Porsche: First Walks on Water, Now Drowns in Losses
The higher they fly, the deeper they drown: Last year, Porsche did the impossible and reported a gain on €8.5 billion before taxes on sales of €7.4 billion. The impossible was performed with derivatives. Now, those derivatives bite Porsche in the you-know-where: The Porsche Holding expects a loss of up to €5 billion before taxes for the 2008/2009 fiscal, which ends on July 31, Automobilwoche [sub] reports. This loss is “due to the planned sale of options on VW stock” (to the Sheik of Qatar). “Other losses are the result of the consolidation” of the Porsche books with Volkswagen. Says Porsche in a statement. Don’t worry, they’ll survive.
Amazingly, the liquidity of Porsche will actually improve. The banks will return approximately €1 billion that was used to secure the options. Then there will be money from Qatar. Not mentioned in Porsche’s statement, but clear for all who know German finances: A €5 billion loss will also result in a big refund of taxes paid in the prior year on the pornographic Porsche gains.
Nine days ago, Wendelin Wiedeking, under fire from all sides, pulled the last bogeyman out of his bag and threatened that that takeover by Volkswagen could cost €3 billion in additional taxes. BS, we said, “there are ways to circumvent this nasty detail.” You are looking at those ways. Looks like Volkswagen CFO Dieter Poetsch made some deft bookkeeping entries, resulting in the German government making a contribution to the deal.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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Just a microcosm of the world in general; making stuff doesn't make as much money any more as making money, without making stuff does. And a little thought will show that has got to clash with reality at some point.
Let's see. How does this game work? Year 1. Creative accounting results in reporting huge profit. Buying frenzy drives stock up -- company is doing great. Executives exercise stock options and sell into the buying frenzy making oodles of money. Year 2. Creative accounting results in reporting huge loss. Selling frenzy drives stock down -- company is having profit problems. Executives see huge opportunity to buy discounted stock at cheap prices. Year 3. Repeat year 1. Or perhaps I'm being a little too cynical of these things.
Color me a pessimist, but I'm getting concerned that maybe I should sell my beloved GTI before Porsche ownership sinks the entire (previously profitable) VW ship, and with it all dealer and parts support. [Cue avalanche of snarky comments about the supposed current lack of VW dealer and parts support.] Does anyone else think that swallowing POrsche may be a very bad idea on VW's part? They already own 4 premium brands with Audi, Bentley, Bugatti and Lamborghini. Do they really need a fifth premium brand in an era where the premium brands look like they may be headed for a long sales slump?
Well, that depends on the German Tax law and whether actually the profits posted in the last two years are in fact taxable. If they were, then Porsche would have paid huge amounts of taxes just on book gains. That seems unlikely. So, I would assume that the loss basically eats into the prior profits - without any tax effects then and now.