The honeymoon period between Porsche and Volkswagen is over, and what looked like an amicable relationship is fast turning into a bitter forced marriage, writes Derek Scallyin Berlin
Porsche was supposed to be Volkswagen's saviour, a knight in luxury armour to protect Europe's largest car company from a foreign takeover.
But growing friction between the two companies has turned Porsche's friendly takeover of VW into a hostile one before it even happens. Porsche began buying VW shares two years ago in a move portrayed as a German solution to a German problem: the 47-year-old "Volkswagen Law" that limits outside shareholder voting rights to 20 per cent regardless of actual stake held.
In effect, the state government of Lower Saxony - a major VW shareholder - can veto company takeover bids to protect jobs at the Lower Saxon Volkswagen HQ in Wolfsburg, near Hanover.
But the law's days are numbered: for years the European Commission has said it is illegal under EU competition laws and, next month, judges at the European Court of Justice are likely to agree.
Pre-empting that ruling, Porsche began increasing its stake while claiming no interest in controlling VW outright. The strategy, Porsche chief executive Wendelin Wiedeking suggested, was to keep VW out of the hands of hedge-fund managers.
It was a decision made on strategic and family grounds: VW makes Porsche car parts while Wiedeking's cousin, Ferdinand Piech, heads VW's supervisory board. Porsche now holds 31 per cent of VW and is ready to increase that to 51 per cent when the VW law falls.
With a month to go, the wind blowing from Stuttgart turned chilly when Wiedeking warned in an interview that there could be no "sacred cows" at a Porsche-owned VW. There was, he said, a long list of things to be "optimised" at VW. The problem is that many of these items go to the heart of the management-union consensus model that is the trademark of VW's corporate culture.
The first item Wiedeking wants to tackle is VW's generous wage deals, hammered out by the powerful unions with VW management in return for union co-operation on prestigious but loss-making projects, such as the Phaeton and the luxury brands Bugatti, Bentley and Lamborghini.
At VW board meetings, Porsche managers have questioned VW's loss-making plants in the US and Brazil, queried the underperforming Seat brand and criticised the cannibalisation of VW sales by the Skoda subsidiary, which offers cars with VW technology at a lower price.
Porsche executives say they want VW brands to be complementary, not competitors, to better take on Japanese rivals such as Toyota.
Anticipating a full takeover of VW, Porsche has already created a new joint-stock company, Porsche Automobil Holding SE, a Societas Europaea or limited company under European law, of which VW will become a subsidiary. None of the VW board members were invited to join the new board and just three seats have been offered to VW worker representatives, the same number as for Porsche representatives.
Bernd Osterloh, head of VW's works council, called the plan a "slap in the face", considering that VW has 30 times more employees than Porsche, not to mention sales of €105 billion against Porsche sales of €7 billion.
To drive his point home, Osterloh took the extraordinary step of sending a letter to VW's 324,000 employees around the world, calling the Porsche plan "in complete contradiction" with VW's principles of social economics and co-determination.
The VW works council says that, if the holding company had been set up under German corporate rules, all worker-representative seats would have automatically gone to VW because of its size. Now the works council has filed a suit against Porsche and its holding company plan, a case to be heard by the Stuttgart labour court on October 24th, a day after the European Court of Justice will rule on the Volkswagen Law.
Porsche executives remain confident of their strategy: spending €5 billion on VW shares has scared away other potential suitors and weakened the hand of VW. The takeover now seems a case of when rather than if, giving Porsche's profit motive the upper hand in Wolfsburg ahead of state politics, job retention or management-worker consensus.
That will come as a shock to the Wolfsburgers and, unless Porsche makes efforts to soften the blow, VW's powerful unions could make the Porsche-VW union resemble an unhappy forced marriage.