Financial Analysis of Porsche AG - Case Study Example

Porsche AG Porsche AG Porsche AG is a German automobile maker that specializes in manufacturing high-end and high performance cars. This is a luxury brand that produces sports cars, super cars, and lately sedans and sport utility vehicles. Most of the models entail exquisite exterior and super performance. For instance, the contemporary Porsche models include Cayman, Cayenne, Macan, and Boxster. Dr. Ferdinand Porsche, the founder of the Porsche Company, studied in Vienna and founded the company in 1923. The firm gained a name for innovative car designs thereby attracting the attention of the Hitler government (Porsche, 2014). Although the first assignments only involved consultancy work, the company made the Volkswagen Beetle, a perennially successful car design. The first Porsche car (Porsche 64) was made, in 1939, out of the Beetle’s components and structure. During the Second World War, although not wholly successful, the company engaged in the manufacture of military vehicles. After the war, the company underwent significant changes towards producing its current remarkable brand. The British took over the Wolfsburg Volkswagen firm briefly when Ferdinand was tried for war crimes. This inspired Porsche son, Ferry Porsche, to come up with the first Porsche model. The first model, Porsche 356, was commissioned in 1948 (Porsche, 2014). It is essential to highlight that Ferry was interested in the idea of a handmade, high performance, and expensive sports car. Within mild production of five cars every month, the company relocated its plant from Gmund to Stuttgart (Porsche, 2014). In the late 1950’s, Porsche created a brand that was familiar with celebrities, film stars, and business magnates. Due to expanding revenues and market base, the company went public in 1973. Currently, Porsche faces significant competition from players such as Toyota, General Motors, BMW, Volkswagen, Honda, and Ford Motor Company, Mitsubishi. The main competing brands, however, as regards the production of sports cars and luxury are Jaguar, Ferrari, Lamborghini, Bugatti, Nissan, Toyota, Bugatti, and BMW. Volkswagen AG is an immediate competitor since it owns key brands such as Audi, Bugatti, and Lamborghini. Financial analysis Porsche records high revenue success on per unit basis. This success, however, has come a long way. In the early 1990’s, the company faced a huge financial crisis as the US market became weak. For instance, between 1986 and 1993, Porsche’s sales reduced to 14, 000 units from 50, 000 units (Henderson & Reavis, 2009). A turnaround management prevented the company from bankruptcy. This entailed introducing concepts such as lean manufacturing and processes that maximized value at lower expenses. In addition, a diversified product range initiated a later financial success for the Porsche Company. The company’s expansion in production has corresponded with its growth in sales and revenue. For instance, in 1999, the company was only making an average of 47, 000 units of Porsche vehicles. Consequently, it made revenues of 4, 000 million euros. In 2008, the company made 97, 000 units of Porsche vehicles and had a revenue of 6,500 million euros. Porsche relatively makes few revenues and unit sales as compared to companies such as GM, Toyota, VW, Ford, Honda, and Nissan. For instance, in 2007, Toyota made $ 262, 394 million in revenue with 8, 900, 000 unit sales (Henderson & Reavis, 2009). This is far much than the corresponding Porsche unit sales of 98, 652 and revenues amounting to $ 10, 060 million. However, it is essential to emphasize that Porsche targets a luxury market that necessitates its fewer units of sales. Porsche, in essence, is a highly profitable company on the per unit basis. For instance, in 2007, the company was second to Toyota with a net of income of $ 9, 400 million. This is a significant amount considering that the company only employs 12, 202 employees as compared to Toyota’s number 299, 234. In 2014, the company has witnessed robust revenue growth. Porsche AG witnessed a sales increase of 13 percent and revenue increase of 17 percent. The company made a revenue of 12.24 billion euros with a profit of 1.93 billion euros. The current members of staff amount to 21, 950 employees. This continues in spite of the company’s high expenditure especially on R&D. SWOT analysis Porsche has notable strengths that positions it well in the market. To begin with, the company has formed a distinct brand that enables it serve a prospective, specific, and loyal market segment. Porsche’s brand concerns with producing high performance sports car. More essentially, Porsche intends that such a sports car can be utilized in everyday situations rather than be simply used in races. In this sense, Porsche integrates the idea of the film and fantasy into a functional and regular life. The company, therefore, has positioned itself as a manufacturer for elite and significantly prosperous customers. This explains why the car for high income groups such as businessmen and materially prosperous families. The elite market base, although small, has the ability to buy few units of goods at maximum prices thereby surging the revenues of the respective companies. Porsche’s brand is different from the Rolls Royce’s brand that targets an aristocratic but bohemian class of materially prosperous people. This is because Porsche is interested in efficiency and designs car structures that allow for maximum performance and speed. Porsche, therefore, serves an elite but a sporty oriented group of customers. Although there are several car companies in the market, Porsche has historically had few direct competitors. Competition, in this sense, is see in terms of brand rather in terms of a mere industry player. Other high-end competitors such as Maserati, Ferrari, and Lamborghini have never possessed the number to match that of Porsche. The company’s limited brand competition and indirect competition from Volkswagen accords it a huge advantage in the market. The company has enjoyed a close relationship with the Volkswagen group that built their company on the prototype of Porsche’s first car. This explains why the Volkswagen AG company has, sometimes, collaborated with Porsche on brands such as VW-Porsche 916. In addition, Volkswagen currently owns competing brands such as Bugatti, Rolls Royce, and Lamborghini thereby easing competition for the narrow luxury market. In addition, Porsche has a highly differentiated product line. The company produces 7 brands in the form of Cayenne, 918, Macan, Boxster, Panamera, 911, and Cayman. These brands are further split into sub-brands such as Cayenne Diesel type. These brands are helpful in portraying different impressions and serving different functions. For instance, the Cayenne brand appeals to the business and serious customer base. This is different from the 911 brand that serves leisurely purposes. Differentiation helps the company diversify risks as well as help it target different types of consumers. On the other hand, the company faces various weaknesses and strengths. To begin with, in spite of its differentiation, the company produces a specific product line, sports cars, that targets a single market base. Such a market base, however, may be subject to periodical negative changes such as financial and economic crisis that severely derails their luxury purchases. In addition, in spite of its unique brand, Porsche faces competition from established companies such as Toyota and BMW. These companies possesses diversified products but also produce high end sports cars that provide significant competition to companies such as Porsche and Ferrari. In the end, the rival companies may produce car types that directly appeal to the market. There are significant opportunities in the market. To begin with, the idea of customized cars is gaining preference in the market. This offers the company to sell pricey products that attract significant revenues as long as given customers’ preferences are satisfied. In addition, the green market is growing and they demand automobiles that minimize emission and noise to the environment. In terms of threats, the company faces the possibility of alternative products that the future consumers may prefer to Porsche’s cars. The car industry is a highly dynamic field since consumers’ standards are stringent. Luxury consumers constantly demand a set of efficient and high quality goods that match their value of compensation. In addition, as Porsche cars become increasingly accessible to the general consumer base, the customers who demand exclusivity will go for other products that the general population cannot afford. Additionally, the existence of shaky financial and economic markets threaten the income of consumers and the capital base of companies such as Porsche. Recommendations In spite of its strong position in the market, Porsche requires to instill certain practices that will sustain its success in the market. To begin with, the company requires aggressive marketing that will ensure it sustains a brand conversation with the market. Modern marketing platforms could be exploited to advertise the brand to the growing middle income consumers. In addition, Porsche could exploit emerging markets such as Brazil, Nigeria, and South Africa in order to tap the growing group of high income earners. Furthermore, the company need to exploit the underexplored green market. The green market has conscious consumers that place emphasis on the impact of the products they buy on the environment. Besides, the company should practice vertical integration as a means of minimizing the costs of raw materials. This pertains to owning supplier based entities such as steel companies. References Porsche (2014). Porsche AG History. Porsche. Retrieved from ww.porsche.com/international/aboutporsche/principleporsche/tradition/. Henderson, R., & Reavis, C. (August 25, 2009). What’s Driving Porsche? MITS. Retrieved from https://mitsloan.mit.edu/LearningEdge/CaseDocs/08-075-What%27s%20Driving%20Porsche.Henderson.pdf Read More