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Porsche (with Doug DeMuro)

Season 12, Episode 6

ACQ2 Episode

June 26, 2023
June 26, 2023

The Complete History & Strategy of Porsche

Nobody’s perfect — including Porsche. Despite that phrase appearing in their famous 1983 magazine advertisement, they managed to get damn-close to the perfect luxury business (even Bernard Arnault would be jealous!). Porsche is both quality AND quantity, owning the most prestigious brand in its market, while at the same time churning out almost half a million mass-market soccer mom/dad SUVs per year. And like any good luxury brand, it’s packed with enough juicy family drama and creeping takeovers to fill a Netflix series.

Yet, behind it all lies perhaps the darkest origin story we’ve ever told on Acquired. Not only was Porsche was started by Nazis, Adolf Hitler himself was deeply involved in its early fortunes. And, following WWII, the Allies simply looked past these facts and essentially bestowed a license to generate wealth on Porsche and its owners — setting the stage for them to become one of the top ~15 wealthiest families in the world today.

Joining us to explore it all is perhaps the very most-qualified person in the person in the world: the one & only Doug DeMuro. Not only is Doug the largest independent car reviewer on YouTube with millions of subscribers (we’re HUGE fans), he previously worked at Porsche corporate and owns a legendary Porsche Carrera GT — which served as the recording backdrop for this episode. Make sure you tune in to watch the video version! :)


Carve Outs:



We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Season 1, Episode 26
LP Show
June 26, 2023

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
June 26, 2023


Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

Season 4, Episode 1
LP Show
June 26, 2023

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Season 1, Episode 11
LP Show
June 26, 2023

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
June 26, 2023

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

Season 1, Episode 23
LP Show
June 26, 2023

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Season 1, Episode 20
LP Show
June 26, 2023

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

Season 1, Episode 7
LP Show
June 26, 2023

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Season 1, Episode 2
LP Show
June 26, 2023

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!


  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: It's definitely por-shuh.

Doug: Por-shuh.

Ben: Por-shuh.

Doug: Yeah. Definitely don't say porsh.

Ben: Definitely don't say porsh.

Doug: I met one of them at one point. They say not like por-shah, but more like por-shuh. I think it's a German thing, so we all say por-shuh.

Ben: If you say Porsche with a German accent, it comes out like por-shuh?

Doug: Yeah. That's probably exactly what it is.

Ben: Welcome to season 12, episode 6 of Acquired, the podcast about great technology companies, and the stories and playbooks behind them. I'm Ben Gilbert.

David: I'm David Rosenthal.

Ben: We are your hosts. Today, we tell the story of Porsche. If you liked our LVMH episode, you are going to love this one. Not just because it's a European luxury brand, there is possibly even more family drama, creeping takeovers, and complex corporate structures at play.

Why is Porsche—the brand and the product—so special? The company has struck an incredible balance of both building some of the world's finest supercars while also being a great daily driver, unlike (say) a Ferrari or a Lamborghini. Of course, these are expensive daily drivers with the average Porsche costing $110,000, but they have managed to nail being a prestige brand with pricing power and make a ton of cars at 350,000 per year.

Today, we'll study how they cultivated such a vibrant community, which conveniently for them is comprised of extremely wealthy people. But it has not always been this way, and it certainly didn't start this way. Today's story has Nazis, tanks, the first electric vehicles, and like most luxury brands, some misadventures in the 1980s.

David: Oh yes.

Ben: If you like quirks and features, you're going to be pumped about our partner in crime to help us tell this story, Doug DeMuro. Doug is one of David and I's favorite YouTubers and content entrepreneurs. He operates the largest independent YouTube channel focused on car reviews with millions of subscribers.

He also used to work at Porsche corporate, and is about as big of an enthusiast of the brand as you'll find anywhere. In fact, we are filming this episode now sitting in his garage in front of a very special Porsche, Doug's Carrera GT. Welcome to Acquired, Doug.

Doug: Thank you for having me.

Ben: It's wonderful to have you here. Listeners, if you want to know every time an episode drops, sign up for email updates at acquired.fm. Join the Slack. We'll be talking about it after this episode, acquired.fm/slack.

Without further ado, David, take us in. Listeners, this is not investment advice, David and I and Doug may have investments in the companies we discussed. This show is for informational and entertainment purposes only.

David: To set the stage a little bit, I think that even though it's a marketing phrase...

Doug: The German engineering thing.

David: It's worth sharing a little bit of history because it is more than just a marketing phrase. There's a pretty long and incredible history of science and engineering in Germany and Austria. It goes all the way back to the scientific revolution and Johannes Kepler.

Actually, before World War II, Germany had produced more Nobel laureates in scientific fields than any other nation in the world. Folks like Max Planck, Erwin Schrodinger, Kurt Godel, and Albert Einstein. These are all German and Austrian scientists.

This tradition extends also, of course, to the auto industry. It is very likely that the first gas-powered transportation vehicle—this was looked more like a tricycle than a car, but predecessor of a car—was created by a German inventor in 1864 named Siegfried Marcus.

I say probably, because nobody really knows, because Marcus was Jewish, and the Nazis destroyed all records related to him during the war; we're going to talk a lot about the Nazis here in a minute. Either way, though, Germany definitely did create the first successful production consumer automobile. It was a vehicle called the Benz Patent-Motorwagen. That was made in 1885 by Carl Benz.

Ben: I recognize that name, Benz.

David: Indeed, you probably do, as most listeners. Around the same time, another German inventor named Gottlieb Daimler sets up his own motor company. In the early 1900s, they have a model that they're producing. It goes on to be quite popular. It's named after the daughter of one of their biggest dealers in their dealer network. Of course, we are talking about Mercedes. I have no idea that's where the Mercedes name came from.

Ben: Neither did I.

David: Yeah, crazy. Benz and Daimler ended up merging in 1924, and thus Mercedes-Benz is born. You might be asking, what does this have to do with Porsche. It turns out quite a lot because in 1906, Daimler scores a pretty big win in this fledgling German auto industry when they recruit the current Potting prize winner—the Potting prize was for Austria's automotive engineer of the year—to come be their new Chief Engineer at Daimler, one Dr. Ing. h.c. Ferdinand Porsche.

The whole doctor, engineer, honoris causa thing, is a bit of a red herring, although Porsche, the person and the company, would make quite a big deal about it. The dude never even finished college, let alone got a PhD. It was an honorary degree that he got later in life.

Ben: Wait, the Dr. Porsche is doctor like the Seuss doctor?

David: He had an honorary doctorate.

Doug: He was already doing stuff that he was engineering and creating, hence the honorary doctorate.

David: Yes. Nonetheless, he definitely was a badass engineer. We're going to talk about all of the amazing things that this guy creates, but we also got to state this upfront—this is as good place as any—Ferdinand Porsche and many other folks in the family and in the early Porsche and Volkswagen (as we will see) days, were also huge Nazis.

Ferdinand himself, not just was a Nazi, but was a very close personal associate of Adolf Hitler. He was a member of the SS. We're going to glorify him and many of these other folks here of their business and engineering contributions, but that doesn't mean that these are good people, so keep that in mind.

Ben: Yeah. This isn't like one of those people that you hear, oh, well, at that point in time, the Nazis were so big and powerful, they just got course, or they collaborated. It's like, no, this dude was [...]. Real big Nazi.

David: Yeah, he was definitely a Nazi. When Ferdinand takes this new post as the head of engineering at Daimler, he moves his family from Austria where he was the Potting prize winner, to Stuttgart in Germany. Doug, you probably have some more context on this, but Stuttgart is basically the Detroit of the German auto industry.

Doug: And it certainly has become more that way since Porsche as we'll get to because Mercedes-Benz is there, and it really does feel like a manufacturing cradle especially for cars.

David: I think it's not even much like Detroit. It's not even just the car companies, but all the suppliers and subcontractors.

Doug: Everybody you meet in Stuttgart, just like when you go to Detroit, works for Porsche, Mercedes-Benz, a supplier, or something like that.

David: It is the industry town.

Doug: Yeah.

David: Porsche, Ferdinand, it's not a short period of time. It's two decades that he is running the engineering and the car design for Mercedes-Benz. While he's there, towards the end of his time as we're getting into the lead up to World War II, he comes up with a concept. He thinks that he can produce a small, affordable car that can really become the first German and European mass-market automobile.

Back in the US, there was the Model T and Henry Ford. That existed, but Ferdinand's vision is a small car. The Model T was a large car, like a modern, small automobile that Germans everywhere can buy.

Doug: Which was important because in Germany in that time, car ownership was not anywhere near as big as it was in the United States. Apparently, only 2% of Germans owned a car versus 30% of Americans by the 1930s, so mobilizing Germans was not something that had happened en masse at that point.

David: This really was a challenge to build a car that could be affordable enough for the average German person to buy it. Indeed, it was a challenge because the board of Daimler Benz rejects it. They're like, no, we can't do this. We make expensive cars for wealthy people.

They get into a huge fight over this, and Ferdinand ends up leaving the company pretty acrimoniously in 1929. Doug, you worked at Porsche, you have content. I think to this day, the rivalry between Mercedes-Benz and Porsche has some bad blood there.

Doug: It heats up and it cools down. There's more to discuss in that in the future for sure, but they ultimately do share that town, too. There's rivalry, but you'll have beers with them. You can't avoid hanging out with Mercedes-Benz's employees also.

David: Love it. Once he leaves, Ferdinand bumps around for a little while. In 1931, he starts a consulting firm to advise other car companies, not Daimler Benz, but other car companies in Germany, Europe, and I think in America, too, on their designs, do some work for them, and maybe even design cars for them. He names it the Dr. Ing. h.c. Ferdinand Porsche Konstruktionen und Beratungen fur Motoren und Fahzeugbau. I apologize to any German speakers out there.

Doug: To be fair to you, it's a lot.

David: It's a mouthful, I studied French in college. That translates as The Dr. Ing. h.c. Ferdinand Porsche Consulting and Design Services for Motor Vehicles company. This is the beginning of Porsche the company. Up until 2008 and 2009, which we will get to much later in the episode, that is the company that makes Porsches. Wow.

Ben: If you look up the stock of Porsche, and you pick the right Porsche, and there's a couple we'll talk about, that's still the full name of the company, all of his honorary things.

David: When he's starting this new company, he enlists the financial support of two people. One is his son-in-law, his daughter Louise's husband, one Anton Piech. Remember that last name because it is also going to be very important as we go along here. The other person is Adolf Rosenberger.

If you are a Porsche history nut, you probably know about Anton Piech. You probably don't know about Adolf Rosenberger because shortly after they start the company, Rosenberger was Jewish, and he gets arrested by the Gestapo. He gets imprisoned. He eventually bribes his way out and escapes to America. But during the war, Porsche and the Nazis totally appropriate his stake in Porsche, and he's written out of history.

Ben: Wow.

David: This new Ferdinand company, in 1934, they land one very, very, very large contract that would go down in history both for the company and the world. That contract would be to design Ferdinand's vision, the small, affordable car for the people, a Volkswagen, you might say in German. That car would go on to become the Volkswagen Beetle.

The company that contracted Porsche to build and design it was Volkswagen, which was established to do so by Adolf Hitler. I had heard rumors over the years like oh, yeah, there's a Nazi connection here, like Adolf Hitler founded Volkswagen.

Doug: It's bigger than a connection.

David: There's not a connection because it's the same person.

Doug: Right, it's the thing.

Ben: Facebook, I feel like that has some Zuckerberg Association, but I've never really put it together.

David: Yeah, there's some link between Mark Zuckerberg and Facebook.

Ben: I just got to say, this early in the episode, we may as well like pointed out already, it is crazy how comfortable we all are driving Volkswagens and Porsches when it was not just a little Nazi-affiliated, like founded by Nazis, and yet the way the world has evolved, people became okay with it.

Doug: All the German brands. Most of them used Jewish labor in their factories at that time. Obviously, very different people run the businesses now, so you just put it out of your mind.

David: Generations have gone by, also less so on the Porsche side of things, more so on the Volkswagen side of things, as we'll see with the history here. There is a pretty incredible refounding of Volkswagen after the war. I think if it were not for this refounding that we'll talk about in a minute, it would not exist today. It's just wild, freaking Adolf Hitler founded Volkswagen.

Ben: It's crazy. The Beetle, this people's car—Doug, you might know this—did it go on to become the most popular car ever in the entire world?

Doug: Probably.

David: Yes. It is very hard to get actual production and sales data, especially for old cars.

Doug: Especially for cars like the Beetle, which were produced in many countries over many years. They were building them in Latin America through a couple of years ago, maybe 2003 or something, so it's difficult to figure out. But obviously, whether or not it was the most or one of the most, obviously, the effect of that car is clear today.

David: I tried to think. I could not think of any other model, I believe the original Beetle is likely the single longest-produced and largest both in terms of length of time and number of units produced of a single generation model of car. The Civic, the Mustang, the F-150, definitely sold more than the Beetle, but those aren't the same cars. The Beetle was the same freaking car until the New Beetle in 1990.

Doug: It's interesting when you think about the Beetle because young people today look at it as a cute, classic car. But at the time, it was what you drove to drive your family around. We'll talk more as we get to postwar. But in Germany at the time, it's a real, important, practical family car.

David: This original Volkswagen, the Hitler Volkswagen, one of the things you can do when you start a company as a fascist dictator, you can create a new city to house this company in, which he did. Hitler creates a new city in Germany known as the then called, the city of the strength through joy car. That was what they wanted to call the Beetle, originally.

Doug: The strength through joy car.

David: That was like a Nazi phrase like the joy.

Ben: It didn't get much more German than that.

David: Yeah. This is Wolfsburg. This is the city that Volkswagen is still located in today. Hitler created it.

Ben: Not just Volkswagen, but the Volkswagen Group, one of the largest car conglomerates in the world that owns many other brands we’re familiar with, all out of Wolfsburg.

David: All out of Wolfsburg. Hitler creates Volkswagen, he creates Wolfsburg. They do start production of the Beetle before World War II starts. They only make about 200 units. These are super rare today if you find a pre-war Beatle. Then World War II begins on September 1st, 1939. As you would expect, all the Volkswagen and Porsche operations get repurposed to making military vehicles.

There's a bunch of dark stuff. Everything, Doug, you mentioned earlier, forced labor, concentration camps, was the Nazi war effort. It all happened. We're going to skip over this period for our purposes today, but note, it happened.

After the war, though, a whole bunch of really interesting stuff happens that basically fractures and separates out the Volkswagen operations from the Porsche operations for the rest of the century and into the 21st century. It's so ironic, given that they are now one company again.

Ben: Where are they?

David: Where are they? That's the question.

Doug: The funny thing is also, they danced around. Even in this period, then in the decades after that, and then of course now, they were always flirting with each other.

David: Yes. First on the Volkswagen side, I alluded to this a minute ago, it's a pretty amazing story, what happened. You would think there's no way. You can't imagine that Volkswagen would survive post–World War II, given what we now know, the origin of the company.

What happens is Wolfsburg ends up in the hands of the British at the end of the war. There's this whole crazy thing in Germany, like all the allied armies are coming in, and literally, Germany and Berlin ends up getting split into East Germany, West Germany, East Berlin, West Berlin. Wolfsburg is in the hands of the British.

Remember, because it was a political organization, it wasn't a company before the war, nobody owns it. It's this orphaned organization. It's super unclear. There's no proprietorship of it.

The initial plan that the British come up with, they were going to dismantle the factory, ship it over to Britain, and essentially have Britain appropriate the Volkswagen technology and operations. The Beatle was almost a British car.

Doug: But supposedly, the British didn't want. The British saw the plans for Volkswagen for the Beetle and said, no one's going to ever want to buy that car. It's crazy to think about now. It gives you an idea of how the British would operate their car industry, which is constant missed opportunities. They literally looked at the models that they had built, and they said, nah. They literally said it is not commercially viable.

David: Wow. The British government lacked vision for this. But a singular British person did see the vision for this, and that is the officer who was in charge of the territory where the factories were on the ground managing it. Major Ivan Hirst, a legendary figure in Volkswagen history.

He finds one of the pre war production Beetles, the 200 that were made. He starts driving it around, and he's like, hey, this thing's actually pretty good. I think we can maybe do something with this here. He also sees, and this becomes increasingly obvious as the post–World War II state of world affairs takes place here in Germany like the Cold War is about to start. He realizes that West Germany needs an economic revitalization here. We need to restart German industry because the iron curtain is falling just to the east here.

He amazingly proposes and convinces the British command to leave the factory in Wolfsburg, maybe easier than I thought, because the British didn't want it apparently. And also to place an initial seed order to restart the company for 20,000 Beetles that the British military is going to adopt and use as their main military transport. Not as a tank, not an armored Beetle, but they're going to use it to drive officers and stuff around. From that seed order, that is now the new Volkswagen. Yes, Hitler started it, but then Ivan Hirst really started it.

Doug: Totally. One of the things that I find interesting about the Beetle is that Europe was so war torn after World War II, all these places. We're in similar situations to Germany. The people needed to get back to work, they needed to be able to drive and go places, and each European country had their own Beetle. UK had the mini, Italy had the Fiat 500, France had the Citroen 2CV. They all look similar.

Ben: Wait, these are all based on the Beetle?

Doug: No, but they all came from the post-war era, where they needed something small and cheap to remobilize the citizenry, basically. Each country developed had their own car that did that for each country. But in Germany, of course, the Beetle became a global hit, whereas in those countries, it was more in their era.

David: Yeah, you don't see a lot of Citroens.

Doug: Yeah, but the 2CV was a huge, huge car. The French, just like the Germans, needed to get back to work, needed to start building stuff again, and also needed a cheap car to cruise around it.

David: Yeah, super interesting. That's Volkswagen. Put a pin in them. We'll come back to them in about 50 years because there's a lot more to say on Volkswagen.

Ben: That's about how long they would make that one model of the Beetle.

David: Yes. The New Beetle would get introduced, I think, in 1998. The first ones post-war were made in 1940, so yeah.

Ben: Crazy.

David: Crazy. Isn't that wild?

Doug: It's insane.

David: What about Porsche? They have a bit of a different path. After the war—

Ben: We should say, during the war, Ferdinand Porsche was designing tanks and other military transport.

David: He designed the Elephant anti-tank tank, the most powerful land-based tank ever created. (a) Terrible, but (b) just the range of design talent that he had, he designed the Beetle, and he designed the largest anti-tank tank ever created.

Doug: Within a couple of years.

David: Yeah.

Ben: And also, some of the very first hybrid and electric cars in history. But at that time, battery technology wasn't advanced enough, so you're lugging around this huge weighted battery pack to get almost no juice out of it, so it didn't really go into production.

David: He was a genius. This also runs in the family, too. Many of his descendants are both engines and cars geniuses. After the war, Ferdinand and the son-in-law, Anton Piech, are both arrested by the French as war criminals. Tried in France, they ended up being imprisoned for two years in France. Ben, you did a little research on this, right?

Ben: Yeah. I think the technical thing they got them on, which is why they only had two years, was for the forced labor that they took the imprisoned Jews and forced them to work in the factories. But all the other war crimes that were stacked against them ended up not being charged, so quick trip in and out of war criminal prison.

David: Ferdinand' son, Ferry Porsche, who had been working in the business I think a little bit before the war and then during the war, too, was also arrested for war crimes too at the end of the war. He gets released after six months in the summer of 1946. He and his sister Louise are like, what are we going to do? We got to rebuild the family. Are we going to restart the business? Let's go figure things out.

They return to the family's ancestral home in Austria. That happens to be quite convenient because during the last days of the war, as Stuttgart and other large scale German military production facilities were getting bombed by the Allies, Porsche took about 20 or so of the best, most talented engineers and production people that they had, they move them out of Stuttgart, and they moved them to the Austrian countryside so that they wouldn't be targeted, so that the Allied bombers wouldn't know where they are.

This is pretty crazy. They are literally operating out of a sawmill in a farming village in southern Austria named Gmund. We're talking about a couple of thousand people maybe that live in this area.

Ben: David, I know you read $500 worth of textbooks on Porsche.

David: There is this incredible history of Porsche called Excellence Was Expected that was written by Karl Ludvigsen. We have to owe a big thank you to him for the research for this episode. The photos, the archive work that are in this volume, is incredible.

Ben: I read a coffee table book that was the complete illustrated history of the 911. For this episode and this topic, you want a visual history. It's not like there are audiobooks and Kindle books that we could do our normal amount of research on. All this stuff is in these huge, heavy bound pictorial books.

David: These are amazing objects that are being produced. There's just such a visceral tangible quality to them that we don't usually cover on Acquired.

Ferry and Louise go back to Austria. They're there in Gmund. They're like, well, what if we start a new company and see what we can do around here? There are some vehicles we can start fixing up.

This is literally like the Sony story. If you remember when Sony first got started in Tokyo at literally the same time, they started by fixing radios. The second Porsche company, Porsche Konstruktionen GmbH, which is an Austrian company that they start to do this, start up fixing old military vehicles that are around there in Austria. Unlike Sony in Tokyo, though, where there were a lot of radios in Tokyo, there weren't a lot of cars in Gmund. Pretty quickly, they're like, ah, we don't have any more cars to fix off.

Ben: Bad business.

David: Yeah, about not a large market, shall we say. At this point, Ferry has an idea, and it turns out it's a pretty damn good one. He definitely liked and agreed with his father's vision for a small car, car for the masses, a Volkswagen. But he always had one major problem with the Beetle, which was that it was slow, and it just was not fun to drive.

During the war, he actually had a custom Beetle made that he drove during the war with a supercharged engine. Ferry said later in a 1972 interview, I saw that if you had enough power in a small car, it is nicer to drive than if you have a big car, which is also overpowered, and it is more fun. On this basic idea, we started the first Porsche prototype to make the car lighter and to have an engine with more horsepower.

Ben: Doug, can you contextualize what a big moment in world history this is?

Doug: It's an interesting concept because sports cars in general weren't a thing that much. There's going to be people around and say, no, there were a lot of sports cars before. But it was really a thing of real enthusiast, wealthy people, that sort of thing, would buy cars to go motor racing in the era of brass era and that kind of stuff. The concept of creating something more affordable, littler that was still fun, was an interesting idea that it was a touchstone of a concept that has really been taken, obviously, by them and refined and others as well.

David: In research, when I looked up some of those sports cars pre-Porsche, you look at them and things are Franken-cars. They are huge. The engine bays in the front of the cars are two thirds of the length of the car. There's this one Ferrari from that era, and I'm like, how do you even steer this thing? It looks like a boat.

Doug: The thought at the time really was, you want to go faster, more. More power, which of course creates more weight, which of course creates the need for more power. They did that, but it was unwieldy.

David: Yeah. Even to this type, a Carrera GT sitting behind us, that's not a large car.

Doug: Right, and that was a Porsche thing. It was an even more of a Porsche thing at this time.

David: Totally.

Ben: David, you said a word there that if people aren't into cars, they may not know this supercharge. Doug, what does it mean to supercharge a car?

Doug: Basically, an engine takes in air. Air mixes with the fuel and it creates a combustion. More or less, that's how a combustion engine works. Supercharge pushes in even more air to create more power, basically. The term supercharged would be referring to like, it takes the same engine, but adds this thing to force more power through.

David: It literally force more air in.

Doug: Yeah.

David: I don't think turbos have been invented yet. Turbos would obviously become a big thing for Porsches much later.

Doug: The concept of turbos is actually fairly similar to supercharging, except that it spins something that adds even more air basically. Thus, turbochargers result in power being produced. As the car makes more power, it makes more power, if that makes any sense. It spins itself up in a faster way. There are pros or cons to either of them.

Ben: For those following along at home, this is end of the 40s, 1947 type era.

David: Yeah, those couple of years after the war, when everything was getting figured out. Ferry has this idea. He's like, oh, I like driving my supercharged beetle, this is really fun. They have a small car that also had a lot of power in it. What if we take this small operation of our elite team here in Gmund and try and build a car that does that? It also turns out that we built the Beetle, so we know how to work with the Beetle.

There are a bunch of Beetle parts around. The Beetle was the main chassis platform for a lot of military vehicles for Germany during the war. What if we take a lot of those parts and the basic architecture of the Beetle, which is a rear-mounted, air-cooled engine on a small car, and we try and put something together here? This becomes the legendary Porsche 356.

For some context on this, you can buy an old Beetle today for $10,000–$15,000 at auction, even a classic one from the 50s or 60s. 356s regularly sell for about $300,000 at auction, and special ones go for well, well, well above a million. This is a big idea. The gulf between a Beetle and a 356 is large.

Ben: Doug, why is the desirability of these cars so different today?

Doug: Production numbers are probably the biggest component of that one. They made literally a zillion Beetles. The 356 is special because it really was one of the real touchstone moments of the sports car coming out of the war, how we define this sports car today. It was a special thing, a special time, and a special moment. And a lot of them also weren't treated all that well.

Ultimately, the 356 was not affordable, but they made a decent number of them. They got to be relatively cheap. It was the old used Porsche for a while in the 60s and 70s, so not that many of them were saved. Now it's revered as, when we look back, this major moment in Porsche history.

David: Yeah, this was another thing. Obviously, in Gmund and then even when Porsche moves back to Stuttgart here in a minute, their production capability is not nearly as large as Volkswagen, so they need to price these things pretty high. They priced them at the German equivalent of $3750 in the late 40s. That's about $42,000 today. But we're talking about war-torn Europe that you're trying to sell this. That's a lot of money.

Here's the crazy thing. There's a market for that, even in war-torn Europe for a $40,000 sports car. There are enough people who, it turns out, are interested enough in various vision for a small, fun, fast sports car.

Doug: Initially, it was slow. It took them a while. The first couple of years, they only made a couple hundred of them or something like that. It was initially pretty slow, but then things started to kick around. People in Germany started to get some money, and things started to take off.

It may be worth pointing out also in the context of the sports car. The 356 coming out of World War II was the beginning of the sports car really taking off. Like I mentioned before, the earlier ones were these big giant things that were only operated by enthusiast who know how to work them. But in post-World War II, there was a lot of optimism.

In Britain, it was happening to MG who was coming out with their sports cars, Austin-Healey, Jaguar. These cars all were born from this postwar period of like, hey, these cars had been refined to the point where we can use them, drive them, and enjoy them. That really became a thing. And in Germany, it was the 356.

David: That takes us to the late 40s here. They're starting to produce the 356 in Gmund. At the end of 1947, Ferdinand Porsche and Anton Piech got released from French prison. They come back to Austria, the family is all together, and they got to decide what to do here.

Right around that same time, Volkswagen is getting back up and running. Hirst is running it. It's the vision they're going to make the beetle for Germany and for the world. They come back to the Porsches, and they say, hey, we still want to do business with you. In fact, we actually want to expand the scope of our business with you guys, even more than it was before the war because we could still really use technical design, consulting work, and really leadership from you individual Porsches here at Volkswagen. After all, you designed the beetle.

Too, though, we're not a government organization in the same way anymore. We need distribution. You guys have this new Austrian Porsche company that you've set up. How about this?

They propose two things. They say, let's reinstate that old German Porsche company, the doctor, engineer, honoris causa, blah-blah-blah. We'll recreate the German Porsche company. It'll resume doing the technical design and consulting work for us here at Volkswagen. In return, they give that German Porsche company literally the sweetheart deal of a lifetime, a royalty on every Beetle sold worldwide.

Ben: No way.

David: Yes. This is how intertwined these two companies are.

Ben: The deal is, we want your Austrian company to distribute our Volkswagens. In order to coerce you to doing that, we also want the consulting work.

David: Ben, you're on the right track. This is a hell of a sweetheart deal for the Porsche family. You are right to be saying, why would the German government do this?

Ben: Do you know what kind of royalty?

David: It was enough that it was very meaningful cash flow and source.

Doug: Probably at the time, not even clear just how right amazing it would be.

David: Right. Nobody knew that the Beetle was going to become the international hit that it would, but the German government did know that this was a lot of value. They also may or may not have known that, on the Austrian Porsche side for the dealership distribution side, that was also a lot of value. We're not going to talk as much about the Austrian operations of Porsche for the rest of the episode, but it becomes a huge business.

By the time in the early 2000s, when it all gets consolidated back into one company, for most of the two separate histories, that was the larger company by revenue. The Austrian Porsche company becomes the largest car dealer network in Europe, not just for Volkswagens, but for all types of automotive brands. They're doing billions of annual revenue within a few years here.

Doug: What an opportunity to be given a distribution network just as the car is starting to become a big thing.

David: Exclusive distribution rights to Volkswagens.

Ben: And they're in countries, not just in Austria. They're all over the place.

David: Yeah, they're all over the place in Europe. Even more incredibly, what the family decides is that Ferdinand and Ferry, the original Ferdinand and his son, Ferry, are going to be back to Stuttgart and retake over the German operations of Porsche, Louise and Anton, the son-in-law, they're going to stay in Austria and run this dealership business. Anton dies in 1952, and Louise is the one who builds this business. Louise and her children turned that into the largest car dealer network in Europe.

Ben: Doug, the way the value chain evolved for selling cars, there's this very clear delineation in the US, at least, until Tesla of separating the dealership from the manufacturer. There is no direct-to-consumer. Was that already obvious at this point in history when Porsche has these two different companies?

Doug: It's an interesting question. I suspect the answer is more or less. In some brands, I bet they were selling direct-to-consumer, and some I bet they weren't, some of the smaller ones maybe. I suspect the reason this worked out is because these companies didn't want to be the ones who were distributing all these cars across and doing all this. They were focused on manufacturing.

David: I think there also might have been a technical reason, which is, even though this new Volkswagen was reconstituted as a company, it's only shareholders at this point in time who were the German government. So both the national West German state and the state of Lower Saxony within West Germany, which still to this day holds 20% of Volkswagen, which is crazy. They would IPO Volkswagen (I believe) in 1960 or 1961. Even though it was a company, it was a German national company to operate in other states, other countries in Europe. They probably needed third parties. Wild, right?

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Ben: Yup, grab the popcorn. All right, listeners, back to the episode.

David: Okay. Ben, you hit on this a minute ago. What the hell? Why is the new western-controlled West German, post-Nazi government giving this deal of a lifetime to these former Nazis?

Ben: It's not just we'll pay you for the cars you distribute that we make. We will pay you for all cars that we make, every Beatle, regardless of whether you distribute it or not.

David: Yes, to the German company, and then the Austrian company has exclusive rights to distribute it. It's a crazy deal. Here's what's going on. It actually, as crazy as it sounds, makes sense.

We talked about a minute ago, the Iron Curtain and the Soviets. It's so hard for us to remember now, but Germany, post war, was ground zero for the Cold War. The battle against the Soviet Union was happening right there, right next door.

For the West, reconstituting the West German industrial base was of paramount importance. The Marshall Plan that people probably know about, this is why the Marshall Plan happened. This is essentially part of this philosophy of, we don't care that these people used to be Nazis. But for Porsche, for Mercedes-Benz, and for lots and lots of German industrialist companies, the reason that they get restarted and reinjected with steroids, so to speak, is like, hey, we got an existential threat next door, we got to rebuild the industrial base.

The deal that they give them does come with an implicit string attached, which is they basically say to Porsche and other companies, we're not really going to give you a license to print money. Instead, we will give you a license to essentially create enterprise value.

What West Germany does is they create one of the oddest tax incentive systems I've ever seen. For ordinary people in West Germany, post war, the tax rate was very low. The maximum amount of taxes that any normal person would pay would be 15%, 20% of your income. But for these new, old industrialists above a certain income, Germany sets the marginal tax rate at 95%.

Ben: They basically cap your income.

David: Yeah. People are complaining. If you live in California, oh, my gosh. I'm paying 13% state income tax on top of federal. Imagine if the marginal tax rate were 95%.

Ben: Right, you would just have no incentive to earn any additional dollars.

David: Right, and that's on the personal side. It's equally bad on the corporate side. Any profits are taxed.

What are they trying to do here? They're trying to incentivize capital reinvestment in the industrial pace. They're basically saying to Porsche and others, set all this up. We're going to create all the incentives, such that you will plow all of the money, all these royalties we're giving you from the Beetles, et cetera, into building up your production capabilities, investing in R&D, new models, et cetera. It sounds crazy on paper, but my God, it actually works. It works really freaking well.

Doug: Do you think there was some guarantee that the tax rates would lower someday?

David: Maybe, and I think they did. As we'll see, Porsche becomes pretty institutionalized there of like, don't take profits. Instead reinvest them in new models, R&D, and racing to the great benefit of the brand.

I mentioned one of the things that Porsche invests in over the years is race cars and racing. This is super interesting. None of us are racing historians. That's a whole another branch of the automotive industry.

Here we are in the late 40s, early 50s. Racing in this era doesn't look at all like it looks today. It hadn't professionalized yet. The line between consumer enthusiast car market and professional racing market was very, very blurry.

It turns out that, even though manufacturers, including Porsche, would make special versions of cars for racing for Le Mans being the most famous race at the time and others around the world, you look at an F1 car today, or you look at a Le Mans car, there is no connection between that and something you can buy in a dealership.

Doug: And you or I would not be able to even operate it.

David: A super obvious point to illustrate this is, folks that are probably no names like James Dean or Steve McQueen, these famous Hollywood actors that were known as did all these racecar films, were also professional racecar drivers.

Doug: Yeah, professional as it were in the time period.

David: Yeah, they competed in real racings in addition to being actors.

Doug: Imagine Brad Pitt jumping into Le Mans.

David: Right? I was about to joke they'd kill themselves. James Dean did kill himself in a Porsche 550 Spyder, which Porsche would make a dedicated racing type vehicle that was also a consumer production vehicle, the 550. That never would have happened if Porsche wasn't incentivized to invest all their profits. Maybe you can say, the legendariness of that car, these sell for $5 million-plus today?

Doug: They only made 90 of them in the end. It was a car that in theory, you could go and buy. While the 356 was the sports car that you could gentleman race, the 550 Spyder was for people who were really like, let's go racing and do it. But like you said, you could. A person could walk into it not a dealership necessarily, but just order one. But it is an absolute legend.

David: Totally.

Ben: You see this moment where you see that bifurcation between anybody can do it and what the very best of the world look like. That seems to be true across everything in the world today, in the way that what Taylor Swift is doing on the stage on her tour, has nothing to do with a person who picks up their guitar, is talented, and plays at the local bar. She is the SR-71 pilot, this playing on a local bar stage is flying a Cessna, and the machinery to do so is entirely different, in the same way that you're talking about car racing, splitting at this moment in the early 50s.

David: Yeah. Back to racing, we were talking about the Spyder a minute ago, I get so excited about James Dean. But Doug, to your point, 356s in 1951 and 1952, win their class at Le Mans. They don't win it outright. Other bigger powerful cars win it outright, but they win their engine classes at Le Mans. They're modified a little bit, but you basically buy them.

Doug: That was a special thing, but that was the point of those classes. It was that there were cars for people who could go buy a car off the street and modify it.

David: I think this was pretty unique to Porsches at the time. Certainly, you could go buy Ferraris, and Ferraris competed and whatnot. But again, Ferraris were a different thing. These weren't 356s, and I think they're probably also a lot more expensive than $3700.

Doug: Plus, an important distinction between Porsche and Ferrari in this era, is that Porsche was largely focused on road cars, and then the road cars went racing, except for the 550, which was purpose built for racing. There were racing versions of the 356, but the goal was mostly road cars. Whereas Enzo, very famously, he just wanted to race. He hated his road car customers deeply.

It wasn't his thing. He just wanted to race. He only sold road cars to finance racing. A lot of the road cars that he ended up selling, were either based on race cars, or just former race cars. He was just like, I'm done with this crap, whereas 356s were being sold in pretty good volume.

David: There's this great, great, great Ferry Porsche quote about this, which he would say later about the 911, but I think this also applies in early form to the 356. The quote is, "We have the only car that can go from an East African Safari to Le Mans, then to the theater, and then to the streets of New York." That's such a unique thing, especially in this era.

Doug: It remains true. It's Porsche's thing to this day, how relatively usable the car is in just about any setting. You can drive it to work. You can actually take it on a racetrack. That has remained an ether, whether or not it's constantly a north star for them, it is what they do more than anybody else.

David: I was trying to think what the right other luxury brand analogy is. Porsche definitely is a luxury brand. It's not like we're making apples and oranges here. It's like a Rolex to me. What do you think?

Ben: Absolutely. You buy those watches to wear them. You don't buy them to keep them in a case and ogle at. They're steel. They're originally made for people who are swimming the English Channel or scuba diving. I think it's reasonable to also compare it to continuing in the luxury world like a Rimowa suitcase. Those aren't that expensive. They're three times, four times more expensive than regular luggage, but...

David: They're not a Louis Vuitton trunk.

Ben: Right. You buy it to use it. It can get a little beat up. That's why it's made out of stainless steel also. It's not a Birkin bag.

David: Brands like this are so valuable.

Ben: Because it has both the breadth and the depth. There are enough people who are like, I love Porsches because they're my cars I can actually drive, but they are supercars.

David: Yes. This thing behind us goes 200 miles an hour?

Doug: Yeah.

Ben: This thing behind us is a little bit different.

Doug: There have been, and we'll get to it. The 550 Spyders, one of them, there have been some portions that go one way or another in the philosophy. But generally speaking, it's a middle of the road, going back to Ferry's quote about this exact thing, can do all these things.

Ben: Doug, one question for you. I'm going to keep going to you for terminology. David mentioned Le Mans. What is that?

Doug: There are various car races that are considered the big car race. The Indy 500 is the car race of that racing series. Le Mans has always been a place to prove technology. It's a 24-hour race, so you switch drivers. It proves the endurance and the capabilities of a car and of a manufacturer over that time period. It's really serious.

It's always raining, it's always a disaster, it's in the middle of the night, and it's difficult. Being able to win or win your class, Le Mans is like the Monaco Grand Prix, the Super Bowl, if you will, of vehicles racing and that racer.

David: Porsche would probably advance this argument that, relative to the other races, it's closer to what you want for an all-around-car that would also be a drivable car because fuel efficiency matters.

Doug: It's also a road race, so it's not on a racetrack. It's literally on the closed-down roads in a French countryside and race on the road. There's some component of, instead of purpose building a car for a circuit like cows we're using this road two days before.

David: Totally. On the back of all this success, James Dean, Steve McQueen, and all this, as you would imagine, Porsches start to become quite popular in America. I don't think Ferdinand and Ferry envisioned like, we're going to sell cars in America. This wasn't part of the business plan. But in 1954, Porsche sells 588 cars in the US, which was 40% of their entire production for the year. That 40% basically stays constant and goes way up for a while in the 70s and 80s, but it never dips below that. America is a huge market for Porsches.

Doug: It's amazing to think that 588 cars was 40% of Porsche production. I agree with you, by the way, about your point that they didn't really have America in the business plan. One thing to provide some context, it's important to keep in mind, the number of sports cars startups happening in Europe at this time was significant, most of which listeners viewers will never really heard of because they all died.

These came out, they showed up, they raced a little, they sold some cars, they fail. There were tons of these. There was no concept that Porsche would be more successful than any of them. Obviously, the family hoped it would, and it became that way. But so many families hope theirs would, too, and they all failed. Somehow, Porsche grew, grew, and grew.

David: Part of it was the incredible success of the cars. A big part of it, too, was the royalty on the Beetles. That's a nice steady source of cash flow that you can invest in your operation.

Ben: With forced reinvention. You're doing stuff like racing. You're doing stuff like looking internationally. You're like, what can we invest in that we're not sure if it's ROI-positive investments?

Doug: We can be speculative because we know we got the money coming in. Beetle continues to be more and more and more popular. It only continues to embolden them to reinvest.

David: Right. Speaking of reinvesting, as we get to the 1960s, the 356 is great. That's an amazing car. I don't know, Doug, where you would put it. In my mind, it's not quite a modern car. It's close. It's not a Model T, but it's not a 911.

Doug: Right. What was starting to happen was, the 356 was one of the leaders of the charge of the sports car in that era. What was clearly starting to happen was, other sports cars are showing up that were refining some of the principles.

David: Yes. We're now in the 60s, Ford announces the Mustang, Jaguars got the E type, and Chevy comes out with the second generation Corvette, the Stingray.

Doug: All these are starting to show up. Everything is like, okay, there's a lot of pressure.

David: Yup. In 1962, Ferry Porsche makes the decision like 356 is amazing, rebirth of the company, we got to invest the profits and replace it with a new model. For a couple of years, Porsche had actually been working on a design for a sedan for a larger model. It seems heretical now. If people look at the Panamera, they're like, eww. It was actually going to be the second model of Porsche.

Ben: I feel that way. Every time I see a Panamera drive by, I'm like, why does Porsche make this car? I see them driving by, so that's why they're making cars.

David: China is why they make that, but we'll get to that later. The next generation of Porsches, Ferry's son Ferdinand, known as Butzi, named Ferdinand, named after his grandfather, the founder of Porsche, was working in the company. He had been leading the body design for this larger sedan that Porsche was going to make. Ferry decides, for a bunch of reasons, to cancel the sedan project.

Probably the most important reason was, I don't know how much of this was government motivated and how much of it was just a cabal of Mercedes and BMW. They were the sedan makers. Porsche maybe could have challenged them, but it was like, hey, they've got their turf, we'll keep our turf in sports cars, and everybody will be happy here.

Anyway, they decided to cancel the project and double down on sports cars. At the same time, Ferdinand Porsche, Butzi, the grandson, his cousin from the Austrian side of the family, Louise and Anton's son, also named Ferdinand, Ferdinand Piech, also joined the company. These two young Turks, the grand sons, Ferdinand, are here in the company.

Piech is working in the engine department. It turns out that he's a pretty brilliant engine designer. I believe even as a young kid—Doug you know more about this history—I think he really was the one that led the development of the six-cylinder boxer engine for Porsche. He didn't invent the six-cylinder boxer engine, but the engine that ends up in the 911 that is, still to this day, the model for the 911 engine, comes from him, I think.

He's working on it for a racing car project that ends up not coming together. Ferry says, okay, let's take these two failed projects that the next generation is working on, let's weave them together, take the styling that Butzi has done for the sedan, take this amazing engine that Ferdinand has built for the racing operations, and let's see what happens when we put them together. This is the birth of the Porsche 901.

Ben: David, I'm not familiar with that model. What is that?

David: Doug, I'm sure you knew this. Lots of people listening know the story.

Doug: This is a famous, famous story.

David: I had no idea. I think most people have no idea. The 911 is only called the 911 because Peugeot, of all companies, had a trademark in France for any car with a model name of any Roman number with a zero in the middle and then any other number, so X0X.

Doug: In fact, all Peugeot cars, even to this day, are named 205, 206, 207, 208, 308, 408, 508. They trademark them all just knowing that eventually, that would happen.

David: Unbelievable. It makes sense. Porsche's like, we can't really not sell in France. France wasn't the biggest market, but it wasn't a small market.

Doug: The story that I've heard about this is that they said, we got these badges that say nine, zero, and one. Why don't we do 911 because we have the nine and the one already, hence the 911.

Some of this may be more powerful than others. One of the things that I don't understand is why they wanted to call it the 901 in the first place. I was never really able to get great information about that. The 356 was purportedly named because it was the 356 engineering project they did. But did they really do 500 engineering products between 356 and 901?

David: A couple of details that I got on this from Excellence Was Expected. I could be wrong on this, but (1) I believe 901 was the name of the engine project that Ferdinand Piech was working on. I think that's the origin of it. (2) Yes. In Porsche lore, the reason these model numbers are like, these are the engineering projects that they start, but that's totally apocryphal. They jump around all the time.

Doug: Now they go forward and backward.

David: Yes. Going back to the very, very beginning of the consulting company, they started with type seven or project number seven because they didn't want to look like they were random companies like, oh, yeah, we've already done six projects, this is project number seven. I forget who they were working for.

Ben: It's like when you're starting a new company and you're sending your first invoice. You don't call it invoice number one.

David: Right, exactly. The lore is that, all of our projects have model numbers. I'm like, yeah, BS. It's so funny.

Ben: To be clear, I admired designs of Porsche cars before doing the research for this, but knew basically nothing about the company or its lineup. I've certainly never owned one. It took me a long time in the research to realize that there are a lot of car designs that start with nine that are all 911s. I didn't write them all down, but the 964 and the 959.

Doug: It gets complicated because what ends up happening, just like happens to every car, is they start to get redesigned. As the years go on, they need newer models. They still call it the 911. Let me just distinguish the newer version from the older version is to call it by the project number, which is 964, 993, et cetera. If you're really into it, you got to know not just that it's a 911, but which version it is.

Ben: And not all 911 say 911 on the back, so you can't even use that as your reference.

Doug: No. It's a little complicated. Maybe that's part of the success. There's a language you have to speak in order to get Porsche to an extent. There's something to that.

David: I think it's really brilliant. I don't know how much this is intentional versus its evolved this way with the brand. But to me, it's just so brilliant because there is this tribe language to Porsches. If you see a 911, you know instantly that it's a 911. It is iconic. It's one of the most iconic designs in the world.

Doug: Partly because they've essentially kept the shape the same since this.

David: Since 1962, yeah. Pretty immediately, this car is a big hit. 1962 is when they start working on it. They first start selling it in 1964. They sunset the 356 in 1965, so 1966 is the first year that's fully 911 for Porsche production.

They sell almost 13,000 cars in 1966, which that's 10–12 years ago, they only sold a thousand total. They're now 13X in 10 years. That number of almost 13,000 911s they sold was 15% more than their best year with only the 356s. Doug, how would you characterize? What makes the 911 so special?

Doug: It's important to keep in mind, at the time, you didn't know. It was just like this thing, this sports car they had come up with. Again, there were a lot of sports cars, and it was whatever. But of course, what has ended up happening is that this car has become symbolic of the sports car.

I think a lot of people, if you were to mention a sports car, they would say the 911. It just has become the car. Like you say, it was clear very early on that they had something special in this great combination of reliability, comfort, practicality, just like the 356 had been but just better.

David: To my thinking, the flat-six boxer engine, which was a great engine that Ferdinand Piech designed to go in this first 911, there's something cool and unique to it. Like we've been talking about the difference between Porsches and other cars here, this is a performance engine, but it's a six, and it's rear-mounted.

Doug: Right. The 356 had a boxer four. To explain what a boxer engine is, these days, most cars have inline engines where the cylinders are in a line. A lot of other cars in the past have had V engines, where the cylinders literally make a V for balance. The boxer engine, the cylinders are literally across from each other. It's flat. They call it a flat engine or a boxer because the cylinder heads look like they're boxing each other as they go back and forth.

The benefit of the boxer engine was that it's got this great balance to it because it's literally flat in the car. Yes, it was unusual. I don't think it was necessarily unusual to do a six-cylinder engine. Although as time has gone on, it has started to become more unusual.

The police cars still have six cylinders, even as V8s and V12s became more popular, but it was the thing. It was what they did. It was part of that ethos of keep it relatively light, relatively simple, and strip things down to the core essentials of the car.

David: An average person can walk off the street, buy one, operate it, drive to work, and have a great time.

Doug: It wasn't crazy fast or anything else.

David: Yup. The old 356 had four cylinders. Now, the 911 have six cylinders. Like you said, it's not a world class powerful fast car, but it elevates the 356 into a much more… You can really achieve a lot more with this than you could with the 356s. This becomes super important from a business side for Porsche because they priced the 911 about 50% higher than they had the 356.

What they do at first, they realized this is going to create a major price gap or lineup here. We're going to lose a lot of customers by elevating, so they do a stop gap. At the same time that they introduced the 911, they also introduced the 912. The 912 is a 911 with the old 356 four-cylinder engine. They essentially downgrade the 911 to be the entry-level model only as a stopgap. They don't want to do this permanently.

They sell about three quarters of the units or the 912s, the cheaper four-cylinder ones, and one quarter of their sales are the more expensive 911s. The profit margins, though, on the 911s are so much higher.

Ferry starts thinking—and this is part of the plan all along, I think—let's create a whole new model. The old 356, we're going to bifurcate our performance, real enthusiast customers who are willing to spend, and we're going to make great margins on those models. That's going to be the 911. Let's create a new car that can be the entry-level Porsche. We'll eventually introduce the Boxster 20-plus years later. It takes Porsche a while to really get to the perfect end state of this strategy here.

For this new car, Ferry says, hey, we're not really equipped yet to be running multiple lines as just us, Porsche the company, we need a partner for this new car. Let's turn to our good old friends at Volkswagen and jointly engineer and produce this new car with them.

In 1967, Porsche kicks off a joint project with Volkswagen to produce a new mid-engined roadster, eventually smaller, more compact car, and mid-engined. not rear-engined, called the 914. The idea is that they're going to make both a four-cylinder and a six-cylinder version of this. The four-cylinder version is going to be a Volkswagen, the six-cylinder version is going to be a Porsche. Ferry puts his nephew, Fernand Piech, in charge of this joint project with Volkswagen. A very fateful decision, as we shall see.

What ultimately happens with the 914, there's a change in CEO of Volkswagen, and the new CEO definitely sees the value in deepening the relationship with Porsche and specifically their relationship with young Ferdinand. He wants to continue the project, but he's like, I actually don't think that a sports car makes sense in the VW lineup. Why don't we just have all of these be Porsches?

Ben: The plan was originally to have some of the 914s be branded VW and some of them be branded Porsche?

Doug: Volkswagen had made a little sports car called the Karmann Ghia previous to this in the 60s. The thought was that they wanted to replace the Karmann Ghia, Porsche wanted an entry level car, let's jointly develop it. Porsche gets the more powerful one, the 914/6, the six-cylinder and Volkswagen to get the four-cylinder, but the decision was made, like you said.

David: The new VW CEO, he actually gets a pretty good deal out of this. He deepens the relationship with Ferdinand. He gives the car fully to Porsche. But in exchange, VW takes over all of Porsche's distribution in America. A huge deal for VW. We're starting to re-intertwining these companies just a little bit.

Ben: That deal is an enormously wide-ranging partnership, because you're trading distribution from one side of your business with the ability to create a product on your other side. It's basically merging the companies because it's so massively intertwined now in this partnership, where it's not like, oh, yeah, we partner with them on this one small little thing. It's like, no, our car that we expect to sell more of than any other car, is made by this other company. Meanwhile, on the VW side of things, it's like, America, the most important and largest growing car market in the world, we now own the distribution for Porsche. Even if it's not structured this way, this is a merger.

David: If history were a straight line, what you were saying would come to pass. Unfortunately, it's not a straight line or fortunately for drama on our show. You're absolutely right. The 914 goes on to be a huge success. It sells way more units than the 911, which was the whole strategy.

Porsche is cool with this. They're like, great, we're making our profits on the more expensive 911. We've segmented out our market. The 914 is the entry level Porsche. It sells 100,000 units in the eight years that it's on the market.

I think it really shows. Doug, you can comment on this. There is also a market for mid-engine Roadsters, including the one sitting behind us, regardless of price. These are pretty amazing sports cars.

Doug: Yeah. Porsche, previous to this, had all been rear engines, the 911, the 356, so this was a mid-engine, which was starting to really take hold in the car world as the right design because the engine in the middle is really the perfect balance. You can put the engine right in the center of the car, and it gives you perfect weight distribution.

When I was talking about sports cars, in my mind, God intended sports cars to be mid-engined. It's more difficult. The engineering is more difficult than front engine. Rear engine is just insane, but Porsche made it work. They're always been great at that. But mid-engined is how it should be.

Ben: When you say mid, this basically means that it's still obviously behind where the passenger sit but in front of the rear axle?

Doug: In this case. There are technical mid-engine cars, where the engine is in the front but behind the front axle. But most people, when referring to a mid-engined car, are talking about a car that has the engine between the passenger compartment and the rear axle.

David: I think you have a video where you say, the Cayman GT4 RS, which is the Cayman and the Boxster are the same, it's the same lineage we're talking about here, is the best modern Porsche.

Doug: Yeah, I feel that way. It's controversial because the 911 is the Porsche.

David: Don't hate us in the comments.

Ben: I don't know, Doug. I feel like I've seen multiple the best on your channel.

Doug: Every car is the best when it comes out, and then it's superseded by the next best.

David: One of the differences between YouTube and podcast world is titles. SEO is really important in the YouTube world, right?

Doug: Very, and I don't even take advantage of it as much as some like my colleagues.

David: Around this topic here of engines, I got to imagine, this is one of just the huge sea changes that is coming with electric vacation of performance cars. It's a whole different set of calculus. It doesn't matter that there's no engine anymore.

Doug: Although, even for a performance electric car, you still want the weight to be as close to the middle of the car as possible for a similar reason, honestly. But the engine component and all that other stuff, boxer, it's gone.

David: It's gone. A minute ago, Ben, you said like, oh, this naturally would lead to a merging of VW and Porsche. I was like, well. This was in the late 60s when the 914 launches. As we head into the 70s, the oil crisis happens, and sports cars become less of a thing. People are really worried about this. This is a challenge to Porsche. It's particularly a real challenge to the 914.

Interestingly, 911 sales stay relatively robust throughout the 70s because it's a luxury good. Just like in any recession and even sector-targeted ones like the oil crisis in the auto industry, for true luxury goods, those people, the market for that is very resilient. The 914, though, very different story.

As we head into the mid-70s, even though it was a very successful car and project for Porsche as a whole, it starts becoming a real money loser. This creates a lot of tension in the company. This is a backdrop of stress.

Another family dynamic that's emerging, which is you've got these two Ferdinand grandsons that are starting to vie for control of the company, they're now probably in their 30s, maybe entering their 40s, Ferry's getting older here. Who's going to take over the company? We've got succession vibes here.

On the one side, you've got Butzi Ferdinand Porsche, he's got the name. He's Ferry's son, and he's a great designer. He designed the 911, maybe the most iconic car design ever.

Ben: And this is German Ferdinand, the one's working and actually producing the cars.

Doug: But the other Ferdinand, the son of Louise and Anton, was hired by the German company also.

David: Yeah, he's hopped over. He's, on the one hand, like this dark horse kid. He's the Austrian side of the family. You've got the car dealership, business, blah-blah-blah, but he also proved himself as an incredible engineer executive. He was in charge of this 914 project. He managed it with Volkswagen. That was an incredibly successful car until the oil crisis, et cetera.

He's like, yo, this should be my company. Tensions, of course, start to rise. Something pretty incredible happens. We've come across on the show. There are lots of stories out there of family businesses, succession, and how all this happens. I don't think there's another case of anything going down like this that I've ever heard of.

In the fall of 1970, Ferry and Louise together, call a joint family summit. They're like, we're going to settle things. I don't know. I'm speculating here, but I suspect Ferry and Louise didn't have a lot of acrimony over. They're brother and sister. Louise had her company, Ferry had his company.

Doug: They're both making a lot of money.

David: They're both making a lot of money, everybody's happy. This is between the children here. They call a family summit. At the end of it, they come to a very, very surprising decision. They don't decide that one Ferdinand or the other is going to take over. Instead, they make the call that the families are going to completely and jointly exit operating the business, everybody out of the pool, not the two Ferdinands. Ferry himself, who's running the company.

Ferdinand's long dead at this point, the original Ferdinand. They're going to continue owning the company, but they will no longer manage the company. They will no longer operate the company. They will no longer design cars. They will no longer make product decisions.

Frankly, this is just insane. It'd be one thing if they were like, oh, you know, we're really not that good at this. We should hire professional men. These are ledly generational talents in the car industry. The best solution they can come up with is, you know what? We're all done here.

Ben: This is crazy. I would be so fascinating to get video footage of what actually went down in that room and the logic that they could walk themselves through to this is actually the best outcome.

David: There are some direct quotes from a lot of them in Excellence Was Expected. As you can imagine, it's a very delicate topic. They're also German, so they're very prim and proper. I think Ferry basically admits. He's like, yeah, there probably was a better solution to this. It did mean that we could reunite as a family.

I think he said something like, there were still tensions, but we could go to each other's birthdays again, something like that. I guess in that, if you value family above all else, maybe it is irrational. It's crazy.

Doug: It's especially a crazy decision because like you said, they were killing it. They built a family business until this point, and it had been a very successful one because of the efforts of the family. Looking back on this, we know what happens to Ferdinand Piech which we'll get to, but you've got him on this up and coming track where he's so legit.

David: He must have been so pissed.

Doug: It's like, no, you're out.

David: He definitely was so pissed. Let's talk about what happens here. Butzi goes off and founds Porsche Design, so there exists. There's Porsche sunglasses out there. You can buy Porsche designed laptops, all this stuff. That's him. That's a totally new company that he started.

It has now been reabsorbed into the broader Porsche conglomerate. But that was started, he was like, all right, great, I want to be a designer. That's the path that he goes down.

Ben: The same thing happened in the Gucci family, for anyone who's seen the Gucci movie with Adam Driver. He's just a family member who wanders off and does some, effectively, brand licensing. He's like, I'm going to take the family name and make some money off of it.

Doug: Which is obviously what's happening here.

David: I think he also was very talented. He designed the 911, for God's sake. He's talented, but yes, trading on the name here. The other Ferdinand, Piech, this guy, oh, my God, he is a G.

At first, I imagine inspired by his grandfather, he's like, I'm going to go start my own engineering consulting company and consult for other car companies. He does do that for a little bit. But pretty quickly, thereafter, remember, VW and the new CEO really wanted to build this relationship with Porsche, with Piech. He gets recruited to come in and take over Audi for VW. I think he enters working within Audi, but then very quickly becomes the head of the Audi brand for Volkswagen.

Ben: Doug, at this point in history, what does the Volkswagen Group own brand-wise?

Doug: That's an interesting question. The brands that we know, I think it was just Volkswagen and Audi.

David: Audi had been a separate company.

Doug: Audi had been a separate company, and it's also important contextually here to make one really important point about Piech and Audi. At that time, Audi was a joke. Audi was not what it is now. Now you view Audi as a legitimate competitor of Mercedes and BMW. Back then, it was more like how Saab would have been treated. It was an absolute second or third tier brand. It was not a brand that was desirable at that time.

David: It would be like today's...

Doug: Infinity?

David: I know you owned a Kia, but Kia and Hyundai are trying to enter the luxury market.

Doug: It was on that level of like, nah, I'm going to stick with Mercedes.

David: Yeah.

Ben: Was the Audi 5000 the thing that saved them and brought them back?

Doug: On the contrary, actually, that car was the one that had the famous scandal in the United States, where the 60 minutes found that unintended acceleration, where it would accelerate, which turned out to be unfounded. But their reputation was severely damaged by that. That was this era. Audi needed to turn around. Volkswagens got out either like, we don't know what the hell to do with this thing. We got BMW and Mercedes, they're killing it.

David: Piech comes in. This dude is good. This was such a mistake to force him out of Porsche. He turns around Audi and builds Audi into, Doug, like you said, the Audi we know today. He's so successful that in 1993, he gets promoted and becomes CEO of Volkswagen.

Doug: You had this situation where they kicked him out of running the company, and then he goes and ends up running Volkswagen.

Doug: It's wild.

David: Wild. He oversaw and launched the new Beetle. Literally, his grandfather's legacy, he turned over the Beetle model to the new Beetle.

Ben: How long was Ferdinand Piech running Volkswagen?

David: A long time. In 1993, I believe he was chairman until 2015, 2016 maybe? A long time.

Doug: he develops this reputation of being this just iron-fisted. When you say I can only imagine how upset he was when they made the decision to end the family involvement, he has this rep of being incredibly angry, and everything must be to his standard. I can only imagine how angry he was.

David: He had 13 children by, I think, four different women.

Doug: That's a lot of kids. He was that typical, how you think of a German industrialist. Around this time, Volkswagen started really gaining a lot of brands. In the late 90s, they bought Lamborghini. They own two Europe-only brands, one for Spain and one for Eastern Europe. They repurchase the rights to the Bugatti name, which had gone to an Italian company. They brought it back to France where it was initially existing.

David: Yeah, restarted. Doug, you said, but to put a bow on it of what a baller Piech was. In 1999, the Global Automotive Elections Foundation award him the car executive of the century.

Doug: By the way, that's uncontested. In the car world, Ferdinand Piech is looked at as exactly what you're saying, the guy. Everybody knows his impact. Everybody knows how effective he was.

David: The family's Porsche is just like, yeah, now you got to get out of here. Unbelievable. Maybe he wouldn't have had the motivation. Who knows? It's just wild.

Ben: But Volkswagen is much bigger company than Porsche. He got kicked out of his own company, so he went and ran a much bigger one that competes with it.

Doug: Then he grew even bigger.

David: Yeah, wow. Back to the Porsche side, this decision was really not good, really not good. The first CEO who comes in, the first professional manager CEO, actually is somebody who has been with the company for a long time. Ernst Fuhrmann becomes the first non-family member CEO of Porsche. He was actually part of the original elite engineering crew back in the sawmill in Gmund, so he has a long history with the company. Unfortunately, he was probably a better engineer than a manager, though.

His first move is to scrap the 914 and instead introduce the 924. The 924 was another joint project between VW and Porsche. The problem with the 924, I think it actually was a decent car. Doug, you actually reviewed a 944 recently, which is the next iteration of it. You can say, I think it was a good car, but it's not a Porsche. It's a front-engined water-cooled.

Doug: It suffered from that stigma for sure. The saving grace was it was actually a pretty good car to drive. Over the years and even at the time, it was accepted as, hey, we all get that it came from a Volkswagen but the beloved 914, and it drives pretty well. People were like, yeah, we'll take this as the entry Porsche of the time, but it wasn't a 911.

David: It wasn't a 911, and it wasn't a 914 either.

Doug: No. It was a totally different thing. The 914 was a small lightweight compact roadster removable top. The 924 was definitely a different situation.

David: Fuhrmann had a quote on it when asked about, what is this? He says, "The 924 is aimed at new clients who either can't afford a 911 or are not necessarily looking for the performance of a 911. I guess that's true. That's also true of the 914, but that's not the right way you want to position your brand.

Doug: That's quiet part loud.

David: Yeah.

Ben: Can you come up with something that is not using the word not to describe who wants it? How about you say, who would want it?

Doug: Right. This is for the poor customers.

David: Right. Also, in whole philosophy of it, it's not a Porsche. Even more concerning is the 928. Fuhrmann makes a decision as the new CEO of the company that it's time to replace the 911.

Let's give him some credit. This is the 70s. The oil crisis is going on. There's the safety regulation. This is post–Ralph Nader and Unsafe at Any Speeds. It's maybe reasonable to think that a rear engine sports car isn't a great strategy to be pursuing here.

Ben: Unsafe at Any Speed, that was a federal report that came out that said, basically, all cars on the market are unbelievably unsafe, and people or citizens should not be driving around in them, so all cars need to change.

Doug: And regulation started to really show up in this time period. In the car world, the 60s are viewed as the last bastion of just, anything goes. Some very special cars came out of that era, and the 70s, everything started to get… The oil crisis was a big factor because that started to screw with emissions, and then you had all these regulations about bumpers, safety, and seatbelts, that were very important and beneficial, but at the time, it was like you’re killing our fun.

Ben: It is astonishing how much safer cars have gotten. You look at these cute old Porsches that are so much smaller. You look at the big ones today, and you can lament, oh, cars have gotten so big, but cars have also gotten so much safer far.

Doug: And they're faster than they were back then, so it's the best of all worlds. In most cases, they're more efficient also.

David: Totally. In 1978, Fuhrmann introduces the Porsche 928 with the stated intention that this is going to eventually replace the 911. They keep selling the 911. He says, we'll keep selling the 911 as long as we get demand for, I think it was at least 10,000 units a year or something like that. Once the 928 is on the market, and demand dips for the 911, we'll stop making them.

Doug: Now I want to defend the 928 a little bit here. This is an important moment in Porsche’s history. When we look back on it now, it seems insane that the 911 would go away. How could that be? But it's important to keep in mind that the 356 went away, and that was the Porsche. Now you say like, oh, I have a Jeep, and you're referring to the Wrangler. The Porsche was the 356. That went away, and for the 911, it only made sense, at some point, that 911 would also go away.

The crazy thing about the 928 in the Porsche world is that it was a front engine V8 car, which Porsche had never pursued before, and was more an American thing. But in the context of the time, it's not that insane that they went after this. All sports cars were starting to get bigger and more powerful. Because of the oil crisis, and because of tightening emissions laws, it was getting very difficult to make any power from anything other than a big engine.

Even big engine cars at that time didn't really make a lot of power. Cadillac had eight liter V8s that made like 150 horsepower. It was embarrassing stuff, because they had to put so many emissions controls on that by the time you actually got the power out, it was a disaster. It didn't seem that insane. And the Jaguar E type had just been replaced. That was the big competitor. It was another sports car. That had been replaced by the XJS, which was now a V8 comfortable automatic transmission car.

Mercedes Benz did the same thing with the SL class. It went from a little fun sports car like the 911 to a big V8 relaxed, leather, luxury cruiser, that sort of thing. It made sense that Porsche would maybe want to head in that direction also and start thinking about moving past the 911, just as they had moved past the 356, 20 years before. There was some sense to it.

David: The 928 comes out in 1978. As we reach the end of the 70s and into the 80s, as we also have talked about a lot on this show, everything that the 70s was in terms of austerity—oil crisis, 17% interest rates, and massive inflation—the 80s was not that, shall we say. It was a rising tide that lifts all boats.

Ben: Yes, lots of disposable income, Wall Street is ripping.

David: A lot of pinstripes.

Ben: Yeah. It seems like actually a really good time for fast cars.

David: It seems like a good time for fast cars, and indeed it was, including for the 928 and the 924, succeeded by the 944, and the 911 people still wanted them, I think, largely because of that, although I'm sure there were other reasons too. The Porsche and Piech families, when they exit operationally from the business, they still own the business. They're still the supervisory board.

They get fed up with Fuhrmann. They oust him, and they bring on a new CEO, an American, as CEO of Porsche, one Peter Schutz. Famously, he comes in, and he redraws the 911 production line. Doug, I know you have some first hand experience of the legendariness.

Doug: It's one of the great stories in the auto industry. The 928, though I just provided an impassioned defense for it, never felt like the right car to Porsche. It never felt like the right car to especially the employees who had fallen in love with this 911. It had been in production now at this point for probably 20 years, 25 years maybe.

The 911 was Porsche to a lot of these people. The fact that it was going to get replaced by the 928 was the sad thing. It had really hurt morale in Stuttgart, at the factory all the way up to some of the people at the top.

The great story is that the 911, everybody knows the impending cancellation is coming. It's still going but it's coming, this beloved car. Peter Schutz, the American CEO is sitting in the office of Helmuth Bott, who's the Chief of Engineering for Porsche. There's a line on the wall that shows where all the products stop and start in the timeline.

David: This is on a whiteboard or a piece of paper tacked to the wall.

Doug: Yeah, on a whiteboard or something. Right. They're sitting there talking about it. They know that morale is low. They know that the company wants to keep the 911, even though it should be replaced because it's old. That's the thinking of the people.

Ben: And that's what was said. There's a thing in German culture, where when something has been decided, it's been decided.

Doug: An edict has been given and the car's out. The 928 is on sale. It has shown up to replace the 911 in the spirit of these other cars of the time. The V8 front engine, it made sense, that was what they were going to do. But the morale was low, and they knew this, so Schutz stands up. He's got a marker in his hand, he stands up, he walks up to the timeline on the wall, and he draws a line on the timeline all the way onto the wall and extends the 911's timeline indefinitely, including on to the literal wall.

This story, of course, is like the stuff of legend in Porsche. Peter Schutz, the American CEO, saving the 911 in this moment. A lot of talk about whether this actually happened. Did he actually just draw the line and make the complete 180?

David: This would be a good story to invent if you needed a morale boosting.

Doug: Right, especially if you're trying to boost for the reputation of the CEO among the workers. He drew the line.

Ben: There's a perfect line, which is Schutz just looks over at the Chief of Engineering and goes, do we understand each other? And then he walks out.

Doug: I always wondered if the story was true. I worked at Porsche 10 years ago and had become friends with Porsche's general counsel in North America. When Peter Schutz retired, he moved to Naples, Florida, and the general council of Porsche and Peter Schutz were neighbors in their homes in Naples.

I, one day, went over to his house and asked him, is the story real? Did it happen? Apparently, Schutz said, not only did it happen, but Helmuth Bott was grinning like the Cheshire Cat when I drew that line. It was this moment like, we're going to do this. Apparently, in his words, it really actually was a true story.

Ben: Wow.

David: It's so great.

Ben: That's awesome to get that validation because there are so many of these stories that we tell on the show, where we're like, this is probably apocryphal, and there's really no way to verify it.

Doug: Of course, if you're Schutz, you'd want to tell the story because it becomes so famous. But from his mouth, at least the story is real.

David: It's a great story. Literally, he extended the life of the production line on to the wall.

Ben: Did they keep making both cars?

David: Yeah. I think they made the 928 until 1995. It was Wiedeking who comes in in a minute, who finally kills the damn thing.

Doug: The problem with this decision, you'll get into more economic realities of this situation as the 80s draw to a close, whatever. But the problem with this decision was the company was planning on ending the 911. By drawing that line, symbolic that was, we're going to keep doing this, it also committed a lot of the company's resources to now refreshing something that they hadn't planned on refreshing.

David: Yup. In the go-go years of the early- through mid-80s, no problem, more. We'll do an ICO. Let's use some NFTs.

Ben: The tech of 2021.

David: Exactly.

Ben: In fact, I think Schutz was like, let's make airplane engines.

David: Yes, I think he was. Yes, oh, my gosh. On the back of these go-go years and success, they're selling the 911, they're selling the 920. They're selling a lot of 944s. They sold a ton of those things. The families take the company public.

Just like we talked about on the LVMH episode, a lot of these European luxury brands, craftsman brands, did an IPO. They thought they were being smart. They sold, I think, a 30% stake in the company, but all non voting shares.

They're like, no corporate raiders here. Nobody will have any voting control except the family's. It is impossible that somebody could attack us because the families and all of them. It would have to be somebody inside the families who would attack us. Why would that ever happen?

Everything goes great. The stock doubles within the first year that it's on the market, but then in 1987, Long Term Capital Management blows it. The end of the go-go years, the 80s, not good for Porsche, and not good in a lot of senses. (a) Just pure economic climate not good for anybody. (b) You're making luxury sports cars.

As we talked about in the 70s, the oil crisis in the 70s was bad for Porsche, it was really bad for the 914. The 911 was pretty robust. It was very resilient. I think the same is, again, true here at the end of the 80s, but they've still got the 928 and the 944 on the market. Those things started sucking wind big time.

Doug: It's not a good situation because now you have three aged products. The economy is slowing, and your cars are not really competitive.

David: Yes. Schutz, though, continues production of all three lines. Not only does he continue production, he reinvests, especially in the 924, 944 line. They even refreshed it a third time to the 968, same basic car. They're investing resources in this car.

You probably have a better sense than me. Another aspect of the recession at the end of the 80s was the exchange rates with European currencies got hit really hard. Relative to the Asian currencies in the US, it became call it $10,000–$20,000 cheaper to buy an equivalent entry level sports car from a Japanese manufacturer.

Doug: It just so happened that at this time, Japan was having an economic boom. As a result of that, they started making these sports cars, these sports cars you're describing. The Nissan 300ZX, the Toyota Supra, all these cars are showing up. By the way, they don't have four-cylinder engines, and they're not 20-year-old platforms like the 968 was, and there was very little reason to buy a 968.

David: In my history, probably all of us barely starting to enter consciousness here. This is pre–Fast and the Furious, but not that pre–Fast and the Furious. All those Japanese cars that got tuned up, the Supras especially, this is that era.

Doug: They were all starting to come in then and starting to blow up, and they offered just as they do today, this great, great value proposition of big power for not as much money.

David: Yeah. Again, the 911 isn't threatened by this, but the 944 and 968, hell yeah, is threatened by this. Nobody's buying those anymore.

Doug: The 928 by then was so old that sales were a trickle by 90. There were three products, which was the entry level, which was the 944 that became the 968. Then there was the 911, which was actually the 964/911 by that point. It only makes things even more confusing. And then there was the 928, which was the front engine V8 flagship car.

David: That nobody wanted.

Doug: That nobody wanted.

Ben: They literally only made three cars, and they were all three number nine cars?

Doug: It was a complete disaster. Porsches never named cars well, even now. But at the time, again, you had to speak the language. By the way, the 911s all said Carrera on the back, so everybody's like, what? Is this 911? Why does it say Carrera? It never made any sense.

Ben: All Carreras are 911s, but all 911s are not Carreras today?

Doug: That has changed over the years. Then there was a trim level of the 924 called the Carrera. There was actually called the Carrera GT, which they later named this car. It was all confusing. You had to be a German who was into this stuff to figure out the precision level with which it made sense.

David: As all this happens, Porsche's now a public company. The stock price starts to decline precipitously.

Ben: And they floated 30% of it.

David: No voting control, but the company are really cresting the tree tops here as they're beginning their descent. At one point, Porsche's market cap was less than €400 million.

Doug: Crazy to imagine.

David: Almost zero. I believe, also at that time, they didn't have any debt. Truly, the markets believed that Porsche was worth nothing. It wasn't like, oh, there's value here, but there's a big debt burden on the company.

Doug: It was an unbelievably difficult time. It's funny to think about because now, people think of Porsche as Porsche, like this crazy company. It's one of the hottest brands. Like you said, probably one of the most valuable brands.

Ben: And it's only 30 years later.

Doug: Only 30 years later. It was dire straits. I pulled up the US sales figures for Porsche from this era. It's so insane to me. They dipped in 1991 and 1992 to 4100 units. That was worse than 1965 sales. They had routinely sold between 13 and 30,000 cars a year throughout the 60s, 70s, 80s. In the US, at 1992, they dipped to 4100 cars. That was the level that we were talking about. It was complete dire straits.

David: Even though the public doesn't have any voting control, everybody starts to think. The only thing that can happen here is this company's going to get bought out. One equity research analyst, actually in a research note, said that he thought there was a 98% chance that the families would have to sell, and that they would accept some amount of value for their stake rather than just have it go to zero.

Schutz gets fired, but it's not like that fixes anything. I think it was 1987 when he gets fired. Over the next six years, they cycle through, I think, three or four more CEOs. None of which really figure it out. There is one bright spot, though, however, which if this were a normal Acquired episode, we would just skip, but we've got Doug. The 959.

Doug: Yeah. Actually, the 959 and another interesting component offshooting that. The 959 comes out at that time, which is their first supercar. It's the predecessor to this car. It actually wasn't commercially successful in keeping with Porsche's world at the time. It was a testbed for some new technology, including four wheel drive and a supercar, which has now pretty much become standard fare. The 959 was really the first car that had that.

After the 959, Porsche was so desperate that they started taking on projects for other manufacturers. It's known in the car world, but not as much in the general world, Porsche built a Mercedes-Benz, which was called the 500 E. It was a midsize sedan. Mercedes didn't have the capacity or didn't really want to do it.

David: He built a sedan for Mercedes.

Doug: In the Porsche factory in Zuffenhausen in Stuttgart.

Ben: Who designed it?

Doug: It was a Mercedes car, so it was a Mercedes E class. A regular Mercedes sedan, but with a larger engine. Mercedes felt that having Porsche involved would give it some sportscar credibility, Porsche literally produced the car, and then Audi did the exact same thing. Audi needed more credibility because they were still a fledgling luxury car brand. They wanted to get into the sports realm because that's where a lot of money was being made.

Audi came to Porsche and said, can you help us develop a car? And it was called the RS2. I actually had one, I just sold it last year. It was the station wagon. That was the conditions under which Porsche agreed to build the car. They said, we will do it, but we don't want to compete with our cars as a coupe, a sports car, so they built the station wagon, which essentially touched off the high performance station wagon thing, which Audi is still known for to this day more than almost any other thing.

Porsche was so desperate, they even allowed Audi to license their name and put it on those cars. The RS2 had Porsche brakes that branded Porsche. The Porsche logo appears in the badge, like the literal emblem on the side of the car. Porsche was just like, yeah, fine, because it literally kept the lights on at Stuttgart, at Zuffenhausen.

David: They're just mortgaging the brand.

Doug: They were desperate. They were completely desperate. When you mentioned the Porsche and Mercedes-Benz relationship. That 500 E was an interesting thing because around Porsche at the time, there were a lot of ways that it could have gone totally wrong.

I went there, and I did a factory tour a couple years ago, and the guy who gave the tour worked there for like 25–30 years through this time period. He said that in his mind and in the mind of a lot of Porsche employees at the time, Mercedes-Benz helped save Porsche. Mercedes could have built that car, but their brothers in Stuttgart down the street were having really tough times. Here's a project that you can work on to keep the factory workers going.

David: Wow.

Ben: It was literally like you have empty production lines. Even though you're not going to make a lot of margin on this, let's at least...

David: You can be our contract manufacturer.

Ben: Yeah.

Doug: Maybe this was part of the circumstance. You have union contractors, you can pay these people, whatever. You're not going to make money, but we're doing it, and it's something. It's a project for you, it's something.

David: We'll keep your lines go instead of losing money on having to pay.

Doug: Right.

David: Wow.

Doug: It was a tough era. It was indescribably tough. I think this is lost on a lot of younger people who have only seen Porsche in the world of crazy expensive cars, all the money they charge for colors now, and all that. There was a period where it almost all came to an end.

David: Not that long ago.

Doug: Not that long ago. It wasn't like this was in the 50s like, we're alive. This was great stuff.

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Ben: David, this thing that Doug just referenced to me, the money they charge for colors, you can do a thing today, where you go to buy a Porsche and their online configurator, and they have the paint from every single Porsche ever produced in history. You're like, there was really something about this particular 911 in this year, I really loved this paint, you can pay them something like $15,000 for your Porsche to be in that particular color.

David: It's like a library wine.

Ben: Yes, that's exactly it.

Doug: Imagine the Porsche of the 80s, early 90s, commanding that, it would never have happened. But now, the brand has changed so much that $50,000 for a color, people are falling all over themselves to do it.

Ben: Right. Why not? The other thing that it's emblematic of, which I think we haven't really talked about yet, of what makes Porsche special, is this unbelievable heritage. The design language that they use and what the 911 is. You mentioned earlier, they don't really change it that much from generation to generation.

There's this obsession with, put something out there and then spend years and years and years, tiny little tweaks and refinements, making it the platonic form of what it can be. There's this obsession with, if you loved Porsche in any given year, we want to make sure that we keep you along for the ride, and you can continue to love us today.

Doug: Right. If you as a child wanted a 911, guess what? It's still around, it still looks about the same, and it's still the same level of desirability that you wanted back then.

David: It's so funny, I feel like the sales cycle for a 911 has got to be 40 or 50 years. Kids fall in love, and then you can't really buy one until you're in your 40s or 50s.

Doug: It was always a weird aspect of the brand that you actually weren't necessarily only marketing to adults. You also had to market to people who would cultivate this passion that you knew, that would become a thing later when you weren't even an executive, or you weren't even working there. But part of the brand is hooking people young and making them feel this is a cool thing.

Ben: Doug, this thing that we're talking about, this idea that if you love Porsche ever, we want to deliver on that promise today, do you feel like that consistency has been there since the very beginning? Or do you feel like that's something they learned in their rise from the ashes after this 80s period?

Doug: That's a good question. You have to assume they didn't expect in 1948 that they would ever even be in the position to deliver that, and 1950s.

David: Also, like you said, I hadn't quite thought about it, but I was planning to tell this story of like, oh, my God, Fuhrmann wanted to kill the 911. What a dumb idea. But naturally, they killed the 356. The natural thing would have been to kill the 911.

Doug: Look back on it, it's insane. Now, all these icons have emerged, and all this lore has emerged over the years. But when you put yourself in the perspective of those eras...

David: Okay. Porsche is in this tailspin. The two eras that happen next are both equally amazing. In 1993, a guy named Wendelin Wiedeking gets appointed as the CEO. He had actually started his career with Porsche in the 80s. As all this crazy stuff is happening, he was a loud voice of protest against all the Schutz and Fuhrmann era decisions, he resigned and left the company.

They recruit him back in the early 90s to take over as head of production. He implements the Toyota Production System at Porsche, which they must have been the last auto manufacturing in the world. I don't know if Ferrari uses the Toyota Production System, but this wasn't new technology at this point in time.

Remember, Porsche is bleeding cash, being more efficient and more profitable in your operations for whatever cars you can sell is pretty important. He's like the Tim Cook of Porsche here. He gets promoted to CEO. When he does, speaking of Apple, he pull the Steve Jobs return moment. He cuts the product lines down to just the 911.

This is the right thing that needed to be done, but it's also crazy. He kills the 944, 968, he kills the 928. He takes everything back down to just the 911. Analysts, people like car magazines ask him, what's your strategy for an entry level Porsche? He says, Porsche's strategy for an entry level Porsche is a used Porsche.

Ben: It's such a good line.

David: Such a good line. By the 1995–1996 production year, the 911 is the only Porsche model left on the market, which hasn't been the case since the 356. This is crazy.

Ben: Also, what kind of company makes one product? Seriously, did they believe that this is a transitionary period, or did they believe this is the long-term strategy?

David: It's not like Wiedeking was like, I am a cost cutter, and I will cost everything down. He is much. He has big, big, big ambitions. This is a transitionary moment. He does want to expand the Porsche model line. As we shall see, he greatly expands it.

I think this is pretty brilliant, and certainly for the financial performance of the company. It was brilliant in its survival. I think 911 enthusiast are less enthusiastic about this, but he decides that rather than the old strategy for the entry level model of sharing a platform with Volkswagen, what if we have the new entry level model, instead share a platform with the 911?

What he does is he says, let's take the front end of the next generation 911, the 996, and use that exact same front end, same headlights, same hood, same everything, and then made it with a new entry level back end, the rest of the chassis of the car, revive the old 914 concept that was so successful, mid-engine, roadster model with a, how would you describe that it's not a convertible per se?

Doug: Yeah. No, it is. The Boxster was a full convertible. It's also important to point out, the interiors were almost entirely shared as well.

David: Yeah, the steering wheel.

Doug: The wheel, all the buttons. In fact, if you get into a Boxster, which was a two-seater car, it has a coat hook on the back of the seat because the 911 had a coat hook on the back. You can't put a coat in the Boxster. The seat is right up against, but they shared everything.

David: Interesting. Doug, what you're alluding to, this is the Porsche Boxster, which becomes a huge success. I think the reason for it is that it genuinely is. To anybody looking at it, this is a Porsche. Not that stupid quote that Fuhrmann had of like, this is for people who don't want a 911 and don't care about performance. This is like, no, no, this is a freaking Porsche.

Ben: It shared the design language.

Doug: It shared the design language. I think Wiedeking's thought was, the entry level Porsche has always been looked at as a second class citizen like Fuhrmann literally said, which was true. Everybody thought it, but he said,

How do we make it not look like a second class citizen? The answer is, make it look like a 911. Make it literally shared. It didn't even just look like, it literally had the same fenders, the same headlights and hood.

David: Also from a production and profitability in operation standpoint, this is so great. You're now sharing so many components, not with another auto manufacturer, but with yourself.

Doug: Right.

Ben: Doug, what's the difference then at this point in time between the 911 and the new Boxster?

Doug: The thinking was that they would continue to move the 911 upmarket. More expensive, more power. The Boxster comes out in 1997 for the 97 model year, and it was a huge deal. It was on the cover of every car magazine.

The whole Porsche has a new car, it is incredible. They had 200 horsepower, and the 911 of that era had about 300. It was a significant difference, plus the 911 was bigger, it was wider, it was faster. It was more of a muscle car.

David: Is it fair to say that, then, and I think maybe even especially now with the Boxster and Cayman that came in as the hardtop model of the Boxster, it's also a different experience philosophy?

Doug: And over time, it has evolved even more significantly from 97. Now, the 911 is playing more of a luxury car like touring car roll almost with the special colors, the stitching, and all that. It seems like the more Porsche is focused more of its true sports car efforts on those, the mid engine cars as they call them, the Boxster and the Cayman.

David: Yes, it's the entry level of Porsche for sure, but it's not like you feel crappy if you're buying one. You're like, oh, I'm buying the best version on the market of this particular product.

Doug: And it was mid-engine again, so arguably, it was the correct place for it. It felt like a true Porsche sports car. For the first time, Porsche's entry level car felt like that in decades.

David: Yeah. Wiedeking has this awesome quote about the strategy for this. "We didn't want to flee from the competition into higher prices,” meaning not being the entry level market at all. He says, "We don't want to be Germany's Ferrari. We don't want to be a big fish in a pond that's shrinking, but rather a growing fish with more room to move in a larger lake."

I feel like Wiedeking and Don Valentine of Sequoia Capital would be brothers in arms here. They're targeting big markets. That is the strategy, but they're targeting them in a Porsche way.

Wiedeking, I don't know how much this was his thinking all along, or that he was just emboldened by the success of the Boxster. He really means it. He gets into SUVs. Even as a teenager at the time, I'm not that much of a car guy. I just remember, people are like, Porsche's making an SUV. Are these people lost their freaking minds? Who on earth would buy a Porsche SUV?

Ben: Also, I got to say, maybe all cars were ugly in this period. But I remember when I looked at the first Cayenne, I was like, so it's like a Toyota?

Doug: It wasn't the most attractive car. There's no question about that. Everybody hated the design language. You know what, it's been 20 years. It has not grown on me.

David: Yet the Macan looks really good, I think.

Doug: The new Cayennes look great too, honestly, ever since they redesign in 2011. But those early Cayennes, you see them now and you're like, still ugly.

Ben: It also just doesn't look like a Porsche to me. There's not enough that's brought through from the heritage of the, how do you describe the back on a 911?

Doug: Right, that sloping. What happened was, the Cayenne was an interesting situation because Porsche was a first mover. They weren't exactly. Mercedes came out with the SUV first for the 1998 model called the M class, which was a revolution. They built it in America, which was a really big revolution.

BMW came out with the X5 in 2000, and that was also a revolution. The M class Mercedes never had the sporty pretense that BMW did, so that car was just for suburban families. The BMW X5 actually had to be sporty. It was like, oh, so not only can luxury brands build SUVs, but they're sporty.

Porsche comes out in 2003. They beat Audi. Audi didn't come out with an SUV till it's 2007. Porsche was there early, early, early. What the problem was, Porsche had no clue. Because they were early, they had no clue what to do.

I remember at Porsche, when I worked there talking to some of these people about the early Cayennes, Porsche literally didn't know what to offer in an SUV, to the point where they actually legitimately asked some of their American employees, do we need to offer gun racks as an option for the American market? They were only building sports cars, and they had no concept of what people would want. The early Cayennes had an optional spare tire on the back like Jeep Wranglers do. You could get that.

David: Part of this was a cultural German thing for sure, not understanding America, but I don't think anybody understood. I don't think there were any super expensive SUVs on the market at the time.

Doug: The only ones were Land Rover, but they were focused so far on off-roading. Part of the reason the Cayenne was ugly when it first came out is because Porsche decided, we're Porsche, we're going to do it best. They come out with an SUV that is both amazing on road and off road. The early clients actually have an unbelievable off-road capability.

They have a two speed transfer case that can go high-low gearing off-road. They have air suspension that can lift them up and lower them. They had all these off-road hardware that you would never put in a luxury performance SUV now. But because Porsche didn't know what customers would want, they decided to give them everything. The result was, it was a big, bulky, heavy car to carry all this hardware. It wasn't executed that well from a styling perspective, but from every other perspective, it was a hit.

David: Yeah, I can think of a few things to say about it. There wasn't anything else that was like, I can spend $100,000 on an SUV.

Doug: Right. This was before the days of an Escalade even, Cayenne came out in 2003, Escalade came out in 1999, so the Escalade was ahead.

David: I thought it's more like $40,000–$50,000.

Doug: At that time, they were just Tahoes that look nice. Now, Escalade has become a real thing. But at that time, it wasn't. Porsche was really pushing into some new territory. It was a crazy decision.

David: And SUVs were becoming so important in America. I think there were just a lot of wealthy people out there and a lot of status-focused people that were like, yeah, there's an SUV I can spend $100,000 on. Hell yeah, take my money.

Ben: Also, there's a practicality of, I need a minivan, but I don't want to drive a minivan, so I'm driving this new emerging class of SUV. But if I have money, I want the Porsche version of that.

Doug: Totally. Porsche must have been thinking, hey, we've got all these customers who love our sports cars, and we have this brand name that's always been associated with performance. How else can we hook these people?

David: Right, they have families.

Doug: Right. By the way, with those families, they're buying an X5. It's like, why don't we?

Ben: Right. The danger here, if you're at home, and you didn't know how this ended, and you were a smart business person, you'd be thinking, well, this is going to borrow against their brand deck. This is going to drain the bucket, not add new love to the brand bucket. The magical, incredible, amazing thing about Porsche is they have doubled down on this strategy, it has become a huge part of their business, they generate a ton of margin on the SUVs, and it has not borrowed against their brand equity. It has increased the love for the brand.

David: At the same time and just before, they had given a huge shot in the arm back to the performance with the Boxster and then 993, 911, and then also on the SUV, which they partner with Volkswagen with Ferdinand Piech. It makes peace between the two companies.

Doug: Piech is running Volkswagen at the time and comes out with the Touareg, which was Volkswagen's SUV. That served as the basis for the original Cayenne.

Ben: Really?

Doug: Yeah.

David: Porsche starts a whole new production facility and a new part of Germany in Leipzig to make it, and ultimately, shortly thereafter, makes this car at the same production facility.

Doug: That's right. They were built in the same place. I think that goes back to the point you just made. The SUVs, yes. You'd think you come up with an SUV, it destroys your brand credibility. We've seen this with Maserati come out with all these sedans, and now nobody wants one.

Porsche always made sure to be making other cool stuff. To keep coming out with other cool stuff, reinvestment of performance, like you said. They used this new factory that Cayenne was built in to also create the supercar, and that was important. It really showed people, hey, they might be making an SUV, but they're also making this. They're legit.

David: For people who are just listening to the audio, this is the Carrera GT sitting behind us. Okay, we've alluded to this amazing machine behind us. What is this thing?

Doug: The Carrera GT, in my mind, is the greatest driving car ever built. A lot of people actually said it. It's not objective by any means, but a lot of people who have driven this and a lot of other cars feel that way about this car. It was a true analog supercar, which means manual transmission, there's very few driver aids in this car like you'd get in a modern car stability control, traction control, that sort of stuff. It's either non-existent or heavily dialed down. Full carbon fiber body, like no expense was spared, basically.

The coolest part was that the powertrain, which was a big V10, initially it was developed for Formula One racing, and then it was evolved to Le Mans racing. In neither cases, did it ever actually see the light of day. They created a Formula One engine, but it didn't work out.

David: It's a little bit like the original 911 engine that Ferdinand Piech designed for racing, but then only made it into the...

Doug: Right, exactly like that. The crazier thing here, though, being in that time, you could do that because there were no emissions regulations. The concept of taking a race car engine today and putting it into a road car is just non existent. To get a Le Mans or Formula One engine homologated for road use is just mind blowing. That's the cool thing.

This car originally came out in this era and was thought of as cool, special, and whatever. But it's legend has grown since then as sports cars have moved away from some of the things that made this car so special, specifically this analog field. All exotic cars now are automatics, hybrids, and all that sort of thing. This was the end of the end.

David: My sense is this car too has a reputation, partly because Paul Walker died in it. Unlike a lot of Porsches and the 911, this is something that you need to really know what you're doing to operate this thing. If you let it get away from you, it will kill you.

Doug: Yeah, it has a reputation for being difficult to drive, which I think is somewhat unfounded, but also especially by modern standards, cars have gotten so much more powerful than this. A new Audi RS3, which is just a high performance Audi sedan that you can buy for $65,000 or $70,000 is faster than this car here. It's not that crazy by modern standards, but at the time, it certainly was something.

David: I guess today, there's so much stuff, technology and cars. It's designed to keep you from doing stupid stuff.

Doug: This car was the end of that era, and I think that's why it's so special. It's the last of these cars that, really, you could get into trouble. Paul Walker died in one. There were some other deaths too that weren't quite as high profile, but there were some serious accidents, and some people died and maybe still will. It's still out there, and it's still a dangerous car.

Ben: The weirdest thing about high-end cars that have lore associated with them is, typically, when someone high profile dies in it, the value goes up.

David: It's like artists, it's like paintings.

Doug: I think car people that had always known the car had this reputation.

David: There weren't lawsuits against Porsche about this one?

Doug: Porsche got sued. It went to jury trial. Porsche was found liable, at least partially liable. That's a big deal for an automaker because they got 1300 of these out there.

David: Right. This is the value of the car now. Production was initially intended to be higher than they ended up being. They stopped it early.

Doug: They had some weird issues happen. There was a changing regulation that forced them to build a lot of them sooner than they thought, so they ended up flooding dealerships with them earlier than they expected to.

The car didn't sell well when it first came out. The sticker price was $440,000, and they dropped fast. You could get them in 2007–2008. You could get them for $250,000 all day long. Now, they don't exist under a million dollars. That's the crazy thing. I should have all invested in Carrera GTs.

David: Apple stock or Carrera Carrera GTs? Carrera GT would be a lot more fun to own.

Doug: I probably don't need seven of them or whatever, but it would have. They all completely took off.

David: Wow. It's funny, I thought that this was going to be a fun little digression about the Carrera GT. But I realized now, actually, this is a super important point to the business history. While they were drawing on the brand equity to make the SUV, this was a big part of putting cash back in the bank of the brand equity and to do it on the same production line as the SUV.

Doug: It also helped legitimize that facility. Up until that point, except for the ones built in Austria, all the Porsches had been built in Stuttgart, in Zuffenhausen, in that same factory for all these years, this car helped legitimize like, oh, we might be making a factory in East Germany, we're building SUVs, but we're not straying too far. We're still doing our thing.

Ben: This point is an interesting one because it is something that other luxury brands do as well. I remember reading when Louis Vuitton first started coming out with the more approachable wallets, clutches, and ways that you could tiptoe into participating in the brand story. They were also releasing $100,000 or $200,000 special handbags that were new products or new collaborations with other designers that told, we're still Louis Vuitton. We just have this other way to be a part of our brand.

Doug: Right, and Porsche would go on to do it again, which I'm sure we'll talk about shortly.

David: Yes. On the back of this incredibly bold plan, turn around, and success by Wiedeking, he becomes a legend. Porsche goes from death's door, less than €400 million market cap when he takes over, to by 2007, Porsche's market cap is €32 billion. A better investment than a Carrera GT, in fact.

Ben: They never had to have any help once they scrape that bottom of whatever it was, $400 million market cap?

David: Nope. Porsche is saved. It will be independent forever. Families will never have to sell that equity. Research analyst can eat his words. No, not quite. There's another chapter to the story.

Ben: That's 100X market cap growth. Is that right? Did you say 300 million to 32 billion?

David: Yes, that is 100X market cap growth in a decade.

Ben: Occasionally, there are these hundred baggers available in the public markets. You only know about them looking backwards, but it's crazy. You don't have to be an early stage venture capitalist to find these. They exist elsewhere sometimes.

Doug: It was Porsche of all things. I suspect most of these cases, though, to take advantage of it, you would have had to have been insane. To have invested in Porsche at that point...

David: You would have not told a person in 1993, hey, this guy's coming in, he's going to kill the entry level stuff, go back to doing entry level stuff, and then do an SUV. You'd be like, how do I get out of this stock? Where do I sell?

Doug: Especially because he was the fourth CEO or whatever.

David: Clutching its straws, it would seem.

Ben: It's like buying Amazon in 2001 or 2002 when things look the absolute bleakest. That's how you could have gotten 100 bagger in the public markets, maybe even a thousand at this point. But come on, who would have actually done that?

David: Yeah. The €32 billion market cap, it's not crazy because by this time, Porsche is doing almost €2 billion a year in operating profit.

Ben: It turns out these SUVs and making only supercars is very profitable. A lot of margin there.

David: And China was starting to take off at this time, too. The final chapter to the Wiedeking era on the production side was the Panamera, the sedan. Porsche makes a sedan.

Doug, I'm curious about your thoughts on the Panamera. I had always also been like, Porsche made a sedan, it's weird. It looks weird. From doing the research now, I think a large part of the intention of it was to really target the China market. It became successful globally, too, but I think the Panamera and the Cayenne too really helped Porsche enter China.

Doug: No question. Looking back, that has become especially true as Porsche's business and all luxury brands business grown in Asia. At the time, though, they had an SUV. They had done that, so it was like, all right, sedan is the next place we want to compete. Let's replicate the success we had in the SUV.

Ben: What do you think changed in the corporate psyche going from, we have a very particular way that we do things in a very particular market we serve, with a very particular type of product, to let's have a full product suite just like everyone else?

Doug: Probably that 100X growth. Don't you think? I think they looked at it and said, holy crap, Boxster made us a ton of money. Cayman came, and it made us a ton of money. Cayenne showed up, and it made us a ton of money. We got cash. Let's go after the Mercedes S class and the BMW 7 series, the big luxury sedans from their German rivals, because they knew there was profit there, and they could do it better like they had done with the Cayenne.

David: Honestly, it would have worked and did work. It was not what brought down the company, not at all. If you were naively following along, you might think, ah, and then they got too big for their britches. They expanded the product strategy too much, and the brand came crashing. No, this works. It works beautifully, just ultimately under different ownership.

Let's talk about what we've been alluding to all episode here. The German tax regime still is not very favorable to distributing profits. Just the corporate tax rate alone disincentivizes spinning off cash flow and incentivizes reinvesting.

At this point under Wiedeking, Porsche is doing everything they possibly can to reinvest in new models, new lines. They're building a new production facility. What more could they do internally with all the money they're making? They can't do anything. They start looking around for other places to put the cash.

At the time, there were rumors circulating in the auto industry that Volkswagen had their eye on Wiedeking. They were looking to recruit him to be the successor to Ferdinand Piech.

Ben: Who worked the first time to pull the best guy over at Porsche over, let's do it again.

David: I think Ferdinand Piech took over as CEO of the whole VW Group, I believe, in the same year that Wiedeking became CEO of Porsche in 1993. Ferdinand's obviously much older. Coming towards the twilight years of his career, you can see how this would make sense if it were true. Whether it's true or not, I'm sure Wiedeking gets rumors of it.

Wiedeking's really feeling himself here at Porsche. He's, hard to imagine, a better run. He gets the idea. He has a Justin Timberlake social network moment of a million dollars isn't cool. You know what's cool, a billion dollars. Being a CEO of Volkswagen isn't cool.

You know what would be cool? If we at Porsche bought Volkswagen. I'll become the CEO of VW Group when I buy you. Remember, though, Ferdinand Piech is chairman and CEO of Volkswagen Group. He's also a Piech. He's also on the Supervisory Board of Porsche because he's also a key member of the family that owns Porsche.

Ben: Yeah. The sitting active CEO of Volkswagen as a family member of the Porsche-Piech family has voting shares in Porsche.

David: Yes, and he's on the Supervisory Board of Porsche. They thought they were done with the family drama here. It turns out there's another chapter.

Ben: Isn't it obvious then that it would be hard for Porsche to take over Volkswagen?

David: Porsche and the families needed something to do with the cash. At the time, when they start this, VW shares are a pretty good investment. They're not trading super highly. It's pretty clear to them that it's undervalued, and VW is a critical partner to Porsche.

I believe, certainly to the public and probably also to the families, Wiedeking positions this as like, hey, we're deepening the partnership. They don't announce like, hey, I'm trying to take over VW out of my seat at Porsche.

In September 2005, Porsche spends $4 billion to acquire 20% of the VW Group on the open market. It's creeping takeover vibes that you alluded to in the intro.

At this point, Wiedeking and Porsche's CFO joins the Volkswagen board. They keep buying shares, but using another patented Bernard Arnault technique. They do it mostly using various derivatives and options contracts. They're buying the rights to buy shares in the future.

Ben: There's usually ways to get around regulatory stuff. You're not exceeding caps if you're buying derivatives rather than the shares themselves.

David: Yes. In VW's case, in particular, there was actually a law on the books in German law called the Volkswagen Law that was designed to prevent a takeover of VW, because the state of Lower Saxony still owned the 20% share in Volkswagen, still does to this day. It was considered a national treasure, and they didn't want it to be taken over by corporate raiders. They didn't envision that it would be another German auto company that would try to take it over, so it was impossible for an actual direct takeover to happen.

Ben: I'm literally going to read from Wikipedia here because Wikipedia is extremely well-written. “Under the Volkswagen law, no shareholder and Volkswagen AG could exercise more than 20% of the firm's voting rights regardless of their level of stock holding. This law was supposed to protect the Volkswagen Group from takeovers. In October 2005, Porsche acquired an 18.53% stake in the business. In July 2006, Porsche increased that ownership to more than 25%.”

David: Yes. Part of the reason this all was able to happen is, there was a lot of speculation that this German Volkswagen law would be illegal under new EU regulations. In 2007, Wiedeking creates a new, separately publicly-traded holding company for the family's ownership of Porsche. There's still the Porsche operating company, the old doctor, engineer AG operating company. There's now a new holding company that owns 100% of the operating company and the VW shares that they've been acquiring.

Ben: This is Porsche SE.

David: Porsche SE Holding. Here's where things start to go awry. Wiedeking starts loading up the holding company with cheap debt in 2007 to go buy more VW shares on the market, ultimately, $10 billion of debt that he puts on this holding company.

Doug: He's got Ferdinand Piech signing off on this.

David: Right. Why would Piech go along with this? I think the best I could figure out is that Piech was not happy with the then current CEO of Volkswagen, and was looking for a way to get his first successor out. Clearly, he was trying to recruit Wiedeking too. He was benefiting from this, too. He was going to have his cake and eat it, too.

Ben: Head I win, tails you lose.

David: Yup. As Porsche's buying all these VW shares on the market with the debt that they're loading up on the holding company, the float of VW shares that are actually available on the market starts shrinking precipitously, because remember, the German state of Lower Saxony still holds 20%. Porsche now owns more than 50%.

Ben: Because they had kept buying after that 25% using all the cheap debt, and they got all the way up to 50%.

David: Right. That only leaves 30% left, then you've got all the insiders like Piech and everybody else. Who knows how much equity they hold, plus maybe some long-term holders or funds that aren't going to sell. The amount of VW shares trading hands on the open market shrinks to pretty close to zero. We know that markets are supply and demand just like this car sitting behind us. If there's not a lot of supply available, prices are going to go up.

Ben: Didn't it go up so much that Volkswagen briefly became the most valuable company by market cap in the world?

David: Yes, they did. As all of this is happening, Lehman Brothers collapsed. This is the black swan event that Wiedeking couldn't have predicted. He's not dumb. He knew he was taking risks here.

Lehman Brothers collapses, and it's crazy what happens. During the week after the collapse in October 2008, that's when Volkswagen Group becomes the most valuable company in the world. Hedge funds have been shorting. You get a short squeeze that happens, and the stock just goes through the roof.

Ben: Because there's all the demand for borrowing the shares to do the short selling.

David: You would think that this is the best thing that's ever happened to Porsche and Wiedeking. They now own more than 50% of the most valuable company in the world. They're invincible. I believe the threshold that they needed to get to was 75%, in order to consolidate VW's financials into Porsche. They had announced that their intention was to buy up to that threshold and to get there.

You think this is great, but this is terrible. This is the undoing of Porsche and Wiedeking because they've got this debt. Lehman just happens, so clearly, they're not going to be able to refinance any of that.

Yes, VW shares prices in the stratosphere, but it's not sustainable, because if Porsche were to start to sell any of their shares, which they're going to have to to service the debt really soon, the share price is going to completely crater. This is like an artificial price. It's just because of the short squeeze that it's that high.

Porsche now is completely trapped. They can't sell to service the debt, because then the share price will crater. They can't buy because they can't take out any more debt. They're just stuck in stasis at this point in time.

Ben: Why can't they sell? Because if they sell, they get a bunch of cash by not liquidating that many shares, because it's so valuable.

David: They're not going to be able to sell that many shares at this price before the price craters.

Ben: I see, right.

David: Who's going to be buying? Lehman just happened.

Ben: Right. Wow, fascinating.

David: At this point, Piech, Ferdinand, good old Ferdinand...

Ben: Who hasn't moved a single piece on the chessboard yet. He's just watching.

David: No, he's just been sitting there. He's on the Porsche board, and he's still chairman of the VW board. He's no longer CEO, but he's still chairman of VW. This is when he turns on Wiedeking. He and Volkswagen announce publicly to the market that they no longer believe that Porsche is a financially viable entity.

Ben: As a deep trusted partner of Porsche, we believe.

David: They say that they have to say this because Porsche is greater than 50% owner of VW, so they have to disclose this on the market. That as a result of this extraordinary circumstance, VW led by Ferdinand is willing to bail out their partner, Porsche, and save them by purchasing the Porsche operating company in the neighborhood of €3 billion to €4 billion to get them out of this predicament.

Ben: Just to unpack the statement a little bit more, what he's basically saying to make it more explicit is, a key partner of ours went so deeply into debt buying our shares, that they can't service that debt, and are now about to be insolvent and default on loans. Therefore, we will help them out by buying them for?

David: They floated a price of €3 billion to €4 billion. Remember, a couple of months ago, Porsche was trading at 10X that.

Ben: Whoa. This is literally Ferdinand saying to Wiedeking, if you come at the king, you best not miss.

David: This is exactly what is going on. Indeed. There's a whole flurry of negotiations. This is all against the backdrop of it being October 2008. Within a few months by January 2009, Wiedeking is gone as CEO of Porsche. Supposedly, when he exits the building, he exits to a standing ovation from Porsche employees, which he deserves. Even though like all of this craziness, he did go a bridge too far, he did save the company.

VW does end up buying Porsche the operating company in two tranches over three years. They buy 50% upfront. Three years later, in 2011, they complete the purchase. It ends up being about €8½ billion total. Between that opening value of €3–€4 billion and the €32 billion, it lands at €8½ billion.

What's even crazier about this, the undisputed, hands down, home run winner in everything is, of course, the Porsche, Piech families, and Ferdinand. They emerged as the largest shareholders, the families personally, in VW Group.

Ben: Porsche SE, this new holding company they created that was buying VW shares...

David: Already owned 50% of VW, and then VW paid €8½ billion to buy Porsche. The families own 50% of VW, and they just got €8½ billion for Porsche. They already were pretty high up there in the rankings. But after this transaction, they are now in the top 15 wealthiest families in the world.

Ben: Oh, my God. Post both tranches, after Porsche AG, the operating company is fully owned by VW, what does the family own?

David: Thirty-two percent of the VW Group, which remember now, also owns Porsche. But they have over 50% of the voting power, so they control the VW Group.

Ben: It's so crazy. VW the company bought Porsche the company, but really, Porsche the family owns it all.

David: Owns it all, and they just got an €8½ billion cash out.

Ben: Wow.

David: Yeah, crazy. Here's the thing now. We're now in 2011 when the second tranche of the buyout happens, and we're deep in the great financial crisis and the recession. Porsche the business is fine. The drama is all around Porsche the hedge fund, the financial shenanigans, and the families.

The actual operating business, the cars, sales are fine. Porsche has one down sales year, only one, during the financial crisis, and then everything else is up. A big part of that is the investment in China. China starts really, really growing through the early 2010s for Porsche.

Also, this is when they come out with the 918 Spyder. Their next supercar at this moment in time, there's all this, oh, Porsche is now owned by VW and consternation. They're like, yeah, we can still make the best cars in the world.

Doug: Yeah, and the 918 helped to introduce plug-in hybrid technology, which Porsche knew it would be going in that direction. The 918 was like an example we were talking about before of how they covered the Cayenne with the Carrera GT by saying, we're still doing this. The 918 helped them say, hey, we're going to make hybrids, which is viewed as this cheap, little car, the Prius. You think of, well, here's the hybrid, and we're going to do hybrids, but we're going to start top down with this crazy, crazy supercar.

Ben: Talk about supercars for a minute because I think it's important to understand that they don't always make a supercar, right?

Doug: Right. Once in every 10- or 15-year cycle, they're making one, but it's a rare and special thing that they do. It seems to be that they do it only to prove something or prove a technology. The 959 was all wheel drive, and this car was this new production facility, and the 918 was the plug-in hybrid technology.

Ben: How many years do they make them for when they decide they're going to do it?

Doug: It's a short model run. This car, they made 1270, which is considered a lot for a supercar. The 918, they only made 918 units. In fact, that was considered a lot for a supercar. Its biggest rivals at the time, which were the McLaren P1 and the LaFerrari, didn't combine to make 918 of those.

David: The 918 Spyder is a $2 million car?

Doug: These days. It was $999,000 or so, maybe a million after you got a bunch of stuff, and it's doubled. All the supercars have done well.

David: Ben, I'm sure you'll talk about this in a minute, but Porsche is the master. There is a base price, but you're not going to spend the base price. You're going to spend 40% more than the base price.

Doug: Even if you figured the base price, it was $900,000, they made 918, and you do the math. Doing a supercar is real money to be made fairly quickly, as opposed to Cayenne that's the long tail, and you make them over a long time to spread out the cost and all that.

Ben: This supercar was a plug-in hybrid. I don't think I ever knew that.

Doug: All supercars are now, but the 918 Spyder was Porsche's saying, we're going to go into this plug in world because they knew what was coming up. We'll get to in a second with the Taycan, but they knew what was coming up. The hybrids and electric cars were going to be a thing.

Instead of introducing that with the SUV, for example, which is where they should have because that's what the market wants it, they said, no, we're going to do it with the supercar, show people we're going to do it and we can do it well, and then we'll trickle it down.

David: What did the car world think of that?

Doug: It's important to keep in mind that 918 Spyder, being a plug-in hybrid, it had an electric component, but it also still had a massive V8 that had a zillion horsepower screaming on it. It was the same with the LaFerrari and the McLaren P1. They still had massive engines also, so it was fine.

The next crop of supercars will probably be full electric. That transition, I think, is going to be more controversial. The interesting thing that seems to be setting Porsche apart now, though, is that they're standing behind it. Ferrari has already said that the technology is old, all the plug-in stuff, we don't want to be a part of the LaFerrari. No one's really sure how that's going to age.

David: Those are going to be orphaned cars.

Doug: Exactly.

David: Orphaned multimillion dollar cars.

Dough: Exactly. It's a scary situation if you own that car. If the battery's gone, you don't know what to do. You go to the supplier. Porsche has always been big about standing behind the cars, in part to preserve resale value and to make sure that owners of the next supercar know that they'll be protected. This car is already almost 20 years old, all the parts are still available.

David: That's the smart brand thing to do too.

Doug: It is the smart brand thing to do, but it's not easy. If you really think about it, plus Ferrari, they don't need to. They don't care. They can make the next one, the next one. They keep finding rich people.

Ben: They only make 13,000 cars a year at Ferrari?

Doug: Yeah, it's a small operation. Ferrari still don't really care about their customers a lot much.

Ben: What's the rule of luxury? Dominate your customer?.

David: Ferrari was owned by somebody at some point, though, right?

Doug: Yeah. Ferrari is a story that is a crazy one also. The Fiat Group eventually had stepped in because Enzo had just driven the company, but in his pursuit of racing had driven the company into financial doom.

David: It wasn't his pursuit of derivatives.

Doug: No, it's quite different. It was actually a very Italian thing versus the procedure is a very German thing. That was a real bad situation also. None of those companies were independent anymore. It's not really possible either because of the way that regulations are structured, especially fuel economy. You have to spread out your fuel economy over your corporation, and you have to hit certain targets.

Actually, this, in some senses, may have worked out well for Porsche because it would have been difficult to get Porsche to work on the corporate average fuel economy standards, because the other cars are inefficient. But because they're under the Volkswagen umbrella, you can get that whole spread on it, and it works a little bit easier.

Ben: Listeners, this is a great moment for our final installment of this season of founder tips from Waseem Daher, the CEO of pilot.com. Pilot, of course, is the premier accounting and bookkeeping service for startups and growth tech companies. Here's Waseem now.

David: There is no right way to fund a company.

Waseem: This is something I feel really strongly about, and I understand what happens. People really fetishize venture capital and venture capital–backed startups. I think it's a really misguided obsession, which is, your company is not worse or less interesting if you haven't raised VC.

Fundraising is not the same as success. VC funding is not right for everyone. That's not a reflection of your self-worth, or an indictment of your caliber as an entrepreneur, or the quality of your business. Your company has made it when you provide a service that people really love, that they're willing to pay you for, and where you're growing and rates are excited to grow.

Our first company was when we totally bootstrapped. It was right out of school, we were all 22, we graduated from MIT, we were on the computer club together. If we wanted to buy equipment or hire new employees, we had to first make money by selling our service to our customers. It was frustrating, but it actually instilled in us some really, really healthy discipline. That's an instinct that has served us super well in our subsequent companies.

Ben: I do have to say, the goal of business is not to be cool, it's to have the highest net present value of all of your future cash flows. Whatever lets you do that is the way to win at business.

David: I think there's also a corollary to this, which is that there's no right time to fund a company, either. Some companies don't make sense for venture capital at one point in their lives, but may at another point.

Waseem: Venture capital opens doors for you, but it also closes doors for you. Our first startup, which we bootstrapped, and we exited at a value that would have been completely uninteresting to the venture capital investor, but was actually very life-changing for me and my co-founders. I think, had we run that company as a venture-backed business, we would not have been able to achieve that same outcome, and I think that would have been a big miss.

Ben: Our thanks to Pilot, the largest startup-focused accounting firm in America, providing finance, accounting, bookkeeping, and tax prep to companies of all sizes.

David: They are now doing OpenAI, Airtable, Scale. These are huge companies that Pilot is powering their accounting and bookkeeping.

Ben: Yup. You can click the link in the show notes or go to pilot.com/acquired to get 20% off your finance, accounting, and tax prep needs for your first six months.

David: Great. This is perfect to wrap up on the history of Porsche here. As part of the VW Group, they come out with the Macan, which is a huge success both in America and China.

Ben: This is the mini compact SUV.

Doug: Right. The Cayenne is the midsize, and the Macan is the compact. Exactly. A lot of Volkswagen stuff shared with all these cars. Engines are shared across all tons of model lines now.

David: Interesting, which is such a departure for Porsche.

Doug: That's right. It's for an engineering company to doing this sacrilege. The engine in the Cayenne Turbo, which is the best Cayenne, is in the Lamborghini Urus, an Italian car, the Bentley Bentayga, a British car, but Volkswagen owns all of these. It's in the Audi RS6 and the Audi SQ7. Everything is now just spread across all these brands.

David: A little bit echoes of our Lockheed Martin episode that we just did. The heritage of the great airplanes, the great Porsches, is this independent annual engineering small team culture. But to operate today in the content, you have to be part of this. The Macan's a big hit, and then we just alluded to it with the Taycan. Mission E is the concept that they introduced in 2015, so pretty early. I guess the Tesla Model S came out 2013, 2012?

Doug: 2012 model year. Porsche was pretty early with the concept for Mission E. Not everybody was sure that was going to catch on. Electric vehicles, I don't know. A lot of people were slow as a result.

Ben: In fact, entire nations were. Japan is five years behind everyone in electric. It's the weirdest thing. It's like they just woke up last year, and we're like, oh, my God, this is going to happen.

Doug: In the car world, at least five years behind. Toyota just came on their first electric car yesterday. I'm not exaggerating, it was eight weeks ago.

David: We have to talk about that another day on Acquired. How did that happen? They were the forefront of hybrids.

Doug: Totally. They invented it all, and now they're like, electric, I don't know. They're still waiting and seeing electric.

David: Wild.

Ben: The Taycan comes out. It's a very phenomenal car. I think people are a little unsure at first, but then it's super well received within three years.

Doug: Yeah. It's been well received. It drives like a Porsche, which I think was everybody's fear about an electric car, that you'd lose the engine sound. There's the feel of it, but the Taycan does indeed drive like a Porsche.

David: Why do you think they came out with a sedan?

Doug: It was a mistake for sure. I think probably because development started about when they started Mission E, and that was in 2015, and sedans were still a big part of the market. But most brands now that are coming out with electric cars as their first car are coming out with SUVs. If you look at Rivian, pure SUV and truck, Hummer EV, there's a ton, I think Porsche made a mistake.

David: But relative to the other traditional auto manufacturers, I get the sense Porsche got to be in the top tier of best positioned for an electric future.

Doug: Absolutely. They'll continue to innovate. There's an electric Macan that's coming soon, so they say, so it'll be fine. One could argue that Porsche needs to come up with an electric sporty car first, because if you come up with electric SUVs, that's your first one, and it's like meh.

Ben: They have no plans for an electric 911, right?

Doug: They would tell you if you ask them, that's what they would say. Let's be honest here, the future is electric. There will be electric versions of all these cars. Probably within our not so distant lifetimes, they will be purely electric.

Ben: Interesting thing about the Taycan. You mentioned the next super car will be an all electric one. I haven't driven in a Taycan. I have watched videos of people driving it. I'm like, what else do you need to do to make this a supercar?

Doug: The thing about electric cars is they all can accelerate incredibly well, and that's insane. Taycan is faster than this, it's faster than everything. It does 0–60 in 2 seconds. Ridiculous.

Ben: Isn't it also tuned to drive like a track car, where your 15th lap is going to be just as performant as your first?

Doug: Yeah, and so it's beneficial in that too. But at the end of the day, a four-door car, especially one that's made and not limited quantities, is never going to have the effect that a supercar halo car has on really showing people what a brand can do.

I suspect in the next couple of years, they will come out with the next supercar, which will look like this. They'll only make a thousand, it'll cost $2 million, and it will be fully electric, can do 0–60 in 1½ seconds and even more ridiculous.

David: What are the performance characteristics of the next generation of supercars going to look like? Humans can't go 0–60 in a second.

Doug: I think about that a lot. I think that will continue to help the values of these cars increase. At the end of the day, as cars age, they all get slow. This car is now that fast by modern standards. You start to look for other things that make them special, which is the feel, the sound, et cetera.

I had a press car dropped off the other day, a Kia EV6 GT, which is the electric Kia crossover. It is sized and designed to compete with the Toyota RAV4. This is the high performance version. It does 0–60 in 3.2 seconds. It's faster than Carrera GT.

What is a supercar even mean anymore? Ultimately, what does it offer that a Kia EV6 GT, by the way, $51,000, does not offer? The answer just has to be, it's lower. It's wider so it handles better. One of the big missing things from a lot of these fast accelerating electric cars is that they're not necessarily like sports cars. They're fast, but they're not really sports cars. I guess that's going to be the future.

You're right, power is being democratized. Everyone can now access a car that does 0–60 in 3 seconds. I don't know. It'll be interesting to see how the sports car responds.

David: That brings us to today, or I guess more accurately last fall, September 2022, when VW Group re-IPO'd Porsche. The Porsche re-IPO is the largest European IPO of all time. The initial market cap of Porsche at trading was about $75 billion. Today, that's up to about $115 billion 9 months later.

Ben: As the investment bankers would say, there's a lot of value unlocked by making this its own company, which I think is legitimate. I think there's an element to being able to own one of the premier luxury companies in the world without having to commingle it with a bunch of other stuff. All shareholders of Porsche can purely just be shareholders of Porsche. When you look at the financials, and you understand like, okay, they have incredible margins relative to if you look at the rest of VW portfolio, it's fine.

David: It's interesting, though. Doug, to your point, operationally, though, you can no longer extricate these companies. You can financially extricate them, but...

Doug: Purportedly. But even then, how do you financially extricate development costs of a powertrain that's used in multiple vehicles or a platform? There's an Audi version of the Taycan called the e-tron GT. It's all intermingled.

Ben: If it's not actually operationally any different, then you do have this question where you're like, okay, value was unlocked by just looking at the market caps. Actually, what happened there is you got better at marketing a security, not you literally created value inside the company.

David: It's interesting, Karl Ludvigsen who wrote Excellence Was Expected, published a new edition of it last year. In the foreword to it, he said, the reason I did it now is that the old independent Porsche is done. This is a completely different company now, and I can fully put a bow on that original Porsche. Even though there was a re-IPO of Porsche, it's never going to be the same old independent Porsche.

Ben: By the way, you can choose to buy Porsche AG, the independent spin out of VW, or you can also, on the stock market, go and buy Porsche SE, the family's holding company.

David: I didn't realize that it's still on the market.

Ben: Some other interesting things about Porsche today. The family as we mentioned has complete control both of VW and Porsche. In some ways, it's still the same old Porsche, even though it's all commingled.

Here's the nail in the coffin, in my opinion, argument on is it a separate company or not. All of her bloom is both the current CEO of VW Group and Porsche. When you share production facilities, you share distribution, you share a CEO, and you share components, in what way are these separate companies?

David: I guess Wiedeking was right. He was right in everything that he was doing. He just didn't win the game of thrones.

Doug: Right.

Ben: It's fascinating. Digging into the business a little bit, they do over $40 billion a year in revenue right now. When you look at the breakdown of that, interestingly enough, two thirds of it has come from SUVs, and there's a good amount of it that comes from the Taycan, too. The 911 has grown slowly over time. The 718, that's the Boxster Cayenne, not a lot of revenue coming from that.

Doug: Yeah, sports car sale is just slow. It's just not the same, but it helps give them more legitimacy.

Ben: Yes. The Panamera does have pretty decent sales, but still, nothing compared to the monster that is the SUVs. When you look at where they're sold—this is quite interesting—China is as Porsche would account for it, their largest market. But the reason that I put that caveat in there is because at 26% is China. They split out Germany from Europe and call them two different regions, so they have Germany...

Doug: Like a true German would.

Ben: Germany, is 10%, and rest of Europe, excluding Germany, is 23%. All of Europe together would be bigger than China, but Germans.

Doug: One of the interesting things is, the Chinese only buy four doors. They only want four-door cars because there's no heritage Porsche in China. It's a luxury good. It's a cool brand, it sells SUVs, and there's a lot of chauffeur-driven vehicles there, so it's almost none sports car sales in China. Hard to believe, but we think of Porsche is such a sports car brand. It's like part of the ethos of it, they're just like, a Cayenne.

Ben: Right, wow. We're used to it now, but I remember the first time I've seen Porsche SUVs. It's like, that's a sports car brand, this is weird.

Doug: Right. But for them, they never had the sports car brand, so it's just normal.

Ben: It's crazy. North America is very close to China. It's 24% in terms of sales, and then the rest of the world is about 16%. Interesting thing when you start to look at both the amount of cars that they make now because it's huge and the margin structure associated with that. Last quarter, they delivered 80,000 cars, and that's growing about 20% year over year.

Doug: That's a quarter of the delivery.

Ben: Yes. Last year, they delivered about 350,000 cars. This really is a scale organization at this point. This is not Ferrari, this is not Lamborghini. These are mass-manufactured vehicles.

I know they would say, oh, we're not a mass market thing, which is true in some ways when your average selling price is $110,000. But if you're making 350,000 of something, that's a mass market brand.

David: It's interesting. I compared the brand to Rolex earlier. I think from a brand perception, that's true. But from the operations of the company, really it's Louis Vuitton. Louis makes a lot of stuff.

Ben: This is the correct analog. I had this in my notes much later, but I want to bring it forward right now. Porsche is Louis Vuitton, Ferrari is Hermes. I think that this whole time, while researching, I just had this broken thing in my brain, where I was like, how do they make so much stuff when they're Hermes, and they're not Hermes? They were once Hermes, but as soon as they started making the SUVs, that's not who they are. They have tiered access to luxury like different luxury products with a shared brand that unifies them.

Doug: Which is funny because people see it as such a high-end brand. It's almost like the SUVs have managed to get under the radar of the people who buy the sports cars. The sports cars still have this elevated viewpoint, even though you can actually go to a Porsche dealer and lease a Macan for $750 a month, whatever it is.

David: Right.

Ben: On the scale thing, though, there is another order of magnitude up. These other brands do feel much cheaper. At around 2½ million a year is BMW and Mercedes-Benz. It does feel like Porsche is in a much different class than BMW or Mercedes-Benz in terms of the hoity-toityness associated with it when you get to drive it, when you get to own one. I think that that clearly shows.

The question is, if they made 10 times as many Porsches, would we all feel the same way that, oh, it's just a BMW? Probably. There should be an inverse relationship between scale and brand perception. They have managed to find this mismatch or, to your point, like skating under the radar, where they are able to make a lot of SUVs and still maintain what they have. The question is, for how long?

Doug: Or at what scale if it doubled again. It's interesting about BMW. If you saw Porsches, it's often used to sell BMW. Would it be special? Of course, the answer is no.

Ben: What do you think the average selling price of a Ferrari is?

Doug: $205,000.

Ben: $330,000.

Doug: That's insane.

Ben: 3X Porsches.

Doug: How many Ferraris are made every year?

Ben: 13,000.

Doug: 13,000 versus 350,000?

Ben: Yes.

Doug: It's so funny because the enthusiast world is often, are you a Porsche person or a Ferrari person?

David: Right, these are two very different beasts.

Doug: Yeah.

Ben: It's fair to be like, are you a 911 plus supercar person or a Ferrari person? But the rest of Porsche shares the name Porsche but is a completely different thing.

Doug: Right. They're nowhere near each other.

Ben: It's almost like Porsche should go get even more aggregate market cap by spinning out just their hypercar.

David: The 911s?

Ben: Yeah.

David: The stock ticker is P911.

Doug: Is it really?

Ben: Yeah, in Germany.

Doug: That's crazy. It's 330 you said?

Ben: Ferrari's average selling price is $330,000.

David: It's interesting. You're Doug DeMuro. You own a Carrera GT, you don't own a Macan.

Doug: Yeah, but they're cool. I would get one. I recommend them to a lot of people. That's a good point. I haven't went and got a Porsche SUV. Truthfully, the reason is ridiculous. I don't want to drive things of that name brand on a daily. My wife would never be seen in a Porsche.

Ben: It's the funniest thing because David and my closest friends drives a Porsche Macan, and his wife drives an Audi. It's this totally different thing, it says something very different about who I am. She was driving his car the other day, and she was like, oh, I hate being seen in a Porsche. Or that you don't want to be driving around a $75,000 Porsche, and yet this thing that you have.

Doug: It's ridiculous. I know. It's an interesting point. I never really considered that. I like to be casual for my normal cars. Also, I think that having the Porsche SUV is almost more in your face than this. If you bought us, you're a connoisseur. You have the sports car. If you buy the SUV, it's like meh. I love them, by the way. They're awesome cars, but they're not for me.

Ben: Right. It's like getting the Masters logo embroidered on your golf clubs. It's like, okay, I know you didn't play in the Masters.

Doug: Okay, that's cool. Right, that's exactly how I look at it. Like, okay, that's fine, but I'm going to stay low key in my normal life.

Ben: What do you think I drive?

Doug: Model 3.

Ben: That's a good guess. That's what David drives, and that's probably what I would. Mazda CX-5.

Doug: Yeah, okay. Those are good cars. The Porsche Macan of the mainstream—

Ben: It's the Japanese Porsche Macan.

Doug: If you ask my colleagues, they would say that, but I think it just isn't normal. But I like them, they're good. I recommend those to people, too.

Ben: Back to Porsche. A couple of other interesting observations just for listeners trying to keep track of homes. What are the profiles of these businesses look like? I always think gross margin is an interesting place to look to understand the strength of a brand, because it's basically showing, what can you mark up over your cost of goods sold, sell it to people, and still have them swallow that price?

Doug: Right.

Ben: BMW, as we mentioned, 10 times more units of BMW sold than Porsches are down at 17% in terms of gross margin. They really aren't marking up much above their cost of goods in order to ship those cars. Mercedes is a little bit better at 23%. Porsche is at 29%, so about 50% higher than BMW. Ferrari is 48%. People who are buying Ferraris do not care what it costs.

Doug: People just pay and pay and pay. By the way, the $330,000 average price thing, I'm just still astonished by it. It's an unbelievable amount of money when you really think about it for 13,000 cars a year.

Ben: To put it another way because let's round 48%–50%, if you have 50% gross margins, it means you go buy a bunch of stuff, you assemble it, and then whatever it costs you, you double that to sell it to the customer.

Doug: Ferrari is still charging $2000 to put Apple CarPlay as an option in their cars. I am dead serious. Heated seats are $800 extra in Ferraris. You get the idea. Ferrari options list will go crazy.

Ben: Switching gears but stay on gross margins, because David, you brought up LVMH earlier. LVMH's gross margin is 68%. It turns out, you can mark up leather way more than you can mark up cars. At some point, there is some sensitivity to like, you can't just make every Ferrari cost $8 million, because there's so much real hard costs in cars that are just not in other luxury goods.

You have this opportunity to generate unbelievable price premiums in all the stuff LVMH owns. If it feels good on your hands, it looks good to your eyes, or it smells nice, you have the opportunity to mark it up way more than sitting in something that is going to thrill you.

Doug: How interesting.

Ben: This is really interesting trying to understand which of these businesses you'd rather own. Gross margin isn't everything, but it is amazing that LVMH is truly in a league of their own on gross margins.

David: Going into doing this episode, I wondered in the back of my mind, has Bernard Arnault and LVMH ever made a run at any of these luxury auto companies? If they have not, maybe this is the reason why. They're just in a better business.

Doug: Yeah, car businesses is a lot of stuff. Like you're saying, it's a different business and it's a lot. Distribution is harder.

Ben: Yes, and it takes a really special type of person and team to run it. It's engineering and art, whereas there's not engineering and anything that LVMH owns. I'm sure there are people who work there whose title are engineer.

David: No, it's craft. It's craftsman.

Ben: If I were to guess, I would say, maybe Bernard Arnault has kick the tires on Ferrari or Lamborghini, but more on licensing agreements than trying to own those businesses, because I just don't think it actually works into the rest of the flywheel in the same way. You got to own a factory that makes these cars. You got to do all the R&D.

Doug: Plus scalability is harder.

David: You alluded to the dealerships and the distribution.

Doug: Distribution is hard. You're shipping stuff on giant boats all the way across the world and all that.

Ben: Should we talk power moving to analysis here?

David: Let's talk power, yeah.

Ben: For any listeners who are new, and based on the Lockheed episode, a lot of listeners are new, there is a section we do called power, which is a way that we try to figure out what enables a business to achieve persistent differential returns above their nearest competitor. Why are they more profitable on a durable basis than other people who compete against them? This is always a fun thing to try to analyze because you're like, what actually is it for a business that has pricing power that they get to markup their goods?

We just talked about Porsche having better gross margins than BMW or Mercedes, but not as good as Ferrari. Ferrari couldn't make the number of cars that Porsche does and maintain those margins. That's not really a fair direct comparison in terms of who their competitor is. But BMW also makes 10 times more cars, so that may not also be the right comparison.

This, I think, is an interesting point, which is Porsche is in a league of their own in making the number of cars that they do. It's like this magical sweet spot, where they get to be a luxury brand without making so few things that you can barely even work with the company.

David: Yeah. They definitely, especially relative to Ferrari, have scale economies being part of the VW Group that they can be in SUVs in a way that Ferrari can't.

Ben: I think you're right that scale economies enable them to be in the SUV business, which has great margins. That's a thing that you would need to have all these deep partnerships with other car brands in order to do that or be owned by one.

David: I think that is a differentiating factor against Ferrari. But obviously, lots of other car brands are in the SUV business.

Doug: The heritage is obviously an enormous factor.

David: The brand is the obvious big one here.

Doug: Yeah, the big one. I suspect that the German engineering thing also plays a role. I'm not against BMW and Mercedes-Benz, but certainly against the Japanese. I'm sure their margins are much, much higher than the Acuras and the Lexuses of the world.

Even though when you really look at it on paper, it doesn't make sense. There is some level of like, the German engineering thing, like you alluded to earlier, has this incredible reputation that helps them. This car is just simply built better. It's Europeans, it's Germans.

David: I think for a long time, that expressed itself in reliability of Porsches relative to other luxury car manufacturers. Today, is that as much as reliability, as much an advantage for Porsche as it was in the past relative to other things?

Doug: Supposedly, reliability is still excellent based on the JD Power studies and all that. The question of whether it's actually important for people making decisions by the cars, I'm not so sure. How many of those SUV customers are leasing and don't really care if things stays reliable? I don't know.

There is some component of quality that you just feel. It's certainly true. You get in a BMW or Mercedes-Benz, it's just not as nice. It's not the same. You have this feel. It's certainly more special. There's a specialness to it.

Ben: Okay, moving through them, branding. Yes, obviously. Especially if you're trying to enter any space and compete with a luxury brand, you don't have the heritage. There's just no way that you have the 75 years of people believing in your brand, and thus willing to pay extra margin dollars for it. That's the obvious one.

David: And you can't manufacture it either. They're not making any more heritage automotive brands.

Ben: They are, they're just going to take 75 years.

David: Maybe. I mean there's never going to be another situation where the link between racing and production cars is like it was when Porsche was getting started.

Ben: Yeah, but there will be another racing. That's myopic to think that 75 years from now, people won't obsessively care that some new brand was forged in the 2020s that had some other je ne sais quoi about it that's the equivalent of racing versus production cars. You could imagine, at some point, Tesla is a heritage brand. People are going to be like, there was this crazy, eccentric founder.

Doug: I agree with that, but it will take as many decades as you think.

David: I will have to be for something else, though. It can't be for racing. It's something else related to the cars.

Doug: Right, it would have to be for something else.

David: To your point, Doug, performance as a commodity now.

Doug: The Koreans have been around for 25 years, and there's no emotional attachment to any of those cars, even the older ones. I don't know. Brand, is it.

Ben: Brand, scale economies enabling the SUV line, I think that was a good one. There's not really counter positioning, I don't think. There was in the younger days, especially the racing younger days, especially with the aggression of Porsches advertising.

David: Porsche ads have been some of the most iconic brand advertising of all time.

Ben: And they were brash. The reason it's counter positioning is because a lot of very high end cars would never dream of showing their brand in such a gritty way and giving their brand voice such a risky proposition.

David: I'm thinking of two in particular Doug, do you have any particular favorites?

Doug: The most famous one, of course, is the Arena Red 993 Turbo. Porsche really would put up one picture of the car, and then there was always a tagline. That was the thing for decades. The famous one was Kills Bugs Fast. That's what everybody remembers.

David: It's so good. The other one that I'm thinking of is Nobody's Perfect.

Ben: It's my favorite.

Doug: That ad was great. I had one for my 996 Turbo 11 years ago. I had it framed, and it said, calling it transportation is like calling sex reproduction, which is a great example of no other luxury brand would...

David: Would touch that.

Ben: David and I had the same favorite one of nobody's perfect, because what they did is the bulk of the ad, when you look vertically down, is the top 10 winners at Le Mans. Porsche has 9 of the 10, and it's just Porsche, Porsche, Porsche, Porsche Porsche.

David: Like number eight?

Doug: And that is Porsche, Porsche. Nobody's perfect.

David: It's so good.

Ben: All right. That's the modest counter positioning, but not really anymore. Switching costs, I actually don't think there are switching costs in the car industry. I think this is really interesting thing, where Doug, you're going to laugh, my car before the Mazda CX-5 was a Honda CRV. I completely reevaluated with fresh eyes. There was nothing about being a part of that old ecosystem that carried forward to the new ecosystem.

Doug: Unlike Apple, where you're dialed into everything.

Ben: Yeah.

Doug: That's going to become less true, I suspect, with all the tech that's in cars. But I agree. Up until this point, it certainly hasn't been a thing.

Ben: Yup. There's no network economies. There's really no benefit to you own a Porsche, therefore I own a Porsche, and I get value out of you owning a Porsche. It's not particularly a thing, other than we can go to Cars & Coffee together.

Process power, this is probably where I would slot German engineering, of all the things that we've talked about. The last one, cornered resource, I don't think there's a particularly cornered resource here. It's not like the square footage in Stuttgart that they own is some magical thing. All right, that does it for power.

Playbook. We've talked a lot of playbook along the way, but I'm curious for ones that jumped out at you that we haven't hit yet.

David: I know we just talked about it a bit. But for me, the racing thing is interesting. Even though we didn't spend that much time on the details of it throughout the history, I don't know that we've covered any other companies, where there is this adjacent activity to the core business of the company that adds so much to the brand value and is worth investing in. I'm just trying to think if there's anything else like this because Porsche has invested billions in racing over the years.

Doug: In all sorts of racing.

David: But it's not like there's software competitions out there that you could enter your software and build your brand prestige.

Doug: That's right. That's an interesting point. Are there any other companies that do things like that?

Ben: Or industries that have a very expensive showcase, where you have to go build a completely different product line.

David: You know what is like that? The athletic apparel industry and Nike. They spent all of their marketing budget on athletes.

Ben: One of the biggest ones that jumps out for me is the brand continuity, this idea that if you loved anything we've ever done, we should be able to fulfill that dream for you today, not with the exact same thing necessarily. We're not going to sell you the exact model that rolled off the line in 1977, but you get to participate in the feeling, and you get to feel the same way about our brand today that you did then, and we're going to find all these interesting ways to provide you fan service.

It's almost like going and watching the new Star Wars movies, where if you liked the original films, even though these aren't the highest grade directing and writing in the world, we are delivering all fanservice moments to you. I'm not saying that Porsche is not making the best cars in the world. They make some of the best cars in the world, but they also provide all these opportunities for fan service. It's worth a huge multiple of what you invest in it if you can align everything correctly.

David: It gets back to the 40-, 50-year sales cycle with this, too.

Doug: Everybody dreams. Your whole life, you grew up dreaming of owning a Porsche, which is, again, funny as we talked about the SUVs and the volume they do. If you're a little girl or boy, you don't dream of I want to get Cayenne. Kids are getting dropped off in those at school is my point, but you do dream of a Porsche, even though it's the same thing.

David: Doug, you've talked about this when you worked at Porsche a decade ago and you were much younger. They didn't pay you much, but you got to drive a 911, and that was the coolest freaking thing.

Doug: And everybody wanted to work there. We get unsolicited resumes all the time, blah-blah-blah, and pay wasn't great. But the name. I worked for Porsche, that's so cool. Just being a part of it and then having the car was a huge deal.

Ben: I love it. All right. Grading feels a little bit odd on this episode.

David: And we killed grading.

Ben: But we do have Doug DeMuro with us. We are going to give Porsche a Doug score. It's an Acquired-adjusted Doug score. We can't grade the entire company on handling, so we got to figure out some categories that we can evaluate them on as a company.

David: I don't know that there are any weakened categories for a business.

Ben: All right, David, what criteria do you think is for our Acquired-adjusted Doug score?

David: We simplified this down to just three categories for the Acquired Doug score. Revenue growth, profitability, and defensibility. Would you want to own Porsche as a stock? I think those are the three components of buying a stock.

Ben: Closing your eyes to where they're trading today because you always have to evaluate entry price and all that. Are you excited about the company's prospects, 10, 20, 30 years from now?

David: All right, let's do revenue growth first. Growth has been impressive at this scale, not at the rate of the highest growers that we've seen, but still, nonetheless, impressive. Prospects going forward, though, for revenue growth, I think are still quite strong. We're obviously in a very different market environment than we have been in the past few years, but Porsche is incredibly well-positioned on EVs relative to other traditional manufacturers.

Ben: That's actually my whole bull case.

David: Yup. I think they're strong. As they electrify the rest of their lineup, strong bull case for revenue growth there. I also think that even as we're heading into a more depressed macro environment in the past few years, I suspect Porsche will be more resilient in their growth than other luxury brand manufacturers. so I give it a seven on revenue growth potential.

Ben: I basically agree with you numerically. I've won it on them versus other luxury manufacturers. It's depends how you define luxury. I think they'll fare better than Mercedes and BMW in a downturn and way worse than Ferrari. I think they're in this interesting place. It's like Louis Vuitton. They have some cash-sensitive buyers.

Doug: Right, because so much of their revenue is based on those SUVs that probably will not be as resilient as them.

Ben: Right. There are Macan buyers who will become Q7 buyers, Q5 buyers.

David: Yeah, totally. Ferrari, really, is in a league of its own though. The broader universe of BMW and Mercedes, all the Japanese brands, Tesla, et cetera, in America, all the Ford brands, the Chevy brands, I think Porsche is very well-positioned.

Ben: Right around Porsche in a recession than almost any other car company in the world.

Doug: Yeah. There's also this other thing. You alluded to the money they're charging for colors. They've perfected this with so many options, and people are just paying it, paying it, and paying it. It seems like there's no end to what Porsche can fleece their customers for.

It just seems like that's only going to continue to be more and more of a thing going forward. There's become this entire subculture around specking your Porsche in this perfect way. That is obviously a big margin stuff for them.

David: I'm seven, you're seven.

Ben: I think we're a pretty unified seven.

David: Seven out of 10. Next is profitability, quite, quite strong for the automotive industry, very strong. Not strong relative to the technology industry and software or Apple.

Ben: That's right. We didn't say that earlier, but Porsche is a 29% gross margin, Apple is a 43% gross margin.

David: I believe Porsche's operating margins are in the high teens, low 20s.

Ben: I'd love to own a business that has 20% of every dollar that I earn coming out the bottom. That's a great business.

David: When you're earning $40 billion of revenue, yes, that's a great business. I think I'd go seven again on profitability.

Ben: It's a nine for the auto industry, and it's a four compared to most businesses that we study on Acquired because we only study the very best businesses in the world.

David: It's not a media business. It's not a technology business.

Doug: I'm sitting here thinking that margins are pretty impressive considering that's a car business. I'm sitting here thinking, a car business requires just so much cost.

David: Yeah, I'm going to revise my score down to five.

Ben: For the ease of the episode, we're agreeing on a score here. Five feels like a good score. Honestly, I think five is the highest score you can give in the auto industry on profitability.

Doug: Unless we're talking about Ferrari apparently.

Ben: Yeah, which is almost not in the auto industry. It's like a completely different luxury category.

Doug: Yeah, that's so true. It just happens to make cars.

Ben: Because cars, you cannot give a 10, 9, 8, 7, or 6, I am going to give Porsche a 5 in terms of profitability.

Doug: That makes sense.

Ben: What's the last one? Defensibility. This is the biggest question. Does Porsche's margin profile, customer love, and brand value, just only go down from here as they continue to grow? Will we think of them as a BMW in 10 years when we see them around the streets?

Doug: I just don't think so. From when I worked there till now, it is amazing to me how much more people have become obsessed with Porsches. Every Cars & Coffee event has become a de facto Porsche event. They used ones, the vintage ones have just shot up in value to an unbelievable level. Porsche is more love now, I think, than at any other point in its history.

Will it diminish as a result of that? Probably. You can only be at a certain level for so long and at a high level for so long. It's been incredible to me to watch Porsche’s rise, even just over the last 10 years, and how much people love it and obsess over it compared to how it used to be.

It isn't Ferrari. It doesn't have that brand equity that Ferrari does, but it's more than you'd think. It's especially got more than you think for a company that mostly makes SUVs.

Ben: I think you put it really well earlier when you said, people are like, oh, are you a Ferrari person or a Porsche person? The fact that Porsche gets to be in that conversation, at this scale, it's like they're getting away with murder by being lumped in right there.

Doug: Right. Somehow they're able to both produce an SUV that gets them 350,000 units annually, but also mention the same breath as Ferrari in terms of enthusiasts.

Ben: I'm literally a 10 out of 10 on this, because I think this is the thing that I still don't really understand how they executed this so well, and they've done it better than any other company in the world.

Doug: It's probably true.

Ben: They went from making the 911 the everyday supercar to now, they're an everyday supercar company. They have a whole gradient of everyday supercars that you can buy, but they're all everyday supercars.

Doug: It's crazy. I agree. I completely agree. Again, the love only seems to be growing, even as their model line expands to what we would consider to be less desirable cars. Like you said, it's amazing they pulled it off.

David: My barometer for this is something I took from the LVMH episode of evaluating brand power. Can you kill it? Is there anything that could happen that would completely kill Porsche? I don't think so.

Doug: Nothing that they would realistically do.

David: Okay. Let's say they did. This is what we learned from the LVMH episode. Gucci, everything you could think of to kill a brand, they did that. But the heritage there, it can always be resurrected. Gucci is always going to be valuable.

Doug: The regular individual still has this thought of Gucci as like, holy crap, this is...

David: Yes, you can never completely eradicate it. I think Porsche is the same thing.

Doug: Once a brand gets to a certain level, is it even possible to kill?

David: I don't think so. Once you reach that level, that's when you have real brand power. I think Porsche is at that level. Let's say they make a bunch of decisions and they kill the company, it goes bankrupt. Somebody will buy it out of bankruptcy and huge value is still there. All right, 10 out of 10. That gives the Acquired Doug score for Porsche a 22 out of 30, which by Doug grading standards, that's pretty good. Your highest Doug score ever is?

Doug: Seventy-two or 74, something like that, somewhere in that range. You can't get any better than that.

David: Yeah. Porsche's at the top.

Ben: Quick carveouts? I'll start. Because I've had no opportunity to consume any media in the last three months that is not specifically for Acquired research, I have a random website that I haven't used in six months but I use six months ago, and it's awesome to recommend. That is resortpass.com. Have either of you ever been to resortpass.com?

David: No.

Doug: No.

Ben: It's Airbnb for amenities at resorts.

David: This is awesome. How did I not know about this?

Ben: When I go on vacation, I typically won't stay in a really fancy hotel. My wife and I will just book a condo, an Airbnb, or something. They're right next to really fancy hotels.

What ResortPass does is they go to the hotels. They say, look, I know your pools are not full most of the time. I don't exactly know how real time their inventory is, or if they are able to buy big blocks of it up front. But for $100 a day or $200 a day, you can go and get a day bed, a cabana, or amenities of the fancy hotel.

David: Dude, you've been holding out on me. Jenny and I do this. We'll do the same thing you do, but I didn't know there was a platform for it. We just call the hotel. We're like, oh, hey. Or we'll book a massage at the spa. With the massage, you get that. But now, I'll just use this. It's amazing.

Ben: It's analog ResortPass over there or like the Carrera GT of ResortPass.

David: Great. My carve out is I go down these YouTube rabbit holes, which is probably how originally I got to you. I've been on a Seinfeld cast interview rabbit hole. There is an amazing compilation of all four of the cast members doing Charlie Rose interviews.

He was so good. A problematic person, but he was one of the legendary best interviewers of all time. He did a bunch of interviews with all four of them. Surprisingly, naively for me coming in, Jason Alexander is by far the best interviewer. He is so articulate, like incredible.

Doug: If you see him interviewed anywhere or talking anywhere extemporaneously, he is pretty legit.

David: You would never know because he's so different than the George character. He's the exact opposite.

Doug: He is the biggest difference of all of them for sure.

Ben: Have you seen that bit on Curb? On Curb Your Enthusiasm, there's this whole arc of the show about how Jason Alexander is not at all like George, how dare you perceive him that way, and then Jason Alexander's insinuating to Larry David, what a loser the George character is. Larry takes it personally because it's based on him.

David: That's so great. I should have said Larry David is in this compilation of Charlie Rose conversations, too. It's so good. I think it's about an hour 20 total, but it's worth it.

Doug: Interesting. Jerry's in there too?

David: Jerry's in there. Yup, they're all in there.

Doug: Okay, mine is a YouTuber named WhistlinDiesel. Have you guys heard of him?

Ben: No.

David: No.

Doug: I'm not surprised, neither will anybody who is listening to this. He's a car YouTuber, but mostly, he just does crazy stuff. He lives in Tennessee and has a big property. Did you see the thing that went viral on Twitter and elsewhere of the Tesla that was on 20 foot tall wagon wheels? He's done that.

He bought a Ferrari and put it in one of those bubbles that boomers put inside their garages. Then he just started throwing stuff at it like a ladder, an axe, and a sledge hammer, to see if it would break the bubble and damage to the car. He dropped a Mercedes G Wagon through a house. He got a Chevy pickup with tires so big that he was able to drive it out into a bay in Florida.

David: He's the Mr. Beast of cars.

Doug: He's the Mr. Beast of the car world.

Ben: Sort of. He's like Dude Perfect on heroin.

Doug: It's like that. He's from Indiana, and he lives in Tennessee, so he's like Backwoods dude. But his channel has gotten so big that it allowed him to do just dumb stuff. He has become my utter guilty pleasure because you put on his video, and you're going to see deep destruction of something that a lot of people hold dear, and then you're going to see a lot of complaints in the comments of people being like, I can't believe you would do that to a Ferrari.

As a YouTuber, I also feel like this is the greatest thing ever because he takes what the haters say and just turns it up even more. I have to be nice. I'm so sorry, sir. I'm running a business here. He's like, forget about these people, I'm just going to blow it up. He flew a helicopter inside of his garage. That's a good episode. I highly recommend it.

David: I got to watch that.

Doug: This is all just trash TV, but it is so good to watch, though. I highly recommend it.

David: I love that other people do this.

Doug: Right. I do wonder sometimes about the danger of YouTube. It takes now flying a helicopter inside your garage to get views. When I started, I had a Ferrari. That was enough.

David: Right. You've talked about this a lot. We're going to do a whole another episode of just you and us chatting. You started at a time and we started at a time, where you didn't have to do this stuff.

Doug: I feel bad about this guy now. WhistlinDiesel is out there dropping G Wagons through houses. It's a different thing, but I highly recommend it.

David: It's great content.

Ben: Doug, have not talked about everything that you do. Give us a little bit of insight. I think David teased, we're going to do an interview together as a separate episode, but give us a little insight into the Doug DeMuro empire, what you have going on, and where can people check it out?

Doug: I make YouTube videos. My channel is my name, which has become very complicated now that I have a business on a channel also. I maybe regret doing that, but I'm just Doug DeMuro. I also run a car auction website for enthusiast cars called Cars & Bids. We're selling something like 30 cars a day or auctioning 30 cars a day on Cars & Bids right now. All just enthusiast cars, Porsches, BMWs, and things of that variety.

David: The short version is, you are one of the most successful YouTubers in the world. You are also an entrepreneur who built a tech marketplace, internet marketplace business, and just took a very large investment from The Chernin Group, one of the best investors in marketplace and content businesses out there. Incredibly impressive. Thank you for spending so much time now us doing this collab.

Doug: This is great, so interesting.

David: This has been super fun. It's really rare that we get to chat with somebody who is not an executive at the protagonist company, and also deeply gets both the products and the business aspect. I don't think there's anybody else we could have done this, so thank you.

Doug: Maybe Wiedeking himself.

David: He would be a little biased, I think.

Ben: Yeah. It's the bias that you got to worry about.

Doug: I can totally imagine.

David: Yeah, so thank you.

Ben: Doug, thanks so much.

Doug: Thank you. Thanks for having me. It was a lot of fun. It really was. Prepping for this was so interesting learning all this history that I didn't know even having worked there. It was great.

David: It's so fun.

Doug: Thank you, guys.

Ben: With that, listeners, our thanks to Vanta, the best way to become compliant and stay compliant, to pilot.com, the best way for tech companies to handle tax, bookkeeping, and accounting, and Tiny, truly the buyer of choice for wonderful internet businesses of any size.

David: Yes, the Warren and Charlie of the Internet.

Ben: Check out our second show ACQ2 if you want more Acquired. We just recorded a couple of more episodes, actually, that we have getting ready to come out that I'm very, very excited about. That, of course, is a way for you to go deeper and nerdier into topics that just either aren't ready for the main show or perhaps are too current for the main show, since what we try to do here is tell the big canonical stories.

Oftentimes, there are stories in flight, where we just want to talk to experts about what's happening, like Jake Saper in AI talking about what it's doing to the B2B SaaS landscape right now and where profit pools may emerge in that.

David: Yeah, or Avlok Kohli, the CEO of AngelList. That was a great conversation with him. We had David Hsu from Retool.

Ben: All the hits, David. We've got a Slack. We would love to see you there. We're going to be talking about this episode, acquired.fm/slack. If you would like to come deeper into the Acquired kitchen, you should become an LP, where we will, at least once a season, have you help us select one of the episodes, in fact, completely defer to you to select one of the episodes.

Beyond that, we also will be doing bimonthly Zoom calls so we can get some feedback directly from all of you and get to meet more of you. Acquired.fm/lp if you would like to become an LP. A huge thank you to our partner in crime on this episode, Doug DeMuro. We will see you next time.

David: We'll see you next time.

Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

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