Porsche (with Doug DeMuro)

Ben Gilbert 0:00 It's definitely Porsche.

Doug DeMuro 0:01 Porsche.

Ben Gilbert 0:02 Porsche.

Doug DeMuro 0:03 Yeah, definitely don't say Porsche.

Ben Gilbert 0:05 Definitely don't say Porsche.

Doug DeMuro 0:05 The family says it more like-

David Rosenthal 0:07 ... I'm gonna go-

Doug DeMuro 0:07 Like, 'cause I met one of them at one point, they say it more like p- not like Porsche, but more like Porsche. Like, but it's hard-- I think it's a German thing, and I think it's difficult to... But so we all say Porsche.

David Rosenthal 0:16 Mm.

Doug DeMuro 0:16 Porsche.

David Rosenthal 0:17 Yeah.

Ben Gilbert 0:17 If you say Porsche with a German accent, it comes out like Porsche.

Doug DeMuro 0:21 Yeah.

Ben Gilbert 0:22 So I think it's almost like-

David Rosenthal 0:23 Porsche.

Doug DeMuro 0:23 Yeah.

David Rosenthal 0:24 Yeah, yeah, it'll be a little-

Doug DeMuro 0:25 Yeah, that's probably exactly what it is. [laughing]

Speaker 0:27 Who got the truth? Is it you, is it you, is it you? Who got the truth now? Hmm. Is it you, is it you, is it you? Sit me down, say it straight. Another story on the way. Who got the truth?

Ben Gilbert 0:44 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 Rosenthal 0:52 I'm David Rosenthal.

Ben Gilbert 0:53 And we are your hosts. Today, we tell the story of Porsche. If you liked our LVMH episode, you are gonna love this one, and not just because it's a European luxury brand. There is possibly even more family drama, creeping takeovers, and complex corporate structures at play. But 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 Rosenthal 2:04 Oh, yes.

Ben Gilbert 2:05 And if you like quirks and features, you're gonna be pumped about our partner in crime to help us tell this story, Doug DeMuro. Doug is one of David and my 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 DeMuro 2:37 Thank you for having me.

Ben Gilbert 2:39 It's wonderful to have you here. Well, listeners, if you wanna 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. And without further ado, David, take us in. And listeners, this is not investment advice. David and I, and Doug, may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

David Rosenthal 3:03 To set the stage a little bit, I think that even though it's a marketing phrase-

Ben Gilbert 3:07 The German engineering thing

David Rosenthal 3:09 ... it's worth sharing a little bit of history because it is more than just a marketing phrase.

Ben Gilbert 3:14 Right.

David Rosenthal 3:14 So 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. And 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 Schrödinger, Kurt Gödel, and, you know, Albert Einstein. [chuckles] Like, these are all German and Austrian scientists. And, uh, this tradition extends also, of course, to the auto industry. So 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. And 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 gonna 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, and that was made in 1885 by Karl Benz.

Ben Gilbert 4:37 I recognize that name, Benz.

David Rosenthal 4:39 Indeed, you probably do, as do most listeners. Now, around the same time, another German inventor named Gottlieb Daimler sets up his own motor company, and then in the early 1900s, they have a model that they're producing, goes on to be quite popular, is named after the daughter of one of their biggest dealers in their dealer network. Of course, we are talking about Mercedes. I had no idea that's where the Mercedes name came from.

Ben Gilbert 5:06 Oh, neither did I. Yeah.

David Rosenthal 5:07 Yeah. Crazy. So Benz and Daimler end up merging in 1924, and thus Mercedes-Benz is born. But okay, you might be asking, what does this have to do with Porsche? Well, 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. Ingenieur Honoris Causa Ferdinand Porsche. Now, the, uh, whole doctor, engineer-

Ben Gilbert 5:52 [chuckles]

David Rosenthal 5:52 ... honoris causa thing, uh, it's 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 Gilbert 6:06 Wait, the-... Dr. Porsche is like Dr. like the Seuss doctor? [laughing]

David Rosenthal 6:11 [laughing] Well, he had an honorary doctorate.

Doug DeMuro 6:15 He was already doing stuff, though. He was engineering and creating.

David Rosenthal 6:18 Yes.

Doug DeMuro 6:18 Hence, the-

David Rosenthal 6:19 Hence

Doug DeMuro 6:19 ... honorary doctorate.

David Rosenthal 6:20 Yes. Nonetheless, he definitely was a badass engineer, and we're gonna talk about all of the things, the amazing things, that this guy creates. But we also gotta state this upfront, and this is as good a 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, and Ferdinand himself not just was a Nazi, but was a very close personal associate of Adolf Hitler. He was a member of the SS, and, you know, we're gonna glorify him and many of these other folks here of their business and engineering contributions, but, like, that doesn't mean that these are good people, [chuckles] so keep that in mind.

Ben Gilbert 7:01 Yeah. This isn't, like, one of those people that you hear, "Oh, well, you know, at that point in time, the Nazis were so big and powerful, they kinda just got, you know, coerced, or they collaborated." It's like, n- no, this dude was-

David Rosenthal 7:13 No, no, he was all in

Doug DeMuro 7:13 The dude was a buddy.

Ben Gilbert 7:14 Real big Nazi.

Doug DeMuro 7:15 He was there.

David Rosenthal 7:15 Yeah.

Ben Gilbert 7:15 Yeah.

David Rosenthal 7:15 He, he was definitely a Nazi. So when Ferdinand takes this, uh, 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. And, uh, Doug, you probably have some more context on this, but Stuttgart is basically like the Detroit of the German auto industry.

Doug DeMuro 7:36 Yeah, and it certainly has become more that way since Porsche was, as we'll get to, 'cause Mercedes-Benz is there, and it really does feel like, yeah, a manufacturing cradle, especially for cars.

David Rosenthal 7:46 Yeah, and I think it's not even-- much like Detroit, it's not even just the car companies, but all the-

Doug DeMuro 7:51 Suppliers

David Rosenthal 7:52 ... suppliers-

Doug DeMuro 7:52 Yep

David Rosenthal 7:52 ... and the subcontractors.

Doug DeMuro 7:53 Everybody you meet in Stuttgart, just like when you go to Detroit, works for Porsche or Mercedes-Benz or a supplier or something like that.

David Rosenthal 7:59 It is, like, the industry town.

Doug DeMuro 8:01 Yeah.

David Rosenthal 8:02 So Porsche, Ferdinand, it, it's not a short period of time, it's two decades, like, that he is running the engineering and the car design for Mercedes-Benz. While he's there, towards the end of his time, kinda 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 f- mass-market automobile. Now, 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, like a modern, small automobile that Germans everywhere can, can buy.

Doug DeMuro 8:48 Which was important because, in Germany in that time, car ownership was not anywhere near as, as big as it was in the United States. Apparently, only 2% of Germans owned a car versus 30% of Americans by the 1930s, and so mobilizing Germans was not something that had happened en masse at that point.

David Rosenthal 9:04 So this really was a challenge to build a car that could be affordable enough for the average German person to buy it, and indeed, it was a challenge because the board of Daimler Benz, uh, rejects it. Uh, they're like: "No, like, we, w- we can't do this. We make expensive cars for wealthy people." [chuckles]

Doug DeMuro 9:20 Mm.

Ben Gilbert 9:20 Right.

David Rosenthal 9:21 They get into a huge fight over this, and Ferdinand ends up leaving the company pretty acrimoniously in 1929, so much so that, like... And Doug, you worked at Porsche, you have context. Like, I think to this day, the rivalry between Mercedes-Benz and Porsche, like, there's, there's some bad blood there.

Doug DeMuro 9:40 It heats up, and it cools down, and there's, there, there's more to discuss on that in the future, for sure. But they ultimately do s- share that town, too.

David Rosenthal 9:47 Yeah.

Doug DeMuro 9:47 So, like, there's rivalry, but, like, they're also... You know, you hang- you have beers with the-

David Rosenthal 9:51 Right

Doug DeMuro 9:51 ... You know, you can't avoid hanging out with Mercedes-Benz employees also.

David Rosenthal 9:55 Love it. So once he leaves, Ferdinand bumps around for a little while, and then in 1931, he starts a consulting firm to kinda advise other car companies, not Daimler-Benz, but other car companies in Germany and, and Europe, and I think in America, too, on their designs and, like, do some work for them and maybe even design cars for them. And he names it the Dr. Ingenieur Honoris Causa Ferdinand Porsche Konstruktion und Beratung für Motoren und Fahrzeugbau. I apologize to any-

Ben Gilbert 10:30 [laughing]

David Rosenthal 10:30 ... German speakers out there.

Ben Gilbert 10:31 Wow!

David Rosenthal 10:31 That is-

Ben Gilbert 10:32 You are-

David Rosenthal 10:32 That is, that's rough.

Doug DeMuro 10:33 But to be fair to you, it's a lot. [laughing]

David Rosenthal 10:34 It's, it's, it's a mouthful. I studied French in college-

Doug DeMuro 10:37 [laughing]

David Rosenthal 10:37 ... you know, like [chuckles] and, uh, that translates as the Dr. Ingenieur Honoris Causa Ferdinand Porsche Consulting and Design Services for Motor Vehicles company, and this is the beginning of Porsche the company. And up until 2008 and 2009, which we will get to much later in the episode, that is the company that makes Porsches.

Doug DeMuro 10:59 Yeah.

David Rosenthal 11:00 Wow. So-

Ben Gilbert 11:01 Yeah, I mean, if you look up, like, 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-

David Rosenthal 11:09 Yeah

Ben Gilbert 11:09 ... is all of his honorary things.

David Rosenthal 11:12 So 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 Piëch. Remember that last name, because it is also gonna be very important as we go along here. And the other person is Adolf Rosenberger. Now, if you are a Porsche history nut, you probably know about Anton Piëch. You probably don't know about Adolf Rosenberger because shortly after they start the company, uh, 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.

Doug DeMuro 12:01 Wow.

David Rosenthal 12:02 Okay, so this new Ferdinand company, in 1934, they land-... one very, very, very large contract [chuckles] 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, a Volkswagen, you might say, in German. That car would go on to become the Volkswagen Beetle, and 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, there's, like, a Nazi connection here." Like, Adolf Hitler founded-

Doug DeMuro 12:59 Yeah

David Rosenthal 12:59 ... Volkswagen.

Doug DeMuro 12:59 Yeah, that's bigger than a connection.

David Rosenthal 13:00 [laughs] Yeah. There, there, there's not a connection because it's the same person.

Doug DeMuro 13:04 Right, it is, [laughs] is the thing.

Ben Gilbert 13:06 Yeah, Facebook, I feel like that has some kind of, like-

David Rosenthal 13:08 [laughing]

Ben Gilbert 13:08 ... Zuckerberg association, but I've never really put it together.

David Rosenthal 13:10 Yeah, yeah, there's some, there's some link between Mark Zuckerberg and Facebook, like-

Ben Gilbert 13:14 I just gotta say, this early in the episode, we may as well, like, point it out already, it is crazy how comfortable we all are driving Volkswagens and Porsches, when it was, like, not just a little Nazi-affiliated, like, founded by Nazis. And yet, the way the world has evolved, like, people kinda became okay with it.

Doug DeMuro 13:32 All the German brands, I mean, you know, most of them used Jewish labor in their factories at that time, and obviously very different people run the businesses now, and so you just kind of put it out of your mind.

David Rosenthal 13:42 And, you know, m- generations have gone by. Also, e- 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 kind of a pretty incredible refounding of Volkswagen-

Doug DeMuro 13:55 Yeah

David Rosenthal 13:55 ... after the war.

Doug DeMuro 13:56 Yeah.

David Rosenthal 13:56 Um, and I think if it were not for this refounding that we'll talk about in a minute, uh, it would not exist today.

Doug DeMuro 14:02 Yeah.

David Rosenthal 14:03 Um, but, uh, yeah, just wild! Freaking Adolf Hitler- [laughs]

Doug DeMuro 14:07 It's crazy

David Rosenthal 14:07 ... founded Volkswagen.

Ben Gilbert 14:08 So the Beetle, this, this, you know, people's car... Doug, you might know this. Did it go on to become the most popular car ever in the entire world?

Doug DeMuro 14:17 Probably.

David Rosenthal 14:18 Yes. It is very hard to get actual production and sales data, especially for old cars.

Doug DeMuro 14:23 Especially for cars like the Beetle, which were produced in many countries over many years. I mean, they were building them in, in Latin America through a couple of years ago, maybe 2003 or something, and so it's, like, difficult to figure out. But it obviously, whether or not it was the most or one of the most, it was obviously... The effect of that car is, is clear, you know, today.

David Rosenthal 14:43 Yeah, and I, um, I, I tried to think. I could not think of any other model. I believe the Beetle, the original Beetle, was- is likely the single longest produced and largest, uh, both in terms of length of time and number of units produced, of a single-generation model of a car.

Ben Gilbert 15:03 Hmm.

David Rosenthal 15:03 Like, the Civic, the Mustang, the F-150, they all sold-

Doug DeMuro 15:08 All times

David Rosenthal 15:08 ... more than the Beetle-

Doug DeMuro 15:09 Yeah, of course

David Rosenthal 15:09 ... but, like, th- those aren't the same cars.

Doug DeMuro 15:11 Right.

David Rosenthal 15:11 The Beetle was the same freaking car until the New Beetle in 1998.

Doug DeMuro 15:15 Right, and it's, it's interesting when you think about the Beetle, because young people today look at it as, like, a cute, classic car. But, like, at the time, it was what you drove to drive your family around. And we'll talk more as we get to post-war, but, like, it- in Germany at the time, it was, like, a real, you know, important, practical family car.

David Rosenthal 15:32 This original Volkswagen, the Hitler Volkswagen, one of the things you can do when you start a company as a fascist dictator [chuckles] uh, you can create a new city to house-

Doug DeMuro 15:43 Yeah

David Rosenthal 15:43 ... this company, and which he did. So Hitler creates a new city in Germany, known as the, then called, the City of the Strength through Joy Car. That was the, the... what they wanted to call the, the Beetle originally. Uh-

Doug DeMuro 15:56 The Strength through Joy Car.

David Rosenthal 15:57 The strength through... That was, like, a Nazi phrase-

Doug DeMuro 15:59 Yeah, yeah, yeah

David Rosenthal 15:59 ... Strength through Joy.

Ben Gilbert 16:00 Doesn't get much more German than that.

Doug DeMuro 16:01 Nope.

David Rosenthal 16:01 Yeah, yeah. And, um, this is Wolfsburg. Uh, like, this is the-

Doug DeMuro 16:05 Whoa

David Rosenthal 16:06 ... city that, uh, Volkswagen is still located in today.

Doug DeMuro 16:09 Yeah.

David Rosenthal 16:09 Hitler created it.

Ben Gilbert 16:10 And not just Volkswagen, but, like, the Volkswagen Group, one of the largest car conglomerates in the world that owns many other brands you're familiar with, all out of Wolfsburg.

David Rosenthal 16:18 All out of Wolfsburg. So 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 f- you find a pre-war Beetle. Then World War II begins in Sept- on September 1st, 1939. As you would expect, Volkswagen, 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. This was the Nazi war effort. It, it all happened. We're gonna skip over this period for our purposes today, but, like, 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 next, you know, the rest of the century and into the 21st century. So ironic, given that they are now one company again.

Doug DeMuro 17:20 Right.

David Rosenthal 17:21 First off-

Doug DeMuro 17:21 Or are they?

David Rosenthal 17:22 [chuckles] Well, or are they? That's the question.

Doug DeMuro 17:25 And the funny thing is also, they always, they danced around, even in this period, and then in the decades after that, and then, of course, now. There was always kind of flirting with each other.

David Rosenthal 17:32 Yes. So first on the Volkswagen side, I alluded to this a minute ago, it's a pretty amazing story, what happens. 'Cause you would think, like, there's no way, you can't imagine that Volkswagen would survive post-World War II, given what we now know-

Doug DeMuro 17:47 Right

David Rosenthal 17:47 ... of the origin of-

Doug DeMuro 17:47 Created by the guy

David Rosenthal 17:48 ... right, the company. So what happens is, Wolfsburg ends up in the hands of the British at the end of the war. Uh, and there's this whole crazy thing in Germany of, 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. And remember, because it was a political organization, it wasn't a company before the war, n- nobody owns it. It's this, like, orphaned organization. It's super unclear. There's no, like, proprietorship of it.... So the initial plan that the British come up with, they were going to dismantle the factory and ship it over to Britain, and essentially have Britain appropriate the Volkswagen technology and operations. Like, the Beetle was almost a British car. [chuckles]

Doug DeMuro 18:38 Yeah, but supposedly, the British didn't want it. The British saw the plans for Volkswagen, for the, the Beetle, and said, "No one's gonna ever wanna buy that car." It's crazy to think about now, and it gives you an idea of how the British would operate their car industry. It was constant missed opportunities. But they literally looked at, like, this, the draw- you know, the, the models that they had, the few that they had built, and they said, "Nah." That is- they literally said, "It is not commercially viable." [chuckles]

David Rosenthal 19:01 Wow. Wow. So, okay, the British government kinda lacked vi- 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, the, the territory where the factories were, like, 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, of like, hey, the, like, the Cold War is about to start. He realizes that West Germany needs a economic revitalization here. "We need to restart German industry, 'cause, hey, the Iron Curtain is falling just to the east here." So he amazingly proposes and convinces the British command to leave the factory in Wolfsburg. M- maybe easier than I thought, 'cause the British [chuckles] didn't want it, apparently, and also to place an initial order, a seed order, to restart the company for 20,000 Beetles that the British military is gonna adopt and use as their main military transport. So not as, like, a tank, but like a... Not an armored Beetle, but, like, they're gonna use it to drive -

Ben Gilbert 20:27 Whoa!

David Rosenthal 20:27 - officers and stuff around. Yeah, from that seed order, like, that is now the new Volkswagen. So it's like, yes, Hitler started it, but then Ivan Hirst-

Doug DeMuro 20:36 Yeah

David Rosenthal 20:36 ... restarted it.

Doug DeMuro 20:36 Yeah, totally. Now, one of the things that I find interesting about the Beetle is that each w- Europe was so war-torn after World War II. It was, the wh- all these places were in similar situations to Germany, in that, like, 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. You know, UK had the Mini, Italy had the Fiat 500, France had the Citroën 2CV. They all kinda looked similar-

Ben Gilbert 20:59 Wait, these are all based on the Beetle?

Doug DeMuro 21:01 No, no, no, but they all came from the post-war era, where they needed something small-

Ben Gilbert 21:05 Oh

Doug DeMuro 21:06 ... and cheap to, like, remobilize the citizenry, basically.

Ben Gilbert 21:10 Right.

Doug DeMuro 21:10 And so kind of each country developed, had their own, you know, 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, you know, in their era.

David Rosenthal 21:21 Yeah, you don't see a lot of, uh, Citroëns in, uh-

Doug DeMuro 21:23 Yeah, no, but the 2CV was a huge, huge car, and 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, like, cruise around in.

David Rosenthal 21:34 Yeah. Super interesting. So that's Volkswagen, but put a pin in them. We'll come back to them in about 50 years. [laughing]

Ben Gilbert 21:41 [laughing]

David Rosenthal 21:41 Uh, because there's a lot more to say on, on Volkswagen.

Ben Gilbert 21:44 And 50 years, that's about how long they would make that one model of the Beetle?

David Rosenthal 21:48 Yes. The new Beetle would get introduced, I think, in 1998, and the first ones post-war were made in, like, 1948, so yeah.

Ben Gilbert 21:57 Crazy.

David Rosenthal 21:57 Crazy. Isn't that wild?

Ben Gilbert 21:59 It's insane.

David Rosenthal 22:00 Okay, so what about Porsche? Well, they have a bit of a different path. So after the war-

Ben Gilbert 22:07 And we should say, during the war, Ferdinand Porsche was designing tanks-

David Rosenthal 22:11 Yes

Ben Gilbert 22:12 ... and other military transport.

David Rosenthal 22:13 He designed the Elephant anti-tank tank, the most powerful land-based tank ever created.

Ben Gilbert 22:21 Hmm.

David Rosenthal 22:21 A, terrible, but B, like, the, just the range of design talent-

Ben Gilbert 22:27 Right

David Rosenthal 22:27 ... that he had. Like, he designed the Beetle, and he designed the largest-

Ben Gilbert 22:30 [chuckles]

David Rosenthal 22:30 ... anti-tank tank ever created.

Doug DeMuro 22:31 Within a couple years. [chuckles]

David Rosenthal 22:32 Yeah.

Ben Gilbert 22:32 And also some of the very first hybrid and electric-

Doug DeMuro 22:36 Yeah

Ben Gilbert 22:36 ... cars in history. But at that time, battery technology wasn't advanced enough, and so you're lugging around this huge, weighted battery pack to get almost no juice out of it, and so it didn't really go into production.

David Rosenthal 22:47 He was a genius. This is also, it 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 Piëch, are both arrested by the French as war criminals, tried in France. They end up being imprisoned for two years in France, and, uh, Ben, you did a little research on this, right?

Ben Gilbert 23:10 Yeah, I think the technical thing they got him 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, and so quick trip in and out of prison. [chuckles]

David Rosenthal 23:26 Quick, [chuckles] quick two-year trip in and out prison.

Ben Gilbert 23:27 Out of war criminal prison.

David Rosenthal 23:28 Yeah.

Ben Gilbert 23:28 [chuckles]

David Rosenthal 23:29 So Ferdinand's son, Ferry Porsche, who had been working in the business, I think a little bit before the war, and then, and then during the war, too, um, he's also arrested for [chuckles] war crimes, too, at the end of the war. He gets released after six months in the summer of 1946, and he and his sister, Louise, are like, "Well, what are we gonna do? You know, we gotta rebuild the family. Are we gonna restart the business? Let's go figure things out." They return to the family's kinda ancestral home in Austria, and 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, and they moved them out of Stuttgart-... and they moved them to the Austrian countryside so that they wouldn't be, you know, targeted by-

Ben Gilbert 24:34 Hmm.

David Rosenthal 24:34 - so that the Allied bombers wouldn't know where they are. And, uh, 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, like, a couple thousand people maybe-

Ben Gilbert 24:52 Wow!

David Rosenthal 24:52 - that live in this area. Yeah.

Ben Gilbert 24:54 And David, are you getting all this from-- I know you read, like, $500 worth of- [laughing]

David Rosenthal 24:59 [laughing]

Ben Gilbert 24:59 - textbooks on Porsche.

David Rosenthal 25:00 So there is this incredible history of Porsche called Excellence Was Expected, that was written by Karl Ludvigsen, and we have to owe a big thank you to him, uh, for the research for this episode. This work is like... I mean, the photos, the archive work-

Ben Gilbert 25:17 Yeah

David Rosenthal 25:17 ... that are in this, this volume, it's, it's incredible.

Ben Gilbert 25:20 I read a coffee table book that, that was like the complete illustrated history of the 911, because for this episode and this topic, you want a visual history. And so it's not like there's audiobooks and Kindle books that we could do-

David Rosenthal 25:31 Right

Ben Gilbert 25:31 ... our normal amount of research on. All this stuff is in these, like, huge, heavy, bound, pictorial books.

David Rosenthal 25:37 Right. These are amazing objects that, like, are being produced. There's just such a, like, um, like, visceral, tangible quality to them that is- that we don't usually cover on Acquired.

Ben Gilbert 25:47 Right.

David Rosenthal 25:48 Okay, so Ferry and Louise go back to Austria. They're there in Gmund, uh, and, uh, they're like: "Well, what if we start a new company and see what we can do around here? I mean, there's some vehicles we can start fixing up." [chuckles] This is literally like the Sony story. If you remember, uh, when Sony first got started in Tokyo at literally the same time, they started by fixing radios. [laughing]

Ben Gilbert 26:15 Right.

David Rosenthal 26:15 Porsche-

Ben Gilbert 26:15 It was a services business.

David Rosenthal 26:16 The, the, the second Porsche company, Porsche Construction in, uh, GmbH, which is an Austrian company, that they start-

Ben Gilbert 26:24 Hmm

David Rosenthal 26:24 - to do this. So they start up, like, fixing old, you know, 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 [laughing] in Gmund. [laughing] So pretty quickly they're like: "Huh, we don't have any more cars to fix up."

Ben Gilbert 26:43 [laughing]

David Rosenthal 26:43 And, uh-

Ben Gilbert 26:44 Bad business. [laughing]

David Rosenthal 26:45 Yeah. Well, not a, not a large market, uh, 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, you know, small car, a car for the masses, a Volkswagen. But, uh, he always had one major problem with the Beetle, which was that it was slow, [laughing] and it just was not fun to drive. So during the war, he actually had a custom Beetle made that he drove during the war, uh, with a supercharged engine, and, uh, Ferry said, uh, 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 Gilbert 27:48 Doug, can you contextualize what a big moment in, like, world history this is?

Doug DeMuro 27:53 Yeah, I mean, it's an interesting concept because sports cars, in general, weren't a thing that much. They were, and there's gonna be people who write and say: "No, there were a lot of sports cars before," but it was really a thing of, uh, enthu- real enthusiasts, wealthy people, that sort of thing, would, would buy cars to go motor racing in the era of, you know, brass era and that kind of stuff. The concept of creating like something more affordable, littler, that was still fun, was like-- it was kind of an interesting idea that, w- you know, this was a real... It was a touchstone of a concept that has really been taken, obviously, by them and refined, and others as well.

David Rosenthal 28:28 I went ahead and researched it. When I looked up, you know, some of those s- sports cars pre-Porsche, and you look at them-

Doug DeMuro 28:34 Yeah

David Rosenthal 28:34 ... and these things are like Franken cars. They are huge!

Doug DeMuro 28:38 Right.

David Rosenthal 28:38 And the engines are, the, like, the engine bays in the front of the cars are two-thirds of the length of the car.

Doug DeMuro 28:44 [laughing] Right.

David Rosenthal 28:44 There's this one Ferrari from that era, and I look at, I'm like: "How do you even steer this thing?"

Doug DeMuro 28:50 [chuckles]

David Rosenthal 28:50 Like, it looks like a boat. [chuckles]

Doug DeMuro 28:51 The thought at the time really was, you wanna go faster? More. More power, which of course, creates more weight, which of course, creates the need for more power. And they did that, but it was unwieldy.

David Rosenthal 29:01 Yeah.

Doug DeMuro 29:02 Hmm.

David Rosenthal 29:02 I mean, even, like, to this day, the Carrera GT sitting behind us, that's not a large car.

Doug DeMuro 29:07 Right. W- and that was a Porsche thing, and it was a, an even more of a Porsche thing at, at this time.

David Rosenthal 29:12 Totally.

Ben Gilbert 29:12 And David, you said a word there that if people aren't into cars, they may not know this, "supercharged." Doug, what does it mean to supercharge a car?

Doug DeMuro 29:21 Basically, you know, an engine takes in air, and that's kind of-- air helps-- air mixes with the fuel, and it creates this, uh, combustion. That, more or less, that's how a combustion engine works. A supercharger push, like, pushes in even more air to create more power, basically. So the term supercharged would be referring to, like, takes the same engine but adds this thing to kind of force more power through to, like-

David Rosenthal 29:42 It literally force more air in.

Doug DeMuro 29:43 Yeah.

David Rosenthal 29:44 And then, I don't think turbos had been invented yet, and turbos would obviously become a big thing for Porsche much later.

Doug DeMuro 29:50 The concept of turbo is actually fairly similar to supercharging, except that it spins something that adds even more air, basically, and, and thus, turbochargers result in power kind of being produced. As the car makes more power, it makes more power, if that makes any sense.

David Rosenthal 30:04 Hmm. Yeah.

Doug DeMuro 30:05 It kind of like spins itself up in a faster way. Um, and there's kinda pros or cons to either, either of them.

Ben Gilbert 30:11 And for those following along at home, this is like end of the '40s, 1947 type era.

David Rosenthal 30:16 Yeah. Those couple years after the war when everything was kinda getting figured out.

Ben Gilbert 30:20 Yep.

David Rosenthal 30:21 So Ferry has this idea. He's like: "Oh, I liked driving my supercharged Beetle. This was really fun to have a small car that also had a lot of power in it. What if we take this small operation of our, you know, elite team here in Gmund, and, uh, we try and build a car that does that? And hey, it also, you know, turns out that, um...... Well, we built the Beetle, [chuckles] A, so we know how to work with the Beetle. There are a bunch of Beetle parts around. The Beetle was the, you know, main kind of chassis platform for a lot of military vehicles for, for Germany during the war. What if we take a lot of those parts and, um, 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? And this becomes the legendary Porsche 356. For some context on this, you can buy an old Beetle today for, I don't know, 10, $15,000 at auction, maybe even a Beetle, like 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, the gulf between a Beetle and a 356-

Doug DeMuro 31:32 Yeah, totally different thing

David Rosenthal 31:33 ... is large.

Doug DeMuro 31:34 Right.

Ben Gilbert 31:35 Doug, why is the desirability of these cars so different today?

Doug DeMuro 31:39 The-- Well, I mean, production numbers is probably the biggest component of that one, right? They made literally [chuckles] a zillion Beetles. Um, and the 356 is special because it really kind of was one of the, the real touchstone moments of the sports car coming out of the war, how we define the sports car today. It was a special thing, and it was a special time, and a special moment, and a lot of them also weren't treated all that well. Ultimately, the 356, it, it, it 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, and so not that many of them were saved, and now it's kind of revered as, when we look back, as, as this major moment in Porsche history.

David Rosenthal 32:21 Yeah, this was another thing. So obviously, in Gmunden, and then, and then even when Porsche moves back to Stuttgart here in a minute, um, their production capability is not nearly as large as Volkswagen, so they need to price these things pretty high. They priced them at $3,750, the, the German equivalent of $3,750, in the late '40s. That's about $42,000 today, but we're, we're talking about war-torn Europe-

Doug DeMuro 32:45 Right

David Rosenthal 32:45 ... that you're trying to sell this in.

Doug DeMuro 32:46 Right.

David Rosenthal 32:46 Like, 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, like, there are enough people who, it turns out, are interested enough in Ferry's vision for a small, fun, fast sports car.

Doug DeMuro 33:07 Initially, it was slow. They-- It took them a while.

David Rosenthal 33:10 [chuckles]

Doug DeMuro 33:10 The first couple years, they only made, like, a couple hundred of them or something like that. It was initially pretty slow, but then things started to kind of kick around. People in Germany started to get some money, and things started to take off.

David Rosenthal 33:20 Yeah.

Doug DeMuro 33:21 It may be worth pointing out also in the context of the sports car, like the 356, coming out of World War II was kind of the beginning of the sports car really taking off. Like I mentioned before, it was-- the earlier ones were these big, giant things that were only operated by enthusiasts who knew how to work them. But, like, post-World War II, there was a lot of optimism, there was more... In, in Britain, it was happening, too. MG-

David Rosenthal 33:40 Yep

Doug DeMuro 33:40 ... was coming out with their sports cars, Austin-Healey, Jaguar. These cars all kind of were born from this post-war period of like: Hey, these cars have been refined to the point where we can use them, and drive them, and enjoy them, and that really became a thing, and in Germany, it was the 356.

David Rosenthal 33:56 So that takes us to, you know, the late '40s here. They're starting to produce the 356 in Gmunden. At the end of 1947, Ferdinand Porsche and Anton Piech get released from French prison. They come back to Austria, the family's all together, and they kinda gotta decide what to do here. Right around that same time, Volkswagen's getting back up and running. You know, Hirst is running it. It's, it's, like, the vision they're gonna, you know, make the Beetle for, for Germany and for the world. They come back to the Porsches, and they say, "Hey, we still wanna do business with you, and in fact, we actually wanna expand the scope of our business with you guys, uh, even more than it was before the war. Because we could still really use, you know, technical design, consulting work, and really leadership from you individual Porsches here at Volkswagen. I mean, after all, you designed the Beetle. Two, though: now, you know, we're not a government organization in the same way anymore. W- we need distribution, and you guys have this new Austrian Porsche company that you've set up. So how about this?" They propose two things. One, they say: Let's reinstate that old German Porsche company, the Doktor Ingenieur honoris causa, blah, blah, blah. Uh, 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. [chuckles]

Doug DeMuro 35:33 No way!

David Rosenthal 35:34 Yes, yes. This is how intertwined these two companies are.

Doug DeMuro 35:38 Yep.

David Rosenthal 35:38 So-

Ben Gilbert 35:39 And, sorry, the deal is, we want your Austrian company to distribute our Volkswagens-

David Rosenthal 35:46 Yes

Ben Gilbert 35:46 ... and in order to coerce you to doing that work-

Doug DeMuro 35:49 And the consulting work.

Ben Gilbert 35:51 We also want the consulting work. Okay.

David Rosenthal 35:53 Yeah, but, but Ben, you're on the right track. This is a hell of a sweetheart deal- [laughing]

Doug DeMuro 35:57 [chuckles] Yep

David Rosenthal 35:57 ... for the Porsche family. I mean, uh, you are right to be w-- saying, "Why would the German government do this?" So-

Ben Gilbert 36:03 Do you know what kind of royalty?

David Rosenthal 36:05 It was enough that it was-

Doug DeMuro 36:06 Money

David Rosenthal 36:06 ... it was very meaningful.

Doug DeMuro 36:08 Huh.

David Rosenthal 36:08 Very meaningful cash flow source.

Doug DeMuro 36:09 And probably not even, at the time, not even clear just how-

David Rosenthal 36:13 Right

Doug DeMuro 36:13 ... amazing it would become.

David Rosenthal 36:14 Right, nobody knew that the Beetle was gonna become the international hit-

Doug DeMuro 36:17 Right

David Rosenthal 36:17 ... that it would.

Doug DeMuro 36:17 Right.

David Rosenthal 36:17 But, but, but it also... The, the German government did know that this was a lot of value, and 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. So we're not gonna talk as much about the Austrian operations of Porsche for the rest of the episode, but it becomes a huge business. So 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. So the Austrian Porsche company becomes the largest car dealer network in Europe, not just for Volkswagens, but for all types of automotive brands.

Ben Gilbert 37:06 Whoa!

David Rosenthal 37:06 They're doing billions of annual revenue within a few years here.

Ben Gilbert 37:10 I mean, what an opportunity, to be given a distribution network just as the car is starting to become-

David Rosenthal 37:15 Right

Ben Gilbert 37:15 ... like a big thing.

David Rosenthal 37:16 Exclusive distribution-

Ben Gilbert 37:17 Exclusive rights

David Rosenthal 37:18 ... rights to Volkswagens.

Ben Gilbert 37:20 And they're in countries, not just in Austria, they're all over the place.

David Rosenthal 37:23 No. Yeah, they're all over the place in Europe. And even more incredibly, so what the family decides is that Ferdinand and Ferry, the original Ferdinand and his son, Ferry, they're gonna move back to Stuttgart and take over- retake over the kind of German operations of Porsche. Louise and Anton, the son-in-law, they're gonna stay in Austria and run this dealership business. Anton dies in 1952, and Louise is the one who builds this business. Like, Louise and her children turn that into this huge, you know, the largest car dealer network in Europe. Incredible.

Ben Gilbert 37:54 Wow! Doug, the way the value chain evolved for selling cars, there's this very clear delineation in, in the US at least, until Tesla, of separating the dealership from the manufacturer. There is no direct to consumer. Was that already, like, obvious at this point in history when Porsche kind of s- has these two different companies?

David Rosenthal 38:15 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 in some I, I bet they weren't. Some of the smaller ones, maybe. I suspect the reason this worked out is because Volkswagen didn't... I mean, 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. I think there also might have been a technical reason, which is, um, even though this new Volkswagen was reconstituted as a company, its only shareholders at this point in time 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-

Ben Gilbert 38:52 Yep

David Rosenthal 38:52 ... holds 20% of Volkswagen [chuckles] which is crazy.

Ben Gilbert 38:56 Wow.

David Rosenthal 38:56 Um, yeah, they would IPO Volkswagen, I believe, in 1960 or 1961. So it was, um, even though it was a company, it was a German national-

Ben Gilbert 39:05 Right

David Rosenthal 39:05 ... company.

Ben Gilbert 39:06 Like, literally-

David Rosenthal 39:06 And so to operate in other states, other countries in Europe, they probably needed third parties.

Ben Gilbert 39:11 Yeah. Wow.

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David Rosenthal 41:20 Okay, so Ben, you hit on this a minute ago: What the hell? [laughs] Why is the new Western-controlled, West German, post-Nazi government giving this deal of a lifetime to these former Nazis?

Ben Gilbert 41:36 And 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 Beetle, regardless of whether you distribute it or not."

David Rosenthal 41:45 Yes, yes. [chuckles] To the German company, and then the Austrian company has exclusive rights to distribute it. [laughs] It's a crazy deal. So here's what's going on. Um, it actually, as crazy as it sound, makes sense. So we talked about a minute ago, the Iron Curtain and the Soviets. Like, it's so hard for us to remember now, but Germany post-war was ground zero for the Cold War. Like, the battle against the Soviet Union was happening right there, right next door, and so for the West, reconstituting the West German industrial base was of paramount importance. So, like, the Marshall Plan that people probably know about, like, this is why the Marshall Plan happened, and this is essentially part of this philosophy of, like, "We don't care that these people used to be Nazis." But for Porsche, for Mercedes-Benz, for lots and lots of German industrialist companies, the reason that they get restarted and re- reinjected with steroids, so to speak, is, like, "Hey, we got an existential threat next door. We gotta rebuild-

Ben Gilbert 42:50 We gotta make some cars

David Rosenthal 42:50 ... the industrial base." Now, the deal-... that they give them does come with an implicit string attached, which is they basically say to, to Porsche and other companies, "We- 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." So what West Germany does is they create one of the oddest tax incentive systems I've, I've ever seen. So 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, like, 15, 20% of your income. But for these new old industrialists, above a certain income, Germany sets the marginal tax rate at 95%. [laughs]

Doug DeMuro 43:45 Whoa!

Ben Gilbert 43:45 So they basically cap your income.

David Rosenthal 43:47 Yeah, like people are complaining, "Oh, you live in California. Oh, my gosh-

Doug DeMuro 43:50 [laughs]

David Rosenthal 43:50 ... you're paying 13% state income tax on top of federal." Like, imagine if the marginal tax rate were 95%. [laughs]

Ben Gilbert 43:58 Right, you would just have no incentive to earn any additional dollars.

David Rosenthal 44:01 Right, and that's on the personal side. It's, it's equally bad on the corporate side.

Doug DeMuro 44:04 Sure.

David Rosenthal 44:05 Any profits are taxed. So what are they trying to do here? They're trying to incentivize capital reinvestment in-

Doug DeMuro 44:12 Mm

David Rosenthal 44:12 ... the industrial base. So they're basically saying to Porsche and others, "Set all this up, and we are gonna create all the incentives such that you will plow all of the money, all these royalties we're giving you from the Beatles, et cetera-

Doug DeMuro 44:26 Ah

David Rosenthal 44:26 ... into building up your production capabilities-

Doug DeMuro 44:30 Huh

David Rosenthal 44:30 ... and investing in R&D, and new models, and et cetera, et cetera." And I mean, it sounds crazy on paper, but, like, my God, it actually works. [laughs]

Doug DeMuro 44:39 Yeah.

David Rosenthal 44:39 Like, and it works really freaking well.

Doug DeMuro 44:41 Do you think there was some guarantee that the tax rates would lower someday?

David Rosenthal 44:45 Maybe, and I think they did, but, um, as we'll see, Porsche becomes like... It becomes pretty institutionalized there of, like, don't take profits-

Doug DeMuro 44:56 Right

David Rosenthal 44:56 ... instead, reinvest them-

Doug DeMuro 44:58 Reinvest them

David Rosenthal 44:58 ... in new models and R&D, racing, uh, to the great benefit of the brand.

Doug DeMuro 45:04 Yeah.

David Rosenthal 45:04 So I mentioned one of the things that Porsche invests in over the years is race cars and racing, and this is, is, is super interesting. N- none of us are [chuckles] racing historians. Uh, that's a whole 'nother branch of the automotive industry. So here we're in the late '40s, early '50s. Racing in this era doesn't look at all like it looks today. It hadn't professionalized yet. So the line between consumer enthusiast car market and professional racing market was very blurry. Very, very blurry.

Doug DeMuro 45:43 Right.

David Rosenthal 45:44 And it turns out that e- even though, you know, manufacturers, including Porsche, would make special versions of cars for racing, for Le Mans being the most famous race, uh, at the time, um, you know, and others around the world, it wasn't like-- like, you look at an F1 car today, or you look at a Le Mans car, like, like, th- there is no connection between that and something you can buy at a dealership.

Doug DeMuro 46:05 And you or I would not be able to even operate it.

David Rosenthal 46:07 So a super obvious point to illustrate this is, um, folks are probably y- you know, know names like James Dean or Steve McQueen, these famous Hollywood actors that were known as, like, you know, they did all these race car films. Th- they were also professional race car drivers. Like-

Doug DeMuro 46:23 Yeah.

David Rosenthal 46:23 They-

Doug DeMuro 46:23 Professional, as it were, at, at the, in the time period.

David Rosenthal 46:26 Yeah, they competed in, like, real races [laughs] -

Doug DeMuro 46:29 Right

David Rosenthal 46:29 ... in addition to being actors.

Doug DeMuro 46:31 That's crazy to imagine. Imagine Brad Pitt jumping into Le Mans.

David Rosenthal 46:32 Right. [laughing] They'd, uh, uh, they'd k- well, I, I was about to joke they'd kill themselves. Um, James Dean did kill himself in a Porsche 550 Spyder, which Porsche would make a kind of dedicated racing-type vehicle, although it was also a consumer production vehicle, the 550. That car, that never would've happened if Porsche wasn't in- incentivized to invest all their [chuckles] profits.

Doug DeMuro 46:58 Yeah.

David Rosenthal 46:58 Like, uh, I mean, maybe you can say, I'll do, like, the legendariness of that car, I mean, they s- they sell for, what, $5 million plus today?

Doug DeMuro 47:06 Yeah, five, real 550 Spyders, they only made 90 of them in the end, and so, like, it was a car that, in theory, you could go and buy, but w- while the 356 was, like, the sports car that you could gentleman race, the 550 Spyder was for people who, like, were really like, "Let's go racing," and, like, do it. Um, but like you said, you could. A person could walk into a, the-

David Rosenthal 47:23 Yeah

Doug DeMuro 47:23 ... not a dealership necessarily, but, like, just order one.

David Rosenthal 47:25 Yeah.

Doug DeMuro 47:26 Um, but it is a, it is an absolute legend, and-

David Rosenthal 47:28 It totally is.

Doug DeMuro 47:29 Yeah.

Ben Gilbert 47:30 You kinda see this trend, this moment, where you see the bifurcation between, eh, anybody can do it, and what the very best in the world kind of look like. That seems to be true across everything in the world today. In the way that, like, what Taylor Swift is doing on the stage on her tour has nothing to do with, like, a person who picks up their guitar and is talented and plays at the local bar. Like, she is the SR-71 pilot, and this-

David Rosenthal 47:56 [laughs]

Ben Gilbert 47:56 ... you know, 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 Rosenthal 48:06 Yeah. So back to racing, we were talking about the Spyder a minute ago. I got so excited about James Dean. But Doug, to your point, 356s, in 1951 and 1952, win their class at Le Mans. [chuckles]

Doug DeMuro 48:19 Right.

David Rosenthal 48:19 They don't win it outright-

Doug DeMuro 48:20 Right. Right

David Rosenthal 48:20 ... like other bigger, powerful cars win it outright, but they win their engine classes at Le Mans. And these are, you know... Yeah, they're modified a little bit, but, like, you basically buy 'em. [chuckles]

Doug DeMuro 48:29 Right. Yeah, uh, and that, that was kind of a special thing, but that was, that was the point of those classes, it was that there were cars for people who could kind of go buy a car off the street-

David Rosenthal 48:37 Yeah

Doug DeMuro 48:37 ... and modify it.

David Rosenthal 48:39 And I think this was pretty unique to Porsches at the time. Certainly, you could go buy Ferraris, and Ferraris competed and whatnot, but, like, again, like we were talking about, the Ferraris were a different thing.

Doug DeMuro 48:51 Yeah, these were different.

David Rosenthal 48:52 These weren't 356s, and I think they were probably also a lot more expensive than, you know, $3,700 [chuckles] at the time.

Doug DeMuro 48:58 Plus, an, 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 kind of built, purpose-built for racing. And there were racing versions of the 356, but the goal was mostly road cars, whereas Enzo, very famously, he just wanted to race, and he hated his customer, his, his road car customers, deeply. [laughing] It wasn't his thing.

David Rosenthal 49:22 Yeah.

Doug DeMuro 49:22 He just wanted to race. He only sold road cars to kind of finance racing, and a lot of the road cars that he ended up selling were either based on race cars or just former race cars, that he went, "I'm done with this crap." Uh, whereas Porsche was selling three-- I mean, 356s were, like, being sold-

David Rosenthal 49:36 Right

Doug DeMuro 49:36 ... like, as a, in pretty good volume.

David Rosenthal 49:38 There's this great, great, great Ferry Porsche quote about this, uh, which he would say later about the 911, but I, 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." And, like, that's such a unique thing, especially in this era, like, one car.

Doug DeMuro 50:02 And it, and it remains true. It's kind of like Porsche's thing-

David Rosenthal 50:06 Yeah

Doug DeMuro 50:06 ... to this day, like, how relatively usable the car is in just about any setting. Like, you can drive it to work. You can actually take it on a racetrack. That, like, has remained sort of an ether- whether or not they're k- it's constantly a North Star for them, it is what they do-

David Rosenthal 50:20 It is

Doug DeMuro 50:20 ... more than anybody else.

David Rosenthal 50:21 Yeah. I, I was trying to think of, like, what the right, um, kind of other luxury brand analogy is here, because Porsche definitely is a luxury brand. It's not like we're, uh, uh, making, uh, apples and oranges here. Um, it's kinda like a Rolex to me. Is that right? Like a-

Ben Gilbert 50:35 Yeah, that's a great-

David Rosenthal 50:35 What do you think?

Ben Gilbert 50:36 Yeah, absolutely. It's, uh, you buy those watches to wear them. You don't buy them to keep them in a case in a gulat. You know, they're, uh, 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, like, 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, like-

David Rosenthal 50:59 They're not a Louis Vuitton trunk.

Ben Gilbert 51:01 Right, and so-

David Rosenthal 51:02 But they're a lot more usable than a Louis Vuitton trunk.

Ben Gilbert 51:03 You buy it to use it. It can kinda get a little beat up. That's why it's made out of stainless steel also. I think that's probably the right, it's-

David Rosenthal 51:08 And these, I feel like-

Ben Gilbert 51:09 It's not a Birkin bag

David Rosenthal 51:10 ... like, brands like this are so valuable.

Ben Gilbert 51:13 'Cause it has both the breadth and the depth. Like, there are enough people who are like, "I love Porsches because they're my cars I can actually drive, but they are supercars."

David Rosenthal 51:26 Yes. This thing behind us goes 200 miles an hour?

Ben Gilbert 51:30 Yeah. Uh, this thing behind us is a little bit of a different story. [laughing]

Doug DeMuro 51:32 It's, it's not... [laughing] And there have been, and we'll get to, and we, and the 550 Spyder is one of them. There have been some Porsches that kind of go one way or another in the philosophy, but, like, generally speaking, it's sort of a middle-of-the-road, going back to Ferry's quote about this exact thing, can do all these things.

David Rosenthal 51:48 Yeah.

Ben Gilbert 51:48 Doug, one question for you. I'm gonna keep going to you for terminology. David mentioned Le Mans. What is that?

Doug DeMuro 51:53 Uh, Le Mans is like... There are various car races that are considered sort of the big car race, right? Like, the Indy 500 is the car race of that racing series. Le Mans has always kind of been a place to prove technology. It's a twenty-four-hour race, so you switch drivers, and it's always been a place where some of like, it, it proves, like, the endurance and the capabilities of a car and of a manufacturer over that time period. It's really serious. It's always raining, and it's always a disaster, and it's in the middle of the night-

Ben Gilbert 52:19 Oh, yeah

Doug DeMuro 52:19 ... and it's difficult. And so, like, being able to win or win your class, Le Mans is like the Monaco Grand Prix, the Super Bowl, if you will, of, like, vehicles racing in that sort of race series.

David Rosenthal 52:30 There's also this, like, um, you know, uh, uh, Porsche would, I, I, I think, probably advance this argument, that relative to the other races, it's closer to, like, what you want for a all-around car that would also be a drivable car because, like, fuel efficiency matters. [chuckles]

Doug DeMuro 52:46 Fuel efficiency matters. It's also a road race, so it's not on a racetrack.

Ben Gilbert 52:48 Mm.

Doug DeMuro 52:48 It's literally on... They close down roads in the French countryside and, and race on the road, and so there's, like, some component of, like, instead of purpose-building a car for a circuit, like, cows were using this road, you know, two days before. [chuckles]

David Rosenthal 52:59 Yeah. Right, right. Totally. So on the back of all this success, and, like, James Dean and Steve McQueen and all this, as you would imagine, Porsches start to become quite popular in America. So in 1954, Porsche, which I, I don't, I don't think Ferdinand and Ferry, like, envisioned, uh, like, "We're gonna sell cars in America." [chuckles] This wasn't part of the business plan. But in 1954, Porsche sells five hundred and eighty-eight cars in the US, which was forty percent of their entire production for the year, and that forty percent basically stays constant. It goes way up for a while in the '70s and '80s, but, um, kinda never dips below that. Like, America is a-

Doug DeMuro 53:37 Yeah

David Rosenthal 53:37 ... huge market for Porsches.

Doug DeMuro 53:39 It's amazing to think that five hundred and eighty-eight cars was forty percent of Porsche production. [laughing]

Ben Gilbert 53:43 [laughing]

David Rosenthal 53:44 Right. Right.

Doug DeMuro 53:44 I agree with you, by the way, about your, your point that they didn't really have America in the business plan. It's one of-- one thing to provide some context, it's important to keep in mind, the number of, like, sports car 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 up, they, they showed up, they, they raced a little, they sold some cars, they failed. And that, there were tons of these. There was no concept that Porsche would be more successful than any of them. Obviously, the, the, the family hoped it would, and it became that way, but so many families hoped theirs would, too, and they all failed. And somehow Porsche, you know, grew and grew and grew. [laughing]

David Rosenthal 54:18 Well, uh, part of it was the incredible success of the cars. Um, a big part of it, too, was the royalty on the Beatles. [laughing]

Ben Gilbert 54:27 [laughing] Right.

David Rosenthal 54:28 That, uh, that's a nice, steady source of cash flow-

Doug DeMuro 54:30 Yep

David Rosenthal 54:30 ... that you can invest in your operation.

Ben Gilbert 54:32 With forced reinvention. So you're doing stuff like racing.

David Rosenthal 54:35 Yep.

Ben Gilbert 54:35 You're doing stuff like looking international. You're like, "What can we invest in that, like, we're not sure if-

Doug DeMuro 54:39 Yeah

Ben Gilbert 54:39 ... it's a ROI-positive investment?"

David Rosenthal 54:41 We can be speculative about this.

Doug DeMuro 54:41 We could be speculative-

David Rosenthal 54:42 Yeah

Doug DeMuro 54:42 ... 'cause we know we got the money coming in, and Beetle continues to be more and more and more popular.

David Rosenthal 54:45 Right.

Doug DeMuro 54:45 It only continues to embolden them to reinvest.

David Rosenthal 54:47 Right. So speaking of reinvesting, as we get to the 1960s, like, the 356 is great. This is an amazing car, but it's kinda... I don't know, Doug, where, where you would put it. In my mind, it's kinda, it's not quite a modern car. It's like-... it's, like, close. You know, it's not a Model T-

Doug DeMuro 55:07 Right

David Rosenthal 55:07 ... but it's, it's, it's, it's not a-

Doug DeMuro 55:09 Right.

David Rosenthal 55:10 It's not a 911. [laughs]

Doug DeMuro 55:11 Right, right, right. And, and what was starting to happen was the 356 was one of the leaders of the charge of the sports car in that era, and what was clearly starting to happen was other sports cars were showing up-

David Rosenthal 55:20 Yeah

Doug DeMuro 55:20 ... that were refining some of the principles.

David Rosenthal 55:22 Yes. So we're now in the '60s, Ford announces the Mustang, Jaguar's got the E-Type, um, Chevy comes out with the second generation Corvette, the Stingray.

Doug DeMuro 55:31 And all these are starting to show up, all... Yeah, Austin Healey. Everything is like, "Okay, there's a lot of pressure."

David Rosenthal 55:36 Yep. So, okay, in 1962, Ferry Porsche makes the decision, like, "356 is amazing, you know, rebirth of the company. W- we gotta invest profits and replace it with a new model." So for a couple years, Porsche had actually been working on a design for a sedan, for a larger model. Seems heretical now. [chuckles]

Doug DeMuro 55:57 Right.

David Rosenthal 55:57 I mean, [laughs] if people-

Doug DeMuro 55:58 Right

David Rosenthal 55:58 ... look at the Panamera and like-

Doug DeMuro 55:59 Right

David Rosenthal 55:59 ... "Ew!" You know, it was actually, like, gonna be the second model of [laughs] -

Doug DeMuro 56:03 Wow

David Rosenthal 56:03 ... of Porsche. Um-

Doug DeMuro 56:05 I mean, I feel that way. Every time I see a Panamera drive by, I'm like, "Why does Porsche make this car?"

David Rosenthal 56:09 [laughs]

Doug DeMuro 56:09 But I see them driving by, so that's why they make the car. David Rosenthal: Right, right.

David Rosenthal 56:12 China is why they make that car. [laughs]

Doug DeMuro 56:13 [laughs]

David Rosenthal 56:13 But we'll, we'll get to that later. So the next generation of Porsches, Ferry's son, Ferdinand, uh, known as Butzi, named Ferdinand, named after his grandfather, founder of Porsche, was working in the company, and he had been leading the body design for this larger sedan that Porsche was gonna make. Ferry decides, for a bunch of reasons, that to cancel the sedan project. Um, probably the most important reason was, um, kinda... I don't know how much of this was government-motivated and how much of it was just sort of like a cabal of, like, Mercedes and BMW. Like, they were the sedan makers, and Porsche maybe could have challenged them, but it was like, "Hey, you know, they've got their turf. We'll keep our turf in sports cars, and-"

Doug DeMuro 56:56 Right

David Rosenthal 56:56 ... "like, everybody will be happy here." Anyway, they decide to cancel the project and, uh, double down on sports cars. At the same time, Ferdinand Porsche, Butzi, the, the grandson, his cousin from the Austrian side of the family, Louise and Anton's son, also named Ferdinand, Ferdinand Piëch, he's also joined the company. These two young Turks, the grandsons, Ferdinand, are here in the company, and Piëch is working in the engine department. So turns out that he's a pretty brilliant engine designer. He comes up with, uh, and I believe even as a young kid, uh, Doug, you may know more about this history, like, I think he really was the one that led the development of the six-cylinder boxer engine-

Doug DeMuro 57:44 Interesting

David Rosenthal 57:45 ... for Porsche. Now, he didn't invent the six-cylinder-

Doug DeMuro 57:47 Right

David Rosenthal 57:47 ... boxer engine, but the engine that ends up in the 911, that is, like, 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 kind of failed projects that, you know, the next generation's working on. Let's weave them together. Take the styling that Butzi's done for the sedan, take this amazing engine that Ferdinand has built for the racing operations, and, uh, let's see what happens when we put them together," and this is the birth of the Porsche 901. [laughs]

Doug DeMuro 58:26 901.

David Rosenthal 58:26 The 901.

Doug DeMuro 58:28 I, David, I'm not familiar with that model. [laughs]

David Rosenthal 58:30 Yeah.

Doug DeMuro 58:30 What, what is that?

David Rosenthal 58:31 [laughs] Well, uh, so this is why I mean, D- um, Doug, I'm sure you do this-

Doug DeMuro 58:35 Oh, this is a famous-

David Rosenthal 58:36 ... and lots of people listening know this

Doug DeMuro 58:36 ... famous story.

David Rosenthal 58:37 But, like, I had no idea!

Doug DeMuro 58:37 Yeah.

David Rosenthal 58:37 I think most people have no idea.

Doug DeMuro 58:39 Yeah.

David Rosenthal 58:39 The 911 is [laughs] only called the 911 because Peugeot, of all companies, had a trademark in France for any car with a model name of any number, any Roman number, with a zero in the middle and then any other number, so X-0-X.

Doug DeMuro 58:59 And in fact, all Peugeot cars, even to this day, are named 205, 206, 207, 208. That's the 2 Series, the 308, 408, 508, and so they trademarked them all just knowing that eventually, that would, that would happen.

David Rosenthal 59:10 Unbelievable. So I mean, it makes sense. Porsche is like, "Well-

Doug DeMuro 59:13 "What do we do?"

David Rosenthal 59:14 ... we can't really not sell in France."

Doug DeMuro 59:16 Right.

David Rosenthal 59:16 I mean, France wasn't, like, the biggest market, but it wasn't a small market for them. [laughs]

Doug DeMuro 59:20 Right. [laughs]

Ben Gilbert 59:20 [laughs]

Doug DeMuro 59:20 Now, the story that I hear, have heard about this, is that they said, "Well, we got these badges that say 9, 0, and 1. Why don't we do 911?"

David Rosenthal 59:27 [laughs]

Doug DeMuro 59:27 "Because we have the 9 and the 1 already."

David Rosenthal 59:30 We got them. [laughs]

Doug DeMuro 59:30 Hence, the 911.

David Rosenthal 59:32 Hence-

Ben Gilbert 59:32 Wow

David Rosenthal 59:32 ... the 911.

Doug DeMuro 59:32 Now, uh, all- some, some of this may be more apocryphal than others. One of the things that I don't understand is why they wanted to call the car the 901 in the first place, and I was never really able to get great information about that.

David Rosenthal 59:42 I-

Doug DeMuro 59:42 The 356 was purportedly named because it was the 356th, like, engineering project they did.

David Rosenthal 59:47 Yeah.

Doug DeMuro 59:47 But did they really do 500 engineering projects between 356 and 901?

David Rosenthal 59:51 So a couple details that I got on this from, uh, Excellence Was Expected, I believe, could be wrong on this, but I believe 901 was the name of the engine project that Ferdinand Piëch was working on, and I think, I, I think that's the origin of it.

Ben Gilbert 1:00:04 Hmm.

David Rosenthal 1:00:05 Two, yes, in Porsche lore, it's that, like, the reason these model numbers are like, these are the engineering projects-

Doug DeMuro 1:00:11 Right

David Rosenthal 1:00:11 ... when they start. But that's totally apocryphal. Like, they jump around all the time.

Doug DeMuro 1:00:15 They jump around, and now they go forward and backward.

David Rosenthal 1:00:18 Yes. Going back to the very, very beginning of the consulting company, they started with Type 7, or project number 7, because they w- didn't wanna look like they were a [laughs] brand-new company.

Doug DeMuro 1:00:27 [laughs]

David Rosenthal 1:00:28 So like, "Oh, yeah, we've already done six projects. This is project number 7." I forget who they were working for.

Ben Gilbert 1:00:31 It's like when you're starting a new company, and you're, you're sending your first invoice. You don't call it invoice number one.

Doug DeMuro 1:00:36 Right, right, right, right, right. [laughing]

David Rosenthal 1:00:37 [laughs] Like, it's exactly... So like, yes, the, the lore is that, you know, all of our projects have model numbers, and like, BS. [chuckles]

Doug DeMuro 1:00:45 Right.

David Rosenthal 1:00:46 Uh, so funny.

Ben Gilbert 1:00:47 And to be clear, so 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. And it took me a long time in the research to realize that there are a lot of car designs that start with 9 that are all 911s.

David Rosenthal 1:01:08 [laughs] Right.

Ben Gilbert 1:01:09 There's, like-

David Rosenthal 1:01:09 Yes

Ben Gilbert 1:01:09 ... I don't know, I didn't write them all down, but the 964-

David Rosenthal 1:01:12 Right

Ben Gilbert 1:01:12 ... and the 959, and the-

Doug DeMuro 1:01:13 It gets complicated because what ends up happening, just like happens to every car, is they start to get redesigned as they get-... you know, as the years go on, they need newer models. They still call it the 911. The only way to distinguish the newer version from the older version is to call it by the project number, which is 964, 993, et cetera, et cetera. And so if you're really into it, you gotta know not just that it's a 911, but which, you know, version it is.

Ben Gilbert 1:01:35 And not all 911s say 911 on the back-

Doug DeMuro 1:01:38 Right.

Ben Gilbert 1:01:38 So you can't even, like, use that-

Doug DeMuro 1:01:40 Most of them, no

Ben Gilbert 1:01:40 ... as your reference. [chuckles]

Doug DeMuro 1:01:41 [chuckles] It's a little complicated. Maybe that's part of the success of-- There's, like, sort of a language you have to speak in order to, like, get Porsche to an extent, and there's something to that.

David Rosenthal 1:01:51 Well, I think it's really brilliant. I don't know how much this is intentional versus it's evolved this way with the brand, but, like, to me, it's just so brilliant because there is this tribe language to Porsches. If you see a 911, you know instantly-

Doug DeMuro 1:02:08 Yeah

David Rosenthal 1:02:08 ... that it's a 911. It is iconic. It's one of the most iconic designs in the world.

Doug DeMuro 1:02:13 Yeah, and partly because they've essentially kept the shape the same-

David Rosenthal 1:02:15 Yeah

Doug DeMuro 1:02:16 ... for the since, the since this.

David Rosenthal 1:02:18 Since 1962.

Doug DeMuro 1:02:19 This moment.

David Rosenthal 1:02:19 Yeah.

Doug DeMuro 1:02:19 Yeah.

David Rosenthal 1:02:20 So pretty immediately, like, this car is a big hit. Um, 1962 is when they start working on it. They first start selling it in 1964. They sunset the 356 in 1965, and so '66 is the first year that's fully 911 for Porsche production. They sell almost 13,000 cars in '66, uh, which that's, what? W- what did we say? Ten, twelve years ago, they only sold-

Doug DeMuro 1:02:47 Yeah, 40% of their production a few years ago.

David Rosenthal 1:02:49 Uh, like, 1,000 total.

Doug DeMuro 1:02:49 Yeah, right, right.

David Rosenthal 1:02:50 So they've now 13X'd in-

Doug DeMuro 1:02:51 Right

David Rosenthal 1:02:51 ... in 10 years, and that number of almost 13,000 911s they sell was 15% more than their best year with only the 356s. Like, Doug, how would you characterize, like, what is-- what, what makes the 911 so special?

Doug DeMuro 1:03:05 It's important to keep in mind, at the time, you didn't know, right? It was just, like, this thing, this, like, sports car they had come up with. And 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, and I think a lot of people would, if you were me- told to mention a sports car, they would say the 911. It, it, it just has become, like, the car, and it was, it, like you say here, it was clear very early on that it, that, that it had something special in this great combination of, you know, reliability, comfort, practicality, just like the 356 had been but just better.

David Rosenthal 1:03:39 Yep. To my thinking, the flat-six boxer engine, which was a great engine that Ferdinand Piëch designed to go in this first 911, there's something, like, 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.

Doug DeMuro 1:03:58 Right.

David Rosenthal 1:03:58 It's not an eight, and it's rear-mounted.

Doug DeMuro 1:04:00 Right. So the 356 had a boxer four. Uh, to explain what a boxer engine is, you know, a lot of cars, most cars have-- well, 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, like, 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. And the benefit of the boxer engine was that, um, it's got this great balance to it because it's, like, literally flat in the car. Um, 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, like, that the police cars still have six cylinders, even as V8s and V10s became... V12s became more popular, but it was the thing. It was what they did, and it was part of that ethos of keep it l- relatively light, relatively simple, and, like, strip things down to the core essentials of the car.

David Rosenthal 1:04:56 An average person can walk off the street, buy one, operate it-

Doug DeMuro 1:04:59 That's right

David Rosenthal 1:05:00 ... drive to work, have a great time.

Doug DeMuro 1:05:02 It wasn't crazy fast or anything else.

David Rosenthal 1:05:04 Yep. Now, the 356, the old 356, it had four cylinders. Uh, and so now the 911 have six cylinders, and l- like you said, like, it's not a world-class, powerful, fast car, but it's-- it elevates the 356 into a much more, like... You can really achieve a lot more with this than you could-

Doug DeMuro 1:05:26 Right

David Rosenthal 1:05:26 ... with the 356s. This becomes super important from a business side for Porsche because they priced the 911 about 50% higher-

Doug DeMuro 1:05:38 Right

David Rosenthal 1:05:38 ... than they had the 356. Now, what they do at first, they realize this is gonna create, like, a major price gap [chuckles] in our-

Doug DeMuro 1:05:46 Right

David Rosenthal 1:05:46 ... lineup here. We're gonna lose a lot of customers by, by elevating. So they do a stopgap. At the same time that they introduced the 911, they also introduced the 912. [chuckles] And the 912 is a 911 with the old 356 four-cylinder engine in it.

Doug DeMuro 1:06:01 Mm.

David Rosenthal 1:06:01 So they, they essentially kneecap the, uh, uh, they, they downgrade the 911 to be the entry-level model, only as a stopgap. They don't wanna do this permanently. They sell about three-quarters of the units are 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-

Doug DeMuro 1:06:22 Sure

David Rosenthal 1:06:23 ... are so much higher. So Ferry starts thinking, like, "Okay," and this was part of the plan all along, I think, "Let's create a whole new model. The old 356, we're gonna bifurcate it. Our performance, real enthusiast customers who are willing to spend, and that we're gonna make great margins on those models, that's gonna be the 911. Let's create a new car that can replace, can be the entry-level Porsche." We'll eventually introduce the Boxster [chuckles] 20-plus years later. Takes Porsche a while to really get to the, uh, the, the, the perfect end state of this strategy here.

Doug DeMuro 1:07:00 Right.

David Rosenthal 1:07:01 But 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. So in 1967, Porsche kicks off a joint project with Volkswagen to produce a new mid-engined roadster, which is a smaller, more compact car, and mid-engined, not rear-engined, called the 914. And the idea is that they're gonna make both a four-cylinder and a six-cylinder version of this. The four-cylinder version is gonna be a Volkswagen, the six-cylinder version is gonna be a Porsche. And, uh, Ferry puts his nephew, Ferdinand Piëch, in charge of this joint project with Volkswagen, a very fateful decision, as we shall see. Now, what ul- ultimately happens with the 914, there's a change in CEO at Volkswagen, and the new CEO definitely sees the value in deepening the relationship with Porsche and specifically the relationship with young Ferdinand. So 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 Gilbert 1:08:26 Hmm. So the plan was originally to have some of the 914s be branded VW-

David Rosenthal 1:08:31 Yeah

Ben Gilbert 1:08:31 ... and some of them be branded Porsche?

Doug DeMuro 1:08:33 Volkswagen had made a little sports car called the Karmann Ghia-

David Rosenthal 1:08:36 Yes

Doug DeMuro 1:08:36 ... previous to this, like in the '60s, and so the thought was they wanted to replace the Karmann Ghia, Porsche wanted a, an entry-level car. Let's jointly develop it. Porsche gets the more powerful one, the 914 six, the six-cylinder, and Volkswagen get the four-cylinder, but the decision was made, like you said.

David Rosenthal 1:08:51 Yeah. The new VW CEO, he, he actually gets a pretty good deal out of this. Um, so he deepens the relationship with, uh-

Doug DeMuro 1:08:56 Yeah

David Rosenthal 1:08:56 ... Ferdinand. He gives the car fully to Porsche, but in exchange, VW takes over all of Porsche's distribution in America.

Doug DeMuro 1:09:06 Huge decision.

David Rosenthal 1:09:07 Huge deal.

Ben Gilbert 1:09:08 Wow!

David Rosenthal 1:09:08 Huge deal for VW. So we're starting to, uh, re-intertwining these companies just a little bit here.

Ben Gilbert 1:09:15 Th- 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. I mean, it's, 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, n- we, we now own the distribution for Porsche. Like, this-- even if it's not structured this way, this is a merger.

David Rosenthal 1:09:57 Well, if history were a straight line, what you are saying [chuckles] would, uh, come to pass. Uh, unfortunately, it's not a straight line or, or fortunately for, for drama on our show. [laughing] Uh, so you're absolutely right, the 914 goes on to be a huge success, sells way more units than the, than the 911, which was the whole strategy. Porsche's 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 sells 100,000 units in the eight years that it's on the market, and I think it really shows-- and, uh, Doug, you can comment on this. There is also a market for mid-engine roadsters, I mean, including the one sitting behind us, regardless of price. Like, th- these are pretty amazing sports cars.

Doug DeMuro 1:10:42 Yeah, Porsches previous to this had all been rear engines, the 911, the, the 356, and so this was a mid-engine, which had-- 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 kind of can put the engine right in the center of the car, and it gives you, like, perfect weight distribution. When I always talk about sports cars, in my mind, like, God intended sports cars to be mid-engined. That's how-- it's, it's more difficult. The engineering is more difficult than front-engine, but that's how it sh-- and rear-engine is just insane, but Porsche made it work. They've always been great at that, but mid-engine is how it should be.

Ben Gilbert 1:11:14 And when you say mid, this basically means that it's still obviously behind where the passengers sit but in front of the rear axle?

Doug DeMuro 1:11:20 In this case. Now, there are technical mid-engine cars, where the engine's in the front but behind the front axle, but most people, when referring to a mid-engine car, are talking about a car that has the engine between the passenger compartment and the rear axle. Yeah.

David Rosenthal 1:11:35 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 DeMuro 1:11:45 Yeah, I feel that way.

David Rosenthal 1:11:47 [laughing]

Doug DeMuro 1:11:47 But it's controversial because the 911 is the Porsche, so [chuckles]

David Rosenthal 1:11:50 Don't hate us in the comments. [laughing]

Ben Gilbert 1:11:54 [laughing] Yeah, I don't know, Doug. I feel like I've seen multiple "the best"-

David Rosenthal 1:11:57 [laughing] Yeah

Ben Gilbert 1:11:57 ... on your channel. [laughing]

Doug DeMuro 1:11:58 Oh, you know, every car is the best when it comes out, and then-

David Rosenthal 1:12:01 Yeah

Doug DeMuro 1:12:01 ... it's superseded by the next best.

Ben Gilbert 1:12:02 There you go. There you go.

David Rosenthal 1:12:03 Yeah. O- one of the differences between YouTube and, um, podcast world is, uh, titles and SEO is really important in the YouTube world, right? [chuckles]

Doug DeMuro 1:12:10 Right. Very. Very. And I don't even take advantage of it as much as some of my, my colleagues.

David Rosenthal 1:12:14 [chuckles] Yeah. Wow! And so while we're on this topic here of, um, engines, I got to imagine this is one of just the huge sea changes that is coming with electrification of performance cars, right? Like, uh...

Doug DeMuro 1:12:27 Yeah.

David Rosenthal 1:12:28 A whole different set of calculus. Like, it doesn't matter. There's no engine anymore.

Doug DeMuro 1:12:32 Yeah, although you still-- even in electric cars, 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-

David Rosenthal 1:12:42 Yeah, yeah

Doug DeMuro 1:12:43 ... eh, doesn't matter.

David Rosenthal 1:12:44 It doesn't. [chuckles]

Doug DeMuro 1:12:45 It's gone.

David Rosenthal 1:12:45 It's gone. Okay, so a minute ago, Ben, you said, like, "Oh, this naturally would lead to a merging of, you know, VW and Porsche," and I was like, "Well..." [laughing] So this is in the late '60s, when the 914 launches. As we head into the '70s, the oil crisis happens in the '70s, and sports cars become less of a thing. People are really worried about this. This is, like, 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, right? Like, just like in any recession, and, and even, like, sector-targeted ones, like the oil crisis and the auto industry, for true luxury goods, like, those people, like, the market for that is very resilient. The 914, though, very different story. So as we head into the mid-'70s, uh, even though it was a very successful car and project for Porsche as a whole, it starts becoming a real money loser. So this creates a lot of tension in the company. This is kind of a, a backdrop of stress to another, um, family dynamic that's emerging, which is you've got these two Ferdinand grandsons that are kind of vying, starting to vie for control of the company. You know, they're now, gosh, I don't know, probably in their 30s, maybe entering their 40s. Ferry's getting older here. Like, who's gonna 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. I mean, he designed the 911, maybe the most iconic car design ever.

Ben Gilbert 1:14:28 And this is German Ferdinand-

David Rosenthal 1:14:30 This is German Ferdinand.

Ben Gilbert 1:14:30 -the one who's working, actually producing the cars.

Doug DeMuro 1:14:33 But the other Ferdinand, the son of Louise and Anton, was hired by the German company also.

David Rosenthal 1:14:40 Yes, he, so he hopped over.

Doug DeMuro 1:14:40 So he's also working for them.

Ben Gilbert 1:14:41 Oh, I see.

David Rosenthal 1:14:41 Yeah, he's-- so yeah, he's hopped over. He's, you know, on the one hand, kind of like this dark horse candidate, right? He's the Austrian side of the family. You know, "You've got the car dealership business," blah, blah, blah.

Doug DeMuro 1:14:51 [chuckles] Right, go do that!

David Rosenthal 1:14:52 But he's also proved himself as, like-

Doug DeMuro 1:14:53 Yep

David Rosenthal 1:14:54 ... 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, et cetera. So he's like, "Yo, [laughs] this should be my company." Tensions, of course, start to rise, and something pretty incredible happens. You know, we've come across on the show, there are lots of stories out there of family businesses and 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. So in the fall of 1970, Ferry and Louise together call a joint family summit. They're like, "We're gonna settle things." And I don't know, I'm speculating here, but I, I suspect Ferry and Louise were... didn't have a lot of acrimony over it. I mean, they're brother and sister, and they had-- Louise had her company, Ferry had his company.

Doug DeMuro 1:15:47 And they're both making a lot of money.

David Rosenthal 1:15:48 They're both making a lot of money. Everybody's happy. This is between the children here. So 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 gonna 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, gone.

Doug DeMuro 1:16:19 What?

David Rosenthal 1:16:19 Ferry, Ferry himself! Who's running the com- Ferdinand's long dead at this point, the, the original Ferdinand. They're gonna 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. I mean, 'cause it's not like... It'd be one thing if they were like, "Oh, you know, we're really not that good at this. Like, we should hire-

Doug DeMuro 1:16:40 Right

David Rosenthal 1:16:40 ... professional man-" These are lead-- generational talents [chuckles] in the car industry, and the best solution they can come up with is, "You know what? We're all done here." [chuckles]

Ben Gilbert 1:16:50 This is crazy. I would be so fascinated 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 Rosenthal 1:17:01 There's some direct quotes from a lot of them, and excellence was expected, and, like, as you can imagine, it's a very delicate topic, uh, and they're also German, so, like, they're very, you know, prim and proper. But, um, I think Ferry, he basically admits, he's like, "Yeah, there probably was a better solution to this, but, like, it did mean that we could kinda reunite as a family." And, like, he-- I think he said something like, "There were still tensions, but we could go to each other's birthdays again." [chuckles]

Doug DeMuro 1:17:29 Hmm.

David Rosenthal 1:17:29 You know, something like that. So, I mean, I guess in that, you know, if you value family above all else-

Doug DeMuro 1:17:36 Crazy decision

David Rosenthal 1:17:36 ... maybe it is irrational. It's still, it's crazy!

Doug DeMuro 1:17:37 It's an especially crazy decision 'cause, like you said, they were, they were killing it.

David Rosenthal 1:17:41 They were the best.

Doug DeMuro 1:17:42 It had been a family business until this point, and it had been a very successful one because of the efforts of the family. And especially, you got Ferdinand Piëch. Now, looking back on this, we know what happens to Ferdinand Piëch, which we'll get to, but you've got him on this up-and-coming track where he's so legit.

David Rosenthal 1:17:55 Oh, my God.

Doug DeMuro 1:17:55 And it's like-

David Rosenthal 1:17:56 He must have been so pissed.

Doug DeMuro 1:17:57 It's like, "No, you're out."

David Rosenthal 1:17:58 Crazy! I mean, he definitely was so pissed. [chuckles] So let's talk about what happens here. Butzi, he goes off, and he founds Porsche Design. So there exists these weird-- there's, like, Porsche sunglasses out there.

Doug DeMuro 1:18:13 Right.

David Rosenthal 1:18:13 You can buy Porsche-designed laptops-

Doug DeMuro 1:18:16 Right

David Rosenthal 1:18:16 ... like, all this stuff. That's him. That's a totally new company that he started.

Doug DeMuro 1:18:19 Wow.

David Rosenthal 1:18:19 It has now been reabsorbed into the broader Porsche conglomerate. Um, but that was started-- Right, he was like, "All right, great. I wanna be a designer." That's the path-

Doug DeMuro 1:18:30 Hmm

David Rosenthal 1:18:31 ... that he goes down.

Ben Gilbert 1:18:31 The same thing happened in the Gucci family, for anyone who's seen the, the Gucci movie with Adam Driver. There's sort of a family member who wanders off and does some, like, effectively, like, brand licensing. He's like, "I'm gonna take the family name and make some money off it."

David Rosenthal 1:18:42 Yeah, which is obviously what was happening here.

Ben Gilbert 1:18:45 Yes, obviously.

David Rosenthal 1:18:45 I think he also was a very talented-- I mean, he designed the Go- the 911, for God's sakes.

Doug DeMuro 1:18:48 Right.

David Rosenthal 1:18:48 Like, he's talented, but, but yes, trading on the name here. The other Ferdinand, Piëch, this guy, oh, my God, he is a, he's a G.

Doug DeMuro 1:18:58 [chuckles]

David Rosenthal 1:18:58 So at first, he's like, I imagine, inspired by his grandfather. He's like, "I'm gonna 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 Piëch. He gets recruited to come in and take over Audi.... for VW.

Ben Gilbert 1:19:26 Hmm.

David Rosenthal 1:19:27 I don't think he originally-- I think he enters working within Audi, but then very quickly becomes the head of the Audi brand for Volkswagen.

Ben Gilbert 1:19:35 And Doug, at this point in history, what does the Volkswagen Group own brand-wise?

Doug DeMuro 1:19:40 Yeah, that's an interesting question. The brands that we know, I think it was just Volkswagen and Audi. Um-

David Rosenthal 1:19:44 And Audi had been a separate company.

Doug DeMuro 1:19:46 Audi had been a separate company, and it's also important contextually here, to, to, to, to make one really important point about Piëch and Audi. At that time, Audi was a joke.

David Rosenthal 1:19:55 Yeah.

Doug DeMuro 1:19:55 Audi was not what it is now. Like, now you view Audi as a legitimate competitor to Mercedes and BMW. Back then, it was more like how Saab would've been treated. Like, it was a s- absolute second- or third-tier brand that no one could possibly... Y- you know, it was not, it was not a brand that was desirable at that time.

David Rosenthal 1:20:11 Would it be like today, um-

Doug DeMuro 1:20:13 Infinity.

David Rosenthal 1:20:14 Like, I know you, you owned a, a Kia, right? At some-- but like, you know, Kia and Hyundai are trying to enter the luxury market-

Doug DeMuro 1:20:19 Yeah

David Rosenthal 1:20:19 ... and people are like, "Really?"

Doug DeMuro 1:20:20 Yeah, it was on that level of like, "Eh, I'm gonna stick with Mercedes."

David Rosenthal 1:20:23 Yeah.

Ben Gilbert 1:20:24 Was the Audi 5000 the thing that kinda saved them and-

Doug DeMuro 1:20:27 [chuckles]

Ben Gilbert 1:20:28 brought them back?

Doug DeMuro 1:20:28 On the contrary, actually, that car was the one that had the, the famous scandal in the United States, where the 60 Minutes found that it-- unintended acceleration-

David Rosenthal 1:20:36 Oh! [laughs]

Doug DeMuro 1:20:36 Where it would accelerate-

David Rosenthal 1:20:37 Oh, geez.

Doug DeMuro 1:20:37 Which turned out to kind of be unfounded, but their reputation was, like, severely, severely damaged by that. Um, but that was this era. That was this era. Audi needed a turnaround. Volkswagen's got Audi, they're like, "We don't know what the hell to do with this thing."

Ben Gilbert 1:20:49 Ah.

Doug DeMuro 1:20:49 "We got BMW and Mercedes. They're killing it."

David Rosenthal 1:20:51 So Piëch comes in, and, like... I mean, this dude is good. [chuckles] Like, he-- this was such a mistake to force him out of Porsche. So he turns around Audi, and, like, builds Audi into, you, Doug, like you said, the Audi we know today, and he's so successful that in 1993, he gets promoted and becomes CEO of Volkswagen. [chuckles]

Doug DeMuro 1:21:14 So you get this situation where they kicked him out of running the company, and then [laughs] he goes and ends up running the company.

David Rosenthal 1:21:19 Running Volkswagen. [laughing]

Doug DeMuro 1:21:20 It's wild!

David Rosenthal 1:21:21 Wild. I mean, he oversaw and launched the New Beetle. Uh, like, literally, his grandfather's legacy, the Beetle, he turned over the Beetle model to the, the New Beetle.

Ben Gilbert 1:21:30 How long was Ferdinand Piëch running Volkswagen?

David Rosenthal 1:21:33 A long time. 1993, I believe he was chairman until 2015, 2016, maybe.

Doug DeMuro 1:21:40 Whoa!

David Rosenthal 1:21:40 A long time.

Doug DeMuro 1:21:40 He, he develops this reputation of being this just iron-fisted, like... I can only-- 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, like, incredibly angry, and everything must be to his standard, and so I can only imagine-

David Rosenthal 1:21:56 Yeah

Doug DeMuro 1:21:57 ... how angry he was [chuckles] when he-

David Rosenthal 1:21:58 He also, um, he had 13 children by-

Doug DeMuro 1:22:00 Yeah

David Rosenthal 1:22:01 ... I think, four different women, like [laughs]

Doug DeMuro 1:22:02 Yeah, he had a lot of kids.

David Rosenthal 1:22:03 Yeah. [laughs]

Doug DeMuro 1:22:03 He was that typical, you know, how you think of, like, a German industrialist kind of.

David Rosenthal 1:22:07 Yeah.

Doug DeMuro 1:22:07 At around this time, Volkswagen started really gaining a lot of brands. So in the late '90s, they bought Lamborghini. Um, they owned two Europe-only brands, one for, like, Spain, and one for, like, Eastern Europe, and they repurchased the Bugatti, the rights to the Bugatti name, which had gone to an Italian company. Um, and they brought it back to France, where it was, like, initially-

Ben Gilbert 1:22:28 Hmm

Doug DeMuro 1:22:28 ... existing.

David Rosenthal 1:22:29 Yeah, restarted. I mean, uh, uh, Doug, you kinda said, but to put a bow on it, [chuckles] of what a baller Piëch was, um, in 1999, the Global Automotive Elections Foundation, they award him the Car Executive of the Century. [laughing]

Doug DeMuro 1:22:47 [laughs] And by the way, that's, like, uncontested. In the car world, Ferdinand Piëch is looked at as, like, exactly what you're saying-

David Rosenthal 1:22:53 The guy

Doug DeMuro 1:22:54 ... the guy. Everybody knows his impact, everybody knows how effective he was.

Ben Gilbert 1:22:57 Hmm.

David Rosenthal 1:22:57 And the family's, Porsche is just like, "Yeah, no, you gotta get out of here." [laughing]

Ben Gilbert 1:23:02 [laughs]

David Rosenthal 1:23:02 Unbelievable! Maybe he wouldn't have had the motivation to d- who knows? Who knows. Just wild.

Ben Gilbert 1:23:07 But Volkswagen, much bigger company than Porsche, right?

Doug DeMuro 1:23:10 Yeah.

Ben Gilbert 1:23:10 Like, he got kicked out of his own company, so he went and ran-

Doug DeMuro 1:23:13 [laughs]

Ben Gilbert 1:23:13 ... a much bigger one that competes with it.

David Rosenthal 1:23:15 And, and made it.

Doug DeMuro 1:23:16 Then, then he grew even bigger.

David Rosenthal 1:23:17 Yeah.

Doug DeMuro 1:23:18 Yeah.

David Rosenthal 1:23:18 Yeah. Yeah, yeah. Yeah, wow. So back to the Porsche side, [sighs] this decision was, was just really not good. [chuckles] Really not good. So the first CEO who comes in, the first professional manager CEO, actually is somebody who has been with the company for a long time. Uh, Ernst Fuhrmann, uh, becomes the first non-family member CEO of Porsche. He was actually part of the original elite engineering crew back in the sawmill in Gmunden, 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, I, I think it actually was a decent car. Uh, Doug, you actually reviewed a 944-

Doug DeMuro 1:24:10 A 944 recently

David Rosenthal 1:24:10 ... yeah, which is the kinda next iteration of it. I think it... Well, you, you can say I think it was a good car, but it's not a Porsche. It's a front-engined, water-cooled, like, it-

Doug DeMuro 1:24:21 It suffered from that stigma, for sure. The saving grace was it was actually a pretty good car to drive.

David Rosenthal 1:24:25 Yeah.

Doug DeMuro 1:24:25 And so over the years, and even at the time, it was kind of accepted as, "Hey, we all get that it came from a Volkswagen, but sort of the beloved 914, and it drives pretty well."

David Rosenthal 1:24:36 Yeah.

Doug DeMuro 1:24:36 So, like, people, people were like, "Yeah, we'll, we'll, we'll take this," as the entry Porsche of the, of the time. But it wasn't a 911.

David Rosenthal 1:24:42 It wasn't a 911, and it wasn't a 914 either, really.

Doug DeMuro 1:24:46 No.

David Rosenthal 1:24:46 Like...

Doug DeMuro 1:24:46 It was a totally different thing. Yeah, the 914 was a small, lightweight, compact roadster, removable top. The 924 was a, it was definitely-

David Rosenthal 1:24:52 Yeah

Doug DeMuro 1:24:52 ... a different kind of situation.

David Rosenthal 1:24:53 So Fuhrmann had a quote on it when kinda, you know, asked about, like, "What is this?" Uh, 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."

Ben Gilbert 1:25:09 Oof. [chuckles]

David Rosenthal 1:25:10 I mean, I guess that's true, right?

Doug DeMuro 1:25:12 [chuckles] Right.

David Rosenthal 1:25:12 And that's also true of the 914, but, like-

Ben Gilbert 1:25:15 Can you come up with something-

David Rosenthal 1:25:15 ... that's not the right way you wanna position your brand.

Doug DeMuro 1:25:18 But hey, the quiet part loud, kinda...

David Rosenthal 1:25:20 Yeah. Geez.

Ben Gilbert 1:25:21 Can you, can you come up with something that is not using the word "not" to describe [chuckles] who wants it?

David Rosenthal 1:25:26 What the s-

Ben Gilbert 1:25:27 Like, how about you say who would want it?

Doug DeMuro 1:25:29 ... Right, this is for the poor customers. [chuckles]

David Rosenthal 1:25:31 Right. Right, right. And, and again, but also it's just like in, in the whole philosophy of it, it's not a Porsche. Even more concerning is the 928. So Fuhrman makes a decision, as the new CEO of the company, that it's time to replace the 911. And, uh, I, I, again, you know, maybe, like, let's give him some credit. This is the '70s, the oil crisis is going on. Like, there's, um, safety regulations. This is post Ralph Nader and unsafe at any speeds. Like, it's maybe reasonable to think that a rear-engine sports car isn't, like, a great strategy to be pursuing here.

Doug DeMuro 1:26:12 And unsafe at any speeds, that was, like, a federal report that came out that said, like, basically all cars on the market are unbelievably-

David Rosenthal 1:26:19 Death traps

Doug DeMuro 1:26:19 ... unsafe, and people-

David Rosenthal 1:26:20 Yeah

Doug DeMuro 1:26:20 ... our citizens should not be driving around in them, and so all cars need to change.

David Rosenthal 1:26:23 And regulations started to really show up, like-

Doug DeMuro 1:26:26 Yeah

David Rosenthal 1:26:26 ... in this time period. That, uh, the, in the car world, the '60s are kind of viewed as, like, the last bastion of just, like, anything goes, and 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 and safety and seat belts that, you know, were very important and beneficial, but at the time it was like, "Oh, they're killing our fun."

Doug DeMuro 1:26:50 It is astonishing how much safer cars have gotten. I mean-

David Rosenthal 1:26:53 Astonishing

Doug DeMuro 1:26:54 ... y- you look at these, like, cute, old Porsches that are so much smaller.

David Rosenthal 1:26:57 Right.

Doug DeMuro 1:26:58 And 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.

David Rosenthal 1:27:04 And they're faster than they were back then, so it's, it's kind of the best of all worlds. And in most cases, they're more efficient also.

Doug DeMuro 1:27:09 Hmm.

David Rosenthal 1:27:09 Totally. So in 1978, Fuhrman 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, like, 10,000 units a year or something like that. "But, you know, once the 928's on the market and demand dips for the 911, we'll stop making them." [chuckles] Now, I want to defend the 928 a little bit here because it was a i- i- 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. Like, how could that be? But it's important to keep in mind that, like, the 356 went away, and that was the Porsche. Like, how now you say, like, "Oh, I have a Jeep," and you're referring to the Wrangler. Like, that was a P- the Porsche was the 356, and so that went away. And for the 911, it only made sense at some point the 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 kind of 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, and because of the oil crisis, and because of tightening emissions laws, it was getting very difficult to make any sort of power from anything other than a big engine. And even big engine cars at that time didn't really make a lot of power. Cadillac had, like, eight-liter V8s that made, like, 150 horsepower.

Doug DeMuro 1:28:32 Whoa!

David Rosenthal 1:28:32 It was embarrassing stuff 'cause they had to put so many emissions controls on that by the time you actually [chuckles] got the power out, it was a disaster. So 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, like, a little fun sports car, like the 911, to a big V8, kind of relaxed, leather cr- luxury cruiser, that sort of thing. And so it made sense that Porsche would maybe wanna head in that direction also and start thinking about moving past the 911, just as they had moved past the 356, you know, 20 years before. There was some sense to it. So the 928 comes out in 1978, and 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, um, austerity, oil crisis, 17% interest rates, and massive inflation, uh, the '80s was, um, not that, [chuckles] shall we say. Not that. It was a, uh, rising tide-

Doug DeMuro 1:29:43 Yes

David Rosenthal 1:29:43 ... that lifts all boats.

Doug DeMuro 1:29:44 Lots of disposable income, Wall Street is ripping, uh-

David Rosenthal 1:29:48 A lot of pinstripes.

Doug DeMuro 1:29:49 Yeah, it seems like actually a really good time for fast cars.

David Rosenthal 1:29:51 Seems like a good time for fast cars, and indeed, it was, including for the 928 and the 924, succeeded by the 944, and still the 911. People still wanted them. I think largely because of that, although I'm sure there were other reasons, too. So the Porsche and Piëch families, when they exited operationally from the business, they still own the business, so they're still, like, the supervisory board. They get fed up with Fuhrman, they oust him, and they bring on a new CEO, an American, [chuckles] as CEO of Porsche, one Peter Schutz. Famously, he comes in, and he redraws the 911 production line. And Doug, I know you have some, uh-

Doug DeMuro 1:30:36 Right

David Rosenthal 1:30:36 ... firsthand experience of the legendary-ness.

Doug DeMuro 1:30:38 It's one of the great, the great... one of the great stories in the auto industry. The 928, though I just provided an impassioned defense for it, um, it w- it never felt like the right car to Porsche. It never felt like the right car to especially the employees, who had kind of fallen in love with this 911, and it'd been in production now at this point for probably 20 years, 25 years maybe. And, um, the 911 was Porsche to a lot of these people, and the fact that it was gonna get replaced by the 928 was this sad thing, and it had kind of really hurt morale, uh, in Stuttgart, at the factory, all the way up to the, to some of the people at the top. And so the great story is that, uh, you know, the 911, everybody knows the impending cancellation is coming. It's still going, but it's coming, this beloved car. And so, uh, Schutz, Peter Schutz, the American CEO, is sitting in the, uh, the, the office of Helmuth Bott, who's the chief of engineering for Porsche.

1:31:34 ... and there's a line on the wall that shows where all the products stop and start, and the, you know, a timeline. And-

David Rosenthal 1:31:40 This is like a, like, on a whiteboard or a-

Doug DeMuro 1:31:41 Yeah

David Rosenthal 1:31:42 ... piece of paper?

Doug DeMuro 1:31:42 Like on a whiteboard or something.

David Rosenthal 1:31:43 Yeah, like, tacked to the wall.

Doug DeMuro 1:31:44 Right. And so 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, y- you know, it should be replaced because it's old. You know, that's the thinking of the, uh, of, of the people.

Ben Gilbert 1:31:55 And that's what's was said.

Doug DeMuro 1:31:57 That was-

Ben Gilbert 1:31:57 Like, there's a thing in German culture where, like, when something has been decided, it's been decided.

Doug DeMuro 1:32:01 An edict has been given, and the car's out. I mean, the 928 is on sale. Like, it has shown up to replace the 911. In the spirit of these other cars of the time, V8 front engine, it made sense. It was what they were [chuckles] gonna do. But the morale was low, and they knew this, and so Schuz stands up. He's got a marker in his hand. He stands up, he walks up to the timeline on the, on the wall, and he draws a line on the timeline cr- all the way onto the wall, and extends the 911's timeline, you know, indefinitely, including onto the literal wall. Now, this story, of course, is [chuckles] ... This is like the stuff of legend in Porsche. Like, Peter Schuz, the American CEO, saving the 911 in this moment, and a lot of talk about whether this actually happened. Like, did he actually just draw the line and make the complete 180 in decision?

David Rosenthal 1:32:48 This would be a good story to invent if you needed-

Doug DeMuro 1:32:50 It would, it would be the perfect-

David Rosenthal 1:32:50 ... a morale boosting [chuckles]

Doug DeMuro 1:32:51 Right, especially if you were, you were trying to, you were trying to, like, boost the, uh, the reputation of the CEO among the-

David Rosenthal 1:32:56 Yeah

Doug DeMuro 1:32:56 ... among the workers. He drew the line, right?

Ben Gilbert 1:32:59 And there's a perfect line, which is, Schuz just looks over at the chief engineer and goes, "Do we understand each other?"

Doug DeMuro 1:33:05 [laughs] Right.

Ben Gilbert 1:33:06 And then he walks out.

Doug DeMuro 1:33:07 I always wondered if the story was true. I worked at Porsche, uh, 10 years ago, and, um, had become friends with Porsche's general counsel in North America. When Peter Schuz retired, he moved to Naples, Florida, and he, he, the general counsel at Porsche and Peter Schuz were neighbors in their homes in Naples. And I-- one day, he went over to his house and asked him, "You know, is the story real? Did it happen?" And apparently, Schuz said, "Not only did it happen, but Helmut Bott was grinning like the Cheshire Cat when I drew that line." Like, it was like this moment, like, we're gonna do this, and it, like, really, apparently really, in, in, in his words, it really actually was a true story.

Ben Gilbert 1:33:42 Wow!

David Rosenthal 1:33:42 That's so great.

Ben Gilbert 1:33:44 That's awesome to get that validation, 'cause there's so many of these stories that we-

Doug DeMuro 1:33:47 Right

Ben Gilbert 1:33:47 ... tell on this show, where we're like, we're like, "This is probably apocryphal, and there's really no way to verify it."

Doug DeMuro 1:33:52 Now, of course, if you're Schuz, you'd wanna tell the story-

Ben Gilbert 1:33:55 [laughs]

Doug DeMuro 1:33:55 ... because it's become so famous. But, you know-

David Rosenthal 1:33:58 Sounds like it probably did happen

Doug DeMuro 1:33:58 ... from his mouth, at least, the story is real.

David Rosenthal 1:34:00 It's a great story.

Doug DeMuro 1:34:01 Yeah.

David Rosenthal 1:34:02 Like, I mean, literally, he extended the line-

Doug DeMuro 1:34:04 Right

David Rosenthal 1:34:05 ... [chuckles] of the production line-

Doug DeMuro 1:34:06 Right

David Rosenthal 1:34:07 ... [chuckles] onto the wall.

Doug DeMuro 1:34:08 Right.

David Rosenthal 1:34:08 [laughs] So-

Ben Gilbert 1:34:10 So do they keep making both cars?

David Rosenthal 1:34:11 Yeah. So they kept making-- I think they made the 928 until 1995. I think it was Wiedeking, who comes in in a minute, who, uh, [chuckles] finally kills the damn thing.

Doug DeMuro 1:34:21 The problem with this decision, you'll get into more economic realities of this situation, as the '80s kind of draw to a close, whatever, but the problem with this decision was the, the company was planning on ending the 911. And so by drawing that line, symbolic though it was, "We're gonna 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 Rosenthal 1:34:40 Yeah.

Ben Gilbert 1:34:40 Mm.

David Rosenthal 1:34:41 So in the go-go years of the early through mid-'80s, no problem. [chuckles]

Doug DeMuro 1:34:47 Right.

David Rosenthal 1:34:47 More! [chuckles] Let's-- [chuckles] we'll do a, we'll do an ICO. We'll issue some NFTs.

Ben Gilbert 1:34:53 Right.

Doug DeMuro 1:34:53 [laughs]

Ben Gilbert 1:34:53 It's heck in 2021.

David Rosenthal 1:34:54 Yeah, [chuckles] exactly.

Doug DeMuro 1:34:55 Exactly.

Ben Gilbert 1:34:56 In fact, I think Schuz was like, "Let's make airplane engines."

David Rosenthal 1:34:59 [laughs] Yes, yeah, I think he was. Yes, oh, my gosh. And on the back of, you know, these go-go years and success, they're selling the 911, they're selling the 928, they're selling a lot of 944s. Like, they sold a ton of those things. The families take the company public, so just like a lot of these, like we talked about on the LVMH episode, a lot of these European luxury brands, craftsman brands, uh, they did an IPO. They thought they were being smart. They sold, I think, a 30% stake in the company, but all non-voting shares. Like, "Oh, we're not gonna... No, you know, no corporate raiders here. Nobody will have any voting control except the families. Like, it is impossible that somebody could, you know, attack us because the families all own... You know, it would have to be somebody inside the families [chuckles] who would attack us. Why would that ever happen?" Hmm, well, everything goes great. The stock, you know, doubles within the first year that it's on the market, but then 1987, Long-Term Capital Management blows up. You know, the end of the go-go years of the '80s, not good, not good for Porsche, and not good in a lot of senses. Like, A, just period, economic climate, not good for anybody. B, you're making luxury sports cars. Now, as we talked about in the '70s, the oil crisis in the '70s was really, was bad for Porsche. It was really bad for the 914. The 911 was pretty robust. Like, 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, and, like, those things started sucking wind big time. [chuckles]

Doug DeMuro 1:36:35 It's not a good situation because now you have three aged products-

David Rosenthal 1:36:40 Yeah

Doug DeMuro 1:36:40 ... and so the economy is slowing, and your cars are not really competitive.

David Rosenthal 1:36:45 Yes. So Schuz, though, he continues production of all three lines, and not only does he continue production, he reinvests, especially in the 924, 944 line. They even refreshed it a third time to the 968. I mean, same basic car.

Doug DeMuro 1:37:04 Yeah.

David Rosenthal 1:37:04 Like, they're investing resources in this car, and at the... Y- you probably have a s- better sense than me, but, like, another aspect of the kinda recession at the end of the '80s was the exchange rates with European currencies got hit-

Doug DeMuro 1:37:20 Right

David Rosenthal 1:37:20 ... really hard.

Doug DeMuro 1:37:20 Right.

David Rosenthal 1:37:21 And so relative to the Asian currencies in the US, so it became-... I don't know, call it 10, $20,000 cheaper to buy an equivalent entry-level sports car from a Japanese manufacturer.

Doug DeMuro 1:37:33 And it just so happened that at this time, you know, Japan was kind of having an economic-

David Rosenthal 1:37:37 Yeah

Doug DeMuro 1:37:38 ... boom, and as a result of that, they started making these sports cars, the exact sports cars you're describing. So the Nissan 300ZX-

David Rosenthal 1:37:43 Yes

Doug DeMuro 1:37:44 ... starts to show up, the Toyota Supra, you know, all these cars are showing up, and by the way, they don't have four-cylinder engines, and they're not 25, 20-year-old platforms like the 968 was, and there was very little reason to buy a 968.

David Rosenthal 1:37:56 I mean, it is, uh, I feel like I'm, I'm sort of, uh, in my history, probably all of us barely, you know, starting to enter consciousness here. Uh, you know, this is pre Fast and the Furious, but not that pre Fast and the Furious. All those, you know, Japanese cars that like-

Doug DeMuro 1:38:10 Yeah

David Rosenthal 1:38:10 ... you know, that got tuned up, the Supras especially.

Doug DeMuro 1:38:13 Yeah.

David Rosenthal 1:38:13 This is that era.

Doug DeMuro 1:38:14 They were all starting, just starting to come in then and starting to blow up, and they offered, just as they do today, this great, great value proposition of, like, big power for not as much money.

David Rosenthal 1:38:23 Yeah. And again, the 911 isn't threatened by this-

Doug DeMuro 1:38:26 Right

David Rosenthal 1:38:27 ... but the 944, 968, hell yeah, is threatened by this.

Doug DeMuro 1:38:31 Right.

David Rosenthal 1:38:31 Like, nobody's buying those anymore.

Doug DeMuro 1:38:32 And the 928, by then, was so old that sales were a trickle. By '90, there were three products, which was the nine- 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, [laughs] to only make things even more confusing. And then there was the 928, which was the front-engine V8, like, flagship car.

David Rosenthal 1:38:55 That nobody wanted.

Doug DeMuro 1:38:56 That nobody wanted.

Host 1:38:57 So they literally only made three cars, and they were all three number nine cars?

Doug DeMuro 1:39:02 It was a complete disaster. I mean, Porsche's never named cars well, even now, but, like, yeah, at the time, you had-- again, you had to, like, speak the language. You had to, like... And by the way, the 911s all said Carrera on the back. So everybody's like, [laughs] "What the hell's a 911? You know, is this a 911? Why does it say Carrera?" It never made any sense.

Host 1:39:20 And, uh, all Carreras are 911s, but all 911s are not Carreras today?

Doug DeMuro 1:39:26 That has changed over the years. Then there was a trim level of the 924 called the Carrera.

David Rosenthal 1:39:30 [laughs]

Doug DeMuro 1:39:30 It was actually called the Carrera GT, which they later named this car.

David Rosenthal 1:39:33 Right. [laughs]

Doug DeMuro 1:39:34 None of it-- It was all confusing.

Host 1:39:35 [laughs]

Doug DeMuro 1:39:35 No, you had to be, like, a German who was into this stuff to, like, figure out the precision level with which it, it made sense.

Host 1:39:41 Huh.

David Rosenthal 1:39:42 So as all this happens, Porsche is now a public company. The stock price starts to decline precipitously.

Host 1:39:51 And they floated 30% of it-

David Rosenthal 1:39:53 They floated 30%

Host 1:39:54 ... out to the public.

David Rosenthal 1:39:54 Now, no voting control-

Host 1:39:55 Yep

David Rosenthal 1:39:55 ... but the company, they're really, like, uh, cresting the treetops here as they're, you know, beginning their descent. At one point, Porsche's market cap was less than 400 million euros.

Doug DeMuro 1:40:07 [laughs] Crazy to imagine.

David Rosenthal 1:40:09 Like, almost zero.

Host 1:40:10 Whoa!

David Rosenthal 1:40:11 And I believe also, at that time, they didn't have any debt, so, like, truly, like, 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 DeMuro 1:40:22 It was an unbelievably difficult time, and it's kind of 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 the most, one of the most valuable brands.

Host 1:40:32 And it's only 30 years later.

Doug DeMuro 1:40:33 Only 30 years later. It was dire straits. I pulled up the US sales figures for Porsche from this era, which is so insane to me. They dipped in '91, '92 to 4,100 units. That was worse than 1965 sales. They had routinely sold between 13 and 30,000 cars a year throughout the '60s, '70s, '80s, 13 and 30,000, and in the US, at '92, they dipped to 4,100 cars. That was the level that they, that we were talking about. It was, it was complete dire straits.

David Rosenthal 1:41:02 So even though the public doesn't have any voting control, um, everybody starts to think the only thing that can happen here is this company's gonna get bought out. One equity research analyst, actually, in a, 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, you know, some amount of value for their stake rather than just have it go to zero. So Tschuz gets fired, but it's not like that fixes anything.

Doug DeMuro 1:41:31 [laughs]

David Rosenthal 1:41:31 I think it was 1987 when he gets fired. Over the next six years, they cycle through, I think, four, three or four more CEOs-

Doug DeMuro 1:41:40 Ugh, brutal

David Rosenthal 1:41:40 ... none of which really figure it out. There is one bright spot, though, uh, however, which if this were a normal Acquired episode, we would just skip, but we've got Doug.

Doug DeMuro 1:41:48 [laughs]

David Rosenthal 1:41:48 Um, the 959-

Doug DeMuro 1:41:50 Yeah

David Rosenthal 1:41:50 ... comes out at this point in time.

Doug DeMuro 1:41:51 Porsche, Porsche, it's actually, the 959 and, and another interesting component off-shooting that, but the 959 comes out at that time, which is, like, their first supercar, so sort of the predecessor to this car, and it actually wasn't commercially successful, sort of in keeping with Porsche's world [chuckles] at the time. But it, it did, uh, it was kind of a, a test bed for some new technology, including four-wheel drive in 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, though, that they started taking on projects for other manufacturers. And so it's known in the car world, but not as much in the general world, Porsche built a Mercedes-Benz, which was called the 500E. It was a midsize sedan. Mercedes didn't have the capacity or didn't really wanna do it, and-

David Rosenthal 1:42:31 Oh, so they built a sedan-

Doug DeMuro 1:42:32 They literally

David Rosenthal 1:42:32 ... for Mercedes?

Doug DeMuro 1:42:33 That's l- in the Porsche factory in Zuffenhausen-

Host 1:42:36 Whoa!

Doug DeMuro 1:42:36 ... in Stuttgart. They-

Host 1:42:37 Like, who designed it?

Doug DeMuro 1:42:39 Mer- It was a Mercedes car, so it was a Mercedes E-Class, like a regular Mercedes sedan but with a larger engine, and Mercedes felt that having Porsche involved would give it some sports car credibility.

Host 1:42:47 Oh, wow.

Doug DeMuro 1:42:47 Porsche literally produced the car, and then Audi did the exact same thing. Audi needed more credibility because they were still kind of a fledgling luxury car brand. They wanted to get into the sports realm because that's where a lot of money was being made, and so Audi came to Porsche and said: "Can you help us develop a car?" And it was called the RS2, and I actually had one and just sold it last year. It was a station wagon, and that was the conditions under which Porsche agreed to build the car. They said, "We'll do it, but we don't want you to compete with our cars as a coupe, you know, a sports car, so we'd rather if you build a station wagon," which essentially touched off the, like, high-performance station wagon thing, which Audi is still known for to this day, more than almost any other thing. But Porsche was so desperate, they even allowed Audi to license their name and put it on those cars. So the, the RS2 had Porsche brakes. They're 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 in Stuttgart, in, in, in Zuffenhausen. So when you say-

David Rosenthal 1:43:41 So they're just mortgaging the brand.

Doug DeMuro 1:43:42 They were desperate.

David Rosenthal 1:43:43 Yeah.

Doug DeMuro 1:43:43 They were l- they were completely desperate. So when you mention, like, the Porsche/Mercedes-Benz relationship, that 500E was an interesting thing because-... Around Porsche at the time, there were a lot of ways that it could have gone totally wrong, and I went there, and I did a factory tour a couple years ago, and the guy who gave the tour had worked there for, like, twenty-five, thirty years through this time period. And 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 Rosenthal 1:44:16 Wow!

Ben Gilbert 1:44:17 And it was literally like, "You have empty production lines, so even though you're not gonna make a lot of margin on this, let's at least, like-

David Rosenthal 1:44:24 "You can be our contract manufacturer." [chuckles]

Ben Gilbert 1:44:25 Yeah.

Doug DeMuro 1:44:26 Like, when you have union contract-- may- maybe this was part of the circumstance. You have union contracts, you got to pay these people, whatever. Here-- You're not gonna make money, but, like, let-- We're doing it.

David Rosenthal 1:44:34 Wow!

Doug DeMuro 1:44:34 And it's something. It's a project for you. It's something.

David Rosenthal 1:44:35 We'll keep your lines go-

Doug DeMuro 1:44:36 Keeps you going.

David Rosenthal 1:44:36 Instead of losing money on having to pay the-

Doug DeMuro 1:44:38 Yeah.

David Rosenthal 1:44:38 Well, yeah.

Doug DeMuro 1:44:39 Right.

David Rosenthal 1:44:39 Wow! Wow.

Doug DeMuro 1:44:41 It was a tough era. It was, like, indescribably tough, and I think this is lost on a lot of younger people who have only seen Porsche in the world of crazy, expensive cars and all the money they charge for colors now and all that. There was a period where it almost all came to-

David Rosenthal 1:44:54 Yeah.

Ben Gilbert 1:44:55 And not that long ago.

Doug DeMuro 1:44:56 Not that long ago.

David Rosenthal 1:44:56 That's what's crazy.

Doug DeMuro 1:44:57 It wasn't like this was in the '50s.

David Rosenthal 1:44:58 No.

Doug DeMuro 1:44:58 Like, we were [chuckles] alive. This was real stuff.

David Rosenthal 1:45:01 Yeah.

Ben Gilbert 1:45:01 All right, listeners. Our next sponsor is one of our favorite companies, Vanta, and on the last couple episodes of the season here, we have something very new from them to share. Of course, you know Vanta enables companies to generate more revenue by getting their compliance certifications. That's SOC 2, ISO 27001, but the thing that we wanna share now is Vanta has grown to become the best security compliance platform as you hit hypergrowth and scale into a larger enterprise.

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David Rosenthal 1:46:04 They launched Vendor Risk Management. This allows your company to quickly understand the security posture of the vendors that you're choosing in a standardized way that cuts down on security review times. This is great. You can now understand the risk profile of vendors that you are using in your own software stack.

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Ben Gilbert 1:47:23 So, David, this thing that Doug just referenced to me, the money they, they charge for colors, you can do a thing today where you go to buy a Porsche in their online configurator, and they have the paint from every single Porsche ever produced in history. And so you're like, "You know, there was really something about this particular Nine Eleven in this year. I really loved this paint." You can pay them something like fifteen thousand dollars for your Porsche to be in that particular color.

David Rosenthal 1:47:49 It's like a library wine.

Ben Gilbert 1:47:51 Yes. [laughing] That's exactly it.

Doug DeMuro 1:47:53 Imagine the Porsche of the '80s, early '90s, like, commanding that kind of... It would never have happened, but now the brand has changed so much that, like, fifteen grand for a color, people are, like, falling all over themselves-

Ben Gilbert 1:48:02 Right

Doug DeMuro 1:48:02 ... to do it.

Ben Gilbert 1:48:03 Yeah, why not? The other f- thing that it's emblematic of, which I think we haven't really talked about yet, o- of what makes Porsche special, is this unbelievable heritage. Like, the design language that they use, what the Nine Eleven is, you mentioned earlier, they don't really change it that much from, you know, generation to generation. There's this sort of obsession with put something out there and then spend years and years and years, tiny little tweaks and refinements, making it the, like, platonic form of what it can be, and there's this, like, obsession with if you loved Porsche in any given year, we wanna make sure that we keep you along for the ride, and you can continue to love us today.

Doug DeMuro 1:48:45 Right. If you, as a child, wanted a Nine Eleven, 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 Rosenthal 1:48:53 It's so funny. I feel like the sales cycle for a Nine Eleven has gotta be forty or fifty years, right? Like, kids fall in love- [chuckles] ... and then you can't really buy one until you're in your forties or fifties, right?

Doug DeMuro 1:49:05 It was always a weird aspect of the brand that, like, you actually weren't necessarily only marketing to, like, adults. You also had to market to, like, people who would cultivate this passion that you knew that would become a thing later when you weren't even in-- a, an executive or you weren't even working there. But, like, that's part of the brand, is, like, hooking people young and making them feel like this is a cool thing.

Ben Gilbert 1:49:27 So, Doug, this thing that we're talking about, this idea that if you loved 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, like, rise from the ashes after this '80s period?

Doug DeMuro 1:49:43 That's a good question, but you have to assume they didn't expect, you know, in 1948, that they would ever even be in the position to deliver that, right? In 1950s.

David Rosenthal 1:49:52 Also, like you said, I hadn't quite thought about, but I was planning to tell this story of like: Oh, my God, Ferryman wanted to kill the Nine Eleven. What a dumb idea!... It was, like, natural. They killed the 356-

1:50:00 Right, at that time-

1:50:01 The natural thing would've been to kill the 911.

1:50:03 Looking back on it, it's insane.

1:50:04 Yeah.

1:50:04 But at that time, it seemed like, you know... Now, all these icons have emerged, and all this lore has emerged over the years, but when you really think about-- you put yourself in the perspective of those eras-

David Rosenthal 1:50:14 Okay, so [chuckles] Porsche's in this tailspin. The two eras that happen next are both equally amazing. So in 1993, a guy named Wendelin Wiedeking gets appointed as the CEO. Now, he had actually started his career with Porsche in the '80s. As all this crazy stuff is happening, he was, like, a loud voice of protest [chuckles] against all the, you know, Schütz and, um, Piëch decisions. He resigned and left the company. They recruit him back in the early '90s to take over as head of production, and he implements the Toyota Production System [chuckles] at Porsche, which, uh, they must have been, like, the last auto manufacturer in the world. [laughing]

1:50:59 [laughs]

1:50:59 I don't know if Ferrari uses the Toyota Production System, but, like, this wasn't, um, new technology at this point in time.

1:51:05 Right.

1:51:06 Remember, Porsche's bleeding cash. Being more efficient and more profitable in your operations for whatever cars you can sell is pretty important. He's like the, like, the Tim Cook of, of Porsche here. He gets promoted to CEO, and when he does, speaking of Apple, he kind of pulls a Steve Jobs return-like moment. He cuts the product lines down to just the 911. So this is the right thing that needed to be done, but it's also kinda crazy. He kills the 944, 968. He kills the 928. He takes everything back down to just the 911, and the, like, analyst people, like, car, you know, magazines, ask him, um, "What's your strategy for an entry-level Porsche?" And he says, uh, "Porsche's strategy for an entry-level Porsche is a used Porsche." [laughing]

1:51:57 Such a good line.

1:51:57 Such a good line. Such a good line. So by the '95, '96 production year, the 911 is the only Porsche model left on the market, which hasn't been the case since the 356. Like, this is, uh, this is kinda crazy.

1:52:11 Also, what kind of company makes one product?

1:52:13 [laughing] Right?

1:52:14 Like, how-- I mean, seriously, what are... Like, uh, do they believe that this is a transitionary period, or do they believe-

1:52:20 Yes

1:52:20 ... like, this is the long-term strategy?

1:52:22 Yes. No, it's not like Wiedeking was like: "I am a cost-cutter, and I will cut everything down."

1:52:26 [laughs]

1:52:26 Like, he is much-- Like, he, he has big ambitions.

1:52:31 Okay.

1:52:31 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. So I think this is pretty brilliant, and certainly for the financial performance of the company, was brilliant, and its survival. I think 911 enthusiasts 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? And so what he does is he says, "Let's take the front end of the 911, 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, you know, back end, you know, the rest of the chassis of the car, revive the old 914 concept that was so successful, mid-engine roadster model with a, uh... How would you describe the-- It's not a convertible, per se.

1:53:38 Yeah! No, it is, it is.

1:53:39 It is a convertible.

1:53:39 The Boxster was a full convertible.

1:53:40 Okay.

1:53:40 Yeah. Yeah, yeah. And, and it's also important to point out the interiors were almost entirely shared as well.

1:53:46 Ah, the interiors were, uh, yeah, like the steering wheel-

1:53:48 If you-

1:53:48 ... and like-

1:53:48 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 of it. There--

1:53:57 Ah.

1:53:57 You can't put a coat in a Boxster. The seat is right up against the... But they shared everything.

1:54:02 Ah.

1:54:02 Wow!

1:54:03 Interesting. So Doug, what you're alluding to, this is the Porsche Boxster, which becomes a huge success, and I think the reason for it is that it genuinely is, to anybody looking at it, like, this is a Porsche.

1:54:15 Yeah.

1:54:16 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." [chuckles] This is, like, no, no, this is a freaking Porsche. This-

1:54:22 It shared the design language.

1:54:23 It shared the design language, and I think Wiedeking's thought was, the, the entry-level Porsche has always been looked at as a second-class citizen, like, like his-- like Fuhrmann literally said, which was true. I mean, everybody thought it, but he said it. How do we make it not look like a second-class citizen? And the answer is, make it look like a 911, and make it literally l- literally share... I mean, it didn't even just look like it. It literally had the same fenders, the same, you know, headlights and hood.

1:54:49 And also from a production and profitability and operations-

1:54:51 Right

1:54:51 ... standpoint, this is so great. You're now sharing so many components, not with another auto manufacturer, but with yourself.

1:54:58 Right.

Ben Gilbert 1:54:58 So, Doug, what's the difference then, at this point in time, between the 911 and the new Boxster?

David Rosenthal 1:55:02 The thinking was that they would continue to move the 911 upmarket, more expensive, more power. So the Boxster comes out in '97 for the '97 model year, and it was a huge deal. I mean, it was on the cover of every car magazine. The whole, "Porsche has a new car." This is incredible. It had 200 horsepower, and the 911 of that era had about 300, so it was a significant difference. Plus, the 911 was just more of a... M- It was bigger, it was wider, it was faster. You know, it was a more, it was more of a muscle car.

1:55:30 Is it fair to say that, um, then, and, and I think maybe even especially now with the Boxster and the Cayman, the Cayman is the hard-top model of the, of the Boxster, it's also a different kind of experience philosophy?

1:55:43 And it has-- over time, it has evolved even more significantly from '97. Now, the 911 is kind of playing more of a luxury car, like touring car role, almost, where, you know, with the special colors and the stitching and all that, and it seems like the more Porsche has focused more of its sort of true sports car efforts on those, the mid-engine cars, as they call them, the Boxster and the Cayman.

1:56:02 Yes, it's the entry-level Porsche, for sure, but it's also... It's not like you feel, like, crappy if you're buying one.

1:56:08 Right.

1:56:08 You're like, "Oh, you know, I'm buying the best version on the market-

1:56:11 Right

1:56:11 ... of this particular product."

1:56:13 Right. And it was mid-engine again, so you, it, it, you know, arguably, it was a-

Doug DeMuro 1:56:17 ... the correct place for it. It w- it felt like a true Porsche sports car. For the first time, Porsche's, you know, entry-level car felt like that in decades.

David Rosenthal 1:56:25 Yeah. So, uh, Wiedeking has this awesome quote about the strategy for this: "We didn't wanna flee from the competition into higher prices," meaning, like, not be in the entry-level market at all. He says, "We don't wanna be Germany's Ferrari. We don't wanna 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 like brothers-in-arms here. Like, they're targeting big markets. That is the strategy,

David Rosenthal 1:56:55 but they're targeting them in a Porsche way. So Wiedeking, like, 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. [laughs] And this-- I mean, I, even as, like, a teenager at the time, I, not being that much of a car guy, but I just remember people being like: Porsche's making an SUV.

Doug DeMuro 1:57:17 An SUV. [laughs]

David Rosenthal 1:57:17 Have these people lost their freaking minds? Like, who, who on Earth would buy a Porsche SUV?

Ben Gilbert 1:57:24 Also, I gotta say, like, maybe all cars were kind of ugly in this period, but I remember when I looked at the first Cayenne-

David Rosenthal 1:57:30 [laughs]

Ben Gilbert 1:57:30 ... I was like, "So it's like a Toyota?"

Doug DeMuro 1:57:33 It wasn't the most attractive car, there's no question about that. Everybody hated the design language.

Ben Gilbert 1:57:37 [laughs]

Doug DeMuro 1:57:37 And you know what? It's been twenty years, it has not grown on me at all. [laughing]

David Rosenthal 1:57:41 [laughing] Yeah, the Macan looks really good, I think.

Doug DeMuro 1:57:43 The, the new, the new Cayennes look great, too, honestly. The-- ever since they redesigned it in 2011. But those early Cayennes, you see 'em now, and you're like, "Still ugly." [chuckles]

Ben Gilbert 1:57:49 It also just doesn't look like a Porsche to me.

Doug DeMuro 1:57:51 Yeah.

Ben Gilbert 1:57:51 Like, there's not enough that's brought through from the heritage of the... How do you describe the back on a nine 11?

Doug DeMuro 1:57:57 Right, that's sort of like sloping-

David Rosenthal 1:57:59 The fastback.

Doug DeMuro 1:57:59 What happened was the Cayenne was an interesting situation because Porsche was kind of a first mover. They weren't exactly. Mercedes came out with a SUV first in nine-- for the ni- 1998 model year called the M-Class, which was a-- that was a revolution, and 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, and it was like, "Oh, so not only can luxury brands build SUVs, but they're sporty." So Porsche comes out in '03. I mean, they beat Audi. Audi didn't come out with an SUV till '07. Porsche was there, like, early, early, early. So but the problem was Porsche had no clue. Because they were early, they had no clue what to do. And so I remember at Porsche talk-- when I worked there, talking to some of these people about the early Cayennes, Porsche literally didn't know what to offer in a SUV, to the point where they actually, uh, legitimately asked some of their American employees: Do we need to offer gun racks as an option for the American market?

David Rosenthal 1:58:58 Yes.

Doug DeMuro 1:58:58 They just didn't know.

David Rosenthal 1:58:58 I read this. This is so great.

Doug DeMuro 1:58:58 They literally... They were only building sports cars, and they just-

David Rosenthal 1:59:01 [laughs]

Doug DeMuro 1:59:01 ... they had no concept, no concept of, like, what people would want and what-- The early Cayennes had an optional spare tire on the back, like, like Jeep Wranglers do.

Ben Gilbert 1:59:09 [laughing]

Doug DeMuro 1:59:09 Like, you could get that, and you still see 'em run around in it.

David Rosenthal 1:59:11 Part of this was a cultural, you know, German thing, for sure, but, uh, like, not understanding America, but, um, I don't think anybody understood... Like, I don't think there were any super expensive SUVs on the market at the time.

Doug DeMuro 1:59:22 The only ones were Land Rover, but they were focused so far on off-roading. But part of the reason the Cayenne was ugly when it first came out is because Porsche decided, "We're Porsche. We're gonna do it best." And so they come out with an SUV that is both amazing on-road and off-road, and the early Cayennes actually have an unbelievable off-road capability. They have d- a two-speed transfer case. They can go high/low gearing off-road. They have air suspension that can lift 'em up and lower 'em. They had all this off-road hardware that, like, you would never put in a luxury performance SUV now. But because Porsche didn't know what customers would want, they decided to give 'em everything, and so the result was it was a big, bulky, heavy car to carry all this hardware, and so it looked-- The, the l-- It, it just wasn't-- It didn't-- It wasn't executed that well from a styling perspective, but from every other perspective, it was a hit.

David Rosenthal 2:00:06 Yeah. I think a few things to say about it. There wasn't anything else that was like a, "I can spend a hundred thousand dollars on an SUV."

Doug DeMuro 2:00:15 Right. This was before the days of an Escalade even. Cayenne came out in '03. Escalade came out in '99, so it was, it was... The Escalade was ahead.

David Rosenthal 2:00:21 But Escalades were, like, forty, fifty grand, right?

Doug DeMuro 2:00:22 And they were just-- At that time, they were just Tahoes that looked nice. Like, now Escalade has become a real thing, but at that time, it wasn't... Porsche was really pushing into some new territory.

David Rosenthal 2:00:31 Yeah.

Doug DeMuro 2:00:31 Like, it was a crazy decision.

David Rosenthal 2:00:32 And SUVs were becoming so important in America. I think there were just, like, 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 a hundred grand on?"

Doug DeMuro 2:00:44 Boom.

David Rosenthal 2:00:44 "Like, hell yeah, take my money!" [laughs] You know?

Ben Gilbert 2:00:46 And also, there, there's a practicality of, I kinda need a minivan, but I don't wanna drive a minivan, and so I'm driving this new emerging class of SUV, but if I have money, I kinda want the Porsche version of that thing.

Doug DeMuro 2:00:58 Totally, and, and 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 Rosenthal 2:01:06 Right, they have families.

Doug DeMuro 2:01:07 Right. And so, and, and, and by the way, with those families, they're buying an X5, and it's like, "Why don't we?"

Ben Gilbert 2:01:12 Right.

David Rosenthal 2:01:13 Yeah.

Ben Gilbert 2:01:13 And 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 gonna borrow against their brand equity."

Doug DeMuro 2:01:23 Right.

Ben Gilbert 2:01:23 Like, this is gonna drain the bucket, not add new love to the brand bucket. And 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.

Doug DeMuro 2:01:42 Yeah.

Ben Gilbert 2:01:42 It has increased the love for the brand.

David Rosenthal 2:01:44 I think 'cause at the same time, and just before, they had given a huge shot in the arm back to the performance with the Boxster and the nine nine three, nine 11, and then also done the SUV, wh- which they partner with Volkswagen, with Ferdinand Piëch. [chuckles] Uh, it kinda makes peace, uh-

Doug DeMuro 2:02:03 Oh, I didn't know that

David Rosenthal 2:02:03 ... between the two companies.

Doug DeMuro 2:02:04 So Piëch is running Volkswagen at the time-

David Rosenthal 2:02:05 Yeah

Doug DeMuro 2:02:05 ... comes out with the Touareg, which was Volkswagen's SUV, and that's the, that served as the basis for the original Cayenne.

Ben Gilbert 2:02:11 Really?

Doug DeMuro 2:02:12 Yeah.

Ben Gilbert 2:02:12 Oh.

David Rosenthal 2:02:12 Porsche starts a new, whole new production facility in a new part of Germany, in Leipzig, uh, to make it, and then ultimately, shortly thereafter-... makes this car-

Doug DeMuro 2:02:23 The Carrera GT.

David Rosenthal 2:02:23 At the same-

Doug DeMuro 2:02:24 And, you know-

David Rosenthal 2:02:25 -production facility.

Doug DeMuro 2:02:25 That's right. They were built in the same place, and, you know, I think that goes back to the point you just made, that Porsche, the, the SUVs, yes, you'd think you come out 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. But Porsche always made sure to be making other cool stuff, and to keep coming out with other cool stuff, reinvest in the performance, like you said. And so they used this new factory that Cayenne was built in to also create this supercar, and that was important. It really showed people, "Hey, they might be making an SUV, but they're also making this, so they're legit. They're, like, still-"

David Rosenthal 2:02:57 For the people who are just listening to the audio, this is [chuckles] the Carrera GT sitting behind us.

Doug DeMuro 2:03:01 The Carrera GT.

David Rosenthal 2:03:02 So, okay, we've alluded to this amazing machine behind us. Like, what is this thing?

Doug DeMuro 2:03:06 The Carrera GT, in my mind, is the greatest driving car ever built, and a lot of people actually say that. I, it, it's not objective by any means, but a lot of people who have driven, you know, this and a lot of other cars kind of 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, um, like you'd get in a modern car: stability control, traction control, that sort of stuff is either nonexistent or heavily dialed down. Full carbon fiber body. Like, no expense was spared, basically. And the coolest part was that the powertrain, which is a big V10, was shared with... Initially, it was developed for Formula 1 racing, and then it was evolved to Le Mans racing, and in neither cases did it ever actually see the light of day. They created a Formula 1 engine. It didn't work out.

David Rosenthal 2:03:50 It's a little bit like the original 911 engine-

Doug DeMuro 2:03:52 Yeah

David Rosenthal 2:03:52 ... that Ferdinand Piëch designed for racing-

Doug DeMuro 2:03:54 The-

David Rosenthal 2:03:54 -but then only made it into the-

Doug DeMuro 2:03:56 Right. It- that's exactly like that. The crazier thing here, though, being in that time, you could do that 'cause there were no emissions regulations.

David Rosenthal 2:04:02 Right.

Doug DeMuro 2:04:02 The concept of taking a race car engine today and putting it into a road car is just nonexistent. Like, to get a Le Mans or Formula 1 engine homologated for road use is just, like, mind-blowing. So that's the, that's the cool thing. And, and this car has, um, it originally came out, you know, in this era, and, and was thought of as cool and special and whatever, but its legend has sort of grown since then as sports cars have moved away from some of the things that made this car so special, specifically this analog feel. You know, all exotic cars now are automatics and hybrids and all that sort of thing, and this was kind of the end of the end.

David Rosenthal 2:04:34 My sense is this car, too, has a reputation, partly because Paul Walker died in it-

Doug DeMuro 2:04:39 Yes [chuckles]

David Rosenthal 2:04:40 ... of like, unlike a lot of Porsches and the 911, like, this is something that you need to be-- really know what you're doing to operate this thing.

Doug DeMuro 2:04:49 Yeah.

David Rosenthal 2:04:49 You can't-

Doug DeMuro 2:04:50 It has-

David Rosenthal 2:04:50 Like, if you let it get away from you, it'll kill you. [chuckles]

Doug DeMuro 2:04:53 Yeah, it has a reputation for being difficult to drive, which I think is somewhat unfounded, but also at-- especially by modern standards, cars have gotten so much more powerful than this. You know, a new Audi RS 3, which is just an Audi su- high-performance Audi sedan that you can buy for 65, $70,000, it's faster than this car zero to 60. [chuckles] Like, it's not that crazy by modern standards, but at the time, it certainly was something.

David Rosenthal 2:05:15 Yeah.

Doug DeMuro 2:05:15 Um, and-

David Rosenthal 2:05:15 But I guess, like, today, cars, like, there's so much s- stuff, technology in cars-

Doug DeMuro 2:05:21 To keep you from doing dumb stuff

David Rosenthal 2:05:21 ... that is designed to keep you from-

Doug DeMuro 2:05:23 Yeah

David Rosenthal 2:05:23 ... like, doing stupid stuff.

Doug DeMuro 2:05:24 And that this car was kind of the end of that era, and I think that's why it's so special. It was, like, the last of these cars that really you could get into trouble. [laughing] Like, you could... And, and Paul Walker died in one, um, and there were some other deaths, too, that weren't quite as high profile, but there were some serious, um, accidents, and, and some people died in them, and, and maybe still will. You know, I don't-- it's, it's still out there, and it's still a dangerous car. [chuckles]

Ben Gilbert 2:05:47 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.

Doug DeMuro 2:05:55 Right.

David Rosenthal 2:05:56 It's like a-

Ben Gilbert 2:05:56 It's really weird

David Rosenthal 2:05:57 ... it's like a artist. It's like paintings.

Ben Gilbert 2:05:58 Yeah.

David Rosenthal 2:05:58 [chuckles]

Doug DeMuro 2:05:59 I think that car people had always known the car had kind of this reputation.

David Rosenthal 2:06:02 There were, like, lawsuits against Porsche about this car.

Doug DeMuro 2:06:04 Porsche got sued, yeah. It... One went to jury trial. Porsche was found liable, at least partially liable.

David Rosenthal 2:06:09 Wow.

Doug DeMuro 2:06:09 And, and that's a big deal [chuckles] if you're an automaker, 'cause they got 1,300 of these out there. [chuckles]

David Rosenthal 2:06:13 Right. Right, right.

Doug DeMuro 2:06:13 You find liable on all of them-

David Rosenthal 2:06:14 'Cause production was, um... And, and this is the value of the car now. Like, production was initially intended to be higher than-

Doug DeMuro 2:06:21 Yeah

David Rosenthal 2:06:21 ... it ended up being. They stopped it early, and so-

Doug DeMuro 2:06:23 They had a-- they had some, 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, and 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 '08, '07, '08, you could get them for 250 all day long, and now you can't. There's-- they don't exist under a million dollars. [chuckles]

David Rosenthal 2:06:45 Wow.

Doug DeMuro 2:06:45 It's a crazy thing.

David Rosenthal 2:06:46 Wow.

Doug DeMuro 2:06:46 Should've all invested in Carrera GTs. [laughing]

Ben Gilbert 2:06:48 [laughing]

David Rosenthal 2:06:48 Could have bought Apple stock or Carrera GTs.

Doug DeMuro 2:06:51 [laughing]

David Rosenthal 2:06:51 Carrera GT would be a lot more fun to own, though, right?

Doug DeMuro 2:06:54 Yeah, you probably don't need seven of them or whatever.

David Rosenthal 2:06:55 Right, right.

Doug DeMuro 2:06:55 But it would have. They all completely took off.

David Rosenthal 2:06:58 Wow. I- it's funny, I thought that this, you know, was gonna be a fun little digression about the Carrera GT, but I realize 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.

Doug DeMuro 2:07:18 Yeah.

David Rosenthal 2:07:19 Um, and to do it on the same production line as the SUV.

Doug DeMuro 2:07:21 It, it also had that effect. It also helped legitimize that facility because up until that point, except for the ones built in Austria, all the Porsches had been built in Stuttgart, in Zuffenhausen, in that factory, that same factory for all these years. And so this car helped legitimize, like, "Oh, we might be making a factory in East Germany where we're building SUVs, but we're not straying too far. We're still doing our thing."

Ben Gilbert 2:07:40 So 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 and clutches, and ways that you could tiptoe into participating in the brand story, they were also releasing $100,000, $200,000 special handbags that were new products or new collaborations with other designers that sort of told you, "No, we're still Louis Vuitton. We all-- we just have this other way to be a part of our brand."

Doug DeMuro 2:08:09 Right.

David Rosenthal 2:08:09 Yeah.

Doug DeMuro 2:08:09 Right, and Porsche would go on to do it again, which I'm sure we'll talk about shortly.

David Rosenthal 2:08:13 Oh, yes. So on the back of this, like, incredibly bold plan and turnaround and success by Wiedeking, I mean, he becomes a legend, and Porsche goes from death's door, less than 400 million euro market cap when he takes over, to-... by 2007, Porsche's market cap is 32 billion euros. [chuckles]

Doug DeMuro 2:08:37 Crazy.

David Rosenthal 2:08:37 Yeah, a better investment than a Carrera GT, in fact. [laughs]

Doug DeMuro 2:08:40 So they never had to have any, like, help once they scraped that bottom of whatever-

David Rosenthal 2:08:45 Nope

Doug DeMuro 2:08:45 ... it was, $400 million market cap?

David Rosenthal 2:08:47 Nope.

Doug DeMuro 2:08:48 Or 400 million euro.

David Rosenthal 2:08:48 Porsche is saved. It w- it will be independent forever. [laughing]

Doug DeMuro 2:08:52 [laughs]

David Rosenthal 2:08:52 The families will never have to sell. That equity research analyst can eat his words.

Doug DeMuro 2:08:59 [laughs]

David Rosenthal 2:09:01 No, not quite. Uh, there's another chapter to the story.

Doug DeMuro 2:09:04 So that's 100X market cap growth. Is that right?

David Rosenthal 2:09:08 Yep.

Doug DeMuro 2:09:08 Did you say-

David Rosenthal 2:09:08 Yes

Doug DeMuro 2:09:08 ... 300 million to 32 billion?

David Rosenthal 2:09:10 Yes, that is 100X market cap growth in a decade.

Doug DeMuro 2:09:14 Occasionally, there are these hundred baggers available in the public markets.

David Rosenthal 2:09:17 [chuckles]

Doug DeMuro 2:09:17 And, like, you only know about them looking backwards, but, like, it's crazy. You don't have to be an early-stage venture capitalist to find these. They exist elsewhere-

David Rosenthal 2:09:25 And it was Porsche

Doug DeMuro 2:09:25 ... sometimes.

David Rosenthal 2:09:26 Porsche.

Doug DeMuro 2:09:26 And it was Porsche, of all things.

David Rosenthal 2:09:27 Of all things.

Doug DeMuro 2:09:28 It- oh, I suspect in most of these cases, though, to take advantage of it, you would've had to have kind of been insane. Like, to have invested in-

David Rosenthal 2:09:33 Yes

Doug DeMuro 2:09:33 ... Porsche at that point, you would've been nuts.

David Rosenthal 2:09:35 Even if you had told a person in 1993, "Hey, this guy's coming in, he's gonna kill the entry-level stuff, go back to doing entry-level stuff, and then do an SUV," you'd be like, "Uh, how do I get out of this stock?" [chuckles]

Doug DeMuro 2:09:49 [chuckles]

David Rosenthal 2:09:49 "Like, where do I sell?"

Doug DeMuro 2:09:49 Well, especially 'cause he was the fourth CEO or whatever-

David Rosenthal 2:09:51 You're right. Right

Doug DeMuro 2:09:52 ... and it wouldn't have been, "Oh, yeah, I don't wanna be any part of that."

David Rosenthal 2:09:53 Clutching at straws, it would seem, but, uh-

Doug DeMuro 2:09:55 It's like buying Amazon in 2001 or '02, when things looked the absolute bleakest. Like, that's how you could've gotten 100 bagger on the public markets, uh, maybe even 1,000 at this point. But, like, come on, who would've actually done that?

David Rosenthal 2:10:07 Who would've done it? Yeah, and the 32 billion euro market cap, it's not crazy because by this time, Porsche is doing almost 2 billion euros a year in operating profit.

Doug DeMuro 2:10:18 Turns out these SUVs and making only supercars, uh, is a very profitable... A lot of margin there.

David Rosenthal 2:10:25 And China was starting to take off at this time, too. So the final sort of chapter to the Wiedeking, uh, era on the [chuckles] product, production side, was the Panamera, the sedan. Porsche makes a sedan. Now, Doug, I'm curious to hear your thoughts on the Panamera. I had always also been like, "Porsche made a sedan? It's kind of weird. It looks kind of weird." Um, I think from doing the research now, I think a large part of the intention of it was to really target the China market, and it became successful globally, too. But I think the Panamera, and the Cayenne, too, really helped Porsche enter China.

Doug DeMuro 2:11:05 No question. Looking back, that has become especially true as Porsche's business and all luxury brands' business have grown in Asia. At the time, though, I think they just-- they had an SUV. They had done that, so it was like, "All right, you know, sedan is the next, the next place we want to compete. Let's, let's replicate the success we had in the SUV."

David Rosenthal 2:11:20 And 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, like, "Let's have a pull- a full product suite, just like everyone else"?

Doug DeMuro 2:11:33 Probably that 100X, uh, growth. [laughing]

David Rosenthal 2:11:35 [laughs]

Doug DeMuro 2:11:36 Don't you think? I mean, 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 made us a ton of money. We got cash. Let's, like, go after, you know, 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 Rosenthal 2:11:55 Hmm. And honestly, it would've worked and, and did work. Uh, it was not what brought down the company, not at all. Like, you think, like, if you were naively following along, you might think, "Ah, and then they got too big for their britches, and you know-

Doug DeMuro 2:12:08 Right

David Rosenthal 2:12:08 ... they expanded the product strategy too much, and the brand came crashing." Like, no, no, no, like, this worked. Uh-

Doug DeMuro 2:12:14 Yep

David Rosenthal 2:12:14 ... and it, it, it worked beautifully, um, just ultimately, uh, under different ownership. [chuckles] So let's talk about, uh, 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, uh, spinning off cash flow and incentivizes reinvesting. At this point,

David Rosenthal 2:12:44 under Wiedeking, Porsche is doing everything they possibly can to reinvest in new models, new lines. Like, 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, so they start looking around for other places to put the cash. Now, at the time, there were rumors circulating in the auto industry that Volkswagen had their eye on Wiedeking, and they were looking to recruit him to be the successor to Ferdinand Piëch. We're now in-

Doug DeMuro 2:13:21 Worked the first time to- [chuckles]

David Rosenthal 2:13:22 [chuckles]

Doug DeMuro 2:13:22 ... pull together the-

David Rosenthal 2:13:23 Right

Doug DeMuro 2:13:23 ... best guy over at Porsche over. Let's do it again.

David Rosenthal 2:13:26 So I think, uh, Ferdinand Piëch 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 sort of 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, you know, kind of feeling himself here at Porsche, right? Like, uh, he's, uh... Hard to imagine a better run. He gets the idea. He kind of has, like, a, uh, sort of Justin Timberlake, uh, Social Network moment of, you know, "Million dollars isn't cool. You know, billion-

Doug DeMuro 2:14:02 [chuckles]

David Rosenthal 2:14:02 ... You know what's cool? A billion dollars." Being the CEO of Volkswagen isn't cool. You know what would be cool? If we, at Porsche, bought Volkswagen. [chuckles] I'll become the CEO of VW Group when I buy you. [laughing]

Doug DeMuro 2:14:16 [laughing]

David Rosenthal 2:14:18 Uh, but remember, though, Ferdinand Piëch is chairman and CEO of Volkswagen Group. He's also a Piëch. He's also on the supervisory board of Porsche because he's also a key member of the family that owns Porsche.

Doug DeMuro 2:14:36 Yeah, the-

Ben Gilbert 2:14:37 ... sitting active CEO of Volkswagen, as a family member of the Porsche Piëch family, has voting shares in Porsche?

David Rosenthal 2:14:47 Yes. [laughs] And is on the board, the supervisory board, of Porsche. So, uh, they thought they were done with the family drama here. It's, uh, uh, turns out there's, there's another chapter.

Ben Gilbert 2:14:59 So isn't it obvious then that it would be hard for Porsche to take over Volkswagen? Well-

David Rosenthal 2:15:04 Porsche, and thus the families, needed something to do with the cash, and at the time when they start this, VW shares are a pretty good investment. Like, they're not trading super highly. Like, it's pretty clear to them that it's undervalued, and VW is a critical partner to Porsche. So I believe, certainly, certainly to the public, and probably also to the families, Wiedeking positions this as like, "Hey, we're deepening the partnership." Uh, they don't announce like, "Hey, I'm trying to take over VW," [laughs] you know, "out of my seat at Porsche." September 2005, Porsche spends $4 billion to acquire 20% of the VW Group on the open market. Uh, it's kind of little creeping takeover vibes that you alluded to in the intro. At this point, Wiedeking and Porsche's CFO joins the Volkswagen board, and then they keep buying shares, but using another patented Bernard Arnault technique, they do it mostly using various derivatives and options contracts. So they're buying, like, the rights to buy shares in the future.

Ben Gilbert 2:16:14 And that's usually ways to get around regulatory stuff, right? Like, then you're not exceeding caps if you're buying derivatives rather than the shares themselves.

David Rosenthal 2:16:23 Yes, and in VW's case in particular, there was actually a law in, on the books in German law called the Volkswagen Law-

Ben Gilbert 2:16:31 Oh, yeah, this is crazy

David Rosenthal 2:16:31 ... 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, and it was considered sort of 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 [laughs] German auto company that would try to take it over. So it was impossible for, uh, an actual direct takeover to happen.

Ben Gilbert 2:16:56 I'm literally gonna read from the Wikipedia here because the Wikipedia is extremely well-written: "Under the Volkswagen Law, no shareholder in 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, and in July 2006, Porsche increased that ownership to more than 25%."

David Rosenthal 2:17:23 Yes, and part of the reason this all was able to happen is there was a lot of speculation that this German Volkswagen law, uh, 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. So it's- there's still the Porsche operating company, the old doctor, engineer, you know-

Ben Gilbert 2:17:50 AG.

David Rosenthal 2:17:51 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 Gilbert 2:18:01 And this is Porsche SE.

David Rosenthal 2:18:02 Porsche SE. Porsche SE Holding. And here's where things start to go awry. Wiedeking starts loading up the holding company with debt, 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.

Ben Gilbert 2:18:24 He's got Ferdinand Piëch signing off on this?

David Rosenthal 2:18:26 Right, like, why would Piëch go along with this? I think the best as I could figure out is that Piëch was not happy with the then current CEO of Volkswagen and was looking for a way to get his first successor out. So he, he... Clearly, he was trying to recruit Wiedeking, too, so, like, he was benefiting from this, too.

Ben Gilbert 2:18:46 Right, yeah.

David Rosenthal 2:18:47 He was gonna have his cake and eat it, too, I guess.

Ben Gilbert 2:18:49 Right. Head- heads I win, tails you lose.

David Rosenthal 2:18:52 Yep. So as Porsche is 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. 'Cause remember, the German state of Lower Saxony still holds 20%. Porsche now owns more than 50%.

Ben Gilbert 2:19:15 'Cause they had kept buying after that 25%, using all the cheap debt, and they got all the way up to 50%?

David Rosenthal 2:19:23 Right. So that only leaves 30% left. Then you've got all the insiders, like, you know, Piëch and everybody else, like, who knows how much equity they hold, plus maybe some long-term holders or funds that aren't gonna sell. The amount of VW shares trading hands on the open market shrinks to pretty close to zero. Um, we know that, you know, markets are supply and demand, uh, just like this car sitting behind us. [laughs] If there's not a lot of supply available, prices are gonna go up.

Ben Gilbert 2:19:49 Didn't they go up so much that Volkswagen, like, briefly became the most valuable company by market cap in the world?

David Rosenthal 2:19:56 Yes, they did. [laughs] So as all of this is happening, Lehman Brothers collapses. [laughing]

Ben Gilbert 2:20:04 [laughing]

David Rosenthal 2:20:04 Which this is... You know, this is the black swan event that Wiedeking couldn't have predicted. Like, he's not dumb. He knew he was taking risks here, but like-

Ben Gilbert 2:20:11 Yeah.

David Rosenthal 2:20:12 So Lehman Brothers collapses, and it's crazy what happens. So 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 Volkswagen. You get a short squeeze that happens, and the stock just goes through the roof, like-

Ben Gilbert 2:20:33 'Cause there's all the demand for borrowing the shares-

David Rosenthal 2:20:35 There's all the demand for borrowing

Ben Gilbert 2:20:35 ... to do the short selling.

David Rosenthal 2:20:37 So you would think that this is, like, 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 seventy-five percent in order to consolidate VW's financials into-

Ben Gilbert 2:20:53 Ah.

David Rosenthal 2:20:53 - Porsche. And so they had announced that their intention was to buy up to-

Ben Gilbert 2:20:56 Right

David Rosenthal 2:20:56 ... that threshold-

Ben Gilbert 2:20:57 Right

David Rosenthal 2:20:57 ... and to get there. So you'd think this is great, but this is terrible. This is the undoing of Porsche and Wiedeking, because they've got this debt. Lehmans just happened, so, like, clearly they're not gonna be able to refinance any of that. And yes, VW's share price is in the stratosphere, but it's not sustainable, because if Porsche were to start to sell any of their shares, which they're gonna have to to service the debt really soon, the share price is gonna completely crater. Because, like, this is, this is, like, an artificial price. It's just 'cause of the short squeeze that it's that high. So Porsche now is, like, 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. Uh, so they're just kinda, like, stuck in stasis at this point in time.

Ben Gilbert 2:21:48 Why can't they sell? 'Cause if they sell, they get a bunch of cash by not liquidating that many shares 'cause it's so valuable, and-

David Rosenthal 2:21:56 They're not gonna be able to sell that many shares at this price before the, the price craters.

Ben Gilbert 2:22:00 Oh, I see. Right. So they basically can't get-

David Rosenthal 2:22:02 'Cause who's gonna be buying? Lehman just happened.

Ben Gilbert 2:22:04 Right. Wow, fascinating.

David Rosenthal 2:22:07 So at this point, Piëch, [laughing] Ferdinand, good old Ferdinand-

Ben Gilbert 2:22:12 Who hasn't moved a single piece on the chess board yet.

David Rosenthal 2:22:14 No, he's just been watching.

Ben Gilbert 2:22:16 He's just been sitting there.

David Rosenthal 2:22:16 He's on the Porsche board, and he is still chairman of the VW board.

Ben Gilbert 2:22:19 [laughing]

David Rosenthal 2:22:19 He's no longer CEO, but he's still chairman of VW. This is when he turns on Wiedeking. So he and Volkswagen announce publicly to the market that they no longer believe that Porsche is a financially viable entity. [laughing] Uh, because-

Ben Gilbert 2:22:37 As a deep, trusted partner of Porsche-

David Rosenthal 2:22:39 Yeah. [laughing]

Ben Gilbert 2:22:39 ... we believe.

David Rosenthal 2:22:40 And, uh, they say that they have to say this because Porsche is a greater than fifty percent, you know, owner of VW, and so they, you know, have to disclose this to the market.

Ben Gilbert 2:22:50 [laughing]

David Rosenthal 2:22:50 Um, and that as a result of this extraordinary circumstance, VW, led by Ferdinand, is willing to bail out [laughing] their partner, Porsche, and save them by purchasing the Porsche operating company for, eh, in the neighborhood of three to four billion euros to, you know, get them out of this predicament.

Ben Gilbert 2:23:13 Wait, and then just to unpack the statement a little bit more, what he's basically saying, uh, to, like, make it more explicit, is, "A key partner of ours went so deeply into debt-

David Rosenthal 2:23:27 To try and buy us

Ben Gilbert 2:23:27 ... buying our shares-

David Rosenthal 2:23:29 Yes

Ben Gilbert 2:23:29 ... that they can't service that debt and are now about to be insolvent and default on loans."

David Rosenthal 2:23:35 Yes.

Ben Gilbert 2:23:35 "So therefore, we will help them out by," what is it? Buying them for...

David Rosenthal 2:23:41 They, they floated a price of three to four billion euros, which remember, like, a couple months ago, this company-

Ben Gilbert 2:23:46 Was 10x that

David Rosenthal 2:23:46 ... Porsche was trading at 10x that.

Ben Gilbert 2:23:49 Whoa! This is literally Ferdinand saying to Wiedeking, "If you come at the King, you best not miss." [laughing]

David Rosenthal 2:23:59 You best not miss. [laughing]

Ben Gilbert 2:23:59 Yes.

David Rosenthal 2:23:59 This is exactly what is going on. Yeah. Whoa, indeed. [laughing] So there's a whole flurry of negotiations. You know, this is all against the backdrop of it being October 2008.

Ben Gilbert 2:24:10 Oh, right. Yeah.

David Rosenthal 2:24:11 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, I mean, he kinda deserves. Even though, like, all of this craziness, he did go a bridge too far, like-

Ben Gilbert 2:24:29 He's-

David Rosenthal 2:24:29 ... he did save the company. VW does end up buying Porsche, the operating company, in two tranches over three years. They buy fifty percent upfront. Three years later, in 2011, um, they complete the purchase. It ends up being about eight-and-a-half billion euros total. So between that opening volley-

Ben Gilbert 2:24:47 Oh, my God

David Rosenthal 2:24:48 ... of three to four and the-

Ben Gilbert 2:24:50 Thirty-two

David Rosenthal 2:24:50 ... thirty-two, it lands at eight-and-a-half. What's even crazier about this, the undisputed, hands-down, you know, home run winner in everything is, of course, the Porsche and Piëch families and Ferdinand. [laughing] They emerge as the largest shareholders, the families personally, in VW Group.

Ben Gilbert 2:25:15 So Porsche SE, this new holding company they created that was buying VW shares-

David Rosenthal 2:25:20 Yep, already owned fifty percent of VW, and then VW paid eight-and-a-half billion dollars to buy Porsche. So the families own fifty percent of VW, and they just got eight-and-a-half billion dollars for Porsche. So they already were pretty high up there in the rankings, but after this transaction, they are now in the top, call it, 15 wealthiest families in the world.

Ben Gilbert 2:25:45 Oh, my God. [laughing] So post both tranches, uh, after Porsche AG, the operating company, is fully owned by VW, what does the family own?

David Rosenthal 2:26:00 Thirty-two percent of the VW Group, which remember now also owns Porsche, but they have over fifty percent of the voting power, so they control [laughing] VW Group. [laughing]

Ben Gilbert 2:26:11 It's so crazy. VW, the company, bought Porsche, the company, but really, Porsche, the family-

David Rosenthal 2:26:18 [laughing]

Ben Gilbert 2:26:19 ... owns it all.

David Rosenthal 2:26:19 Owns it all, and they just got an eight-and-a-half billion dollar cash out.

Ben Gilbert 2:26:23 Wow.

David Rosenthal 2:26:24 Yeah. Crazy! So here's the thing now. We're now in 2011, when the second tranche of the buyout happens. Um, you know, we're deep in the great financial crisis and the recession. Um, Porsche, the business, it's fine. The drama is all around Porsche, the hedge fund, [laughing] you know, and the financial shenanigans.... um, and the families. The actual operating business, the cars, sales are fine. Porsche has one down sales year, only one, during the financial crisis. Um, and then everything else is, is up. A, a big part of that is the investment in China. Uh, and China starts really, really growing through the early 2010s for Porsche. Also, this is when they come out with the 918 Spyder. Um, 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." [chuckles]

Doug DeMuro 2:27:24 Yeah, and the 918 helped to introduce, um, like plug-in hybrid technology, which Porsche knew it would be going in that direction, and so the 918 was like a-- Like example we were talking about before of how they, like, covered the Cayenne with the Carrera GT by saying, "We're still doing this," the 918 helped them say, "Hey, we're gonna make hybrids," which was viewed as this, like, cheap, you know, like, little car, the Prius. And so you think of, "Well, here's a hybrid, and we're gonna do hybrids, but we're gonna start top down with this crazy, crazy supercar."

Ben Gilbert 2:27:53 Talk about supercars for a minute, 'cause I think it's important to understand, like, they don't always make a supercar, right?

Doug DeMuro 2:27:58 Right. It's like a once in every 10 or 15-year cycle they're making one, but it's a very-- Yeah, it's a rare and special thing that they do it. And it seems to be they do it only to kind of prove something or prove a technology. Like the 959 was all-wheel drive, and this car was kind of this new production facility, and, and the 918 was the plug-in hybrid technology.

Ben Gilbert 2:28:15 And how many years do they make them for when they decide they're gonna do it?

Doug DeMuro 2:28:18 It's a short model run. So this car, they made 1,270, which is considered a lot for a supercar. The 918, they only made 918 units, and in fact, that was considered a lot for a supercar. Its biggest rivals at the time, uh, which were the McLaren P1 and the LaFerrari, they didn't combine to make 918 of those.

Ben Gilbert 2:28:33 Wow.

David Rosenthal 2:28:33 Mm. But the, the 918 Spyder is what? A two million dollar car?

Doug DeMuro 2:28:39 These days. Yeah, it was, it was-- new, it was like nine hun- 900 or so, maybe a million after you got a bunch of stuff, and it's double.

David Rosenthal 2:28:45 [chuckles]

Doug DeMuro 2:28:45 It's done well.

David Rosenthal 2:28:46 Por-

Doug DeMuro 2:28:46 All the supercars have done well. [chuckles]

David Rosenthal 2:28:47 Well, I bet, I'm sure you'll talk about this in a minute, but, um, Porsche is the master just of, like, you-- There is a base price-

Doug DeMuro 2:28:55 [chuckles]

David Rosenthal 2:28:55 ... but you're not gonna spend the base price.

Doug DeMuro 2:28:57 Right.

David Rosenthal 2:28:57 You're gonna spend, like, 40% more than the base price.

Doug DeMuro 2:28:59 Right. But even at, even if you figure at the base price was, like, 900 grand, they made 918. You do the math. Doing a supercar is real money to be made fairly quickly, as opposed to a Cayenne that's a long tail, and you make them over a long time to spread out the costs and all that.

David Rosenthal 2:29:13 Yeah.

Ben Gilbert 2:29:13 And so this supercar was a plug-in hybrid. I don't think I ever knew that.

Doug DeMuro 2:29:16 All, all supercars are now. But the 918 Spyder was Porsche saying, "We're gonna go into this plug-in world," 'cause they knew what was coming up. I mean, we'll get to in a second with the Taycan, but they knew what was coming up, that hybrids and electric cars were gonna be a thing.

Ben Gilbert 2:29:28 Where it's, uh-

Doug DeMuro 2:29:29 And so instead of introducing that with a, with a SUV, for example, which is where the, they should have, right? Because that's where the market wants it. They said, "No, we're gonna do it with a supercar and show people we're gonna do it, and we can do it well, and then we'll trickle it down."

David Rosenthal 2:29:40 What did the car world think of that?

Doug DeMuro 2:29:42 It's important to keep in mind that 918 Spyder, uh, being a plug-in hybrid, it had a electric component, but it also still had a massive V8 in it that had a zillion horsepower, screaming and all that, you know? And it was the same with the LaFerrari and the McLaren P1. They still had massive engines also, so it was fine. It w-- The, the next crop of, of supercars will probably be full electric, and so that transition, I think, is gonna be more controversial. The interesting thing that's setting-- seems to be setting Porsche apart now, though, is that they're, um, standing behind it. Ferrari has already said that the technology is old, all the plug-in stuff, we don't want to be any part of the LaFerrari.

David Rosenthal 2:30:12 Oh.

Doug DeMuro 2:30:13 And so, like, no one's really sure how that's gonna age. [chuckles]

David Rosenthal 2:30:16 Oh, those are-

Doug DeMuro 2:30:16 Porsche-

David Rosenthal 2:30:16 -gonna be orphaned cars.

Doug DeMuro 2:30:17 [chuckles] Exactly. And-

David Rosenthal 2:30:18 Orphaned multimillion-dollar cars.

Doug DeMuro 2:30:20 Yeah, exactly. It's a scary [chuckles] situation if you own that car, and the battery's gone. You don't know what to do. You go to the supplier. But 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. And so, like, this car is already almost 20 years old. All the parts are still available, that kind of-

David Rosenthal 2:30:35 Well, that's the smart brand thing to do, too.

Doug DeMuro 2:30:37 It is the smart brand thing to do, but it's not easy. Like, if you really think about it... F- plus Ferrari, they don't need to. They don't care. [chuckles] They're gonna make the next one and the next one. They c- they keep finding rich people.

Ben Gilbert 2:30:45 They only make, what? 13,000 cars a year at Ferrari?

Doug DeMuro 2:30:49 Yeah, it's a small operation. [chuckles]

Ben Gilbert 2:30:50 So, like-

Doug DeMuro 2:30:51 Ferrari just... They still don't really care about their customers all that much.

Ben Gilbert 2:30:54 What's the rule of luxury? Dominate your customer.

David Rosenthal 2:30:57 Ferrari was owned by somebody at some point, though, right?

Doug DeMuro 2:31:00 Yeah, there were all these-- Oh, God, Ferrari's story, that is a crazy one also. But the Fiat group eventually had stepped in 'cause Enzo had just driven the company to-- but in his pursuit of racing, had, like, driven [chuckles] the company into financial ruin.

David Rosenthal 2:31:11 It wasn't his pursuit of, you know, derivatives. [chuckles]

Doug DeMuro 2:31:13 [chuckles] No, it was quite different. It was actually a very Italian thing, versus the pursuit of derivatives is kind of a very German thing.

David Rosenthal 2:31:18 Yeah.

Doug DeMuro 2:31:19 But, um, yeah-

David Rosenthal 2:31:20 Wow

Doug DeMuro 2:31:20 ... that was a real bad situation also. All-- None of those companies are independent anymore. It's not, it's not really possible either because of the way that regulations are structured, um, especially fuel economy. You have to spread out your fuel economy over your corporation, um, and you have to hit certain targets.

David Rosenthal 2:31:34 Ah.

Doug DeMuro 2:31:34 And so actually, this, this in some senses may have worked out well for Porsche because, um, it would've been difficult to get Porsche to kind of work on the corporate average fuel economy standards because the, all their cars are kind of inefficient. But because they're under the Volkswagen umbrella, you can kind of get that whole spread-

David Rosenthal 2:31:48 Oh, okay.

Doug DeMuro 2:31:48 -and it, and it works a little bit easier.

Ben Gilbert 2:31:50 Well, 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, and here's Waseem now.

David Rosenthal 2:32:08 There is no right way to fund a company.

Speaker 2:32:12 So yeah, so this is something I feel really strongly about, and I understand why it happens. People really fetishize venture capital and venture capital-backed startups, and 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, and 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 at rates you're excited to grow. And-... Our first company was one we totally bootstrapped. It was right out of school. We were all, like, 22. We had graduated from MIT. We were all in the computer club together, and if we wanted to buy equipment or hire new employees, like, we had to first make money by selling our service to our customers [chuckles] And yeah, it was frustrating, but it actually instilled in us some really, really healthy discipline, and that's an instinct