Tuesday, January 2, 2001
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Posted on: Tuesday, January 2, 2001

Porsche getting a boost from weak euro

Diverse strategy gives Porsche product development edge

Advertiser Staff and News Services

Few European companies may be better positioned to take advantage of the weak euro than Porsche, the famous sports-car maker.

The assembly line in Stuttgart, Germany, simply can’t run any faster. Demand for the two model lines, the 911 and the Boxster, is at record levels. And nearly half of the 49,000-car annual production is being shipped to the United States.

The strength of the U.S. economy alone would boost demand for Porsches, which are not for the bargain-minded. But the weak euro, the fledgling currency that Germany, France and 10 other nations have embraced, has helped the company hold the line on price while raking in profits.

For example, when Boxster, Porsche’s entry-level roadster, was introduced in late 1996, the U.S. base price was $39,980. For 2001, the base is $42,100 — just 5.3 percent higher. In Germany, Porsche has raised Boxster prices nearly 7 percent over the same period.

In Honolulu, demand for new models is strong enough for TheoDavies Porsche to open a new sales center in the first quarter of this year, said General Manager Garry Brechin.The location remains undisclosed pending negotiations, he said.

As an example of demand, Brechin said 20 customers are on a waiting list to buy new Boxsters, 911s and especially 911 turbo models. The turbos sell for $120,000 each. "I have 12 orders for turbos," he said, "and I normally only get five a year."

Brechin said currency-rate fluctuations have little effect on demand here because dealership prices are set in dollars at the start of the year. But he does see changing buying trends as a result of volatility in stock markets.

"Last year, people were coming in with all kinds of brokerage checks from Smith Barney or Schwab or other brokers," he said. "This year, that is not happening."

Porsche reported in November that after-tax revenue for the fiscal year ending July 31 was $183.3 million, up from $166.7 million a year ago, even though Porsche is investing heavily in a new model, a sport-utility vehicle, due in 2002.

"Yes, it’s nice," said Holger Harter, chief financial officer of Porsche. But he warned about too much of a good thing — that the euro could slide too far.

Worth more than $1.16 when it started 20 months ago, the euro is now worth about 90 cents.

Porsche expects the euro to recover over the next few years, which will put pressure on prices in the critical U.S. market. Unlike DaimlerChrysler and BMW, Porsche has not invested in U.S. manufacturing plants.

Instead, the company is using a two-pronged strategy. It is buying financial instruments that soften the blow of currency shifts. And for the long term, it is keeping manufacturing lean and flexible with low fixed costs, in case production must be cut.

"But we also want to avoid a fall down in demand in Porsche cars," he said. "So we are introducing new model lines."

In addition to the Cayenne SUV, Porsche plans several new derivatives of its top-of-the-line 911 sports car in the next two years. It also is considering production of the V-10 engine Carrera GT, a no-holds-barred supercar concept unveiled at the Paris auto show.

Many analysts believe that the SUV market has peaked and that Porsche is entering late. But Harter, who drives a Cayenne prototype, said the SUV will have a profitable niche, just like the 911 and the Boxster.

"The Cayenne will be a kind of sports car · with complete new driving abilities, with typical Porsche engines, with Porsche designs," he said. "No car at the present, even taking into account the X5 from BMW, will compare with the driving abilities."

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