders, one of them, there have been some portions that kind of go one way or another in the philosophy.

But like generally speaking, it's sort of a middle of the road.

Going back to Ferries quote about this exact thing can do all these things.

Yeah, Doug, one question for you.

I'm going to keep going to you for terminology.

David mentioned Le Mans.

What is that?

Le Mans is like there are various car races that are considered sort of the big car race.

Right. Like the Indy 500 is the car race of that racing series.

Le Mans has always kind of been a place to prove technology.

It's a 24 hour race.

So you switch drivers, but it's always been a place where some of like it proves like the endurance and the capabilities of a car and of a manufacturer over that time period.

It's really serious.

It's always raining and it's always a disaster.

And it's in the middle of the night and it's difficult.

And so like being able to win or win your class, Le Mans like the Monaco Grand Prix, the Super Bowl, if you will, of like vehicles racing in that sort

of race series.

There's also this like a Porsche would, I think, probably advance this argument that relative to the other races, it's closer to like what you want for a all around car.

That would also be a drivable car because like fuel efficiency matters.

It's also a road race.

So it's not on a racetrack.

It's literally on the closed down roads in the French countryside and race on the road.

And so there's like some component of like instead of purpose building a car for a circuit like cows were using this road, you know, two days

before, right, totally.

So on the back of all this success and like James Dean and Steve McQueen and all this, as you would imagine, Porsches start to become quite popular in America.

So in 1954, Porsche, I don't think Ferdinand and Ferry like envisioned like we're going to sell cars in America.

This wasn't part of the business plan.

But in 1954, Porsche sells 588 cars in the U.S., which was 40 percent of their entire production for the year.

And that 40 percent basically stays constant, goes way up for a while in the 70s and 80s, but kind of never dips below that.

Like America is a huge market for Porsches.

It's amazing to think that 588 cars was 40 percent of Porsche production.

I agree with you, by the way, by your point that they didn't really have America in the business plan.

It's one thing to provide some context, it's important to keep in mind.

The number of sports car startups happening in Europe at this time was significant, most of which listeners, viewers will have never really heard of because they died.

These came out, they showed up, they raced a little, they sold some cars, they failed.

And there were tons of these.

There was no concept that Porsche would be more successful than any of them.

Obviously, the family hoped it would and it became that way.

But so many families hoped theirs would too and they all failed.

And somehow Porsche, you know, grew and grew and grew.

Well, part of it was the incredible success of the cars.

A big part of it too was the royalty on the Beatles.

That's a nice, steady source of cash flow that you can invest in your operation.

With forced reinvention.

So you're doing stuff like racing, you're doing stuff like looking international.

You're like, what can we invest in that we're not sure if it's a ROI positive investment?

We can be speculative because we know we got the money coming in.

And Beetle continues to be more and more and more popular.

It only continues to embolden them to reinvest.

So speaking of reinvesting, as we get to the 1960s, like the 356 is great.

This is an amazing car, but it's kind of, I don't know, Doug, where you would put it.

In my mind, it's kind of, it's not quite a modern car.

It's like, it's like close, you know, it's not a Model T, but it's not a 911.

Right, right, right.

And what was starting to happen was the 356 was one of the leaders of the charge of the

sports car in that era.

And what was clearly starting to happen was other sports cars are showing up that were

refining some of the principles.

Yes. So we're now in the 60s.

Ford announces the Mustang.

Jaguar has got the E-Type.

Chevy comes out with the second generation Corvette, the Stingray.

And all these are starting to show up.

All Austin heel.

Everything is like, OK, there's a lot of pressure.

Yeah. So, OK, in 1962, Ferry Portia makes the decision like,

356 is amazing.

You know, rebirth of the company, we got to invest profits and replace it with a new

model. So for a couple of years, Portia had actually been working on a design for a sedan

for a larger model.

Seems heretical now.

Right. I mean, if people look at the Panamera, you know, it was actually going to be the

second model of Portia.

I mean, I feel that way every time I see a Panamera drive by, I'm like, why does Portia

make this car? But I see them driving by.

So that's why they make the car.

China is why they make that.

But we'll get to that later.

So the next generation of Porsches, Ferry's son Ferdinand, known as Butsi named Ferdinand,

named after his grandfather, founder of Porsche, was working in the company and he had been

leading the body design for this larger sedan that Portia was going to make.

Ferry decides for a bunch of reasons that to cancel the sedan project, probably the most

important reason was kind of I don't know how much of this was government motivated and

how much of it was just sort of like a cabal of like Mercedes and BMW.

Like they were the sedan makers and Portia maybe could have challenged them.

But it was like, hey, you know, they've got their turf.

We'll keep our turf in sports cars and everybody will be happy here.

Anyway, they decided to cancel the project and double down on sports cars at the same

time, Ferdinand, Portia, Butsi, the grandson, his cousin from the Austrian side of the

family, Louis and Anton's son, also named Ferdinand, Ferdinand Piesch.

He's also joined the company.

These two young Turks, the grandsons Ferdinand, are here in the company and Piesch is

working in the engine department.

So it turns out that he's a pretty brilliant engine designer.

He comes up with and I believe even as a young kid, Doug, you may know more about this

history. Like I think he really was the one that led the development of the six cylinder

boxer engine for Portia.

Now, he didn't invent the six cylinder boxer engine, but the engine that ends up in the

911 that is like still to this day, the model for the 911 engine comes from him.

I think he's working on it for a racing car project that ends up not coming together.

Ferry says, OK, let's take these two kind of failed projects that, you know, the next

generation is working on.

Let's weave them together.

Take the styling the boots he's done for the sedan.

Take this amazing engine that Ferdinand is built for the racing operations.

And let's see what happens when we put them together.

And this is the birth of the Portia 901, the 901.

David, I'm not familiar with that model.

What is that?

Well, this is why I'm Doug.

I'm sure you do this.

Oh, this is a famous, famous story.

I had no idea.

I think most people have no idea.

The 911 is only called the 911 because Peugeot, of all companies, had a trademark in

France for any car with a model name of any number, any Roman number with a zero in the

middle and then any other number.

So X zero X.

And in fact, all Peugeot cars, even to this day, are named 205, 206, 207, 208.

That's the 308, 408, 508.

And so they trademarked them all just knowing that eventually that would that would

happen.

Unbelievable.

So I mean, it makes sense.

Portia is like, well, what do we do?

We can't really not sell in France.

I mean, France wasn't like the biggest market, but it wasn't a small market.

The story that I hear have heard about this is that they said, well, we got these badges

that say 901.

Why don't we do 911 because we have the 911 already?

Hence the 911.

Some of this may be more apocryphal than others.

One of the things that I don't understand is why they wanted to call the car the 901 in

the first place.

And I was never really able to get great information about that.

The 356 was purportedly named because it was the 356 engineering project they did.

But did they really do 500 engineering projects between the 901?

So a couple of details that I got on this from Excellence was expected.

I believe could be wrong on this, but I believe 901 was the name of the engine project that

Ferdinand Piesch was working on.

And I think I think that's the origin of it, too.

Yes.

In Portia lore, it's that like the reason these model numbers are like these are the

engineering projects that they start, but that's totally apocryphal.

Like they jump around all the time and now they go forward and backward.

Yes.

Going back to the very, very beginning of the consulting company, they started with type

seven or project number seven because they didn't want to look like they were brand new

companies.

They're like, oh, yeah, we've already done six projects.

This is project number seven.

I forget who they were working for.

It's like when you're starting a new company and you're sending your first invoice, you

don't call it invoice number one.

It's exactly so like, yes, the the lore is that all of our projects have model numbers

and like the BS.

Right.

So funny.

And to be clear, so I admired designs of Portia cars before doing the research for this but

knew basically nothing about the company or its lineup.

I've certainly never owned one.

And it took me a long time in the research to realize that there are a lot of car designs

that start with nine that are all nine elevens.

There's like, yes, I don't know.

I didn't write them all down with the nine six four and nine five nine.

And it gets complicated because what ends up happening just like happens every car is they

start to get redesigned as they get, you know, there's the years go on.

They need newer models.

They still call it the nine eleven.

The only distinguish the newer version from the older version is to call it by the project

number, which is nine six four nine nine three, et cetera, et cetera.

And so if you're really into it, you got to know not just that it's a nine eleven, but

which version it is and not all nine eleven say nine eleven on the back.

So you can't even like use that as your reference.

It's a little complicated.

Maybe that's part of the success.

There's like sort of a language you have to speak in order to like get Porsche to an

extent. And there's something to that.

Well, I think it's really brilliant.

I don't know how much this is intentional versus it's evolved this way with the brand.

But like to me, it's just so brilliant because there is this tribe language to Porsches.

If you see a nine eleven, you know instantly that it's a nine eleven.

It is iconic.

It's one of the most iconic designs in the world.

And partly because they've essentially kept the shape the same for the sense that since

this since 1962.

Yeah. So pretty immediately like this car is a big hit.

1962 is when they start working on it.

They first start selling it in 1964.

They sunset the 356 in 1965.

And so 66 is the first year that's fully nine eleven for Porsche production.

They sell almost 13000 cars in 66, which that's what we would we say 10, 12 years ago.

They only sold 40 percent of their thousand total.

So they're now 13 next in 10 years.

And that number of almost thirteen thousand nine elevens they sell was 15 percent more than their

best year with only the 356 is like Doug, how would you characterize like what is what makes

the nine eleven so special?

It's important to keep in mind at the time you didn't know, right?

It was just like this thing, this like sports car they had come up with.

And again, there were a lot of sports cars and it was whatever.

But of course, what has ended up happening is that this car has become symbolic of the

sports car. And I think a lot of people would, if you were told to mention a sports car, they

would say that it just has become like the car.

And it was like you say here, it was clear very early on that it had something special in this

great combination of, you know, reliability, comfort, practicality, just like the 356 had

been, but just better.

Yeah. To my thinking, the flat six boxer engine, which was a great engine that Ferdinand

Piesch designed to go in this first 911, there's something like cool and unique to the lake.

We've been talking about the difference between Porsches and other cars here.

This is a performance engine, but it's a six, right?

It's not an eight and it's rear mounted.

Right. So the 356 had a boxer for to explain what a boxer engine is, you know, a lot of cars, most

cars have, well, these days, most cars have inline engines where the cylinders are in a

line. A lot of other cars in the past have had V engines where the cylinders literally make a V

for balance. The boxer engine, the cylinders are literally like across from each other.

It's flat. They call it a flat engine or a boxer because the cylinder heads look like they're

boxing each other as they go back and forth.

And the benefit of the boxer engine was that it's got this great balance to it because it's

like literally flat in the car.

Yes, it was unusual.

I don't think it was necessarily unusual to do a six cylinder engine, although as time has gone

on, it has started to become more unusual, like that the police cars still have six cylinders

even as V8s and V10s became V12s became more popular.

But it was the thing.

It was what they did. And it was part of that ethos of keep it relatively light, relatively

simple and like strip things down to the core essentials of the car.

An average person can walk off the street, buy one, operate it.

That's right.

Drive to work, have a great time.

It wasn't crazy fast or anything else.

Yep. Now, the 356, the old 356, it had four cylinders.

And so now the 911 have six cylinders.

And like you said, like it's not a world class powerful fast car, but it's it elevates the

356 into a much more like you can really achieve a lot more with this than you could with the

356 is this becomes super important from a business side for Porsche, because they

price the 911 about 50 percent higher than they had the 356.

Now, what they do at first, they realize this is going to create like a major price gap

lineup here.

We're going to lose a lot of customers by by elevating.

So they do a stopgap at the same time that they introduced the 911.

They also introduced the 912 and the 912 is a 911 with the old 356 four cylinder engine in it.

So they essentially kneecap the they downgrade the 911 to be the entry level model only as a

stopgap.

They don't want to do this permanently.

They sell about three quarters of the units are the 912s, the cheaper four cylinder ones and one

quarter of their sales are the more expensive 911s.

The profit margins, though, on the 911s are so much higher.

So Ferry starts thinking like, OK, and this is part of the plan all along.

I think let's create a whole new model.

The old 356 we're going to bifurcate it, our performance, real enthusiast customers who are

willing to spend and that we're going to make great margins on those models.

That's going to be the 911.

Let's create a new car that can replace can be the entry level Porsche.

We'll eventually introduce the Boxster 20 plus years later.

Takes Porsche a while to really get to the the perfect end state of this strategy.

Right.

But for this new car, Ferry says, hey, we're not really equipped yet to be running multiple lines as

just us, Porsche, the company.

We need a partner for this new car.

Let's turn to our good old friends at Volkswagen and jointly engineer and produce this new car with them.

So in 1967, Porsche kicks off a joint project with Volkswagen to produce a new mid-engined roadster.

Now, which is a smaller, more compact car and mid-engined, not rear-engined, called the 914.

And the idea is that they're going to make both a four-cylinder and a six-cylinder version of this.

The four-cylinder version is going to be a Volkswagen.

The six-cylinder version is going to be a Porsche.

And Ferry puts his nephew, Ferdinand Piesz, in charge of this joint project with Volkswagen.

A very fateful decision, as we shall see.

Now, what ultimately happens with the 914, there's a change in CEO at Volkswagen and the new

CEO definitely sees the value in deepening the relationship with Porsche and specifically

the relationship with young Ferdinand.

So he wants to continue the project.

But he's like, I actually don't think that a sports car makes sense in the VW lineup.

Why don't we just have all of these be Porsches?

So the plan was originally to have some of the 914s be branded VW and some of them be branded Porsche.

Volkswagen had made a little sports car called the Karman Ghia previous to this, like in the 60s.

And so the thought was they wanted to replace the Karman Ghia.

Porsche wanted an entry-level car.

Let's jointly develop it.

Porsche gets the more powerful one, the 914 6, the six-cylinder.

And Volkswagen get the four-cylinder.

But the decision was made, like you said.

The new VW CEO, he actually gets a pretty good deal out of this.

So he deepens the relationship with Ferdinand.

He gives the car fully to Porsche.

But in exchange, VW takes over all of Porsche's distribution in America.

Huge, huge deal, huge deal for VW.

So we're starting to re-intertwining these companies just a little bit here.

That deal is an enormously wide-ranging partnership because you're trading distribution from one side of your business with the ability to create a product on your other side.

I mean, it's basically merging the companies because it's so massively intertwined now in this partnership where it's not like,

oh, yeah, we partner with them on this one small little thing.

It's like, no, our car that we expect to sell more of than any other car is made by this other company.

Meanwhile, on the VW side of things, it's like America, the most important and largest growing car market in the world.

We now own the distribution for Porsche.

Like this, even if it's not structured this way, this is a merger.

Well, if history were a straight line, what you were saying would come to pass.

Unfortunately, it's not a straight line or fortunately for drama on our show.

So you're absolutely right.

The 914 goes on to be a huge success, sells way more units than the 911, which was the whole strategy.

Porsche is cool with this.

They're like, great, we're making our profits on the more expensive 911.

We've segmented out our market.

The 914 is the entry level.

Porsche sells 100,000 units in the eight years that it's on the market.

And I think it really shows.

Doug, you can comment on this.

There is also a market for mid-engine roadsters, I mean, including the one sitting behind us, regardless of price.

Like these are pretty amazing sports cars.

Yeah, Porsche's previous to this had all been rear engines, the 911, the 356.

And so this was a mid-engine, which was starting to really take hold in the car world as the right design, because the engine in the middle is really the perfect balance.

You kind of can put the engine right in the center of the car and it gives you like perfect weight distribution.

When I always talk about sports cars, in my mind, like God intended sports cars to be mid-engine.

That's how it's more difficult.

The engineering is more difficult than front engine, but that's how it and rear engine is just insane.

But Porsche made it work.

They've always been great at that.

But mid-engine is how it should be.

And when you say mid, this basically means that it's still obviously behind where the passengers sit, but in front of the rear axle.

In this case, now there are technical mid-engine cars where the engine's in the front, but behind the front axle.

But most people, when referring to a mid-engine car, are talking about a car that has the engine between the passenger compartment and the rear axle.

I think you have a video where you say the Cayman GT4 RS, which is the Cayman and the Boxster, the same lineage we're talking about here, is the best modern Porsche.

Yeah, I feel that way, but it's controversial because the 911 is the Porsche.

Don't hate us in the comments.

Yeah, I don't know, Doug.

I feel like I've seen multiple the best on your channel.

Every car is the best when it comes out, and then it's superseded by the next bet.

There you go.

One of the differences between YouTube and podcast world is titles and SEO is really important in the YouTube world, right?

Very, very.

And I don't even take advantage of it as much as some of my colleagues.

Wow.

While we're on this topic here of engines, I got to imagine this is one of just the huge sea changes that is coming with electrification of performance cars, right?

Like a whole different set of calculus.

Like it doesn't matter, there's no engine anymore.

Although you still, even in electric cars, for a performance electric car, you still want the weight to be as close to the middle of the car as possible, for a similar reason, honestly.

But the engine component and all that other stuff, Boxster, doesn't matter.

It doesn't.

It's gone.

So a minute ago, Ben, you said like, oh, this naturally would lead to emerging of, you know, VW and Porsche.

And I was like, well, so this was in the late sixties when the 914 launches.

As we head into the seventies, the oil crisis happens in the seventies and sports cars become less of a thing.

People are really worried about this.

This is like a challenge to Porsche.

It's particularly a real challenge to the 914.

Interestingly, 911 sales stay relatively robust throughout the seventies because it's a luxury good, right?

Like just like in any recession and even like sector targeted ones like the oil crisis and the auto industry for true luxury goods.

Like those people, like the market for that is very resilient.

The 914 though, very different story.

So as we head into the mid seventies, even though it was a very successful car and project for Porsche as a whole, it starts becoming a real money loser.

So this creates a lot of tension in the company.

This is kind of a backdrop of stress to another family dynamic that's emerging, which is you've got these two Ferdinand grandsons that are kind of vying, starting to vie for control of the company.

You know, they're now, gosh, I don't know, probably in their thirties, maybe entering their forties.

Ferry's getting older here.

Like who's going to take over the company?

We've got succession vibes here on the one side.

You've got bootsy Ferdinand Porsche.

He's got the name.

He's Ferry's son and he's a great designer.

I mean, he designed the 911, maybe the most iconic car design ever.

And this is German Ferdinand, this is German working, actually producing the cars, but the other Ferdinand,

the son of Louis and Anton was hired by the German company also.

So yeah, he's hopped over.

He's, you know, on the one hand, kind of like this dark horse kid, right?

He's the Austrian side of the family.

You know, you've got the car dealership business bubble, but he's also proved himself as like an incredible engineer executive.

He was in charge of this 914 project.

He managed it with Volkswagen.

That was an incredibly successful car until the oil crisis, et cetera, et cetera.

So he's like, yo, this should be my company.

Tensions, of course, start to rise and something pretty incredible happens.

You know, we've come across on the show.

There are lots of stories out there of family businesses in succession and how all this happens.

I don't think there's another case of anything going down like this that I've ever heard of.

So in the fall of 1970, Ferry and Louise together call a joint family summit.

They're like, we're going to settle things.

I don't know.

I'm speculating here, but I suspect Ferry and Louise were, didn't have a lot of acrimony over there.

I mean, their brother and sister and they had Louise had her company.

Ferry had his company.

They're both making a lot of money.

Everybody's happy.

This is between the children here.

So they call a family summit.

At the end of it, they come to a very, very surprising decision.

They don't decide that one Ferdinand or the other is going to take over.

Instead, they make the call that the families are going to completely and jointly exit operating the

business, everybody out of the pool, not the two Ferdinand's, what?

Ferry, Ferry himself.

Who's running the Ferdinand's long done at this point, the original Ferdinand, they're going to

continue owning the company, but they will no longer manage the company.

They will no longer operate the company.

They will no longer design cars.

They will no longer make product decisions.

Frankly, this is just insane.

I mean, because it's not like it'd be one thing if they were like, oh, you know, we're really not

that good at this.

Like we should hire a professional man.

These are led the generational talents in the car industry.

And the best solution they can come up with is, you know what, we're all done here.

This is crazy.

I would be so fascinated to get video footage of what actually went down in that room and the

logic that they could walk themselves through to this is actually the best outcome.

There's some direct quotes from a lot of them and excellence was expected.

And like, as you can imagine, it's a very delicate topic and they're also German.

So like, they're very, you know, prim and proper.

But I think Ferry, he basically admits he's like, yeah, there probably was a better solution to

this. But like, it did mean that we could kind of reunite as a family.

And like, I think he said something like there were still tensions.

But we could go to each other's birthdays again, you know, something like that.

So, I mean, I guess in that, you know, if you value family above all else, it's still crazy.

Crazy decision.

Because like you said, they were they were killing it.

They were the best family business until this point.

And it had been a very successful one because of the efforts of the family.

And especially you got for an NPS.

Now, looking back on this, we know what happens to for an NPS, if we'll get to.

But you've got him on this up and coming track where he's so legit.

Oh, my God. And he must have been so pissed.

It's like, no, you're crazy.

I mean, he definitely was so pissed.

So let's talk about what happens here.

Butzi, he goes off and he founds Porsche Design.

So there exists these weird there's like Porsche sunglasses out there.

You can buy Porsche designed laptops, like all this stuff.

That's him. That's a totally new company that he started.

It has now been reabsorbed into the broader Porsche conglomerate.

But that was started.

He's like, all right, great.

I want to be a designer.

That's the path that he goes to.

The same thing happened in the Gucci family for anyone who's seen the

the Gucci movie with Adam Driver.

And there's sort of a family member who wanders off and does some like

effectively like brand licensing.

He's like, I want to take the family name and make some money off.

Yeah, which is obviously what was happening here.

I think he also was very talented.

I mean, designed to God in the 9-11 for God's sake.

Like he's talented.

But but yes, trading on the name here.

The other Ferdinand, Pièche.

So this guy, oh, my God, he's a he's a G.

So at first he's like, I imagine inspired by his grandfather,

he's like, I'm going to go start my own engineering consulting company

and consult for other companies.

He does do that for a little bit.

But pretty quickly thereafter, remember,

VW and the new CEO really wanted to build this relationship with Porsche with Pièche.

He gets recruited to come in and take over Audi for VW.

I don't think he originally I think he enters working within Audi,

but then very quickly becomes the head of the Audi brand for Volkswagen.

And Doug, at this point in history, what does the Volkswagen Group own brand wise?

Yeah, that's an interesting question.

The brands that we know, I think it was just Volkswagen and Audi.

Audi had been a separate company.

And it's also important contextually here to to make one really important point

about Pièche and Audi. At that time, Audi was a joke.

Audi was not what it is now.

Like now you view Audi as a legitimate competitor, Mercedes and BMW.

Back then, it was more like how Saab would have been treated.

Like it was a absolute second or third tier brand that no one could possibly,

you know, it was not it was not a brand that was desirable at that time.

Would it be like today?

Infinity.

Like I know you owned a Kia, right?

It's a bit like, you know, Kia and Honda are trying to enter the luxury market.

Yeah, yeah. It was on that level of like, I'm going to stick with Mercedes.

Yeah. Was the Audi 5000 the thing that kind of saved them and brought them back?

On the contrary, actually, that car was the one that had the the famous scandal

in the United States where the 60 Minutes found that it unintended acceleration

where it would accelerate, which turned out to kind of be unfounded.

But there's reputation was like severely, severely damaged by that.

But that was this era. That was this era.

Audi needed to turn around.

Volkswagen's got out either.

Like we don't know what the hell to do with this thing.

We got BMW Mercedes. They're killing it.

So Piesz comes in and like, I mean, this dude is good.

Like this was such a mistake to force him out of Porsche.

So he turns around Audi and like builds Audi into you, Doug,

like you said, the Audi we know today.

And he's so successful that in 1993,

he gets promoted and becomes CEO of Volkswagen.

So you get the situation where they kicked him out of running the company

and then he goes and ends up running the company.

It's wild. Wild.

I mean, he oversaw and launched the new beetle.

Like literally his grandfather's legacy, the beetle,

he turned over the beetle model to the new beetle.

How long was Ferdinand Piesz running Volkswagen?

A long time. 1993.

I believe he was chairman until 2015, 2016, maybe a long time.

He develops this reputation of being this just iron-fisted.

Like I can only, when you say I can only imagine how upset he was

when they made the decision to end the family involvement.

He has this rep of being like incredibly angry

and everything must be to his standard.

And so I can only imagine how angry he was.

He also, he had 13 children, but I think four different women.

He's got a lot of kids.

It was that typical, you know, how you think of like a German industrial.

At around this time, Volkswagen started really gaining a lot of brands.

So in the late 90s, they bought Lamborghini.

They own two Europe only brands, one for like Spain and one for like Eastern Europe.

And they repurchased the Bugatti, the rights to the Bugatti name,

which had gone to an Italian company.

And they brought it back to France where it was like initially existing.

Yeah, restarted.

I mean, Doug, you kind of said, but to put a bow on it of what a baller,

PS was in 1999, the Global Automotive Elections Foundation,

they award him the car executive of the century.

And by the way, that's like uncontested in the car world for NnPS just looked at as

like exactly what you're saying.

The guy. Everybody knows his impact.

Everybody knows how effective he was.

And the family's Porsche is just like, yeah, no, you got to get out of here.

Unbelievable. Maybe he wouldn't have had the motivation to do.

Who knows? Who knows? Just wild.

But Volkswagen, much bigger company than Porsche, right?

Yeah. He got kicked out of his own company.

So he went and ran a much bigger one that competes with it.

And then he grew even bigger. Yeah. Yeah. Yeah. Yeah. Yeah. Wow.

So back to the Porsche side.

This decision was just really not good, really not good.

So the first CEO who comes in, the first professional manager,

CEO, actually is somebody who has been with the company for a long time.

Ernst Fuhrman becomes the first non-family member CEO of Porsche.

He was actually part of the original elite engineering crew back in the

sawmill in Gomun. So he has a long history with the company.

Unfortunately, he was probably a better engineer than a manager, though.

His first move is to scrap the 914 and instead introduce the 924.

The 924 was another joint project between VW and Porsche.

The problem with the 924, I think it actually was a decent car.

Doug, you actually reviewed a 944 recently, which is the kind of next iteration of it.

I think you can say, I think it was a good car, but it's not a Porsche.

It's a front-engined, water-cooled, like...

It suffered from that stigma, for sure.

The saving grace was it was actually a pretty good car to drive.

And so over the years, and even at the time, it was kind of accepted as,

hey, we all get that it came from a Volkswagen, but sort of the beloved 914,

and it drives pretty well. Yeah.

So like people are like, yeah, we'll take this as the entry Porsche of the time.

But it wasn't a 911.

It wasn't a 911. And it wasn't a 914 either.

It was a totally different thing.

And the 914 was a small, lightweight, compact, roadster, removable top.

The 924 was it was definitely a different kind of situation.

So Furman had a quote on it when asked about, like, what is this?

He says, the 924 is aimed at new clients who either can't afford a 911

or are not necessarily looking for the performance of a 911.

Oof. I mean, I guess that's true, right?

And that's also true of the 914.

But like, that's not the right way you want to position your brain.

It's the quiet part loud. Yeah.

Can you can you come up with something

that is not using the word not to describe who wants it?

Like, how about you say who would want it?

Yeah, this is for the poor customers. Right. Right. Right.

And again, but also it's just like in the whole philosophy of it.

It's not a Porsche.

Even more concerning is the 928.

So Furman makes a decision

as the new CEO of the company that it's time to replace the 911.

And again, you know, maybe like let's give him some credit.

This is the 70s. The oil crisis is going on like there's safety regulations.

This is post Ralph Nader and unsafe at any speeds.

Like it's maybe reasonable to think that a rear engine sports car

isn't like a great strategy to be pursuing here.

And unsafe at any speeds.

That was like a federal report that came out that said like basically

all cars on the market are unbelievably unsafe and people are citizens

should not be driving around to them.

And so all cars need to change.

And regulation started to really show up like in this time period

that in the car world, the 60s are kind of viewed as like the last bastion

of just like anything goes and some very special cars came out of that era

and the 70s, everything started to get the oil crisis was a big factor

because that started to screw with emissions.

And then you had all these regulations about bumpers and safety

and seat belts that, you know, were very important and beneficial.

But at the time, it was like, oh, they're killing our fun.

It is astonishing how much safer cars have gotten astonishing.

You look at these like cute old Porsches.

They're so much smaller, right?

And you look at the big ones today and you can lament.

Oh, cars have gotten so big.

But cars have also gotten so much safer far and they're faster

than they were back then.

So it's it's kind of the best of all worlds.

And in most cases, they're more efficient also.

Totally. So in 1978, Furman introduces the Porsche 928

with the stated intention that this is going to eventually replace the 911.

They keep selling the 911.

He says, we'll keep selling the 911 as long as we get demand for,

I think it was at least like 10,000 units a year or something like that.

But, you know, once the 928 is on the market and demand dips for the 911,

we'll stop making them.

Now, I want to defend the 928 a little bit here,

because it was a this is an important moment in Porsche's history.

When we look back on it now, it seems insane that the 911 would go away.

Like how could that be?

But it's important to keep in mind that like the 356 went away

and that was the Porsche.

Like how now you say like, oh, I have a Jeep and you're referring to the Wrangler.

Like that was the Porsche was the 356.

And so that went away for the 911.

It only made sense at some point the 911 would also go away.

The crazy thing about the 928 in the Porsche world is that

it was a front engine V8 car, which Porsche had never pursued before

and was more kind of an American thing.

But in the context of the time, it's not that insane that they went after this.

All sports cars were starting to get bigger and more powerful.

And because of the oil crisis and because of tightening emissions laws,

it was getting very difficult to make any sort of power

from anything other than a big engine.

And even big engine cars at that time didn't really make a lot of power.

Cadillac had like eight liter V8s that made like 150 horsepower.

It was embarrassing stuff because they had to put so many emissions controls on

that by the time you actually got to power out, it was a disaster.

So it didn't seem that insane.

And the Jaguar E type had just been replaced.

That was the big competitor.

It was another sports car that had been replaced by the XJS,

which was now a V8 comfortable automatic transmission car.

Mercedes Benz did the same thing with the SL class.

It went from like a little fun sports car like the 911

to a big V8 kind of relaxed leather luxury cruiser, that sort of thing.

And so it made sense that Porsche would maybe want to head in that direction also

and start thinking about moving past the 911 just as they had moved past the 356,

you know, 20 years before.

There was some sense to it.

So the 928 comes out in 1978.

And as we reach the end of the 70s and into the 80s,

as we also have talked about a lot on this show,

everything that the 70s was in terms of austerity, oil crisis,

17% interest rates and massive inflation.

The 80s was not that, shall we say.

Not that.

It was a rising tide that lifts all boats.

Lots of disposable income.

Wall Street is ripping.

A lot of pinstripes.

Yeah, it seems like actually a really good time for fast cars.

Seems like a good time for fast cars.

And indeed it was including for the 928 and the 924 succeeded by the 944.

And still the 911 people still wanted them.

I think largely because of that, although I'm sure there were other reasons too.

So the Porsche and Piesha families, when they exit operationally from the business,

they still own the business.

So they're still like the supervisory board.

They get fed up with Furman.

They oust him and they bring on a new CEO, an American, as CEO of Porsche.

When Peter Schutz famously, he comes in and he redraws the 911 production line.

And Doug, I know you have some firsthand experience of the legendary.

The great stories in the auto industry.

The 928, though, I just provided an impassioned defense for it.

It never felt like the right car to Porsche.

It never felt like the right car to especially the employees who had kind of fallen in love

with this 911.

It had been in production now at this point for probably 20 years, 25 years maybe.

And the 911 was Porsche to a lot of these people.

And the fact that it was going to get replaced by the 928 was this sad thing.

And it had kind of really hurt morale in Stuttgart at the factory,

all the way up to some of the people at the top.

And so the great story is that the 911,

everybody knows the impending cancellation is coming.

It's still going, but it's coming, this beloved car.

And so Peter Schutz, the American CEO, is sitting in the office of Helmut Baut,

who's the chief of engineering for Porsche.

And there's a line on the wall that shows where all the products stop and start,

and the timeline.

And this is like on a whiteboard or a piece of paper.

Yeah, like on a whiteboard or something.

Right.

And so they're sitting there talking about it.

They know that morale is low.

They know that the company wants to keep the 911, even though it should be replaced

because it's old.

That's the thinking of the people.

And that's what was said.

There's a thing in German culture where when something has been decided, it's been decided.

An edict has been given, and the car's out.

I mean, the 928 is on sale.

It has shown up to replace the 911 in the spirit of these other cars.

Of the time, the V8 front engine, it made sense.

That was what they were going to do.

But the morale was low, and they knew this.

And so Schutz stands up.

He's got a marker in his hand.

He stands up.

He walks up to the timeline on the wall, and he draws a line on the timeline all the way

onto the wall and extends the 911's timeline indefinitely, including onto the literal wall.

Now, this story, of course, is this is like the stuff of legend in Porsche.

Like Peter Schutz, the American CEO, saving the 911 in this moment.

And a lot of talk about whether this actually happened.

Did he actually just draw the line and make the complete 180 in decision?

This would be a good story to invent if you needed a morale boosting.

Right.

Especially if you're trying to boost the reputation of the CEO among the workers.

He drew the line, right?

And there's a perfect line, which is Schutz just looks over at the chief of engineering and goes,

do we understand each other?

Right.

And then he walks out.

I always wondered if this story was true.

I worked at Porsche 10 years ago and had become friends with Porsche's general council in North

America.

When Peter Schutz retired, he moved to Naples, Florida, and the general council of Porsche and

Peter Schutz were neighbors in their homes in Naples.

And I one day he went over to his house and asked him, you know, is the story real?

Did it happen?

And apparently Schutz said, not only did it happen, but helmet bought was grinning like

the Cheshire cat when I drew that line.

Like it was like this moment, like we're going to do this.

And it like really apparently really in his words, it really actually was a true story.

Wow.

So great.

That's awesome to get that validation because there's so many of these stories that we tell

on the show where like, we're like, this is probably apocryphal and there's really no way

to verify it.

Now, of course, if you're Schutz, you'd want to tell the story because it's become so famous.

But, you know, at least the story is real.

It's a great story.

I mean, literally, he extended the line of the production line.

Right.

Onto the wall.

So do they keep making both cars?

Yeah.

So they kept making, I think they made the 928 until 1995.

It was Vita King who comes in in a minute who finally kills the damn thing.

The problem with this decision, and you'll get into more economic realities of this situation

as the 80s kind of draw to a close, whatever.

But the problem with this decision was the company was planning on ending the 9-11.

And so by drawing that line, symbolic though it was, we're going to keep doing this,

it also committed a lot of the company's resources to now refreshing something that

they hadn't planned on refreshing.

So in the go-go years of the early through mid 80s, no problem.

Right.

More.

Let's, we'll do an ICO.

We'll issue some NFTs.

It's tech in 2021.

Yeah, exactly.

In fact, I think Schutz was like, let's make airplane engines.

Yes, I think he was.

Yes, oh my gosh.

And on the back of, you know, these go-go years in success, they're selling the 9-11.

They're selling the 9-28.

They're selling a lot of 944s.

Like they sold a ton of those things.

The families take the company public.

So just like a lot of these, like we talked about on the LVMH episode, a lot of these

European luxury brands, craftsman brands, they did an IPO.

They thought they were being smart.

They sold, I think a 30% stake in the company, but all non-voting shares.

Like, oh, we're not going to know, you know, no corporate raiders here.

Nobody will have any voting control except the families.

Like it is impossible that somebody could, you know, attack us because the family is all alone.

You know, it would have to be somebody inside the family who would attack us.

Why would that ever happen?

Well, everything goes great.

The stock, you know, doubles within the first year that it's on the market.

But then 1987, long-term capital management blows the end of the go-go years of the 80s.

Not good, not good for Porsche and not good in a lot of senses.

Like A, just period, economic climate, not good for anybody.

B, you're making luxury sports cars.

Now, as we talked about in the 70s, the oil crisis in the 70s was really bad for Porsche.

It was really bad for the 914.

The 911 was pretty robust.

Like it was very resilient.

I think the same is again true here at the end of the 80s,

but they've still got the 928 and the 944 on the market.

And like those things started sucking wind big time.

It's not a good situation because now you have three aged products.

And so the economy is slowing and your cars are not really competitive.

Yes. So Shoots though, he continues production of all three lines.

And not only does he continue production,

he reinvest especially in the 924, 944 line.

They even refreshed it a third time to the 968.

I mean, same basic car, like they're investing resources in this car.

And at the, you probably have a better sense than me,

but like another aspect of the kind of recession at the end of the 80s

was the exchange rates with European currencies got hit really hard.

And so relative to the Asian currencies in the US.

So it became, I don't know, call it 10, $20,000 cheaper to buy

an equivalent entry-level sports car from a Japanese manufacturer.

And it just so happened that at this time,

Japan was kind of having an economic boom.

And as a result of that, they started making these sports cars,

the exact sports cars you're describing.

So the Nissan 300ZX, you have to show up the Toyota Supra,

all these cars are showing up.

And by the way, they don't have four-cylinder engines

and they're not 20-year-old platforms like the 968 was.

And there was very little reason to buy a 968.

I mean, I feel like I'm sort of in my history,

probably all of us barely, starting to enter consciousness here.

This is pre-Fast and the Furious, but not that pre-Fast and the Furious.

All those Japanese cars that got tuned up, the Supras especially.

Yeah, they were all just starting to come in then and starting to blow up.

And they offered, just as they do today,

this great value proposition of big power for not as much money.

And again, the 911 isn't threatened by this.

But the 944, 968, hell yeah, is threatened by this.

Nobody's buying those.

And the 928 by then was so old that sales were a trickle.

By 90, there were three products, which was the entry level,

which was the 944 that became the 968.

Then there was the 911, which was actually the 964, 911

by that point, to only make things even more confusing.

And then there was the 928, which was the front engine V8 flagship car.

That nobody wanted.

So they literally only made three cars and they were all three number nine cars?

It was a complete disaster.

I mean, the Porsches never named cars well, even now.

But yeah, at the time, again, you had to speak the language.

You had to like, and by the way, the 911s all said Carrera on the back.

So everybody's like, what the hell is the 911?

You know, is this a 911?

Why does it say Carrera?

It never made any sense.

And all Carreras are 911s, but all 911s are not Carreras today?

That has changed over the years.

Then there was a trim level of the 924 called the Carrera.

It was actually called the Carrera GT, which they later named this car.

None of it, it was all confusing.

No, you had to be like a German who was into this stuff to like,

figure out the precision level with which it made sense.

So as all this happens, Porsche is now a public company.

The stock price starts to decline precipitously.

And they floated 30% of it.

They floated 30%.

Now, no voting control, but the company, they're really like cresting the treetops

here as they're beginning their descent.

At one point, Porsche's market cap was less than 400 million euros.

Crazy to imagine.

Almost zero.

And I believe also at that time, they didn't have any debt.

So truly, the markets believed that Porsche was worth nothing.

It wasn't like, oh, there's value here,

but there's a big debt burden on the company.

It was an unbelievably difficult time.

And it's kind of funny to think about because now people think of Porsche as Porsche.

Like this crazy company.

It's one of the hottest brands, like you said, probably one of the most valuable brands.

And it's only 30 years later.

Only 30 years later.

It was dire straits.

I pulled up the US sales figures for Porsche from this era.

So insane to me.

They dipped in 91, 92 to 4,100 units.

That was worse than 1965 sales.

They had routinely sold between 13 and 30,000 cars a year throughout the 60s, 70s, 80s,

13 and 30,000.

And in the US at 92, they dipped to 4,100 cars.

That was the level that we were talking about.

It was complete dire straits.

So even though the public doesn't have any voting control,

everybody starts to think the only thing that can happen here is this company is going to get

bought out.

One equity research analyst actually in a research note said that he thought there was

a 98% chance that the families would have to sell and that they would accept some amount

of value for their stake rather than just have it go to zero.

So Shoots gets fired.

But it's not like that fixes anything.

I think it was 1987 when he gets fired.

Over the next six years, they cycle through, I think, four, three or four more CEOs.

Brutal.

None of which really figure it out.

There is one bright spot though, however, which if there were a normal acquired episode,

we would just skip, but we've got Doug.

The 959 comes out at the point.

It's actually the 959 and another interesting component offshooting that.

But the 959 comes out at that time, which is like their first supercar.

So sort of the predecessor to this car.

And it actually wasn't commercially successful,

sort of in keeping with Porsche's world at the time.

But it was kind of a test bed for some new technology,

including four-wheel drive in a supercar, which has now pretty much become standard fare.

The 959 was really the first car that had that.

After the 959, Porsche was so desperate though,

that they started taking on projects for other manufacturers.

And so it's known in the car world, but not as much in the general world.

Porsche built a Mercedes Benz, which was called the 500E.

It was a midsize sedan.

Mercedes didn't have the capacity or didn't really want to do it.

They built a sedan for Mercedes.

In the Porsche factory in Zufenhausen, in Stuttgart.

Who designed it?

It was a Mercedes car.

So it was a Mercedes E-Class, like a regular Mercedes sedan, but with a larger engine.

And Mercedes felt that having Porsche involved would give it some sports car credibility.

Porsche literally produced the car.

And then Audi did the exact same thing.

Audi needed more credibility because they were still kind of a fledgling luxury car brand.

They wanted to get into the sports realm because that's where a lot of money was being made.

And so Audi came to Porsche and said, can you help us develop a car?

And it was called the RS2.

And I actually had one and just sold it last year.

It was a station wagon.

And that was the conditions under which Porsche agreed to build the car.

They said, we'll do it, but we don't want to compete with our cars as a coupe,

you know, a sports car.

So if you build a station wagon, which essentially touched off the like high

performance station wagon thing, which Audi is still known for to this day,

more than almost any other thing.

But Porsche was so desperate.

They even allowed Audi to license their name and put it on those cars.

So the RS2 had Porsche brakes that branded Porsche.

The Porsche logo appears in the badge, like the literal emblem on the side of the car.

Porsche was just like, yeah, fine, because it literally kept the lights on in Stu card.

It's Zufenau's.

And so when you say they were desperate, they were completely desperate.

So when you mentioned like the Porsche Mercedes Benz relationship,

that 500 E was an interesting thing because around Porsche at the time,

there were a lot of ways that it could have gone totally wrong.

And I went there and I did a factory tour a couple of years ago.

And the guy who gave the tour had worked there for like 25, 30 years through this time period.

And he said that in his mind and in the mind of a lot of Porsche employees at the time,

Mercedes Benz helped save Porsche Mercedes could have built that car.

But their brothers in Stuttgart down the street were having really tough times.

Here's a project that you can work on to keep the factory workers gone.

Wow.

And it was literally like you have empty production lines.

So even though you're not going to make a lot of margin on this, let's at least like,

you can be our contract manufacturer.

Like when you have union contract, maybe this was part of the circumstance.

You have union contracts, you get paid these people, whatever here,

you're not going to make money, but like, we're doing it.

Wow.

And it's something, it's a project for you.

We'll keep your lines going.

Instead of losing money on having to pay the, well, yeah.

Right.

Wow.

It was a tough era.

It was like indescribably tough.

And I think this is lost on a lot of younger people who have only seen Porsche in the world of

crazy expensive cars and all the money they charge for colors now and all that.

There was a period where it almost all came to.

And not that long ago.

Not that long ago.

It wasn't like this was in the 50s.

Like we were alive.

This was real stuff.

We want to thank our long time friend of the show, Vanta, the leading trust management platform.

Vanta, of course, automates your security reviews and compliance efforts.

So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring.

Vanta takes care of these otherwise incredibly time and resource draining

efforts for your organization and makes them fast and simple.

Yep.

Vanta is the perfect example of the quote that we talk about all the time here on Acquired.

Jeff Bezos, his idea that a company should only focus on what actually makes your beer

taste better, i.e.

Spend your time and resources only on what's actually going to move the needle for your

product and your customers and outsource everything else that doesn't.

Every company needs compliance and trust with their vendors and customers.

It plays a major role in enabling revenue because customers and partners demand it,

but yet it adds zero flavor to your actual product.

Vanta takes care of all of it for you.

No more spreadsheets, no fragmented tools, no manual reviews to cobble together your

security and compliance requirements.

It is one single software pane of glass that connects to all of your services via APIs and

eliminates countless hours of work for your organization.

There are now AI capabilities to make this even more powerful,

and they even integrate with over 300 external tools,

plus they let customers build private integrations with their internal systems.

And perhaps most importantly, your security reviews are now real-time instead of static,

so you can monitor and share with your customers and partners to give them added confidence.

So whether you're a startup or a large enterprise and your company is ready to

automate compliance and streamline security reviews like Vanta's 7,000 customers around

the globe and go back to making your beer taste better, head on over to vanta.com slash acquired

and just tell them that Ben and David sent you.

And thanks to friend of the show, Christina Vanta CEO,

all acquired listeners get $1,000 of free credit vanta.com slash acquired.

So David, this thing that Doug just referenced to me, the money they charge for colors,

you can do a thing today where you go to buy a Porsche and they're online configurator,

and they have the paint from every single Porsche ever produced in history.

And so you're like, you know, there was really something about this particular 9-11 in this year.

I really loved this paint. You can pay them something like $15,000

for your Porsche to be in that particular.

It's like a library wine.

Yes, that's exactly it.

Imagine the Porsche of the 80s, early 90s, like commanding that kind of,

it would never have happened. But now the brand has changed so much that like

15 ran for a color, people are like falling all over themselves to do it.

Now, why not? The other thing that it's emblematic of,

which I think we haven't really talked about yet of what makes Porsche special

is this unbelievable heritage.

Like the design language that they use, what the 9-11 is, you mentioned earlier,

they don't really change it that much from, you know, generation to generation.

There's this sort of obsession with put something out there and then spend years and years and

years, tiny little tweaks and refinements, making it the like platonic form of what it can be.

And there's this like obsession with if you loved Porsche in any given year,

we want to make sure that we keep you along for the ride and you can continue to love us today.

Right. If you as a child want a 9-11, guess what? It's still around,

it still looks about the same and it's still the same level of

desirability that you wanted back then.

It's so funny. I feel like the sales cycle for a 9-11 has got to be 40 or 50 years, right?

Like kids fall in love and then you can't really buy one until you're in your 40s or 50s.

It was always a weird aspect of the brand that like you actually

weren't necessarily only marketing to like adults.

You also had to market to like people who would cultivate this passion that you knew

that would become a thing later when you weren't even an executive or you weren't even working

there. But like that's part of the brand is like hooking people young and making them feel like

this is a cool thing.

So Doug, this thing that we're talking about, this idea that if you loved Porsche ever,

we want to deliver on that promise today. Do you feel like that consistency has been there since

the very beginning or do you feel like that's something they learned in their like rise from

the ashes after this 80s period?

That's a good question, but you have to assume they didn't expect

in 1948 that they would ever even be in the position to deliver that, right? In 1950s.

Also, like you said, I hadn't quite thought about, but I was planning to tell this story of like,

oh my God, Furman wanted to kill the 9-11. What a dumb idea.

It was like natural. They killed the 356.

The natural thing would have been to kill the 9-11.

Looking back on it, it's insane, but at that time it seemed like, you know, now all these icons have

emerged and all this lore has emerged over the years. But when you really think about,

you put yourself in the perspective of those eras.

Okay, so Porsche is in this tailspin. The two eras that happened next are both equally amazing.

So in 1993, a guy named Vendolyn Wiederking gets appointed as the CEO. Now he had actually started

his career with Porsche in the 80s as all this crazy stuff is happening. He was like a loud voice

of protest against all the, you know, shoots and Furman era decisions. He resigned and left the

company. They recruit him back in the early 90s to take over as head of production.

And he implements the Toyota production system at Porsche, which they must have been like the

last auto manufacturer in the world. I don't know if Ferrari uses the Toyota production system,

but like this wasn't new technology at this point in time, right? Remember Porsche is bleeding cash

being more efficient and more profitable in your operations for whatever cars you can sell is

pretty important. He's like the, like the Tim Cook of Porsche here. He gets promoted to CEO.

And when he does, speaking of Apple, he kind of pulls a Steve Jobs return like moment. He cuts

the product lines down to just the 911. So this is the right thing that needed to be done, but it's

also kind of crazy. He kills the 944, 968. He kills the 928. He takes everything back down to

just the 911 and like analysts, people like car, you know, magazines ask him, um, what's your

strategy for an entry level Porsche? And he says, uh, Porsche strategy for an entry level Porsche

is a used Porsche. Such a good line. Such a good line. Such a good line. So by the 95, 96 production

year, the 911 is the only Porsche model left on the market, which hasn't been the case since the

3 56. Like this is a, this is kind of crazy. Also, what kind of company makes one product?

Like how, I mean, seriously, what are, do they believe that this is a transitionary period or

do they believe like this is the long-term strategy? No, it's not like we, the King was like,

I am a cost cutter and I will cost everything down. Like he is much like he, he has big ambitions,

big, big, big ambitions. This is a transitionary moment. He does want to expand the Porsche model

line as we shall see, he greatly expands it. So I think this is pretty brilliant and certainly

for the financial performance of the company was brilliant and its survival. I think 911 enthusiasts

are less enthusiastic about this, but he decides that rather than the old strategy for the entry

level model of sharing a platform with Volkswagen, what if we have the new entry level model

instead share a platform with the 911? And so what he does is he says, let's take the front end

of the 911 of the next generation 911, the 996, and use that exact same front end, same headlights,

same hood, same everything, and then made it with a new entry level back end, the rest of the chassis

of the car, revive the old 914 concept that was so successful, mid engine, roadster model with a,

how would you describe the, it's not a convertible. Yeah, no, it is. The Boxster was a full convertible.

Yeah, yeah, yeah. And it's also important to point out the interiors were almost entirely

shared as well. The interiors were, yeah, like the steering wheel. The wheel, all the buttons,

in fact, if you get into a Boxster, which was a two seater car, it has a coat hook on the back of

the seat because the 911 had a coat hook on the back of it. You can't put a coat in the Boxster,

the seat is right up against the, but they shared everything. Interesting. So,

Douglas, you're alluding to, this is the Porsche Boxster, which becomes a huge success. And I think

the reason for it is that it genuinely is to anybody looking at it, like this is a Porsche.

Not that stupid quote that Furman had of like, this is for people who don't want a 911 and don't

care about performance. This is like, no, no, this is a freaking Porsche. It shared the design language.

It shared the design language. And I think Vidakin's thought was the entry level Porsche has

always been looked at as a second class citizen, like Furman literally said, which was true. I mean,

everybody thought it, but he said it. How do we make it not look like a second class citizen?

The answer is make it look like a 911 and make it literally share. I mean,

it didn't even just look like it literally had the same fenders, the same headlights and hood.

And also from a production and profitability and operation standpoint, this is so great. You're now

sharing so many components, not with another auto manufacturer, but with yourself. Right.

So, Doug, what's the difference then at this point in time between the 911 and the new Boxster?

The thinking was that they would continue to move the 911 upmarket more expensive, more power.

So the Boxster comes out in 97 for the 97 model year. And it was a huge deal. I mean,

it was on the cover of every car magazine, the whole Porsche has a new car. This is incredible.

They had 200 horsepower and the 911 of that era had about 300. So it was a significant difference.

Plus the 911 was just more of a, it was bigger, it was wider, it was faster, you know, it was a

more, it was more of a muscle car. Is it fair to say that, um, then, and I think maybe even

especially now with the Boxster and the Cayman, the Cayman is the hardtop model of the, of the

Boxster. It's also a different kind of experience philosophy. And it has over time, it has evolved

even more significantly from 97. Now the 911 is kind of playing more of a luxury car, like touring

car role almost where, you know, with the special colors and the stitching and all that. And it

seems like the more Porsche has focused more of its sort of true sports car efforts on those,

the mid engine cars, as they call them the Boxster and the Cayman.

Yes, it's the entry-level Porsche for sure. But it's also, it's not like you feel like crappy if

you're buying one. You're like, Oh, you know, I'm buying the best version on the market of this

particular product. And it was mid engine again. So you, you know, arguably it was the correct

place for it. It felt like a true Porsche sports car. For the first time, Porsches, you know,

entry-level car felt like that in decades. Yeah. So, uh, Wiederking has this awesome

quote about the strategy for this. We didn't want to flee from the competition into higher prices,

meaning like not being the entry-level market at all. He says, we don't want to be Germany's

Ferrari. We don't want to be a big fish in a pond that's shrinking, but rather a growing fish

with more room to move in a larger lake. I feel like Wiederking and Don Valentine of Sequoia

capital would be like brothers in arms here. Like they're targeting big markets. That is the

strategy, but they're targeting them in a Porsche way. So Wiederking, like, I don't know how much

this was his thinking all along or that he was just emboldened by the success of the Boxster.

He really means it. He gets into SUVs. And this, I mean, I, even as like a teenager at the time,

I'm not being that much of a cargo, but I just remember people were like,

Porsche is making an SUV. Have these people lost their freaking minds? Like who, who on

earth would buy a Porsche SUV? Also, I got to say, like, maybe all cars were kind of ugly in this

period. But I remember when I looked at the first Cayenne, I was like, so it's like a Toyota.

It wasn't the most attractive car. There's no question about that. Everybody hated the design

language. And you know what? It's been 20 years. It has not grown on you.

Yeah. The Macan looks really good. The new, the new kinds look great too. Honestly,

ever since they redesigned it in 2011, but those early kinds, you see them now and you're like,

still ugly. It also just doesn't look like a Porsche to me. Like there's not enough that's

brought through from the heritage of the, how do you describe the back on a 911?

Right. That's sort of like sloping. What happened was the Cayenne was an interesting

situation because Porsche was kind of a first mover. They weren't exactly Mercedes came out

with a SUV first in nights for the 1998 model year called the M class, which was a, that was

a revolution and they built an America, which was a really big revolution. BMW came out the X five

in 2000 and that was also a revolution. The M class Mercedes never had the sporty pretense

that BMW did. So that car was just for suburban families. The BMW X five actually had to be

sporty and was like, Oh, so not only can luxury brands build SUVs, but they're sporty. So Porsche

comes out no three. I mean, they beat Audi. Audi didn't come out on the SUV until seven.

Porsche was there like early, early, early. So, but the problem was Porsche had no clue because

they were early, they had no clue what to do. And so I remember at Porsche time when I worked there,

talking to some of these people about the early clients, Porsche literally didn't know what to

offer in an SUV to the point where they actually legitimately asked some of their American

employees, do we need to offer gun racks as an option for the American market? They just didn't

literally, they were only building sports cars and they just, they had no concept, no concept of

like what people would want. And what the early clients had an optional spare tire on the back,

like, like Jeep Wranglers do, like you couldn't get that. You see them running around in it.

Part of this was a cultural, you know, German thing for sure, but like not understanding America,

but I don't think anybody understood. Like, I don't think there were any super expensive

SUVs on the market. The only ones were Land Rover, but they were focused so far on off-roading.

But part of the reason the Cayenne was ugly when it first came out is because Porsche decided,

we're Porsche, we're going to do it best. And so they come out with an SUV that is both amazing

on-road and off-road. And the early Cayens actually have an unbelievable off-road capability.

They have a two-speed transfer case. They can go high, low gearing off-road. They have air

suspension that can lift them up and lower them. They had all these off-road hardware that like,

you would never put in a luxury performance SUV now. But because Porsche didn't know what

customers would want, they decided to give them everything. And so the result was, it was a big,

bulky, heavy car to carry all this hardware. And so it looked, it just wasn't, it didn't,

it wasn't executed that well from a styling perspective, but from every other perspective,

it was a hit. Yeah. I think a few things to say about it. There wasn't anything else that was like,

I can spend a hundred thousand dollars on an SUV. Right. This was before the days of an Escalade

even. Cayenne came out in 03. Escalade came out in 99. So it was, it was, the Escalades were like

40, 50 grand, right? And they were just, at that time they were just Tahoes that looked nice. Like,

now Escalade has become a real thing. But at that time it wasn't, Porsche was really

pushing into some new territory. It was a crazy decision. And SUVs were becoming so important in

America. I think there were just like a lot of wealthy people out there and a lot of status

focused people that were like, yeah, there's an SUV I can spend a hundred grand on. Like hell,

yeah, take my money. And also there's a practicality of I kind of need a minivan,

but I don't want to drive a minivan. And so I'm driving this new emerging class of SUV.

But if I have money, I kind of want the Porsche version of that. And Porsche must have been

thinking, Hey, we've got all these customers who love our sports cars. And we have this brand name

that's always been associated with performance. How else can we hook these people? They have families.

Right. And so, and, and, and by the way, with those families, they're buying an X5

and it's like, why don't we? Right. Yeah. And the danger here,

if you're at home and you didn't know how this ended and you were a smart business person,

you'd be thinking, well, this is going to borrow against their brand equity. Like this is going to

drain the bucket, not add new love to the brand bucket. And the magical, incredible, amazing thing

about Porsche is they have doubled down on this strategy. It has become a huge part of their

business. They generate a ton of margin on the SUVs and it has not borrowed against their brand

equity. It has increased the love for the brand. I think cause at the same time and just before

they had given a huge shot in the arm back to the performance with the Boxster and the 9 9 3 9 11.

And then also done the SUV, which they partner with Volkswagen with Ferdinand Pièche. It kind

of makes peace between the two companies. Pièche is running Volkswagen at the time,

comes out with the Touareg, which was Volkswagen's SUV. And that served as the basis for the original

Cayenne. Really? Yeah. Porsche starts a whole new production facility in a new part of Germany

in Leipzig to make it. And then ultimately shortly thereafter makes this car at the same

production facility. That's right. They were built in the same place. And I think that goes

back to the point you just made that Porsche, the SUVs, yes, you'd think you come out with an SUV,

it destroys your brand credibility. We've seen this with Maserati come out with all these sedans and

now nobody wants one. But Porsche always made sure to be making other cool stuff and to keep

coming out with other cool stuff reinvestment performance, like you said. And so they used

this new factory that kind was built in to also create this supercar. And that was important.

It really showed people, Hey, they might be making an SUV, but they're also making this.

So they're legit. For people who are just listening to the audio, this is the Carrera GT

sitting behind us. Okay. We've alluded to this amazing machine behind us. What is this thing?

The Carrera GT in my mind is the greatest driving car ever built. And a lot of people actually said

it. It's not objective by any means, but a lot of people who have driven this and a lot of other

cars feel that way about this car. It was a true analog supercar, which means manual transmission.

There's very few driver aids in this car. Like you'd get in a modern car, stability control,

traction control, that sort of stuff is either non-existent or heavily dialed down.

Full carbon fiber body, like no expense was spared basically. And the coolest part was

that the powertrain, which is a big V10 was shared with, initially it was developed for

formula one racing. And then it was evolved to Le Mans racing. And in neither cases did it ever

actually see the light of day. They created a formula one engine. It didn't work out.

It's a little bit like the original 911 engine that for an MPS design for racing,

but then only made it into the... Right. That's exactly like that. The crazier

thing here though, being in that time you could do that because there were no emissions regulations.

The concept of taking a race car engine today and putting it into a road car is just non-existent.

To get a Le Mans or formula one engine homologated for road use is just mind blowing. So that's the

cool and special and whatever, but its legend has sort of grown since then

as sports cars have moved away from some of the things that made this car so special,

specifically this analog field. All exotic cars now are automatics and hybrids and that sort of

thing. And this was kind of the end of the end. My sense is this car too has a reputation,

partly because Paul Walker died in it of like, unlike a lot of Porsches and the 911,

this is something that you need to be really know what you're doing to operate this thing.

You can't, if you let it get away from you, it'll kill you.

Yeah, it has a reputation for being difficult to drive, which I think is somewhat unfounded,

but also, especially by modern standards, cars have gotten so much more powerful than this.

A new Audi RS3, which is just an high performance Audi sedan that you can buy for 65, $70,000,

faster than this car zero to 60. It's not that crazy by modern standards, but at the time,

it certainly was something. But I guess today cars, there's so much

stuff, technology in cars, that is designed to keep you from doing stupid stuff.

And this car was kind of the end of that era. And I think that's why it's so special. It was like

the last of these cars that really you could get into trouble. And Paul Walker died in one,

and there were some other deaths too that weren't quite as high profile, but there were some serious

accidents and some people died in them, and maybe still will. It's still out there and

it's still a dangerous car. The weirdest thing about high end cars that have lore associated

with them is typically when someone high profile dies in it, the value goes up.

Right. It's like an artist. It's like paintings. I think that car people had always known the car

had this reputation. There weren't lawsuits against Porsche about this.

Porsche got sued. Yeah. When we went to jury trial, Porsche was found liable,

at least partially liable. Wow.

And that's a big deal if you're an automaker because they got 1,300 of these out there.

Right, right, right. Because production was...

And this is the value of the car now. Production was initially intended to be

higher than it ended up being. They stopped it early.

They had some weird issues happen. There was a changing regulation that forced them to build

a lot of them sooner than they thought, so they ended up flooding dealerships with them earlier

than they expected to. And the car didn't sell well when it first came out. The sticker price

was $440,000 and they dropped fast. You could get them in 08, 07, 08, you could get them for 250

all day long. And now they don't exist under a million dollars. That's a crazy thing.

Should have all invested in Carrera GTs.

Could have bought Apple stock or Carrera GTs. Carrera GT would be a lot more fun to own than that.

I don't need seven of them or whatever, but it would have. They all completely took off.

Wow. It's funny. I thought that this

was going to be a fun little digression about the Carrera GT, but I realize now,

actually, this is a super important point to the business history. While they were drawing on the

brand equity to make the SUV, this was a big part of putting cash back in the bank of the brand

equity and to do it on the same production line as the SUV.

It also had that effect. It also helped legitimize that facility. Because up until that point,

except for the ones built in Austria, all of the portions had been built in Stuttgart,

in Zufenhausen, in that factory, that same factory for all these years. And so this car helped

legitimize like, oh, we might be making a factory in East Germany where we're building SUVs,

but we're not straying too far. We're still doing our thing.

So this point is an interesting one because it is something that other luxury brands do as well.

I remember reading when Louis Vuitton first started coming out with the more approachable

wallets and clutches and ways that you could tiptoe into participating in the brand story.

They were also releasing $100,000, $200,000 special handbags that were new products or

new collaborations with other designers that told you, no, we're still Louis Vuitton.

We just have this other way to be a part of our brand.

Right. And Porsche would go on to do it again, which I'm sure we'll talk about shortly.

Oh, yes. So on the back of this incredibly bold

plan and turnaround and success by Wiederkegg, he becomes a legend. And Porsche goes from

death's door less than 400 million euro market cap when he takes over to, by 2007,

Porsche's market cap is 32 billion euros. Crazy.

A better investment than a Carrera GT, in fact.

So they never had to have any help once they scraped that bottom of whatever it was,

$400 million market cap. Nope.

Porsche is saved. It will be independent forever. Families will never have to sell

that equity research analyst can eat his words.

No, not quite. There's another chapter to the story.

So that's 100x market cap growth. Is that right? Did you say 300 million to 32 billion?

Yes, that is 100x market cap growth in a decade.

Occasionally, there are these 100 baggers available in the public markets. And you only

know about them looking backwards, but it's crazy. You don't have to be an early stage venture

capitalist to find these. They exist elsewhere sometimes.

It was Porsche of all things. I suspect in most of these cases, though,

to take advantage of it, you would have had to have been insane. To have invested in Porsche

at that point, you would have been nuts. Even if you had told a person in 1993,

hey, this guy's coming in. He's going to kill the entry-level stuff, go back to doing entry-level

stuff, and then do an SUV. You'd be like, how do I get out of this stock? Where do I sell?

He was the fourth CEO or whatever. Yeah, I don't want to be any part of that.

Clutching its straws, it would seem.

It's like buying Amazon in 2001 or 2002 when things looked the absolute bleakest.

That's how you could have gotten 100 bagger in the public markets, maybe even 1,000 at this point.

But come on, who would have actually done that?

Yeah. And the 32 billion euro market cap, it's not crazy because by this time,

Porsche is doing almost 2 billion euros a year in operating profit.

Turns out these SUVs and making only supercars is a very profitable, a lot of margin there.

China was starting to take off at this time too. The final chapter to the VitaKing

era on the production side was the Panamera, the sedan. Porsche makes the sedan. Now,

Doug, I'm curious your thoughts on the Panamera. I had always also been like,

Porsche made a sedan. It's weird. It looks weird. I think from doing the research now,

I think a large part of the intention of it was to really target the China market.

And it became successful globally too. But I think the Panamera and the Cayenne too

really helped Porsche enter China. No question.

Looking back, that has become especially true as Porsche's business and all luxury

brands business grown in Asia. At the time though, I think they had an SUV,

they had done that. So it was like, all right, sedan is the next place we want to compete.

Let's replicate the success we had in the SUV.

And what do you think changed in the corporate psyche going from,

we have a very particular way that we do things in a very particular market we serve with a very

particular type of product to like, let's have a full product suite just like everyone else.

Probably that 100X growth. I think they looked at it and said, holy crap,

Boxster made us a ton of money. It came and came and it made us a ton of money.

Cayenne showed up and made us a ton of money. We got cash. Let's go after the Mercedes S-Class

and the BMW 7 Series, the big luxury sedans from their German rivals, because they knew

there was profit there and they could do it better like they had done with the Cayenne.

And honestly, it would have worked and did work. It was not what brought down the company.

Not at all. If you were naively following along, you might think,

ah, and then they got too big for their britches and they expanded the product strategy too much

and the brand came crashing like, no, no, no, this worked. And it worked beautifully,

just ultimately under different ownership. So let's talk about what we've been alluding to

all episode here. The German tax regime still is not very favorable to distributing profits.

Just the corporate tax rate alone disincentivizes spinning off cash flow and incentivizes

reinvesting. At this point under VitaKing, Porsche is doing everything they possibly can

to reinvest in new models, new lines, like they're building a new production facility.

What more could they do internally with all the money they're making?

They can't do anything. So they start looking around for other places to put the cash. Now,

at the time, there were rumors circulating in the auto industry that Volkswagen had their eye

on VitaKing and they were looking to recruit him to be the successor to Ferdinand Piesz.

Worked the first time to pull the best guy over at Porsche over. Let's do it again.

So I think Ferdinand Piesz took over as CEO of the whole VW group. I believe in the same year

that VitaKing became CEO of Porsche in 1993. Ferdinand's obviously much older. Coming towards

the sort of twilight years of his career, you can see how this would make sense if it were true.

Whether it's true or not, I'm sure VitaKing gets rumors of it.

VitaKing's really, you know, kind of feeling himself here at Porsche, right? Like he's hard

to imagine a better run. He gets the idea. He kind of has like a sort of Justin Timberlake social

network moment of, you know, million dollars isn't cool. You know what's cool? A billion

dollars. Being the CEO of Volkswagen isn't cool. You know what would be cool? If we at Porsche

bought Volkswagen, I'll become the CEO of VW group when I buy you.

Uh, remember though, Ferdinand Piesz is chairman and CEO of Volkswagen Group. He's also a Piesz.

He's also on the supervisory board of Porsche because he's also a key member of the family

that owns Porsche. Yeah, the sitting active CEO of Volkswagen as a family member of the Porsche Piesz

family has voting shares in Porsche. Yes. And he's on the board, the supervisory board of

Porsche. So, uh, they thought they were done with the family drama here. It's, uh, uh, turns out

there's, there's another chapter. So isn't it obvious then that it would be hard for Porsche

to take over Volkswagen? Well, Porsche and thus the families needed something to do with the cash.

And at the time when they start this VW shares are a pretty good investment. Like they're not

trading super highly. Like it's pretty clear to them that it's undervalued and VW is a critical

partner to Porsche. So I believe certainly, certainly to the public and probably also to

the families, Vita King positions this as like, Hey, we're deepening the partnership. Uh, they

don't announce like, Hey, I'm trying to take over VW, you know, out of my seat at Porsche.

September 2005, Porsche spends $4 billion to acquire 20% of the VW group on the open market.

Uh, it's kind of a little creeping takeover vibes that you alluded to in the intro.

At this point, Vita King and Porsche's CFO joins the Volkswagen board. And then they keep buying

shares, but using another patented Bernard Arnaud technique, they do it mostly using

various derivatives and options contracts. So they're buying like the rights to buy shares

in the future. And that's usually ways to get around regulatory stuff, right? Like then you're

not exceeding caps if you're buying derivatives rather than the shares themselves. Yes. And in

VW's case in particular, there was actually law in on the books in German law called the Volkswagen

law. This is crazy that was designed to prevent a takeover of VW because the state of lower

Saxony still owned the 20% share in Volkswagen still does to this day. And it was considered

sort of a national treasure and they didn't want it to be taken over by corporate Raiders.

They didn't envision that it would be another German auto company that would try to take it

over. So it was impossible for, uh, an actual direct takeover to happen. I'm literally going

to read from the Wikipedia here because the Wikipedia is extremely well written under the

Volkswagen law. No shareholder in Volkswagen AG could exercise more than 20% of the firm's voting

rights, regardless of their level of stock holding. This law was supposed to protect

the Volkswagen group from takeovers. In October, 2005, Porsche acquired an 18.53% stake in the

business. And in July, 2006, Porsche increased that ownership to more than 25%. Yes. And part

of the reason this all was able to happen is there was a lot of speculation that this German

Volkswagen law, uh, would be illegal under new EU regulations. In 2007, Vidken creates a new

separately publicly traded holding company for the family's ownership of Porsche. So it's,

there's still the Porsche operating company, the old doctor, engineer, AG operating company.

There's now a new holding company that owns a hundred percent of the operating company

and the VW shares that they've been acquiring. And this is Porsche SE. Porsche SE holding.

And here's where things start to go awry. Vidken starts loading up the holding company with debt,

with cheap debt in 2007 to go buy more VW shares on the market. Ultimately,

$10 billion of debt that he puts on this holding company. He's got Ferdinand Piesz signing off on

this. Right? Like why would Piesz go along with this? I think the best is I could figure out is

that Piesz was not happy with the then current CEO of Volkswagen and was looking for a way to

get his first successor out. So he clearly, he was trying to recruit Vidken too. So like he was

benefiting from this too. Right. Yeah. He was going to have his cake and eat it too. Right.

Head's eye win tells you lose. Yep. So as Porsche is buying all these VW shares on the market with

the debt that they're loading up on the holding company, the float of VW shares that are actually

available on the market starts shrinking precipitously because remember the German state

of lower Saxony still holds 20%. Porsche now owns more than 50%.

Because they had kept buying after that 25% using all the cheap debt and they got all the

way up to 50%. Right. So that only leaves 30% left. Then you've got all the insiders like

Piesz and everybody else, like who knows how much equity they hold plus maybe some long-term

holders or funds that aren't going to sell. The amount of VW shares trading hands on the open

market shrinks to pretty close to zero. And we know that markets are supply and demand,

just like this car sitting behind us. If there's not a lot of supply available, prices are going

to go up. Didn't they go up so much that Volkswagen briefly became the most valuable company by

market cap in the world? Yes, they did. So as all of this is happening, Lehman Brothers collapses.

Which this is the black swan event that Vita King couldn't have predicted. He's not dumb.

He knew he was taking risks here, but like, so Lehman Brothers collapses. And it's crazy what

happens. So during the week after the collapse in October 2008, that's when Volkswagen Group

becomes the most valuable company in the world. Hedge funds have been shorting Volkswagen. You get

a short squeeze that happens and the stock just goes through the roof. Because there's all the

demand for borrowing the shares to do the short selling. So you would think that this is like

the best thing that's ever happened to Porsche and Vita King. They now own more than 50% of the

most valuable company in the world. They're invincible. I believe the threshold that they

needed to get to was 75% in order to consolidate VW's financials into Porsche. And so they had

announced that their intention was to buy up to that threshold and to get there. So you think

this is great, but this is terrible. This is the undoing of Porsche and Vita King because they've

got this debt. Lehman's just happened. So like clearly they're not going to be able to refinance

any of that. And yes, VW shares prices in the stratosphere, but it's not sustainable. Because

if Porsche were to start to sell any of their shares, which they're going to have to to service

the debt really soon, the share price is going to completely crater because like this is like

an artificial price. It's just because of the short squeeze that it's that high. So Porsche

now is like completely trapped. They can't sell to service the debt because then the share price

will crater. They can't buy because they can't take out any more debt. So they're just kind of

like stuck in stasis at this point in time. Why can't they sell? Because if they sell,

they get a bunch of cash by not liquidating that many shares because it's so valuable.

They're not going to be able to sell that many shares at this price before the price craters.

Right. So they basically can't get because who's going to be buying Lehman just happened.

Right. Wow. Fascinating. So at this point, Piesz, Ferdinand, good old Ferdinand,

who hasn't moved a single piece on the chessboard. No, he's just watching. He's on the Porsche board

and he is still chairman of the VW board. He's no longer CEO, but he's still chairman of VW.

This is when he turns on VitaKing. So he and Volkswagen announced publicly to the market

that they no longer believe that Porsche is a financially viable entity.

As a deep trusted partner, of course, we believe. And they say that they have to say this because

Porsche is a greater than 50% owner of VW. And so they have to disclose this to the market.

And that as a result of this extraordinary circumstance, VW, led by Ferdinand,

is willing to bail out their partner, Porsche, and save them by purchasing the Porsche operating

company for the neighborhood of three to four billion euros to get them out of this predicament.

Just to unpack the statement a little bit more, what he's basically saying

to make it more explicit is a key partner of ours went so deeply into debt.

To try and buy us. Buying our shares

that they can't service that debt and are now about to be insolvent and default on loans.

So therefore, we will help them out by, what is it, buying them for?

They floated a price of three to four billion euros, which remember,

like a couple months ago, this company was trading at 10X that.

Whoa. This is literally Ferdinand saying to Vita King, if you come at the King, you best not miss.

This is exactly what is going on. Yeah. Whoa, indeed. So there's a whole flurry of negotiations.

This is all against the backdrop of it being October 2008. Within a few months by January 2009,

Vita King is gone as CEO of Porsche. Supposedly, when he exits the building,

he exits to a standing ovation from Porsche employees, which he deserves. Even though all

of this craziness, he did go a bridge too far. He did save the company. VW does end up buying

Porsche, the operating company, in two tranches over three years. They buy 50% up front. Three

years later in 2011, they complete the purchase. It ends up being about eight and a half billion

euros total. So between that opening volatility of three to four and the 32, it lands at eight

and a half. What's even crazier about this, the undisputed hands down, you know, home run winner

in everything is, of course, the Porsche and PSH families and Ferdinand.

They emerge as the largest shareholders, the families personally, in VW Group.

So Porsche SE, this new holding company they created that was buying VW shares.

Yep. Already owned 50% of VW. And then VW paid eight and a half billion dollars to buy Porsche.

So the families own 50% of VW, and they just got eight and a half billion dollars for

Porsche. So they already were pretty high up there in the rankings. But after this transaction,

they are now in the top call at 15 wealthiest families in the world.

Oh, my God. So post both tranches after Porsche AG, the operating company is fully owned by VW.

What does the family own?

32% of the VW Group, which remember now also owns Porsche,

but they have over 50% of the voting power. So they control VW Group.

It's so crazy. VW, the company, bought Porsche, the company, but really,

Porsche, the family owns it all, owns it all.

And they just got an eight and a half billion dollar cash out.

Wow. Yeah. Crazy.

So here's the thing now. We're now in 2011 when the second tranche of the buyout happens.

We're deep in the great financial crisis and the recession.

And Porsche, the business, it's fine.

The drama is all around Porsche, the hedge fund, you know, and the financial shenanigans

and the families. The actual operating business, the cars sales are fine.

Porsche has one down sales year, only one during the financial crisis.

And then everything else is up. A big part of that is the investment in China.

And China starts really, really growing through the early 2010s for Porsche.

Also, this is when they come out with the 918 Spyder, their next supercar.

At this moment in time, there's all this, oh, Porsche is now owned by VW and Consternation.

They're like, yeah, we can still make the best cars in the world.

Yeah. And the 918 helped to introduce like plug-in hybrid technology,

which Porsche knew it would be going in that direction.

And so the 918 was like an example we were talking about before

of how they like covered the Cayenne with the Carrera GT by saying we're still doing this.

The 918 helped them say, hey, we're going to make hybrids, which is viewed as this like,

cheap, you know, like little car, the Prius.

And so you think of, well, here's the hybrid and we're going to do hybrids,

but we're going to start top down with this crazy, crazy supercar.

Talk about supercars for a minute, because I think it's important to understand, like,

they don't always make a supercar, right?

Right. It's like a once in every 10 or 15 year cycle they're making one, but it's a very,

yeah, it's a rare and special thing that they do it. And it seems to be they do it only to

kind of prove something or prove a technology like the 959 was all wheel drive and this car

was kind of this new production facility. And the 918 was the plug-in hybrid technology.

And how many years do they make them for when they decide they're going to do it?

It's a short model run. So this car, they made 1,270, which is considered a lot for a supercar.

The 918, they only made 918 units. And in fact, that was considered a lot for a supercar.

Its biggest rivals at the time, which were the McLaren P1 and the LaFerrari,

they didn't combine to make 918 of those.

But the 918 Spyder is what, a $2 million car?

These days, yeah, it was new. It was like $9,900 or so, maybe a million after you got a bunch of

stuff and it's double. It's done well. All the supercars have done well.

Well, I bet, I'm sure you'll talk about this in a minute, but Porsche is the master just of like,

there is a base price, but you're not going to spend the base price. You're going to spend

like 40% more than the base price. But even if you figured the base price was like 900 grand,

they made 918, you do the math. Doing a supercar is real money to be made fairly quickly as opposed

to a Cayenne that's a long tail and you make them over a long time to spread out the costs and all

that. And so this supercar was a plug-in hybrid. I don't think I ever knew that.

All supercars are now. But the 918 Spyder was Porsche saying, we're going to go into this

plug-in world because they knew what was coming up. I mean, we'll get to it in a second with the

Taycan, but they knew what was coming up, the hybrids and electric cars were going to be a thing.

We're into that.

So instead of introducing that with a SUV, for example, which is where they should have,

because that's where the market wants it. They said, no, we're going to do the supercar and show

people we're going to do it and we can do it well, and then we'll trickle it down.

What did the car world think of that? It's important to keep in mind that 918 Spyder,

being a plug-in hybrid, it had a electric component, but it also still had a massive

V8 in it that had a zillion horsepower screaming out. And it was the same with the LaFerrari and

the McLaren P1. They still had massive engines also, so it was fine. The next crop of supercars

will probably be full electric. And so that transition, I think, is going to be more

controversial. The interesting thing that seems to be setting Porsche apart now, though, is that

they're standing behind it. Ferrari has already said that the technology is old, all the plug-in

stuff, we don't want to be any part of the LaFerrari. And so no one's really sure how that's going to

be. Oh, those are going to be orphaned cars. Exactly. Orphaned multimillion dollar cars.

Yeah, exactly. It's a scary situation if you own that car and the battery's gone,

you don't know what to do, you go to the supplier. But Porsche has always been big about standing

behind the cars in part to preserve resale value and to make sure that owners of the next supercar

know that they'll be protected. And so this car is already almost 20 years old, all the parts are

still available. That's the smart brand thing to do. It is the smart brand thing to do, but it's

not easy. If you really think about it, plus Ferrari, they don't need to. They don't care.

They can make the next one, the next one, they keep finding rich people.

They only make, what, 13,000 cars a year at Ferrari?

Yeah, it's a small operation. Ferrari still don't really care about their customers a lot much.

What's the rule of luxury? Dominate your customer.

Ferrari was owned by somebody at some point though, right?

Yeah, there were all these, oh God, Ferrari's so sorry, that is a crazy one also. But the Fiat

group eventually had stepped in because Enzo had just driven the company. But in his pursuit of

racing had driven the company into financial rule.

It wasn't his pursuit of derivatives.

No, it was quite different. It was actually a very Italian thing versus the pursuit of

derivatives is kind of a very German thing. But yeah, that was a real bad situation also.

None of those companies are independent anymore. It's not really possible either

because of the way that regulations are structured, especially fuel economy.

You have to spread out your fuel economy over your corporation and you have to hit certain

targets. And so actually this in some senses may have worked out well for Porsche because

it would have been difficult to get Porsche to kind of work on the corporate average fuel

economy standards because all their cars are kind of inefficient. But because they're under

the Volkswagen umbrella, you can kind of get that whole spread and it works a little bit easier.

All right, listeners, our next sponsor is an old friend of the show, Modern Treasury.

As you may know, Modern Treasury is the payment operations platform for faster payments.

And this isn't the first time we've partnered with them. So we are excited to bring them back

to the show. We have become quite the payments nerds this year and have a much deeper appreciation

of just how important the modern payments industry is to the world. Money movement fuels

literally everything in modern society and Modern Treasury is right there at the heart of it.

Yep. And money is moving to a real time future. In today's world, consumers expect instant access

to goods and services and businesses need real time ways to track revenue,

respond to customers, et cetera. So with software powered business models, markets that never sleep

and faster ways to pay, it is clear that the instant economy is here. To stay ahead,

businesses just need to move track and reconcile their payments at real time and at scale.

Yep. And that's where Modern Treasury comes in. A payment operations platform

designed for this new era. Think of it as money movement supercharged. There's faster payment

rails, smart workflows, and real time visibility. Technology that modernizes your existing financial

infrastructure. With Modern Treasury, your company can move money faster and more efficiently than

ever, boosting business performance and enhancing customer experiences. Payment operations go from

manual and slow to automated and continuous from isolated to fully connected all in real time,

tracking every cent. If you, your company or your portfolio companies want to transform

your payment operations and join the instant economy, head on over to moderntreasury.com

slash acquired or click the link in the show notes and tell them Ben and David sent you.

Yeah. Okay. Well, great. So this is perfect to wrap up on the history of Portia here.

As part of the VW group, they come out with the Macan, which is a huge success,

both in America and China. And this is the mini compact SUV.

Right. The Cayenne is the midsize and the Macan is the compact.

Exactly. And a lot of Volkswagen stuff shared with all these cars. Engines are shared across

tons of model lines now. Yeah. Interesting, which is such a departure for Portia.

But that's right. It's for an engineering company to doing this kind of sacrilege. But

the engine in the Cayenne turbo, which is the best Cayenne is in the Lamborghini Urus,

an Italian car, the Bentley Bentayga, a British car, but Volkswagen owns all of these. It's in

the Audi RS6 and the Audi SQ7. It's like everything is now just spread across all these brands.

It's a little bit echoes of our Lockheed Martin episode that we just did. The heritage of

the great airplanes, the great Porsches, is this independent engineering, small team culture.

But to operate today within the continent, you have to be part of this. So the Macan's a big hit.

And then we just alluded to it with the Taycan, the Missionee is the concept that they introduced

in 2015. So pretty early, I guess the Tesla Model S came out 2013, 2012.

2012 model year. So Portia was pretty early with the concept for Missionee.

Yeah. Yeah.

Not everybody was sure that was going to catch on. Electric vehicles, I don't know.

I don't know. A lot of people were slow as a result.

Yeah. In fact, like entire nations were. Japan is five years behind everyone in electrics. It's

the weirdest thing. It's like they just woke up last year and were like, oh my God, this is going

to happen. In the car world, I mean, at least five years back. Toyota just came out their first

electric car yesterday. I'm not exaggerating. It was like eight weeks ago.

We got to talk about that another day unacquired. Like how did that happen? I mean,

they were the forefront of hybrids. Totally. The Prius, they invented it all. And now they're

like electric. I don't know. They're still like waiting and seeing on electric. Wild.

So the Taycan comes out. It's a very phenomenal car. Like I think people are a little unsure at

first, but then it's super well received within like three years.

Yeah. No, it's been well received. It drives like a Portia, which I think was everybody's

fear about an electric car. That you'd lose the engine sound, you'd lose the feel of it,

but the Taycan does indeed drive like a Portia. Why do you think they came out with a sedan?

It was a mistake for sure. Yeah. Yeah. I think probably because development started about when

they started Mission E and that was in 15 and sedans were still a big part of the market.

But most brands now that are coming out with electric cars as their first car are coming

out with SUVs. You look at Rivian, pure SUV and truck, Hummer EV, there's a ton. I think

Portia made a mistake. Yeah. But relative to the other traditional auto manufacturers,

I get the sense Portia, you got to be in the top tier of like best positioned for an electric

feature. Yeah. Yeah. No, absolutely. And they'll continue to innovate. There's an electric Macan

is coming soon. So they say, and so it'll be fine. And Taycan, I mean, one could argue that Portia

needs to come out with an electric sporty car first, because they need, if you come up with

electric SUVs, that's your first one. It's like, eh. They have no plans for an electric 911, right?

I mean, that's what they would tell you if you ask them, that's what they would say. But let's

be honest here, like it's the future is electric. There will be electric versions of all these cars

and probably within our not so distant lifetimes, they will be purely electric. Interesting thing

about the Taycan. So you mentioned the next supercar will be on all electric one. I haven't driven in

a Taycan. I have watched videos of people driving it. I'm like, what do you, what else do you need

to do to make this a supercar? You know, the thing about electric cars is they all can accelerate

incredibly well. And that's like insane. And Taycan is faster than this. It's faster than everything.

It does zero to six in like two seconds ridiculous. Isn't it also like tuned to drive like a track car

where your 15th lap is going to be just as performing as your first? Yeah. And so it's

beneficial in that too. But at the end of the day, a four door car, especially one that's made in

not limited quantities is never going to have the effect that like a supercar halo car has

on like really showing people what a brand can like do. And so they will, I suspect in the next

couple of years, they will come out with the next supercar, which will be, you know, look like this

and they'll only make a thousand and it'll cost $2 million and it will be fully electric into zero

to 60 and one and a half seconds and even more ridiculous. What do you, what are the performance

characteristics of the next generation of supercars going to look like? Like, what do you,

humans can go zero to 60 in like a second. So I think that will continue to help the values of

these cars increase because at the end of the day, as cars age, they all get slow, right? They,

this car is now that fast by modern standards. So you start to look for other things that make

them special, which is the feel, the sound, et cetera. I was, I had a press car dropped off the

other day, a Kia EV6 GT, which is the electric Kia crossover. It is sized and designed to compete

with like the Toyota RAV4. Okay. But this is the high performance version. It does zero to 60 in

like 3.2 seconds. It's faster to correct GT. So yeah, like what does a supercar even mean anymore?

Like ultimately, like what does it offer that a Kia EV6 GT for, by the way, $51,000 does not offer.

And the answer just has to be like, it's lower, it's wider so it can, it handles better. I mean,

that's one of the big missing things from a lot of these fast accelerating electric cars is that

they're not necessarily like sports cars really. They're fast, but they're not really sports cars.

And so I guess that's going to kind of be the future, but you're right. Power is being

democratized. Everyone can now access a car that does zero to 60 in three seconds. Right. And so

I don't know. It's, it'll be interesting to see how the sports car responds.

Well, so that brings us to today when, or it gets more accurately last fall, September 2022,

when VW group re IPO Porsche, the Porsche re IPO is the largest European IPO of all time.

The initial market cap of Porsche at trading was about $75 billion. Today,

that's up to about $115 billion, call it nine months later.

As the investment bankers would say, like there was a lot of value unlocked by making this its

own company, which I think is legitimate. I think there's an element to being able to own

one of the premier luxury companies in the world without having to commingle it with a bunch of

other stuff. And so like all shareholders of Porsche can purely just be shareholders of Porsche.

And you, when you look at the financials and you understand like, okay, they have incredible

margins relative to you look at the rest of VW's portfolio. It's fine. It's interesting though,

like Doug, to your point, operationally though, you can no longer extricate these

companies. So you can financially extricate them.

Proportedly. But even then, how do you financially extricate like development costs of a powertrain

that's used in multiple vehicles or a platform? I mean, the Tycon has an Audi version of the

Tycon called the E-tron GT. It's all intermingled.

So yeah, if it's not actually operationally any different,

then you do have this question where you're like, okay, value was unlocked by just looking

at the market caps. But like, actually what happened there is you got better at marketing

a security, not you literally created value inside the company.

So it's interesting, Ludwigsson, Carl Ludwigsson, who wrote Excellence was

Expected, he published a new edition of it last year. And in the forward to it, he said,

the reason I did it now is that the old independent Porsche is done. Like this is a

completely different company now and I can fully put a bow on that original Porsche. So even though

there was a re IPO of Porsche, it's never going to be the same old independent Porsche.

And by the way, you can choose to buy Porsche AG, the independent spin out of VW, or you can also

on the stock market go and buy Porsche SE and the family building company.

I didn't realize that it's still on the market.

So some other interesting things about Porsche today, the family, as we mentioned, is complete

control both of VW and Porsche. So in some ways it's still the same old Porsche, even though it's

all commingled. Here's the sort of nail in the coffin, in my opinion, argument on is it a separate

company or not? Oliver Bloom is both the current CEO of VW Group and Porsche.

When you share production facilities and you share distribution and you share a CEO and you

share components, at what point, in what way are these separate companies?

I guess Mita King was right. He was right in everything that he was doing. He didn't

win the Game of Thrones. Fascinating. So digging into the business a little bit,

they do over $40 billion a year in revenue right now. When you look at the breakdown of that,

interestingly enough, two-thirds of it has come from SUVs and there's a good amount of it that

comes from the take-in too. So the 911 has sort of grown slowly over time. The 718, that's the

Boxster, Cayenne, not a lot of revenue coming from that. Yeah, sports car sales just slow.

It's just not the same, but it helps give them more legitimacy. Yes. And the Panamera does have

pretty decent sales, but still nothing compared to the Monster, that is the SUVs. When you look

at where they're sold, this is quite interesting. China is, as Porsche would account for it, their

largest market. But the reason that I put that caveat in there, because it's at 26% is China,

they split out Germany from Europe and call them two different regions. So they have Germany.

True Germans, like a true German would.

Like Germany is 10% and rest of Europe, excluding Germany, is 23%. So

all of Europe together would be bigger than China, but Germans.

One of the interesting things is the Chinese only buy four doors. They only want four-door cars.

Because there's no heritage Porsche in China. It's a luxury good. It's a cool brand that sells SUVs.

And there's a lot of chauffeur-driven vehicles there. And so it's almost none

as Porsche sports car sales in China. Hard to believe, but we think of Porsche as such

a sports car brand. It's like part of the ethos of it. They're just like a kind.

Right. Wow. Yeah. I mean, we're used to it now, but I remember the first time I was seeing

Porsche SUVs is like, well, that's a sports car brand. This is weird.

Right. But for them, they never had the sports car brand. So it's just like normal.

It's crazy. North America is very close to China. It's 24% in terms of sales. And then

the rest of the world's about 16%. So interesting thing when you start to look at both

the amount of cars that they make now, because it's huge and the margin structure associated

with that. So last quarter, they delivered 80,000 cars and that's growing about 20% year over year.

So that's quarter the delivery. Yes. Wow. So last year they delivered about 350,000 cars.

So this really is a scale organization at this point. This is not Ferrari. This is not

Lamborghini. These are mass manufactured vehicles. And I know they would say, oh,

we're not a mass market thing, which is true in some ways when your average selling price is

$110,000. But like if you're making 350,000 of something, that's a mass market brand.

Yeah, it's interesting. I compared the brand to Rolex earlier. I think from a brand perception,

that's true. But from the operations of the company, really, it's Louis Vuitton.

Louis makes a lot of stuff. This is the correct analog. So I had this in my notes much later,

but I want to bring it forward right now. Porsche is Louis Vuitton. Ferrari is Hermes.

And I think that this whole time while researching, I just had this broken thing in my brain where I

was like, how do they make so much stuff when they're Hermes and they're not Hermes?

They were once Hermes, but as soon as they started making the SUVs, that's not who they are.

They have tiered access to different luxury products with a shared brand that unifies them.

Which is funny because people see it as such a high end brand. It's almost like the SUVs have

managed to get under the radar of the people who buy the sports cars. And the sports cars still

have this elevated viewpoint, even though you can actually go to a Porsche dealer and lease them a

for, I don't know, 750 a month, whatever it is. Right. On the scale thing, though,

there is another order of magnitude up and these other brands do feel much cheaper. So

at around two and a half million a year is BMW and Mercedes-Benz. And it does feel like Porsche

is in a much different class than BMW or Mercedes-Benz in terms of the sort of hoity-toityness

associated with it when you get to drive it and you get to own one. And I think that clearly shows.

And the question is, if they made 10 times as many Porsches, would we all feel the same way that,

oh, it's just a BMW? Probably. There should be an inverse relationship between scale and brand

perception, but they have managed to find this mismatch or, to your point, skating under the

radar where they are able to make a lot of SUVs and still maintain what they have. And the question

is for how long? Or at what scale? At what scale? If it doubled again. It's interesting about BMW

because if you think about it, if you saw Porsches as often as you saw BMWs, would it be special? Of

course, the answer is no. What do you think the average selling price of a Ferrari is

across all there? 250. 330. Oh, that's insane. That is insane. 3X Porsches. 3X Porsche. How many

Ferraris are made every year? 13,000. 13,000 versus 350,000. Yes. It's so funny because the

enthusiast world, there's often a, are you a Porsche person or a Ferrari person? They're not

really. Right. These are two very different beasts. Yeah. And it's fair to be like, are you a 9-11

plus supercar person or a Ferrari person? But the rest of Porsche shares the name Porsche,

but is a completely different thing. Right. Yeah. They're nowhere near each other.

It's almost like Porsche should go get even more aggregate market cap by spinning out

just their hypercar. Just the 9-11s. Yeah. Just the real sports car. The stock ticker is P911.

Is it really? Yeah. Yeah. In Germany. Man, that's crazy. Ferraris. 330,000? Ferrari's average

selling price is 330,000. 330,000. It's interesting, right? Like, I mean,

you're Doug DeMiro. You own a car at GT. You don't own a Macon. Yeah. Well, yeah. I mean,

I, but they're cool. I mean, I would get one. I recommend them to a lot of people,

but that's a good point. Like, I haven't went and got a Porsche SUV. Truthfully,

the reason is ridiculous. I don't want to drive like things of that name brand, like on a daily,

like my wife would never be seen in a, like a Porsche. Do you know what I mean?

It's the funniest thing because I'm one of my, David, my closest friends drives a Porsche Macan

and his wife drives an Audi. Oh, this is a totally different thing. This says something very

different about who I am. She was driving his car the other day and she was like, Oh,

I hate being seen in the Porsche or that you don't want to be driving around a $75,000 Porsche. And

yet this thing that you have. It's ridiculous. I know it's an interesting point. I never really

considered that. I just, I like to be casual for my normal cars. Also, I think that like having the

Porsche SUV is kind of like a, it's almost more in your face than this. Like if you bought us,

you're a connoisseur. If you have a sports car, if you buy the SUV, it's like,

man, that could be, I love them by the way. They're awesome cars. That just doesn't offer me.

Right. It's like getting like the master's logo embroidered on your golf clubs.

You know, it's like, okay, I know you didn't play in the masters, but like,

well, okay, that's cool. Right. It's, that's exactly how I look at it. Like, okay, that's,

that's fine. But I just, it's not, I'm going to, I'm going to stay kind of low key in my normal life.

What do you think I drive?

It's got, I'm model free.

That's a good guess. That's what David drives. And that's probably what I would.

Mazda CX-5.

Oh yeah. Okay. Yeah. Those are good cars. The Porsche Macan of the

Macan.

It's the Japanese Porsche Macan.

And if you asked my colleagues, they would say that, but I think it just is a normal,

but I like them. They're good. I recommend those to people too.

Okay. So more back to Porsche. A couple other interesting observations just for listeners

trying to keep track of home of like, what are the profiles of these businesses look like?

I always think gross margin is an interesting place to look to understand the strength of a brand

because it's basically showing like, what can you mark up over your cost of goods sold and sell it

to people and still have them swallow that price. Right. BMW, as we mentioned, 10 times more units

of BMW sold than Porsches are down at 17% in terms of gross margin. So they really aren't

marking up much above their cost of goods in order to ship those cars. Mercedes a little

bit better at 23%. Porsche is at 29%. So about 50% higher than BMW. Ferrari is 48%.

So people who are buying Ferraris do not care what it costs.

People just pay and pay and pay. And by the way, the 330 average price thing,

I'm just still astonished by that. It's an unbelievable amount of money when you really

think about it for 13,000 cars a year. And to put it another way, because let's round 48%

to 50%. If you have 50% gross margins, it means you go buy a bunch of stuff, you assemble it,

and then whatever it costs you, you double that to sell it to the customer.

I mean, Ferrari is still charging like two grand to put Apple CarPlay as an option in their cars.

I am dead serious. Heated seats are like 800 bucks extra in Ferraris. You get the idea.

Ferrari options list will go crazy.

So switching gears but staying on gross margins, because David,

you brought up LVMH earlier. LVMH's gross margins, 68%.

It turns out you can mark up leather way more than you can mark up cars.

Interesting.

At some point, there is some sensitivity to you can't just make every Ferrari cost $8 million,

because there's so much real hard costs in cars that are just not in other luxury goods. And so

you have this opportunity to generate unbelievable price premiums in all the stuff LVMH owns. If you

can touch it, if it feels good on your hands or it looks good to your eyes or it smells nice,

you have the opportunity to market up way more than sitting in something that is going to thrill you.

How interesting.

This is really interesting trying to understand which of these businesses you'd rather own. And

gross margin isn't everything, but it is amazing that LVMH is truly in a league of their own on

gross margins. Yeah.

Going into doing this episode, I wondered in the back of my mind,

has Bernard Arnaud and LVMH ever made a run at any of these luxury auto companies?

And if they have not, maybe this is the reason why. Like they're just in a better business.

Yeah, it's hard businesses. It's a lot of stuff.

It's a lot of stuff.

Like you're saying, it's a different business and it's a lot.

Distribution is harder.

Yes. And it takes a really special type of person and team to run it. I mean,

it's engineering and art, whereas there's not engineering in anything that LVMH owns.

I mean, I'm sure there's people who work there whose title are engineer, but...

No, it's Crafts. It's Craftsman.

It's 68%. That's it.

So if I were to guess, I would say maybe Bernard Arnaud has kicked the tires

on Ferrari, Lamborghini, but more on licensing agreements than trying to own those businesses.

Because I just don't think it actually works into the rest of the flywheel in the same way.

You got to own a factory that makes these cars. You got to do all the R and D.

Plus, scalability is harder and you alluded to the dealerships and the distribution.

Distribution is hard. You're shipping stuff on giant boats all the way across the world and all that.

Should we talk power? Moving to analysis here.

Let's talk power, yeah.

So for any listeners who are new, and based on the Lockheed episode, a lot of listeners are new,

there is a section we do called power, which is a way that we try to figure out

what enables a business to achieve persistent differential returns above their nearest

competitor. So why are they more profitable on a durable basis than other people who compete

against them? And this is always a fun thing to try to analyze because you're like, what actually

is it for a business that has pricing power that they get to mark up their goods? And so we just

talked about Porsche having better gross margins than BMW or Mercedes, but not as good as Ferrari.

Ferrari couldn't make the number of cars that Porsche does and maintain those margins.

So that's not really a fair like direct comparison in terms of who their competitor is,

but BMW also makes 10 times more cars. So that may not also be the right comparison.

And this I think is an interesting point, which is Porsche is kind of in a league of their own

in making the number of cars that they do. It's like this magical sweet spot where they get to

be a luxury brand without making so few things that you can barely even work with the company.

Yeah, they definitely, especially relative to Ferrari have scale economies being part of the

VW group that they can be in SUVs in a way that Ferrari can't.

I think you're right that scale economies enable them to be in the SUV business,

which has great margins. And that's a thing that you would need to have all these deep

partnerships with other car brands in order to do that or be owned by one.

Yeah, I think that is a differentiating factor against Ferrari,

but obviously lots of other car brands are in the SUV business.

The heritage is obviously an enormous factor.

The brand is the obvious big one.

Yeah, the big one. I suspect that the German engineering thing also plays a role.

Not against BMW and Mercedes-Benz, but certainly against the Japanese. I'm

sure their margins are much, much higher than the Acura's and the Lexus's of the world.

Even though when you really look at it on paper, it doesn't make sense. There is some level of

the German engineering thing, like you alluded to earlier, has this incredible reputation

that helps them. Okay, this car is just simply built better. It's European, it's German.

And does that, I think for a long time that expressed itself in reliability of Porsche's

relative to other luxury car manufacturers. Today, is reliability as much an advantage

for Porsche as it was in the past relative to other brands?

Supposedly reliability is still excellent. Supposedly based on the JD power studies and all

that. Now the question of whether it's actually important for people making the decisions by the

cars, I'm not so sure. How many of those SUV customers are leasing and don't really care

if the thing stays reliable? I don't know. But there is some component of just quality

that you just feel. I mean, it's certainly true. So you get a BMW or Mercedes-Benz,

it's just not as nice. It's not the same. You have this feel, it's certainly more special.

There's a specialness to it. Okay, so moving through them, branding, yes,

obviously. Especially if you're trying to enter any space and compete with a luxury brand,

you don't have the heritage. There's just no way that you have the 75 years of people believing

in your brand and thus willing to pay extra margin dollars for it. So that's the obvious one.

And you can't manufacture it either. No, they're not making any more heritage automotive brands.

Right. They are, they're just going to take 75 years.

Right. Maybe, I mean, there is never going to be another situation where the link between

racing and production cars is like it was when Porsche was getting started.

Yeah, but there'll be another racing. There's another thing, I think that's my

opic to think that 75 years from now, people won't obsessively care that some new brand was

forged in the 2020s that had some others in a sequel about it that's like the equivalent of

racing versus production cars. You could imagine at some point Tesla is a heritage brand. People

are going to be like, there was this crazy eccentric founder. Yeah, no, I agree with that,

but it will take as many decades as you think. It'll have to be for something else though. It

can't be for racing. It's something else related to the cars. Right. It would have to be for

something else. And to your point Doug, performance is a commodity now. The Koreans have been around

for 25 years and there's no like emotional attachment to any of those cars, even the older

ones. I don't know. Brand is it. Brand scale economies enabling the SUV line. I think that

was a good one. There's not really counter positioning. I don't think there was in the

younger days, especially the racing younger days, especially with the aggression of Porsche's

advertising. Porsche ads have been some of the most iconic, just brand advertising of all time.

And they were brash. The reason it's counter positioning is because a lot of car, like very

high end cars would never dream of showing their brand in such a gritty way and giving their brand

voice such a risky proposition. I'm thinking of two in particular. Do you have any particular

favorite? The famous one of course is the 993 Turbo, the arena red 993 Turbo. Fortunately,

they would put up one picture of the car and then there was always a tagline. That was like the

thing for decades. The famous one was kills bugs fast. That's what everybody remembers.

So good. So good. The other one that I'm thinking of is nobody's perfect.

That ad was great. I had one for my 996 Turbo that I owned at 911 years ago and I had it framed

and it said, calling it transportation is like calling sex reproduction. Which is a great

example of no other luxury brand would touch that. But yeah, I loved David. I had the same

favorite one of nobody's perfect because what they did is the bulk of the ad when you look

vertically down is the top 10 winners at Le Mans and Porsche has nine of the 10 and it just Porsche,

Porsche, Porsche, Porsche, Porsche, like number eight. And that is Porsche, Porsche. Nobody's

perfect. So good. All right. So that's modest counter positioning, but not really anymore.

Switching costs. I actually don't think there are switching costs in the car industry.

I think this is really interesting thing where like Doug, you're going to laugh. My car before

the Mazda CX-5 was a Honda CRV and like I completely reevaluated with fresh eyes. There

was nothing about being a part of that old ecosystem that carried forward to the new ecosystem.

Unlike Apple where you're dialed in. Yeah. Yeah. Lesson that is that's going to become less true.

I suspect with all the tech that's in cars, but yeah, I agree up until this point. It certainly

hasn't been a thing. Yep. There's no network economies. There's like really no benefit to

you own a Porsche there for I own a Porsche and I get value out of you owning a Porsche.

It's not particularly a thing other than we can like go to cars and coffee together.

Process power. This is probably where I would slot German engineering of all the things that

we've talked about. And then the last one, cornered resource. I don't think there's a

particularly cornered resource here. It's not like the square footage in Stuttgart that they

own is like some magical thing. Yeah. So all right. That does it for power playbook. We've talked a

lot of playbook along the way, but I'm curious for ones that jumped out at you that we haven't hit

yet. Yeah. I know we just talked about it a bit, but for me, the racing thing is interesting,

even though we didn't spend that much time on the details of it throughout the history.

I don't know that we've covered any other companies where there is this kind of like

adjacent activity to the core, um, business of the company that adds so much to the brand

value and is worth investing in. I'm just trying to think if there's anything else like this,

but, uh, I mean, it has invested billions in racing and all sorts of racing, but it's not

like there's like a software competitions out there that you know, you could enter your software

into like build your brand prestige. Yeah, that's right. That's an interesting point.

Are there any other companies that do things like that or industries that have like a showcase,

right? Like a very expensive showcase where you have to go build a completely different product

line or, you know, what is like this is the athletic apparel industry. Um, and Nike, like

they spend all of their marketing budget on athletes. One of the biggest ones that jumps

out for me is the brand continuity. This idea that if you loved anything we've ever done,

we should be able to fulfill that dream for you today and not with the exact same thing necessarily.

Like we're not going to sell you the exact model that roll off the line in 1977, but like you get

to participate in the feeling and you get to feel the same way about our brand today that you did

then. And we're going to find all these interesting ways to provide you fan service. It's almost like

going and watching the new star Wars movies where if you liked the original films, even though

these aren't like the highest, like highest grade directing and writing in the world, like we are

delivering all sorts of fan service moments to you. And I'm not saying that like Porsche is not making

the best cars in the world. They make some of the best cars in the world, but they also provide all

these opportunities for fan service. It's worth a huge multiple of what you invest in it. If you can

align everything correctly. It gets back to the 40, 50 year sale cycle with this too.

Everybody dreams. I mean, it's your whole life. You dream, I grew up dreaming of owning a Porsche,

which is again kind of funny as we talk about the SUVs and the volume they do. If you're a little

girl or boy, you don't dream of owning a Cayenne. Kids are getting dropped off in those at school

is kind of my point, but you do dream of a Porsche, even though it's the same thing.

Right. Doug, you've talked about this when you worked at Porsche a decade ago and you were much

younger. They didn't pay you much, but you got to drive a 911 and that was the coolest freaking thing.

Everybody wanted to work there. We get unsolicited resumes all the time, blah, blah, blah. Pay wasn't

great, but it had that name. I worked for Porsche. That's so cool. And just being a part of it and

then having the car was a huge deal. I love it. All right. Well, grading feels a little bit odd

on this episode and we killed grading, but we do have Doug DeMiro with us. We are going to give

Porsche a Doug score and it's an acquired adjusted Doug score. We can't grade the entire company on

handling, so we got to figure out some categories that we can evaluate them on as a company.

I don't know that there are any weekend categories for business.

All right. So David, what criteria are you thinking for our acquired adjusted Doug score?

We simplified this down to just three categories for the acquired Doug score. Revenue growth,

profitability, and defensibility. Would you want to own Porsche as a stock? And I think those are

the three components.

Sort of closing your eyes to where they're trading today because you always have to evaluate entry

price and all that. Are you excited about the company's prospects 10, 20, 30 years from now?

Yeah. All right. So let's do revenue growth first. Growth has been impressive at this scale,

not at the rate of the highest growers that we have seen, but still nonetheless impressive.

Prospects going forward though for revenue growth, I think are still quite strong. We're obviously

in a very different market environment than we have been the past few years, but Porsche is

incredibly well positioned on EVs relative to other traditional manufacturers.

Yep. So I think they're strong as they electrify the rest of their lineup. Strong

bull case for revenue growth there. I also think that even as we're heading into

a more depressed macro environment than the past few years, I suspect Porsche will be more resilient

in their growth than other luxury brand manufacturers. So I give it a seven on revenue growth potential.

I basically agree with you numerically. I won it on them versus other luxury manufacturers. It sort

of depends how you define luxury. I think they'll fare better than Mercedes and BMW in a downturn

and way worse than Ferrari. I think they're in this interesting place where they have...

It's like Louis Vuitton. They have some cash sensitive buyers.

Right, because so much of their revenue is based on those SUVs that probably will not

be as resilient as... Right. There are Macan buyers who will become Q7 buyers, Q5 buyers.

Yep. Ferrari really isn't a league of its own though. The broader universe of BMW, Mercedes,

all the Japanese brands, Tesla, et cetera, in America, Ford, all the Ford brands, the Chevy

brands. I think Porsche is very well positioned. Porsche and a recession than almost any other car

company. Yeah. There's also this other thing of you alluded to the colors, the money they're

charging for colors. They've perfected this with so many options and people are just paying it and

it seems like there's no end to what Porsche can kind of fleece their customers for. It just seems

like that's only going to continue to be more and more of a thing going forward. There's become this

entire subculture around like specking your Porsche in this perfect way. That is obviously

big margin stuff for them. Yeah, so I'm seven. You're seven.

I think we're a pretty unified setup. Yeah, seven out of 10. Next is profitability. Quite,

quite strong for the automotive industry. Yeah. Very strong. Not strong relative to

the technology industry and software or Apple. That's right. We didn't say that earlier,

but Porsche is a 29% gross margin. Apple's a 43% gross margin. Right. I believe Porsche's

operating margins are in the high teens, low twenties. I mean, I'd love to own a business

that has 20% of every dollar that I earn coming out the bottom. That's a great business.

When you're earning $40 billion. Yes, that's a great business.

I think I'd go seven again on profitability. It's a nine for the auto industry and it's like a four

compared to most businesses that we study on acquired because we only study the very best

businesses in the world. It's not a media business. It's not a technology business.

Right. I'm sitting here thinking it's seven. It might be a bit high.

Margins are pretty impressive considering that's the car business. That's what I'm sitting here

thinking. The car business requires so much, just so much cost.

Yeah. I'm going to revise my score down to five.

For the ease of the episode, we're agreeing on a score here.

Five feels like a good score. Honestly, I think five is the highest score you can give in the

auto industry on profitability. Unless we're talking about Ferrari, apparently.

Yeah. Which is almost not in the auto industry. It's a completely different luxury category.

Yeah, that's so true. Just happens to make cars.

So I am giving, because cars, you cannot give a 10, nine, eight, seven, or six,

I am going to give Porsche a five in terms of profitability.

Yeah, right. That makes sense.

What was the last one? Defensibility.

So this is the biggest question. Does

Porsche's margin profile and customer love and brand value just only go down from here

as they continue to grow? Will we think of them as a BMW in 10 years when we see them around the

streets? I just don't think so. From when I worked there till now, it is amazing to me how much more

people have become obsessed with Porsches. Every Cars and Coffee event has become a de facto Porsche

event. The used ones, the vintage ones, have just shot up in value to an unbelievable level.

Porsche is more loved now, I think, than at any other point in its history. Now, will it diminish

as a result of that? Probably, right? You can only be at a certain level for so long,

at a high level for so long. But it has been incredible to me to watch Porsche's rise,

even just over the last 10 years, and how much people love it and obsess over it

compared to how it used to be. It is not Ferrari. It does not have that brand equity that Ferrari

does, but it has got more than you would think. It has especially got more than you would think

for a company that mostly makes SUVs. I think you put it really well earlier when you said

people are like, oh, are you a Ferrari person or a Porsche person? The fact that

Porsche gets to be in that conversation, at this scale, it is like they are getting away

with murder by being lumped in right there. Somehow they were able to both produce an SUV

that gets them 350,000 units annually, but also mentioned the same breath as Ferrari in terms of

enthusiasts. I am literally a 10 out of 10 on this because I think this is a thing that I still

do not really understand how they executed this so well, and they have done it better than any

other company in the world. It is probably true. They went from making the 911, the everyday

supercar, to now they are like an everyday supercar company. They have a whole gradient

of everyday supercars that you can buy, but they are all everyday supercars.

Yet people still dream. It is crazy. I agree. I completely agree. Again, the love only seems

to be growing even as their model line expands to what we would consider to be less desirable cars.

It is amazing. Like you said, it is amazing they pulled it off.

I think that is right. My barometer for this is something I took from the LVMH episode of

evaluating brand power. Can you kill it? Is there anything that could happen that would

completely kill Porsche? I do not think so. Nothing that they would realistically do.

Let us say they did, because this is what we learned from the LVMH episode,

Gucci, everything you could think of to kill a brand, they did that. But the heritage there,

it can always be resurrected. Gucci is always going to be valuable.

The regular individual still has this thought of Gucci as like holy practices.

You can never completely eradicate it. And I think Porsche is the same thing.

Once the brand gets to a certain level, is it even possible to kill?

I do not think so. And once you reach that level, that is when you have real brand power.

And I think Porsche is at that level. Because let us say they make a bunch of decisions and

they kill the company. It goes bankrupt. Somebody will buy it out of bankruptcy.

Huge value is still in the brand name. Huge value is still there.

All right, 10 out of 10. So that gives the acquired Doug score for Porsche a 22 out of 30.

Out of 30. Which by Doug grading standards.

The Doug score is pretty good. That is pretty good.

Your highest Doug score ever is 72 or 74. Something like that.

Somewhere in that range. Yeah, out of 100.

You cannot get any better than that. Yeah. So Porsche is at the top.

Yeah. Quick carve outs.

I'll start. Because I've had no opportunity to consume any media in the last three months

that is not specifically for acquired research. I have a random website that I haven't used in

six months, but I used six months ago and it was awesome to recommend. And that is resortpass.com.

Have either of you ever been to resortpass.com? No.

It's like Airbnb for amenities at resorts. Oh, this is awesome.

So how did I not know about this? When I go on vacation, I typically won't stay

in the really fancy hotel. My wife and I will just like book a condo or an Airbnb or something.

And they're right next to really fancy hotels. Right.

And so what resort pass does is they go to the hotels. They say, look, I know your pools are

like not full most of the time. Can we have some and I don't exactly know how real time their

inventory is or if they are able to like buy big blocks of it upfront. But for like 100 bucks a

day or 200 bucks a day, you can go and get a day bed or a cabana or, you know,

you've been holding out on me. So I, Jenny and I do this. We will, we'll do the same thing you do,

but like, I didn't know there was a platform for it. We just call the hotel and see what you're

like. Or we'll book a massage at the spa and be like, Oh, and then with the massage, you get the

like, right. But now I'm just the analog resort pass over there.

Great. Uh, my carve out is, um, I go down these YouTube rabbit holes, uh, which is probably how

originally I got to you. Um, but I've been on a Seinfeld cast interview rabbit hole and there is

an amazing compilation of all four of the cast members doing Charlie Rose interviews. And he was

so good. I mean, problematic person, but like his, he was one of the legendary best interviewers of

all time. And he did a bunch of interviews with all four of them. Surprisingly, uh,

naively for me coming in, Jason Alexander is by far the best interview. He is so articulate,

like incredible. If you see him interviewed anywhere or talking, talking anywhere,

contemporaneous, extemporaneously. He is pretty legit. Yeah. He is, uh, you would never know

cause he's so different than the George character. Yeah. Yeah. So different. So he's the biggest

difference of all of them. For sure. Have you seen that, that bit on curb on curb your enthusiasm?

There's this like whole arc of the show about how like Jason Alexander is not at all like George and

how dare you perceive him that way. And then it's like Jason Alexander is insinuating to Larry

David, what a loser the George character is. And Larry takes it personally cause it's based on him.

Right. Oh, that's so great. I should have said five. Larry David is in this compilation of, uh,

Charlie Rose conversations too. Yeah. It's so good. It's so good. I think it's about an hour

20 total, but it's worth it. Interesting Jerry's in there too. Jerry's in there. Yep. They're all

in there. Interesting. Okay. Mine is a YouTuber named Whistlin Diesel. Have you guys heard of him?

No, I'm not surprised. Neither, neither will anybody who is listening to this. He creates,

it's like, he's a kind of a car YouTuber, but mostly he just does crazy stuff. He lives in

Tennessee and has a big property. And like, did you see that the thing that went viral,

like on Twitter and elsewhere of the Tesla that was on like 20 foot tall wagon wheels.

He liked has done that. He bought a Ferrari and put it in a, um, one of those like bubbles that

like boomers put inside their garages. And, and then he just started throwing stuff at it,

a ladder and like an ax and like a sledgehammer to see if it would like break the bubble and

like damage the car. He dropped a Mercedes G-Wagon through a house. Um, he got a, he got a Chevy

pickup with, with tires so big that he was able to drive it out into a Bay and Florida. Oh my God.

He's the, uh, the Mr. Beast of the car. He's the Mr. Beast of the car world. Sort of. He's like,

it's like dude perfect on heroin. Right. It's like that. And he's like this. He's like from

Indiana and he lives in Tennessee. So he's like, just like kind of like backwoods dude, but he's,

gotten so big that it's allowed him to do just dumb stuff. And he has become my utter guilty

pleasure because you put on his video and you're going to see like deep destruction of something

that a lot of people hold dear. And then you're going to see a lot of complaints in the comments

of people being like, I can't believe you would do that to a Ferrari. As a YouTuber, I also feel

like this is like the greatest thing ever because he takes what the haters say and just like turns

it up even more. And I have to be like nice. I'm so sorry, sir. He's like running a business here.

He's like, forget about these people. I'm just going to blow it up. He flew a helicopter inside

of his garage. That's a good episode. I got to watch that. This is all just like trash TV,

but it is so good to watch. So highly recommend that other people do this. Yeah, right. Right.

I do wonder sometimes about like the danger of YouTube and like, okay, it takes now

flying a helicopter inside your garage to get views. Like I started, I had a Ferrari.

That was enough stuff. You've talked about this a lot that like you feel when we're going to do

a whole other episode of just you and us chatting, but that like you started at a time and we started

at a time where you didn't have to do this stuff. I feel bad for all these guys now. Whistling

diesels out there dropping G-wagons through houses. Oh my gosh. It's a different thing,

but highly recommended. It's great content. That's actually a great... Doug, we have not

talked about like everything that you do. Give us like a little bit of insight and I think David

T's we're going to do an interview together as a separate episode, but like give us a little insight

into the Doug DeMuro empire and what do you have going on and where can people check it out? Right.

I make a YouTube videos. My channel is my name, which has become very complicated now that I have

a business on a channel. Also maybe regret doing that, but I'm just Doug DeMuro. And then I also

run an automotive like a car auction website for enthusiast cars called cars and bids. And we're

selling something like 30 cars a day or auctioning 30 cars a day on cars and bids right now. Yeah.

So all just all like enthusiast cars, Porsches and BMWs and things of that variety.

The short version is like you are one of the most successful YouTubers in the world.

You are also an entrepreneur who built a tech marketplace, internet marketplace business

and just took a very large investment from the turning group. One of the best investors in

marketplace and content businesses out there. Incredibly impressive. Thank you for spending

so much time with us doing this collab. This is great. This has been super fun. It's really rare

that we get to chat with somebody who is not an executive at the protagonist company and also

deeply gets both the products and the kind of business aspect of something like, I don't think

there's anybody else we could have done this with. Maybe Viking himself. He would be a little biased,

I think. Yeah. It's the bias that you got to worry about. Totally imagined. Yeah. So thank you.

Doug. Yeah. Thanks so much. Thank you. Thanks for having me. It was a lot of fun. It really was.

Prepping for this was so interesting, learning all this history that I didn't know even having

worked there. It was great. So fun. Thank you, guys. Check out our second show,

ACQ 2, if you want more acquired. We just recorded a couple more episodes actually that we have

getting ready to come out that I'm very, very excited about. That, of course, is a way for you

to go deeper and nerdier into topics that just either aren't ready for the main show or perhaps

are too current for the main show. Since what we try to do here is tell the big canonical stories.

Oftentimes, there are stories in flight where we just want to talk to experts about what's

happening, like Jake Saper in AI talking about what it's doing to the B2B SaaS landscape right

now and where profit pools may emerge in that. Yeah. Or Avla Kohli, the CEO of AngelList. That

was a great conversation with him. We had David Hsu from Retool. All the hits, David. We've got

a Slack. We would love to see you there. We're going to be talking about this episode, Acquired.fm

slash Slack. And if you would like to come deeper into the Acquired Kitchen, you should become an

LP where we will at least once a season have you help us select one of the episodes. In fact,

completely defer to you to select one of the episodes. And beyond that, we also will be doing

bimonthly Zoom calls so we can get some feedback directly from all of you and get to meet more of

you. So Acquired.fm slash LP if you would like to become an LP. Now with that, listeners, and a huge

thank you to our partner in crime on this episode, Doug DeMuro. We will see you next time. We'll see

you next time.

[The Porsche Saga: Engineering, Family Drama, and the Quest for Independence]-[Porsche (with Doug DeMuro)]

📋 Summary

The Origins of an Engineering Dynasty

The Great Fracture and Post-War Rebirth

The 911 and the Cult of Consistency

The Near-Collapse and the Turnaround

The Game of Thrones: The VW Takeover

A Legacy of Perpetual Reinvestment

🎯Key Sentences

📝Key Phrases

📖 Transcript

[The Porsche Saga: Engineering, Family Drama, and the Quest for Independence]-[Porsche (with Doug DeMuro)]

📋 Summary

The Origins of an Engineering Dynasty

The Great Fracture and Post-War Rebirth

The 911 and the Cult of Consistency

The Near-Collapse and the Turnaround

The Game of Thrones: The VW Takeover

A Legacy of Perpetual Reinvestment

Deep Learning with ListenLeap

🎯Key Sentences

📝Key Phrases

📖 Transcript

ListenLeap Brings You Into Real Context Learning