Leipzig, Germany:
The formal merger of Porsche and Volkswagen is not supposed to happen until next year at the earliest, but at the factory that produces Porsche Cayenne SUV's, it seems to have started years ago.
The painted Cayenne bodies arrive by train from a Volkswagen factory in Slovakia, where they are made alongside the similar VW Touareg. Likewise, the basic skin and skeleton of the new Porsche Panamera sedan, also assembled here, begins life at a VW factory in Hanover.
Yet there are many subtle things that make the Leipzig factory -- and what it produces -- unmistakably Porsche. The plant uses fewer machines than Volkswagen's big factories and sounds remarkably quiet, almost reverential, as workers in spotless red overalls and white T-shirts install equipment to each buyer's specifications. Want gold plating on that shift knob? No problem.
"The customers should get their car, not just any car," says Joachim Lamla, chief financial officer of Porsche Leipzig, as he shows a visitor around.
That fancy Porsches contain some plebeian Volkswagen genes has never been a secret, and it doesn't seem to matter to the buyers sipping espresso in the elegant Porsche customer center next door to the Leipzig factory, waiting for the keys to their new cars -- and perhaps, a high-speed spin on the track next door.
Sharing parts is one thing, but being taken over is quite another. For most of the last 60 years, Porsche and Volkswagen have been like a couple who never quite moved in together. Porsche supplied engineering expertise to Volkswagen and bought components and manufacturing capacity, but it carefully guarded its identity and independence -- a formula that delivered some of the best profit margins in the business.
Now, with Volkswagen poised to acquire Porsche -- in a deal announced a year ago that values Porsche at 12.4 billion euros ($15.6 billion) -- many in the auto industry wonder whether they can make a marriage work. The risk, they say, is that VW bureaucracy could smother Porsche's individuality, or that plans to offer less costly models could blur Porsche's image as the ultimate in German auto engineering.
"The whole maxim has been, 'We can't let outsiders influence Porsche because we don't want lesser minds to crush our ingenuity,' " says Jay Greene, author of "Design Is How It Works," the first chapter of which is a paean to Porsche design genius. "Doing that in a big corporation is going to be a challenge."
Volkswagen, based in Wolfsburg, is already drawing Porsche, based in Stuttgart, into a closer embrace. Martin Winterkorn, VW's chief executive, is installing a longtime protégé, Matthias Müller, as CEO of Porsche. And Mr. Winterkorn has begun musing aloud about how to expand Porsche's lineup from four core models to six and to bolster sales by more than a third, to 150,000 cars a year.
On the drawing board is a somewhat smaller Porsche SUV Mr Winterkorn has also floated the idea of a car selling for less than the Boxster, which, at $47,600, is Porsche's least-expensive two-seater, a few hundred dollars more than the basic Cayenne.
"We can build 150,000 autos without losing any exclusivity," Mr Winterkorn said last month in an interview with a German newspaper. (He declined to be interviewed for this article.)
Others are not so sure. "It will certainly not be the old Porsche," says Ferdinand Dudenhöffer, a professor at the University Duisburg-Essen in Germany who specializes in the auto industry. "Porsche will enter a new era as brand No 10 in a big company."
Still, Mr Dudenhöffer and others say that Porsche needs to adapt to huge changes in the upper reaches of the car market, and that it does not have the resources to do so alone.
These days, status-conscious buyers want to pull up to the country club in a car that looks green as well as sexy. (Even Ferrari is building a hybrid.) And automakers in all price classes worry that the Facebook generation is more interested in mobile phones than in fast cars; analysts say the phenomenon has already hurt auto sales in Japan.
The industry is also moving toward battery-powered vehicles, a long-term trend that could blunt a main selling point of conventional sports cars: their speed. Because electric motors reach maximum power much more quickly than internal combustion engines, even a humble battery-powered car may potentially offer Porsche-like acceleration.
Porsche, with sales of 6.6 billion euros, or $8.3 billion, last year, could not master the design and technical challenges of these shifts without a large, well-heeled partner. The vast resources of Volkswagen, with sales last year of 6.3 million vehicles, and revenue of 105 billion euros ($134 billion) will allow Porsche, which has never produced more than 100,000 cars annually, to support the costly development of new models that consume less fuel and have fewer emissions.
The trick will be to preserve Porsche's exclusivity. "There are opportunities to grow, but they have to watch out they don't dilute the brand by going downmarket," says Gregor Matthies, a partner in Munich for Bain & Company, the consulting firm, who specializes in the auto industry.
Stephan Winkelmann, the CEO of Lamborghini, the Italian maker of exotic sports cars, is among those who argue that the merger can work without extinguishing the Porsche spirit.
He speaks from authority. Lamborghini, which VW acquired 12 years ago, is one of nine brands in the Volkswagen Group -- a stable that also includes economical VW and Skoda cars, upscale Audis and one-of-a-kind Bugattis with a price tag of well over $1 million.
Lamborghini has sold more cars since the acquisition -- 14,000 -- than it did during all the previous 40 years, Mr Winkelmann said. It even uses some VW parts, but not for more than 10 percent of any car and never anywhere they might be visible to owners.
"The development of our company in the last 12 years stands as clear demonstration of the advantage of being part of this group," Mr Winkelmann said by e-mail.
A BIG uncertainty facing Porsche is whether Mr. Müller will be able to fill the void left by Wendelin Wiedeking, the longtime Porsche CEO.
Mr Wiedeking, one of Germany's best-known managers, was an iconoclast revered within the company, though his brash style sometimes annoyed shareholders as well as the top brass at Volkswagen.
Mr Müller, 57, is much more the company man, a protégé of Mr Winterkorn who has spent his entire career at Volkswagen, primarily in the Audi unit. Mr. Müller joined Audi as an apprentice toolmaker in 1971 and returned full time in 1978 after completing a degree in computer science. He led the team that produced and marketed the Audi A3 compact in the mid-1990s and eventually rose to be coordinator of all the brand's model lines. In 2007, Mr Winterkorn put him in charge of overseeing product development for the entire Volkswagen group.
At Audi, a VW unit since the 1960s, Mr Müller faced challenges similar to ones he will confront at Porsche, which occupies an even more exclusive segment of the market. Mr Müller can take much of the credit for Audi's success at overtaking BMW in Europe in unit sales with cars built largely from the same array of parts as VW Golfs or Passats.
As they are with the Lamborghinis, the common parts are hidden from Audi customers' view. What buyers perceive is more stylish design and sportier performance as well as more costly materials, like aluminum body work. Today Audi is VW's most profitable unit by far.
But Volkswagen has not been successful with all its brands. Its Bentley unit, which makes high-end cars that compete with Maserati and Rolls-Royce, lost 109 million euros ($137 million) on sales of 320 million euros in the first six months of 2010. VW, which remains profitable over all, blamed "changes in the market and product mix" for the loss.
Equally important, Mr Müller enjoys the trust of Mr Winterkorn as well as Ferdinand Piëch, the demanding chairman of the Volkswagen supervisory board who also happens to be a scion of the Porsche family. And Mr Müller seems well regarded by his peers. Mr Winkelmann of Lamborghini calls him "a professional and a friend."
Mr Müller will not officially take charge until October, but he has been quietly touring Porsche offices and factories. Analysts say he is not likely to enjoy the same freedom that Mr Wiedeking did.
Mr Müller "is a VW guy through and through," says Tim Urquhart, an auto analyst at IHS Global Insight. "Porsche will have to fit into a wider corporate strategy. That is a big change in culture." Mr Müller declined to be interviewed for this article.
Mr Urquhart and other analysts warn that Mr Müller will need to avoid overlap between Porsche and Audi, which sells its own high-end sports car, the R8, starting at $148,000, as well as the TT line, starting at $37,800. And at the ultra-high end of the market, Mr Müller will have to avoid stepping on toes at Lamborghini.
"There is lots of crossover; they have to work out that relationship," Mr Urquhart says. "You've got to keep that mystique about the brand."
Mr Wiedeking left last year after a byzantine power struggle for control of the company. But in the previous 17 years, he transformed Porsche, expanding its product line beyond the core 911 to include the lower-price Boxster, the Cayenne SUV and, last year, the Panamera four-door sedan.
Porsche's legions of enthusiasts initially recoiled at the idea of Porsche family cars. But the Cayenne, which starts at $47,000, is now Porsche's best-selling model worldwide. It also allowed the company to push into emerging-market countries where roads may be unsuitable for a ground-hugging 911.
In addition, the Panamera has become Porsche's second-best-selling model in the United States, just behind the Cayenne, less than a year after its introduction.
Mr Wiedeking also cut costs, introducing Japanese-style manufacturing methods and outsourcing some Boxster production. The outsourcing allowed Porsche to continue earning double-digit margins on car sales last year, even as sales plunged 24 percent.
His downfall was his audacious attempt, begun in 2005, to acquire Volkswagen via stock derivatives. Mr Wiedeking, who declined to comment for this article, recognized that Porsche needed to cement its ties with the larger company, which at the time was regarded as a possible takeover target.
"Wiedeking clearly understood that on a stand-alone basis, Porsche would not be able to cope with emission requirements and the shift to emission-free vehicles," says Mr Matthies at Bain & Company.
The acquisition plan backfired when the financial crisis hit and banks no longer wanted to back Mr Wiedeking. Instead, Volkswagen wound up rescuing Porsche from financial overreach and gaining control.
Employees gave Mr Wiedeking a 15-minute standing ovation when he left the main factory in Stuttgart in July 2009, and some veteran engineers even wept, according to several people there.
IT is safe to say that neither Porsche nor Volkswagen would exist today without the other. Their ties go back to the '30s, when Ferdinand Porsche, who made his living as a kind of auto engineering consultant, designed the "people's car" for the Nazis. First mass-produced after World War II, with Porsche continuing to supply engineering expertise, the car that became known as the Beetle set VW on a path to become Europe's largest carmaker. Mr Winterkorn's long-term goal is to surpass Toyota as No 1 in the world.
Meanwhile, Mr Porsche's son, known as Ferry, bolted a streamlined aluminum body to what was essentially a Beetle chassis and engine to create the first mass-produced Porsche sports car, the 356, which went on sale in 1948 and marked the transition of the Porsche company from an engineering consultant and maker of one-off racers to a full-fledged car producer. The lines of the 356 are still visible in modern 911 models, which start at $78,000 but can go up to $245,000 for a race-ready version with a top speed of 205 miles per hour.
Porsche and VW cooperated on other cars through the years, including the 914, introduced in 1970, and the Porsche 924, which was built at an Audi factory from 1976 to 1988. Tellingly, the 914 sold poorly in Germany, where it was branded a VW-Porsche. In the United States, where the Volkswagen tie went unmentioned, it sold well.
The family ties have also persisted. Mr Piëch, the Volkswagen chairman, is the grandson of the Beetle designer Ferdinand Porsche, and was in charge of developing Porsche racecars during the 1960s. Mr Piëch went to work for Volkswagen after Ferry Porsche banned family members from the sports car company in the early 1970s because he felt that they were spending too much time fighting with one another.
Last year, Mr Piëch was one of the main characters in the battle for control of Porsche, much of which played out behind the scenes among Porsche family shareholders at their compound in the Austrian resort of Zell am See.
Mr Piëch is also a formidable engineer known for his love of exotic technology, even at the expense of short-term profit. That bodes well for Porsche's plans to make big investments in green technology.
As part of the company's push to appear more environmentally sustainable, some of the grass near the Leipzig factory is kept trim by a herd of oxen, which on special occasions may also turn up on the menu at the customer center's restaurant.
When it comes to cars, as opposed to cattle, Porsche has been slower than other luxury carmakers to go green. It introduced the first Porsche hybrid, a $68,000 variant of the Cayenne, in June.
A survey last year by Bain of 4,000 car owners in the United States, Europe and Asia found that premium-car buyers were more willing than those in other segments to invest in green technology. But they also wanted their low-emission cars to look cool. Ominously for Porsche, the premium buyers said they would be more likely to buy an electric car made by Toyota, Daimler or BMW than one made by Porsche or VW, probably because the other companies already have hundreds of low-emission prototypes on the roads.
Porsche said in July that it was planning commercial production of a new plug-in hybrid, the 918 Spyder, that will offer blistering acceleration but also be capable of getting 78 mpg-- though only if driven like a Volkswagen and not like a race car. The car will probably cost hundreds of thousands of dollars.
Porsche representatives say the technology will eventually find its way into less expensive models. The company is also experimenting with a prototype battery-powered Boxster.
But the cult like devotion that has inspired hundreds of Porsche clubs worldwide could suffer if, as Mr Dudenhöffer predicts, VW pushes the brand further into BMW and Mercedes territory.
Jim Hearnden, vice chairman of the Independent Porsche Enthusiasts Club in Britain, said, "It's quite feasible we could see a blurring between the top end of VW and the bottom end of Porsche." But Mr Hearnden, owner of a 1987 Porsche 944, added that "anything that means they survive is good."
Worried devotees can still summon the ghost of Ferry Porsche on YouTube, where in an old promotional film the scion warns of the perils of being part of a big corporation.
"Porsche must remain small and independent," Mr Porsche, who died in 1998, says as strings swell in the background and drums pound ominously. "No Porsche will ever be created by a committee, but by a handful of people inside these walls who know what a Porsche is."