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, but 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? Sitting down, saying straight Another story on the way
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 DeMiro.
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. Right. 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 Albert Einstein. These are all German and Austrian scientists. This tradition extends also, of course, to the auto industry. It is very likely that the first gas-powered transportation vehicle, this looked more like a tricycle than a car, but
predecessor of a car, was created by a German inventor in 1864 named Siegfried Marcus. And I say probably because nobody really knows because Marcus was Jewish and the Nazis destroyed all records related to him during the war. We're going to talk a lot about the Nazis here.
In a minute. Either way, though, Germany definitely did create the first successful production consumer automobile. It was a vehicle called the Benz patent motor wagon, and that was made in 1885 by Carl Benz.
I recognize that name bends. 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. 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 causa, Ferdinand Porsche.
Now the whole doctor, engineer, honoris, cause a thing. It's a bit of a red herring, although Portia, 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 doctor Portia is like, doctor like the Seuss doctor.
Well, he had an honorary doctor. He was already doing stuff, though. He was engineering and creating. Yes. Hence the honorary doctorate. Yes. Nonetheless, he definitely was a badass engineer. We're going to talk about all of the amazing things that this guy creates.
But we also got to state this up front, and this is as good 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. Ferdinand himself not just was a Nazi, but was a very close personal associate of Adolf Hitler. He was a member of the SS.
And we're going to glorify him and many of these other folks here of their business and engineering contributions, but that doesn't mean that these are good people. So keep that in mind. Yeah, this isn't like one of those people that you hear, oh, well, at that point in time, the Nazis were so big and powerful, they just got coerced or they collaborated. It's like,
No, this dude was always a buddy. Real big Nazi. Yeah, he was definitely an 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.
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 that he is running the engineering and the car design for Mercedes-Benz. While he is there towards the end of his time, we're getting into the lead up to World War II, he comes up with a concept. He thinks that he can produce a small, affordable car that can really become the first German and European mass market.
automobile. Now back in the US, there was the Model T in Henry Ford that existed. But Ferdinand's vision is a small car. The Model T was a large car. Like a modern, small automobile that Germans everywhere can buy.
which was important because in Germany in that time, car ownership was not anywhere near as big as it was in the United States. Apparently only 2% of Germans owned a car versus 30% of Americans by the 1930s. And so mobilizing Germans was not something that had happened in mass at that point. So this really was a challenge to build a car that could be affordable enough for the average German person to buy it.
Indeed, it was a challenge because the board of Daimler-Benz rejects it. 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, Doug, you worked at Portia, you have content. I think to this day, the rivalry between Mercedes-Benz and Porsche, there's some bad blood there. It heats up and it cools down, and there's more to discuss on that in the future, for sure. But they ultimately do share that town, too. So there's rivalry, but you have beers with this. 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-Baddens, 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 Doctor, Engineer, Honoris, Causa, Ferdinand, Portia, Construction, Und, Burtungen, Fermotorren, Und, Farshenbau.
I apologize to any German speakers out there. That's true. But to be fair to you, it's a lot. It's a mouthful. I studied French in college. And that translates as the doctor, engineer, honorist, cause of 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 Porsche's.
Yeah. Wow. If you look up 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. 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 of 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 hadn't heard rumors over the years, like, oh yeah, there's like a Nazi connection here, like Adolph Hitler founded Volkswagen. Yeah, that's bigger than a connection. Yeah, there's not a connection because it's the same person. Right, it is, 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, there's some link between Mark Zuckerberg and Facebook.
I just gotta say, this early in the episode, we may as well point it out already, it is crazy how comfortable we all are driving Volkswagen's and Porsche's when it was not just a little Nazi-affiliated, founded by Nazis, and yet the way the world has evolved, people kind of became okay with it. All the German brands, most of them use Jewish labor in their factories at that time.
Obviously, very different people run the businesses now, and so you just kind of put it out of your mind. And generations have gone by. Also, less so on the Portia 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. Bring it to Adolf Hitler to get founded Volkswagen. 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 in latin america through a couple of years ago maybe two thousand three years 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 cars is clear you know today yeah and i am
I tried to think I could not think of any other model. I believe the beetle, the original beetle, was 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,
No time for the beetle, but like those are the same cars right the beat was the same freaking car until the new beetle in nineteen ninety interesting when you think about the people because young people today look at it is like a cute classic car. But like at the time.
It was what you drove to drive your family around and we'll talk more as we get to post war, but like in Germany at the time, it'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 den called the city of the strength through joy car. That was what they wanted to call the beetle originally. The strength through joy car. That was like a Nazi strength of joy. That would be much more German than that.
This is Wolfsburg. This is the city that Volkswagen is still located in today. Hitler created it. Not just Volkswagen, but the Volkswagen Group, one of the largest car conglomerates in the world that owns many other brands are 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 1, 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 note it happened. After the war, though, a whole bunch of really interesting stuff happens that basically
Fractures and separates out the Volkswagen operations from the Porsche operations for the next, the rest of the century and into the 21st century. So ironic, given that they are now one company again. First off, where are they? No, well, where are they? That's the question. And the funny thing is also, they danced around, even in this period and then in the decades after that, and then of course now, there was always flirting with each other. Yes.
So first on the Volkswagen side, I alluded to this a minute ago, it's a pretty amazing story. What happens? Because you would think like, there's no way you can't imagine that Volkswagen would survive post World War II, given what we now know is created by the guy, 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 orphaned organization. It's super unclear. There's no 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. 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 would operate. Their car industry is constant missed opportunities, but they literally looked at like the draw, you know, the models that they had few that they had built. And they said, nah, that is, 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. 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. Not as a tank, but not an armored beetle, but they're going to use it to drive officers and stuff around. From that seed order,
That is now the new Volkswagen. So it's like, yes, Hitler started it, but then Ivan Hurst. Yeah, totally. Now, one of the things that I find interesting about the Beetle is that each Europe was so war torn after World War II was all these places. We're in similar situations to Germany and that like the people needed to get back to work. They needed to be able to drive and go places. And each European country had their own Beetle. UK had the many. Italy had the Fiat 500. France had the Citroen II CV.
They all kind of looked similar. Wait, these are all based on the Beatles? No, no, no, but they all came from the post-war era where they needed something small and cheap to like re-mobilize the citizenry, basically. And so kind of each country developed, had their own car that did that for each country. But in Germany, of course, the Beatles became a global hit, whereas in those countries it was more
you know, in their era. Yeah, you don't see a lot of Citrians in. Yeah, no, but the two CV was a huge, huge car and the French, just like the Germans, needed to get back to work, needed to start building stuff again, and also needed a cheap car to like cruise around it. Yeah, super interesting. So that's Volkswagen, but put a pin in them. We'll come back to them in about 50 years. Because there's a lot more to say on Volkswagen. And 50 years, that's about how long they would make that one model of the Beetle.
Yes, the new Beetle would get introduced, I think, in 1998. And the first one's post-war remade in, like, 1940, it's so, yeah. Crazy, crazy. Isn't that wild? It's insane. Okay, so what about Porsche?
Well, they have a bit of a different path. So after the war. And we should say during the war, Ferdinand Porsche was designing tanks and other military trains. And design the elephant anti-tank tank, the most powerful land-based tank ever created. A, terrible, but B, like just the range of design talent that he had. Like he designed the beetle and he designed the largest anti-tank tank ever created.
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 also 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 Piesch 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
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 to your trip to prison. Out of war criminal prison. Yeah.
So Ferdinand's son, Ferry Porsche, who had been working in the business, I think a little bit before the war and then during the war too. He's also arrested for war crimes too at the end of the war. He gets released after six months in the summer of 1946, and he and his sister Louise are like,
What are we going to do? We got to rebuild the family. Are we going to restart the business? Let's go figure things out. They return to the family's ancestral home in Austria. 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 targeted by it, so that the Allied bombers wouldn't know where they are. This is pretty crazy. They are literally operating
out of a sawmill in a farming village in southern Austria named Gmoond. We're talking about a couple thousand people maybe that live in this area. David, are you getting all this from? I know you read $500 worth of textbooks on Porsche. There is this incredible history of Porsche called Excellence was expected.
that was written by Carl Ludwigson. We have to owe a big thank you to him for the research for this episode. This work is like the photos, the archive work that are in this volume. It's incredible. I read a coffee table book that was 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 a 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 a choir. Okay, so fairy and Louise,
go back to Austria. They're there in Gomun. They're like, well, what if we start a new company and see what we can do around here? There's some vehicles we can start fixing. This is literally the Sony story if you remember when Sony first got started in Tokyo at literally the same time, they started by fixing radios.
Porsche is a services business. The second Porsche company, Porsche Construction in GMBH, which is an Austrian company that they start to do this. They start up fixing old military vehicles that are around there in Austria. Unlike Sony in Tokyo, though, where there were a lot of radios in Tokyo, there weren't a lot of cars in good mood.
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 of Volkswagen.
But he always had one major problem with the Beetle, which was that it was slow. And it just was not fun to drive. So during the war, he actually had a custom Beetle made that he drove during the war with a supercharged engine. And a ferry said later in a 1972 interview, I saw that if you had enough power in a small car,
It is nicer to drive than if you have a big car, which is also overpowered. And it is more fun. On this basic idea, we started the first Porsche prototype to make the car lighter and to have an engine with more horsepower.
Doug, can you contextualize what a big moment in world history this is? Yeah, I mean, it's an interesting concept because sports cars in general weren't a thing that much. They were, and there's going to be people around and say, no, there were a lot of sports cars before, but it was really a thing of real enthusiast wealthy people, that sort of thing would buy cars to go motor racing in the air of brass era and that kind of stuff.
The concept of creating something more affordable, littler that was still fun, it was kind of an interesting idea that this was a touchstone of a concept that has really been taken by them and refined in others as well.
I went and researched it when I looked up, you know, some of those sports cars pre Porsche and you look at them and 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's this one Ferrari from that era, and I look at them like, how do you even steer this thing? It looks like a boat. The thought at the time really was, you want to go faster? More, more power, which of course creates 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 career 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 dug. What does it mean to supercharge a car?
An engine takes in air, and that's kind of air helps air mixes with the fuel, and it creates this combustion. More or less, that's how a combustion engine works. Supercharger pushes in even more air to create more power, basically. The term supercharge would be referring to takes the same engine, but adds this thing to force more power through to... It literally force more air in. I don't think turbos had been invented yet, and turbos would obviously become a big thing for portions 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 being produced as the car makes more power. It makes more power, if that makes any sense. It 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 like striving 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 Gomun, and we try and build a car that does that. Hey, it also turns out that we built the Beetle. We know how to work with the Beetle. There are a bunch of Beetle parts around. The Beetle was the main chassis platform for a lot of military vehicles for Germany during the war.
What if we take a lot of those parts and the basic architecture of the Beetle, which is a rear-mounted air-cooled engine on a small car, and we try and put some together here. And this becomes the legendary Porsche 356. For some context on this, you can buy an old Beetle today for
I don't know, $10, $15,000 at auction, maybe even a beetle, like a classic one from the 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 zillion needles. 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.
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 Camoon and then even when Portia 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 Faerie's vision for a small, fun, fast sports car. Initially, it was slow. It took them a while. The first couple of years, they only made 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 knew how to work them. But like post-World War II, there was a lot of optimism. In Britain, it was happening too. MG was coming out with their sports cars, Austin, Healy, Jaguar. These cars all kind of were born from this post-war period of like,
Hey, these cars have been refined to the point where we can use them and drive them and enjoy them. And that really became a thing. And in Germany, it was the 356. So that takes us to the late 40s here. They're starting to produce the 356 in Gomun. At the end of 1947, Ferdinand Porsche and Anton Piesch gave release from French prison. They come back to Austria. The family's all together and they kind of got to decide what to do here.
Right around that same time, Volkswagen is getting back up and running, Hirst is running it. It's like the vision they're going to make the beetle for Germany and for the world. They come back to the Porsches and they say, hey, we still want to do business with you.
And in fact, we actually want to expand the scope of our business with you guys even more than it was before the war, because we could still really use technical design consulting work and really leadership from you individual portions here at Volkswagen. I mean, after all, you designed the beetle to, though, now we're not a government organization in the same way anymore.
We need distribution, and you guys have this new Austrian Porsche company that you've set up. So how about this? They propose two things. One, they say, let's reinstate that old German Porsche company, the doctor, engineer, honoris, cause 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. This is how intertwined these two companies are. Sorry, the deal is we want your Austrian company to distribute our Volkswagen's and in order to coerce you to doing that. We're in the consulting work.
We also want the consulting work. Ben, you're on the right track. This is a hell of a sweetheart deal for the Porsche family. 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
It was very meaningful, very meaningful cash flow. And probably not even, at the time, not even clear just how amazing it would be. 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 Volkswagen, but for all types of automotive brands.
They're doing billions of annual revenue within a few years here. What an opportunity to be given a distribution network just as the car is starting to become a big thing. Exclusive distribution rights to Volkswagen's. They're in countries not just in Austria. They're all over the place. They're all over the place in Europe and even more incredibly. 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 retake over the 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 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,
It's only shareholders at this point in time were the German government. 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. They would IPO Volkswagen, I believe, in 1960 or 1961. Even though it was a company,
It was a German national company literally to operate in other states, other countries in Europe. They probably needed third parties. Yeah. Wow. Yeah, wow, right?
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What the hell? Why is the new Western-controlled West German post-Nazi government giving this deal of a lifetime to these former Nazis? 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. Here's what's going on. It actually, as crazy as it sounds, makes sense. We talked about a minute ago, the Iron Curtain and the Soviets.
It's 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. The Marshall Plan that people probably know about, this is why the Marshall Plan happened, and this is essentially part of this philosophy. 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-injected with steroids, so to speak, is like, hey, we got an existential threat next door, we gotta rebuild the industrial base.
Now, the deal that they give them does come with an implicit string attached, which is they basically say to Portia 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, they basically cap your income. Yeah, like people are complaining, they're like living California. Oh my gosh, 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 stuff. 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 basically saying to Portia and others,
Set all this up and we are going to create all the incentives such that you will plow all of the money, all these royalties we're giving you from the Beatles, et cetera, into building up your production capabilities and investing in R&D and new models, et cetera.
It sounds crazy on paper, but my god, it actually works. It works really freaking well. Do you think there was some guarantee that the tax rates would lower someday? Maybe. I think they did, but as we'll see, Porsche becomes pretty institutionalized there of don't take profits instead reinvest them in new models and R&D racing to the great benefit of the brand.
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 nother branch of the automotive industry. So here we're in the late 40s, early 50s.
Racing in this era doesn't look at all like it looks today. It hadn't professionalized yet. So the line between consumer 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
cars for racing for Lamont being the most famous race at the time, you know, in others around the world. It wasn't like, like, you look at an F1 car today or you look at a Lamont's car, like, like, there is no connection between that and something you can buy. And you or I would not be able to even operate it.
So a super obvious point to illustrate this is folks are probably, you know, no names like James Dean or Steve McQueen, these famous Hollywood actors that were known as like, you know, they did all these race car films. They were also professional race car drivers. Yeah. Professional as it were at the, in the time period. Yeah. They competed in like real race in addition to the bad days. I mentioned Brad Pitt, jumping into the Le Mans. Right.
Well, it 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. I mean, maybe you can say,
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 that in theory you could go and buy, but while the 356 was like the sports car that you could gentlemen race, the 550 Spyder was for people who like were really like, let's go racing and like do it. But like you said, you could, a person could walk into it that not a dealership necessarily, but like just order one. Yeah. But it is an absolute legend. It totally is. Yeah.
You see this trend, this moment where you see the bifurcation between anybody can do it and what the very best of the world looked 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 this, you know, playing on a local bar stage is flying a Cessna, and the machinery to do so is entirely different in the same way that you're talking about car racing splitting at this moment in the early 50s.
Yeah. So back to racing, we were talking about the spider a minute ago. I got so excited about James Dean, but Doug to your point, 356 is in 1951 and 1952, win their class at Lamonts. They don't win it outright. Like other bigger, powerful cars win it outright, but they win their engine classes at Lamonts. And these are, you know, yeah, they're modified a little bit, but like,
You basically buy them. 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. I think this was pretty unique to Porsches at the time. Certainly, you could go buy Ferraris and Ferraris competed and whatnot. But again, we're talking about the Ferraris were a different thing. These weren't 356s.
And I think they were probably also a lot more expensive than the $3,700 plus a 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, 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 I'm done with this crap. Whereas Porsche was selling, I mean, 356s were like being sold as a pretty good volume.
There's this great, great, great fairy 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 lemons, then to the theater, and then to the streets of New York,
And that's such a unique thing, especially in this era, like one car. And 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. You can drive it to work. You can actually take it on a racetrack. That has remained sort of an ether, whether or not it's constantly a north star for them. It is what they do more than anybody else. Yeah. I was trying to think of what the right kind of other luxury brand analogy is here to Porsche.
Definitely is a luxury brand. It's not like we're making apples and oranges here. It's kind of like a Rolex to me. Is that really good? What do you think? Yeah, absolutely. It's you buy those watches to wear them. You don't buy them to keep them in a case in Agalat. 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 in the luxury world like a remote suitcase.
Those aren't that expensive. They're three times four times more expensive than regular luggage, but like they're not a Louis Vuitton truck. Right. And so, but they're a lot more usable. You buy it to use it. It can kind of get a little beat up. That's why it's made out of stainless steel. Also, I think that's probably the right. I feel like it's not a Birkin bag. Like brands like this.
are so valuable. Because it has both the breadth and the depth. Like there are enough people who are like, I love Portia's because they're my cars. I can actually drive, but they are super cars. Yes. This thing behind us goes 200 miles an hour. Yeah.
This thing behind us is a little bit of a difference. And there have been, and we'll get to, and the 550 spiders, one of them, there have been some portions that kind of go one way or another in the philosophy, but like generally speaking, it's sort of a middle of the road, going back to Faerie's quote about this exact thing, can do all these things.
Yeah. Doug, one question for you. I'm going to keep going to you for terminology. David mentioned Lamont. What is that? Lamont 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. Lamont 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. So being able to win or win your class, Le Mans, the Monaco Grand Prix, the Super Bowl, if you will, of vehicles racing in that sort of race series. There's also this Porsche, I think, probably advanced this argument that
relative to the other races, it's closer to what you want for a all-around car that would also be a drivable car, because fuel efficiency matters. It's also a road race, so it's not on a racetrack. It's literally on the closed down roads in the French countryside and race on the road. There's some component of, instead of purpose building a car for a circuit, cows were using this road two days before. Totally.
So on the back of all this success and like James Dean and Steve McQueen and all this, as you would imagine, Portia's start to become quite popular in America. So in 1954, Portia, I don't think Ferdinand and Ferry envisioned like we're going to sell cars in America. This wasn't part of the business plan. But in 1954, Portia sells 588 cars in the US.
which was 40% of their entire production for the year. That 40% basically stays constant goes way up for a while in the 70s and 80s, but never dips below that. 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, by your point that they didn't really have America in the business plan. One thing to provide some context is important to keep in mind. The number of sports car start-ups happening in Europe at this time was significant, most of which listeners, viewers will never really heard of because they will die. These came out, they showed up, they raised a little, they sold some cars, they failed.
And that there were tons of these. There was no concept that Porsche would be more successful than any of, obviously the family hoped it would and it became that way. But so many families hoped there was wood 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 internationally. You're like, what can we invest in that? We're not sure if it's a ROI positive investment. We can be speculative because we know we got the money coming in. And beetle continues to be more and more and more popular. It only continues to embolden them to reinvest. 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... Right. 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's got the E type. Chevy comes out with the second generation Corvette, the Stingray. And all these are starting to show up all, yeah, Austin Hill, everything is like, okay, there's a lot of pressure.
Yeah. 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. Right. It was actually going to be the second model of Porsche. Wow.
I mean i feel that way every time i see a panamera drive by i'm like why does portion make this car but i see them driving by so that's why they make right china is why they make that we'll get to that later. So the next generation of horses fairies son fernand known as booty named for named after his grandfather counter of course.
I 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 them, but it was like, hey, you know, they've got their turf. We'll keep our turf in sports cars and everybody will be happy here. Anyway, they decide to cancel the project and double down on sports cars. At the same time, Ferdinand Porsche boots the grandson.
His cousin from the Austrian side of the family, Louise and Anton's son, also named Ferdinand, 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 many more about this history. I think he really was the one that led the development of the six-cylinder boxer engine for Porsche. Now, he didn't invent the six-cylinder boxer 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 failed projects that the next generation's working on. Let's weave them together, take the styling that Bootsy's done for the sedan, take this amazing engine that Ferdinand has built for the racing operations. Let's see what happens when we put them together. This is the birth of the Porsche 901. The 901.
What is that? Well, this is why I'm dug. I'm sure you do this. Oh, this is a famous, famous story. I had no idea. I think most people have no idea. The 9-11 is only called the 9-11 because Puzhou of all companies had a trademark in France for any car with a model name of
any number, any Roman number with a zero in the middle and then any other number. So X, zero X. And in fact, all Peugeot cars, even to this day, are named 205, 206, 207, 208. That's the 308, 408, 408, 508. And so they trademarked them all just knowing that eventually that would happen.
Unbelievable. I mean, it makes sense. Porsche is like, well, what do we do? We can't really not sell in France. France wasn't the biggest market, but it wasn't a small market for us. The story that I hear have heard about this is that they said, well, we got these badges that say 9-0-1. Why don't we do 9-1-1 because we have the 9 and the 1 already?
Hence the 911. Some of this may be more apocryphal than others. One of the things that I don't understand is why they wanted to call it 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. But did they really do 500 engineering projects between 356 and 901?
So a couple of details that I got on this from Excellence was expected. I believe, could be wrong on this, but I believe 901 was the name of the engine project that Ferdinand Piesch was working on. And I think, I think that's the origin of it. Two, yes, in Porsche lore, it's that like the reason these model numbers are like, these are the engineering projects when they start, but that's totally apocryphal. Like they jump around all the time. They jump around 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 in the company. So 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, you're sending your first invoice, you don't call it. 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. They're just 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 every car is they start to get redesigned as they get, you know, there's the years go on. They need newer models. They still call it the 911. They only distinguish the newer version from the older version is to call it by the project number, which is 964, 993, et cetera, et cetera. 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 9.11 say 9.11 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 to me, it's just so brilliant because
There is this tribe language to Porsches. If you see a 911, you know instantly that it's a 911. It is iconic. It's one of the most iconic designs in the world. And partly because they've essentially kept the shape the same for the sense this since 1962. Yeah. So pretty immediately like this car is a big hit.
um, 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 portrait production. They sell almost 13,000 cars in 66, which that's what would we say 10, 12 years ago. They only sold.
Yeah, forty percent of their thousand total. So they're now thirteen next in ten years and that number of almost thirteen thousand nine elevens they sell was fifteen percent more than their best year with only the three fifty sixes like Doug how would you characterize like what is what what makes the nine eleven so.
special. It's important to keep in mind at the time you didn't know, right? It was just like this thing, this sports car they had come up with. And again, there were a lot of sports cars and it was whatever. But of course, what has ended up happening is that this car has become symbolic of the sports car. And I think a lot of people would, if you were told to mention a sports car, they would say that I love it. 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 reliability, comfort, practicality, just like the 356 had been, but just better. It's my thinking. The flat six boxer engine, which was a great engine that Ferdinand Piesch designed to go in this first 911. There's something cool and unique to that. We've been talking about the difference between Porsches and other cars here. This is a performance engine, but it's
A six. Right. It's not an A and it's rear mountain. Right. So the 356 had a boxer four 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 a cross 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. It was part of that ethos of keep it relatively light, relatively simple, and 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. Now, the 356, the old 356,
It had four cylinders. And so now the 911 have six cylinders. And like you said, like it's not a world class powerful fast car, but it's it elevates the 356 into a much more like you can really achieve a lot more with this than you could the 356 is.
This becomes super important from a business side for Porsche because they price the 911 about 50% higher than they had the 356. Now, what they do at first, they realize this is going to create 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 9.11s. The profit margins, though, on the 9.11s are so much higher. So, Faerie starts thinking like, okay, and this is part of the plan all along, I think. Let's create a whole new model. The old 356, we're going to bifurcate it. Our performance
real enthusiast customers who are willing to spend and that we're going to make great margins on those models. That's going to be the 911.
Let's create a new car that can replace, can be the entry level Porsche will eventually introduce the Boxster 20 plus years later, takes Porsche a while to really get to the, the, the, the perfect end state of this strategy. Right. But for this new car, Ferry says, Hey, we're not really equipped yet to be running multiple lines as just us, Porsche, the company. We need a partner for this new car.
Let's turn to our good old friends at Volkswagen and jointly engineer and produce this new car with them. So in 1967, Porsche kicks off a joint project with Volkswagen to produce a new mid-engine roadster.
which is a smaller, more compact car in mid engines, not rear engine, 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 Volkswagen. The six-cylinder version is going to be a Porsche. And a ferry puts his nephew Ferdinand Piesch.
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?
B portions. 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 Carmen Guilla. Yeah. Previous to this, like in the 60s. And so the thought was they wanted to replace the Carmen Guilla. Porsche wanted an entry-level car. Let's jointly develop it. Porsche gets the more powerful one, the 946, the six-cylinder, and Volkswagen get the four-cylinder. But the decision was made, like you said.
The new VW CEO, he actually gets a pretty good deal out of this. So he deepens the relationship with Ferdinand. He gives the car fully to Porsche, but in exchange, VW takes over all of Porsche's distribution in America. Huge, huge deal. Huge deal for VW. So we're starting to re-intertwining these companies just a little bit here. That deal is an enormously wide-ranging partnership because you're trading
distribution from one side of your business with the ability to create a product on your other side. 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 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're saying would come to pass unfortunately it's not a straight line or fortunately for drama on our show.
So you're absolutely right. The 914 goes on to be a huge success, sells way more units than the 911, which was the whole strategy. Porsche is cool with this. They're like, great, we're making our profits on the more expensive 911. We've segmented out our market. The 914 is the entry level. Porsche sells 100,000 units in the eight years that it's on the market. And I think it really shows, Doug, you can comment on this.
Also, a market for mid-engine roadsters, including the one sitting behind us, regardless of price. These are pretty amazing sports cars. Yeah, Porsche's previous to this had all been rear engines, the 911, the 356, and so this was a mid-engine, which was starting to really take hold in the car world as the right
Design, because the engine in the middle is really the perfect balance. You can put the engine right in the center of the car, and it gives you perfect weight distribution. When I always talk about sports cars in my mind, like, God intended sports cars to be mid-engine. It's more difficult. The engineering is more difficult than front-engine, 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 at the Boxster, the same lineage we're talking about here,
is the best modern portion.
Yeah, I feel it. But it's controversial because the 911 is the Porsche. Don't hate us. Yeah, I don't know, Doug. I feel like I've seen multiple the best on your channel. Every car is the best when it comes out and then it's superseded by the next. There you go. One of the differences between YouTube and podcast world is titles and SEO is really important in the YouTube world. And I don't even take advantage of it as much as some of my colleagues.
Wow. It's a while around this topic here of engines. I got to imagine this is one of just the huge sea changes that is coming with electrification of performance cars, right? Like a whole different set of calculus. Like it doesn't matter. There's no engine anymore. Although you still even an 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. Yeah. Yeah.
It's gone. It's gone. Okay, so a minute ago, Ben, you said like, oh, this naturally would lead to a merging of VW and Porsche and I was like, well.
So this is 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, 911 sales stay relatively robust throughout the 70s.
because it's a luxury good, right? Just like in any recession and even sector targeted ones like the oil crisis and the auto industry for true luxury goods, those people, the market for that is very resilient. The 914, though, very different story. 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 buying, starting to buy for control of the company. You know, they're now, gosh, I don't know, probably in their 30s, maybe entering their 40s, fairies 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
Booty Ferdinand Porsche, he's got the name, he's fairies 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 Louis and Anton, was hired by the German company also. He's also working for me. 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. 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. Something pretty incredible happens. We've come across on the show. There are lots of stories out there of family businesses and 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. In the fall of 1970,
ferry and Louise together call a joint family summit. They're like, we're going to settle things. No, I don't know. I'm speculating here, but I suspect ferry and Louise didn't have a lot of acrimony over there. I mean, their brother and sister, and they had Louise had her company, ferry had his company. They're both making a lot of money. 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 fernans got fairy fairy himself who's running the confernans long down at this point that the original fernan. They're going to continue owning the company but they will no longer manage the company they will no longer operate the company they will no longer design cars they will no longer make product decisions.
Frankly, this is just insane. I mean, because it's not like it'd be one thing if they were like, oh, you know, we're really not that good at this. Like we should hire a professional man. These are led the generational talents in the car industry. And the best solution they can come up with is, you know what? We're all done here. This is crazy. I would be so fascinated to get video footage of what actually went down in that room and the logic that they could walk themselves through to this is actually the best outcome.
There's some direct quotes from a lot of them and excellence was expected. And as you can imagine, it's a very delicate topic. And they're also German, so they're very prim and proper. But I think he basically admits he's like, yeah, there probably was a better solution to this. But it did mean that we could reunite as a family. And I think he said something like, there were still tensions, but we could go to each other's birthdays again, something like that.
So, I mean, I guess in that, you know, if you value family above all else. Crazy is irrational. It's still, it's crazy. It's a especially crazy decision, because like you said, they were killing it. They were the best. It was the family business until this point, and it had been a very successful one because of the efforts of the family. And especially, you got for an NPS. Now, looking back on this, we know what happens to for an NPS, 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 found Porsche design. So there exists these weird, there's like Porsche sunglasses out there. You can buy Porsche designed laptops, like all this stuff. That's him. That's a totally new company that he started. It has now been reabsorbed into the broader Porsche conglomerate, but that was started. He was like, all right, great. I want to be a designer. That's the path.
Then he goes down. The same thing happened in the Gucci family for anyone who's seen the Gucci movie with Adam Driver. There's sort of a family member who wanders off and does some effectively brand licensing. He's like, I'm going to take the family name and make some money off it. Yeah. Which is obviously what was happening here. Yes. I think he also was very talented. I mean, designed to gotten the 911 for God'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 companies. He does do that for a little bit.
But pretty quickly thereafter, remember VW and the new CEO really wanted to build this relationship with Porsche, with Piesch. He gets recruited to come in and take over Audi for VW. I don't think he originally, I think he enters working within Audi, but then very quickly becomes the head of the Audi brand for Volkswagen.
And Doug, at this point in history, what does the Volkswagen Group own brand wise? Yeah, that's an interesting question. The brands that we know, I think it was just Volkswagen and Audi. Audi had been a separate company. Audi had been a separate company. And it's also important contextually here to make one really important point about Pish and Audi.
At that time, Audi was a joke. Audi was not what it is now. Now you view Audi as a legitimate competitor Mercedes in BMW. Back then it was more like how Saab would have been treated. It was an absolute second or third tier brand that no one could possibly
You know, it was not, it was not a brand that was desirable at that time. Would it be like today, um, infinity? Like I know you, you owned a, uh, Kia, right? It's a, but like, you know, Kia and Han, they're trying to enter the luxury market. Yeah. It was on that level of like, I'm going to stick with Mercedes. Yeah.
was the Audi 5000, the thing that kind of saved them and brought them back. On the contrary, actually, that car was the one that had the 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 to turn around. Volkswagen's got out either like, we don't know what the hell to do with this thing. We got BMW Mercedes. They're killing it.
So Piesh comes in and like, I mean, this dude is good. This was such a mistake to force him out of Porsche. So he turns around Audi and like builds Audi into you, Doug, like you said, the Audi we know today. And he's so successful. Then 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 that's running. 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 Piesch running Volkswagen?
A long time. 1993, I believe he was chairman until 2015, 2016, maybe a long time. He develops this reputation of being this just iron-fisted like. I can only imagine how upset he was when they made the decision to end the family involvement.
He has this rep of being incredibly angry at everything must be to his standard, and so I can only imagine how angry he was. He also had 13 children, but I think four different women. He's not a lot of kids. It was that typical how you think of a German industrial. Around this time, Volkswagen started really
gaining a lot of brands. In the late 90s, they bought Lamborghini. They own two Europe-only brands, one for Spain and one for Eastern Europe. They repurchased the Bugatti, the rights to the Bugatti name, which had gone to an Italian company. They brought it back to France where it was initially existing.
Doug, you kind of said, but to put a bow on it of what a baller Piesh was. In 1999, the Global Automotive Elections Foundation, they award him the car executive of the century.
And by the way, that's like uncontested in the car world for NMPS is looked at as like exactly what you're saying, the guy. Everybody knows his impact. Everybody knows how effective he was. And the family's portion is just like, yeah, no, you got to get out of here. Unbelievable. Maybe he wouldn't have had the motivation to do who knows who knows.
Just wild, but looks like a much bigger company than Porsche, right? Yeah. He got kicked out of his own company, so he went and ran a much bigger one that competes with it. But then he grew even bigger. Yeah. Yeah. Yeah. Yeah. Yeah. Wow. So back to the Porsche side.
This decision was really not good, really not good. 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 Furman becomes the first non-family member CEO of Porsche. He was actually part of the original elite engineering crew back in the sawmill in Gomun, so he has a long history with the company.
Unfortunately, he was probably a better engineer than a manager, though. His first move is to scrap the 914 and instead introduce the 924. The 924 was another joint project between VW and Porsche. The problem with the 924, I think it actually was a decent car. Doug, you actually reviewed a 944, which is the 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. Over the years, and even at the time, it was kind of accepted as, hey, we all get that it came from a Volkswagen, but sort of the beloved 914, and it drives pretty well.
Yeah. So like people, people are like, yeah, we'll take this as the entry portion of the time. But it wasn't a 9-11. It wasn't a 9-11. And it wasn't a 9-14 either, really. It was a totally different thing. And the 9-14 was a small lightweight compact roadster removable top. The 9-24 was definitely a different kind of situation. So Furman had a quote on it when asked about like, what is this? He says,
The 924 is aimed at new clients who either can't afford a 911 or are not necessarily looking for the performance of a 911.
Oof. I mean, I guess that's true, right? That's also true of the 914, but like- Can you come up with something- That's not the right way you want to position your brain. 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 a bit 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, let's give him some credit. This is the 70s. The oil crisis is going on. There's safety regulation. This is post Ralph Nader and unsafe at any speeds. It's maybe reasonable to think that a rear engine sports car isn't a great strategy to be pursuing here.
And unsave at any speeds, that was like a federal report that came out that said basically all cars on the market are unbelievably unsafe and people, our citizens should not be driving around to them. And so all cars need to change. And regulations started to really show up in this time period. In the car world, the 60s are viewed as the last bastion of just like anything goes. And some very special cars came out of that era.
And the 70s, everything started to get the oil crisis was a big factor because that started to screw with emissions. And then you had all these regulations about bumpers and safety and seat belts that were very important and beneficial. But at the time, it was like other killing are fun. It is astonishing how much safer cars have gotten. I mean, astonishing.
You look at these cute old pourshes, they're so much smaller, 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, well, 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 928 is on the market and demand dips for the 911, we'll stop making them.
Now, I wanted to defend the 928 a little bit here because it was a, this is an important moment in Porsche's history. When we look back on it now, it seems insane that the 911 would go away. Like, how could that be? But it's important to keep in mind that like the 356 went away. And that was the Porsche. Like how now you say like, oh, I have a Jeep and you're referring to the Wrangler. Like that was up, the Porsche was the 356. And so that went away for the 911. It only made sense at some point the 911 would also go away.
The crazy thing about the 928 in the Porsche world is that it was a front engine V8 car, which Porsche had never pursued before and was more kind of an American thing. But in the context of the time, it's not that insane that they went after this. All sports cars were starting to get bigger and more powerful and because of the oil crisis and because of tightening emissions laws,
It was getting very difficult to make any sort of power from anything other than a big engine, and even big engine cars at that time didn't really make a lot of power. Cadillac had like eight liter V8s that made like 150 horsepower. It was embarrassing stuff, because they had to put so many emissions controls on that by the time you actually got 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 a V8, comfortable automatic transmission car. Mercedes-Benz did the same thing with the SL class. It went from 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 9-11, 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. It seems like actually a really good time for fast cars. Seems like a good time for fast cars. Indeed, it was including for the 928 and the 924, succeeded by the 944. And still, the 911 people still wanted them.
I think largely because of that, although I'm sure there were other reasons too. So the Porsche and Piesha families, when they exit operationally from the business, they still own the business. So they're still like the supervisory board. They get fed up with Furman. They oust him and they bring on a new CEO.
an American as CEO of Porsche, when Peter shuts. Famously, he comes in and he redraws the 911 production line. Doug, I know you have some first-hand experience of the legend. They're 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 9-11 and had been in production now at this point for probably 20 years, 25 years maybe.
The 9-11 was Portia to a lot of these people. And the fact that it was going to be replaced by the 9-28 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, you know, the 9-11, everybody knows the impending cancellation is coming. It's still going, but it's coming. This beloved car. And so shoots, Peter shoots, the American CEO is sitting in the
The the office of helmet bought who's the chief of engineering for portion and There's a line on the wall that shows where all the products stop and start and the you know timeline and this is like a like on a whiteboard Yeah, he's on a whiteboard or something 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. That was a thing in German culture where something has been decided. It's been decided. Edict has been given, and the car's out. 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. That was what they were going to do.
but the morale was low and they knew this and so shoots 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 9-11 timeline indefinitely, including on to the literal wall. Now, this story, of course, is this is like the stuff of legend in Porsche, like Peter shoots 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 in decision? This would be a good story to invent if he needed a morale boosting. 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, shoots just looks over at the chief of engineering and goes, do we understand each other? Right.
And then he walks out. I always wondered if 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 shoots retired, he moved to Naples, Florida, and the general counsel at Porsche and Peter shoots 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 Shute said, not only did it happen, but helmet bought was grinning like the Cheshire cat when I drew that line. Like it was like this moment, like we're going to do this. And it like really apparently really in his words, it really actually was a true story. Wow. So great. That's awesome to get that validation because there's so many of these stories that we tell on the show where like we're like, this is probably apocryphal and there's really no way to verify it.
Now, of course, if you're shoots, you'd want to tell the story because it's become so famous. But from his mouth, at least the story is real. It's a great story. Literally, he extended the line of the production line onto the wall. So do they keep making both cars?
Yeah. So they kept making, I think they made the 928 until 1995. It was a video game who comes in in a minute who finally kills the damn thing. The problem with this decision, 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. Yeah.
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 like in 2021. Exactly. Exactly. In fact, I think Shoots 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 in success, they're selling the 911, they're selling the 920, 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, craftsman brands, they did an IPO. They thought they were being smart. They sold, I think, a 30% stake in the company, but all non-voting shares.
Like, oh, we're not going to know, you know, no corporate raiders here. Nobody will have any voting control except the families. Like, it is impossible that somebody could, you know, attack us because the family is all, you know, it would have to be somebody inside the family who would attack us. Why would that ever happen? Well, everything goes great. The stock, you know, doubles within the first year that it's on the market. But then 1987, long-term capital management blows up. You know, at the end of the go-go years of the eighties,
Not good. Not good for a Porsche. And not good in a lot of senses. Like age is period economic climate. Not good for anybody. But you're making luxury sports cars. Now, as we talked about in the 70s, the oil crisis in the 70s was really bad for Porsche. It was really bad for the 914. The 911 was pretty robust. Like it was very resilient. I think the same is again true here at the end of the 80s.
But they've still got the 928 and the 944 on the market and like those things started sucking wind big time. It's not a good situation because now you have three aged products. And so the economy is slowing and your cars are not really competitive. Yes.
So shoots, though, he continues production of all three lines. And not only does he continue production, he 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 a better sense than me, but another aspect of the recession at the end of the 80s was the exchange rates with European currencies got hit really hard. And so relative to the Asian currencies in the US. So it became, I don't know, call it 10, $20,000 cheaper to buy an equivalent entry level sports car from a Japanese manufacturer.
And it just so happened that at this time, Japan was kind of having an economic boom. And as a result of that, they started making these sports cars, the exact sports cars you're describing. So the Nissan 300ZX has to show up. The Toyota Supra, all these cars are showing up. And by the way, they don't have four-cylinder engines, and they're not 20-year-old platforms like the 968 was. And there was very little reason to buy a 968. I mean, it's...
I feel like I'm in my history, probably all of us, starting to enter consciousness here. This is pretty fast in the Furious, but not that pretty fast in the Furious. All those Japanese cars that got tuned up, the Supra is a specialist. This is that area. They were all starting to come in and start to blow up, and they offered just as they do today this great value proposition of big power for not as much money.
Again, the 911 isn't threatened by this, but the 944, 968, hell yes, threatened by this. Nobody's buying this. In 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 has 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 Carrero on the back.
So everybody's like, what the hell is this on 9-11? Why does it say Carrera never made any sense? And all Carrera's are 9-11's, but all 9-11's are not Carrera's today. That has changed over the years. Then there was a trim level of the 9-24 called the Carrera. It was actually called the Carrera GT, which they later named this car. None of it, it was all confusing. No, you had to be like a German who was into this stuff to like figure out the precision level with which it made sense.
So as all this happens, Porsche is now a public company. The stock price starts to decline precipitously. And they floated 30% of it. They floated 30%. Now no voting control, but the company
They're really like cresting the treetops here as they're beginning their descent. At one point, Porsche's market cap was less than 400 million euros. Crazy to imagine. Almost zero. 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. It was so insane to me. They dipped in 91, 92 to 4,100 units.
That was worse than 1965 sales. They had routinely sold between 13 and 30,000 cars a year throughout the 60s, 70s, 80s, 13 and 30,000. And in the US at 92, they dipped to 4,100 cars. That was the level that we were talking about. It was complete dire straits. So even though the public doesn't have any voting control, everybody starts to think. The only thing that can happen here is this company's 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. Shoots gets fired, but it's not like that fixes anything. I think it was 1987 when he gets fired. Over the next six years, they cycle through, I think,
four or three or four more CEOs, none of which really figured out. There is one bright spot, though, however, which if there's where a normal acquired episode, we would just skip, but we've got Doug. The 959 comes out of the point. It's actually the 959 and another interesting component off shooting that, but the 959 comes out at that time, which is like their first supercar, so sort of the predecessor to this car.
And it actually wasn't commercially successful, sort of in keeping with Porsche's world at the time. But it was kind of a test bed for some new technology, including four-wheel drive in a supercar, which has now pretty much become standard fare. The 959 was really the first car that had that.
After the 959, Porsche was so desperate, though, that they started taking on projects for other manufacturers. And so it's known in the car world, but not as much in the general world, Porsche built a Mercedes Benz, which was called the 500E. It was a midsize sedan. Mercedes didn't have the capacity or didn't really want to do it. Oh, so you built a sedan for Mercedes. That's in the Porsche factory in Zufenhausen, in Stuttgart. Who designed it?
It was a Mercedes car, so it was a Mercedes eClass, like a regular Mercedes sedan, but with a larger engine. And Mercedes felt that having Porsche involved would give it some sports car credibility. Porsche literally produced the car. And then Audi did the exact same thing. Audi needed more credibility because they were still kind of a fledgling luxury car brand. They wanted to get into the sports realm because that's where a lot of money was being made. And so Audi came to Porsche and said, can you help us develop a car? And it was called the RS2. And I actually had one and just sold it last year.
It was a station wagon. And that was the conditions under which Porsche agreed to build the car. They said, we'll do it, but we don't want to compete with our cars as a coupe, a sports car. So if you build the station wagon, which essentially touched off the 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, their branded Porsche. The Porsche logo appears in the badge.
like the literal emblem on the side of the car, Porsche was just like, yeah, fine, because it literally kept the lights on in Stu Card. It's Zufenhausen. So when you said- 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 gone. Wow. And it was literally like you have empty production lines. So even though you're not going to make a lot of margin on this, let's at least like.
You can be our contract manufacturer. Like when you have union contract, maybe this was part of the circumstances. You have union contracts to get paid to these people, whatever. You're not gonna 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 it, having to pay the, well, yeah. Wow.
It was a tough era. It was like indescribably tough. And I think this has lost on a lot of younger people who have only seen Porsche in the world of crazy expensive cars and all the money they charge for colors now and all that. There was a period where it almost all came to. And not that long ago. Not that long ago. It wasn't like this was in the 50s. Like we were alive. This was real stuff.
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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. You're like, 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, it's exactly it. Imagine the Porsche of the 80s, early 90s, commanding that kind of, it would never have happened, but now the brand has changed so much that like 15 ran for a color, people are like falling all over themselves to do it. Now, why not? The other thing that it's emblematic of, which I think we haven't really talked about yet of what makes Porsche special, is this unbelievable heritage.
like the design language that they use, what the 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, 1 9 11, guess what? It's still around. It still looks about the same and it's still the same level of desirability that you wanted back then.
It's so funny. I feel like the sales cycle for a 911 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 in 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 Portia 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 rise from the ashes after this 80s period? That's a good question, but you have to assume they didn't expect in 1948 that they would ever even be in the position to deliver that in the 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 911. What a dumb idea.
It was like natural. They killed the 356. The natural thing would have been to kill them. Looking back on it, it's insane. But at that time, it seemed like 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 porches in this tailspin, the two eras that happen next are both equally amazing.
So in 1993, a guy named Vendolin Vida King 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 shoots and Furman era decisions. He resigned and left the company.
they recruit him back in the early nineties 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. I don't know Ferrari uses the Toyota production system, but like this wasn't new technology at this point in time, right?
Remember, Porsche is bleeding cash being more efficient and more profitable in your operations for whatever cars you can sell is pretty important. He's like the 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 nine eleven. So this is the right thing that needed to be done but it's also kind crazy he kills the nine forty four nine sixty eight he kills the nine twenty eight.
He takes everything back down to just the 911 and like analysts, people like car 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. This is kind of crazy. Also, what kind of company makes one product?
I mean, seriously, what do they believe that this is a transitionary period or do they believe this is the long-term strategy? No, it's not like we the king was like, I am a cost cutter and I will cost everything down. He is 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 greatly expands it. I think this is pretty brilliant, and certainly for the financial performance of the company was brilliant and 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 911? And so what he does is he says, let's take the front end of the 911, of the next generation 911, the 996.
and use that exact same front end, same headlights, same hood, same everything, and then made it with a new entry level, back end, the rest of the chassis of the car, revived the old 914 concept that was so successful, mid-engine, Roadster model, with a, how would you describe the, it's not a convertible person. Yeah, no it is, it is. The buster was a full convertible. Yeah, yeah, yeah.
And it's also important to point out the interiors were almost entirely shared as well. Ah, the interiors were like, yeah, like the steering wheel. The wheel, all the buttons, in fact, if you get into a Boxster, which was a two-seater car, it has a coat hook on the back of the seat because the 911 had a coat hook on the back of it. You can't put a coat in a Boxster. The seat is right up against the...
but they shared everything. Wow. 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. Yeah. 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 Vidikin's thought was,
The entry-level Porsche has always been looked at as a second-class citizen, like Ferman literally said, which was true. I mean, everybody thought it, but he said it. How do we make it not look like a second-class citizen? The answer is make it look like a 911 and make it literally, literally, share. I mean, it didn't even just look like it. Literally had the same fenders, the same headlights and hood.
And also from a production and profitability and 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 did 200 horsepower, and the 911 of that era had about 300. So it was a significant difference, plus the 911 was just more of a, it was bigger, it was wider, it was faster, you know, it was a more, it was more of a muscle car.
Is it fair to say that, um, then, and I think maybe even especially now with the Boxster and the Cayman, the Cayman is the hard top model of the, of the Boxster. It's also a different kind of experience philosophy. And it has over time and 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 is focused more of its sort of true sports car efforts on those, the mid-engine cars, as they call them, the boxer in the Cayman. Yes, it's the entry-level Porsche for sure. But it's also, it's not like you feel like crappy if you're buying one. You're like, oh, you know, I'm buying the best version on the market of this particular product.
And it was mid-engine again, so you, you know, arguably it was the correct place for it. It felt like a true Porsche sports car. For the first time, Porsche's, you know, entry-level car felt like that in decades. Yeah. So, VitaKing 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 Viteking 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 Vida 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 is like a teenager at the time.
I'm not being that much of a car guy, but I just remembered people like portions making an SUV of 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 client, 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, and you know what? It's been 20 years. It has not grown on you. Yeah, the McCon looks really good. The new kinds look great, too, honestly. Ever since they redesigned 2011, but those early kinds, you see them now, and you're like still ugly. It also just doesn't look like a Porsche to me. Like there's not enough that's brought through from the heritage of the, how do you describe the back on a 911? Right. That's sort of like slipping. 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 an SUV first in 1998 model, called the M-Class, which was a that was a revolution. And they built in America, which is 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 SDV's, but they're sporty.
So Porsche comes out in a three. I mean, they beat Audi, Audi, and come out in the SUV till the seven. Porsche was there, like early, early, early.
So what 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 clients, Porsche literally didn't know what to offer in an SUV to the point where they actually legitimately asked some of their American employees, do we need to offer gun racks as an option for the American market? They just didn't know, they literally, they were only building sports cars and they just, they had no concept.
