Porsche (with Doug DeMuro)

It's definitely Porsche.

Porsche.

Porsche.

Yeah, definitely don't say Porsche.

Definitely don't say Porsche.

The family says it more like,

because I met one of them at one point,

they say it 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, yeah.

Yeah, that's probably exactly what it is. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? 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 this 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 Schrodinger, Kurt Goodell, and, you know, 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 Markus. And I say probably because nobody really knows because Markus 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, 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.
Oh, neither did I. Yeah.
Crazy. 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, 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 Ferdinand Porsche.
Now the whole Dr. 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. Portia is like Dr.
like the Seuss doctor? Well, he had an honorary doctorate. He was already doing stuff, though.
He was engineering and creating. Yes.
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 up front, 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, you know, we're going to glorify him and many of these other folks here of their business and engineering contributions, but like 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, you know, at that point in time, the Nazis were so big and powerful, they kind of just got, you know, 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.
Yeah, 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.
Yeah. So Porsche Ferdinand, it's not a short period of time.
It's two decades like that. He is running the engineering and the car design for Mercedes Benz while he's there towards the end of his time, kind of as we're getting into the lead up to World War Two, 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 en masse 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 worked at portia you have content like i think to this day the rivalry between mercedes-benz and porsche like there's some bad blood it heats up and it cools down and there's there's more to discuss than that in the future for.
But they ultimately do share that town too. So there's rivalry, but you have beers with them.
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

Porsche construction

und bertangen

für motoren und

farschenbau.

I apologize to any German speakers out there. Wow, you are.
That is, that is, that's... 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 doctor, engineer, honoris causa Ferdinand Porsche Consulting and Design Services for Motor Vehicles Company.
And this is the beginning of Porsche 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 Porsche and you pick the right Porsche, 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 Piesch. 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 Porsche history nut, you probably know about Anton Piesch.
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, Porsche and the Nazis totally appropriate his stake in Porsche and he's written out of history.
Wow. 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 Porsche to build and design it was Volkswagen, which was established to do so by Adolf Hitler.
I had 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, yeah, there's some link between Mark Zuckerberg and Facebook. I just got to say, this early in the episode, we may as well like point it 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 used 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, 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 refounding of Volkswagen after the war. And I think if it were not for this refounding that we'll talk about in a minute, it would not exist today.
But yeah, just wild. Friggin' Adolf Hitler founded Volkswagen.
So the Beetle, this people's car, Doug, you might know this. Did it go on to become the most popular car ever in the entire world? Probably.
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 it obviously, whether or not it was the most or one of the most, it was obviously the effect of that car is clear today.
Yeah. 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 has sold 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 in Germany at the time, it's like a real, 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.
The Strength Through, that was like a Nazi. Yeah, yeah, yeah.
Didn't get much more German than that. Nope.
Yeah, yeah. 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 II starts.
They only make about 200 units. These are super rare today.
You find a pre-war Beetle. Then World War II 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 rest of the century and into the 21st century. So ironic, given that they are now one company again.
Right. First off.
Or are they? No, well, or 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. Cause you would think like, there's no way you can't imagine that Volkswagen would

survive post-World War II, 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 going to ever want to buy that car.
It's crazy to think about now. And it gives you an idea of how the British didn't want it.
The British saw the plans for Volkswagen, for the Beetle, and said,

no one's going to 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 industries, constant missed opportunities. But they literally looked at the models that they had built, and they said, nah.
They literally said it is not commercially viable. Wow.
Wow. So, okay, the British government kind of lacked 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 can 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 beetles 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.
So it's like, yes, Hitler started it, but then Ivan Hurst restarted 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. All these places were in similar situations to Germany

in that 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.

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 era. Yeah, you don't see a lot of Citroëns in that.
Yeah, no. But the 2CV was a huge, 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 uh 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. Yes.
And other military transport. 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. He designed the Beetle

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

More than a couple years.

Yeah.

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 Piache, 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 that.

Thank you. 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 them 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. Quick two-year trip in and out of prison.
Out of war criminal prison. Yeah.
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? You know, 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, Porsche 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, you know, 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. Yeah.
And David, are you getting all this from, I know you read like $500 worth of textbooks on Porsche. So there is this incredible history of Porsche called Excellence Was Expected that was written by Carl Ludwigson.
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 huge, heavy-bound pictorial books.
These are amazing objects that are being produced. There's just such a visceral, tangible quality to them that we don't usually cover on acquired okay so ferry and louise go back to austria they're there in gamund uh and uh 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 fixing up.
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, the services business. The second Porsche company, Porsche Construction in GMBH, which is an Austrian company that they start to do this.
And they start up like fixing old, you know, 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 Gmood.
So pretty quickly, they're like, huh, we don't have any more cars to fix up. Bad business.
Yeah.

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,

a 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 like 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 was like, it was kind of an interesting idea that this was a real, it was a touchstone of a concept that has really been taken, obviously, by them and refined and others as well. I went in research, when I looked up, you know, some of those sports cars pre-Porsche, and you look at them, and these things are like franking cars.
They are huge. Right.
And the engines are, like, the engine bays in the front of the cars are two-thirds of the length of the car. There this one Ferrari from that era.
And I look at, I'm like, how do you even steer this thing? Like, it looks like a boat. The thought at the time really was, you want to go faster? More, more power, which of course creates more weight, which of course creates the need for more power.
And they did that, but it was unwieldy. Yeah.
I mean, even like to this type of Carrera GT sitting behind us, that's not a large car. Right.
And that was a Porsche thing. And it was an even more of a Porsche thing at this time.
Totally. And David, you said a word there that if people aren't into cars, they may not know this supercharged Doug.
What does it mean to supercharge a car? Basically, you know, an engine takes in air and that's kind of air helps, air mixes with the fuel and it creates a combustion that more or less, that's how a combustion engine works. Supercharger push, like pushes in even more air to create more power, basically.
So the term supercharge 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. And 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 turbo 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 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 Gamund and we try and build a car that does that? And hey, it also turns out that, well, we built the Beetle, so we know how to work with the Beetle are a bunch of beetle parts around the beetle was the

main kind of chassis platform for a lot of military vehicles for for germany during the war what if we take a lot of those parts and um 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, $10,000, $15,000 at auction, maybe even a Beetle, like a classic one from the 50s or 60s.
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 a zillion Beatles.
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 60s and 70s.
And so not that many of them were saved. And now it's kind of revered as when we look back as this major moment in Porsche history.
Yeah, this was another thing. So obviously in Gmunt and then even when Porsche moves back to Stuttgart

here in a minute,

their production capability

is not nearly as large

as Volkswagen.

So they need to price

these things pretty high.

They price them at $3,750,

the German equivalent

of $3,750 in the late 40s.

That's about $42,000 today.

But we're talking about

war-torn Europe that you're trying to sell this in. 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, there are enough people who, it turns out, are interested enough in Ferry's vision for a small, fun, fast sports car? Initially, it was slow. It took them a while.
The first couple 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, 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 Healey, 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 Gamun. At the end of 1947, Ferdinand Porsche and Anton Pietsch 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, you know, 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, you know, 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 say, let's reinstate that old German Porsche company, the Dr.
Engineer Honoris Cosa, blah, blah, blah. We'll 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.
Yep. Sorry.
The deal is we want your Austrian company to distribute our Volkswagens. Yes in order to coerce you to doing that, we're getting- And the consulting work.
We also want the consulting work. Okay.
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? 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 become. Right.
Nobody knew that the Beetle was going to become the international hit that it would. But 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 move back to Stuttgart and take over, retake 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.
Louise and her children turn into this huge, 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 US at least, until Tesla, of separating the dealership from the manufacturer. There is no direct-to-consumer.
Was that already obvious at this point in history when Porsche 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 in 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% 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. And so to operate in other states, other countries in Europe, they probably needed third parties.
Yeah. Wow.
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That's a n r o k.com slash acquired or click the link in the show notes. okay so ben you hit on this a minute ago what the hell why is the new western controlled

west german post-naazi government giving this deal of a lifetime to these former Nazis? And it's not just we'll pay you for the cars 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.
It's 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 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 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 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% of your income.
But for these new old industrialists above a certain income, Germany sets the marginal tax rate at 95%. Whoa.
So they basically cap your income. Yeah.
Like people are complaining, oh, you live in California. Oh my gosh,

you're paying 13% state income tax on top of federal. Like imagine if the marginal tax rate were 95%.
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 are taxed.
So what are they trying to do here? They're trying to incentivize capital reinvestment in the industrial base.

So 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 etc 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.
And 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, Porsche 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 Porsche 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 other 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 enthusiast car market and professional racing market was very blurry.

Very, very blurry.

And it turns out that even though manufacturers, including Porsche, 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, 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.
Right. They'd kill, well, I was about to joke they'd kill themselves.
James Dean did kill himself in a Porsche 550 Spyder, which Porsche 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 Porsche wasn't incentivized to invest all their profits.
Like, I mean, maybe you can say, I'll do like the legendariness of that car. I mean, they sell for what, $5 million plus today? Yeah, real 550 spares.
They only made 90 of them in the end. And so like, it was a car 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 spider was for people who like were really like let's go racing and like do it but like you said you could a person could walk into it not a dealership necessarily but like just order one yeah um but it is it is an absolute legend it totally is.
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 what Taylor Swift is doing on the stage on her tour has nothing to do with a person who picks up their guitar and is talented and plays at the local bar.
She is the SR-71 pilot, and 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 50s. Yeah.
So back to racing, we were talking about the spiderder a minute ago. I got so excited about James Dean.
But Doug, to your point, 356s in 1951 and 1952 win their class at Le Mans. They don't win it outright.
Right. 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. And that was kind of a special thing.
But 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 were about, the Ferraris were a different thing. Yeah, it was a different one.
These weren't 356s, and I think they were probably also a lot more expensive than $3,700 at the time. 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 purpose-built for racing.
And there were racing versions of the 356, but the goal was mostly 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 say, I'm done with this crap. Whereas Porsche was selling, I mean, 356s were like being sold in a pretty good volume.
There's this great, great, great ferry Porsche quote about this, which he would say later about the 911. 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 Porsche's thing to this day. Like, how relatively usable the car is in just about any setting.
Like, you 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 um kind of other luxury brand analogy is you're gonna porsche definitely is a luxury brand's not like we're, uh, making, uh, apples and oranges here.

Um, it's kind of like a Rolex to me.

Is that really good?

Yeah, that's a great, yeah, absolutely.

It's a, you buy those watches to wear them.

You don't buy them to keep them in a case and ogle at, you know, they're 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 the luxury world, like a Ramoa suitcase. Those aren't that expensive.
They're three times, four times more expensive than regular luggage. They're not a Louis Vuitton truck.
Right. But they're a lot more usable than a Louis Vuitton truck.
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 Porsches 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. No, this thing behind us is a little bit of a different...
It's not a different one. And there have been, and we'll get to, and the 550 Spyder is one of them, there have been some Porsches that kind of go one way or another in the philosophy.
But generally speaking, it's sort of a middle of the road, going back to Ferry's quote about this exact thing, can do all these things. 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. And 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 is 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, you know, 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, they close 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.
Yeah, right, 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, which I don't think Ferdinand and Ferry envisioned 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 US, which was 40% of their entire production for the year.
And that 40% 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% of Porsche production. I agree with you, by the way, about 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 never really heard of because they died. These came up, 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 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.

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

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

It only continues to embolden them to reinvest.

Right.

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.
Yeah, Austin Hill. Everything is like,

okay, there's a lot of pressure. Yep.
So, okay. In 1962, Ferry Porsche 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, Porsche had actually been working on a design for a sedan, for a larger model.
Seems heretical now. Right.
I mean, people look at the Panamera and like, ew, you know, it was actually like going to be the second model of Porsche. I mean, I feel that way.
Every time I see a Panamera drive by, I'm like, why does Porsche make this car? But I see them driving by, so that's why they make the car. China is why they make that car, but we'll get to that later.
So the next generation of Porsches, Ferry's son Ferdinand, known as Bootsy, 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 Porsche 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 Porsche maybe could have challenged have challenged them but it was like hey you know they've got their turf we'll keep our turf in sports cars and like everybody will be happy here anyway they decide to cancel the project and uh double down on sports cars at the same time ferdinand porsche bootzi the grandson his cousin from the the Austrian side of the family, Luis 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.

I think he really was the one that led the development

of the six-cylinder Boxster engine for Porsche.

Now, he didn't invent the six-cylinder Boxster engine,

but the engine that ends up in the 911 that is 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, okay, let's take these two kind of failed projects that the next generation's working on. Let's weave them together.
Take the styling that's done for the sedan take this amazing engine that ferdinand has built for the racing operations and uh let's see what happens when we put them together and this is the birth of the porsche 901 i know the 901 david i'm not familiar with that model. Yeah.
What is that? Well, this is why, Doug, I'm sure you do this. Oh, this is a 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 two series, the 308, 408, 508.
And so they trademarked them all just knowing that eventually that would happen. Unbelievable.
So, I mean, it makes sense. Porsche 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 for us. Now, the story that I hear, have heard about this, is that they said, well, we got these badges that say 9, 0, and 1.
Why don't we do 9, 1, 1, because we have the 9 and the 1 already. Hence the and the one already hence the 911 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 like engineering project they did yeah but did they really do 500 engineering projects between 356 and 901s? 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 Pietsch was working on. And I think that's the origin of it.
Two, yes, in Porsche lore, it's that 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 lure is that, you know, all of our projects have model numbers and like BS. Right.
So funny. And to be clear, so i admired designs of porsche 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 911s there's like yes i don't know I didn't write them all down with the 964 and the 959.
It gets complicated because what ends up happening, just like happens to every car, is they start to get redesigned as they get you know, as the years go on, they need newer models. They still call it the 911.
The only way to distinguish the newer version from the older version is to call it by the project number, which is 964, 993, etc. etc.
And. And so, if you're really into it, you got to know not just that it's a 911, but which version it is.
And not all 911s say 911 on the back. So, you can't even use that as your reference.
It's a little complicated. Maybe that's part of the success.
There's sort of a language you have to speak in order to 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 911 you know instantly yeah that it's a 911 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 since this.
Since 1962. Yeah.
So pretty immediately, 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 911 for Porsche production. They sell almost 13,000 cars in 66, which that's what, what did we say, 10, 12 years ago, they only sold 40 Like 1,000 total.
So they're now 13X in 10 years. And that number of almost 13,000 911s they sell was 15% more than their best year with only the 356s.
Doug, how would you characterize? What makes the 911 so special? It's important to keep in mind, at the time, you didn't know, right? It was just like this thing, this 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 the 911.
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 Pietsch designed to go in this first 911, there's something like cool and unique to that.
Like we've been talking about the difference between Porsches and other cars here. This is a performance engine, but it's a six.
It's not an eight and it's rear mounted. Right.
So the 356 had a Boxer 4. 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 so now the 911 have six cylinders.
And like you said, it's not a world-class, powerful, fast car, but it elevates the 356 into a much more like, you can really achieve a lot more with this than you could with the 356s. This becomes super important from a business side for Porsche because they priced the 911 about 50% higher than they had the 356.
Now, what they do at first, they realize this is going to create like a major price gap in our lineup here. We're going to lose a lot of customers 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, 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, okay, and this was 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 levelorsche will eventually introduce the boxster 20 plus years later takes porsche a while to really get to the uh 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 pors, 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, 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 Pietsch, 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 Karmann Ghia previous to this, like in the 60s.
And so the thought was they wanted to replace the Karmann Ghia. Porsche wanted an entry-level car.
Let's jointly develop it. Porsche gets the more powerful one, the 9146, the six-cylinder.
And Volkswagen would 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 decision. 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's 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.
These are pretty amazing sports cars. Yeah, Porsches 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-engined.

That's how it's more difficult.

The engineering is more difficult than front engine,

but that's how it should.

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. Yeah.
I think you have a video where you say the Cayman GT4 RS, which is the Cayman and the Boxster, it's 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 of the

best on your channel.

Every car is the best when it

comes out and then it's superseded by the next best.

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. And I don't even take advantage of it as much as some of my colleagues.
Wow. And so 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? Yeah.
A whole different set of calculus. It doesn't matter.

There is 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, boxer,

it doesn't matter.

It's gone.

Okay, so a minute ago,

Ben, you said like, oh, this naturally would lead to a merging of, you know, VW and Porsche. And I was like, well.
So this was in the late 60s when the 914 launches. As we head into the 70s, the oil crisis happens in the 70s 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, 9-11 sales stay relatively robust throughout the 70s 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 70s, 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 30s, maybe entering their 40s. 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 Ferdinand.
The one who's working, actually producing the cars. But the other Ferdinand, the son of Louise and Anton, was hired by the German company also.
So he's also working for the DC. 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, blah, blah, blah.

Right, go do that.

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. 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. And I don't know, I'm speculating here, but I suspect Ferry and Louise didn't have a lot of acrimony over them.
I mean, they're brother and sister. And they had, Louise had her company, Ferry had his company.
They're both making a lot of money. 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 Ferdinands. What? Ferry.
Ferry himself. Who's running the company? Ferdinand's long den 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 professional men.
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 very, 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 if you value family above all else, maybe it's irrational. It's crazy.
It's especially a crazy decision because, like you said, they were killing it. They were the best.
It had been a family business until this point, and it had been a very successful one because of the efforts of the family. And especially, you've got Ferdinand Pietsch.
Now, looking back on this, we know what happens to Ferdinand Pietsch, which we'll get to. But you've got him on this up-and-coming track where he's so legit.
Oh, my God. He must have been so pissed.
It's like, no, you're out. Crazy.
I mean, he definitely was so pissed. So, let's talk about what happens here.
Bootsy, he goes off and he founds Porsche Design. So 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

um but that was started right he was like all right great i want to be a designer that's the

path that he goes down the same thing happened in the gucci family for anyone who's seen the the gucci movie with adam driver there's sort of a family member who wanders off and does some like effectively like brand licensing he's like i'm gonna take the family name and make some money off it which is obviously what was happening here i think he also was very talented i mean designed the god in the 911 for god's right's sake. He's talented.
But yes, trading on the name here. The other Ferdinand, Piesch.
This guy, oh my God. 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 car companies.
He does that for a little bit but pretty quickly thereafter remember vw and the new ceo really wanted to build this relationship with porsche with piash he gets recruited to come in and take over audi for vw i don't think he originally i think he 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. And Audi had been a separate company.
Audi had been a separate company. And it's also important contextually here to make one really important point about PS 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 to 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 a brand that was desirable at that time. Would it be like today? Infinity.
Like, I know you owned a Kia, right? But like, you know, Kia and Hyundai are trying to enter the luxury market. And people are like, really? 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 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 their reputation

was like severely,

severely damaged by that.

But that was this era.

That was this era.

Audi needed a turnaround.

Volkswagen's got Audi.

They're like,

we don't know what the hell

to do with this thing.

We got BMW and Mercedes. They're killing it.
So, Pietsch 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, 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 Pietsch running Volkswagen? A long time.
1993. I believe he was chairman until 2015, 2016, maybe.
He develops this reputation of being this just iron-fisted. 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 incredibly angry and everything must be to his standard.
And so I can only imagine how angry he was. He also had 13 children by, I think, four different women.
He had a lot of kids. He was that typical, how you think of a German industrialist.
Around this time, Volkswagen started really really gaining a lot of brands so in the late 90s they bought lamborghini um 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 um 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 piash was um 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 for NPS is looked at as like exactly what you're saying. The guy.
Everybody knows his impact. Everybody knows how effective he was.
And the families, Porsche is just like, yeah, now you got to get out of here. Unbelievable.
Maybe he wouldn't have had the motivation to do it. Who knows? Who knows? Just wild.
But Volkswagen, much bigger company than Porsche, right? He got kicked out of his own company, so he went and ran a much bigger one that competes with it. Then he grew even bigger.
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 Gamun.
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 i think it actually was a decent car uh 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 engine, water cooled. 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.
So like people were 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, really.
No, it was a totally different thing. And the 914 was a small, lightweight, compact Roadster, top the 924 was a it was definitely a different kind of situation so firman had a quote on it when gonna you know asked about like what is this uh 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 9-11.
Oof. I mean, I guess that's true, right? And that's also true

of the 9-14,

but like, that's not the right way you want to position your brand. It's the quiet part loud.
Yeah. 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 I get it, 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, our citizens should not be driving around in them, and so all cars need to change.
And regulations started to really show up, like, in this time period. 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 seatbelts that 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 cute old Porsches that are 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 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 once the 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 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. And 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.
I mean, it was embarrassing stuff because they had to put so many emissions controls on that by the time you actually got the 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 a8, 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 9-28 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 Piesche 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 legendariness. One of 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 and 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 9-11, everybody knows the impending cancellation is coming.
It's still going, but it's coming, this beloved car. And so Schuetz, Peter Schuetz, the American CEO, is sitting in the office of Helmuth Bott, 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 in the timeline. This is like on a whiteboard or a piece of paper.
Yeah, like on a whiteboard or something. Yeah, like tacked to the wall.
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, V8 front engine, it made sense. It was what they were going to do.
But the morale was low and they knew this. And so, Schultz 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, you know, 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 9-11 in this moment. And a lot of talk about whether this actually happened.
Like, did he actually just draw the line and make the complete 180 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, Schultz just looks over at the chief engineer and goes, do we understand each other? Right. And then he walks out.
I always wondered if the story was true. I worked at Porsche 10 years ago and had become friends with Porsche's general counsel in North America.
When Peter Schutz retired, he moved to Naples, Florida, and the general counsel at Porsche and Peter Schutz were neighbors in their homes in Naples. And 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 Helmut Baught 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. That's so great.
That's awesome to get that validation because there's so many of these stories that we tell on the show. We're like, this is probably apococryphal and there's really no way to verify it now of course if your shoots you'd want to tell the story because it's become so famous but you know from his mouth at least the story is real it's a great story yeah i mean literally he extended the line right of the production line right ontoo the wall.
Right.

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.

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 these go-go years and success, they're selling the 911.
They're selling the 928. They're selling a lot of 944s.
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, craftsmen 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, no, 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 families all, you know, it would have to be somebody inside the families who would attack us.
Why would that ever happen? Hmm. 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 up, you know, the end of the go-go years, 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, was 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 Schultz, though, he continues production of all three lines and not only does he continue production he reinvests especially in the 924 944 line they even refreshed it a third time to the 968 i mean same basic car yeah like they're investing resources in this car and at the you probably have 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.
Right. And so relative to the Asian currencies in the US.
So it became, I don't know, call it $10,000, $20,000 cheaper to buy an equivalent entry-level sports car from a Japanese manufacturer. And it just so happened that at this time, you know, 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 starts to show up, the Toyota Supra, you know, 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, starting to enter consciousness here. You know, this is pre-Fast and the Furious, but not that pre-Fast and the Furious.
All those, you know, Japanese cars that, like, you know, that got tuned up, the Supras especially. Yeah.
This is that area. They were all starting, just starting to come in then and starting to blow up.
And they offered, just as they do today, this great value proposition of, like, big power for not as much money. And, again, the 911 isn't threatened by this.
Right. But the 944, 968, hell yeah, is threatened by this.

Like nobody's buying those anymore. 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.

It only makes things even more confusing.

And then there was the 928, which was the front engine V8, like flagship car. That nobody wanted.
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, Porsche's never named cars well, even now. But like, yeah, at the time you had, again, you had to like 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. Right.
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.
Huh. 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.
Like almost zero. And I believe also at that time, they didn't have any debt.
So like truly like 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, which is so insane to me.
They dipped in 91, 92 to 4,100 units. That was worse than 1965 sales.
They had routinely sold between 13,000 and 30,000 cars a year throughout the 60s, 70s, 80s. 13,000 and 30,000.
And in the U.S. at 92,000, 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

Schutz 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 this were a normal acquired episode, we would just skip, but we've got Doug.
The 959 comes out at this point in time. 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 testbed 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.
So they built a sedan for Mercedes.

That's in the Porsche factory in Zuffenhausen 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

I brought it up. 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 you to compete with our cars as a coupe, you know, a sports car. So we build it 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, the 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 Stuttgart, at Zuffenhausen.
So when you say- So they're just mortgaging the brand. They were desperate.
They were completely desperate. So when you mentioned like the Porsche-Mercedes-Benz relationship, that 500E 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 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 going.
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.
Yeah. Like when you have union contracts, maybe this was part of the circumstance.
You have union contracts, you get to pay these people, whatever.

You're not going to make money,

but like, we're doing it.

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

Thank you. 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 zero. And not that long ago.
Not that long ago. That's what's crazy.
It wasn't like this was in the 50s. Like, we were alive.
This was real stuff. All right, listeners.
It is time to talk about one of our favorite companies, Statsig. It's funny, David.
Statsig has gone from this little startup when we first started working with them a couple of years ago to this total powerhouse now.

I know, it's wild. I was looking it up and they have added all these customers since we started

working together. OpenAI, Figma, Atlassian, Vercel, Notion, tons more.
At this point,

if there's a growth stage tech company out there, there's pretty good chance they're using Statsig.

Yep. So listeners, if you are unfamiliar with Statsig, they basically took what was the

Thank you. more.
At this point, if there's a growth stage tech company out there, there's pretty good chance they're using Statsig. Yep.
So listeners, if you are unfamiliar with Statsig, they basically took what was the standard product infrastructure at every big tech company, and they built it as a standalone company. This includes advanced experimentation tools, A-B testing, feature flags, product analytics, session replays, and more.
So if you're building the next great software company, this sort of infrastructure is essential because it allows your product and engineering teams to release things quickly, measure the impact of them, and track progress over time. Totally.
So, I mean, as we've talked about on the show forever at companies like Facebook or Netflix, data was just a part of how everything was built, which contributed to all the crazy bottoms-up organic growth that they had. Now with Statsig, you can get that from day one at your startup.
And today, they're not only trusted by startups, but also by more mature enterprises like Bloomberg and Microsoft and Electronic Arts. Turns out that a single system for data-driven product decisions is useful at any scale.
Yeah. And by the way, the scale they're operating at is completely insane.
They process over 2 trillion events per day now. By the way, David, this is updated.
The last I checked it was 1 trillion. And then this morning I pulled it up 2 trillion.
And they handle releases to billions of end users. If you're listening to this podcast and you've used software in the last few years, there is a very good chance you've been a part of many experiments orchestrated by Statsig.
Yeah, it's just awesome. And as they've gone upmarket, they've also started to offer some interesting deployment models, like being able to run the whole thing natively inside your existing data warehouse or just using Statsig's fully hosted solution.
If you want to leverage Statsig to grow your business, there are a bunch of great ways to get started. Statsig has a very generous free tier for small companies, a startup program with a billion free events that's $50,000 in value, and significant discounts for enterprise customers.
To get started, go to statsig.com slash acquired and just tell them that Ben and David sent you. Thank you, Statsig.
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 their 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 911 in this year.
I really loved this paint. You can pay them something like $15,000 for your Porsche to be in that particular color.
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 grand for a color, people are like falling all over themselves to do it.
Yeah, 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 911 is.
You mentioned earlier they don't really change it that much from 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 Portia 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 wanted a 911 guess 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, you know, 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 Portia's in this tailspin. The two eras that happen next are both equally amazing.
So in 1993, a guy named Wendelin Wiedeking 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 Furmanera 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.
Remember, Porsche's bleeding cash. Being more efficient and more profitable in your operations for whatever cars you can sell is pretty important.
He's 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, what's your strategy for an entry-level Porsche? And he says, Porsche's 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 356. Like, this is kind of crazy.
Also, what kind of company makes one product? Right. Like, I mean, seriously, 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 Guida King was like, I am a cost cutter and I will cost everything down.
Like, much. 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 in its survival.
I think 9-11 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 9-11? 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, you know, 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, per se.
No, it is. The Boxster was a full convertible.
Yeah, yeah, yeah. It's also important to point out, the interiors were almost entirely shared as well.
The interiors were, yeah, like the like the steering wheel and like... 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 a Boxster.
The seat is right up against the... But they shared everything.
Ah, interesting. So, Doug, what 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 Wittekind'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? And 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 f, the same, you know, headlights and hood.
And also from a production and profitability and operations 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 more of a muscle car.

Is it fair to say that then, and I think maybe even especially now with the Boxster and the Cayman, the Cayman is the hardtop model 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 know, arguably it was the correct place for it. It felt like a true Porsche sports car.
For the first time, Porsche's, you know, entry-level car felt like that in decades. Yeah.
So, Vita King has this awesome quote about the strategy for this. We didn't want to flee from the competition into higher prices, meaning like not be in 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 Vita King 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 Vita King, 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 car guy,

but I just remember people being like,

Porsche's 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 me.
Yeah, the Macan looks really good. The new Cayennes look great, too, honestly, ever since they redesigned it in 2011.
But those early Cayennes, you see them now and you're

like, still ugly. It also just doesn't

look like a Porsche to me. 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 the

1998 model year called the M-Class.

That was a revolution. And they built it in America, which was a really big revolution.
BMW came out the X5 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 X5 actually had to be sporty, and it was like, oh, so not only can luxury brands build SUVs, but they're sporty. So Porsche comes out in No.3.
I mean, they beat Audi. Audi didn't come out with an SUV until No.7.
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, when I worked there talking to some of these people about the early Cayens, 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 were only building sports cars, and they had no concept of what people would want.
The early Cayens had an optional spare tire on the back

like Jeep Wranglers do.

You couldn't get that.

Part of this was a cultural German thing for sure,

but not understanding America.

But I don't think anybody understood.

I don't think there were any super expensive SUVs

on the market at the time.

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 up with an SUV that is both amazing on-road and off-road. And the early Cayennes actually have an unbelievable off-road capability.
They have a two-speed transfer case. They can go on 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 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 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 $100,000 on an SUV. Right.
This was before the days of an Escalade even. Cayenne came out in 03.
Escalade came out in 99. So the Escalade was a hit.
But Escalades were like 40, 50 grand, right? And at that time, they were just Tahos that looked nice. Now Escalade has become a real thing.
But at that time, it wasn't, Porsche was really pushing into some new territory. Like, it was a crazy decision.
And SUVs were becoming so important in America that 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 $100,000 on? Boom. 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 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 because 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 993, 911,

and then also done the SUV,

which they partner with Volkswagen

with Ferdinand Pietsch.

It kind of makes peace between the two companies.

So Pietsch 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.
The Carrot GT. At the same production facility.
That's right. They were built in the same place.
And you know, 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, reinvesting the performance, like you said. And so they used this new factory that Cayenne 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.
The Carrera GT. Okay, we've alluded to this amazing machine behind us.
Like, 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, you know, 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 9-11 engine that Ferdinand Pietsch designed 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. Like to get a Le Mans or Formula One engine homologated for road use is just like mind blowing.
So that's the cool thing. And this car has, it originally came out, you know, in this era and was thought of as 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 feel.
You know, 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, like, this is something that you need to be really know what you're doing to operate this thing. You can't, like, 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. You know, a new Audi RS3, which is just an Audi, high-performance Audi sedan that you can buy for $65,000, $70,000.
It's faster than this car, zero to 60. Like, it's not that crazy by modern standards, but at the time, it certainly was something.
Yeah. But I guess, like, today, cars, like, there's so much stuff, technology in cars that is designed to keep you from, like, doing stupid stuff.
And that, this car was kind of the end of that era, and I think that's why it's why it's so special it was like the last of these cars that really you could get into trouble and and paul walker died in one um and there were some other deaths too that weren't quite as high profile but there were some serious um accidents and some people died and i'm and and maybe still will you know i don't it's it's still out there and it's still a 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. Yeah.
I think that car people had always known the car had kind of this reputation. There were like 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, like 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 $250,000 all day long.
And now they don't exist under a million dollars. It's a crazy thing.
Should have all invested in Carrera GTs. Would have bought Apple stock or Carrera GT.
Carrera GT would be a lot more fun to own. 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 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 yeah and to do it on the same production line as it also had that effect it also helped legitimize that facility because up until that point except for the ones built in austria all the porsches had been built in stuttgart in zufenhausen in that factory, that same helped legitimize that facility.
Because up until that point, except for the ones built in Austria, all the Porsches had been built in Stuttgart, in Zuffenhausen, 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 sort of told you, no, we're still Louis Vuitton.
We just have this other

way to be a part of our brand. Right, 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 like incredibly bold plan and turnaround and success by Wittekig, I mean, 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 like help once they scraped that bottom of whatever it was, 400 million dollar cap? Nope.
Portia 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 that right? Did you say 300 million to 32 billion? Yes, that is a hundred X market cap growth in a decade.
Occasionally there are these hundred baggers available in the public markets. And like, you only know about them looking backwards, but like, it's crazy.
You don't have to be an early stage venture capitalist to find these. They exist elsewhere.
And it was Portia of all things. Of all.
I suspect in most of these cases, though, to take advantage of it, you would have had to have kind of been insane. Like, to have invested in Porsche at that point, you would have been nuts.
I told a person in 1993, hey, this guy's coming in. He's gonna 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? Like, where do I sell? Especially because he was the fourth CEO or whatever. It wouldn't have, I don't want to be any part of that.
Clutching at straws, it would seem. It's like buying Amazon in 2001 or 2002 when things looked the absolute bleakest.
Like, that's how you could have gotten 100 bagger in the public markets. Maybe even 1,000 at this point.
But like, 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. And China was starting to take off at this time too.
So the final sort of chapter to the Vita King era on the product production side was the Panamera. The sedan, Porsche makes a sedan.
Now, Doug, I'm curious your thoughts on the Panamera. I'd always also been like, Porsche made a sedan.
It's kind of weird. It looks kind of 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 have grown in Asia. At the time, though, I think they just, they had an SUV, they had done that.
So it was like, all right, you know, 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.
Don't you think? I mean, I think they looked at it and said, holy crap, Boxster made us a ton of money, 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 like go after, you know, 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 Kaya.
And honestly, it would have worked and did work. It was not what brought down the company.
Not at all. You think if you were naively following along, you might think, and then they got too big for their britches.

And, you know, they expanded the product strategy too much and the brand came crashing.

Like, no, no, no. Like 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 Vita King, 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 Vita King. And they were looking to recruit him to be the successor to Ferdinand Pietsch.
We're now in... Worked the first time to pull the best guy over at Porsche over.
Let's do it again. So I think Ferdinand Pietsch took over as CEO of the whole VW group, I believe in the same year that Vita King 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 Vita King gets rumors of it. Vita King'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, billion, you know, it's cool. Billion dollar 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.
Remember though, Ferdinand Pietsch is chairman and CEO of Volkswagen Group. He's also a PS.
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-Pietsch family has voting shares in Porsche.
Yes. And he's on the board, the supervisory board of Porsche.
So they thought they were done with the family drama here. It turns out 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 to the public and probably also to the families, Vita King positions this as like, hey, we're deepening the partnership.
They don't announce like, hey, I'm trying to take over VW out of my seat at Porsche. September 2005, Porsche spends $4 billion to acquire 20% of the VW group on the open market.
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 Arnault 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 a law on the books in German law called the Volkswagen law. Oh yeah, 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 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 would be illegal under new EU regulations.

In 2007, Wittgen creates a new separately publicly traded holding company for the family's ownership of Porsche.

So there's still the Porsche operating company,

the old doctor, engineer, you know,

AG operating company.

There's now a new holding company

that owns 100% of the operating company

and the VW shares that they've been acquiring.

And this is Porsche SE.

Porsche SE.

Porsche SE holding.

And here's where things start to go awry. Vita King 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 Pietsch signing off on this.
Right, like, why would Pietsch

go along with this?

I think

the best as I could figure out

is that Pietsch

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

Vida King, too.

So, like,

he was benefiting

from this, too.

Right, yeah.

He was gonna have his cake and eat it, too, I I guess. Head's eye win, tails 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, you know, PS 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, you know, 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 like 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, you know, this is the black swan event that Vita

King couldn't have predicted. Like he's not dumb.
He knew he was taking risks here, but like, yeah,

Thank you. Which this is, you know, this is the Black Swan event that Vita King couldn't have predicted.
Like, he's not dumb. He knew he was taking risks here.
But like, yeah. 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 share price is 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 this is like an artificial price. It's just because of the short squeeze that it's that high.
So Porsche now is 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 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, Piesch, 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 Vita King.
So he and Volkswagen announce publicly to the market that they no longer believe that Porsche is a financially viable entity. As a deep trusted partner of Porsche's, we believe.
And they say that they have to say this because Porsche is a greater than 50% owner of V they, you know, 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, you know three to four billion euros to get them out of this predicament.
Wait, and then 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. Yes.
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, Porsche, 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. You know, 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 I mean, he kind of deserves, even though like all of this craziness, he did go a bridge too far.
Like he did save the company. VW does end up buying Porsche, the operating company in two tranches over three years.
They buy 50% upfront 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 Pietsch 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 $8.5 billion to buy Porsche. So the families own 50% of VW, and they just got $8.5 billion for Porsche.
So they already were pretty high up there in the rankings. But after this transaction, they are now in the top, call it, 15 wealthiest families in the world.
Oh my god. So post both tranches

after

port 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 $8.5 billion 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. Porsche, the business, it's fine.
The drama is all around Porsche, the hedge fund, you know, and the financial shenanigans, um, and the families, the actual operating business, the cars sales are fine. Porsche has one down sales year, only one during the financial crisis.
Um, and then everything else is, is up. A big part of that is the investment in China.
Uh, 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 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 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 cheap 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.
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 $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.
Ben, 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.
Even if you figure the base price was like $900,000, they made $918,000, 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 cost and all that.
Yeah. 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, that hybrids and electric cars were going to be a thing. And so instead of introducing that with a SUV, for example, which is where they should have, right? Because that's where the market wants it.
They said, no, we're going to do it with 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 an electric component, but it also still had a massive V8 in it that had a zillion horsepower and it was screaming and all that.

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, like, no one's really sure how that's going to age.

Those are going to be orphaned cars.

Orphaned, multi-million 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 like this car is already almost 20 years old, all the parts are still available.
That's the smart brand thing. It is the smart brand thing to do, but it's not easy.
Like if you really think about it, plus Ferrari, they don't need to, they don't care. They can make the next one and the next one because 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 all that 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 to but in his pursuit of racing had like driven the company into financial it wasn't his pursuit of you know 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 yeah but um yeah that was a real bad situation also none of those companies are independent anymore it's not 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.

Okay, listeners. Now is a

Thank you. standards because all their cars are kind of inefficient.
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Yeah, okay. Well, great.
So this is perfect to wrap up on the history of Porsche 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. Okay.
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 a Porsche, 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, it's everything is now just spread across all these brands.
This is 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 and, you know, engineering, small team culture.
But to operate today within the content, you have to be part of this. So the Macon's a big hit.
And then we just alluded to it with the Taycan, the Mission E is the concept that they introduced in 2015. So pretty early.
I guess the Tesla Model S came out 2013, 2012? 2012, 2012 model year. So Porsche was pretty early with the concept for Mission E.
Yeah. Not everybody was sure that was going to catch on.
Electric vehicles, I don't know. I don't know.
And a lot of people were slow as a result. Yeah.
In fact, like entire nations were. Like Japan is five years behind everyone in electrics.
It's the weirdest thing. It's like they just like 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 started, just came out with their first electric car like yesterday.
Like I'm not exaggerating. It was like eight weeks ago.
Wow. We got to talk about that another day on Acquired.
Like how did that happen?? I mean, they were the- How did that happen? 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 Porsche, 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 Porsche.
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 Porsche made a mistake.
Yeah. But relative to the other traditional auto manufacturers, I get the sense, Porsche, you got to be in the top tier of best best positioned for an electric feature yeah yeah no absolutely and and they'll continue to innovate there's an electric Macan is coming soon so they say and so it'll be fine um and Taycan I mean one could argue that Porsche needs to come out with an electric sporty car first because they need to if you come out with electric SUVs that's your first one it's like eh no plans for an electric 911, right? I mean, that's what they would tell you if you asked them.
That's what they would say. But let's be honest here.
Like, 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 an know an all electric one i haven't driven in a tycon 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 tycon 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 performant 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 look like this, and they'll only make $1,000, and it'll cost $2 million, and it will be fully electric and do 0-60 in one and a half seconds and even more ridiculous. Yeah, but what are the performance characteristics of the next generation of supercars going to look like? Humans can't 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? This car is now not that fast by modern standards. So you start to look for other things that make them special, which is the feel, the sound, etc.
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 0 to 60 in like 3.2 seconds.
It's faster than a carer 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 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 0-16 in three seconds.
Right so, I don't know. It'll be interesting to see how the sports car responds.
Well, so that brings us to today, or I guess more accurately last fall, September 2022, when VW Group re-IPO'd 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, 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 when you look at the financials

and you understand like,

okay, they have incredible margins

relative to 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. Purportedly.
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 Taycan, there's an Audi version of the Taycan called the e-tron GT. How do you, you know, 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, right? 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, the family holding 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. Yeah, there you go.
You share production facilities and you share distribution and you share a CEO and you share components.

And you like, at what point, in what way are these separate companies? Right. I guess Vita King was right.
He was right in everything that he was doing. He just, he didn't win the Game of Thrones.
Right. 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 Taycan, 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.
Yeah. 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, you know, all of Europe together would be bigger than China, but Germans.
One of the interesting things is, you know, the Chinese only buy four doors. They only want four-door cars.
There's almost no, 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, like, they don't, it's almost's almost none as sports car sales in China. Wow.
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 client. Right.
Wow. Yeah, I mean, we're used to it now, but I remember the first time I was seeing Porsche SUVs.
It's 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.
They delivered 80,000 cars. 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 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, it really is, it's Louis Vuitton. Like, they make a, 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.
Yeah. And I think that this whole time, while researching, I just had 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 luxury, 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 like get under the radar of the people who buy the sports cars. And the sports cars have this, still have this elevated viewpoint, even though you can actually go to a Porsche dealer and lease them a con for, I don't know, $750 a month, whatever it is, you know? Right.
Right. On the scale thing, though, there is another order of magnitude up, and these other brands do feel much cheaper.
So at around $2.5 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-toity-ness 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, it's like skating under the radar where they are able to make a lot of suvs and still maintain right what they have and the question is for how long right or or at what scale at what like at what if it doubled again like it's interesting about bmw because if you think about if you saw porsches as often as you saw bmws would it be special of course the answer is no so what...
What do you think the average selling price of a Ferrari is across all their...

$250,000.

$330,000.

That's insane.

That is insane.

3X's. 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? Like, they're not really. Right.
These are two very different beasts. Yeah.
And it's fair to be like, are you a 911 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 hyper car. The 911s.
Yeah, just the real sports car. The stock ticker is P911.
Is it really? Yeah, in Germany. Man, that's crazy.
Ferrari's 330, you said? Ferrari's average selling price is $330,000. $330,000.
It's interesting, right? Like, I mean, you're Doug DeMiro. You own a Carrera GT.
You don't own a Macan. Yeah.
Well, yeah, I mean, I... But they're cool.
I mean, I would get one. I'd 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 things of that name brand

on a daily... My wife would never

be seen in a Porsche.

Do you know what I mean? It's the funniest thing, because

David, my closest friends,

drives a Porsche McCann, 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 saying,

oh, I hate being seen in this 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 a,

you're a connoisseur.

If you have a,

a sports,

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a sports, a sports, a sports, a sports, a connoisseur, if you have a sports car. If you buy the SUV, it's like, that could be, I love them, by the way.
They're awesome cars. It just doesn't offer me.
Right, it's like getting the Masters logo embroidered on your golf clubs. It's like, okay, I know you didn't play in the Masters, but like.

Okay, that's cool.

Right, that's exactly how I look at it.

Like, okay, that's fine,

but I'm going to stay kind of low key in my normal life.

What do you think I drive?

It's got a Model 3.

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 problem is, it's got a model three that's a good guess that's what david drives and that's probably what i would uh uh mazda cx5 oh yeah okay yeah those are good cars the porsche mccann of the uh mainstream content it's the japanese porsche mccann if you ask 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 uh okay so more uh back to porsche uh 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 Porsche's, 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 is 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 it. That'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's still charging like two grand to put Apple CarPlay as an option in their cars. I am dead serious.
Like heated seats are like 800 bucks extra in Ferraris. You get the idea.
Yeah. A 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.
Like at some point there, there is some sensitivity to like, you can't just make every Ferrari cost $8 million because like 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 mark it 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 sort of 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 sort of wondered in the back of my mind, has Bernard Arnault and LVMH ever made a run at any of these luxury auto companies.

And if they have not, maybe this is the reason why.

They're just in a better business.

Yeah.

Card businesses, it's a lot of stuff.

It's a lot of stuff. It's a different business and it's a lot.

Distribution's 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. Yeah.
It's craftsmen. Man, 68%.
Yeah. So if I were to guess, I would say maybe Bernard Arnault has kicked the tires on like Ferrari, Lamborghini, but more on like licensing agreements than trying to own those businesses.
Cause I just don't think it actually works into the rest of the flywheel in the same way. Like you gotta own a factory that makes these cars.
You gotta do all the R&D. Plus scalability is harder.
And you alluded to the dealerships and the distribution. Distribution's 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 competitors. 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's 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, you know, 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 here. Yeah, the big one.
I suspect that the German engineering thing also plays a role. Like I think, now, not against BMW and Mercedes-Benz, but certainly against like the Japanese.
I'm sure their margins are much, much higher than the Acuras and the Lexuses of the world. And even though when you really look at at it on paper it doesn't make sense there's

there is some level of like this is a 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 you know and does that i think for a long time that expressed itself in reliability of Porsches 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 decisions to buy 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 like quality that you just feel. I mean, it's certainly true.
So you get a BMW or Mercedes-Benz and it's just not as nice. It's not the same.
Like you have this feel. It's certainly more special.
There's a specialness to it. Okay.
So moving through them, branding. Yes, obviously.
Like, 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. Like there's, there are, they're not making any more.

It's like literally a fine wine. willing to pay extra margin dollars for it.
So that's the obvious one. And you can't manufacture it either.
No. Like there's, there are, they're not making any more heritage automotive brands.
Right. They are.
They're just going to take 75 years. Right.
Maybe. I mean, like the, 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. Like, there's another thing.
I think that's myopic to think that, like, 75 years from now, people won't obsessively care that some new brand was forged in the 2020s that had some other genie-saquois about it that's like the equivalent of racing versus production cars. You could imagine at some point Tesla's 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 emotional attachment to any of those cars, even the older ones. I don't know.
Hmm. 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 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 favorites? Well, the most 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 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 um that i'm thinking of is nobody's perfect my favorite that ad was great i had one for my 996 turbo that i owned at 9 11 years ago and i had it framed and it said calling it transportation is reproduction. Yes.
Which is a great example of no other luxury brand would touch that. But that, 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's just Porsche, Porsche, Porsche, Porsche, Porsche. Like number eight.
And that is Porsche, Porsche. Nobody's perfect.
So good. 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 there's this really interesting thing where like, Doug, you're going to laugh.

My car before the Mazda CX-5 was a Honda CR-V.

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 and everything.

Yeah.

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 really no benefit to you own a Porsche, therefore I own a Porsche, and I get value out of you owning a Porsche.
It's not particularly a thing, other than we can go to cars and coffee together. Right.
Process power. is probably where i would slot german engineering uh 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 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 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 I mean, Porsche has invested billions in racing.
In all sorts of racing. But it's not like there's like software competitions out there that, you know, you could enter your software in to like build your brand prestige.

Yeah. Like they spend...
expensive showcase where you have to go build a completely different product line in order to- You know what is like this?

Is the athletic apparel industry and Nike.

Yeah.

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 rolled 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. Right.
It gets back to the 40-50 year sales cycle with this too. Right.
Everybody dreams. I mean, it's your whole life.
You dream. You 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, like they didn't pay you much, but you got to drive a 911 and that was like the coolest freaking thing.
And everybody wanted to work there. We get unsolicitedited resumes all the time, blah, blah, blah.
And like, pay wasn't great. But like, it had that name, you know, I worked for Porsche, that's so cool.
And just being a part of it and then yeah, 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.
So we are going to give Portia a Doug score. And it's an acquired, adjusted Doug score.
It's, you know, 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 a business.

No, not really.

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 of Sort of closing your eyes to where they're trading today because you always have to evaluate entry price and all that. Yes.
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.
That's actually my whole bull case. Yep.
So I think there's 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 in 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 have one 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 Macandas.
a ton. 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. Yeah.
Q5 buyers. Yeah, totally.
Ferrari really isn't a league of its

own, though. The broader universe of BMW, Mercedes, all the Japanese brands, Tesla, etc.

In America, Ford, you know, all the Ford brands, the Chevy brands. I think Porsche is very well positioned.
I'd rather own Porsche in a recession than almost any other car company in the world. There's also this other thing of like, you alluded to the colors, the money they're charging for colors.
They've done this, they've perfected this with so many options and people are just paying it and paying it and paying it. And it's no end to, like, what Porsche can kind of fleece their customers for.
And 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, like, perfect way.
And that is obviously big margin stuff for them. Yeah.
So, I'm seven. You're seven.
I think we're a pretty unified setting. Seven? Yeah seven yeah seven out of ten yep uh next is profitability quite quite strong for the automotive industry yeah very strong um not strong relative to the technology industry and software or apple that's right we didn't say that earlier but uh porsche is a 29's a 43% gross margin.
Right. And I believe Porsche's operating margins are in the high teens, low 20s.
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 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.

I like this.

Five feels like a good score, and 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's so true just happens to make cars so i am giving um uh because cars you cannot give a 10 9 8 7 or 6 i am going to give porsche a 5 right in terms of profitability yeah right that makes sense what's the last one defensibility. Yeah.
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? Like, 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 sort of 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's 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 isn't Ferrari. It doesn't have that brand equity that Ferrari does, but it's got more than you'd think.
And it's especially got more than you'd 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? And like, the fact that Porsche gets to be in that conversation.
That question is being asked. Right.
It's insane. Nobody's asking, are you a Lexus person? It's like they're getting away with murder by being lumped in right there.
Right. Somehow they're able to both produce an SUV that gets them 350,000 units annually.
Yes. But also mention breath as ferrari in terms of like enthusiasts

i'm like literally a 10 out of 10 on this because i think this is a thing that i still

don't really understand how they executed this so well and they've done it better than any other

company in the world right right it's probably true they went from making the 911 the everyday

supercar to now they're like an everyday supercar company right they have a whole gradient of

Thank you. They went from making the 911, the everyday supercar, to now they're like an everyday supercar company.
Right. They have a whole gradient of everyday supercars that you can buy, but they're all everyday supercars.
And yet people still dream. It's crazy.
I agree. I completely agree.
And 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's amazing.
Like you said, it's amazing they pulled it off. I think that's right.
So, 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 don't think so.
Nothing that they would realistically do. I mean...
Okay, let's say, you know, 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. Right.
Gucci is always going to be valuable. The regular individual still has this thought of Gucci as like holy crap.
You can never completely eradicate it. And I think Portia is the same thing.
Once a brand gets to a certain level, is it even possible to kill? I don't think so. And once you reach that level, that's when you have real brand power.
Yeah. And I think Porsche is at that level.
Because let's 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 there.
Yeah.

Alright, 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

is pretty good.

Your highest Doug score ever is 72 or 74

or something like that.

Somewhere in that range.

Yeah, out of 100.

You can't get any better than that.

So Porsche is at the top. 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? It's like Airbnb for amenities at resorts.
Oh, this is awesome. 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.
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 up front.
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, a many amenities of the resort. Dude, you've been holding out on me.
So Jenny and I do this. 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 get. Is there a day bed? Oh, hey.
Yeah, or we'll book a massage at the spa. And be like, oh, and then with the massage, you get the like'm just analog resort pass over there you're like the carrera gt of resort pass oh 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 oh rabbit hole yeah 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, naively for me coming in, Jason Alexander is by far the best interviewers of all time.
And he did a bunch of interviews with all four of them. Surprisingly, naively for me coming in, Jason Alexander is by far the best interviewer.
He is so articulate. Like, incredible.
If you see him interviewed anywhere or talking, talk anywhere like contemporaneously, extemporaneously, he is pretty legit. Yeah.
He is, you would never know because he's so different than the George character. Yeah, yeah.
So different. So, he's the exact opposite.
He's the biggest difference of all of them, for sure. The biggest difference.
Have you seen that bit on Curb? No. On Curb Your Enthusiasm, there's this whole arc of the show about how 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 because it's based on him.
Oh, that's so great. I should have said five.
Larry David is in this compilation of 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.
I need to. 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 the thing that went viral like on Twitter and elsewhere of the 20-foot-tall wagon wheels? He, like, has done that. He bought a Ferrari and put it in one of those, like, bubbles that, like, boomers put inside their garages.
And then he just started throwing stuff at it, like a ladder and, like, an axe 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.
He got a Chevy pickup with tires so big that he was able to drive it out into a bay in Florida. Oh my God.
He's the Mr. Beast of the car.
He's the Mr. Beast of the car world.
Sort of. 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 channel'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. I'm 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. What? That's a good episode.
I highly recommend it. Oh, I got to watch that.
This is all all just like trash tv but it is so good to watch so highly recommend love 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 right and then like've talked about this a lot, that, like, you feel, 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. Right, I feel bad for all these guys now.
Whistling Diesel's out there, dropping G-Wagons through houses. Oh, gosh.
It's a different thing. But highly recommended.
It's great content. That's actually a great...
Doug, we have not talked about everything that you do. Give us a little bit of insight.
And I think, David, we're going to do an interview together as a separate episode. But 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 YouTube videos.
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 um just doug de muro and then i also run an automotive like a car auction website for enthusiast cars called cars and bids um 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, you know, Porsches and BMWs and things of that variety. You know, 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 churning group.

One of the best investors in marketplace and content businesses out there uh incredibly impressive thank you for spending so much time with us doing this collab great this has been super fun it's it's really rare that um 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. I don't think there's anybody else we could have done this with.
Maybe Vieteking himself. He would be a little biased, I think.
It's the bias that you got to worry about. Yeah, yeah.
Totally imagine. Yeah, so thank you.
Doug, 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, ACQ2, 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 Avila 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 bi-monthly 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