Pedal To The Metal At Porsche

It boasts the speediest growth in the industry. Will its new coupe be another coup?

Auto buffs worldwide would kill to get behind the wheel of the kind of car Wendelin Wiedeking drives, but the Porsche chief executive is happy to spend his weekends rumbling around potato fields on his tractor. Maybe he likes the bumpy ride because things go so smoothly at his day job.

Fueled by a string of hits, Porsche has become the world's most profitable automaker. For the fiscal year ended July 31, analysts expect net profit of $2 billion, up 33%, and an operating margin of 19.8%--double Toyota's level. With soaring demand in developing countries, plus strong sales in established markets, Porsche's revenues could double by 2012, to $21.3 billion--the speediest growth in the industry--brokerage Morgan Stanley (MS ) predicts.

Wiedeking's emphasis on churning out high-performance cars that are as durable as Japanese sedans is a key factor in Porsche's success. To revive the near-bankrupt company when he took over in 1993, Wiedeking dispatched his engineers to Japan to study Toyota Motor Corp.'s (TM ) manufacturing processes, and it paid off with dramatic improvements in quality and cost. For the past two years the brand has ranked No. 1 in J.D. Power & Associates Inc.'s (MHP ) survey of initial quality (based on problems in the first three months of ownership). And this year the flagship 911 coupe had just 69 problems per 100 cars--the best in the industry.

Wiedeking, meanwhile, has maintained a Japanese-like grip on costs. A key strategy has been teaming up with other companies on research and development, helping Porsche boost innovation on the cheap. "Porsche has the performance of an exotic [car] but the reliability of a Honda," says John Casesa, managing partner of auto consultancy Casesa Shapiro Group in New York.

Naysayers have long predicted that Porsche was too small to survive on its own. Few would argue that now. Last year the cash-rich sports car maker took a controlling stake in Volkswagen (VLKAY ), the world's fourth-largest auto manufacturer. The goal: to ensure access to Volkswagen's development resources and electronics expertise, keeping costs down and profits chugging at Porsche. But overseeing an empire that stretches from $120,000 sport coupes to $12,000 subcompacts is a new challenge for Wiedeking. And launching a fourth model line at Porsche will make that job even tougher.


In 2009, Porsche plans to introduce a four-door coupe called the Panamera. The last time Porsche added a model--the Cayenne SUV in 2003--its reputation for quality took a hit. The Cayenne shares parts and technology with VW's Touareg, and the bodies of both are produced at a Volkswagen plant in Slovakia. Early versions of the car were riddled with defects, plunging Porsche to No. 29 in J.D. Power's 2007 survey of reliability over three years--well below its traditional level. "The [2004] Cayenne single-handedly drags Porsche down below average," says Joe Ivers, executive director of quality at J.D. Power.

The SUV suffered from wind noise, poor radio reception, glitches in its door locks and keyless entry system, and condensation in the headlights. But Porsche quickly made some design tweaks and worked with suppliers to resolve those issues. Cayenne buyers this year reported 125 problems per 100 vehicles in J.D. Power's initial quality survey, down from 233 per 100 in 2004.

So Porsche is keen to avoid similar problems with the Panamera. While the coupe's low-slung body will be manufactured by VW, the car is being developed mainly in-house and will use an engine already put through its paces in the Cayenne. And Porsche's dealers and engineers now communicate daily about quality, keeping a close eye on even minor problems, says Peter Schwartzenbauer, CEO of Porsche Cars North America. "We learned a lot of lessons from the Cayenne," says Schwartzenbauer, "and we learned them very quickly."

By Gail Edmondson

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