Porsche - World's Most Profitable Carmaker in 2006

Porsche - World's Most Profitable Carmaker in 2006
by RAIN STOCKTON

Bloomberg reports Porsche AG's 911, a $72,400 sports car, spurred the carmaker’s being the world's most profitable last year. CEO Wendelin Wiedeking says earnings will grow even more because of Volkswagen AG's Golf, a $15,000 hatchback.

The report said Wiedeking may extend the luxury car company's share-price gains by increasing the stake and using Porsche's influence to convert Europe's biggest carmaker. Analysts and investors say Porsche's experience in “thin” production will enhance Volkswagen's profitability, while the companies will save by sharing development costs.

Sales and profit at Volkswagen, now 31 percent owned by Porsche, have already increased since the initial tie-up, spurring Porsche's shares more than double.

Peter Braendle, who helps manage almost 63 billion Swiss francs ($52 billion) in assets at Swisscanto Asset Management in Zurich, plus shares in both car companies, said Porsche knows how to manage itself and stands to significantly earn from its ownership in Volkswagen.

Adam Jonas, an analyst at Morgan Stanley in London, forecasts that Porsche's profit may grow to more than 3 billion euros, which is tantamount to $4.1 billion, in five years from 1.39 billion euros in the 12 months ended July 2006. He expects that the company's shares will reach 1,650 euros within a year, as compared with Thursday's closing price of 1,330 euros.

Juergen Meyer, who helps manage almost 1.3 billion euros of assets at SEB Asset Management in Frankfurt, including Volkswagen and Porsche shares, commented that the alliance between Porsche and VW is extremely important to Porsche.

As regards lagging profitability, the report says that such concern on Volkswagen would crimp Porsche's growth sent the luxury carmaker's shares plunging 10 percent on Sept. 26, 2005, a day after Porsche said that it would acquire a stake in the larger automaker.

In 2005, Wolfsburg, Germany-based Volkswagen's operating margin was 3 percent as compared with 19 percent at Porsche in the 12 months ended July that year.

Volkswagen's margin widened to 4.3 percent in 2006, as new models such as the Eos and the Audi Q7 helped lift sales 10 percent to 5.72 million vehicles. Net income increased more than doubled.

Cost cutting already began at Volkswagen. As a matter of fact, former Chief Executive Bernd Pischetsrieder has thrown off 20,000 jobs.

Andreas Dittmer, who helps manage nearly 3.5 billion euros in assets at Apo Asset Management in Cologne, Germany, which includes Volkswagen shares, commented that “Volkswagen has become leaner'.

Porsche is entitled to almost one third of Volkswagen's dividend, which was 497 million euros in 2006. Wiedeking said on June 26 that Porsche's profit will really rise significantly this year. And thanks to Volkswagen.

The German carmaker is the genius behind Volkswagen Golf parts.