| BUSINESSWEEK ONLINE : DECEMBER 27, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
That Van You're Driving May Be Part Porsche The German carmaker makes a bundle renting out engineers Executives at Adam Opel, General Motors Corp.'s (GM) German subsidiary, are proud of the success of the company's new Zafira compact van. Since its launch in April, Opel has sold about 120,000 of the zippy Zafiras. That has earned Opel an important foothold in the rapidly growing compact van class and is providing a much-needed boost to Opel's lagging profits. Funny thing, though. The $19,000 Zafira was actually engineered under contract by Porsche, best known as the German producer of such dashing sports cars as the $120,000 911 Turbo. And while they don't like to talk about it, most major auto makers have relied at some time or other on hired guns from Porsche. The company is an ideal talent bank. Not only is Porsche on the cutting edge of automotive engineering, but as a niche operator it also doesn't compete with the big carmakers, so they don't have to worry about surrendering secrets to a rival. Industry sources say that Porsche engineers have helped solve the instability problems suffered by DaimlerChrysler's (DCX) compact A-Class cars and consulted on its Smart microcar model. They've worked on a Linde forklift and an Airbus cockpit. And the next time you're within earshot of a Harley-Davidson, listen closely and you'll catch a trace of a German accent in the engine's famous roar, courtesy of Porsche engineering. What started as a way to keep engineers busy in periods when demand for its sports cars sagged has become a pillar of Porsche's business and a key part of its growth strategy. The success of the business has also secured Porsche's status as Europe's last independent carmaker. Indeed, Porsche has turned the rent-an-engineer business into a cash cow. In the fiscal year ended July 31, revenue from its nonmanufacturing divisions, most of which comes from outside research and development contracts, jumped nearly 50% to $462 million. Total sales of $3.2 billion and profits of $193 million last year were both records. The returns on Porsche's engineering division are at or above what it makes selling cars. Pretty impressive for a company with an industry-leading pretax profit margin of 11.3%. ''We wouldn't do it if it weren't profitable,'' says Chief Executive Wendelin Wiede-king. Profits from engineering have helped fuel a 30% rise this year in the price of Porsche preferred shares, to more than $2,600 each. ''ABSOLUTE DISCRETION.'' Selling services has many benefits. At any one time about one-third of the 2,300-strong staff works for contract clients. Those engineers return to Porsche with new insights. What's more, the money they bring in not only pays their salaries, it finances Porsche's R&D center. ''What's clever is that it allows a low-volume carmaker to survive,'' says Christopher Will, an analyst at Lehman Brothers in London. ''You have an enormous top-notch group of engineers but you don't have to pay them.'' Porsche is reluctant to talk about its contract work. ''It's a part of our business that requires absolute discretion,'' says Wiedeking. Still, the cachet of the Porsche name can be enough of an incentive for a downmarket maker such as Opel to disclose the association. Opel says it hired Porsche for the Zafira proj-ect because its in-house staff was busy. ''We didn't have enough of our own engineers,'' says Fromund Kloppe, manager of Opel's technical design department. But at the time, Opel's market share in Europe was stagnating and profits were falling as it was outmaneuvered by sharp new models from Volkswagen (VLKAY). Of course, what Porsche engineers do best is make Porsches, those sleek machines auto buffs love so dearly. Most poor mortals cannot afford such high-priced wheels. But perhaps they shouldn't despair. After all, Porsche may have had a hand in making their cars and vans, too. By Matthew Karnitschnig in Frankfurt _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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