Porsche must get itself back on autobahn

June 8, 2009

alexander-smith— Alexander Smith is a Reuters columnist. The opinions expressed are his own —

Porsche and Volkswagen gave themselves four weeks to come up with a blueprint for “an integrated car manufacturing group”.

Their time is up. The carmakers made their statement on May 6, but investors are still in the dark. In the meantime, VW shares have staged the kind of yo-yo performance more normally associated with a highly leveraged hedge fund.

Porsche’s financial situation has not improved either. The sports car maker has gone cap in hand to German state bank KfW for a 1.75 billion euro loan to plug the gap left by its banks. The German government will discuss the loan request on Monday.

Not unsurprisingly, Porsche’s lenders have been unwilling to throw more money at the heavily indebted car company. It already owes them 10 billion euros and had been trying to drum up a further 2.5 billion euros. So far the banks have drawn the line at 750 million euros, leaving it to Berlin to provide the balance.

Porsche is insisting it will pay interest on any loan and won’t be a drag on the taxpayer.
That’s all very reassuring, but why should the taxpayer be lending Porsche anything at all? It has nobody but itself to blame for the 9 billion euros of debt it racked up in its failed attempt to take over Volkswagen.

Having got itself into a hole, Porsche should be made to dig its own way out. The price to be paid is that the Porsche clan will have to loosen its grip on the family firm in a merger with VW and accept a lesser shareholding than the current 51 percent stake it holds in the larger carmaker.

Porsche has shown it has financial engineering skills as well as mechanical ones. It should put these to work at getting itself back on the road rather than asking Berlin for a tow.

— At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.
(Editing by David Evans)

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