Porsche Zooms Ahead of the Pack

CEO Wendelin Wiedeking's savvy approach is allowing the automaker to deliver more car for the buck, but potholes could lie ahead

by Gail Edmondson

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Porsche Chief Executive Wendelin Wiedeking loves to relax on weekends by rumbling around the farmed fields near his home in a tractor. But when it comes to running the world's most profitable automaker, Wiedeking never takes his foot off the gas.

With sales growth fueled by one hit model after the next, Porsche's revenues are set to double in the next five years, from $10 billion this year to $21.3 billion in 2012, according to Morgan Stanley (MS), while car sales zoom over the same period from 99,000 to nearly 200,000. And while many automakers struggle with squeezed profit margins, Porsche's earning power is the industry envy: For the fiscal year ended July 31, analysts forecast net profit of $2 billion, up 33%, and an operating margin of 19.8%.

Wiedeking has long defied predictions that Porsche (PSHG_P.DE) was too small to survive, despite its near-brush with bankruptcy in 1992. Last year the cash-rich sportscar maker took a controlling stake in Volkswagen (VOWG.DE), the world's fourth-largest car company, and rumors abound that Wiedeking will soon swallow up the rest. Overseeing an empire that spans from $120,000 sports coupes to prosaic $12,000 subcompacts is a new challenge for Wiedeking. But after 14 years at the helm, the 54-year-old engineer has already proven to be one of the world's most talented auto chiefs.

Wiedeking's winning formula at Porsche is making high-performance sports cars with Toyota-like quality at a competitive price—a feat no rival automaker has yet managed to copy. "The 911 costs $80,000, but given the performance it delivers, it's a good value," says John Casesa, of auto advisory Casesa Shapiro Group in New York. "Porsche has the latest technologies in its cars, and they work reliably. The product has real integrity. Porsche has the performance of an exotic [car] but the reliability of a Honda."

Learning from Toyota

Porsche traditionally ranks high in quality surveys, but for two years running it has even moved past Toyota (TM) and Lexus to top J.D. Power's initial quality survey with the lowest number of problems after three months of ownership. This year, the Porsche Boxster also aced the J.D. Power competition for compact premium sports cars. When it comes to quality, "Porsche is one of the industry leaders," says Joe Ivers, executive director of quality and customer satisfaction at J.D. Power (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP) ).

That's thanks in large part to Wiedeking's vision. Long before other German automakers, Porsche was studying the Toyota bible on quality manufacturing. In the mid-1990s, as he struggled to steer Porsche out of a death spiral, Wiedeking turned to Toyota for help, cloning its obsessive quality processes at Porsche's Stuttgart plant and sending many Porsche workers and engineers to Toyota factories in Japan to learn its ways.

But Porsche's rapid growth going forward will test Wiedeking's winning formula as never before. Wiedeking has stoked profits at Porsche for a decade by outsourcing part of the production of the entry-level Boxster model to Finland's Valmet Automotive and by co-developing the Cayenne SUV with Volkswagen, while keeping control of top-of-the-line 911 models in-house. He also relied heavily on suppliers such as Robert Bosch to co-develop new automotive technologies.