Teutonic Turnabout: VW to Acquire Porsche

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Additionally, Wiedeking believed that it was critical in a Porsche-VW tieup that Porsche be the acquirer in order to maintain its prestige and brand value, so as not to be seen as just another brand inside VW along with Audi, Bentley, and Lamborghini.

"Without acquiring a holding in Volkswagen, our own survival would have been at risk," wrote Wiedeking in his 2007 book, Don't Follow the Crowd. VW and Porsche have extensive co-dependent relationships, such as the joint development and manufacture of Porsche's Cayenne SUV. VW sells a version of that SUV as the Touareg.

As recently as this past weekend, Wiedeking was still putting on a face for a fight. At a 100-year anniversary for Audi in Ingolstadt, he told reporters, "I have a concept that can stabilize the company." He added that he was "not wounded, but robust and battle-tried."

The irony of Wiedeking's undoing by a hedging scheme gone bad and the capital markets is rich. He has long decried quarterly financial reporting, and backed out of listing Porsche on the New York Stock Exchange (NYX) after the Sarbanes-Oxley legislation passed in the U.S., making for the kind of more restrictive and onerous financial reporting that he often decries.

Wiedeking wrote in his book: "Our tasks are to design and build engines, press sheet metal into shape and paint it, assemble components into vehicles of high quality, and look for as many people as possible, day after day, who are prepared to buy our products at the prices they command, without calling for discounts. If we continue to perform these tasks successfully, we need have no fear that the capital markets will turn against us."

He had the upper hand, especially in Germany, by sticking to a strategy that had not involved merging with or acquiring another automaker. While Daimler's (DAI) acquisition of Chrysler turned out disastrously, costing the company nearly $40 billion and distracting it from its more profitable and successful Mercedes-Benz business, and BMW (BMWG.DE) struggled with its burdensome acquisition of MG Rover, Porsche stuck to its knitting and achieved the best operating profit margins in the auto industry.

Personal Rivalry Comes to a Head

In trying to take over VW, Wiedeking waged a risky battle with Piëch, who is also a major shareholder in Porsche. Piëch and Porsche Supervisory Board Chairman Wolfgang Porsche are both grandsons of Ferdinand Porsche. The rival families control 100% of the voting shares at Porsche. While the acquisition of VW by Porsche was backed by Wolfgang Porsche, Piëch, say industry sources, was not sold on it. Piëch turned away from it altogether when the courts upheld the Volkswagen law. Piëch has gone so far as to publicly rebuke Wiedeking. "This was a contest of two alpha males like I have never seen before," said one VW executive. "And nobody has ever won such a battle against Dr. Piëch," said the same executive.

Porsche's absorption by VW, and Wiedeking's likely exit, comes as the sportscar maker is preparing to begin selling the Panamera, its first four-door sedan, later this year. Wiedeking took Porsche into the sport-utility vehicle market with the Cayenne, which came under much criticism by reporters and industry analysts who believed Porsche should stick to its sportscar and engineering-services businesses. Wiedeking believed Porsche needed a sedan to expand its customer base and remain independent—a strategy that now seems especially redundant, considering the upmarket sedans VW offers through its VW and Audi divisions.

The design of the Panamera has been criticized by many for ungainly proportions in its rear half. Indeed, Wiedeking, who is over 6 feet tall, insisted that the rear seat be large and spacious enough for him to ride comfortably in as a passenger. Not that the CEO was ever interested in taking a back seat to anyone, but now it appears that if he wants a Panamera, he'll have to buy one from a dealer like everyone else.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.

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