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    Porsche wants to cut cost

    From the Financial Times:

    Porsche, the German luxury sports carmaker, plans to introduce a cost-cutting programme to compensate for the company's hedging contract expiring after 2007.


    "In the long term, we will have to live with an adverse dollar. There is no way out. We have to have a strategic answer for currency fluctuations," Wendelin Wiedeking, Porsche chief executive, told FT Deutschland, the FT's sister paper.

    The weak dollar has already led to profit warnings from many European vehicle makers as well as cost-savings initiatives from Volkswagen and DaimlerChrysler.

    In preparation for the continuing weakening of the dollar, Porsche is launching a programme to increase productivity and efficiency. The programme will also include job cuts on the production side, with vacant positions left unfilled.

    Porsche, which generates a gross profit of Euro 1bn ($1.25bn) on sales of Euro 6.35bn, is the world's most profitable carmaker. However, a large part of its profit comes from currency hedging. Analysts estimate that currency hedging at Porsche amounts to about Euro 700m.

    Georg Stürzer, analyst at HVB, expects an annual profit increase of Euro 174m. "If Porsche manages to save a further 2-3 per cent on the purchasing side, which is feasible, Porsche could catch up on the Euro 700m hedging profit in three years," Mr Stürzer said.

    The sports carmaker has long been the heaviest user of hedging and has hedged its dollar exposure for at least five years.

    "Our currency hedging strategy had one single purpose: we buy time to prepare ourselves for the situation when the currencies run against us," said Mr Wiedeking.

    Mr Wiedeking was confident that, even after 2007, when the hedging contract expires "profits will not receive a dramatic hit".

    Mr Wiedeking also said that staff would have to be prepared for changes to come. "We are in intensive talks with our employees, for example about the infamous five-minute break per hour rule," said Mr Wiedeking.

    DaimlerChrysler has already tried to abolish that rule - without success.

    Re: Porsche wants to cut cost

    RC whats the deal about contract being expired??

    Re: Porsche wants to cut cost

    Currency hedging is a way of life w/ multinationals. PAG must have a good strategy given that 50% of its sales are the US market . With goood policies in place companies come out even and on occasion can make extra money.

    Re: Porsche wants to cut cost

    Quote:
    ADias said:
    ... PAG must have a good strategy given that 50% of its sales are the US market . ...



    With the good policy, Porsche cars are cheaper here than ROW and they still make a profit.

    Re: Porsche wants to cut cost

    First of all we do not know what a 997 actually costs to build. But other than the engineering i would think it shouldn't cost much more than a mustang. The engineering and thought is what makes it special not the rubber, metal, and plastic. Plus they only have to retool every 7 years or so. The only high expense comes from the low volume special order items like carbon fiber consoles etc. So how much profit is in a 100k 997 vs. a 25k mustang.

    Tom

    Re: Porsche wants to cut cost

    Quote:
    racerx said:
    But other than the engineering i would think it shouldn't cost much more than a mustang. The engineering and thought is what makes it special not the rubber, metal, and plastic.



    I think one has to be careful about the conclusions above.

    The Ford Mustang is built in much higher volumes than any 911. That means that the tooling investment (as well as the engineering costs) has to be recovered in much bigger chunks per vehicle. Also, the tooling involved will be scaled to the volume expected and may not save as much labor as the Ford tooling since the labor-savings/tooling-cost break-even point has to be calculated on a much smaller volume for Porsche.

    The above reasoning is how I figure that Ferraris need to cost more than Porsches for an equivalent level of sophistication -- it's all in the volume over which one can spread the fixed costs.

    Re: Porsche wants to cut cost

    I have a video from 1988 of a half hour motorweek devoted to porsche and in it they mentioned how automated the factories had become in an effort to cut costs and showed the robots and equipment on the assembly line. Ironically they were talking about a huge change in the currency back then. It was brought up by Arno Bohn (i think that was his name).
    Anyways sales volume is higher now than ever so ammortization should be better and the engineers also earn a lot of dough from outside consulting (harley engine, etc). The show also mentioned the extremely high percentage of staff that are engineers, so i think i would say that the actual construction of the vehicle may not be that high but porsche overhead may be too heavy. Not to mention that the factories look like something out of a star trek movie. very nice.

    Tom

    PS Mike, I think the ferrari cost is driven up by a lack of robots and too many italian elves tapping away at body panels with their little hammers.

    Re: Porsche wants to cut cost

    Quote:
    W8MM said:
    Quote:
    racerx said:
    But other than the engineering i would think it shouldn't cost much more than a mustang. The engineering and thought is what makes it special not the rubber, metal, and plastic.



    I think one has to be careful about the conclusions above.

    The Ford Mustang is built in much higher volumes than any 911. That means that the tooling investment (as well as the engineering costs) has to be recovered in much bigger chunks per vehicle. Also, the tooling involved will be scaled to the volume expected and may not save as much labor as the Ford tooling since the labor-savings/tooling-cost break-even point has to be calculated on a much smaller volume for Porsche.

    The above reasoning is how I figure that Ferraris need to cost more than Porsches for an equivalent level of sophistication -- it's all in the volume over which one can spread the fixed costs.



    Good analysis Mike! I think your manufacturing involvement is showing. This type of thinking is much easier when you do it regularly yourself.

    Re: Porsche wants to cut cost

    Quote:
    racerx said:
    First of all we do not know what a 997 actually costs to build. But other than the engineering i would think it shouldn't cost much more than a mustang. The engineering and thought is what makes it special not the rubber, metal, and plastic. Plus they only have to retool every 7 years or so. The only high expense comes from the low volume special order items like carbon fiber consoles etc. So how much profit is in a 100k 997 vs. a 25k mustang.

    Tom



    I suggest visiting the Porsche factory in Zuffenhausen whenever you have time to do it. Schedule a guided tour, it is worth it. Almost everything is done by hand, it is pretty impressive. And I doubt that the parts used on a Porsche cost the same as the parts used on a Mustang. There is quality and quality.

    Re: Porsche wants to cut cost

    RC is right, when was the last time you saw aluminum suspension pieces on a Mustang? Hot dipped galvinized steel body with 10 year warranty against rust? This does cost much more. Having said that, the Mustang probally cost $17k to produce the rest is your Ford and dealer profit, where the Porsche might cost twice that, with the rest being profit for Porsche AG, PCNA and local dealer for a car sold in USA.

    Re: Porsche wants to cut cost

    My point was if i can remember is that a screw is a screw, a nut is a nut, a relay is a relay, a plastic part is a plastic part, a stamped metal part is a stamped metal part, a cast part is a cast part, a machine weld is a machine weld. Dipping thru a bath, just a little step. I use raw metals in what i do and the cost is a lot different when you buy from wholesalers and these companies buy stuff in such quantities that it is pretty cheap. The big expense is in the labor force (man hours per vehicle) and the plant & equipment. And these are probably similiar with the unions and similiar robotics etc.

    I think it goes back to the overhead (R & D) and perhaps a nice fat profit margin for P. I'll give you an example;
    My 928 plug wires cost over $300. per set when i see all the us vehicle wire sets in the stores for $40. There is basically no difference copper, rubberized plastic, and little connectors. They might be designed better to seal the opening but that thought doesn't make the raw materials cost more.

    Tom

    Re: Porsche wants to cut cost

    I agree that there are many parts that there is no difference, but there are many parts that may cost 3-4 times as much to make. The other part of the equation is when Ford makes suspension pieces they share parts with other Ford products so they may order 2,000,000 parts from a supplier where as Porsche orders 20,000-40,000 parts they will not get the volume discount. On the plug wires there may be a difference in quality but that does not justify the big difference in price all the time. I know that manufactuers will charge more for some pieces so they can sell others under cost (eg: the rear sun cover in your 928 is a piece of material ten years ago they charged $700 for replacement. I was told by parts reps from Porsche they charged more for that piece so they could reduce the price of relays that were constantly going bad) this would help the average consumer but sticks the guy who needs the cover. Was not trying to be confrontational.

    Re: Porsche wants to cut cost

    I think once Porsche's currency hedges expire they should just raise prices too compensate for the weaker Dollar. The USA people/government cannot persue policies that devalue their currency while at the same time expect foriegn companies to absorb the Dollar's fall.

    Re: Porsche wants to cut cost

    Quote:
    danny828 said:
    I think once Porsche's currency hedges expire they should just raise prices too compensate for the weaker Dollar. The USA people/government cannot persue policies that devalue their currency while at the same time expect foriegn companies to absorb the Dollar's fall.



    That is one perspective, but look at the other side, euro-based economies benefit greatly from a cheaper US dollar, as far as their US imports are concerned (and if you look deeper you will see that the savings are significant). Currency hedging is a cyclical game - soon PAG's hedging strategy will change when the US currency becomes more expensive (do not think the US dollar will stay at this level much longer).

    Re: Porsche wants to cut cost

    Quote:
    danny828 said:
    I think once Porsche's currency hedges expire they should just raise prices too compensate for the weaker Dollar. The USA people/government cannot persue policies that devalue their currency while at the same time expect foriegn companies to absorb the Dollar's fall.


    Porsche did that before and they almost killed the company. They also killed alot of their dealers. In the Los Angeles area they went from about 20 dealers to 10.

    In the past they raised the price in the US and lost alot of money and did not have enough money for development. Now they use their smarts and raise prices in a slow steady fashion and make a ton of money on their "insurance" and produce better cars. I like the current method better.

    The part contents of my new 997 is only 55% German. I wonder what the 996 was. Is this a way they are trying to control costs?

    Re: Porsche wants to cut cost

    Quote:
    danny828 said:
    I think once Porsche's currency hedges expire they should just raise prices too compensate for the weaker Dollar



    PCNA has been slowly doing this over the past year with their parts pricing. Several times this year parts pricing has raised dramatically, in August it seems like there was a 50% across the board price increase. Last year Porsche OE parts pricing was almost reasonable now things have become absurd.

    Re: Porsche wants to cut cost

    Quote:
    ADias said:
    Quote:
    danny828 said:
    I think once Porsche's currency hedges expire they should just raise prices too compensate for the weaker Dollar. The USA people/government cannot persue policies that devalue their currency while at the same time expect foriegn companies to absorb the Dollar's fall.



    That is one perspective, but look at the other side, euro-based economies benefit greatly from a cheaper US dollar, as far as their US imports are concerned (and if you look deeper you will see that the savings are significant). Currency hedging is a cyclical game - soon PAG's hedging strategy will change when the US currency becomes more expensive (do not think the US dollar will stay at this level much longer).



    well, a gigantic trade deficit is not really the hallmark of a major world exporter of goods. I don't think europeans and asians buy a lot of stuff from the US. The normal thing to do would be to reflect the curency in the retail prices, thus decreasing the incentive to buy imported goods reversing the trade deficit etc. Unfortunately, since the US is such an important market for PAG, would they do that and kill the demand for porsches, that would have an impact on the company and its products, which no one of us would like...

     
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