Acquired - Porsche (with Doug DeMuro)

0:00It's definitely Porsche. Porsche. Yeah, definitely don't say Porsche. Definitely don't say Porsche. The fans, because I met one of them at one point, they say more like, not like Porsche, but more like Porsche. But it's hard, I think it's a German thing, and I think it's difficult to, but so we all say Porsche. Yeah. If you say Porsche with a German accent, it comes out like Porsche. Yeah. So I think it's a more like, yeah, yeah, yeah, yeah. That's probably exactly what it is.

0:30Welcome to season 12 episode 6 of Acquired. The podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we tell the story of Porsche.

0:58If you liked our LVMH episode, you are going to 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.

1:27Of 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. Oh, yes. And if you like quirks and features, you're gonna be pumped about our partner in crime to help us tell this story, Doug Demiro.

2:12Doug 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. Thank you for having me. It's wonderful to have you here.

2:40Well, listeners, if you want to 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 slash 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 to set the stage a little bit.

3:05I think that even though it's a marketing phrase, the German engineering thing, it's worth sharing a little bit of history because it is more than just a marketing phrase. Right. 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 Schrodinger, Kurt Gadel, Albert Einstein, these are all German and Austrian scientists. And this tradition extends also, of course, to the auto industry. So it is very likely that the first gas-powered

3:55transportation 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 Sigfried Markus. And I say, probably because nobody really knows because Markus was Jewish and the Nazis destroyed all records related to him during the war. We're going to talk a lot about the Nazis here.

4:20in 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 Carl Benz. I recognize that name Benz. Indeed, you probably do as you most listeners. Now, around the same time, another German inventor named Gottlieb Diemler 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. Yeah. Yeah. Crazy. So Ben's and Daimler end up emerging in 1924 and that's Mercedes. Ben's is born. But okay, you might be asking, what does this have to do?

5:18with 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 doctor, engineer, honoris causa Ferdinand.

5:48Porsche now the whole doctor engineer honoris causa thing 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 wait the doctor Porsche is like doctor like the soos doctor Well, he had an honorary doctor He was already doing stuff, though. He was engineering and creating. Yes. Hence the honorary doctorate. Yes. Nonetheless, he definitely was a badass engineer. And we're going to talk about all of the things, the amazing things that this guy creates. But we also got to state this upfront, and this is good places, 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.

6:43and 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 we're going to glorify him and many of these other folks here of their business and engineering contributions, but that doesn't mean that these are good people, so keep that in mind. Yeah, this isn't one of those people that you hear, oh, well, at that point in time, the Nazis were so big and powerful, they just got coarse or they collaborated.

7:12No, this dude. No, he was a buddy. He was really nice. Yeah, he was definitely an Aussie. So when Ferdinand takes this 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 Doug, you probably have some more context on this. But Stuttgart is basically like the Detroit of the German auto industry. And it's certainly has become more that way since Porsche was as we'll get to because Mercedes Benz is there and it really does feel like manufacturing cradle, especially for cars. Yeah. And I think it's not even much like Detroit. It's not even just the car companies but all the suppliers and the subcontractors. Everybody you meet in Stuttgart just like when you go to Detroit works for Porsche, Mercedes Benz or a supplier or something like that. It is like the industry town. Yeah. So Porsche Ferdinand, it's not a short period of time. It's two decades that he is

8:09running the engineering and the car design for Mercedes-Benz. While he's there towards the end of his time, kind of 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 mass market automobile. Now, back in the US, there was the Model T and Henry Ford. That existed.

8:38But Ferdinand's vision is a small car. The Model T was a large car. It was like a modern small automobile that Germans everywhere can buy. Which was important because in Germany in that time, car ownership was not anywhere near 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 in mass at that point. So this really was a challenge to build a...

9:06car 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 rejects it. They're like, no, we can't do this. We make expensive cars for wealthy people. They get into a huge fight over this. And Ferdinand ends up leaving the company pretty acrimoniously in 1929.

9:31So much so that like and Doug you worked at Portia you have content like I think to this day the rivalry between Mercedes-Benz and Portia like there's some bad blood. It heats up and it cools down and there's there's more to discuss in that in the future for sure, but they ultimately do share that town too so like There's rivalry but like they're also you know you hang you have beers with the you know you can't avoid hanging out with Mercedes-Benz employees also love it So once he leaves Ferdinand bumps around for a little while And then in 1931, he starts a consulting firm to kind of advise other car companies, not landlord bands, but other car companies in Germany 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 doctor, engineer, honoris causa Ferdinand, Porsche, construction, and Bertungen, firm, motoren, and

10:28Farshan Bow. I apologize to any German speakers out there. But to be fair to you, it's a lot. It's a mouthful. I studied French in college, you know, like, and that translates as the doctor, engineer, honoris causa, Ferdinand Porsche, consulting and design services for motor vehicles company. And this is the beginning of Porsche the company and up until.

10:532008 and 2009, which we will get to much later in the episode. That is the company that makes Porsches. Yeah. Wow. 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 is all of his honorary things. 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.

11:22one Anton Piech. Remember that last name because it is also going to 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 Piech. You probably don't know about Adolf Rosenberger because shortly after they start the company, Rosenberger was Jewish and he gets arrested by the Gestapo.

11:50He gets imprisoned. He eventually bribes his way out and escapes to America, but during the war, Portia and the Nazis totally appropriate his stake in Portia, and he's written out of history. Wow. Okay, so this new Ferdinand company in 1934, they land one very, very, very large contract. That would go down in history, both for the company and the world.

12:20That contract would be to design Ferdinand's vision, the small affordable car for the people, 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.

12:46was Volkswagen which was established to do so by Adolf Hitler. I hadn't heard rumors over the years like oh yeah, there's like a Nazi connection here like Adolf Hitler founded Volkswagen. Yeah. It's bigger than a connection. Yeah. There's not a connection because it's the same person. The right is the thing. Yeah. Facebook, I feel like that has some kind of like Zuckerberg association, but I've never really put it together. Yeah. Yeah. Yeah. There's some, there's some link between Mark Zuckerberg and Facebook. I just got to say this early in the episode, we may as well like point it out already. It is crazy how comfortable we all are.

13:21Driving Volkswagen's and porches when it was like not just a little Nazi affiliated like founded by Nazis and yet the way the world has evolved like People kind of became okay with it all the German brands. I mean, you know most of them use Jewish labor and 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 and you know what generations have gone by also You less so on the porches side of things more so on the Volkswagen side of things as we'll see with the history here There is kind of like pretty incredible refounding of Volkswagen. Yeah. And after the war. And I think if it were not for this refounding that we'll talk about in a minute, it would not exist today. Yeah. But yeah, just wild. Bring it eight off Hitler. Yeah. 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? Probably. Yes.

14:19It is very hard to get actual production and sales data, especially for old cars. Especially for cars like the Beetle, which were produced in many countries over many years. I mean, they were building them 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 cars is cleared today. Yeah. And I am.

14:45I tried to think I could not think of any other model. I believe the beetle, the original beetle, was likely the single longest produced and largest, both in terms of length of time and number of units produced of a single generation model of Congress. Like the Civic, the Mustang, the F-150.

15:08I don't think so. Yeah, but those aren't the same cars. Right. The beetle was the same freaking car until the new beetle in 1998. And 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 in Germany at the time, it's like a real, you know, important practical family car. This original Volkswagen, the Hitler Volkswagen.

15:35One of the things you can do when you start a company as a fascist dictator, uh, you can create a new city to house this company in 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 what they wanted to call them.

15:55the beetle originally. The straight through joint car. That was like a Nazi strength through joint. Didn't get much more German than that. Yeah, yeah. And this is Wolfsberg. Like this is the city that Volkswagen is still located in today. Hitler created it. 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 Wolfsberg. All out of Wolfsberg. So Hitler creates Wolfswagen. He creates Wolfsberg.

16:24They do start production of the beetle before World War II starts. They only make about 200 units. These are super rare today. You find a pre-war beetle. Then World War II begins in September 1, 1939, as you would expect Volkswagen, all the Volkswagen Porsche operations.

16:43get 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 all happened. We're going to 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 rest of the century and into the 21st century. So ironic, given that they are now one company again. Right. First off, where are they? No, well, where are they? That's the question. And the funny thing is also 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. Yes. So first on the Volkswagen side, I alluded to this a minute ago.

17:37It's a pretty amazing story what happens because 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 the origin of the company. So what happens is Wolfsburg ends up in the hands of the British at the end of the war. 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.

18:06Wolfsburg is in the hands of the British. And remember, because it was a political organization, it wasn't a company before the war. Nobody owns it. It's this orphaned organization. It's super unclear. There's no 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. Yeah. But supposedly, the British didn't want it. The British saw the plans for Volkswagen for the beetle and said, no one's going to ever want to buy that car. It's crazy to think about now. And it gives you an idea of how the British would operate their car industries, constant missed opportunities. But they literally looked at like the draw, you know, 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. Wow. Wow.

19:02So, okay, the British government kind of lacked 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 territory where the factories were, like on the ground, managing it. Major Ivan Hurst, a legendary figure in Volkswagen history, he finds one of the pre-war production beetles, the 200 that were made.

19:31He 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 in this becomes increasingly obvious as the post-World War II state of world affairs takes place here in Germany of like, hey, the cold war is about to start. He realizes that West Germany needs an economic revitalization here. We need to restart German industry because 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 maybe easier than I thought because the British didn't want it apparently and also to place an initial order a seed order to restart the company for 20,000 Beatles that the British military is going to 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 going to use it to drive officers and stuff around

20:28Yeah, from that seed order, like, that is now the new Volkswagen. So it's like, yes, Hitler started it, but then Ivan Hurst really started it. Yeah, totally. Now, one of the things that I find interesting about the beetle is that each, Europe was so war torn after World War II was all these places. We're in similar situations to Germany and 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. UK had the Mini, Italy had the Fiat 500.

20:56France had the citron to CV. They were all kind of looked similarly. Wait, these are all based on the beetle? No, no, no, but they all came from the postwar era where they needed something small and chic to like remobilize the citizenry basically 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 area. Yeah, you don't see a lot of sitarians in there. 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 it. Yeah. Super interesting. So that's Volkswagen, but put a pin in them. We'll come back to them in about 50 years because there's a lot more to say on Volkswagen. And 50 years, that's about how long they would make that one model of the beetle.

21:48Yes, the new beetle would get introduced, I think, in 1998. And the first ones post-war were made in, like, 1948, so yeah. Crazy, crazy. Isn't that wild? It's insane. Okay, so what about Portia? Well, they have a bit of a different path. So, after the war, and we should say, during the war, Ferdinand Portia was designing tanks. Yes. And other military transports. And design the elephant anti-tank.

22:17tank, the most powerful land-based tank ever created. A terrible, but beat like just the range of design talent that he had, like he designed the beetle and he designed the largest anti-tank tank. And also some of the very first hybrid and electric 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.

22:47He 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 Piesche, are both arrested by the French as war criminals. Tried in France, they end up being imprisoned for two years in France. And Ben, you did a little research on this way. Yeah, I think the technical thing they got him on, which is why they only had two years was...

23:15for 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, quick trip, quick trip out of war criminal prison. Yeah. So.

23:30Ferdinand's son, Ferry Porsche, who had been working in the business, I think a little bit before the war and then during the war, too. He's also arrested for 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...

23:50What are we going to do? We got to rebuild the family. We're going to restart the business. Let's go figure things out. They return to the family's kind of ancestral home in Austria. And that happens to be quite convenient because during the last days of the war, as Stuckhard and other large-scale German military production facilities were getting bombed by the Allies, Porsche took about 20 or so.

24:19of 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 targeted by it, so that the Allied bombers wouldn't know where they are. And this is pretty crazy. They are literally operating out of a sawmill in a farming village in southern Austria named Gmund.

24:48We're talking about like a couple thousand people maybe that live in this area. Yeah. And David, are you getting all this from I know you read like $500 worth of textbooks on Porsche. So there is this incredible history of Porsche called excellence was expected that was written by Carl Ludwigson. And we have to owe a big thank you to him for the research for this episode. This work is like I mean, the photos, the archive work that are in this volume, it's incredible. I read a coffee table book that was like the complete illustrated history of the 9-11 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 a normal amount of research on. All this stuff is in these huge, heavy-bound pictorial books. These are amazing objects that are being produced. There's just such a...

25:43like visceral tangible quality to them that is that we don't usually cover on acquired, right? Okay, so fairy and Louise go back to Austria. They're there in Gammund and they're like, well, what if we start a new company and see what we can do around here? I mean, there's some...

26:04Vehicles we can start fixing up. This is literally like the Sony story if you remember when Sony first got started in Tokyo at literally the same time. They started by fixing radios, right? The services business. The the second Porsche company Porsche construction in GM BH, which is an Austrian company that they start to do this. They start up like fixing old, you know, military vehicles that are around there in Austria.

26:30unlike Sony in Tokyo, though, where there were a lot of radios in Tokyo. There weren't a lot of cars in good mood. So pretty quickly, they're like, huh, we don't have any more cars to fix up. And bad business. Yeah. Well, about not a large market, 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 you know, small car, a car for the masses of Volkswagen. But he always had one major problem with the beetle, which was that it was slow. 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 with a supercharged engine. And Ferris said later in a 1972 interview, I saw that if you had enough power,

27:29in 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. Doug, can you contextualize what a big moment in world history this is? Yeah, I mean, it's an interesting concept because sports cars in general weren't a thing that much. They were and there's going to be people around and say, no, there were a lot of sports cars before, but it was really a thing of real enthusiast, wealthy people, that sort of thing would buy cars to go motor racing and 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, you know,

28:23This was a real, it was a touchstone of a concept that has really been taken obviously by them and refined in others as well. I went in research and when I looked up, you know, some of those sports cars pre-porshia. And you look at them and things are like franken cars. They are huge. Right. And the engines are like the engine bays in the front of the cars are two-thirds of the length of the car. There's this one Ferrari from that era. And I look at them like, How do you even steer this thing? It looks like a boat. The thought at the time really was, you want to 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. Yeah. I mean, even like to this type of career GT sitting behind us, that's not a large car. Right. And that was a Porsche thing. And it was even more of a Porsche thing at this time. Totally.

29:13And 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? Basically, you know, an engine takes an air and that's kind of air helps air mixes with the fuel and it creates a combustion that more or less, that's how a combustion engine works. Supercharger pushes in even more air to create more power.

29:35Basically, 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 literally force more air and yeah, and then I don't think turbos had been invented yet and turbos would obviously become a big thing for portions much later the concept of turbos actually fairly similar to supercharging except that it spins something that adds even more air basically and and thus turbo chargers result in power kind of being produced as the car makes more power it makes more power if that makes any sense Yeah, it kind of like spins itself up in a faster way And there's kind of pros or cons to either either of them and for those following along at home. This is like end of the 40s 1947 type era Yeah, those couple years after the war when everything was kind of getting figured out yep So fairy has this idea. He's like, oh, I'd like striving my supercharged beetle This is really fun to have a small car that also had a lot of power in it

30:29What if we take this small operation of our elite team here in Gammund and we try and build a car that does that and hey, it also turns out that Well, we built the beetle. Hey, so we know how to work with the beetle There a bunch of beetle parts around the beetle was the main kind of chassis platform for a lot of military vehicles for Germany during the war. What if we take a lot of those parts?

30:53And 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, $10,000, $15,000 at auction, maybe even a beetle, like a classic one from the 50s or 60s. 356 is Regularly sell for about three hundred thousand dollars at auction and special ones go for well well well above a million. This is a big idea that the Gulf between a beetle and a three fifty six is a large. Doug, why is the desire ability of these cars so different today? The well, I mean production numbers is probably the biggest component of that one, right? They made literally Zillion beetles and the three fifty six is special because.

31:48It really kind of was one of 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.

32:06It 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 this major moment in Porsche history. Yeah, this was another thing. So obviously in commune and then even when Porsche moves back to Stuttgart here in a minute, their production capability is not nearly as large as Volkswagen. So they need to price these things pretty high.

32:33They priced them at $3,750. The German equivalent of $3,750 in the late 40s. That's about $42,000 today. But we're talking about war-torn Europe that you're trying to sell this in. 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, there are enough people who it turns out are interested enough in Ferries vision for a small, fun, fast sports car. Initially, it was slow. It took them a while. The first couple of 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. Yeah. 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...

33:29the sports car really taking off. Like I mentioned before, the earlier ones were these big giant things that were only operated by enthusiasts, you know, how to work them. But like post-World War II, there was a lot of optimism. There was more. And in Britain, it was happening too. MG 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.

33:57That takes us to the late 40s here. They're starting to produce the 356 in Gammun. At the end of 1947, Ferdinand Portia and Anton Pierschke released from French prison. They come back to Austria, the families all together, and they kind of got to decide what to do here. Right around that same time, Volkswagen's getting back up and running. You know, Hurst is running it. It's like the vision they're going to make the beetle for Germany and for the world. They come back.

34:24to the porches, and they say, hey, we still want to do business with you. And in fact, we actually want to expand the scope of our business with you guys even more than it was before the war, because we could still really use technical design, consulting work, and really leadership from new individual porches here at Volkswagen. After all, you designed the beetle too though. Now, we're not a government organization in the same way anymore.

34:54distribution. And you guys have this new Austrian Porsche company that you've set up. So how about this? They proposed two things. One, they say, let's reinstate that old German Porsche company, the Dr. engineer, honoris causa blah blah blah, will 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. No way. Yes. Yes. This is how intertwined these two companies are. Sorry. The deal is we want your Austrian company to distribute our Volkswagen's and in order to coerce you to doing that, we're in the consulting work.

35:51We also want the consulting work. But Ben, you're on the right track. This is a hell of a sweetheart deal for the Porsche family. I mean, you are right to be saying, why would the German government do this? Do you know what kind of royalty? It was enough that it was very meaningful. Very meaningful cash flow. And probably not even.

36:11At the time, not even clear just how amazing it would be. Right. Nobody knew that the beetle was going to become the international hit that it would. But 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 going to 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 Volkswagen's, but for

37:04All types of automotive brands. They're doing billions of annual revenue within a few years here. I mean, what an opportunity to be given a distribution network just as the car is starting to become like a big thing. Exclusive distribution rights to Volkswagen's. And they're in countries, not just in Austria, they're all in that place. Yeah, they're all over the place in Europe. And even more incredibly. So what the family decides.

37:27is that Ferdinand and Ferry, the original Ferdinand and his son Ferry, they're going to be back to Stuttgart and take over, retake over the German operations of Porsche. Louise and Anton, the Sun Law, they're going to 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, the largest car dealer network in Europe. Wow.

37:55Doug, the way the value chain evolved for selling cars, there's this very clear delineation in the US at least until Tesla of separating the dealership from the manufacturer. There is no direct to consumer. Was that already obvious at this point in history when Porsche has these two different companies? It's an interesting question. I suspect the answer is...

38:18more or less in some brands, I bet they were selling direct to consumer and some 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 even though this new Volkswagen was reconstituted as a company, it's 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 hold 20% of Volkswagen, which is crazy. Yeah, they would IPO Volkswagen, I believe in 1960 or 1961. So it was, even though it was a company, it was a German national company, and so to operate in other states, other countries in Europe, they probably needed third parties. Yeah, wow. Yeah, wow, right? All right, listeners.

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41:16Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. Okay. So Ben, you hit on this a minute ago. What the hell? Why is the new Western controlled West German post Nazi government giving this deal of a lifetime to these former Nazis. 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. Yes. Yes. Did the German company and then the Austrian company has exclusive rates to distribute it. It's a crazy deal. So here's what's going on. It actually

42:13as crazy as it sound makes sense. So we talked about a minute ago, the Iron Curtain and the Soviets. It's like 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.

42:35reconstituting 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-injected with steroids, so to speak, is like, Hey, we got an existential threat next door. We got to rebuild the industrial base. Now, the deal that they give them does come with an implicit string attached, which is they basically say to Porsche and other companies, 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

43:34one of the oddest tax incentive systems I've ever seen. So for ordinary people in West Germany, 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%.

44:02Well, they basically cap your income. Yeah, like people are complaining, they're like living California, oh my gosh, Spain, 13% state income tax on top of federal. Like imagine if the marginal tax rate were 95%. Right. You would just have no incentive to earn any additional dollars. Right. And that's on the personal side. It's equally bad on the corporate stuff. Sure. Any profits or taxes. So what are they trying to do here? They're trying to incentivize capital reinvestment in the industrial base.

44:31So they're basically saying to Portia and others, set all this up and we're going to create all the incentives such that you will plow all of the money, all these royalties we're giving you from the Beatles, etc. Into building up your production capabilities and investing in R&D and new models, etc., etc. And I mean, it sounds crazy on paper, but like my god, it actually works. And it works really freaking well.

44:58Do you think there was some guarantee that the tax rates would lower someday maybe and I think they did but as we'll see Porsche becomes like it becomes pretty institutionalized there of like don't take profits instead reinvest them in new models and R&D racing To the great benefit of the brand. Yeah, so I mentioned one of the things that Porsche invests in over the years is race cars and racing. And this is super interesting. None of us are racing historians. 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.

45:55and professional racing market was very blurry, very, very blurry, right? And it turns out that even though manufacturers including Porsche would make special versions of cars for racing for Le Mans being the most famous race at the time, you know, another's around the world, it wasn't like, like you look at an F1 car today, or you look at a Le Mans car, like there is no connection between that and something you can buy. And you or I would not be able to even operate it.

46:25So a super obvious point to illustrate this is folks are probably, you know, no 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. They were also professional race car drivers. Yeah. The professional as it were at the, in the time period. Yeah. They competed in like real race. In addition to the actors. Imagine Brad Pitt jumping into the Le Mans. Right. They, uh, Well, I knew it was about the joke they'd kill themselves. James Dean did kill himself in a Porsche 550 spider, which Porsche would make a kind of dedicated racing type vehicle, though it was also a consumer production vehicle, the 550, that car. That never would have happened if Porsche wasn't incentivized to invest all their profits.

47:16I mean, maybe you can say, I'll do like the legendariness of that car. I mean, they sell for what, $5 million plus today. Yeah. Real $5.50 shares. 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 while the 356 was like the sports car that you could gentleman race, the 550 spider was for people who like...

47:34Really like let's go racing and like do it But like you said you could a person could walk into it that dealership necessarily, but like just order one Yeah, but it is it it is an absolute legend. It totally is yeah You kind of see this trend this moment where you see the bifurcation between anybody can do it and what the very best of 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, you know, playing on a local bar stage is flying a SESNA. 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. Yeah. So back to racing, we were talking about the spider a minute ago. I get so excited about James Dean.

48:28But dug to your point, 356's in 1951 and 1952, win their class at Le Mans. They don't win it outright, 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 them. Right. Yeah. And that was kind of a special thing, but 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 and modify it. And I think...

48:58This was pretty unique to Portia's at the time. Certainly you could go by Ferraris and Ferraris competed and whatnot. But again, we were talking about the Ferraris were a different thing. These weren't 356's and I think they were probably also a lot more expensive than the 3700 dollars plus an important distinction between Portia and Ferraris in this era is that Portia 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 road car customers deeply. It wasn't his thing. He just wanted to race. He only sold road cars to 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 would have done with his crap. Whereas Portia was selling, I mean, 356's were like being sold in pretty good volume.

49:55There's this great, great, great fairy Porsche quote about this, which he would say later about the 9-11, but 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. And it remains true. It's kind of like Porsche's.

50:22Thing yeah to this day like how relatively usable the car isn't 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 ifa whether or not there It's constantly north star for them. It is what they do it is more than anybody else Yeah, I was trying to think of like what the rate kind of other luxury brand analogy is here Porsche definitely is a luxury brand. It's not like we're making apples and oranges here It's kind of like a Rolex to me. Is that really good? What do you think? Yeah, absolutely. You buy those watches to wear them. You don't buy them to keep them in a case in a glat. They're 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 continuing in the luxury world.

51:10like a remoa suitcase. Those aren't that expensive. They're three times more expensive than regular luggage, but like... They're not a Louis Vuitton truck. Right, and so... But they're a lot more usable. You buy it to use it. It can kind of 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 not a broken bag. Like brands like this are so valuable. Because it has both the breadth and the depth. Like, there are enough people who are like, I love Portia's because they're my...

51:40cars I can actually drive, but they are super cars. Yes. This thing behind us goes 200 miles an hour. Yeah. This thing behind us is a little bit of a difference. And there have been, and we'll get to, and we, and the 550 spiders, one of them, there have been some portions 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 Ferris, quote, about this exact thing can do all these things. Yeah.

52:05Doug, one question for you. I'm going to keep going to you for terminology. David mentioned Le Mans. What is that? 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 24 hour race. So you switch drivers, but it's always been a place where some of like 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.

52:34And it's always a disaster. And it's in the middle of the night. And it's difficult. And so like being able to win or win your class, Lamas, like the Monaco Grand Prix, the Super Bowl, if you will, of like vehicles racing in that sort of racer. There's also this like, portion would 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 fuel efficiency matters. It's also a road race, so it's not on a racetrack. It's literally on the closed down roads in the French countryside and race on the road. So there's some component of, instead of purpose building a car for a circuit, cows were using this road two days before. So on the back of all this success and James Dean and Steve McQueen and all this, as you would imagine, Porsches start to become quite popular in America.

53:27So, in 1954, Porsche, I don't think for a native ferry, like, envisioned, like, we're gonna sell cars in America. This wasn't part of the business plan, but in 1954, Porsche sells 588 cars in the US, which was 40% of their entire production for the year. And that 40% basically stays constant, goes way up for a while in the 70s and 80s, but kind of never dips below that, like America is a huge market for Porsches.

53:56It's amazing to think that 588 cars was 40% of Porsche production. I agree with you, by the way, by your point that they didn't really have America in the business plan. One thing to provide some context is important to keep in mind. The number of sports cars start-ups happening in Europe at this time was significant. Most of which listeners' viewers will have never really heard of because they will die. These came out, they showed up, they raised a little, they sold some cars, they failed.

54:22And that there were tons of these there was no concept that Portia would be more successful than any of obviously the the family hoped it would and it became that way But so many families hoped there's wood too and they all failed and somehow Portia, you know Well, part of it was the incredible success of the cars A big part of it, too, is the royalty on the Beatles. That's a nice steady source of cash flow that you can invest in your own race. With forced reinvention. So you're doing stuff like racing. You're doing stuff like looking international. You're like, what can we invest in that? Like we're not sure if it's ROI positive investments. We could be speculative, because we know we got the money coming in. And Beatles continues to be more and more popular. It only continues to embolden them to reinvest. So speaking of reinvesting, as we get to the 1960s,

55:10Like the 3.56 is great. This is amazing car. But it's kind of, I don't know, Doug, where you would put it. In my mind, it's kind of, it's not quite a modern car. It's like, it's like close, you know, it's not a Model T, but it's not a... Right.

55:27It's not a 9-11. Right, right. 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 are showing up that we're refining some of the principles. Yes. So we're now in the 60s, Ford announces the Mustang, Jaguar's got the E type. Chevy comes out with the second generation Corvette, the Stingray.

55:49And all these are starting to show up. Yeah, Austin, everything is like, okay, there's a lot of pressure. Yeah. So, okay. In 1962, Fairy Portia makes the decision like, 356 is amazing, you know, rebirth of the company. We got to invest profits and replace it with a new model. So, for a couple of years, Portia had actually been working on a design for a sedan.

56:12for a larger model seems heretical now. Right. People live in the Panamera. Right. It was actually going to be the second model of Porsche. I mean, I feel that way. Every time I see a Panamera drive by, I'm like, why does Porsche make this car? But I see them driving by, so that's why they make this car. China is why they make that. We'll get to that later. So the next generation of Porsches, Ferries Son Ferdinand, known as Bootsie, named Ferdinand, named after his grandfather, founder of Porsche.

56:41I was working in the company and he had been leading the body design for this larger sedan that Porsche was going to make. Very decides for a bunch of reasons that to cancel the sedan project. Probably the most important reason was 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.

57:07Porsche 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 everybody will be happy here. Anyway, they decided to cancel the project and double down on sports cars. At the same time, Ferdinand, Porsche, Bootsie, the grandson, his cousin from the Austrian side of the family, Louie's and Anton's son, also named Ferdinand, Ferdinand Piesch.

57:34He's also joined the company. These two young Turks, the grandsons, Ferdinand, are here in the company. And Piesch is working in the engine department. So turns out that he's a pretty brilliant engine designer. He comes up with, and I believe, even as a young kid, Doug, you may need more about this history. Like, I think he really was the one that led the development of the six cylinder boxer engine for Porsche.

58:03And now he didn't invent the six cylinder 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 Bootsie's done for the sedan, take this amazing engine that Ferdinand is built for the racing operations. And let's see what happens when we put them together. And this is the birth of the Porsche 901. The 901. David, I'm not familiar with that model. What is that? Well, this is why I'm dug. I'm sure you do this. Oh, this is a famous, famous story. I had no idea. I think most people have no idea. The 911.

58:58is only called the 911 because Pujo 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, zero, X. And in fact, all Pujo cars, even to this day, are named 205, 206, 207, 208. That's the 308, 408, 508. And so they trademarked them all just knowing that eventually that would happen. Unbelievable.

59:28So I mean, it makes sense. Of course, it's like, well, what do we do? We can't really not sell in France. I mean, France wasn't like the biggest market, but it wasn't a small market for me. Now, the story that I hear have heard about this is that they said, well, we got these badges that say 901. Why don't we do 911 because we have the nine in the one are we?

59:47Hence, the 9-11. Now, some of this may be more apocryphal than others. One of the things that I don't understand is why they wanted to call it car the 901 in the first place. And I was never really able to get great information about that. The 356 was purportedly named because it was the 356 engineering project they did. But did they really do 500 engineering projects between 36 and 901? So a couple of details that I got on this from excellence was expected. I believe, could be wrong in this, but I believe 901 was the name of the engine project.

1:00:17that Ferdinand Piache was working on and I think I think that's the origin of it. Two, yes, in Portia Lore, it's that the reason these model numbers are these, the engineering projects that they start, but that's totally apocryphal. They jump around all the time. And now they go forward and backward. Yes. Going back to the very, very beginning of the consulting company, they started with type seven or project number seven.

1:00:42because they didn't want to look like they were brand new companies. They're like, oh, yeah, we've already done six projects. This is project number seven. I forget who they were working for. It's like when you're starting a new company and you're sending your first invoice, you don't call it invoice number one. It's exactly. So like, yes, the the lore is that all of our projects have model numbers and like, yes, right. So funny. And to be clear, so I admired designs of Porsche cars before doing the research for this, but new 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 nine that are all 9-11s. I don't know. I didn't write them all down, but the 9-6-4 and the 9-5-9. It gets complicated because what ends up happening just like happens every car is they start to get redesigned as they get

1:01:36You know, there's 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 version it is. And not all 911 say 911 on the back. So you can't even like use that as your reference.

1:01:59It's a little complicated. Maybe that's part of the success. 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. 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 Porsche's. If you see a 9-11, You know instantly that it's a 911. It is iconic. It's one of the most iconic designs in the world. And partly because they've essentially kept the shape the same for the sense this. Since 1962. So pretty immediately, this car is a big hit. 1962 is when they start working on it. They first start selling it in 1964. They sunset the 356 in 1965.

1:02:50And so 66 is the first year that's fully 9.11 for Porsche production. They sell almost 13,000 cars in 66, which that's what would we say. 10, 12 years ago, they only sold. Yeah, 40% of their price was sold. Yeah, so they're now 13x in 10 years. And that number of almost 13,000, 9.11s, 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 9.11 so special? It's important to keep in mind at the time.

1:03:24You didn't know, right? It was just like this thing. This 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 told to mention a sports car, they would say that I love it. It just has become like the car. And it was, like you say here, it was clear very early on that it had something special in this great combination of you know, reliability, comfort, practicality, just like the 356 had been, but just better. Yep. To my thinking, the flat six boxer engine, which was a great engine that for an MPS designed to go in this first 911, there's something like cool and unique to the like we've been talking about the difference between Porsche's and other cars here. This is a performance engine, but it's

1:04:14A six. Right. It's not an eight and it's rear-mounted. Right. So the 356 had a boxer four to explain what a boxer engine is. You know, a lot of cars, most cars, well, these days, most cars have inline engines where the cylinders are in 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 a cross 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 it's got this great balance to it because it's like literally flat in the car. 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 relatively light, relatively simple, and like strip things down to the core essentials of the car.

1:05:13An average person can walk off the street, buy one, operate it. That's right. Drive to work, have a great time. It wasn't crazy fast or anything else. Yep. Now, the 356, the old 356, it had four cylinders. And so now the 911 have six cylinders. And like you said, it's not a world-class, powerful fast car.

1:05:36but it elevates the 356 into a much more, like, you can really achieve a lot more with this than you could with the 356's. This becomes super important from a business side for Porsche because they priced the 911 about 50% higher than they had the 356. Now, what they do at first, they realize this is gonna create like a major...

1:06:02price gap or line up here. We're going to lose a lot of customers by elevating. So they do a stop gap. At the same time that they introduced the 9.11, they also introduced the 9.12. And the 9.12 is a 9.11 with the old 356 4-cylinder engine. So they essentially kneecap the, they downgrade the 9.11 to be the entry level model. Only as a stop gap, they don't want to do this permanently.

1:06:28They sell about three quarters of the units are the 912s, the cheaper for some of their ones, and one quarter of their sales are the more expensive 911s. The profit margins, though, on the 911s are so much higher. So, fairy starts thinking like, okay, this was part of the plan all along, I think. Let's create a whole new model. The old 356, we're going to bifurcate it. Our performance...

1:06:52real enthusiast customers who are willing to spend and that we're going to make great margins on those models. That's going to be the 9-11. Let's create a new car that can replace, can be the entry-level Porsche. We'll eventually introduce the Boxster. 20 plus years later, takes Porsche a while to really get to the perfect end state of this strategy. But for this new car, Ferry says, hey.

1:07:21We'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-engine roadster which is a smaller, more compact car in mid-engine, not rear-engine, called the 9-14. And the idea is that they're going to make both a 4-cylinder and a 6-cylinder version of this. The 4-cylinder version is going to be a Volkswagen. The 6-cylinder version is going to be a Porsche. And Ferry puts his nephew for NAND Piesch in charge of this joint project with Volkswagen, a very fateful decision as we shall.

1:08:20See, now what 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?

1:08:43So the plane was originally to have some of the 914's be branded VW and some of them be branded Porsche. Volkswagen had made a little sports car called the Carmen Gia previous to this in the 60's. And so the thought was they wanted to replace the Carmen Gia. Porsche wanted an entry-level car. Let's jointly develop it. Porsche gets the more powerful one, the 914's 6, the 6-cylinder, and Volkswagen get the 4-cylinder. But the decision was made, like you said.

1:09:08The new VW CEO, he actually gets a pretty good deal out of this. So he deepens the relationship with Ferdinand. He gives the car fully to Porsche, but in exchange, VW takes over all of Porsche's distribution in America. Huge deal. Huge deal for VW. So we're starting to intertwining these companies just a little. 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 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.

1:09:57more 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, we now own the distribution for Porsche. Like this, even if it's not structured this way, this is a merger. Well, if history were a straight line, what you were saying would come to pass. Unfortunately, it's not a straight line or fortunately for drama on our show.

1:10:26So you're absolutely right. The 914 goes on to be a huge success. Cells weigh more units 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 when Doug, you can comment on this. There is also a market for mid-engine roadsters.

1:10:55I mean, including the one sitting behind us, regardless of price, like these are pretty amazing sports cars. Yeah, Porsche's previous to this had all been rearranged in the 911, the 356. And so this was a mid-engine, which was starting to really take hold in the car world as the right...

1:11:10Design, because the engine in the middle is really the perfect balance. You can put the engine right in the center of the car and it gives you perfect weight distribution. When I always talk about sports cars in my mind, God intended sports cars to be mid-engine. That's how it's more difficult, the engineering is more difficult than front-engine, but that's how it's, and rear-engine is just insane, but Porsche made it work. There have always been great at that. But mid-engine is how it should be.

1:11:31And when you say mid, this basically means that it's still obviously behind where the passenger sit, but in front of the rear axle. 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. I think you have a video where you say the Cayman GT4 RS, which is the Cayman and the Boxster, the same lineage we're talking about here.

1:12:00is the best modern Porsche. Yeah, I feel it, but it's controversial because the 9-11 is the Porsche. Don't hate us in the comments. Yeah, I don't know, Doug, I feel like I've seen multiple the best on your channel. Every car is the best when it comes out and then it's superseded by the next best. There you go. One of the differences between YouTube and...

1:12:23podcast world is titles and SEO is really important in the YouTube world and I don't even take advantage of it as much as some of my my colleagues Wow, it's a while around this topic here of engines. I got to imagine this is one of just the huge sea changes that is coming with electric vacation of performance cars right like Yeah, a whole different set of calculus like it doesn't matter. There's no engine anymore. 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. Yeah, yeah. It doesn't. It's gone. It's gone. It's gone. Okay. So a minute ago, Ben, he said like, oh, this naturally would lead to emerging of, you know, VW and Porsche. And I was like, well, so this is in the late sixties when the nine 14 launches as we head into the seventies.

1:13:20The 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, 9.11 sales stay relatively robust throughout the 70s because it's a luxury good, right? Like just like in any recession 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, 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 backdrop of stress to another family dynamic that's emerging, which is you've got these two Ferdinand

1:14:19grandsons 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 thirties, maybe entering their forties, fairies getting older here. Like, who's going to take over the company? We've got succession vibes here. On the one side, you've got Bootsie, Ferdinand, Porsche. He's got the name, he's Ferry's son, and he's a great designer. I mean, he designed the 9-11, maybe the most iconic car design ever. And this is German Ferdinand. This is German Ferdinand.

1:14:48working actually producing the cars. But the other Ferdinand, the son of Louise and Anton, was hired by the German company also. He's hopped over. Yeah. So yeah, he's hopped over. He's, you know, in the one hand kind of like this dark horse kid, right? He's the Austrian side of the family. You know, you've got the car dealership business. But he's also proved himself as like an incredible.

1:15:13engineer executive he was in charge of this 914 project he managed it with Volkswagen that was an incredibly successful car until the oil crisis etc etc so he's like yo 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 I 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 called a joint family summit. They're like, we're gonna settle things. I don't know, I'm speculating here, but I suspect Ferry and Louise didn't have a lot of acro money over there. I mean, their brother and sister. And they had Louise had her company, Ferry had his company. They're both making a lot of money. They're both making a lot of money, everybody's happy. This is between the children here.

1:16:09So 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 Ferdinand's God fairy, fairy himself.

1:16:38Who's running the Cup Ferdinand's long den at this point, the original Ferdinand? They're going to 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, because it's not like, be one thing, if they were like, oh, you know, we're really not that good at this. Like we should hire professional men. These are led the generational talents in the car industry. And the best solution they can come up with is, you know what? We're all done here. This is crazy.

1:17:09I would be so fascinated to get video footage of what actually went down in that room and the logic that they could walk to themselves through to this is actually the best outcome. 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. And they're also Germans. So like they're very, you know, prim and proper. But I think very, he basically admits he's like, yeah, there probably was a better solution to this. But like, It did mean that we could kind of reunite as a family and like, I think he said something like, there were still tensions but we could go to each other's birthdays again. You know, something like that. So I mean, I guess in that, you know, if you value family above all else, it's still a crazy decision because like you said, they were...

1:17:57They were killing it. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best. They were the best.

1:18:27So there exists these weird, there's like Porsche sunglasses out there. You can buy Porsche designed laptops, like all this stuff. That's him. That's a totally new company that he started. It has now been reabsorbed into the broader Porsche conglomerate. But that was started, but he was like, all right, great. I want to be a designer. That's the path that he goes down. The same thing happened in the Gucci family for anyone who's seen the...

1:18:52the Gucci movie with Adam Driver and just sort of a family member who wanders off and does some like effectively like brand licensing. He's like, I'm going to take the family name and make some money off of them. Yeah, which is obviously what. I think he also was very talented. I mean, designed to God in the 9-11 for God's sake. Right. He's talented, but yes, trading on the name here. The other Ferdinand, P.S. This guy, oh my God, he's a, he's a G. So at first.

1:19:18He'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, they after remember, VW and the new CEO really wanted to build this relationship with Porsche, with Piesch. He gets recruited to come in and take over Audi for VW. I don't think you originally, I think he enters working within Audi, but then very quickly becomes the head of the Audi brand for Volkswagen. And Doug, at this point in history, what does the Volkswagen Group own brand-wise? Yeah, that's an interesting question. The brands that we know, I think it was just Volkswagen on Audi. Audi had been a separate company. Audi had been a separate company, and it's also important, contextually, here, to make one really important point about Pish and Audi.

1:20:10At that time, Audi was a joke. Audi was not what it is now. Now you view Audi as a legitimate competitor Mercedes and BMW. Back then, it was more like how sob would have been treated. It was an absolute second or third tier brand that no one could possibly... It was not a brand that was desirable at that time.

1:20:30Infinity. Like, I know you owned a Kia, right? It's a bit like, you know, Kia and Hyundai are trying to enter the luxury market. Yeah. Yeah. Really. On that level of like, I'm going to stick with Mercedes. Yeah. Was the Audi 5000, the thing that kind of saved them and brought them back on the contrary. Actually, that car was the one that had the famous scandal in the United States where the 60 minutes found that it unintended acceleration would accelerate, which turned out to kind of be unfounded. But their reputation was like severely, severely damaged by that.

1:21:00But that was this era. That was this era. Audi needed to turn around. Volkswagen's got Audi. They're like, we don't know what the hell to do with this thing. We got the MW Mercedes. They're killing it. So PS comes in and like, I mean, this dude is good. Like, 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. Then in 1993, he gets promoted and becomes CEO.

1:21:29of Volkswagen so you have the situation where they kicked him out of running the company and then he goes and ends up running wild wild I mean he oversaw and launched the new beetle like literally his grandfather's legacy the beetle he turned over the beetle model to the the new beetle how long was ferdinand psh running Volkswagen a long time 1993 I believe he was chairman until 15, 2016 maybe a lot of 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 how angry he was he also um

1:22:16He had 13 children, but I think four different women like him. He had a lot of kids. It was that typical, you know, how you think of like a German industrialist. At the round this time, Volkswagen started really gaining a lot of brands. So in the late 90s, they bought Lamborghini. 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. And they brought it back to France where it was like initially.

1:22:46existing. Yeah, restarted. I mean, Doug, you kind of said, but to put a bow on it, of what a baller P.S. was. In 1999, the Global Automotive Elections Foundation, they award him the car executive of the century. And by the way, that's like uncontested in the car world for Nan P.S. has looked at as like exactly what you're saying. The guy, everybody knows his impact, everybody knows how effective he was. And the family's Porsche is just like, yeah, now you gotta get out of here. Unbelievable. Maybe he wouldn't have had the motivation to do, who knows? Who knows? Just wild. But Volkswagen, much bigger company than Porsche, right? Yeah. You got kicked out of his own company, so he went and ran a much bigger one that competes with it. And then he grew even bigger. Yeah. Yeah. Yeah. Yeah. Yeah. Wow. So back to the Porsche side.

1:23:42This decision was just really not good, 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. Ernst Furman becomes the first non-family member CEO of Porsche. He was actually part of the original elite engineering crew back in the sawmill in Gammun, 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 think it actually was a decent car. Doug, you actually reviewed a 944, which is the kind of next iteration of it. I think you can say, I think it was a good car, but it's not a Porsche.

1:24:35It's a front engine, water cooled. It's suffered from that stigma for sure. The saving grace was it was actually a pretty good car to drive. 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. Yeah. So people were like, yeah, we'll take this as the entry portion of the time. But it wasn't.

1:24:599-11. It wasn't a 9-11 and it wasn't a 9-14 either. It was a totally different thing. The 9-14 was a small lightweight compact roadster removable top. The 9-24 was definitely a different kind of situation. So, Ferman had a quote on it when asked about like, what is this? He says, the 9-24 is aimed at new clients who either can't afford a 9-11 or are not necessarily looking for the performance of a 9-11.

1:25:28I guess that's true, right? That's also true of the 914, but like, can you come up with something? That's not the right way you want to position your brain. It's the quiet part loud. Yeah. Can you come up with something that is not using the word not to describe who wants it? Like how would you say who would want it? Yeah, this is for the poor customers. Right, right, right. And I get it, but also it's just like in the whole philosophy of it, it's not a Porsche. Even more concerning.

1:25:56is the 928. So, Furman makes a decision as the new CEO of the company that it's time to replace the 911. And, again, maybe, let's give him some credit. This is the 70s. The oil crisis is going on. There's safety regulation. This is post-Ralphnader and unsafe at any speeds. It's maybe reasonable to think that a rear engine sports car Isn't like a great strategy to be pursuing here 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 unsafe and people our citizens should not be driving around to them and so all cars need to change and Regulation started to really show up like in this time period that 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

1:26:53and the seventies everything started to get the oil crisis was a big factor because that sort of screw the missions and then you had all these regulations about bumpers and safety and seat belts that you know we're very important and beneficial but at the time it was like other killer fun it is astonishing how much safer cars have gotten you look at these like cute old porches they're so much smaller right and you look at the big one stay and you can lament oh cars have gotten so big but cars have also gotten so much safer far 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 totally so in 1978 Ferman introduces the portion 928 with the stated intention that this is going to eventually replace the 911

1:27:38They keep selling the 9-11. He says, we'll keep selling the 9-11 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 9-28's on the market and demand dips for the 9-11, we'll stop making them. Now, I want to defend the 9-28 a little bit here because it was a, this is an important moment in Porsche's history.

1:27:58Would we look back on it now? It seems insane that the 9-11 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 the Porsche was the 356. And so that went away for the 9-11. It only made sense at some point the 9-11 would also go away. The crazy thing about the 9-28 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...

1:28:39It 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. It was embarrassing stuff because they had to put so many emissions controls on that by the time you actually 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.

1:29:07comfortable 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 luxury cruiser, that sort of thing. And so it made sense that Porsche would maybe want to 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.

1:29:36And 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 austerity, oil crisis, 17% interest rates and massive inflation. The 80s was not that, shall we say, not that. It was a rising tide.

1:30:00that lifts all boats. Lots of disposable income, Wall Street is ripping. A lot of pinstripes. Yeah, it seems like actually a really good time for fast cars. 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 portion of Piesha families when they exit operationally from the business. They still own the business. So they're still like the supervisory board. They get fed up with Ferman. They oust him and they bring on a new CEO on American as CEO of Porsche. One Peter shuts famously. He comes in and he.

1:30:48Redraws the 9-11 production line and Doug, I know you have some first hand experience of the legend. The great stories in the auto industry. The 9-28, though I just provided an impassioned defense for it, 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 9-11. It had been in production now at this point for probably 20 years, 25 years maybe.

1:31:17And the 9-11 was Porsche to a lot of these people and the fact that it was going to be replaced by the 9-28 was this sad thing and it had kind of really hurt morale in Stuttgart at the factory all the way up to some of the people at the top. And so the great story is that the 9-11 everybody knows the impending cancellation is coming. It's still going, but it's coming. This beloved car. And so Schutz, Peter Schutz, the American CEO is sitting in The office of Helmet bought who's the chief of engineering for Portion. And there's a line on the wall that shows where all the products stop and start and the timeline. And there's like a like on a whiteboard. Yeah, like on a whiteboard or something. Right.

1:32:02And so they're sitting there talking about it. They know that morale is low. They know that the company wants to keep the 9-11 even though it, you know, it should be replaced because it's old. You know, that's the thinking of the people. And that's what was said. Like there's a thing in German culture where like when something has been decided, it's been decided. And Edict has been given and the cars out. I mean, the 9-20 is on sale. Like it is shown up to replace the 9-11 in the spirit of these other cars of the time, the eight front engine. It made sense. It was what they were going to do. But the morale was low and they

1:32:31I knew this and so shoots stands up. He's got a marker in his hand. He stands up. He walks up to the timeline on the wall and he draws a line on the timeline all the way onto the wall and extends the 9-11's timeline indefinitely, including onto the literal wall. Now this story, of course, is this is like the stuff of legend in Portia. Like Peter shoots the American CEO saving the 9-11 in this moment.

1:32:58And a lot of talk about whether this actually happened, like, did he actually just draw the line and make the complete 180 and decision? This is a good story to invent if you did a morale boosting. You're trying to boost the reputation of the CEO among the workers. He drew the line, right? And there's a perfect line that which is, shoots just looks over at the chief engineering and goes, do we understand each other? Right.

1:33:23And then he walks out. I always wondered if the story was true. I worked at Porsche 10 years ago and had become friends with Porsche's General Counsel in North America. When Peter Schutz retired, he moved to Naples, Florida, and the General Counsel at Porsche and Peter Schutz were neighbors in their homes and Naples.

1:33:40And one day he went over to his house and asked him, you know, is the story real? Did it happen? And apparently shoot said, not only did it happen, but helmet bought 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 his words, it really actually was a true story. Wow. So great.

1:34:01That's awesome to get that validation because there's so many of these stories that we tell on the show where like, we're like, this is probably apocryphal and there's really no way to verify it. Now, of course, if you're shooting, you'd want to tell the story because it's become so famous. But, you know, it's probably the story is real. It's a great story. Yeah. I mean, literally he extended the line of the production line onto the wall. Right. So do they keep making both cars? Yeah.

1:34:29So they kept making, I think they made the 928 until 1995. It was a Vatican who comes in in a minute who finally kills the damn thing. 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 company was planning on ending the 911. And so by drawing that line, symbolic though it was, we're going to keep doing this. It also committed a lot of the company's resources to now refreshing something that they hadn't planned on refreshing.

1:34:59So, in the go-go years of the early through mid-80s, no problem. More. We'll do an ICO. We'll issue some NFTs. In fact, I think shoots was like, let's make airplane engines. Yes, I think he was. Yes, oh my gosh. And on the back of these go-go years and success, they're selling the 911.

1:35:24They'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, craftsmen brands, 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.

1:35:49Like, we're not going to know, 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, you know, it would have to be somebody inside the family. Why would that ever happen? 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 plus, you know, the end of the go-go years of the 80s.

1:36:18Not good, not good for a 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, it was bad for a 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.

1:36:46But they've still got the 9.20 and the 9.44 on the market and like those things started second-wind big time. It's not a good situation because now you have three aged products. And so the economy is slowing and your cars are not really competitive. Yes. So shoots though he continues production of all three lines and not only does he continue production.

1:37:12He reinvests, especially in the 924-944 line. They even refresh to the third time to the 968. Same basic car. They're investing resources in this car. You probably have a better sense than me, but another aspect of the recession at the end of the 80s was the exchange rates with European currencies got hit really hard.

1:37:38and so relative to the Asian currencies in the US so it became I don't know call it ten twenty thousand dollars cheaper to buy an equivalent entry-level sports car from a Japanese manufacturer and it just so happened that at this time you know Japan was kind of having an economic boom and as a result of that they started making these sports cars the exact sports cars are describing so the Nissan 300 ZX 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 twenty five twenty-year-old platforms like the nine sixty eight was and there was very little reason to buy a nine sixty eight i mean is uh... 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

1:38:22pre-fast and the furious, but not that pre-fast and the furious. All those Japanese cars that got tuned up, the super as a specialist. They were all starting, just starting to come in and start to blow up. And they offered, just as they do today, this great value proposition of big power for not as much money. And again, the 9.11 isn't threatened by this. But the 9.44, 9.68 hell is threatened by this. Nobody's buying this. And the 9.28 by then was so old that Sales were a trickle by 90. There were three products which was 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. It only made things even more confusing. And then there was the 928 which was the front engine V8 like flagship car. That nobody wanted. That nobody wanted. So they literally only made three cars and they were all three number nine cars.

1:39:20It 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 9-11s all said Carrera on the back. So everybody's like, what the hell is the 9-11? You know, is this 9-11? Why does it say Carrera? It never made any sense. And all Carreras are 9-11s, but all 9-11s are not Carreras today.

1:39:43That has changed over the years. Then there was a trim level of the 924 called the Carrera. It was actually called the Carrera GT, which they later named this car. Right. None of it. It was all confusing. No, you had to be like a German who was into this stuff to like figure out the precision level with which it made sense. So as all this happens, Porsche is now a public company. The stock phrase starts to decline precipitously. And they've floated 30% of it. They've floated 30% of it. Now, no voting control.

1:40:12But the company, they're really like cresting the tree tops here as they're, you know, beginning their descent. At one point, Porsche's market cap was less than 400 million euros. Crazy to imagine. Like almost zero. 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.

1:40:39It 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 one of the most valuable brands, and it's only 30 years later. Only 30 years later. It was dire straits. I pulled up the US sales figures for Porsche from this era. It's so insane to me.

1:40:57They 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 we were talking about. It was complete dire straits. So even though the public doesn't have any voting control, everybody starts to think the only thing that can happen here is this company's going to get bought out. One equity research analyst actually 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 shoots gets fired, but it's not like that fixes anything. I think it was 1987 when he gets fired. Over the next six years, they cycled through, I think,

1:41:55four, three or four more CEOs. None of which really figured out. There is one bright spot, however, which if there's where a normal acquired episode, we would just skip, but we've got Doug. The 959 comes out. Yeah, Porsche. It's actually the 959 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 at the time.

1:42:22But it was kind of a testbed for some new technology, including four-wheel drive and a supercar, which has now pretty much become standard fare. The 959 was really the first car that had that.

1:42:32After the 959, Portia 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. Portia built a Mercedes-Benz, which was called the 500E. It was a mid-size sedan. Mercedes didn't have the capacity or didn't really want to do it. They built a sedan for Mercedes. That's in the Portia factory in Zufenhausen, in Stuttgart. Who designed it?

1:42:56It 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. 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 it just sold it last year.

1:43:22It 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 to compete with our cars as a coupe, you know, a sports car, so if you build the station wagon, which essentially touched off the 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 RS2 had Porsche brakes, the 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 its new car. It's Zufanhausen. So when you say- They're just mortgaging the brand. They were desperate. They were completely desperate. So when you mentioned 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 of years ago.

1:44:16And like I gave the tour and worked there for like 25, 30 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 gone Wow, 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 You can be our contract manufacturer. Like when you have union contract, maybe this was part of the circumstance, you have union contracts to get paid these people, whatever, you're not going to make money, but like, we're doing it. And it's something, it's a project for you. We'll keep your lines going. Instead of losing money on having to pay the bill, well, yeah. Right. Wow.

1:44:58It 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. Not that long ago. Not that long ago. That's crazy. It wasn't like this was in the 50s. Like we were alive. This was real stuff. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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1:47:06So David, this thing that Doug just referenced to me, the money they charge for colors, you can do a thing today where you go to buy a Porsche and they're 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 911 in this year. I really loved this paint. You can pay them something like $15,000.

1:47:30for your Porsche to be in that particular. It's like a library wine. Yes, exactly it. 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 15 ran for a color, people are like falling all over themselves to do it. Now, why not? The other thing that it's emblematic of, which I think we haven't really talked about yet, of what makes Porsche special, is this unbelievable heritage. Like the design language that they use.

1:47:59What the 9-11 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 in 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 want to make sure that We keep you along for the ride and you can continue to love us today. Right. If you as a child wanted in 9-11, 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. It's so funny. I feel like the sales cycle for a 9-11 has got to be 40 or 50 years, right? Like kids fall in love. And then...

1:48:45You can't really buy one until you're in your 40s or 50s. 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 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.

1:49:10So 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 rise from the ashes after this 80s period? That's a good question, but you have to assume they didn't expect in 1948 that they would ever even be in the position to deliver that, right? In 1950s. Also, like you said, I hadn't quite thought about, but I was planning to tell this story of like, Oh my god, Ferman wanted to kill the 9-11. What a dumb idea. It was like natural. They killed the 350. That time. The natural thing would have been to kill the 9-11. Looking back on it, it's insane. 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. Okay. So, porches in this tail spin. The two eras that happen next are both equally amazing. So in 1993,

1:50:09A guy named Vendolin Vita King gets appointed as the CEO. Now, he had actually started his career with Portia in the 80s. As all this crazy stuff is happening, he was like a loud voice of protest against all the, you know, shoots and, um, Ferman era decisions. He resigned and left the company. They recruit him back in the early 90s to take over his head of production.

1:50:36and he implements the Toyota production system at Porsche, which they must have been like the last auto manufacturer in the world. I don't know if Ferrari uses the Toyota production system, but like this wasn't a new technology at this point in time. Right. Remember, Porsche is bleeding cash being more efficient and more profitable in your operations for whatever cars you can sell is pretty important. He's like the Tim Cook of Porsche here. He gets promoted to CEO. And when he does, Speaking of Apple, he kind of pulls the Steve Jobs return like moment. He cuts the product lines down to just the 9.11. So this is the right thing that needed to be done, but it's also kind of crazy. He kills the 9.44, 9.68. He kills the 9.28. He takes everything back down to just the 9.11 and like analysts, people like car, you know, magazines ask him, what's your strategy for an entry level Porsche?

1:51:34And he says, Porsche's strategy for an entry-level Porsche is a used Porsche. Such a good line. Such a good line, such a good line. So by the 95-96 production year, the 9-11 is the only Porsche model left on the market, which hasn't been the case since the 356. Like, this is kind of crazy. Also, what kind of company makes one product? Like, seriously, what are...

1:52:01Do they believe that this is a transitionary period or do they believe like this is the long-term strategy? No, it's not like we the king was like I am a cost cutter and I will cost everything down like he is Much like he has big ambitions big big big ambitions. This is a transitionary moment He does want to expand the portion of 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 it's survival. I think 9-11 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 9-11? And so what he does is he says, let's take the front end

1:52:54of the 9.11, of the next generation 9.11, the 9.96. 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 in the rest of the chassis of the car, revived the old 9.14 concept that was so successful, mid-engine roadster model with a... How would you describe the...

1:53:21It's not a convertible. Yeah, no, it is. The boxer was a full convertible. Yeah, yeah, yeah. And it's also important to point out the interior is almost entirely shared as well. Oh, the interior is very, yeah, like the steering wheel and the wheel. All the buttons, in fact, if you get into a boxer, 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. You can't put a coat in the boxer. The seat is right up against the, but they shared everything. Ah, interesting. So, Doug, what you're alluding to, this is...

1:53:49the 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. Not that stupid quote that Ferman had of like, this is for people who don't want to 911 and don't care about performance. It's like, no, no, this is a freaking Porsche. It's shared the design language. It's shared the design language. And I think Vita King's thought was...

1:54:10The entry level Porsche has always been looked at as a second-class citizen, like Ferman 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? The answer is, make it look like a 9-11 and make it literally share. I mean, it didn't even just look like it. Literally had the same fenders, the same...

1:54:31You know, headlights and hood, and also from a production and profitability now. Right. This is so great. You're now sharing so many components, not with another auto manufacturer, but with yourself. Right. So Doug, what's the difference then at this point in time between the 9.11 and the new Boxster? The thinking was that they would continue to move the 9.11 up market, 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.

1:55:00They had 200 horsepower and the 9.11 of that era had about 300 so it was a significant difference plus the 9.11 was just more of a it was bigger it was wider it was faster you know it was a more it was more of a muscle car is it fair to say that um then and I think maybe even especially now with the boxer and the came in the came in is the hard top model of the of the boxer it's also a different kind of experience philosophy. And it has over time it has evolved even more significantly from 97. Now the 9-11 is kind of playing more of a luxury car like touring car roll, a most where, you know, with the special colors in the stitching and all that. And it seems like the more Porsche is focused more of its sort of true sports car efforts on those, the mid-engine cars as they call them, the boxer in the Cayman.

1:55:46Yes, 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. You're like, oh, you know, I'm buying the best version on the market of this particular product. And it was mid engine again, so you, you know, arguably it was the correct place for it. It felt like a true Porsche sports car. For the first time, Porsche's, you know, entry level car felt like that in decades. Yeah. So Vita King has this awesome quote about the strategy for this.

1:56:14We didn't want to flee from the competition into higher prices, meaning like not be in the entry level market at all. He says, we don't want to be Germany's Ferrari. We don't want to 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 Vity King and Don Valentine of Sequoia capital would be like brothers in arms here, like they're targeting big markets. That is the strategy. But they're targeting them in a Porsche way. So Vity King, like...

1:56:43I 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. And this, I mean, I even as like a teenager at the time, I'm not being that much of a cargo. I just remembered people like Porsche is making an SUV of these people lost their freaking minds. Like who on earth would buy a Porsche SUV? Also, I got to say like maybe All cars were kind of ugly in this period, but I remember when I looked at the first cayenne, I was like, so it's like a Toyota. It wasn't the most attractive car. There's no question about that. Everybody hated the design. And you know what? It's been 20 years. It has not grown on you. Yeah, the McCahn looks really good. The new, the new kines look great too. Honestly, ever since they redesigned 2011, but those early kines, you see them now and you're like, still ugly.

1:57:33It also just doesn't look like a portion to me. There's not enough that's brought through from the heritage of the, I need to describe the back on 9-11. Right, that's sort of like slipping. What happened was, the Cayenne was an interesting situation because Portia was kind of a first mover. They weren't exactly. Mercedes came out with a SUV first in 1998 model, your Colby M class, which was like, that was a revolution. And they built it in America, which was a really big revolution.

1:57:58BMW came out 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 no three. I mean, they beat Audi, Audi didn't come out on the SUV until it was seven. Porsche was there, like early, early, early. So what the problem was, Porsche had no clue because they were early. They had no clue what to do. And so, I remember at Porsche Taunt when I worked there talking to some of these people about the early clients. Porsche literally didn't know what to offer in an SUV. To the point where they actually legitimately asked some of their American employees, do we need to offer gun racks as an option for the American market? They just didn't know. They literally, they were only building sports cars and they just, they had no concept, no concept of like what people would want and what the early clients had an optional spare tire on the back. Like, like Jeep Wranglers do. Like you couldn't get that. You said I didn't run.

1:58:55Part of this was a cultural, you know, German thing for sure, but not understanding America, but I don't think anybody understood. I don't think there were any...

1:59:04Super expensive SUVs on the market. 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 Cayenne's actually have an unbelievable off-road capability. They have the two-speed transfer case, they can go to high-low gearing off-road, they have air suspension that can lift them up and lower them. They had all these off-road hardware that like...

1:59:31you would never put in a luxury performance SUV now. But because Porsche didn't know what customers would want, they decided to give them everything. And so the result was, it was a big, bulky, heavy car to carry all this hardware. And so it looked, 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. Yeah, I think a few things to say about it. There wasn't anything else that was like a...

1:59:55I can spend a hundred thousand dollars on an SUV. Right. This was before the days of an escalate even. Kayan came out in 03, escalate came out in 99. So it was, it was the escalation. But it was like 40, 50 grand, right? And they were just, at that time, they were just taos that looked nice. Like now escalators become a real thing. But at that time, it wasn't, Portia was really pushing into some new territory. You're like, it was a crazy decision. And SUVs were becoming so important in America. I think they were just like a lot of wealthy people out there and a lot of status focused people that were like,

2:00:25Yeah, there's an SUV I can spend a hundred grand on. Yeah, take my money. And also, there's a practicality of, I kind of need a minivan, but I don't want to drive a minivan. And so I'm driving this new emerging class of SUV. But if I have money, I kind of want the Porsche version of that. And in Porsche, I must have been thinking, Hey, we've got all these customers who love our sports cars. We have this brand name that's always been associated with performance. How else can we hook these people? They have families. Right. And so, and by the way, with those families, they're buying an X5.

2:00:54And it's like, why don't we? Right. Yeah. And the danger here, if you're at home and you didn't know how this ended and you're a smart business person, you'd be thinking, well, this is going to borrow against their brand. Right. Like this is going to 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.

2:01:22and it has not borrowed against their brand. It is increased the love for the brand. I think because 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 993 911 and then also done the SUV which they partner with Volkswagen.

2:01:42with Ferdinand Piesch. It kind of makes peace between the two countries. So Piesch is running Volkswagen, and the time comes up with the TOR egg, which was Volkswagen's SUV. And that served as the basis for the original Cayenne. Really? Yeah. Porsche starts a new, whole new production facility in a new part of Germany in Leipzig to make it. And then ultimately shortly thereafter, makes this car the same.

2:02:08And production facilities. That's right. They were built in the same place. And I think that goes back to the point you just made that Porsche, 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, reinvesting the performance like you said. And so they used this new factory that Cain was built in to also create this supercar.

2:02:34And that was important. It really showed people, hey, they might be making an SUV, but they're also making this, so they're legit. For people who are just listening to the audio, this is the Carrera GT sitting behind us. The Carrera GT. Okay, we've alluded to this amazing machine behind us. Like, what is this thing? The Carrera GT, in my mind, is the greatest driving car ever built. And a lot of people actually said it. It's not objective by any means.

2:02:57But a lot of people who have driven this and a lot of other cars feel that way about this car. It was a true analog super car, which means manual transmission. There's very few driver aids in this car, like you'd get in a modern car stability control, traction control, that sort of stuff is either non-existent or heavily dialed down. Full carbon fiber body, 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 One racing.

2:03:25And 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 One engine, it didn't work out. It's a little bit like the original 911 engine that for an MPS design for racing, but then only made it into the... Right.

2:03:40It's exactly like that the crazier thing here though being in that time you could do that because there were no emissions regulations the concept of taking a race car engine today and putting it into a road car is just not existing like to get a lemma or formula one engine homologated for road use is just like mind blowing so that's that's the cool thing and this car has.

2:03:59It originally came out, you know, in this era 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 that sort of thing and this was kind of the end of the end. My sense is this car too has a reputation partly because Paul Walker died in it.

2:04:24Unlike a lot of porches in the 911, this is something that you need to be really know what you're doing to operate this thing. If you let it get away from you, it'll kill you. Yeah, it has a reputation for being difficult to drive.

2:04:40which I think is somewhat unfounded, but also especially by modern standards, cars have gotten so much more powerful than this, you know, a new Audi RS3, which is just an Audi, high performance Audi sedan that you can buy for $65,000, $70,000 faster than this car's here to $6,000. It's not that crazy by modern standards, but at the time, it certainly was something. But I guess like today cars, like there's so much stuff, technology and cars to design and keep you from like...

2:05:07doing stupid stuff. And 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. And Paul Walker died in one. And there were some other deaths, too, that weren't quite as high profile, but there were some serious accidents and some people died in them. And maybe still well, you know, it's still out there and it's still a dangerous car. 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. Right. It's like a artist. It's like paintings. Yeah. I think that car people had always known the car heads kind of this reputation. They weren't like lawsuits against Porsche about this. Porsche got sued. Yeah. One went to jury trial. Porsche was found liable, at least partially liable. Wow. And that's a big deal if you're an automaker because they got 1,300 of these out there. Right, right. Cause you find liable in lawsuits. Cause production was the value of the car now. Like production was initially intended to be

2:06:04higher than they ended up being they stopped it early and so they had 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 card 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 0708 you could get them for 250 all day long And now you can't, they don't exist under a million dollars. It's a crazy thing. Should have all invested in career GTs. Apple stock or career GT would be a lot more fun to own. I don't need seven of them or whatever. But it would have. They all completely took off. Wow. It's funny. I thought that this was going to be a fun little digression about the career GT, but I realize now actually this is a super important point to the business history.

2:06:52while 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 and to do it on the same production line as the SUV. It also helped legitimize that facility.

2:07:08Because up until that point, except for the ones built in Austria, all of the porches had been built in Stuttgart in Zufennhausen and 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, we're building SUVs, but we're not strained too far, we're still doing our thing. 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 went to participating in the brand story. They were also releasing $100,000 or $200,000 special handbags that were new products or new collaborations with other designers that sort of told you know, we're still Louis Vuitton. We just have this other way to be a part of our brand. Right. And Porsche would go on to do it again, which I'm sure we'll talk about shortly. Oh yes. So on the back of this like incredibly bold.

2:08:02plan and turn around and success by Vedic egg. 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. Crazy. A better investment than a career GT in fact. So they never had to have any like help once they scraped that bottom of whatever was $400 million market cap. No proportion is saved. It will be independent forever. Families will never have to sell that equity research analyst can eat his words. No, not quite.

2:08:46Uh, there's another chapter to the story. So that's a hundred X market cap growth. Is that right? Did you say three hundred million to 32 billion? Yes. That is a hundred X market cap growth in a decade. Occasionally, there are these hundred baggers available in the public markets. 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. And it was portion. It was portion of all things. I suspect in most of these cases, though, to take advantage of it, you would have had to have kind of been insane.

2:09:16Like to have invested in Porsche at that point. You would have been 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.

2:09:30Uh, how do I get out of this stuff? Like, where do I go? Especially because he was the fourth CEO or whatever. It would definitely, I don't want to be any part of it. Clutching its straws, it would seem, but it's like buying Amazon in 2001 or two and things looked the absolute bleakest. Like, that's how you could have gotten a hundred bagger on the public markets. I maybe even a thousand at this point. But like, come on, who would have actually done that? Yeah. And the 32 billion euro market cap, it's not crazy because by this time, Porsche is doing almost two billion euros a year in operating profit. Turns out these SUVs and making only super cars is a very profitable. A lot of margin there. And China was starting to take off at this time too. So the final sort of chapter to the Vita King era on the product production side was the Panamera, the sedan. Porsche makes the sedan. Now, Doug, I'm curious with your thoughts on the Panamera.

2:10:28I could always also have been like, portioned me to sedans. It's kind of weird. It looks kind of weird. 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 that Panamera and the Cayenne, too, really helped Portia enter China. No question. Looking back that has become especially true as Portia's business and all luxury brands business 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 place we want to compete. Let's replicate the success we had in the SUV. 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 full product suite, just like everyone else. Probably that 100x growth. Don't you think? I mean, I think they looked at it and said, holy crap, Boxer made us a ton of money, came and came and it made us a ton of money.

2:11:25Kayan showed up and made us a ton of money. We got cash. Let's go after 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 Kayan. And honestly, it would have worked and did work.

2:11:43It was not what brought down the company not at all like you think like if you were naively following along you might think and then they got too big for their bridges and you know right they expanded the product strategy too much and the brand came crashing like no no like this works and it it worked beautifully just ultimately under different ownership so let's talk about 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 spitting off cash flow and incentivizes reinvesting. At this point, under Vita King, 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.

2:12:42So 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 Vita King, and they were looking to recruit him to be the successor to Ferdinand Piesch. We're now in... Work the first time to pull the best guy over at Porsche over. Let's do it again. So I think...

2:13:12Uh, Ferdinand Piesch took over as CEO of the whole VW group. I believe in the same year that Vieta King became CEO of Porsche in 1993. Ferdinand is 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 Vieta King gets rumors of it. Vieta King's really, you don't kind of feel on himself here at Porsche, right? Like, uh, he's hard to imagine a better run.

2:13:38He gets the idea. He kind of has like a sort of Justin Timberlake social network moment of, you know, million dollars isn't cool. You know, billion, you know, it's cool, billion dollar. Being CEO of Volkswagen isn't cool. You know what would be cool? If we at Porsche bought Volkswagen, I'll become the CEO of VW Group when I buy you. Remember, though, for an MPS.

2:14:06is Chairman and CEO of Volkswagen Group. He's also a PS. He's also on the supervisory board of Porsche because he's also a key member of the family that owns Porsche. Yeah, the sitting active CEO of Volkswagen as a family member of the Porsche PS family has voting shares in Porsche. Yes. And he's on the board, the supervisory board of.

2:14:35Porsche. So they thought they were done with the family drama here. It's turns out there's there's another chapter. So isn't it obvious then that it would be hard for Porsche to take over Volkswagen? Well, 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 Portia. So I believe certainly to the public and probably also to the families, Vita King positions this as like, hey, we're deepening the partnership. They don't announce like, hey, I'm trying to take over VW out of my seat of Portia. September 2005, Portia spends $4 billion to acquire 20% of the VW group on the open market.

2:15:32is kind of a little creeping takeover vibes that you alluded to in the intro. At this point, Vita King and Porsche's CFO joins the Volkswagen board. And then they keep buying shares, but using another patented Bernard Arno technique, they do it mostly using various derivatives and options contracts.

2:15:54so they're buying the rights to buy shares in the future. And that's usually ways to get around regulatory stuff, right? Then you're not exceeding caps if you're buying derivatives rather than the shares themselves. Yes, and in VW's case in particular, there was actually a law in...

2:16:12on the books in German law called the Volkswagen law. This is crazy. 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 German auto company that would try to take it over. So it was impossible for an actual direct takeover to happen.

2:16:40I'm literally going to 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%.

2:17:07Yes, and part of the reason this all was able to happen is there was a lot of speculation that this German Volkswagen law would be illegal under new EU regulations. In 2007, Vatican creates a new, separately publicly traded holding company for the family's ownership of Porsche. So there's still the Porsche operating company, the old Dr. Engineer, you know, AG operating company.

2:17:36There's now a new holding company that owns 100% of the operating company and the VW shares that they've been acquiring. And this is Porsche SE. Porsche SE holding. And here's where things start to go awry. Vita King 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.

2:18:06this holding company. He's got Ferdinand PS signing off on this. Right. Like, why would PS go along with this? I think the best as I could figure out is that PS was not happy with the then current CEO of Volkswagen and was looking for a way to get his first successor out. So he clearly he was trying to recruit VD King too. So like he was benefiting from this too. Right. Yeah. He was going to have his cake and eat it too. I guess. Right. Heads I went tells you lose.

2:18:35Yeah. 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. Just because remember, the German state of Lower Saxony still holds 20%. Porsche now owns more than 50% because they had kept buying after that 25% using all the cheap debt and they got all the way up to 50% right so that only leaves 30% left then you've got all the insiders like you know p-s and everybody else like who knows how much equity they hold plus maybe some long-term holders or funds that aren't going to sell the amount of vw shares trading hands on the open market shrinks to pretty close to zero and we know that you know markets are supply and demand just like this car sitting behind us if there's not a lot of supply available prices are gonna go up didn't

2:19:33They go up so much that Volkswagen, like, briefly became the most valuable company by market cap in the world. Yes, they did. So, as all of this is happening, Lehman Brothers collapses. Which this is, you know, this is the black swan event that Vita King couldn't have predicted. Like, he's not dumb. He knew he was taking risks here, but like, yeah. So Lehman Brothers collapses.

2:19:58And 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. Here's all the demand for borrowing the shares to do the selling. So you would think.

2:20:22that this is like the best thing that's ever happened to Porsche and Vita King. 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 75% in order to consolidate VW's financials into Porsche. And so they had announced that their intention was to buy up to that threshold and to get there. So you think this is great, but this is terrible. This is the undoing of Porsche and Vita King because they've got this debt.

2:20:51Lehman's just happened, so clearly they're not going to be able to refinance any of that. And yes, VW share prices in the stratosphere, but it's not sustainable because if Porsche were to start to sell any of their shares, which they're going to have to to service the debt really soon, the share price is going to completely crater because this is an artificial price. It's just because of the short squeeze that it's that high. So Porsche now is completely trapped.

2:21:20They can't sell to service the debt because then the share price will crater. They can't buy it because they can't take out any more debt. So they're just kind of like stuck in stasis at this point in time. Why can't they sell? Because if they sell, they get a bunch of cash by not liquidating that many shares because it's so valuable. They're not going to be able to sell that many shares at this price before the price craters. Right. So they basically can't get because who's going to be buying? Lehman just happened. Right.

2:21:49Wow, fascinating. So at this point, yes, a burden and good old burden, who hasn't moved a single piece on the chess board. No, he's just watching. He's on the Porsche board, and he's still chairman of the VW board. He's no longer CEO, but he's still chairman of VW. This is when he turns on VW King. So he and Volkswagen announced publicly to the market that they no longer believe that Porsche is a financially viable entity.

2:22:19As a deep trusted partner, we believe. And they say that they have to say this because Porsche is a greater than 50% owner of VW. And so they have to disclose this in the market. And that as a result of this extraordinary circumstance, VW, led by Ferdinand, is willing to bail out their partner, Porsche.

2:22:47and save them by purchasing the Porsche operating company for the neighborhood of three to four billion euros to get them out of this predicament. Wait, and then just to unpack the statement a little bit more when he's basically saying to make it more explicit is a key partner of ours went so deeply into debt to try and buy our shares that they can't service that debt and are now about to be insolvent and defaults on loans.

2:23:18So therefore we will help them out by what is it buying them for They they floated a price of three to four billion euros, which remember like a couple months ago this company was trading at 10x that Whoa, this is literally Ferdinand saying to Vita King if you come at the king That's not this Exactly what is going on Yeah, well indeed. So there's a whole flurry of negotiations. You know, this is all against the backdrop of it being October 2008. Within a few months by January 2009, Vity King 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 kind of deserves even though like all of this craziness, he did go a bridge too far like he did save the company.

2:24:14VW does end up buying Porsche, the operating company, in two tranches over three years. They buy 50% upfront three years later in 2011. They complete the purchase. It ends up being about eight and a half billion euros total. So between that opening volume of three to four and the 32, 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 MPS families and Ferdinand. They emerge as the largest shareholders, the families personally in VW group. So Porsche SE, this new holding company they created that was buying VW shares. Yep. Already owned 50% of VW and then VW paid eight and a half billion dollars to buy Porsche. So the families own

2:25:1350% of VW. And they just got eaten 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. Oh my God. So post both tranches after Porsche AG, the operating company is fully owned by VW.

2:25:40What does the family own? 32% of the VW group, which remember now also owns Porsche, but they have over 50% of the voting power. So they control VW group. It's so crazy. VW the company bought Porsche of the company, but really Porsche the family owns it all owns it all. And they just got an eight and a half billion dollar cash out. Wow. Yeah. Crazy. So here's the thing now.

2:26:11We're now in 2011 when the second tranche of the buyout happens. We're deep in the great financial crisis and the recession. Portia, the business, it's fine. The drama is all around Portia, the hedge fund, and the financial shenanigans and the families. The actual operating business, the car's sales are fine. Portia has one down sales year, only one during the financial crisis. And then everything else is up. A big part of that is the investment in China. And China starts really, really growing through the early 2010s for Porsche. Also, this is when they come out with the 918 spider. Their next supercar at this moment in time, there's all this. Oh, Porsche is now owned by VW and consternation. They're like,

2:27:05Yeah, we can still make the best cars in the world. Yeah. And the 918 helped to introduce black plug-in hybrid technology, which Porsche knew it would be going in that direction. And so the 918 was like an example we were talking about before of how they like covered the Cayenne with the Courier GT by saying we're still doing this. The 918 helped them say, hey, we're going to make hybrids, which is viewed as this like.

2:27:27cheap, you know, like little car, the Prius, and so you think, well, here's the hybrid, and we're gonna do hybrids, but we're gonna start to top down with this crazy, crazy super car. Talk about super cars for a minute, because I think it's important to understand, like, they don't always make a super car, right? 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 we'll drive, and this car was kind of this new production facility, and the 918 was the...

2:27:57plug-in hybrid technology. And how many years did they make them for when they decide they're going to do it? It's a short model run. So this car, they made 1270, 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. It's biggest rivals at the time, which were the McLaren P1 and the Laferari. They didn't combine to make 918 of those. But the 918 spider is what a...

2:28:21$2 million car. These days. Yeah, it was new. It was like $9,900 or so. Maybe a million after you got a bunch of stuff and it's double. It's done well. All the super cars have done well. Well, I bet I'm sure you'll talk about this in a minute, but Portia is the master just of like, there is a base price, but you're not going to spend the base price. You're going to spend like 40% more than the base price. But even if you figure out the base price was like 900 grand, they made 918 and you do the math.

2:28:48Doing a super car 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. And so this super car was a plug-in hybrid. I don't think I ever knew that all super cars are now, but the 918 spider was Porsche saying we're gonna go into this plug-in world because they knew what was coming up and we'll get to in a second with the tycoon, but they knew what was coming out the hybrids and electric cars were gonna be a thing and so instead of introducing that with a with a SUV for example, which is where they should have, right? Because that's where the market wants it. They said, no, we're going to do the supercar and show people we're going to do it and we can do it well. And then we'll trickle it down. What did the car world think of that?

2:29:26It's important to keep in mind that the 19 spider being a plugin hybrid, it had an electric component, but it also still had a massive V8 in it that had a zillion horsepower, screaming, I don't know. And it was the same with a lot for already in the McLaren P1. They still had massive engines also, so it was fine. The next crop of supercars will probably be full electric. And so that transition, I think, is going to be more controversial. The interesting thing that seems to be setting Porsche apart now, though, is that they're standing behind it.

2:29:52Ferrari has already said that the technology is old, all the plug and stuff, we don't want to be any part of the Lafayette. And so like, no one's really sure how that's going to age. Oh, those are going to be orphaned cars. Exactly. Orphaned multi-million dollar cars. Yeah, exactly. It's a scary situation if you own that car and the battery's gone. You don't know what to do. You go to the supplier.

2:30:09But 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. But that's the smart brand thing. It is the smart brand thing to do. But it's not easy. Like if you really think about it, plus Ferrari, they don't need to. They don't care. They're gonna make the next one the next one. They keep finding rich people. They only make what?

2:30:3013,000 cars a year at Ferrari. Yeah, it's a small operation. So like, Ferrari just, it's still don't really care about their customers all that much. What's the rule of luxury dominate your customer?

2:30:41Ferrari was owned by somebody at some point though, right? Yeah, there were all these, oh god, Ferrari's a story that is a crazy one also, but the fiat group eventually had stepped in, because Enzo had just driven the company to, but in his pursuit of racing, had like driven the company to finance. It wasn't his pursuit of video derivatives. No, it was quite different. It was actually a very Italian thing versus the pursuit of dreams, kind of a very German thing. Yeah. But yeah, that was a real bad situation also. Oh, none of those companies were independent anymore. It's not, it's not really possible either because of the way that regulations are structured.

2:31:10especially fuel economy, you have to spread out your fuel economy over your corporation and you have to hit certain targets. And so actually, in some senses may have worked out well for Porsche because it would have been difficult to get Porsche to kind of work on the corporate average fuel economy standards because all their cars are kind of inefficient. But because they're under the Volkswagen umbrella, you can kind of get that whole spread and it works a little bit easier. All right, listeners.

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2:33:11So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. Yeah, okay. Well, great. So this is perfect to wrap up on the history of Portia here. As part of the VW group, they come out with the Macon.

2:33:32which is a huge success. Yeah. Both in the America and China. And this is the mini compact SUV. Right. The Cayenne is the mid-size and the Macon is the compact. Okay. Exactly. And a lot of Volkswagen stuff shared with all these cars. Engines are shared across tons of model lines now. Yeah.

2:33:49which is such a departure for a Porsche. That's right. It's for an engineering company to do this kind of sacrifice. But the engine in the Cayenne Turbo, which is the best Cayenne is in, the Lamborghini Urus, an Italian car, the Bentley Bentayga, a British car. But Volkswagen owns all of these. It's in the Audi RS6 and the Audi SQ7. It's like, everything is now just spread across all these brands. Is it a little bit echoes of our Lockheed Martin episode that we just did? The heritage of...

2:34:14The great airplanes, the great porches, is this independent and engineering small team culture, but to operate today with in the content you have to be part of this. So the Macon's a big hit, and then we just alluded to it with the Tycan, the Mission E is the concept that they introduced in 2015. So pretty early, I guess the...

2:34:34The Tesla Model S came out 2013, 2012, 2012 model year. So Porsche was pretty early with the concept for, for mission. Yeah. Yeah. Not everybody was sure that was going to catch on electric vehicles. I don't know. I don't know. I don't know. There's a lot of people were slow as a result. Yeah. Um, in fact, like entire nations were like, Japan is five years behind everyone in electrics. It's the weirdest thing. It's like they just like woke up last year and we're like, oh my god. This is going to happen in the car world. I mean, at least five years back Toyota just started. It just came out their first electric car like yesterday.

2:35:03Like, I'm not exaggerating. It was like eight weeks ago. We had to talk about that another day on a choir. Like, how did that happen? I mean, they were the... How did that happen? They were the forefront of hybrids. Totally. The Prius, they invented it all, and now they're like, electric. I don't know. They're still like waiting and seeing on electric. Wild. So the take on comes out. It's a very phenomenal car. Like, I think people are a little unsure at first, but then it's super well received within like three years. Yeah. No, it's been well received. It drives like a Porsche, which I think was everybody's fear about an electric car.

2:35:32that you lose the engine sound, you lose the feel of it, but the Ticon does indeed drive like a Porsche. Why do you think they came out with this sedan? It was a mistake, for sure. Yeah. I think probably because development started about when they started Mission E and that was in 15 and sedans were still a big part of the market. But most brands now that are coming out with electric cars is their first car or are coming out with SUVs. You look at Rivian, pure SUV and truck, Hummer EV, there's a ton. I think Porsche made a mistake. Yeah. But...

2:36:01Relative to the other traditional auto manufacturers. I get the sense Porsche you got to be in the top tier of like best positioned for an electric future. Yeah, yeah, no absolutely and they'll continue to innovate. There's an electric icon is coming soon. So they say and so it'll be fine. And Tyconn, I mean, one could argue that Porsche needs to come out with an electric sporty car first because. If you come out of the electric SUVs, that's your first one. It's like, eh, they have no plans for an electric 911, right?

2:36:31I mean, that's what they would have. They would tell you if you asked them, that's what they would say. But let's be honest here, like the future is electric. There will be electric versions of all these cars. And probably within our not so distant lifetimes, they will be purely electric. Interesting thing about the Tecon. So you mentioned the next super car will be on an all electric one. I haven't driven in a Tecon.

2:36:54I have watched videos of people driving into it. I'm like, what do you, what else do you need to do to make this a supercar? You know, the thing about electric cars is they all can accelerate incredibly well. And that's like insane. And TyCon is faster than this. It's faster than everything. It does zero to six and like two seconds. But it's ridiculous. Isn't it also like tuned to drive like a track car where your 15th lap is gonna be just as performant as your first? Yeah. And so it's beneficial in that too. But at the end of the day, a four-door car, especially one that's made in not limited quantities, is never gonna have the effect that like a supercar halo car has.

2:37:24On like really showing people what a brand can like do and so they will I suspect in the next couple years they will come out with a the next super car which will be You know look like this and they'll only make a thousand and it'll cost two million dollars and it will be fully electric into zero to 60 and one and a half seconds and even more What do you what did the performance characteristics of the next generation of super cars can look like like what do you?

2:37:47Humans can go. I think that will continue to help the values of these cars increase because at the end of the day, as cars age, they all get slow. This car is now modded that fast by modern standards. So you start to look for other things that make them special, which is the feel, the sound, et cetera. I had a press car dropped off the other day, a Kia EV6 GT, which is the electric Kia crossover. It is sized and designed to compete with the Toyota RAV4.

2:38:14Okay, but this is the high performance version does 0 to 60 in like 3.2 seconds. It's faster to crudity. So yeah, like what is a supercar even mean anymore? Like ultimately like what is it offer that a Kia EV6 GT for, by the way, $51,000 does not offer. And the answer just has to be like, it's lower, it's wider, so it can, it handles better. I mean, that's one of the big missing things from a lot of these fast accelerating electric cars is that they're not necessarily like sports cars, really. They're fast, but they're not really sports cars. And so I guess that's going to kind of be the future, but you're right. Power is being democratized. Everyone can now access a car that does 0-16 in three seconds. Right. And so I don't know. It'll be interesting to see how the sports car responds. Well.

2:38:54So that brings us to today, or I guess more accurately last fall, September 2022, when VW Group re-IPOed, Porsche. The Porsche re-IPO is the largest European IPO of all time. The initial market cap of Porsche at trading was about $75 billion. Today that's up to about $115 billion, call it nine months later.

2:39:23As the investment bankers would say, like there's a lot of value unlocked by making this its own company, which I think is legitimate. I think there's an element to being able to own one of the premier luxury companies in the world without having to come angle it with a bunch of other stuff. And so like all shareholders of Porsche can purely just be shareholders of Porsche. And when you look at the financials and you understand, like, okay, they have incredible margins relative to you look at the rest of VW's portfolio. Yeah, it's fine. It's interesting though, like dug to your point operationally, though, you can no longer extricate these companies. So you can financially extricate them. But importantly, but even then, how do you, how do you financially extricate like development costs of a powertrain that's used in multiple vehicles or a platform? I mean, the type you mentioned, there's an Audi version of the Tycon called the Etron GT. How do you, you know,

2:40:17It's all it's all intermingled. So yeah, if it's not actually operationally any different, then you do have this question. We're like, okay, value was unlocked by just looking at the market caps, but like actually what happened there is you got better at marketing a security. Right. Not you literally created value inside the company. So it's interesting. Ludwigson Carl Ludwigson who wrote excellence was expected. He published a new edition of it.

2:40:42last year and in the forward to it. He said the reason I did it now is that the old independent Porsche is done. Like this is a completely different company now and I can fully put a bow on that original Porsche. So even though there was a re IPO of Porsche, it's never going to be the same old independent Porsche. And by the way, you can choose to buy Porsche AG, the independent spin out of VW.

2:41:09or you can also on the stock market go and buy Porsche SE in the family building company. I didn't realize that it's still on the market. So some other interesting things about Porsche today, the family, as we mentioned, is complete control both of VW and Porsche. So in some ways, it's still the same old Porsche, even though it's all commingled. Here's the sort of nail in the coffin in my opinion argument on, is it a separate company or not? All of her bloom is both the current CEO of VW Group and Porsche. When you share production facilities and you share distribution and you share a CEO and you share components and you, like, at what point, in what way are these separate companies? Right. I guess Viet King was right. He was right in everything that he was doing. He just, he didn't win the game of thrones. Right. Fascinating.

2:42:04So digging into the business a little bit, they do over $40 billion a year in revenue right now. When you look at the breakdown of that, interestingly enough, two-thirds of it has come from SUVs. And there's a good amount of it that comes from the Taycan, too. So the 9-11 has sort of grown slowly over time. The 7-18, that's the Boxster Cayenne. Not a lot of revenue coming from that.

2:42:30Yeah, that's the fourth car sales just slow. This is not the same, but it helps give them more legitimacy. Yes. And the Panamera does have pretty decent sales, but still nothing compared to the monster, that is the SUVs. Yeah. When you look at where they're sold, this is quite interesting. China is, as Portia would account for it, their largest market. But the reason that I put that caveat in there, because it's at 26% is China.

2:42:56They split out Germany from Europe and call them two different regions. So they have Germany Germans like a true German would. Like Germany is 10% and rest of Europe excluding Germany is 23%. So you know it's all of Europe together would be bigger than China but Germans. One of the interesting things is you know the Chinese only buy four doors.

2:43:18They only want four door cars. There's almost no- because there's no heritage of Porsche and China. It's a luxury good. It's a cool brand that sells SUVs. And there's a lot of chauffeur-driven vehicles there. And so, like, they don't- it's almost none as sports car sales in China. Wow. Hard to believe. But we think of Porsche as such a sports car brand. It's like part of the ethos of it. They're just like a client. Right. Wow. Yeah. I mean, we're used to it now, but I remember the first time I was seeing Porsche SUVs, it's like, well, that's- that's a sports car brand. This is weird. Right.

2:43:46But for them, they never had the sports car brand. So it's just like normal. It's crazy. North America is very close to China. It's 24% in terms of sales and then the rest of the world's about 16%. So interesting thing when you start to look at both the amount of cars that they make now because it's huge and the margin structure associated with that. So last quarter, they delivered 80,000 cars. And that's growing about 20% year over year. So that's quarter. They delivered it. Yes. Wow. So.

2:44:16Last year they delivered about 350,000 cars. So this really is a scale organization at this point. This is not Ferrari. This is not Lamborghini. These are mass manufactured vehicles. And I know they would say, oh, we're not a mass market thing, which is true. In some ways, when you your average selling price is $110,000, but like If you're making 350,000 of something, that's a mass market brand. Yeah, it's interesting. I compared the brand to Rolex earlier. I think from a brand perception, that's true. But from the operations of the company, it really is Louis Vuitton. Like they make a Louis makes a lot of stuff. This is the correct analog. So I had this in my notes much later, but I want to bring it forward right now. Porsche is Louis Vuitton. Ferrari is Hermes. Yep. And I think that

2:45:08this whole time, while researching, I just had this broken thing in my brain, where I was like, how do they make so much stuff when they're Hermes? And they're not Hermes. They were once Hermes, but as soon as they started making the SUVs, that's not who they are. They have tiered access to luxury, like different luxury products with a shared brand that unifies them.

2:45:31which is funny because people see it as such a high-end brand. It's almost like the SUVs have managed to get under the radar of the people who buy the sports cars. And the sports cars have this still have this elevated viewpoint, even though you can actually go to a Porsche dealer and lease them a con for, I don't know, 750 a month, whatever it is, you know? Right, right. On the scale thing though, there is another order of magnitude up, and these other brands do feel much cheaper. So at around two and a half million a year is BMW and Mercedes-Benz.

2:46:01And it does feel like Porsche is in a much different class than BMW or Mercedes-Benz in terms of the sort of hoi-tweeniness associated with it when you get to drive it and you get to own one. And I think that that clearly shows. And the question is, if they made 10 times as many Porsches, would we all feel the same way that, oh, it's just a BMW? Probably, there should be an inverse relationship between scale and brand perception. But they have managed to find this like mismatch or like to your points, like skating under the radar, where they are able to make a lot of SUVs and still maintain what they have, and the question is, for how long? Or at what scale? At what scale? If it doubled again, it's interesting about BMW, because if you think about it, if you saw porches as often as you saw BMWs, would it be special? Of course the answer is no. So, what do you think the average selling price for a Ferrari is? Across all there? 250. 330. Oh, that's insane.

2:46:59That is insane. Three X's, three X porches. Three X porches. How many forars are made every year? 13,000. 13,000 versus 350,000. Yes. It's so funny because the enthusiast world, there's often a, are you a Porsche person or a Ferrari person? Like they're not really, right? These are two very different beasts. Yeah. And it's fair to be like, are you a 911 plus super car person or Ferrari person? But the rest of Porsche shares the name Porsche, but it's a completely different thing. Right.

2:47:28Yeah, they're nowhere near each other. It's almost like Porsche should go get even more aggregate market cap by like spinning out just there, like hypercar there. The 911. Yeah, like just the real stock car is P911. Is it really? Yeah, in Germany. Man, that's crazy. For three 30. Ferrari's average selling price is three and 30,000. It's interesting, right? Like, I mean, you're Dr. Miro.

2:47:56You wanna encourage ET, you don't own a Macon. Yeah. Well, yeah, I mean, I... But they're cool. I mean, I would get one. I recommend them to a lot of people. But that's a good point. I haven't went and got a Porsche SUV. Truthfully, the reason is ridiculous. I don't wanna drive things of that name brand on a daily. My wife would never be seen in a Porsche. Do you know what I mean? It's the funniest thing because David, my closest friend, drives a Porsche Macon and his wife.

2:48:25drives an Audi. Oh, this is a totally different thing. This says something very different about who I am. She was driving his car the other day and she was like, Oh, I hate being seen in Porsche or that you don't want to be driving around a $75,000 Porsche. And yet this thing that you have is ridiculous. I know. It's an interesting point. I never really considered that. I just I like to be casual for my normal cars also I think that like having the Porsche SUV is kind of like a it's almost more in your face than this like if you bought us we were kind of sewer if you have a sports car if you buy the SUV it's like I Love them by the way they're awesome cars. I just did not for me. Right. It's like getting

2:49:04like the master's logo embroidered on your golf clubs. You know, it's like, okay, I know you didn't play in the master's, but like, okay, that's cool. Right, that's exactly how I look at it. Like, okay, that's fine, but it's not, I'm going to stick kind of low key in my normal life. What do you think I drive? It's got model free. That's a good guess. That's it, David drives, and that's probably what I would. Mazda CX-5. Oh, yeah, okay. Yeah, those are good cars.

2:49:34The portion of a con of the, uh, mainstream concept. Is the Japanese portion of a con? If you ask my colleagues, they would say that, but I think it just isn't normal, but I like them. They're good. I recommend those to people too. Uh, okay. So more, uh, back to Porsche.

2:49:49A couple other interesting observations, just for listeners, trying to keep track of home of like, what do the profiles of these businesses look like? I always think gross margin is an interesting place to look to understand the strength of a brand, because it's basically showing like, what can you mark up over your cost of goods sold and sell it to people and still have them swallow that price. BMW, as we mentioned, 10 times more units of BMW sold than porches are down at 17% in terms of gross margins. So they really aren't Marking up much above their cost of goods in order to ship those cars Mercedes a little bit better at 23% Porsche is at 29% so about 50% higher than BMW Ferrari is 48% So people who are buying Ferraris Do not care what it costs people just pay and pay and pay and by the way the 330 average price thing like that's

2:50:43I'm just like still astonished by that's an unbelievable amount of money. When you really think about it for 13,000 cars a year. And to put it another way, because let's round 48% to 50%. If you have 50% gross margins, it means you go buy a bunch of stuff, you assemble it, and then whatever it costs you, you double that to sell it to the customer. I mean, Ferrari's still charging like two grand to put Apple CarPlay as an option in their cars. I am dead serious. Like heated seats are like 800 bucks extra in Ferrari's. You get the idea. Yeah.

2:51:12Up for our options, little crazy. So switching gears but staying on gross margins, because David, you brought up LVM H earlier. LVM H is gross margins 68%. It turns out you can mark up leather way more than you can mark up cars. Interesting. Like at some point, there is some sensitivity to like, you can't just make every Ferrari cost $8 million because like, there's so much.

2:51:43real hard costs in cars that are just not in other luxury goods. And so you have this opportunity to carbon-fiberate cheap. Unbelievable price premiums in all the stuff LVMH owns. If you can touch it, if it feels good on your hands or it looks good to your eyes or it smells nice, you have the opportunity to mark it up way more than sitting in something that is going to thrill you. How interesting.

2:52:07This is really interesting trying to understand which of these businesses you'd sort of rather own. And gross margin isn't everything, but it is amazing that LVMH is truly in a league of their own on gross margins. Yeah. Going into doing this episode, I sort of wondered in the back of my mind, has Bernard Arno and LVMH ever made a run at any of these luxury auto companies? And if they have not, maybe this is the reason why. Like they're just in a better business. Yeah.

2:52:36It's hard businesses. It's a lot of stuff. It's a lot of stuff. It's a different business and it's a lot. And it takes. Distributions harder. Yes. And it takes a really special type of person and team to run it. I mean, it's engineering and art, whereas there's not engineering in anything that LVMH owns. I mean, I'm sure there's people who work there who's title or engineer, but it's crazy. No, it's crafts. Yeah. It's craftsmen. 60% that's it. Yeah.

2:53:04So if I were to guess I would say maybe Bernard or no has kicked the tires on like Ferrari Lamborghini but more on like licensing agreements than trying to own those businesses because I just don't think it actually works into The rest of the flywheel in the same way like you gotta get a own a factory that makes these cars you gotta do all the R&D Plus, skill abilities harder, and you alluded to the dealerships and the distribution's hard. You're shipping stuff on giant boats all the way across the world and all that. Should we talk power? Moving on how else is there? Let's talk power. Yeah. So for any listeners who are new, and based on the Lockheed episode, a lot of listeners are new, there is a sectionally do called power, which is a way that we try to figure out

2:53:48What enables a business to achieve persistent differential returns above their nearest competitors? So why are they more profitable on a durable basis than other people who compete against them? And this is always a fun thing to try to analyze because you're like, what actually is it for a business that has pricing power that they get to mark up their goods? And so we just talked about Porsche having better gross margins than BMW or Mercedes, but not as good as Ferrari.

2:54:16Ferrari couldn't make the number of cars that Porsche does and maintain those margins. So that's not really a fair like direct comparison in terms of who their competitor is. But BMW also makes 10 times more cars. So that may not also be the right comparison. And this I think is an interesting point, which is Porsche is kind of in a league of their own in making the number of cars that they do. It's like this magical sweet spot where they get to be a luxury brand.

2:54:45without making so few things that you can barely even work with the company. Yeah, they definitely, especially relative to Ferrari, have scale economies being part of the VW group, right? That they can be in SUVs in a way that Ferrari can't. I think you're right that scale economies enable them to be in the SUV business, which has great margins. Yep. And that's a...

2:55:12that that's a thing that you would need to have all these deep partnerships with other other car brands in order to do that or just buy one. Yeah, I think that is a differentiating factor against Ferrari, but obviously lots of other car brands are in the SUV. Right. Business. The heritage is obviously an enormous factor.

2:55:31The brand is the obvious big one. Yeah, the big one. I suspect that the German engineering thing also plays a role. Like I think now not against BMW and Mercedes-Benz, but certainly against like the Japanese. I'm sure their margins are much, much higher than the Accuers and the Lexuses of the world. And they even though when you really look at it on paper, it doesn't make sense. There's there is some level of like this is a the German engineering thing like you alluded to earlier has this incredible reputation that helps.

2:55:57Then this car is just simply built better. It's European, it's German. And does that? I think for a long time that expressed itself in reliability of Porsche's relative to other luxury car manufacturers, today is that as much as reliability as much an advantage for Porsche as it was in the past. Supposedly reliability is still excellent.

2:56:19Supposedly based on the JD power studies and all that. Now, the question of whether it's actually important for people making decisions by the cars, I'm not so sure. How many of those SUV customers are leasing and don't really care if the thing stays reliable? I don't know. But there is some component of just like quality that you just feel. I mean, it's certainly true to get a BMW Mercedes-Benz. It's just not as nice. It's not the same. You have this feel. It's certainly more special. There's a specialness to it.

2:56:46Okay, so moving through them branding, yes, obviously, like especially if you're trying to enter any space and compete with a luxury brand, you don't have the heritage. There's just no way that you have the 75 years of people believing in your brand and thus willing to pay extra margin dollars for it. So that's the obvious one. And you can't manufacture it either. No, like there's, there are, they're not making it anymore.

2:57:14Brant heritage automotive brands, right? They are they're just gonna take 75 years, right? Maybe I mean like the there is never gonna be another situation where the link between racing and Production cars is like it was when Porsche was getting started Yeah, but there'll be another racing like there's another thing I think that's myopic to think that like 75 years from now people won't obsessively care that some new brand was forged in the 2020s that had some others in a sequoid about it that's like the equivalent of racing versus production cars. You could imagine at some point Tesla is a heritage brand. People are going to be like, there was this crazy eccentric founder. Yeah, no, I agree with that, but it will take as many decades as you think.

2:58:03It'll have to be for something else, though. It can't be for racing, because something else related to the cars. Right. It would have to be for something else. And to your point, Doug said performance is a commodity now. The Koreans have been around for 25 years, and there's no like emotional attachment to any of those cars, even the older ones. I don't know. Hmm. Brand is it. Brand scale economy is enabling the SUV line. I think that was a good one. There's not really counter positioning. I don't think.

2:58:30There was in the younger days, especially the racing younger days, especially with the aggression of Porsche's advertising. Porsche ads have been some of the most iconic, just brand advertising of all time. And they were brash. The reason it's counter-positioning is because a lot of car...

2:58:51Like very high-end cars would never dream of showing their brand in such a gritty way and giving their brand voice such a risky proposition. I'm thinking of two in particular. Do you have any particular favorite? Well, the most famous one of course is the 993 Turbo, the Arena Red 993 Turbo.

2:59:06And then, of course, we would put up one picture of the car, and then there was always a tag line. That was like the thing. For decades, the famous one was Kill's Bugs Fast. That's it, everybody remembers. So good. So good. The other one that I'm thinking of is nobody's perfect. Yeah, right. That ad was great. I had one for my 996 turbo that I owned at 9.11 years ago, and I had it framed and it said, calling it transportation is like calling sex reproduction. Yeah. Which...

2:59:32Is a great example of no other luxury brand would touch that. Yeah, but that yeah, I love David. I had the same favorite one of nobody's perfect because what they did is the bulk of the ad when you look vertically down is the top 10 winners at Le Mans and Porsche has nine of the 10 and it's just Porsche, Porsche, Porsche, Porsche, Porsche. Like number eight. That is Porsche, Porsche. Nobody's perfect. So good. All right, so that's modest counter positioning, but not really anymore.

3:00:02Um, switching costs, I actually don't think there are switching costs in the car industry. I think this is really interesting thing where like, uh, uh, you're going to laugh my car before the Mazda CX 5 was a Honda CRV and like I I completely re-evaluated with fresh eyes. There was nothing about being a part of that old ecosystem that carried forward to the new ecosystem. I'm like Apple, where you're dialed in everything. Yeah, yeah. Lesson, that's gonna become less, too. I suspect with all the tech that's in cars, but yeah, I agree up until this point. It certainly hasn't been a thing. There's no network economies. There's like really no benefit to...

3:00:39you own a Porsche therefore, I own a Porsche and I get value out of you owning a Porsche. That's not particularly a thing. Otherwise, we can like go to Carson coffee together. Process power, this is probably where I would slot German engineering of all the things that we've talked about. And then the last one, cornered resource. I don't think there's a particularly cornered resource here. It's not like the square footage in Stuttgart that they own is like some magical thing. All right, that does it for power.

3:01:09Playbook, we've talked a lot of playbook along the way, but I'm curious for ones that jumped out at you that we haven't hit yet. I know we just talked about it a bit, but for me, the racing thing is interesting. Even though we didn't spend that much time on the details of it throughout the history, I don't know that we've covered any other companies where there is this kind of like adjacent activity to the core business of the company that adds so much to the brand value and is worth investing in. I'm just trying to think if there's anything else like this, but I mean it has invested billions in racing. It all sorts of racing. But it's not like there's like a software competition out there that you know you could enter your software into like build your brand prestige. Yeah, that's right. That's an interesting point. Are there any other companies that do things like that?

3:02:00or industries that have like a showcase, like a very expensive showcase where you have to go build a completely different product line. You know what is like this is the athletic apparel industry and Nike. Like they spend all of their marketing budget on athletes. One of the biggest ones that jumps out for me is the brand continuity. This idea that if you loved anything we've ever done we should be able to fulfill that dream for you today.

3:02:28and not with the exact same thing necessarily like we're not going to sell you the exact model that roll off the line in 1977 but like you get to participate in the feeling and you get to feel the same way about our brand today that you did then and we're going to find all these interesting ways to provide you fan service it's almost like going and watching the new star wars movies where if you like the original films even though these aren't like the highest like highest grade directing and writing in the world, like we are delivering all sorts of fan service moments to you. And I'm not saying that like Porsche is not making the best cars in the world. They make some of the best cars in the world, but they also provide all these opportunities for fan service. It's worth a huge multiple of what you invest in it, if you can align everything correctly. It gets back to the 40, 50 year sales cycle with this too. Right.

3:03:17Everybody dreams. I mean, it's your whole life. You dream. I grew up dreaming of owning a Porsche, which is again, kind of funny, as we talk about the SUVs and the volume they do. If you're a little girl or boy, you don't dream of wanting a cayenne. Like, like, you kids are getting dropped off in those at school is kind of my point. But you do dream of a Porsche, even though that's the same thing. Right. Doug, you've talked about this when you worked at Porsche a decade ago and you were much younger. Like, They didn't pay you much, but you got to drive a 9-11 and that was like the coolest freaking thing. And everybody wanted to work there. We get unsolicited resumes all the time, blah, blah, blah. And like, pay wasn't great. But like, you had that name, you know, I worked for Porsche. That's so cool. And just being a part of it and then yeah, having the car was a huge deal. I love it. All right. Well, grading feels a little bit odd on this episode. And we killed grading. But

3:04:09We do have Doug Demiro with us, so we are going to give Porsche a Doug's war. And it's an acquired adjusted Doug's war. We can't grade the entire company on handling. So we got to figure out some categories that we can evaluate them on as a company. I don't know if there are any weekend categories for business.

3:04:33All right, so David, what criteria are you thinking for? So we acquired adjusted Doug's score. We simplified this down to just three categories for the acquired Doug's score. Revenue growth, profitability and defensibility. Like, would you want to own Porsche as a stock? And I think those are the three components. Sort of closing your eyes to where they're trading today. Because you always have to evaluate entry price and all that. Are you excited about the company's prospects 10, 20, 30 years from now? Yeah.

3:05:02All right, so let's do revenue growth first. Growth has been impressive at this scale, not at the rate of the highest growers that we have seen, but still nonetheless impressive. Prospect's going forward though for revenue growth. I think are still quite strong. We're obviously in a very different market environment than we have been the past few years, but Porsche is incredibly well-positioned on EVs relative to other traditional benefits. That's actually my whole focus. Yep, so I think they're strong as they electrify the rest of their lineup, strong bulk case for revenue growth there. I also think that even as we're heading into a more depressed macro environment than the past few years, I suspect Porsche will be more resilient in their growth than other

3:05:57other luxury brand manufacturers. So I give it a seven on revenue growth potential. I basically agree with you numerically. I've won it on them versus other luxury manufacturers. It's sort of depends how you define luxury. Like I think they'll fare better than Mercedes and BMW in a downturn and like way worse than Ferrari. I think they're in this interesting place where like they have, it's like Louis Vuitton. They have some Cash sensitive buyers right because so much of their revenue is based on those SUVs that probably will not be as resilient as right there are Macon buyers who will become Q7 buyers. Yeah, Q5 buyers. Yeah, yeah For Ari really isn't a league of its on though the broader universe of BMW Mercedes all the Japanese brands Tesla etc

3:06:50in America, Ford, you know, all the Ford brands, the Chevy brands. I think Porsche is very well-positioned. Porsche and a recession, then almost any other car company. Yeah. Yeah. There's also this other thing of like, you alluded to the colors, the money they're charging for colors. Like they've done this, they've perfected this with so many options and people are just paying it, paying it, paying it. And it seems like there's no end to like what Porsche can kind of fleece their customers for. And it just seems like that's only going to continue to be more and more.

3:07:16of a thing going forward. There's become this entire subculture around like specking your Porsche in this like perfect way. And that is obviously a big margin stuff for them. So I'm seven, you're seven. I think we're pretty unified seven. Seven out of ten. Next is profitability quite quite strong for the automotive industry. Very strong. Not strong relative to the technology industry and software or Apple.

3:07:45That's right. We didn't say that earlier, but Portia is a 29% gross margin. Apple is a 43% gross margin. Right. And I believe Portia's operating margins are in the high teens low 20s. I mean, I'd love to own a business that has 20% of every dollar that I earn coming out the bottom. That's a great business. When you're earning 40 billion dollars. That's a great business. I think I'd go seven again on profitability.

3:08:09It's a nine for the auto industry and it's like a four compared to most businesses that we study on acquired because we only study the very best businesses in the world. It's not a media business. It's not a technology business. Right. I'm sitting here thinking it might be a bit high. Wargians are pretty impressive considering that's the car business. That's what I'm sitting here thinking. The car business requires so much just so much cost. Yeah, I'm going to revise my score down to five.

3:08:34For the ease of the episode we're agreeing on a score here Okay, I like this five feels like a good score and honestly like I think five is the highest score you can give in the audio industry on profit unless we're talking about Ferrari apparently Yeah, which is like almost not in the auto industry It's like a completely different luxury category. Yeah, that's so true It just happens to make cars so I am giving Because Cars, you cannot give a 10, 9, 8, 7, or 6. I am going to give Porsche a 5 in terms of profitability. That makes sense. That was the last one. Defensibility. So this is the biggest question. Does Porsche's margin profile and customer love and brand value just only go down from here as they continue to grow?

3:09:22Like, will we think of them as a BMW in 10 years when we see them around the streets? I just don't think so. From when I worked there till now, it is amazing to me how much more people have become obsessed with porches. Every cars and coffee event has become sort of a de facto Porsche event. The used ones, the vintage ones have just shot up in value to an unbelievable level. Porsche is more loved now, I think than any other point in its history. Now, will it diminish as a result of that probably, right? You can only be at a certain level for so long, at a high level for so long.

3:09:50But it's been incredible to me to watch Porsche's rise even just over the last 10 years and how much people like love it and obsess over it compared to how it used to be. It isn't for it doesn't have that brand equity that Ferrari does but it's got more than you'd think and it's especially got more than you think for a company that mostly makes SUVs. I think you put it really well earlier when you said people are like oh are you a Ferrari person or a Porsche person and like the fact that Portia gets to be in that conversation. Right. It's insane. Nobody's asking are you a Lexus person? It's like they're getting away with murder by being lumped in right there. Right. Somehow they're able to both produce an SUV that gets from 350,000 units annually. Yes. But also mentioned the same breath as Ferrari in terms of like enthusiasts. I'm like literally a ten out of ten on this because I think this is a thing that I still don't really understand how they executed this so well and they've done it better than any other company in the world. Right. Right.

3:10:43It's probably true. They went from making the 911 the everyday supercar to now they're like an everyday supercar company. They have a whole gradient of everyday supercars that you can buy, but they're all everyday supercars. And yet people still dream. It's crazy. I agree. I completely agree. And again, they love only seems to be growing even as their model line expands to what we would consider to be less desirable cars. It's amazing. Like you said, it's amazing. They pulled it off.

3:11:11I think that's right. So my barometer for this is something I took from the LVMH episode of evaluating brand power. Can you kill it? Is there anything that could happen that would completely kill Porsche? I know and think so. Nothing that they would realistically do. I mean, but even, okay, let's say they did, because you know, this is what we learned from the LVMH episode. Gucci, everything you could think of to kill a brand, they did that.

3:11:36But the heritage there, it can always be resurrected. Right, because he is always going to evaluate it. The regular individual still has this thought of Gucci as like holding practices. Yes, you can never completely eradicate it. And I think Portia is the same thing. One thing Brand gets to a certain level. Is it even possible to kill? I don't think so. And once you reach that level, that's when you have real brand power. Yeah. And I think Portia is at that level.

3:12:01Cause let's say they make a bunch of decisions and they kill the company, it goes bankrupt. Somebody will buy it out of bankruptcy value. And huge value is still there. Yeah. All right. 10 out of 10. So that gives the acquired Doug Square for Porsche a 22 out of 30 out of 30. Which which by Doug. It's pretty good. That's pretty good. Your highest Doug Square ever is 72 or 74 something like that. Yeah. Yeah. You can't get you can't get any better than that. Yeah. So Quick car vats, I'll start. Because I've had no opportunity to consume any media in the last three months that is not specifically for acquired research, I have a random website that I haven't used in six months, but I use six months ago when it was awesome to recommend. And that is resortpass.com. Have either of you ever been to resortpass.com. It's like Airbnb for amenities at resorts.

3:12:58This is awesome. So when I go on vacation I typically won't stay in the really fancy hotel my wife and I will just like book a condo or an Airbnb or something and they're right next to really fancy hotels. Right. And so what ResortPass does is they go to the hotels, they say, look, I know your pools are like not full most of the time. Can we have some, and I don't exactly know how real time they're inventory is, or if they are able to buy big blocks of it up front, but for like a hundred bucks a day, or two hundred bucks a day, you can go and get a daybed, or a cabana, or you know. I have many amenities of the resort. Of the fancy hotels. Dude, you've been holding out on me. So Jenny and I,

3:13:38Do this. We'll do the same thing you do, but I didn't know there was a platform for it. We just call the hotels. We'll book a massage at the spa. And then with the massage, you get the... Right. But now I'm just gonna use that resort pass over there. This is like the Carrera GT resort pass. Great. My car valve is... I go down these YouTube rabbit holes, which is probably how originally I got to you.

3:14:08But I've been on a sign-failed cast interview. Oh, yeah. Rabbit hole. Yeah. And there is an amazing compilation of all four of the cast members doing Charlie Rose interviews. And he was so good. I mean, problematic person, but like, he was one of the legendary best interviewers of all time. And he did a bunch of interviews with all four of them. Surprisingly, naively, for me coming in, Jason Alexander is by far the best interview. He is. Yeah.

3:14:36So articulate like incredible if you see him interviewed anywhere talking talk anywhere like contemporaneously extemporaneously He is pretty legit. Yeah, he is You would never know cuz he's so different than the George character. Yeah, yeah, so he's the biggest difference of all of them for sure Have you seen that that bit on curb? On curb your enthusiasm. There's this like whole arc of the show about how like Jason Alexander is not at all like George and how dare you perceive him that way and then it's like Jason Alexander is insinuating to Larry David what a loser the George character is and Larry takes it personally because it's based on him. I should have said five Larry David is in this compilation of Charlie Rose conversations to you. It's so good. It's so good. I think it's about an hour 20 total, but it's worth it. Interesting. Jerry's in there too. Jerry's in there. Yep. They're all in there. Interesting. Okay. Mine is a YouTuber.

3:15:30named Whistlin Diesel. Have you guys heard of him? No. No. I'm not surprised. Neither will anybody who is listening to this. He creates, it's like he's a kind of a car YouTuber, but mostly he just does crazy stuff. He lives in Tennessee and has a big property. And like, did you see that the thing that went viral like on Twitter and elsewhere of the Tesla that was on like 20 foot tall wagon wheels?

3:15:52He'd like to have done that. He bought a Ferrari and put it in a one of those like bubbles that like boomers put inside their garages and and he just started throwing stuff at it like a ladder and like an axe and like a sledgehammer to see if it would like break the bubble and like damage the car. He dropped a Mercedes G wagon through a house.

3:16:10Um, he got a he got a Chevy pickup with with tires so big that he was able to drive it out into a bay in Florida. Oh my god. He's the mister beast of the car. He's the mister beast of the car world. Sort of. He's like, dude, perfect on heroin. It's like that. And he's like this. He's like from Indiana and he lives in Tennessee. So he's like just like kind of like backwards, dude. But he's a channel's gotten so big that it's allowed him to do just dumb stuff and he's become my utter guilty pleasure because you put on his video and you're gonna see like deep destruction of something that a lot of people hold dear and then you're gonna see a lot of complaints and the comments of people being like, I can't believe you would do that to him forever. As a YouTuber, I also feel like this is like the greatest thing ever because he takes what the haters say and just like.

3:16:54Turns it up even more and I have to be like nice. I'm so sorry sir. I'm running a business here. He's like forget about these people. I'm just gonna blow it up. He flew a helicopter inside of his garage. That's a good episode. Oh, I gotta watch this. This is all just like trash TV, but it is so good to watch. So I love that other people do this. Yeah, right. Right. I do wonder sometimes about like the danger of YouTube and like, okay, it takes now.

3:17:23flying a helicopter inside your garage to get views. Like I started I had a Ferrari. That was enough. You've talked about this a lot that like you feel when we're gonna do a whole nother episode of just you and us chatting but that like you started at a time and we started at a time where you didn't have to do this stuff. What's one diesel's out there? Dropping Gwagans through houses. It's a different thing.

3:17:48but highly recommended. It's a great content. That's actually a great, Doug, we have not talked about like everything that you do, give us a little bit of insight, and I think David T's, we're going to do an interview together as a separate episode, but give us a little insight into the Doug Demiro Empire, and what do you have going on working people check it out? Right, I make a YouTube videos.

3:18:10My channel is my name which has become very complicated now that I have a business on a channel also maybe regret doing that but I'm just Doug Demiro and then I also run an automotive like a car auction website for enthusiast cars called cars and bids And we're selling something like 30 cars a day or auctioning 30 cars a day on cars and bids right now. Yeah, so we're all just all like enthusiast cars, you know, porches and BMWs and things of that variety. You know the sort version is like You are one of the most successful youtubers in the world. You are also an entrepreneur who built a tech marketplace, internet marketplace business and just took a very large investment from the turning group. One of the best investors in marketplace and content business is out there. Incredibly impressive. Thank you for spending so much time with us doing this collab. This has been super fun. It's really rare that we get to chat with somebody who is not.

3:19:06an executive at the protagonist company. And also deeply gets both the products and the kind of business aspect of something. I don't think there's anybody else we could have done this with. Maybe Veking himself. He would be a little biased I think. Yeah. It's the bias that you got to worry. Yeah. Totally about it. Yeah. So thank you. Doug. Yeah.

3:19:29Thanks so much. Thank you. Thanks for having me. It was a lot of fun. It really was. And prepping for this was so interesting learning all this history that I didn't know even having worked there. It was great. So fun. Thank you, guys. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes. There is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world. Shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn.

3:20:09what changes actually created value for customers, and how fast you can use that signal to guide what you shipped next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences, or just evolving your existing core product, go to Statsig.com slash acquired to get started. Check out our second show, ACQ2, if you want more acquired. We just recorded a couple more episodes, actually, that we have getting ready to come out that I'm very, very excited about. That, of course, is a way for you to go deeper and nerdier into topics that just either aren't ready for the main show, or perhaps are too current for the main show since what we try to do here is tell the

3:21:01big canonical stories. Oftentimes there are stories in flight where we just want to talk to experts about what's happening, like Jake Saper in AI, talking about what it's doing to the B2B SaaS landscape right now and where profit pools may emerge in that. Yeah, or Alvaro Coli, the CEO of Angelist. That was a great conversation with him. We had David Shoe from Retool. All the hits, David, we've got a slack. We would love to see you there. We're going to be talking about this episode acquired.fm slash slack.

3:21:29And if you would like to come deeper into the acquired kitchen, you should become an LP where we will at least once a season have you help us select one of the episodes. In fact, completely defer to you to select one of the episodes. And beyond that, we also will be doing bi-monthly Zoom calls. So we can get some feedback directly from all of you and get to meet more of you. So acquire.fm slash LP if you would like to become an LP. Now with that, listeners, and a huge thank you to our partner in crime on this episode, Doug Demiro. We will see you next time.

3:21:58We'll see you next time.