Analysis of Porsche Company - Essay Example

Porsche Case Study Grade (Oct. 26th, Porsche Case Study Company history, products and major competitors The history of Porsche Company dates back to 1931, when it was first established not as an automobile making company, but rather as an engineering office company, which would develop automobile designs and then sell them to other automobile making companies (Henderson& Reavis, 2009). In addition, the Porsche Engineering office would sell engineering services to other automobile makers, trough assisting the companies that purchased its automobile designs to assemble the cars. However, in 1934, the then German leader commissioned the company to make its first car, which he referred to as the ‘Volkswagen’, interpreted to mean the ‘people’s car’ (Henderson& Reavis, 2009). Thus, in the mid 1930s, Porsche’s first car, the VW Type 60 was produced, and thereafter a plant dedicated to the production of the Volkswagen was opened in 1938, producing a series of Volkswagen brands such as the VW Beetle (Henderson& Reavis, 2009). Nevertheless, the brand Porsche found its way into the market exactly 3 years after the Second World War had ended, in 1948 where the brand came in form of a branded sports car, and by 1950, Porsche had managed to develop an assembly line that started rolling out its Porsche 356 series brand into the market (Henderson& Reavis, 2009). Another of the Porsche’s brands, which were introduced into the market much later was the Porsche’s Cayenne, the first of its brands outside the sports car market niche in 2003, and then the Panamera sedan which was released in 2005 (Henderson& Reavis, 2009). The major competitors of the Porsche Company brands are the Mercedes, which is closest in the profit margin per unit earning to Porsche, at $59,454 per unit of automobile sold compared to the Porsche’s profit margin of $91,974 per unit (Henderson& Reavis, 2009). The other major competitors to the Porsche brands is the BMW, the Audi and Volkswagen, whose profit margins per unit were much lower compared to those of Porsche. On the other hand, there were a few small competitors in the sports car manufacturing market, such the Maserati, Lamborghini and Ferrari, which could not compete effectively with Porsche, owing to their low production capacity for the sports cars (Henderson& Reavis, 2009). In relation to the competition in the outsourced Engineering services, Lotus Engineering was the major competitor that Porsche Engineering Services (PES) faced (Henderson& Reavis, 2009). Assessing the financial performance and condition of the organization The financial position of Porsche Automobile group has been very promising, owing to the fact that the company has been able to derive a high profit margin when compared to its major competitors. While serving the luxury sports car market, the Porsche Company has been able to compete against its major competitors such as Mercedes, BMW, Audi and even Toyota on the basis of producing a small number of automobiles annually, but banking on their high quality to earn a high profit margin (Henderson& Reavis, 2009). Thus, for the year 2007, Porsche produced only 100,000 units of automobiles, but earned a high profit margin of $91,974 per unit automobile (Henderson& Reavis, 2009). On the other hand, Mercedes, BMW and Audi produced a large volume of automobiles, but earned low profit margins per unit automobile, at $59,454BMW’s, $51,106 and $40,425 respectively (Henderson& Reavis, 2009). Consequently, the total revenue for Porsche in 2007 was $10.06 billion, but the profit margin from this revenue was unimaginably high, at $9.4 billion (Henderson& Reavis, 2009). This simply serves to indicate that the costs of operation for Porsche are very low, accounting for only 6.6%, while the company’s profit margin account for 93.4% of the total revenues earned by the company. Nevertheless, the financial position for Porsche between 1986 and 1993 was not promising at all, with the company having lost its market in the luxury sports car brands, thus selling an average of only 14,000 units annually, compared to the previous sales of 100,000 units (Henderson& Reavis, 2009). This situation made the company almost go bankrupt, but the company was revived starting 1999, where the company once again started a streak of increased productivity, revenues and profitability, a situation that remained the same through 2008. Throughout the period, Porsche had managed to raise its revenues from € 3, 500 million in 1999 to €7,500 in 2008 (Henderson& Reavis, 2009). Further, with the reputation of high quality cars production, Porsche was able to sell its brands at between $50,000 to more than $150,000, after it ventured into the regular car market with high quality brands such as Porsche’s Cayenne and Panamera sedan released in 2003 and 2005 respectively, and the brands have remained on top of the highly rated cars list, thus attracting high demand (Henderson& Reavis, 2009). SWOT analysis Strengths Porsche’s strength is based on the high level of engineering technology that the company possess, which has acted as the major source of revenue for the company, accounting for 60% of the company’s revenues (Henderson& Reavis, 2009). The Porsche Engineering Group (PEG) is the major asset for the company, which has enabled the company to offer outside engineering services to virtually all automobile making companies at a high price, owing to the reputation of high engineering design expertise held by the PEG engineers. The other major strength of Porsche is the fact that the company has specialized in the production of high quality brands which attracts high prices, meaning that the company does not require a high market share to earn high revenues and profitability (Henderson& Reavis, 2009). Another strength associated with Porsche is the strong relationships that the company has established with its clients, which ensures that the company will always have demand for its engineering services, for being able to maintain a high level of confidentiality related to clients’ information. Weaknesses The major weakness associated with Porsche is the fact that the company has only specialized in serving the premium car market, which entails selling high quality cars to a high income class of the society at a high price ranging between $50,000 to more than $150,000 (Henderson& Reavis, 2009). This is a risky business strategy, owing to the fact that under the economic recession periods, the market for such high-class and expensive cars might go down, thus making the demand for its brands fall drastically. Opportunities Porsche has a great opportunity in expanding to the regular car market by introducing more regular brands that are less expensive. This opportunity will enable the company manage to secure a high market share in the automobile market, since it currently holds a very small market, especially in the high-class sports car market niche (Henderson& Reavis, 2009). Expanding to the regular market will ensure that the company can withstand the recessionary times of the economy, by selling lowly price car brands in large volumes at a time when the market might not be able to demand classy and expensive premium sport cars. Threat The major threat facing Porsche is the threat of competition from the traditional automobile giants such as Mercedes, BMW and Audi in the premium car market, as well as threat of competition from the small automobile companies in the sports car segment such as Lamborghini and Ferrari (Henderson& Reavis, 2009). The company is also faced by the threat of competing outsourced engineering service companies such as Lotus Engineering, which may eventually compete for the automobile clients currently served by Porsche. In addition, there is the threat of upcoming outsourced engineering companies that are emerging both in the USA and UK markets, which may deprive Porsche its engineering service clients that form the bulk of the company’s revenues (Henderson& Reavis, 2009). Quality assessment and recommendation of the decisions made by the Porsche The decision made by Porsche to acquire Volkswagen had the noble intentions of expanding the market for Porsche products from the mere high-class sports car market niche, to a wider automobile market. However, while the intention was good, there is a major problem associated with this decision. The Porsche brand is build around the high quality of the engineering services that the company offers to the other automobile makers (Henderson& Reavis, 2009). The acquisition of Volkswagen by Porsche is likely to scare away the other automobile clients that the company had been serving, thus losing more on its outsourced engineering services revenue, which accounts for close to 60% of Porsche’s revenues (Henderson& Reavis, 2009). Thus, the decision jeopardizes Porsches chances of a more profitable future in the outsourced engineering market. Therefore, it is recommended that Porsche should take on the brand expansion strategy, so it can produce more regular market brands sold a at lower prices, so that it can increase its market share in the automobile industry market, which is currently very small and limited to the sports car market niche (Henderson & Reavis, 2009). The cheap brand expansion will increase the volume of sales, thus helping the company retain its high revenue and profitability status. Reference Henderson, R. & Reavis, C. (August 25, 2009). What’s Driving Porsche? MITS Loan Management. Read More