Strategic risk identification and control by Porsche

4.3 Risk identification and current control applied by

Table 33: Risk radar of the automotive industry

Obviously, not all the industry risks are applicable to Porsche, mainly because of the fact that Porsche is a niche player. Seen below is an analysis of Porsche’s Strengths, Weaknesses, Opportunities and Threats:

Source: Strategic Business Risk, Automotive by Ernst & Young (2008)

Table 34: Porsche's SWOT analysis⁸⁷

While SWOT is not a perfect tool, it is a good first step in analyzing the risk exposures. Findings from Menon (1999) and Hill and Westbrook (1997) have shown that SWOT may harm performance. “People who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies."⁸⁸

The following is an elaboration on the most important strategic risks identified by the SWOT analysis.

4.3.1.1 Brand value risk

Porsche’s brand name has established itself as a symbol of quality, sport style and outstanding technical skill and performance. It has managed to preserve its image as a manufacturer of great sports cars for more than half a century. Is this image being threatened nowadays? Porsche’s portfolio consists of 4 models:

• Boxster

87 SWOT analysis has been prepared for purpose of Porsche’s analysis in cooperation with University colleagues throught the structured brainstorming session

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Strengths Weaknesses

o Outstanding brand o Engineering capabilities o Loyal customer base o More agile than competitors

o High reliance on the US market o Not diversified

o Small in size and in revenue (Table 28) compared to competitors

o Unionized labour

o Dependence on suppliers (in operational risk part)

Opportunities Threats

o Leverage Porsche brand to expand product line

o Exploit cooperative relationships with VW and Audi (in operational risk part)

o Competition from other high power brand with race heritage such as Ferrari etc could lead to declining brand value

o Import restrictions

o Declining core market sales

o Foreign currency fluctuations (in financial risk part)

o Environmental regulations / pressures o Fuel prices

Note: The items in ‘bold’ will be explained

• Cayman

• 911

• Cayenne

The Boxster, Cayman and 911 are characteristic sport cars. Porsche’s desire to grow has resulted in the fact that Porsche is expanding outside its niche. For example, the introduction of the SUV Cayenne a couple of years ago was a clear deviation from its niche. Still, Porsche managed to create enormous revenues with this SUV. Currently Porsche is trying to attract an even wider segment of customers by introducing the new four seats, four door sports coupé in the premium segment. The launch of this car, called the Porsche Panamera, is planned for 2009⁸⁹. In the past, Porsche’s growth was being encouraged by the introduction of new special models for each product line on a yearly basis, resulting in a wider variety that catered to both the more comfort-orientated customer and the purist. At the moment, growth is powered by the introduction of new models.

Table 35: Porsche panamera, four door sedan

Porsche is obviously extending its brand into another segment. It seems to be reacting to the enormous success of Maserati’s Quattroporte, which combines the feeling and the appearance of a sports car with space and comfort. Still, the competition is fierce in the market segment of the Panamera. BMW has its M5, Mercedes has the CLS 55 and Audi has the S6. They are all high performance cars with space and comfort. It could be reasoned that BMW, Mercedes and Audi are already in Porsche’s segment and that it is therefore a natural counter reaction of Porsche to enter into their territory. At the same time though, there is big danger for Porsche if it changes its brand perception, because the “image” is a large selling point for Porsche. Looking at the psychographic profile of the Porsche buyer (Appendix 14) there are statements such as

“extension of the owner’s personality”, “desire to get noticed” and “impressing others”. The risk

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involved in brand extension is that Porsche could become too wide spread and too ‘normal’ in the long-run. The perception of the brand Porsche might move towards BMW or Mercedes, which could lead to the loss of customers and brand uniqueness. Hence, this is an issue that should be considered by a company when there is thought about launching a new model. In the short run it might be a good strategy for generating revenue from selling the new models, but in the future, customers may not perceive Porsche as a sport car but rather as a luxury SUV and Sedan class. Here, the chase for profit is tougher than in the sport car segment, where Porsche is already well established.

4.3.1.2 Consumer demands and fuel price shocks

Analysts believe that fuel prices are probably going to impact the long term strategic choices of automotive companies, as well as demand shifts from regular fuel cars towards hybrid cars. In the near future it is a competitive threat that will impact leading players’ relative spending. As was said by one analyst, “Key players differ dramatically on fuel efficiency of products.” (Ernst

& Young, 2008) Porsche is reacting to this trend by investing in R&D of hybrid engines for their new models. The first launch of the new hybrid Porsche Cayenne is planned for 2010.⁹⁰

4.3.1.3 Environmental pressures

A major strategic issue is the trend of customers “going green”. Porsche’s main market is North America and EU. Within EU their largest market is Germany. In February 2007 the European commission published a review of the EU strategy on reducing carbon dioxide emissions (CO2) from new cars. That review announced that for the first time there would be future regulation.

The goal was set at 120 grams of CO2 per kilometre.⁹¹ Porsche cars’ emissions are far above these numbers at present. Porsche’s car with the lowest emissions is the Boxster - 5-Speed VarioCam Plus (entry model) with 222g of CO2/km, and Porsche’s car with the highest emissions is the Cayenne Turbo S - Tiptronic S with 378 g CO2/km. When this is compared to the Ford Prius (the lowest emission car) with 104 g CO2/km⁹², it shows that Porsche could face some serious problems in this area. Porsche is working on reducing emissions and on the creation of hybrid cars. If Porsche is unable to lower its emissions from an average of 242 grams

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91 Proposal for a regulation of the European Parliament and of the Council setting emission performance standards for new passenger cars as part of the Community's integrated approach to reduce CO2 emissions from light-duty vehicles (COD 2007/0297), European Commission, Brussels (19.12.2007)

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to 140 grams (in the SUV class), it will be subject to a fine of 95€ per each additional gram.⁹³ Porsche executives estimate that every Cayenne S premium SUV sold in 2015 and beyond would carry a fine of €9,702 ($15,211).⁹⁴ These environmental issues should therefore be seriously taken into account in the overall risk analysis, because they could extensively harm profit margins.

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