VW, Porsche deepen production links despite stalled merger

Reuters: Facing a drawn out battle to complete their long-planned integration, Volkswagen and Porsche will forge ahead with tighter manufacturing links that could deliver hundreds of millions of euros in annual savings.

Unresolved tax and legal issues since the companies pledged to merge almost three years ago shifted the focus to operational integration. Porsche will start building its revamped Boxster roadster at a VW factory in Osnabrueck, Germany, in September and add a new version of the hardtop Cayman to the plant next year - the first Porsche models to be fully assembled at VW.

Porsche started sending engineers to Osnabrueck from its traditional Zuffenhausen base in Stuttgart last autumn to train staff at the mass-market manufacturer on how to assemble luxury vehicles. The sports-car maker is widely known for lean production techniques that companies including aviation group Deutsche Lufthansa and steelmaker ThyssenKrupp seek to emulate.

Production of Porsche models at the Osnabrueck facility will be restricted to vehicles that cannot be made at the Zuffenhausen plant for capacity reasons.

Surging demand for the overhauled 911, which shares an assembly line with the Boxster and Cayman, is causing bottlenecks at Porsche’s main factory, where capacity is limited to between 35,000 and 40,000 vehicles a year, Porsche sales chief Bernhard Maier told Reuters.



For VW, whose brands include luxury division Audi, operational integration doesn’t stop at handling overflow production of Boxster and Cayman models. The Wolfsburg-based car manufacturer already makes the bodies for the Cayenne SUV and Panamera sedan, Porsche’s two best-selling vehicles, at its plants in Bratislava and Hanover. The Cayenne is based on the same technology platform as the VW Touareg and the Audi Q7, while Porsche’s next model, the Macan compact SUV (to be sold from 2014), will share the same underbody as the Audi Q5.

VW and Porsche agreed to merge in August 2009 after Porsche, which produces fewer cars in a year than VW does in a week, racked up more than 10 billion euros ($12.61 billion) of debt in a botched attempt to buy its larger competitor. VW then turned the tables, acquiring 49.9 per cent of Porsche for 3.9 billion euros in December 2009.

Since the merger was dropped last year over pending legal risks from lawsuits by short sellers in the United States, relating to Porsche’s attempted takeover, the companies have been seeking ways to avoid a tax bill as high as 1.5 billion euros, which would kick in if VW were to buy the second half of Porsche before August 2014.