Porsche (with Doug DeMuro)

Nobody’s perfect — including Porsche. Despite that phrase appearing in their famous 1983 magazine advertisement, they managed to get damn-close to the perfect luxury business (even Bernard Arnault would be jealous!). Porsche is both quality AND quantity, owning the most prestigious brand in its market, while at the same time churning out almost half a million mass-market soccer mom/dad SUVs per year. And like any good luxury brand, it’s packed with enough juicy family drama and creeping takeovers to fill a Netflix series. Yet, behind it all lies perhaps the darkest origin story we’ve ever told on Acquired. Not only was Porsche was started by Nazis, Adolf Hitler himself was deeply involved in its early fortunes. And, following WWII, the Allies simply looked past these facts and essentially bestowed a license to generate wealth on Porsche and its owners — setting the stage for them to become one of the top ~15 wealthiest families in the world today. Joining us to explore it all is perhaps the very most-qualified person in the person in the world: the one & only Doug DeMuro. Not only is Doug the largest independent car reviewer on YouTube with millions of subscribers (we’re HUGE fans), he previously worked at Porsche corporate and owns a legendary Porsche Carrera GT — which served as the recording backdrop for this episode. Make sure you tune in to watch the video version! :) *Links:* - Doug’s YouTube channel (which we HIGHLY recommend) https://www.youtube.com/channel/UCsqjHFMB_JYTaEnf_vmTNqg - Cars & Bids https://carsandbids.com - Episode sources https://www.acquired.fm/episodes/porsche-with-doug-demuro#sources *Carve Outs:* - ResortPass https://www.resortpass.com - Seinfeld Cast Charlie Rose Interview Compilation https://www.youtube.com/watch?v=L0TE_xXjp-0 - WhistlinDiesel https://www.youtube.com/@whistlindiesel *More Acquired:* - Get email updates https://www.acquired.fm/email and vote on future episodes! - Join the Slack http://acquired.fm/slack - Check out the latest swag in the ACQ Merch Store https://www.acquired.fm/store! *Timestamps:* 00:00:00 Start 00:00:44 Intro 00:03:03 The Genius of Ferdinand Porsche (1906) 00:06:29 The Volkswagen Beetle & Nazi Ties (1934) 00:17:00 Volkswagen's Post-War Rebirth (1945) 00:22:06 The Porsche 356 & Gmünd (1946) 00:33:56 The Sweetheart VW-Porsche Deal (1947) 00:45:04 Early Racing Success & The Porsche Ethos (1950s) 54:48 The Iconic Porsche 911 is Born (1962) 01:06:25 The Mid-Engine Porsche 914 (1967) 01:12:47 Family Exits & The Rise of Piëch (1970) 01:23:21 The Fuhrmann Era & 911's Threat (1970s) 01:29:15 Peter Schutz Saves the 911 (1980s) 01:39:42 Desperate Times & Wiedeking's Turnaround (1990s) 01:56:58 SUVs, Supercars & The Cayenne (2003) 02:08:14 Wiedeking's VW Takeover Attempt (2005) 02:17:34 The Great Financial Crisis & VW Buys Porsche (2008) 02:34:35 The Electric Future: Macan & Taycan (2010s-2022) 02:40:06 Analysis: Porsche's Business Today 02:54:47 Analysis: Playbook & 7 Powers 03:05:17 Acquired-adjusted Doug Score 03:13:44 Carve-Outs + Outro _Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions._

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  It's definitely Porsche.

• 0:01Speaker 01

  Porsche.

• 0:02Ben Gilbert?

  Porsche.

• 0:03Speaker 01

  Yeah, definitely don't say Porsche.

• 0:05Ben Gilbert?

  Definitely don't say Porsche.

• 0:05Speaker 01

  The family says it more like, like, cause I met one of them at one point. They say it more like, not like Porsche, but more like Porsche, like, but it's hard. I think it's a German thing and I think it's difficult to, but so we all say Porsche, Porsche.

• 0:17Ben Gilbert?

  If you say Porsche with a German accent, it comes out like Porsche.

• 0:21Speaker 01

  Yeah.

• 0:22Ben Gilbert?

  So I think it's almost like.

• 0:23Speaker 01

  Yeah.

• 0:23David Rosenthal?

  Yeah, yeah, we will.

• 0:25Speaker 01

  Yeah, that's probably exactly what it is.

• 0:44Ben Gilbert?

  Welcome to season 12, episode six 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. If you liked our LVMH episode, you are gonna love this one. And not just because it's a European luxury brand. There is possibly even more family drama, creeping takeovers and complex corporate structures at play. But why is Porsche, the brand and the product, so special? The company has struck an incredible balance of both building some of the world's finest supercars while also being a great daily driver, unlike, say, a Ferrari or a Lamborghini.

• 1:27Ben Gilbert?

  Of course, these are expensive daily drivers with the average Porsche costing $110,000, but they have managed to nail being a prestige brand with pricing power and make a ton of cars at $350,000 per year. Today, we'll study how they cultivated such a vibrant community, which conveniently for them is comprised of extremely wealthy people.

• 1:51Ben Gilbert?

  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.

• 2:03David Rosenthal?

  Oh, yes.

• 2:04Ben Gilbert?

  And if you like quirks and features, you're going to be pumped about our partner in crime to help us tell this story, Doug DeMuro. Doug is one of David and my favorite YouTubers and content entrepreneurs. He operates the largest independent YouTube channel focused on car reviews with millions of subscribers. He also used to work at Porsche Corporate and is about as big of an enthusiast of the brand as you'll find anywhere. In fact, we are filming this episode now, sitting in his garage in front of a very special Porsche, Doug's Carrera GT. Welcome to Acquired, Doug. Thank you for having me. Wonderful to have you here. Well, listeners, if you want to know every time an episode drops, sign up for email [email protected].

• 2:45Ben Gilbert?

  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.

• 3:02David Rosenthal?

  To set the stage a little bit, I 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.

• 3:14Ben Gilbert?

  Right.

• 3:15David Rosenthal?

  So there's a pretty long and incredible history of science and engineering in Germany and Austria. It goes all the way back to the Scientific Revolution and Johannes Kepler. And actually, before World War II, Germany had produced more Nobel laureates in scientific fields than any other nation in the world. Folks like Max Planck, Erwin Schrödinger, Kurt Godell, and you know, 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 transportation vehicle, this was, looked

• 3:56David Rosenthal?

  more like a tricycle than a car, but predecessor of a car, was created by a German inventor in 1864 named Siegfried Marcus. And I say probably. Because nobody really knows because Marcus was Jewish and the Nazis destroyed all records related to him during the war. We're going to talk a lot about the Nazis here in a minute. Either way, though, Germany definitely did create the first successful production consumer automobile. It was a vehicle called the Benz Patent Motorwagen. And that was made in 1885 by Carl Benz.

• 4:37Ben Gilbert?

  I recognize that name Benz.

• 4:39David Rosenthal?

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

• 5:06Ben Gilbert?

  Oh, neither did I.

• 5:07David Rosenthal?

  Yeah, yeah, crazy. So Benz and Daimler end up merging in 1924, and thus Mercedes-Benz is born. But okay, you might be asking, what does this have to do with Porsche? Well, turns out quite a lot, because in 1906, Daimler scores a pretty big win in this fledgling German auto industry when they recruit the current potting prize winner. The potting prize was for Austria's Automotive Engineer of the Year to come be their new chief engineer at Daimler, one Dr. Engineer Honoris Causa Ferdinand Porsche. Now, the whole doctor,

• 5:51David Rosenthal?

  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.

• 6:06Ben Gilbert?

  Wait, the Dr. Porsche is like, doctor like the Seuss?

• 6:12David Rosenthal?

  Well, he had an honorary doctorate.

• 6:15Speaker 01

  He was already doing stuff, though. He was engineering and creating.

• 6:18David Rosenthal?

  Yes.

• 6:18Speaker 01

  Hence the honorary doctorate.

• 6:20David Rosenthal?

  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 as good a place as any. Ferdinand Porsche and many other folks in the family and in the early Porsche and Volkswagen, as we will see days, were also huge Nazis. And Ferdinand himself not just was a Nazi, but was a very close personal associate of Adolf Hitler. He was a member of the SS. And, you know, we're going to glorify him and many of these other folks here of their business and engineering contributions. But like, that doesn't mean that these are good people. So keep that in mind.

• 7:01Ben Gilbert?

  Yeah, this isn't like one of those people that you hear, oh, well, you know, at that point in time, the Nazis were so big and powerful, they kind of just got, you know, coerced or they collaborated. It's like, no, this dude was a buddy.

• 7:14Speaker 01

  Real big Nazi.

• 7:14David Rosenthal?

  Yeah, he was definitely a Nazi. 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.

• 7:36Speaker 01

  And it 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, yeah, manufacturing cradle, especially for cars.

• 7:46David Rosenthal?

  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.

• 7:53Speaker 01

  Everybody you meet in Stuttgart, just like when you go to Detroit, works for Porsche or Mercedes Benz or a supplier or something like that.

• 7:59David Rosenthal?

  It is like the industry town.

• 8:01Speaker 01

  Yeah.

• 8:02David Rosenthal?

  So Porsche Ferdinand.

• 8:05David Rosenthal?

  It's not a short period of time. It's two decades like that. He is running the engineering and the car design for Mercedes Benz. While he is 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, but Ferdinand's vision is a small car. The Model T was a large car, like a modern, small automobile that Germans everywhere can can buy.

• 8:48Speaker 01

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

• 9:03David Rosenthal?

  So this really was a challenge to build a car that could be affordable enough for the average German person to buy it. And indeed, it was a challenge because the board of Daimler Benz rejects it. They're like, no, like we can't do this. We make expensive cars for wealthy people.

• 9:20Speaker 01

  Right.

• 9:21David Rosenthal?

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

• 9:40Speaker 01

  It heats up and it cools down and there's, there's more to discuss on 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, you know, you can't avoid hanging out with Mercedes Benz employees also.

• 9:55David Rosenthal?

  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 Daimler Benz, 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 Dr. Engineer Honoris Causa Ferdinand Porsche Construction und Berlten für Motorrad und Fahrzeugbau.

• 10:29David Rosenthal?

  I apologize to any German speakers out there.

• 10:31Ben Gilbert?

  Wow.

• 10:32David Rosenthal?

  That is, that is, that's.

• 10:33Ben Gilbert?

  But to be fair to you, it's a lot.

• 10:34David Rosenthal?

  It's a mouthful. I studied French in college, you know, like, and that translates as the Dr. Engineer Honors Cause Ferdinand Porsche Consulting and Design Services for Motor Vehicles Company. And this is the beginning of Porsche, the company. And up until 2008 and 2009, which we will get to much later in the episode, that is the company that makes Porsches.

• 10:59Ben Gilbert?

  Yeah.

• 10:59David Rosenthal?

  Wow.

• 11:00Ben Gilbert?

  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.

• 11:12David Rosenthal?

  So when he's starting this new company, he enlists the financial support of two people. One is his son-in-law, his daughter Louise's husband, one Anton Piesch. Remember that last name because it is also going to be very important as we go along here. And the other person is Adolf Rosenberg. Now, if you are a Porsche history nut, you probably know about Anton Piesch. You probably don't know about Adolf Rosenberg because shortly after they start the company, Rosenberg was Jewish and he gets arrested by the Gestapo. He gets imprisoned. He eventually bribes his way out and escapes to America. But during the war, Porsche and

• 11:56David Rosenthal?

  the Nazis totally appropriate his stake in Porsche and he's written out of history.

• 12:01Ben Gilbert?

  Wow.

• 12:02David Rosenthal?

  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. That 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 was Volkswagen, which

• 12:47David Rosenthal?

  was established to do so by Adolf Hitler. I had heard rumors over the years, like, oh yeah, there's, there's like a Nazi connection here, like. Adolf Hitler founded Volkswagen.

• 12:59Speaker 01

  That's bigger than a connection.

• 13:00David Rosenthal?

  Yeah, there's not a connection because it's the same person.

• 13:04Speaker 01

  Right, it is, is the thing.

• 13:06Ben Gilbert?

  Yeah, Facebook, I feel like that has some kind of like Zuckerberg association, but I've never really put it together.

• 13:10David Rosenthal?

  Yeah, yeah, there's some, there's some link between Mark Zuckerberg and Facebook.

• 13:14Ben Gilbert?

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

• 13:32Speaker 01

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

• 13:42David Rosenthal?

  And, you know, generations have gone by. Also, less so on the Porsche side of things, more so on the Volkswagen side of things, as we'll see with the history here, there is kind of a pretty incredible refounding of Volkswagen 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.

• 14:02Speaker 01

  Yeah.

• 14:03David Rosenthal?

  But, yeah, just wild, friggin Adolf Hitler founded Volkswagen.

• 14:08Ben Gilbert?

  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?

• 14:17Speaker 01

  Probably.

• 14:18David Rosenthal?

  Yes, it is very hard to get actual production and sales data, especially for old cars.

• 14:23Speaker 01

  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 car is, is clear, you know, today.

• 14:43David Rosenthal?

  Yeah, and I, um, I tried to think, I could not think of any other model. I believe the Beetle, the original Beetle, was, is likely the single longest produced and largest, both in terms of length of time and number of units produced of a single generation model of a car, like the Civic, the Mustang, the F-150.

• 15:07Speaker 01

  They all changed.

• 15:08David Rosenthal?

  Definitely household more than the Beetle, but like, those aren't the same cars.

• 15:10Speaker 01

  Right.

• 15:11David Rosenthal?

  The Beetle was the same freaking car until the new Beetle in 1998.

• 15:15Speaker 01

  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.

• 15:32David Rosenthal?

  This original Volkswagen, the Hitler Volkswagen, one of the things you can do when you start a company as a fascist dictator, 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 the Beetle originally.

• 15:56Speaker 01

  The strength through joy car.

• 15:57David Rosenthal?

  The strength through, that was like a Nazi.

• 15:59Speaker 01

  Yeah, yeah, yeah.

• 16:00Ben Gilbert?

  Doesn't get much more German than that.

• 16:01David Rosenthal?

  No, yeah. And this is Wolfsburg. Like this is the city that Volkswagen is still located in today. Hitler created it.

• 16:10Ben Gilbert?

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

• 16:18David Rosenthal?

  All out of Wolfsburg. So Hitler creates Volkswagen, he creates Wolfsburg. They do start production of the Beetle before World War II starts. They only make about 200 units. These are super rare today. They, you find a pre-war Beetle. Then World War II begins in, on September 1st, 1939. As you would expect Volkswagen, all the Volkswagen and Porsche operations get repurposed to making military vehicles. There's a bunch of dark stuff. Everything Doug, you mentioned earlier, forced labor, concentration camps, this was the Nazi war effort. It, it all happened. We're going to skip over this period for our purposes today, but like note, it happened.

• 16:59David Rosenthal?

  After the war though, a whole bunch of really interesting stuff happens that basically fractures and separates out the Volkswagen operations from the Porsche operations for the next, the rest of the century and into the 21st century. So ironic, given that they are now one company again.

• 17:20Ben Gilbert?

  Right.

• 17:21David Rosenthal?

  First off.

• 17:21Ben Gilbert?

  Where are they?

• 17:22David Rosenthal?

  No, well, where are they? That's the question.

• 17:25Speaker 01

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

• 17:32David Rosenthal?

  Yes. So first on the Volkswagen side, I alluded to this a minute ago. It'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.

• 17:47Speaker 01

  Right, but it was created by the guy.

• 17:48David Rosenthal?

  The origin of the company. So what happens is Wolfsburg ends up in the hands of the British at the end of the war. And there's this whole crazy thing in Germany of like, all the Allied armies are coming in and literally Germany and Berlin ends up getting split into East Germany, West Germany, East Berlin, West Berlin. Wolfsburg is in the hands of the British. And remember, because it was a political organization, it wasn't a company before the war, nobody owns it. It's this like orphaned organization. It's super unclear. There's no like proprietorship of it. So the initial plan that the British come up with, they were going to dismantle the

• 18:25David Rosenthal?

  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.

• 18:38Speaker 01

  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 this, the drawing, you know, they have 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.

• 19:01David Rosenthal?

  Wow, wow. So, 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, 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. He starts driving it around and he's like, hey, this thing's actually pretty good. I think we can maybe do something with this here. He also sees, and this becomes increasingly obvious as the post-World War II state of world

• 19:43David Rosenthal?

  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 Beetles that the British military is going to adopt and use as their main military transport. So not as like a tank, but like not an armored Beetle, but like they're going to use it to drive officers and stuff around.

• 20:28David Rosenthal?

  Yeah, from that seed order, like that is now the new Volkswagen. So it's like, yes, Hitler started it, but then Ivan Hurst restarted it.

• 20:36Speaker 01

  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, it was all these places were in similar situations to Germany in that like the people needed to get back to work, they needed to be able to drive and go places, and each European country had their own Beetle. You know, UK had the Mini, Italy had the Fiat 500, France had the Citroen 2CV. They all kind of looked similar.

• 20:59Ben Gilbert?

  Wait, these are all based on the Beetle?

• 21:01Speaker 01

  No, no, no, but they all came from the post-war era where they needed something small and cheap to like re-mobilize 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 era.

• 21:21David Rosenthal?

  You don't see a lot of Citroens in...

• 21:23Speaker 01

  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.

• 21:34David Rosenthal?

  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.

• 21:43Ben Gilbert?

  And 50 years, that's about how long they would make that one model of the Beetle?

• 21:47David Rosenthal?

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

• 21:56Ben Gilbert?

  Crazy.

• 21:57David Rosenthal?

  Crazy, isn't that wild?

• 21:58Ben Gilbert?

  It's insane.

• 21:59David Rosenthal?

  Okay, so what about Porsche? Well, they have a bit of a different path. So after the war.

• 22:07Ben Gilbert?

  And we should say during the war, Ferdinand Porsche was designing tanks.

• 22:11David Rosenthal?

  Yes.

• 22:12Ben Gilbert?

  And other military.

• 22:13David Rosenthal?

  He designed the elephant anti-tank tank, the most powerful land-based tank ever created. A terrible, but B, like just the range of design talent that he had. Like he designed the Beetle and he designed the largest anti-tank tank.

• 22:31Ben Gilbert?

  Within a couple of years.

• 22:32David Rosenthal?

  Yeah.

• 22:32Ben Gilbert?

  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.

• 22:46David Rosenthal?

  He was a genius. This is also, it runs in the family too. Many of his descendants are both engines and cars geniuses. After the war, Ferdinand and the son-in-law, Anton Piess, 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.

• 23:09Ben Gilbert?

  Yeah, I think the technical thing they got him on, which is why they only had two years was for the forced labor that they took the imprisoned Jews and forced them to work in the factories. But all the other war crimes that were stacked against them ended up not being charged. And so quick trip in and out of prison.

• 23:26David Rosenthal?

  Quick, quick two-year trip.

• 23:27Ben Gilbert?

  Out of war criminal prison.

• 23:28David Rosenthal?

  Yeah. So Ferdinand's son, Ferry Porsche, who had been working in the business, I think a little bit before the war and then, and then during the war too. 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, what are we gonna do? You know, we got to rebuild the family. Are we 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 Stuttgart and other large-scale German military production facilities were getting bombed by the Allies.

• 24:14David Rosenthal?

  Porsche took about 20 or so of the best, most talented engineers and production people that they had, and they moved them out of Stuttgart and they moved them to the Austrian countryside so that they wouldn't be targeted by, 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. We're talking about like a couple thousand people, maybe, that live in this area.

• 24:54Ben Gilbert?

  Yeah. And David, are you getting all this from, I know you read like $500 worth of textbooks on Porsche?

• 25:00David Rosenthal?

  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, this volume, it's incredible.

• 25:19Ben Gilbert?

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

• 25:37David Rosenthal?

  These are amazing objects that like are being produced. There's just such a like visceral, tangible quality to them that is, that we don't usually cover on acquired. Okay, so Ferry and Louise go back to Austria. They're there in Gmund. 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 vehicles we can start fixing. 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.

• 26:15Ben Gilbert?

  Right, the services business.

• 26:16David Rosenthal?

  The, the, the second Porsche company, Porsche Construction and GMBH, 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. Unlike Sony in Tokyo though, where there were a lot of radios in Tokyo, there weren't a lot of cars in Gmund. So pretty quickly, they're like, huh, we don't have any more cars to fix up. And

• 26:43Ben Gilbert?

  Bad business.

• 26:45David Rosenthal?

  Yeah, well, not a, 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 Ferry said later in a 1972 interview, I saw that if you had enough power in a small car,

• 27:31David Rosenthal?

  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.

• 27:48Ben Gilbert?

  Doug, can you contextualize what a big moment in like world history this is?

• 27:53Speaker 01

  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 who are going to say, no, there were a lot of sports cars before, but it was really a thing of

• 28:07Speaker 01

  real enthusiasts, wealthy people, that sort of thing, would buy cars to go motor racing in the era of, you know, brass era and that kind of stuff. The concept of creating like something more affordable, littler, that was still fun was like, it was kind of an interesting idea that, you know, this was a real, it was a touchstone of a concept that has really been taken, obviously by them and refined in others as well.

• 28:28David Rosenthal?

  I went in research, I went and looked up, you know, some of those sports cars pre Porsche. And you look at them and these things are like Franken cars. They are huge.

• 28:38Speaker 01

  Right.

• 28:38David Rosenthal?

  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, I'm like, how do you even steer this thing? Like, it looks like a boat.

• 28:51Speaker 01

  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.

• 29:01David Rosenthal?

  Yeah. I mean, even like to this day, Carrera GT sitting behind us, that's not a large car.

• 29:07Speaker 01

  Right. And that was a Porsche thing. And it was even more of a Porsche thing at this time.

• 29:12David Rosenthal?

  Totally.

• 29:12Ben Gilbert?

  And David, you said a word there that if people aren't into cars, they may not know this supercharged Doug. What does it mean to supercharge a car?

• 29:21Speaker 01

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

• 29:42David Rosenthal?

  Literally force more air in.

• 29:43Speaker 01

  Yeah.

• 29:44David Rosenthal?

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

• 29:49Speaker 01

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

• 30:04David Rosenthal?

  Yeah.

• 30:05Speaker 01

  It kind of like spins itself up in a faster way. And there's kind of pros or cons to either of them.

• 30:11Ben Gilbert?

  And for those following along at home, this is like, end of the 40s, 1947 type era.

• 30:16David Rosenthal?

  Yeah. Those couple of years after the war, when everything was kind of getting figured out.

• 30:20Ben Gilbert?

  Yep.

• 30:21David Rosenthal?

  So, Ferry has this idea. He's like, "Oh, I liked driving my supercharged Beetle. This was really fun. I have a small car that also had a lot of power in it. What if we take this small operation of our, you know, elite team here in Gomond, and we try and build a car that does that? And hey, it also, you know, turns out that, well, we built the Beetle. So we know how to work with the Beetle. There are 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 and the basic architecture of the Beetle, which is a rear-mounted, air-cooled engine on a small car, and we try and put

• 31:01David Rosenthal?

  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. 356s regularly sell for about $300,000 at auction, and special ones go for well, well, well above a million. This is a big idea. The gulf between a Beetle and a 356-

• 31:32Speaker 01

  Yeah, totally different thing.

• 31:33David Rosenthal?

  Is large.

• 31:34Speaker 01

  Right.

• 31:35Ben Gilbert?

  Doug, why is the desirability of these cars so different today?

• 31:39Speaker 01

  The, well, I mean, production numbers is probably the biggest component of that one, right? They made literally zillion beetles. And the 356 is special because it 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, it was not affordable, but they made a decent number of them. They got to be relatively cheap. It was the old used Porsche for a while in the 60s and 70s. And so not that many of them were saved. And now it's kind of revered as when we look back as, as this major moment in Porsche history.

• 32:20David Rosenthal?

  Yeah, this was another thing. So obviously in Camaro and then, 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. They 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. Like, that's a lot of money. Here's the crazy thing. There's a market for that. Even in war torn Europe, for a $40,000 sports car, like, there are enough people who it turns out are interested

• 33:00David Rosenthal?

  enough in Ferry's vision for a small, fun, fast sports car.

• 33:07Speaker 01

  Initially, it was slow. They, 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.

• 33:20David Rosenthal?

  Yeah.

• 33:21Speaker 01

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

• 33:55David Rosenthal?

  So. That takes us to the late 40s here. They're starting to produce the 356 in Gomun. At the end of 1947, Ferdinand Porsche and Anton Piash get 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, Hearst is running it. It's like the vision they're going to make the Beetle for Germany and for the world. They come back to the Porsches 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.

• 34:35David Rosenthal?

  Because we could still really use, you know, technical design consulting work and really leadership from you individual Porsches here at Volkswagen. I mean, after all, you designed the Beetle. Two, though, now, you know, we're not a government organization in the same way anymore. We need distribution and you guys have this new Austrian Porsche company that you've set up. So how about this? They propose two things. One, they say, let's reinstate that old German Porsche company, the Dr. Engineer Honoris Caza, blah, blah, blah. We'll recreate the German Porsche company. It'll resume doing the technical design and consulting work for us here at Volkswagen.

• 35:20David Rosenthal?

  In return, they give that German Porsche company literally the sweetheart deal of a lifetime. A royalty on every Beetle sold worldwide.

• 35:33Speaker 01

  No way.

• 35:34David Rosenthal?

  Yes, yes. This is how intertwined these two companies are.

• 35:38Speaker 01

  Yep.

• 35:38Ben Gilbert?

  So, sorry. The deal is we want your Austrian company to distribute our Volkswagens. And in order to coerce you to doing that, we're

• 35:49Speaker 01

  And the consulting work.

• 35:51Ben Gilbert?

  We also want the consulting work.

• 35:52David Rosenthal?

  Okay. 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?

• 36:03Ben Gilbert?

  Do you know what kind of royalty?

• 36:05David Rosenthal?

  It was enough that it was very meaningful, very meaningful cash flow.

• 36:09Speaker 01

  And probably not even, at the time, not even clear just how amazing it would be.

• 36:14David Rosenthal?

  Right, nobody knew that the Beetle was going to become the international hit that it would. But it also, 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

• 36:54David Rosenthal?

  by revenue. So the Austrian Porsche company becomes the largest car dealer network in Europe, not just for Volkswagen's, but for all types of automotive brands. They're doing billions of annual revenue within a few years here.

• 37:10Speaker 01

  I mean, what an opportunity to be given a distribution network just as the car is starting to become like a big thing.

• 37:16David Rosenthal?

  Exclusive distribution rights to Volkswagen's.

• 37:20Ben Gilbert?

  And they're in countries, not just in Austria, they're all over the place.

• 37:23David Rosenthal?

  Yeah, they're all over the place in Europe. And even more incredibly, so what the family decides is that Ferdinand and Ferry, the original Ferdinand and his son Ferry, they're going to move back to Stuttgart and take over, retake over the kind of German operations of Porsche. Louise and Anton, the son-in-law, they're 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, you know, the largest car dealer network in Europe. Incredible.

• 37:55Ben Gilbert?

  Doug, 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 like obvious at this point in history when Porsche kind of has these two different companies?

• 38:15Speaker 01

  It's an interesting question. I suspect the answer is more or less in some brands, I bet they were selling direct to consumer and in some I 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.

• 38:33David Rosenthal?

  I think there also might have been a technical reason, which is even though this new Volkswagen was reconstituted as a company, its only shareholders at this point in time were the German government. So both the national West German state And the state of Lower Saxony within West Germany, which still to this day holds 20% of Volkswagen, which is crazy. Yeah. 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. Right. And so to operate in other states, other countries in Europe, they probably needed third parties. Yeah. Wow. Yeah, wild, right?

• 39:15Ben Gilbert?

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• 39:34David Rosenthal?

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• 39:55Ben Gilbert?

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• 40:16David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 40:35Ben Gilbert?

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• 41:02David Rosenthal?

  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?

• 41:18Ben Gilbert?

  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."

• 41:27David Rosenthal?

  Yes, yes, to the German company. And then the Austrian company has exclusive rights to distribute it. It's a crazy deal. So here's what's going on. It actually, as crazy as it sounds, makes sense. So we talked about a minute ago, the Iron Curtain and the Soviets. Like, it's so hard for us to remember now, but Germany, post-war, was ground zero for the Cold War. Like, the battle against the Soviet Union was happening right there, right next door. And so for the West, reconstituting the West German industrial base was of paramount importance. So like, the Marshall Plan that people probably know about, like, this is why the Marshall Plan happened.

• 42:11David Rosenthal?

  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 gotta rebuild.

• 42:32Ben Gilbert?

  We gotta make some cars.

• 42:32David Rosenthal?

  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 one of the oddest tax incentive systems I've ever seen. So for ordinary people in West Germany, post-war, the tax rate was very low. The maximum amount of taxes that any normal person would pay would be like 15%, 20% of your income.

• 43:17David Rosenthal?

  But for these new old industrialists, above a certain income, Germany sets the marginal tax rate at 95%. Whoa. They basically cap your income. Yeah, like people are complaining, oh, you live in California. Oh, my gosh, you're paying 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 side. Sure. Any profits are taxed. So what are they trying to do here? They're trying to incentivize capital reinvestment in the industrial base. So they're basically saying to Porsche and others,

• 44:00David Rosenthal?

  "Set all this up and we are 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, et cetera, into building up your production capabilities and investing in R&D and new models and et cetera, et cetera." And, I mean, it sounds crazy on paper, but like, my God, it actually works. And it works really freaking well. Do 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."

• 44:45David Rosenthal?

  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 and professional racing market was very blurry, very, very blurry. Right.

• 45:26David Rosenthal?

  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, and others around the world. It wasn't like, like you look at an F1 car today, or you look at a Le Mans car like, like there is no connection between that and something you can buy.

• 45:46Speaker 01

  And you or I would not be able to even operate it.

• 45:49David Rosenthal?

  So 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.

• 46:05Speaker 01

  Yeah, professional as it were at the, in the time period.

• 46:08David Rosenthal?

  Yeah, they competed in like real races in addition to being actors.

• 46:12Speaker 01

  Imagine Brad Pitt jumping into a Le Mans.

• 46:14David Rosenthal?

  Right. They'd, uh, they'd, well, I was about to joke they'd kill themselves. James Dean did kill himself in a Porsche 550 Spyder, which Porsche would make a kind of dedicated racing type vehicle, although it was also a consumer production vehicle, the 550. That car, that never would have happened if Porsche wasn't incentivized to invest all their profits. Like, I mean, maybe you can say, I'll do like the legendariness of that car. I mean, they, they sell for what $5 million plus today?

• 46:48Speaker 01

  Real 550 Spurs. 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 Spyder was for people who like, were really like, let's go racing and like, do it. But like you said, you could, a person could walk into it, not a dealership necessarily, but like just order one.

• 47:07David Rosenthal?

  Yeah.

• 47:08Speaker 01

  But it is, it is an absolute legend.

• 47:10David Rosenthal?

  It totally is.

• 47:11Speaker 01

  Yeah.

• 47:12Ben Gilbert?

  You kind of see this trend, this moment where you see the bifurcation between anybody can do it and what the very best in the world kind of look like. That seems to be true across everything in the world today. In the way that like what Taylor Swift is doing on the stage on her tour has nothing to do with like a person who picks up their guitar and is talented and plays at the local bar. Like she is the SR71 pilot and this, you know, playing on a local bar stage is flying a Cessna and the machinery to do so is entirely different. In the same way that you're talking about car racing splitting at this moment in the early 50s.

• 47:48David Rosenthal?

  Yeah. So back to racing, we were talking about the Spyder a minute ago. I got so excited about James Dean. But Doug, to your point. 356s in 1951 and 1952 win their class at Le Mans. They don't win it outright.

• 48:02Speaker 01

  Right.

• 48:02David Rosenthal?

  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.

• 48:11Speaker 01

  Right. Yeah. Then that, that was kind of a special thing, but that was, that was the point of those classes. It was that there were cars for people who could kind of go buy a car off the street and modify it.

• 48:21David Rosenthal?

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

• 48:33Speaker 01

  Yeah.

• 48:33David Rosenthal?

  These weren't 356s. And I think they were probably also a lot more expensive than the $3,700.

• 48:40Speaker 01

  Plus, an important distinction between Porsche and Ferrari in this era is that Porsche was largely focused on road cars and then the road cars went racing, except for the 550, which was kind of built, purpose built for racing. And there were racing versions of the 356, but the goal was mostly road cars. Whereas Enzo, very famously, he just wanted to race and he hated his customers, his, his road car customers deeply. It wasn't his thing. He just wanted to race. He only sold road cars to kind of finance racing. And a lot of the road cars that he ended up selling were either based on race cars or just former race cars that he would, I'm done with this crap. Whereas Porsche was selling, I mean, 356s were like being sold like as a, in a pretty good volume.

• 49:20David Rosenthal?

  There's this great, great, great Ferry Porsche quote about this, uh, which he would say later about the nine 11. But I, I think this also applies in early form to the 356. The quote is, "We have the only car that can go from an East African safari to Le Mans, then to the theater and then to the streets of New York." And like, that's such a unique thing, especially in this era, like one car.

• 49:44Speaker 01

  It remains true. It's kind of like Porsche's thing.

• 49:48David Rosenthal?

  Yeah.

• 49:48Speaker 01

  To this day, like how relatively usable the car is in just about any setting. Like you can drive it to work. You can actually take it on a racetrack. That like has remained sort of an ether, whether or not they're, it's constantly a north star for them. It is what they do more than anybody else.

• 50:03David Rosenthal?

  Yeah. I was trying to think of like, What the right kind of other luxury brand analogy is you're gonna 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 right? Like, what do you think?

• 50:18Ben Gilbert?

  Yeah, absolutely. It's a you buy those watches to wear them. You don't buy them to keep them in a case and ogle at, you know, their steel, they're originally made for people who are swimming the English Channel or scuba diving. I think it's reasonable to also compare it to like continuing in the luxury world, like a Ramoa suitcase. Those aren't that expensive. They're three times, four times more expensive than regular luggage, but like

• 50:41David Rosenthal?

  They're not a Louis Vuitton truck.

• 50:42Ben Gilbert?

  Right. And so

• 50:44David Rosenthal?

  But they're a lot more usable.

• 50:44Ben Gilbert?

  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 Birkin bag.

• 50:52David Rosenthal?

  Like, brands like this are so valuable.

• 50:55Ben Gilbert?

  Because it has both the breadth and the depth. Like, there are enough people who are like, I love Porsches because they're my cars I can actually drive, but they are supercars.

• 51:08David Rosenthal?

  Yes. This thing behind us goes 200 miles an hour?

• 51:12Ben Gilbert?

  Yeah.

• 51:13Speaker 01

  No, this thing behind us is a little bit of a different.

• 51:16Speaker 01

  And there have been, and we'll get to, and we in the 550 Spyder is one of them. There have been some Porsches that kind of go one way or another in the philosophy, but like generally speaking, it's sort of a middle of the road. Going back to Ferry's quote about this exact thing can do all these things.

• 51:30Ben Gilbert?

  Yeah. Doug, one question for you. I'm going to keep going to you for terminology. David mentioned Le Mans. What is that?

• 51:36Speaker 01

  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. And 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, and 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, Le Mans is like the Monaco Grand Prix, the Super Bowl, if you will, of like, vehicles racing in that sort of race series.

• 52:12David Rosenthal?

  There's also this like, um, Porsche 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 like fuel efficiency matters.

• 52:28Speaker 01

  It's also a road race, so it's not on a racetrack. It's literally on, they close down roads in the French countryside and, and race on the road. And so there's like some component of like, instead of purpose building a car for a circuit, like cows were using this road, you know, two days before.

• 52:41David Rosenthal?

  Yeah, right, right. Totally. So on the back of all this success and like James Dean and Steve McQueen and all this, as you would imagine, Porsches start to become quite popular in America. So in 1954, Porsche, which I don't, I don't think Ferdinand and Ferry like envisioned of like, we're going to 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 seventies and eighties, but um, kind of never dips below that. Like, America is a huge market for Porsches.

• 53:20Speaker 01

  It's amazing to think that 588 cars was 40% of Porsche production. I agree with you, by the way, by your, your point that they didn't really have America in the business plan. It's one, one thing to provide some context is important to keep in mind, the number of like sports car startups happening in Europe at this time was significant, most of which listeners, viewers will have never really heard of because they all died. These came up, they, they showed up, they, they raced a little, they sold some cars, they failed. And that, there were tons of these, there was no concept that Porsche would be more successful than any of them. Obviously, the, the family hoped it would, and it became that way. But so many families hoped theirs would too, and they all failed. And somehow Porsche, you know, grew and grew and grew.

• 54:00David Rosenthal?

  Well, uh, part of it was the incredible success of the cars. Um, a big part of it too was the royalty on the Beatles.

• 54:10David Rosenthal?

  That's a nice, steady source of cash flow that you can invest in your operation.

• 54:13Ben Gilbert?

  With forced reinvention. So you're doing stuff like racing, you're doing stuff like looking internationally. You're like, what can we invest in that? Like, we're not sure if it's a ROI positive investment.

• 54:23Speaker 01

  We could be speculative because we know we got the money coming in and Beetle continues to be more and more and more popular. It only continues to embolden them to reinvest.

• 54:29David Rosenthal?

  Right. So speaking of reinvesting, as we get to the 1960s, like the 356 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, it's, it's not a, it's not a 911.

• 54:53Speaker 01

  Right, right, right. And, and what was starting to happen was the 356 was one of the leaders of the charge of the sports car in that era. And what was clearly starting to happen was other sports cars are showing up that were refining some of the principles.

• 55:04David Rosenthal?

  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.

• 55:13Speaker 01

  And all these are starting to show up. All, yeah, Austin Hill, everything is like, okay, there's a lot of pressure.

• 55:18David Rosenthal?

  Yep. So, okay, in 1962, Ferry Porsche makes the decision like 356 is amazing, you know, rebirth of the company. We gotta invest profits and replace it with a new model. So for a couple of years, Porsche had actually been working on a design for a sedan, for a larger model. Seems heretical now. People look at the Panamera and they're like, ew, you know, it was actually like gonna be the second model of Porsche.

• 55:47Ben Gilbert?

  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.

• 55:54David Rosenthal?

  China is why they make that car, but we'll get to that later. So the next generation of Porsches, Ferry's son Ferdinand, known as Bootsy Ferdinand, named after his grandfather, founder of Porsche, was working in the company and he had been leading the body design for this larger sedan that Porsche was gonna make. Ferry decides for a bunch of reasons that to cancel the sedan project. Probably the most important reason was kind of, I don't know how much of this was government motivated and how much of it was just sort of like a cabal of like. Mercedes and BMW, like they were the sedan makers and Porsche maybe could have challenged them, but it was like, hey, you know, they've got their turf. We'll keep our turf in sports

• 56:38David Rosenthal?

  cars and like, everybody will be happy here. Anyway, they decide to cancel the project and double down on sports cars. At the same time, Ferdinand, Porsche Bootsy, the grandson, his cousin from the Austrian side of the family, Louis and Anton's son, also named Ferdinand, Ferdinand Piesch, he'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 know more about this history. Like, I think he really was

• 57:21David Rosenthal?

  the one that led the development of the six cylinder boxer engine for Porsche. 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 Bootsy's done for the sedan. Take this amazing engine that Ferdinand has built for the racing operations and let's

• 58:00David Rosenthal?

  see what happens when we put them together. And this is the birth of the Porsche 901.

• 58:07Speaker 01

  901.

• 58:08David Rosenthal?

  The 901.

• 58:10Speaker 01

  David, I'm not familiar with that model. What is that?

• 58:12David Rosenthal?

  Well, Doug, I'm sure you do this.

• 58:17Speaker 01

  Oh, this is a famous, famous story.

• 58:19David Rosenthal?

  But like, I had no idea. I think most people have no idea. The 911 is only called the 911 because Peugeot of all companies had a trademark in France for any car with a model name of any number, any Roman number with a zero in the middle and then any other number. So X, zero, X.

• 58:41Speaker 01

  And in fact, all Peugeot cars even to this day are named 205, 206, 207, 208. That's the two series, the 308, 408, 508. And so they trademarked them all, just knowing that eventually that would, that would happen.

• 58:51David Rosenthal?

  Unbelievable. So. I mean, it makes sense. Porsche is like, well,

• 58:55Speaker 01

  what do we do?

• 58:56David Rosenthal?

  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 it.

• 59:02Speaker 01

  Now, the story that I hear, have heard about this is that they said, well, we got these badges that say nine, zero and one. Why don't we do nine, one, one because we have the nine and the one already? Hence, the nine eleven.

• 59:13David Rosenthal?

  Hence, the nine eleven.

• 59:15Speaker 01

  Some of this may be more apocryphal than others. One of the things that I don't understand is why they wanted to call the car the nine oh one in the first place. And I was never really able to get great information about that. The three fifty six was purportedly named because it was the three hundred and fifty six like engineering project they did.

• 59:29David Rosenthal?

  Yeah.

• 59:29Speaker 01

  But did they really do five hundred engineering projects between three fifty six and nine oh one?

• 59:32David Rosenthal?

  So a couple of details that I got on this from Excellence Was Expected, I believe, could be wrong on this, but I believe nine oh one was the name of the engine project that Ferdinand Piéch was working on. And I think, I think that's the origin of it. Two, yes, in Porsche lore, it's that like the reason these model numbers are like these are the engineering projects that they start. But that's totally apocryphal. Like, they jump around all the time.

• 59:58Speaker 01

  And now they go forward and backward.

• 59:59David Rosenthal?

  Yes. Going back to the very, very beginning of the consulting company, they started with type seven or project number seven because they didn't want to look like they were a brand new company. So like, oh yeah, we've already done six projects. This is project number seven. I forget who they were working for.

• 1:00:13Ben Gilbert?

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

• 1:00:19David Rosenthal?

  It's exactly, so like, yes, the lore is that, you know, all of our projects have model numbers and like the BS. Right. So funny.

• 1:00:29Ben Gilbert?

  And to be clear, so I admired designs of Porsche cars before doing the research for this, but knew basically nothing about the company or its lineup. I've certainly never owned one. And it took me a long time in the research to realize that there are a lot of car designs that start with nine that are all nine elevens. There's like,

• 1:00:51David Rosenthal?

  Yes.

• 1:00:51Ben Gilbert?

  I don't know. I didn't write them all down, but the nine six four and the nine five nine.

• 1:00:55Speaker 01

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

• 1:01:17Ben Gilbert?

  And not all 911s say 911 on the back. So you can't even like use that as your reference.

• 1:01:24Speaker 01

  It's a little complicated. Maybe that's part of the success of, there's like sort of a language you have to speak in order to like get Porsche to an extent. And there's something to that.

• 1:01:33David Rosenthal?

  Well, I think it's really brilliant. I don't know how much this is intentional versus it's evolved this way with the brand. But like, to me, it's just so brilliant because there is this tribe language to Porsches. If you see a 911, you know instantly that it's a 911. It is iconic. It's one of the most iconic designs in the world.

• 1:01:55Speaker 01

  Yeah, and partly because they've essentially kept the shape the same for the since, since this.

• 1:02:00David Rosenthal?

  Since 1962. Yeah. So pretty immediately, like 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. And so 66 is the first year that's fully 911 for Porsche production. They sell almost 13,000 cars in 66, which that's what, what did we say? 10, 12 years ago, they only sold.

• 1:02:29Speaker 01

  Yeah, 40% of their production.

• 1:02:31David Rosenthal?

  1,000 total. So they're now 13x in 10 years. And that number of almost 13,000 911s they sell was 15% more than their best year with only the 356s. Like Doug, how would you characterize? Like what is, what, what makes the 911 so special?

• 1:02:47Speaker 01

  It's important to keep in mind, at the time, you didn't know, right? It was just like this thing, this like sports car they had come up with. And again, there were a lot of sports cars and it was whatever. But of course, what has ended up happening is that this car has become symbolic of the sports car. And I think a lot of people would, if you were told to mention a sports car, they would say the 911. It, it just has become like the car. And it was, like you say here, it was clear very early on that it, that it had something special in this great combination of, you know, reliability, comfort, practicality, just like the 356 had been, but just better.

• 1:03:21David Rosenthal?

  Yep. To my thinking. The flat six boxer engine, which was a great engine that Ferdinand Piéche designed to go in this first 911. There's something like cool and unique to that. Like we've been talking about the difference between Porsches and other cars here. This is a performance engine, but it's a six.

• 1:03:40Speaker 01

  Right.

• 1:03:40David Rosenthal?

  It's not an eight and it's rear mounted.

• 1:03:42Speaker 01

  Right. So the 356 had a boxer for it. To explain what a boxer engine is, you know, a lot of cars, most cars have, well, these days, most cars have inline engines where the cylinders are in a line. A lot of other cars in the past have had V engines where the cylinders literally make a V for balance. The boxer engine, the cylinders are literally like across from each other. It's flat. They call it a flat engine. Or a boxer because the cylinder heads look like they're boxing each other as they go back and forth. And the benefit of the boxer engine was that 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 V eights and V 10s became,

• 1:04:27Speaker 01

  V 12s 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.

• 1:04:37David Rosenthal?

  An average person can walk off the street, buy one, operate it.

• 1:04:41Speaker 01

  That's right.

• 1:04:42David Rosenthal?

  Drive to work, have a great time.

• 1:04:43Speaker 01

  It wasn't crazy fast or anything else.

• 1:04:46David Rosenthal?

  Yep. Now, the 356, the old 356, it had four cylinders. And so now the 911 have six cylinders. And like you said, like, it's not a world-class, powerful, fast car, but it's, it elevates the 356 into a much more like, you can really achieve a lot more with this than you could with the 356s. 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 going to create like a major price gap in our lineup here.

• 1:05:28David Rosenthal?

  We're going to lose a lot of customers by, by elevating. So they do a stopgap. At the same time that they introduced the 911, they also introduced the 912. And the 912 is a 911 with the old 356 four-cylinder engine in it. So they essentially kneecap the, they downgrade the 911 to be the entry-level model, only as a stopgap. They don't want to do this permanently. They sell about three-quarters of the units are the 912s, the cheaper four-cylinder ones, and one-quarter of their sales are the more expensive 911s. The profit margins, though, on the 911s are so much higher. So Ferry starts thinking like, okay, and this was part of the plan all along, I think. Let's create a whole new model.

• 1:06:13David Rosenthal?

  The old 356, we're going to bifurcate it. Our performance, real 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 911. Let's create a new car that can replace, can be the entry-level Porsche. We'll eventually introduce the Boxer 20-plus years later. Takes Porsche a while to really get to the perfect end state of this strategy here. But for this new car, Ferry says, hey, we're not really equipped yet to be running multiple lines as just us, Porsche, the company. We need a partner for this new car.

• 1:06:57David Rosenthal?

  Let's turn to our good old friends at Volkswagen and jointly engineer and produce this new car with them. So in 1967, Porsche kicks off a joint project with Volkswagen to produce a new mid-engined Roadster, which is a smaller, more compact car and mid-engined, not rear-engined, called the 914. And the idea is that they're going to make both a four-cylinder and a six-cylinder version of this. The four-cylinder version's going to be a Volkswagen. The six-cylinder version's going to be a Porsche. And Ferry puts his nephew Ferdinand Piesch in charge of this joint project with Volkswagen, a very fateful

• 1:07:42David Rosenthal?

  decision, as we shall see. 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 be Porsches?

• 1:08:09Ben Gilbert?

  So the plan was originally to have some of the 914s be branded VW and some of them be branded Porsche?

• 1:08:14Speaker 01

  Volkswagen had made a little sports car called the Carmen Ghia.

• 1:08:17David Rosenthal?

  Yeah.

• 1:08:18Speaker 01

  Previous to this, like in the 60s. And so the thought was they wanted to replace the Carmen Ghia. Porsche wanted an entry level car. Let's jointly develop it. Porsche gets the more powerful one, the 914 six, the six cylinder. And Volkswagen get the four cylinder. But the decision was made, like you said.

• 1:08:33David Rosenthal?

  The 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.

• 1:08:48Ben Gilbert?

  Huge.

• 1:08:48David Rosenthal?

  Huge deal, huge deal for VW. So we're starting to re intertwining these companies just a little bit here.

• 1:08:57Ben Gilbert?

  That deal is an enormously wide ranging partnership because you're trading distribution from one side of your business with the ability to create a product on your other side. I mean, it's, it's basically merging the companies because it's so massively intertwined now in this partnership where it's not like, oh yeah, we partner with them on this one small little thing. It's like, no, our car that we expect to sell more of than any other car is made by this other company. Meanwhile, on the VW side of things, it's like America, the most important and largest growing car market in the world. We, we now own the distribution for Porsche like this. Even if it's not structured this way, this is a merger.

• 1:09:39David Rosenthal?

  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.

• 1:09:51David Rosenthal?

  So you're absolutely right. The 914 goes on to be a huge success, sells way more units than the than the 911, which was the whole strategy. Porsche is 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. Doug, you can comment on this. There is also a market for mid-engine roadsters. I mean, including the one sitting behind us, regardless of price, like these are pretty amazing sports cars.

• 1:10:24Speaker 01

  Yeah, Porsche's previous to this had all been rear engines, the 911, the 356. And so this was a mid-engine, which had was starting to really take hold in the car world as the right design, because the engine in the middle is really the perfect balance. You kind of can put the engine right in the center of the car and it gives you like perfect weight distribution. When I always talk about sports cars, in my mind, like God intended sports cars to be mid-engined. That's how it's it's more difficult. The engineering is more difficult than front engine. But that's how it and rear engine is just insane. But Porsche made it work. They've always been great at that. But mid engine is how it should be.

• 1:10:56Ben Gilbert?

  And when you say mid, this basically means that it's still obviously behind where the passengers sit, but in front of the rear axle.

• 1:11:02Speaker 01

  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.

• 1:11:16David Rosenthal?

  I think you have a video where you say the Cayman GT4 RS, which is the Cayman and the Boxer, the same is the same lineage we're talking about here, is the best modern Porsche.

• 1:11:27Speaker 01

  Yeah, I feel that way. But it's controversial, because the 911 is the Porsche.

• 1:11:32David Rosenthal?

  Don't hate us in the comments.

• 1:11:33Ben Gilbert?

  Yeah, I don't know, Doug. I feel like I've seen multiple the best on your channel.

• 1:11:41Speaker 01

  Every car is the best when it comes out and then it's superseded by the next best. There you go.

• 1:11:45David Rosenthal?

  You, uh, one of the differences between YouTube and podcast world is titles and SEO is really important in the YouTube world.

• 1:11:52Speaker 01

  Right, very, and I don't even take advantage of it as much as some of my, my colleagues.

• 1:11:56David Rosenthal?

  Wow. It's a, while we're on this topic here of engines, I gotta imagine this is one of just the huge sea changes that is coming with electrification of performance cars, right? Like,

• 1:12:09Speaker 01

  Yeah.

• 1:12:10David Rosenthal?

  A whole different set of calculus. Like, it doesn't matter. There is no engine anymore.

• 1:12:14Speaker 01

  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.

• 1:12:24David Rosenthal?

  Yeah, yeah.

• 1:12:25Speaker 01

  Doesn't matter.

• 1:12:26David Rosenthal?

  It doesn't.

• 1:12:26Speaker 01

  It's gone.

• 1:12:27David Rosenthal?

  It's gone. Okay, so a minute ago, Ben, you said like, oh, this naturally would lead to a merging of, you know, VW and Porsche. And I was like, well. So this was in the late 60s when the 914 launches. As we head into the 70s, the oil crisis happens in the 70s and sports cars become less of a thing. People are really worried about this. This is like a challenge to Porsche. It's particularly a real challenge to the 914. Interestingly, 911 sales stay relatively robust throughout the 70s.

• 1:13:05David Rosenthal?

  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 grandsons that are kind of vying, starting to vie for control of the company.

• 1:13:48David Rosenthal?

  You know, they're now, gosh, I don't know, probably in their 30s, maybe entering their 40s, Ferry's getting older here. Like, who's going to take over the company? We've got succession vibes here. On the one side, you've got Bootsy Ferdinand Porsche. He's got the name. He's Ferry's son and he's a great designer. I mean, he designed the 911, maybe the most iconic car design ever.

• 1:14:10Ben Gilbert?

  And this is German Ferdinand.

• 1:14:12David Rosenthal?

  This is German.

• 1:14:13Ben Gilbert?

  Working, actually producing the cars.

• 1:14:15Speaker 01

  But the other Ferdinand, the son of Louise and Anton, was hired by the German company also.

• 1:14:22David Rosenthal?

  He's also. So, yeah, he's hopped over. He's, you know, on 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, blah, blah, blah.

• 1:14:33Speaker 01

  Right, go do that.

• 1:14:33David Rosenthal?

  But he's also proved himself as like

• 1:14:35Ben Gilbert?

  Yep.

• 1:14:36David Rosenthal?

  An incredible engineer, executive. He was in charge of this 914 project. He managed it with Volkswagen. That was an incredibly successful car until the oil crisis, et cetera, et cetera. So he's like, yo, 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 in succession and how all this happens. I don't think there's another case of anything going down like this that I've ever heard of. So in the fall of 1970, Ferry and Louise together call a joint family summit. They're like, we're going to settle things.

• 1:15:19David Rosenthal?

  And I don't know, I'm speculating here, but I suspect Ferry and Louise were, didn't have a lot of acrimony over them. I mean, they're brother and sister and they had, Louise had her company, Ferry had his company.

• 1:15:29Speaker 01

  They're both making a lot of money.

• 1:15:30David Rosenthal?

  They're both making a lot of money. Everybody's happy. This is between the children here. So they call a family summit. At the end of it, they come to a very, very surprising decision. They don't decide that one Ferdinand or the other is going to take over. Instead, they make the call that the families.

• 1:15:51David Rosenthal?

  Are going to completely and jointly exit operating the business. Everybody out of the pool, not the two Ferdinand's gone. Ferry, Ferry himself, who's running the 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 it'd 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.

• 1:16:32Speaker 01

  This is crazy. I would be so fascinated to get video footage of what actually went down in that room. And the logic that they could walk themselves through to this is actually the best outcome.

• 1:16:43David Rosenthal?

  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 German. So like, they're very, you know, prim and proper. But I think Ferry, he basically admits, he's like, yeah, there probably was a better solution to this. But like, it did mean that we could 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. Maybe it is a rational, it's still, it's crazy.

• 1:17:20Speaker 01

  Especially crazy decision because like you said, they were, they were killing it.

• 1:17:23David Rosenthal?

  They were the best.

• 1:17:24Speaker 01

  Business until this point, and it had been a very successful one because of the efforts of the family. And especially you got Ferdinand Pia. Now, looking back on this, we know what happens to Ferdinand Pia, which we'll get to. But you've got him on this up and coming track where he's so legit.

• 1:17:37David Rosenthal?

  Oh, my God. And he must have been so pissed.

• 1:17:39Speaker 01

  It's like, no, you're out. Crazy.

• 1:17:41David Rosenthal?

  I mean, he definitely was so pissed. So let's talk about what happens here. Bootsy, he goes off and he founds Porsche Design. So 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, right? He was like, all right, great. I want to be a designer. That's the path that he goes down.

• 1:18:13Ben Gilbert?

  The same thing happened in the Gucci family. For anyone who's seen the Gucci movie with Adam Driver, there's sort of a family member who wanders off and does some like effectively like brand licensing. He's like, I'm gonna take the family name and make some money off it.

• 1:18:24Speaker 01

  Yeah. Which is obviously what was happening here.

• 1:18:27David Rosenthal?

  I think he also was very talented. I mean, designed to gotten the 911 for God's sakes. Like he's talented, but, but yes, trading on the name here. The other Ferdinand, P S. This guy, oh my God, he is a, he's a G. So at first, he's like, I imagine inspired by his grandfather. He's like, I'm gonna go start my own engineering consulting company and consult for other car companies. He does do that for a little bit. But pretty quickly thereafter, remember VW and the new CEO really wanted to build this relationship with Porsche, with P S. He gets recruited to come in and take over Audi for VW.

• 1:19:08David Rosenthal?

  I don't think he originally, I think he enters working within Audi, but then very quickly becomes the head of the Audi brand for Volkswagen.

• 1:19:17Ben Gilbert?

  And Doug, at this point in history, what does the Volkswagen Group own brand wise?

• 1:19:22Speaker 01

  Yeah, that's an interesting question. The brands that we know, I think it was just Volkswagen and Audi.

• 1:19:26David Rosenthal?

  Audi had been a separate company.

• 1:19:28Speaker 01

  Audi had been a separate company, and it's also important contextually here to, to, to make one really important point about P S and Audi. At that time, Audi was a joke. Audi was not what it is now. Like now you view Audi as a legitimate competitor to Mercedes and BMW. Back then it was more like how Saab would have been treated. Like it was a absolute second or third tier brand that no one could possibly. You know, it was not, it was not a brand that was desirable at that time.

• 1:19:54David Rosenthal?

  Would it be like today?

• 1:19:55Speaker 01

  Infinity.

• 1:19:56David Rosenthal?

  Like, I know you, you owned a Kia, right? It's a bit like, you know, Kia and Hyundai are trying to enter the luxury market.

• 1:20:01Speaker 01

  Yeah, yeah.

• 1:20:02David Rosenthal?

  Really?

• 1:20:02Speaker 01

  It was on that level of like, I'm going to stick with Mercedes.

• 1:20:05David Rosenthal?

  Yeah.

• 1:20:06Ben Gilbert?

  Was the Audi 5000 the thing that kind of saved them and brought them back?

• 1:20:10Speaker 01

  On the contrary, actually, that car was the one that had the, the famous scandal in the United States, where the 60 Minutes found that it unintended acceleration, where it would accelerate, which turned out to kind of be unfounded, but their reputation was like severely, severely damaged by that. But 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 BMW and Mercedes, they're killing it.

• 1:20:33David Rosenthal?

  So P S 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 that in 1993, he gets promoted and becomes CEO of Volkswagen.

• 1:20:56Speaker 01

  So you get the situation where they kicked him out of running the company and then he goes and ends up running the company. It's wild.

• 1:21:03David Rosenthal?

  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.

• 1:21:12Ben Gilbert?

  How long was Ferdinand P S running Volkswagen?

• 1:21:15David Rosenthal?

  A long time, 1993, I believe he was chairman until 2015, 2016, maybe.

• 1:21:22Speaker 01

  He develops this reputation of being this just iron fisted, like, I can only, when you say, I can only imagine how upset he was when they made the decision to end the family involvement. He has this rep of being like incredibly angry and everything must be to his standard. And so I can only imagine how angry he was.

• 1:21:40David Rosenthal?

  He also, um, he had 13 children, but I think four different women.

• 1:21:44Speaker 01

  He had a lot of kids. He was that typical, you know, how you think of like a German industrialist. At around 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 existing.

• 1:22:11David Rosenthal?

  Yeah, restarted. I mean,

• 1:22:14David Rosenthal?

  Doug, you kind of said, but to put a bow on it of what a baller Pia was. In 1999, the Global Automotive Elections Foundation, they award him the Car Executive of the Century.

• 1:22:30Speaker 01

  And by the way, that's uncontested in the car world. Ferdinand Pia has looked at as like exactly what you're saying. The guy. Everybody knows his impact. Everybody knows how effective he was.

• 1:22:39David Rosenthal?

  And the families, Porsche is just like, yeah, no, you gotta get out of here. Unbelievable. Maybe he wouldn't have had the motivation to, who knows? Who knows? Just wild.

• 1:22:49Speaker 01

  But Volkswagen, much bigger company than Porsche, right?

• 1:22:52David Rosenthal?

  Yeah.

• 1:22:53Speaker 01

  He got kicked out of his own company, so he went and ran a much bigger one that competes with it.

• 1:22:57David Rosenthal?

  And then he grew even bigger.

• 1:22:59Speaker 01

  Yeah.

• 1:22:59David Rosenthal?

  Yeah. Yeah. Yeah. Yeah. Wow. So back to the Porsche side.

• 1:23:07David Rosenthal?

  This decision was, 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 Fuhrman becomes the first non-family member CEO of Porsche. He was actually part of the original elite engineering crew back in the sawmill in Gomun. 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.

• 1:23:45David Rosenthal?

  The problem with the 924, I think it actually was a decent car. Doug, you actually reviewed a 944 recently, 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. It's a front-engined, water-cooled, like.

• 1:24:03Speaker 01

  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 so did the beloved 914, and it drives pretty well.

• 1:24:17David Rosenthal?

  Yeah.

• 1:24:18Speaker 01

  So like people, people are like, yeah, we'll, we'll, we'll take this as the entry Porsche of, of the time, but it wasn't a nine 11.

• 1:24:24David Rosenthal?

  It wasn't a nine 11 and it wasn't a nine 14 either.

• 1:24:27Speaker 01

  No.

• 1:24:28David Rosenthal?

  Like.

• 1:24:28Speaker 01

  It was a totally different thing. And the nine 14 was a small, lightweight, compact, roadster removable top. The nine 24 was a, it was definitely a different kind of situation.

• 1:24:35David Rosenthal?

  So Furman had a quote on it when, can I, you know, asked about like, what is this? He says, "The nine 24 is aimed at new clients who either can't afford a nine 11 or are not necessarily looking for the performance of a nine 11."

• 1:24:51Speaker 01

  Oof.

• 1:24:52David Rosenthal?

  I mean, I guess that's true, right? And that's also true of the nine 14, but like.

• 1:24:57Speaker 01

  Can you come up with something?

• 1:24:58David Rosenthal?

  The right way you want to position your brain.

• 1:25:00Speaker 01

  It's the quiet part, loud kind of.

• 1:25:01David Rosenthal?

  Yeah.

• 1:25:02Ben Gilbert?

  Can you, can you come up with something that is not using the word not to describe who wants it? What like, how about you say who would want it?

• 1:25:11Speaker 01

  Yeah. This is for the poor customers.

• 1:25:13David Rosenthal?

  Right, right, right. And, and again, but also it's just like in, in whole philosophy of it, it's not a Porsche. Even more concerning is the nine 28. So Furman makes a decision as the new CEO of the company, that it's time to replace the nine 11. And I, again, you know, maybe like, let's give him some credit. This is the seventies, the oil crisis is going on, like there's, um, the safety regulations, this is post Ralph Nader and unsafe at any speeds, like it's maybe reasonable to think that a rear engine sports car isn't like a great strategy you'd be pursuing here.

• 1:25:54Ben Gilbert?

  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 in them. And so all cars need to change.

• 1:26:05Speaker 01

  And regulations started to really show up, like in this time period that in the car world, the sixties are kind of viewed as like the last bastion of just like, anything goes. And some very special cars came out of that era. In the seventies, everything started to get, the oil crisis was a big factor because that started to screw with emissions. And then you had all these regulations about bumpers and safety and seat belts that, you know, were very important and beneficial, but at the time it was like, oh, they're killing our fun.

• 1:26:32Ben Gilbert?

  It is astonishing how much safer cars have gotten.

• 1:26:35Speaker 01

  Astonishing.

• 1:26:35Ben Gilbert?

  I mean, you look at these like cute old Porsches, they're so much smaller.

• 1:26:39Speaker 01

  Right.

• 1:26:40Ben Gilbert?

  And you look at the big ones today and you can lament, oh, cars have gotten so big, but cars have also gotten so much safer.

• 1:26:45Speaker 01

  Far.

• 1:26:46Ben Gilbert?

  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.

• 1:26:51Speaker 01

  Hmm.

• 1:26:51David Rosenthal?

  Totally. So in 1978, Furman introduces the Porsche 928 with the stated intention that this is going to eventually replace the 911. They keep selling the 911. He says, we'll keep selling the 911 as long as we get demand for, I think it was at least like 10,000 units a year or something like that. But, you know, once the 928s on the market and demand dips for the 911, we'll stop making them.

• 1:27:16Speaker 01

  Now, I want to defend the 928 a little bit here because it was a, this is an important moment in Porsche's history. When we look back on it now, it seems insane that the 911 would go away. Like, how could that be? But it's important to keep in mind that like the 356 went away and that was the Porsche. Like how now you say like, oh, I have a Jeep and you're referring to the Wrangler. Like that was up, the Porsche was the 356. And so that went away and for the 911, it only made sense at some point, the 911 would also go away. The crazy thing about the 928 in the Porsche world is that it was a front engine V8 car, which Porsche had never pursued before and was more kind of an American thing. But in the context of the time, it's not that insane that they went after this. All sports cars were starting to get bigger and more powerful.

• 1:28:00Speaker 01

  And because of the oil crisis and because of tightening emissions laws, it was getting very difficult to make any sort of power from anything other than a big engine. And even big engine cars at that time didn't really make a lot of power. Cadillac had like eight liter V8s that made like 150 horsepower. 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, was another sports car. That had been replaced by the XJS, which was now a V8, comfortable, automatic transmission car. Mercedes-Benz did the same thing with the SL class. It went from like a little fun sports car like the 911 to a big V8, kind of relaxed leather luxury cruiser, that sort of thing.

• 1:28:45Speaker 01

  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.

• 1:28:57David Rosenthal?

  So the 928 comes out in 1978. And as we reach the end of the 70s and into the 80s, as we also have talked about a lot on this show, everything that the 70s was in terms of austerity, oil crisis, 17% interest rates and massive inflation. The 80s was not that, shall we say, not that. It was a rising tide that lifts all boats.

• 1:29:26Ben Gilbert?

  Lots of disposable income. Wall Street is ripping.

• 1:29:30David Rosenthal?

  A lot of pinstripes.

• 1:29:31Ben Gilbert?

  Yeah, it seems like actually a really good time for fast cars.

• 1:29:33David Rosenthal?

  Seems like a good time for fast cars. And indeed, it was, including for the 928 and the 924, succeeded by the 944. And still, the 911 people still wanted them. I think largely because of that, although I'm sure there were other reasons too. So the Porsche and Piacha 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 Furman. They ousted him and they bring on a new CEO, an American as CEO of Porsche, one Peter Schutz. Famously, he comes in and he redraws the 911 production line.

• 1:30:16David Rosenthal?

  And Doug, I know you have some firsthand experience of the legendaryness.

• 1:30:20Speaker 01

  The great, one of the great stories in the auto industry. The 928, 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 911. And had been in production now at this point for probably 20 years, 25 years, maybe. And

• 1:30:44Speaker 01

  The 911 was Porsche to a lot of these people and the fact that it was going to get replaced by the 928 was this sad thing and it had kind of really hurt morale in Stuttgart, at the factory, all the way up to the, to some of the people at the top. And so the great story is that, you know, the 911, 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, the, the office of Helmut Bott, who's the chief of engineering for Porsche. And there's a line on the wall that shows where all the products stop and start and the, you know, timeline.

• 1:31:21David Rosenthal?

  And this is like a, like on a whiteboard or a piece of paper.

• 1:31:24Speaker 01

  Yeah, like on a whiteboard or something.

• 1:31:25David Rosenthal?

  Tacked to the wall.

• 1:31:26Speaker 01

  Right. And so they're sitting there talking about it, they know that morale is low, they know that the company wants to keep the 911, even though it, you know, it should be replaced because it's old, you know, that's the thinking of the, of the people.

• 1:31:37Ben Gilbert?

  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.

• 1:31:43Speaker 01

  An edict has been given and the car's out. I mean, the 928 is on sale, like it has shown up to replace the 911 in the spirit of these other cars of the time, V8 front engine, it made sense, it was what they were going to do. But the morale was low and they knew this and so Schutz stands up, he's got a marker in his hand, he stands up, he walks up to the timeline on the, on the wall and he draws a line on the timeline, all the way onto the wall and extends the 911's timeline, you know, indefinitely, including onto the literal wall. Now, this story, of course, is, this is like the stuff of legend in Porsche, like Peter Schutz, the American CEO, saving the 911 in this moment. And a lot of talk about whether this actually happened, like, did he actually just draw

• 1:32:27Speaker 01

  the line and make the complete 180 decision?

• 1:32:30David Rosenthal?

  This would be a good story to invent if you needed a morale boosting.

• 1:32:33Speaker 01

  Right, especially if you were trying to, you're trying to like boost the, the reputation of the CEO among the, among the workers. He drew the line, right?

• 1:32:41Ben Gilbert?

  And there's a perfect line, which is, Schutz just looks over at the chief of engineering and goes, do we understand each other?

• 1:32:47Speaker 01

  Right.

• 1:32:48Ben Gilbert?

  And then he walks out.

• 1:32:49Speaker 01

  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 in Naples. And I, one day, he went over to his house and asked him, you know, is the story real? Did it happen? And apparently Schutz said, not only did it happen, but Helmuth Baut 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.

• 1:33:25David Rosenthal?

  Great.

• 1:33:26Ben Gilbert?

  That'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.

• 1:33:34Speaker 01

  Now, of course, if you're Schutz, you'd want to tell the story because it's become so famous, but, you know, from his mouth at least, the story is real.

• 1:33:42David Rosenthal?

  It's a great story.

• 1:33:43Speaker 01

  Yeah.

• 1:33:44David Rosenthal?

  I mean, literally, he extended the line of the production line.

• 1:33:47Speaker 01

  Right.

• 1:33:49David Rosenthal?

  Onto the wall.

• 1:33:50Speaker 01

  Right.

• 1:33:51Ben Gilbert?

  So do they keep making both cars?

• 1:33:53David Rosenthal?

  Yeah. So they kept making, I think they made the 928 until 1995. It was Veda King who comes in in a minute, who finally kills the damn thing.

• 1:34:03Speaker 01

  The problem with this decision, and 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 9/11. 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.

• 1:34:22David Rosenthal?

  Yep. So in the go-go years of the early through mid 80s, no problem.

• 1:34:28Speaker 01

  Right.

• 1:34:29David Rosenthal?

  More. Let's, we'll do a, we'll do an ICO. We'll issue some NFTs.

• 1:34:35Ben Gilbert?

  It's attacking 2021.

• 1:34:36Speaker 01

  Yeah, exactly.

• 1:34:38Ben Gilbert?

  In fact, I think Schutz was like, let's make airplane engines.

• 1:34:40David Rosenthal?

  Yes, I think he was. Yes. Oh, my gosh. And on the back of, you know, these go-go years in success, they're selling the 911, they're selling the 928, they're selling a lot of 944. It's like they sold a ton of those things. The families take the company public. So just like a lot of these, like we talked about on the LVMH episode, a lot of these European luxury brands, Craftsman brands, they did an IPO. They thought they were being smart. They sold, I think, a 30% stake in the company, but all non-voting shares. Like, we're not gonna, no, you know, no corporate raiders here. Nobody will have any voting control except the families. Like, it is

• 1:35:20David Rosenthal?

  impossible that somebody could, you know, attack us because the families all, you know, it would have to be somebody inside the families who would attack us. Why would that ever happen? Hmm. Well, everything goes great. The stock, you know, doubles within the first year that it's on the market. But then 1987, long-term capital management blows. You know, the end of the go-go years, the 80s, not good, not good for Porsche. And not good in a lot of senses. Like, A, just period, economic climate, not good for anybody. B, you're making luxury sports cars. Now, as we talked about in the 70s, the oil crisis in the 70s was really,

• 1:36:00David Rosenthal?

  was bad for Porsche. It was really bad for the 914. The 911 was pretty robust. Like, it was very resilient. I think the same is again true here at the end of the 80s, but they've still got the 928 and the 944 on the market. And like, those things started sucking wind big time.

• 1:36:17Speaker 01

  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.

• 1:36:27David Rosenthal?

  Yes. So Schutz, though, he continues production of all three lines. And not only does he continue production, he reinvests especially in the 924, 944 line. They even refreshed it a third time to the 968. I mean, same basic car.

• 1:36:46Speaker 01

  Yeah.

• 1:36:46David Rosenthal?

  Like, they're investing resources in this car. And at the, you probably have a better sense than me, but like, Another aspect of the kind of recession at the end of the eighties was the exchange rates with European currencies got hit really hard.

• 1:37:02Speaker 01

  Right.

• 1:37:03David Rosenthal?

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

• 1:37:15Speaker 01

  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 you're describing. So the Nissan 300ZX starts to show up, the Toyota Supra, you know, all these cars are showing up. And by the way, they don't have four cylinder engines and they're not 25, 20 year old platforms like the 968 was. And there was very little reason to buy a 968.

• 1:37:38David Rosenthal?

  I mean, is, I feel like I'm sort of in my history, probably all of us barely, you know, starting to enter consciousness here. You know, this is pre Fast and the Furious, but not that pre Fast and the Furious. All those, you know, Japanese cars that like, you know, that got tuned up, the Supras especially.

• 1:37:55Speaker 01

  Yeah.

• 1:37:55David Rosenthal?

  This is that era.

• 1:37:56Speaker 01

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

• 1:38:05David Rosenthal?

  Yeah. And again, the 911 isn't threatened by this.

• 1:38:08Speaker 01

  Right.

• 1:38:09David Rosenthal?

  But the 944, 968, hell yeah, is threatened by these. Like, nobody's buying those anymore.

• 1:38:14Speaker 01

  And the 928 by then was so old that sales were a trickle. By 90, there were three products, which was the nine, the entry level, which was the 944 that became the 968. Then there was the 911, which was actually the 964, 911 by that point. It only makes things even more confusing. And then there was the 928, which was the front engine V8, like flagship car.

• 1:38:37David Rosenthal?

  That nobody wanted.

• 1:38:38Speaker 01

  That nobody wanted.

• 1:38:39Ben Gilbert?

  So they literally only made three cars and they were all three number nine cars?

• 1:38:44Speaker 01

  It was a complete disaster. I mean, Porsche's never named cars well, even now. But like, yeah, at the time you had, again, you had to like speak the language. You had to like, and by the way, the 911's all said Carrero on the back. So everybody's like. What the hell is a 911? You know, is this a 911? Why does it say Carrera? It never made any sense.

• 1:39:02Ben Gilbert?

  And all Carreras are 911s, but all 911s are not Carreras today?

• 1:39:08Speaker 01

  That 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.

• 1:39:15Ben Gilbert?

  Right.

• 1:39:16Speaker 01

  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.

• 1:39:23Ben Gilbert?

  Huh.

• 1:39:24David Rosenthal?

  So as all this happens, Porsche is now a public company. The stock price starts to decline precipitously.

• 1:39:33Ben Gilbert?

  And they floated 30% of it.

• 1:39:35David Rosenthal?

  They floated 30%. Now, no voting control.

• 1:39:37Ben Gilbert?

  Yep.

• 1:39:37David Rosenthal?

  But the company, they're really like cresting the treetops here as they're, you know, beginning their descent. At one point, Porsche's market cap was less than 400 million euros.

• 1:39:50Speaker 01

  Crazy to imagine.

• 1:39:51David Rosenthal?

  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.

• 1:40:04Speaker 01

  It was an unbelievably difficult time. And it's kind of funny to think about because now people think of Porsche as Porsche. Like this crazy company, it's one of the hottest brands, like you said, probably one of the most valuable brands.

• 1:40:14Ben Gilbert?

  And it's only 30 years later.

• 1:40:15Speaker 01

  Only 30 years later. It was dire straits. I pulled up the US sales figures for Porsche from this era, which is so insane to me. They dipped in 91, 92 to 4100 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 in 92, they dipped to 4100 cars. That was the level that they, that we were talking about. It was, it was complete dire straits.

• 1:40:44David Rosenthal?

  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 is going to get bought out. One equity research analyst actually in a, in a research note, said that he thought there was a 98% chance that the families would have to sell and that they would accept, you know, some amount of value for their stake rather than just have it go to zero. So. 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, four, three or four more CEOs.

• 1:41:22Speaker 01

  Brutal.

• 1:41:22David Rosenthal?

  None of which really figure it out. There is one bright spot, though, however, which if this were a normal acquired episode, we would just skip, but we've got Doug. The 959.

• 1:41:32Speaker 01

  Yeah, Porsche, Porsche, it's actually the 959 and another interesting component offshooting 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. But it did, it was kind of a testbed for some new technology, including four-wheel drive in a supercar, which has now pretty much become standard fare. The 959 was really the first car that had that. After the 959, Porsche was so desperate, though, that they started taking on projects for other manufacturers. And so it's known in the car world, but not as much in the general world. Porsche built a Mercedes-Benz, which was called the 500E. It was a midsize sedan. Mercedes didn't have the capacity or didn't really want to do it.

• 1:42:13David Rosenthal?

  So they built a sedan for Mercedes?

• 1:42:15Speaker 01

  That's in the Porsche factory in Zuffenhausen, in Stuttgart.

• 1:42:19Ben Gilbert?

  Like, who designed it?

• 1:42:20Speaker 01

  It was a Mercedes car. So it was a Mercedes E-Class, like a regular Mercedes sedan, but with a larger engine. And Mercedes felt that having Porsche involved would give it some sports car credibility. Porsche literally produced the car and then Audi did the exact same thing. Audi needed more credibility because they were still kind of a fledgling luxury car brand. They wanted to get into the sports realm because that's where a lot of money was being made. And so Audi came to Porsche and said, can you help us develop a car? And it was called the RS2. And I actually had one and just sold it last year. It was a station wagon and that was the conditions under which Porsche agreed to build the car. They said, we'll do it, but we don't want to compete with our cars as a coupe. You know, a sports car. So we build it if you build a station wagon, which essentially touched off the like high-performance station wagon thing, which Audi is still known for to this day, more than almost any other thing.

• 1:43:03Speaker 01

  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, they're branded Porsche. The Porsche logo appears in the badge, like the literal emblem on the side of the car. Porsche was just like, yeah, fine, because it literally kept the lights on in Stuttgart, at Zuffenhausen. So when you say-

• 1:43:23David Rosenthal?

  They're just mortgaging the brand.

• 1:43:24Speaker 01

  They were desperate. They were, 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. And the guy who gave the tour had 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 going.

• 1:43:58David Rosenthal?

  Wow.

• 1:43:58Ben Gilbert?

  And it was literally like you have empty production lines. So even though you're not going to make a lot of margin on this, let's at least like.

• 1:44:06David Rosenthal?

  You can be our contract manufacturer.

• 1:44:07Ben Gilbert?

  Yeah.

• 1:44:08Speaker 01

  Like when you have union contract, maybe this was part of the circumstance. You have union contracts, you 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.

• 1:44:17David Rosenthal?

  We'll keep your lines going.

• 1:44:18Speaker 01

  Keeps you going.

• 1:44:19David Rosenthal?

  Instead of losing money on having to pay the, well, yeah.

• 1:44:21Speaker 01

  Right.

• 1:44:22David Rosenthal?

  Wow.

• 1:44:23Speaker 01

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

• 1:44:36David Rosenthal?

  And not that long ago.

• 1:44:38Speaker 01

  Not that long ago.

• 1:44:38David Rosenthal?

  That's crazy.

• 1:44:39Speaker 01

  It wasn't like this was in the 50s. Like, we were alive. This was real stuff.

• 1:44:43Ben Gilbert?

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• 1:44:57David Rosenthal?

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• 1:45:11Ben Gilbert?

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• 1:45:21David Rosenthal?

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• 1:45:39Ben Gilbert?

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• 1:45:55David Rosenthal?

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• 1:46:11Ben Gilbert?

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• 1:46:21David Rosenthal?

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• 1:46:32Ben Gilbert?

  So David, this thing that Doug just referenced to me, the money they they charge for colors, you can do a thing today where you go to buy a Porsche and their online configurator, and they have the paint from every single Porsche ever produced in history. And so you're like, you know, there was really something about this particular 9/11 in this year. I really loved this paint. You can pay them something like $15,000 for your Porsche to be in that particular.

• 1:46:58David Rosenthal?

  It's like a library wine.

• 1:46:59Ben Gilbert?

  Yes, that's exactly it.

• 1:47:01Speaker 01

  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 grand for a color, people are like falling all over themselves to do it.

• 1:47:12Ben Gilbert?

  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, what 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 and years, tiny little tweaks and refinements, making it the like platonic form of what it can be. And there's this like obsession with if you loved Porsche in any given year, we want to make sure that we keep you along for the ride and you can continue to love us today.

• 1:47:54Speaker 01

  Right. If you as a child wanted a 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.

• 1:48:02David Rosenthal?

  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 you can't really buy one until you're in your 40s or 50s.

• 1:48:14Speaker 01

  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.

• 1:48:36Ben Gilbert?

  So Doug, this thing that we're talking about, this idea that if you loved Porsche ever, we want to deliver on that promise today. Do you feel like that consistency has been there since the very beginning? Or do you feel like that's something they learned in their like rise from the ashes after this 80s period?

• 1:48:52Speaker 01

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

• 1:49:00David Rosenthal?

  Also, like you said, I hadn't quite thought about, but I was planning to tell this story of like, oh my God, Furman wanted to kill the 9/11. What a dumb idea. It was like natural. They killed the 356. The natural thing would have been to kill the 9/11.

• 1:49:12Speaker 01

  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.

• 1:49:23David Rosenthal?

  Okay, so Porsche's in this tailspin. The two eras that happen next are both equally amazing. So in 1993, a guy named Vindalyn Vita King gets appointed as the CEO. Now, he had actually started his career with Porsche in the 80s. As all this crazy stuff is happening, he was like a loud voice of protest against all the, you know, shoots and Furman era decisions. He resigned and left the company. They recruit him back in the early 90s to take over as head of production. And he implements the Toyota production system at Porsche, which they must've been like the last auto manufacturer in the world.

• 1:50:08David Rosenthal?

  I don't know if Ferrari uses the Toyota production system, but like this wasn't new technology at this point in time.

• 1:50:14Speaker 01

  Right.

• 1:50:15David Rosenthal?

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

• 1:51:00David Rosenthal?

  And he says, Porsche's strategy for an entry level Porsche is a used Porsche.

• 1:51:05Ben Gilbert?

  Such a good line.

• 1:51:06David Rosenthal?

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

• 1:51:20Ben Gilbert?

  Also, what kind of company makes one product? Like, I mean, seriously, what are like, do they believe that this is a transitionary period? Or do they believe like this is the long-term strategy?

• 1:51:30David Rosenthal?

  No, it's not like Weeta King was like, I am a cost cutter and I will cuss everything down. Like he is much like, he, he has big ambitions. Big, big, big ambitions. This is a transitionary moment. He does want to expand the Porsche model line. As we shall see, he greatly expands it. So I think this is pretty brilliant. And certainly for the financial performance of the company was brilliant and its survival. I think 911 enthusiasts are less enthusiastic about this. But he decides that rather than the old strategy for the entry level model of sharing a platform with Volkswagen, what if we have the new entry level model instead share a platform with the 911?

• 1:52:15David Rosenthal?

  And so what he does is he says, let's take the front end of the 911, of the next generation 911, the 996, and use that exact same front end, same headlights, same hood, same everything. And then made it with a new entry level, you know, back end, the rest of the chassis of the car, revive the old 914 concept that was so successful, mid-engine roadster model with a, uh, how would you describe the, it's not a convertible.

• 1:52:47Ben Gilbert?

  Yeah, no, it is, it is. The monster was a full convertible. Yeah, yeah, yeah.

• 1:52:51Speaker 01

  And it's also important to point out the interiors were almost entirely shared as well.

• 1:52:55David Rosenthal?

  Ah, the interiors were, yeah, like the steering wheel and like-

• 1:52:57Speaker 01

  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 a Boxer, the seat is right up against the, but they shared everything.

• 1:53:11David Rosenthal?

  Ah, interesting. So Doug, what you're alluding to, this is the Porsche Boxer, which becomes a huge success. And I think the reason for it is that it genuinely is to anybody looking at it, like this is a Porsche.

• 1:53:24Speaker 01

  Yeah.

• 1:53:24David Rosenthal?

  Not that stupid quote that Furman had of like, this is for people who don't want a 911 and don't care about performance. This is like, no, no, this is a freaking Porsche.

• 1:53:31Ben Gilbert?

  It shared the design language.

• 1:53:32Speaker 01

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

• 1:53:57David Rosenthal?

  And also from a production and profitability and operations standpoint, this is so great. You're now sharing so many components, not with another auto manufacturer, but with yourself.

• 1:54:06Speaker 01

  Right.

• 1:54:07Ben Gilbert?

  So Doug, what's the difference then at this point in time between the 911 and the new Boxer?

• 1:54:11Speaker 01

  The thinking was that they would continue to move the 911 upmarket, more expensive, more power. So the Boxer 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. They had 200 horsepower and the 911 of that era had about 300. So it was a significant difference. Plus the 911 was just more of a, it was bigger. It was wider. It was faster. You know, it was a more, it was more of a muscle car.

• 1:54:39David Rosenthal?

  Is it fair to say that then, and I think maybe even especially now with the Boxer and the Cayman, the Cayman is the hardtop model of the, of the Boxer? It's also a different kind of experience philosophy.

• 1:54:51Speaker 01

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

• 1:55:11David Rosenthal?

  Yes, it's the entry-level Porsche for sure. But it's also, it's not like you feel like crappy if you're buying one. You're like, oh, you know, I'm buying the best version on the market of this particular product.

• 1:55:22Speaker 01

  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.

• 1:55:34David Rosenthal?

  Yeah. So, Veda King has this awesome quote about the strategy for this. "We 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 Veda 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, Veda King, like, I don't know how much this was his thinking all along, or that he was just emboldened by the success of the Boxer. He really means it. He gets into SUVs.

• 1:56:18David Rosenthal?

  And this, I mean, I, even as like a teenager at the time, I, not being that much of a car guy, but I just remember people like, Porsche is making an SUV. Have these people lost their freaking minds? Like, who, who on earth would buy a Porsche SUV?

• 1:56:33Ben Gilbert?

  Also, I gotta say, like, maybe all cars were kind of ugly in this period, but I remember when I looked at the first Cayenne, I was like, so it's like a Toyota?

• 1:56:42Speaker 01

  It wasn't the most attractive car, there's no question about that. Everybody hated the design language. And you know what? It's been 20 years. It has not grown on him.

• 1:56:50David Rosenthal?

  Yeah, the Macan looks really good.

• 1:56:52Speaker 01

  The new, the new Cayenne's look great, too, honestly. Ever since they redesigned in 2011, but those early Cayenne's, you see them now and you're like, still ugly.

• 1:56:58Ben Gilbert?

  It also just doesn't look like a Porsche to me. Like, there's not enough that's brought through from the heritage of the, how do you describe the back on a 911?

• 1:57:05Speaker 01

  Right, that's sort of like sloping. What happened was, the Cayenne was an interesting situation because Porsche was kind of a first mover. They weren't exactly, Mercedes came out with a SUV first in 1998 model year called the M-Class, which was like, that was a revolution. And they built it in America, which was a really big revolution. BMW 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 in 03, I mean, they beat Audi. Audi didn't come out with an SUV till 07. Porsche was there, like, early, early, early. So, but the problem was Porsche had no clue, because they were early, they had no clue what to do.

• 1:57:50Speaker 01

  And so, I remember at Porsche, when I worked there, talking to some of these people about the early Cayenne's, Porsche literally didn't know what to offer in a 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 Cayenne's had an optional spare tire on the back, like Jeep Wranglers do, like, you couldn't get that, you used to see them run around in it.

• 1:58:20David Rosenthal?

  Part of this was a cultural, you know, German thing for sure, but like, not understanding America, but I don't think anybody understood, like, I don't think there were any super expensive SUVs on the market.

• 1:58:31Speaker 01

  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 a two-speed transfer case, they can go high-low gearing off-road, they have air suspension, they can lift them up and lower them, they had all this off-road hardware that like, you would never put in a luxury performance SUV now. But because Porsche didn't know what customers would want, they decided to give 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.

• 1:59:15David Rosenthal?

  Yeah, I think a few things to say about it. There wasn't anything else that was like a, I can spend $100,000 on an SUV.

• 1:59:24Speaker 01

  Right. This was before the days of an Escalade even. Cayenne came out in 03, Escalade came out in 99, so it was, it was the Escalade was a hit.

• 1:59:30David Rosenthal?

  But Escalades were like 40, 50 grand, right?

• 1:59:31Speaker 01

  And they were just, at that time, they were just Tahos that looked nice. Like now Escalade has become a real thing. But at that time, it wasn't, Porsche was really pushing into some new territory. It was a crazy decision.

• 1:59:41David Rosenthal?

  And SUVs were becoming so important in America. I think there were just like a lot of wealthy people out there and a lot of status focused people that were like, yeah, there's an SUV I can spend 100 grand on, like hell, yeah, take my money.

• 1:59:55Ben Gilbert?

  And also there's a practicality of, I kinda 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 kinda want the Porsche version of that thing.

• 2:00:08Speaker 01

  And Porsche 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?

• 2:00:15David Rosenthal?

  They have families.

• 2:00:16Speaker 01

  Right. And so, and, and, and by the way, with those families, they're buying an X5. And it's like, why don't we?

• 2:00:21Ben Gilbert?

  Right.

• 2:00:21David Rosenthal?

  Yeah.

• 2:00:22Ben Gilbert?

  And the danger here, if you're at home and you didn't know how this ended and you were a smart business person, you'd be thinking, well, this is going to borrow against their brand equity. 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 and it has not borrowed against their brand equity. It has increased the love for the brand.

• 2:00:53David Rosenthal?

  I think cause at the same time and just before, they had given a huge shot in the arm back to the performance with the Boxer and the 993, 911. And then also done the SUV, which they partner with Volkswagen, with Ferdinand Piast. It kinda makes peace between the two companies.

• 2:01:13Speaker 01

  So Piast is running Volkswagen at the time, comes out with the Touareg, which was Volkswagen's SUV. And that's, that served as the basis for the original Cayenne.

• 2:01:20Ben Gilbert?

  Really?

• 2:01:21Speaker 01

  Yeah.

• 2:01:21David Rosenthal?

  Porsche starts a new, whole new production facility in a new part of Germany, in Leipzig, to make it. And then ultimately shortly thereafter.

• 2:01:31David Rosenthal?

  Makes this car.

• 2:01:31Speaker 01

  The Carrera GT.

• 2:01:32David Rosenthal?

  At the same.

• 2:01:33Speaker 01

  And you know.

• 2:01:34David Rosenthal?

  Production facility.

• 2:01:34Speaker 01

  That's right. They were built in the same place. And you know, I think that goes back to the point you just made that Porsche, the SUVs, yes, you'd think you come out with an SUV, it destroys your brand credibility. We've seen this with Maserati come out with all these sedans and now nobody wants one. But Porsche always made sure to be making other cool stuff and to keep coming out with other cool stuff, reinvest in the performance, like you said. And so they used this new factory that Cayenne was built in to also create this supercar. And that was important. It really showed people, hey, they might be making an SUV, but they're also making this. So they're legit.

• 2:02:06David Rosenthal?

  For people who are just listening to the audio, this is the Carrera GT sitting behind us.

• 2:02:10Speaker 01

  The Carrera GT.

• 2:02:10David Rosenthal?

  So, okay, we've alluded to this amazing machine behind us. Like, what is this thing?

• 2:02:15Speaker 01

  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, but a lot of people who have driven, you know, this and a lot of other cars feel that way about this car. It was a true analog supercar, which means manual transmission. There's very few driver aids in this car. 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, like no expense was spared, basically. And the coolest part was that the powertrain, which is a big V10, was shared with, initially it was developed for Formula One racing. And then it was evolved to Le Mans racing. And in neither cases did it ever actually see the light of day. They created a Formula One engine. It didn't work out.

• 2:02:59David Rosenthal?

  It's a little bit like the original 911 engine that, for an MPS design, for racing, but then only made it into the.

• 2:03:05Speaker 01

  Right. That'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 non-existent. Like, to get a Le Mans or a Formula One engine homologated for road use is just like mind blowing. So that's, that's the cool thing. And this car has, it originally came out, you know, in this era and, and was thought of as cool and special and whatever. But its legend has sort of grown since then as sports cars have moved away from some of the things that made this car so special. Specifically, this analog feel, you know, all exotic cars now are automatics and hybrids and that sort of thing. And this was kind of the end of the end.

• 2:03:43David Rosenthal?

  My sense is this car, too, has a reputation, partly because Paul Walker died in it.

• 2:03:48Speaker 01

  Yes.

• 2:03:49David Rosenthal?

  Of like, unlike a lot of Porsches and the 911, like, this is something that you need to be. Really know what you're doing to operate this thing.

• 2:03:58Speaker 01

  Yeah.

• 2:03:58David Rosenthal?

  You can't, like, if you let it get away from you, it'll kill you.

• 2:04:01Speaker 01

  Yeah, it has a reputation for being difficult to drive, which 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 sell. Like, it's not that crazy by modern standards, but at the time, it certainly was something.

• 2:04:23David Rosenthal?

  Yeah. But I guess, like, today cars, like, there's so much stuff, technology in cars that is designed to keep you from, like, doing stupid stuff.

• 2:04:33Speaker 01

  And that, this car was kind of the end of that era, and I think that's why it's so special. It was like the last of these cars that really you could get into trouble. And, 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, and some people died in them, and, and maybe still will, you know, I don't, it's, it's still out there and it's still a dangerous car.

• 2:04:56Ben Gilbert?

  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.

• 2:05:04Speaker 01

  Right.

• 2:05:05David Rosenthal?

  It's like, it's like a artist. It's like paintings.

• 2:05:07Speaker 01

  Yeah. I think that car, people had always known the car had kind of this reputation.

• 2:05:11David Rosenthal?

  There weren't, like, lawsuits against Porsche about this.

• 2:05:13Speaker 01

  Porsche got sued, yeah. It went to jury trial. Porsche was found liable, at least partially liable.

• 2:05:18David Rosenthal?

  Wow.

• 2:05:18Speaker 01

  And, and that's a big deal if you're an automaker, because they got 1,300 of these out there.

• 2:05:22David Rosenthal?

  Right, right, right.

• 2:05:22Speaker 01

  Because they find liable.

• 2:05:23David Rosenthal?

  Because production was, um, and, and this is the value of the car now, like, production was initially intended to be higher than it ended up being. They stopped it early, and so.

• 2:05:32Speaker 01

  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 car didn't sell well when it first came out. The sticker price was $440,000, and they dropped fast. You could get them in 08, 07, 08, you could get them for $250,000 all day long. And now you can't, there's, they don't exist under $1 million. That's a crazy thing.

• 2:05:54David Rosenthal?

  Wow.

• 2:05:55Speaker 01

  Should have all invested in Carrera GTs.

• 2:05:58David Rosenthal?

  Bought Apple stock or Carrera GT. Carrera GT would be a lot more fun to own.

• 2:06:02Speaker 01

  I'd probably need seven of them or whatever.

• 2:06:04David Rosenthal?

  Right.

• 2:06:04Speaker 01

  But it would have. They all completely took off.

• 2:06:06David Rosenthal?

  Wow. It's funny, I thought that this, you know, was gonna be a fun little digression about the Carrera GT, but I realize now, actually... This is a super important point to the business history. While they were drawing on the brand equity to make the SUV, this was a big part of putting cash back in the bank of the brand equity.

• 2:06:27Speaker 01

  Yeah.

• 2:06:28David Rosenthal?

  And to do it on the same production line as the SUV.

• 2:06:31Speaker 01

  It also had that effect. It also helped legitimize that facility. Because up until that point, except for the ones built in Austria, all of the Porsches had been built in Stuttgart, in Zuffenhausen, in that factory, that same factory for all these years. And so this car helped legitimize like, oh, we might be making a factory in East Germany. We're building SUVs, but we're not straying too far. We're still doing our thing.

• 2:06:48Ben Gilbert?

  So this point is an interesting one because it is something that other luxury brands do as well. I remember reading when Louis Vuitton first started coming out with the more approachable wallets and clutches and ways that you could tiptoe into participating in the brand story. They were also releasing $100,000, $200,000 special handbags that were new products or new collaborations with other designers that sort of told you, no, we're still Louis Vuitton. We just have this other way to be a part of our brand.

• 2:07:17Speaker 01

  Right, right. And Porsche would go on to do it again, which I'm sure we'll talk about shortly.

• 2:07:21David Rosenthal?

  Oh, yes. So on the back of this incredibly bold plan and turnaround and success by Vitek, 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.

• 2:07:46Speaker 01

  Crazy.

• 2:07:46David Rosenthal?

  A better investment than a Carrera GT, in fact.

• 2:07:49Ben Gilbert?

  So they never had to have any like help once they scraped that bottom of whatever it was, 400 million dollar market cap?

• 2:07:56David Rosenthal?

  Nope. Porsche is saved. It will be independent forever. Families will never have to sell. That equity research analyst can eat his words.

• 2:08:09David Rosenthal?

  No, not quite. Uh, there's another chapter to the story.

• 2:08:13Ben Gilbert?

  So that's 100x market cap growth. Is that right? Did you say 300 million to 32 billion?

• 2:08:19David Rosenthal?

  Yes, that is 100x market cap growth in a decade.

• 2:08:22Ben Gilbert?

  Occasionally, there are these 100 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 elsewhere sometimes.

• 2:08:35Speaker 01

  And it was Porsche of all things.

• 2:08:36David Rosenthal?

  Of all things.

• 2:08:37Speaker 01

  Oh, I suspect in most of these cases, though, to take advantage of it, you would have had to have kind of been insane. Like, to have invested in Porsche at that point, you would have been nuts.

• 2:08:44David Rosenthal?

  Even if you had told a person in 1993, "Hey, this guy's coming in. He's gonna kill the entry-level stuff, go back to doing entry-level stuff, and then do an SUV." You'd be like, "Uh, how do I get out of this stock?" Like, where do I sell?

• 2:08:58Speaker 01

  Especially because he was the fourth CEO or whatever. And it wouldn't, yeah, I don't want to be any part of that.

• 2:09:02David Rosenthal?

  Clutching at straws, it would seem, but, uh...

• 2:09:04Ben Gilbert?

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

• 2:09:15David Rosenthal?

  Yeah, and the 32 billion euro market cap, it's not crazy because by this time Porsche is doing almost 2 billion euros a year in operating profit.

• 2:09:27Ben Gilbert?

  Turns out, these SUVs and making only supercars is a very profitable, a lot of margin there.

• 2:09:34David Rosenthal?

  And China was starting to take off at this time, too. So the final sort of chapter to the Vida King era on the product, production side, was the Panamera. The sedan, Porsche makes a sedan. Now, Doug, I'm curious here, your thoughts on the Panamera? I had always also been like, Porsche made a sedan. It's kind of weird. It looks kind of weird. I think, from doing the research now, I think a large part of the intention of it was to really target the China market. And it became successful globally, too. But I think the Panamera and the Cayenne, too, really helped Porsche enter China.

• 2:10:14Speaker 01

  No question. Looking back, that has become especially true as Porsche's business and all luxury brands' business have grown in Asia. At the time, though, I think they just, they had an SUV, they had done that. So it was like, all right, sedan is the next, the next place we want to compete. Let's replicate the success we had in the SUV.

• 2:10:29Ben Gilbert?

  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?

• 2:10:41Speaker 01

  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. Cayenne showed up and made us a ton of money. We got cash. Let's like 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 Cayenne.

• 2:11:04David Rosenthal?

  And honestly, it would have worked and did work. It 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 britches and, you know,

• 2:11:17Speaker 01

  Right.

• 2:11:17David Rosenthal?

  They expanded the product strategy too much and the brand came crashing. Like, no, no, no, like, this worked. And it worked beautifully, just ultimately under different ownership. So let's talk about what we've been alluding to all episode here.

• 2:11:33David Rosenthal?

  The German tax regime still is not very favorable to distributing profits. Just the corporate tax rate alone disincentivizes spinning off cash flow and incentivizes reinvesting. At this point, under Vito 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. So they start looking around for other places to put the cash. Now,

• 2:12:13David Rosenthal?

  At the time, there were rumors circulating in the auto industry that Volkswagen had their eye on Vito King and they were looking to recruit him to be the successor to Ferdinand Piéch. We're now in-

• 2:12:30Ben Gilbert?

  Worked the first time to pull the best guy over at Porsche over, let's do it again.

• 2:12:35David Rosenthal?

  So I think Ferdinand Piéch took over as CEO of the whole VW group, I believe in the same year that Vito King became CEO of Porsche in 1993. Ferdinand's obviously much older, coming towards the sort of twilight years of his career. You can see how this would make sense if it were true. Whether it's true or not, I'm sure Vito King gets rumors of it. Vito King's really, you know, kind of feeling himself here at Porsche, right? Like, he's hard to imagine a better run. He 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 what's cool? A billion dollars. Being the CEO of Volkswagen

• 2:13:14David Rosenthal?

  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.

• 2:13:28David Rosenthal?

  Remember though, Ferdinand Piéch is chairman and CEO of Volkswagen Group. He's also a Piéch. He's also on the supervisory board of Porsche because he's also a key member of the family that owns Porsche.

• 2:13:44Ben Gilbert?

  Yeah, the sitting active CEO of Volkswagen as a family member of the Porsche Piéch family has voting shares in Porsche.

• 2:13:56David Rosenthal?

  Yes. And is on the board, the supervisory board of Porsche. So they thought they were done with the family drama here. It's, uh, turns out there's, there's another chapter.

• 2:14:07Ben Gilbert?

  So isn't it obvious then that it would be hard for Porsche to take over Volkswagen?

• 2:14:12David Rosenthal?

  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 Porsche. So I believe certainly 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 Porsche. September 2005, Porsche spends $4 billion to acquire 20% of the VW group on the open market.

• 2:14:58David Rosenthal?

  It's kind of 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 Arnault technique. They do it mostly using various derivatives and options contracts. So they're buying like the rights to buy shares in the future.

• 2:15:23Ben Gilbert?

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

• 2:15:31David Rosenthal?

  Yes, and in VW's case in particular, there was actually a law in on the books in German law called the Volkswagen law.

• 2:15:40Ben Gilbert?

  Oh yeah, this is crazy.

• 2:15:40David Rosenthal?

  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.

• 2:16:05Ben Gilbert?

  I'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.

• 2:16:27Ben Gilbert?

  And in July 2006, Porsche increased that ownership to more than 25%.

• 2:16:32David Rosenthal?

  Yes, 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, Vito King creates a new separately publicly traded holding company for the family's ownership of Porsche. So it's there's still the Porsche operating company, the old doctor engineer.

• 2:16:59Ben Gilbert?

  AG.

• 2:16:59David Rosenthal?

  AG operating company. There's now a new holding company that owns 100% of the operating company and the VW shares that they've been acquiring.

• 2:17:09Ben Gilbert?

  And this is Porsche SE.

• 2:17:11David Rosenthal?

  Porsche SE. Porsche SE Holding.

• 2:17:14David Rosenthal?

  And here's where things start to go awry. Vito 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 this holding company.

• 2:17:32Ben Gilbert?

  He's got Ferdinand Piesch signing off on this.

• 2:17:35David Rosenthal?

  Right, like, why would Piesch go along with this? I think the best as I could figure out is that Piesch 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 Vito King too. So like, he was benefiting from this too.

• 2:17:55Ben Gilbert?

  Right, yeah.

• 2:17:56David Rosenthal?

  He was gonna have his cake and eat it too, I guess.

• 2:17:59Ben Gilbert?

  Heads I win, tails you lose.

• 2:18:00David Rosenthal?

  Yep. So as Porsche is buying all these VW shares on the market with the debt that they're loading up on the holding company, the float of VW shares that are actually available on the market starts shrinking precipitously. Just because, remember, the German state of Lower Saxony still holds 20%. Porsche now owns more than 50%.

• 2:18:24Ben Gilbert?

  Because they had kept buying after that 25% using all the cheap debt and they got all the way up to 50%.

• 2:18:31David Rosenthal?

  Right, so that only leaves 30% left. Then you've got all the insiders, like, you know, Piesch and everybody else, like, who knows how much equity they hold, plus maybe some long-term holders or funds that aren't gonna sell. The amount of VW shares trading hands on the open market shrinks to pretty close to zero. We know that 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.

• 2:18:58Ben Gilbert?

  Didn't they go up so much that Volkswagen like briefly became the most valuable company by market cap in the world?

• 2:19:05David Rosenthal?

  Yes, they did. So as all of this is happening, Lehman Brothers collapses.

• 2:19:13David Rosenthal?

  Which this is, you know, this is the black swan event that Vida King couldn't have predicted. Like, he's not dumb. He knew he was taking risks here, but like.

• 2:19:20Ben Gilbert?

  Yeah.

• 2:19:21David Rosenthal?

  So Lehman Brothers collapses and it's crazy what happens. So during the week after the collapse in October 2008, that's when Volkswagen Group becomes the most valuable company in the world. Hedge funds have been shorting Volkswagen. You get a short squeeze that happens and the stock just goes through the roof.

• 2:19:42Ben Gilbert?

  Cause there's all the demand for borrowing the shares to do the short selling.

• 2:19:46David Rosenthal?

  So you would think that this is like the best thing that's ever happened to Porsche and Vida 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 Vida King because they've got this debt. Lehman's just happened. So like clearly they're not going to be able to refinance any of that. And yes, VW's share price is in the stratosphere, but it's not sustainable.

• 2:20:27David Rosenthal?

  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 like this is, this is like an artificial price. It's just because of the short squeeze that it's that high. So Porsche now is like completely trapped. They can't sell to service the debt because then the share price will crater. They can't buy because they can't take out any more debt. So they're just kind of like stuck in stasis at this point in time.

• 2:20:57Ben Gilbert?

  Why can't they sell? Cause if they sell, they get a bunch of cash by not liquidating that many shares because it's so valuable.

• 2:21:04David Rosenthal?

  They're not going to be able to sell that many shares at this price before the, the price craters.

• 2:21:09Ben Gilbert?

  Right. So they basically can't get.

• 2:21:10David Rosenthal?

  Cause who's going to be buying? Lehman just happened.

• 2:21:13Ben Gilbert?

  Right. Wow. Fascinating.

• 2:21:16David Rosenthal?

  So at this point. P.S. Ferdinand, good old Ferdinand.

• 2:21:20Ben Gilbert?

  Who hasn't moved a single piece on the chessboard.

• 2:21:23David Rosenthal?

  No, he's just sitting there. He's on the Porsche board and he is still chairman of the VW board. He's no longer CEO, but he's still chairman of VW. This is when he turns on Vida King. So he and Volkswagen announced publicly to the market that they no longer believe that Porsche is a financially viable entity.

• 2:21:46Ben Gilbert?

  As a deep trusted partner of Porsche, we believe.

• 2:21:49David Rosenthal?

  And they say that they have to say this because Porsche is a greater than 50% you know, owner of VW. And so they, you know, have to disclose this to the market. And that as a result of this extraordinary circumstance, VW led by Ferdinand is willing to bail out their partner Porsche and save them by purchasing the Porsche operating company for, you know, the neighborhood of three to four billion euros to, you know, get them out of this predicament.

• 2:22:22Ben Gilbert?

  Wait, and then just to unpack the statement a little bit more, what he's basically saying to like, make it more explicit is a key partner of ours

• 2:22:33Ben Gilbert?

  went so deeply into debt.

• 2:22:36David Rosenthal?

  To try and buy us.

• 2:22:36Ben Gilbert?

  Buying our shares.

• 2:22:38David Rosenthal?

  Yes.

• 2:22:38Ben Gilbert?

  That they can't service that debt and are now about to be insolvent and default on loans. So therefore we will help them out by, what is it? Buying them for?

• 2:22:50David Rosenthal?

  They, they floated a price of three to four billion euros, which remember like a couple of months ago, this company Porsche was trading at 10x that.

• 2:22:58Ben Gilbert?

  Whoa. This is literally Ferdinand saying to Vida King, if you come at the king, you best not miss.

• 2:23:08David Rosenthal?

  This is exactly what is going on. Yeah. Whoa, 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, Vida 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. VW 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.

• 2:23:52David Rosenthal?

  It ends up being about eight and a half billion euros total. So between that opening volatility of three to four and the

• 2:23:59Ben Gilbert?

  32.

• 2:23:59David Rosenthal?

  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 and Pesh families and Ferdinand. They emerge as the largest shareholders, the families personally, in VW Group.

• 2:24:24Ben Gilbert?

  So Porsche SE, this new holding company they created that was buying VW shares.

• 2:24:28David Rosenthal?

  Yep, already owned 50% of VW. And then VW paid eight and a half billion dollars to buy Porsche. So the families own 50% of VW and they just got eight and a half billion dollars for Porsche. So they already were pretty high up there in the rankings, but after this transaction, they are now in the top, call it 15 wealthiest families in the world.

• 2:24:54Ben Gilbert?

  Oh, my God.

• 2:24:56Ben Gilbert?

  So post both tranches, after Porsche AG, the operating company is fully owned by VW. What does the family own?

• 2:25:08David Rosenthal?

  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.

• 2:25:20Ben Gilbert?

  It's so crazy. VW, the company, bought Porsche, the company, but really Porsche, the family owns it all.

• 2:25:28David Rosenthal?

  Owns it all, and they just got an eight and a half billion dollar cash out.

• 2:25:32Ben Gilbert?

  Wow.

• 2:25:33David Rosenthal?

  Yeah, crazy.

• 2:25:35David Rosenthal?

  So here's the thing now, we're now in 2011 when the second tranche of the buyout happens. We're deep in the great financial crisis and the recession. Porsche, the business, it's fine. The drama is all around Porsche, the hedge fund, and the financial shenanigans and the families. The actual operating business, the cars, sales are fine. Porsche has one down sales year, only one during the financial crisis. And then everything else is 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

• 2:26:20David Rosenthal?

  come out with the 918 Spyder, their next supercar. At this moment in time, there's all this, oh, Porsche is now owned by VW in consternation. They're like, yeah, we can still make the best cars in the world.

• 2:26:32Speaker 01

  Yeah. And the 918 helped to introduce like 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 Carrera 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 cheap, you know, like little car, the Prius. And so you think of, well, here's a hybrid, and we're going to do hybrids, but we're going to start top down with this crazy, crazy supercar.

• 2:27:01Ben Gilbert?

  Talk about supercars for a minute, because I think it's important to understand, like, they don't always make a supercar, right?

• 2:27:07Speaker 01

  Right. It's like a once in every 10 or 15 year cycle, they're making one. But it's a very, yeah, it's a rare and special thing that they do it. And it seems to be they do it only to kind of prove something or prove a technology, like the 959 was all wheel drive, and this car was kind of this new production facility. And the 918 was the plug-in hybrid technology.

• 2:27:24Ben Gilbert?

  And how many years do they make them for when they decide they're going to do

• 2:27:27Speaker 01

  It's a short model run. So this car, they made 1,270, which is considered a lot for a supercar. The 918, they only made 918 units. And in fact, that was considered a lot for a supercar. Its biggest rivals at the time, which were the McLaren P1 and the LaFerrari, they didn't combine to make 918 of those.

• 2:27:43David Rosenthal?

  But the 918 Spider is what a $2 million car?

• 2:27:48Speaker 01

  These days, yeah, it was, it was new, it was like 900 or so, maybe a million after you got a bunch of stuff and it's double. It's done well. All the supercars have done well.

• 2:27:56David Rosenthal?

  Well, I bet, I'm sure you'll talk about this in a minute, but Porsche is the master just of like you, 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.

• 2:28:08Speaker 01

  But even at, even if you figure out the base price was like 900 grand, they made 918, you do the math. Doing a supercar is real money to be made fairly quickly as opposed to a Cayenne that's a long tail and you make them over a long time to spread out the costs and all that.

• 2:28:21David Rosenthal?

  Yeah.

• 2:28:22Ben Gilbert?

  And so this supercar was a plug-in hybrid. I don't think I ever knew that.

• 2:28:25Speaker 01

  All, all supercars are now, but the 918 Spider was Porsche saying, we're going to go into this plug-in world because they knew what was coming up. And we'll get to in a second with the Taycan, but they knew what was coming up, that hybrids and electric cars were going to 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 what 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.

• 2:28:49David Rosenthal?

  What did the car world think of that?

• 2:28:51Speaker 01

  It's important to keep in mind that 918 Spider, being a plug-in hybrid, it had a electric component, but it also still had a massive V8 in it that had a zillion horsepower screaming and all that, you know? And it was the same with the LaFerrari and the McLaren P1. They still had massive engines also, so it was fine. It, the, the next crop of, of supercars will probably be full electric. And so that transition, I think, is going to be more controversial. The interesting thing that's setting, seems to be setting Porsche apart now though, is that they're standing behind it. Ferrari has already said that the technology is old, all the plug-in stuff, we don't want to be any part of the LaFerrari. And so like, no one's really sure how that's going to age.

• 2:29:24David Rosenthal?

  Oh, those are going to be orphaned cars.

• 2:29:26Speaker 01

  Exactly.

• 2:29:27David Rosenthal?

  Orphaned multimillion dollar cars.

• 2:29:29Speaker 01

  Yeah, exactly. It's a scary situation if you own that car and the battery is gone, you don't know what to do. You go to the supplier. But Porsche has always been big about standing behind the cars in part to preserve resale value and to make sure that owners of the next supercar know that they'll be protected. And so like this car is already almost 20 years old, all the parts are still available, that kind of.

• 2:29:44David Rosenthal?

  That's the smart brand thing to do.

• 2:29:46Speaker 01

  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 can make the next one, the next one, they keep finding rich people.

• 2:29:54Ben Gilbert?

  They only make what 13,000 cars a year at Ferrari?

• 2:29:58Speaker 01

  Yeah, it's a small operation.

• 2:29:59Ben Gilbert?

  So like.

• 2:30:00Speaker 01

  Ferrari just, it's still don't really care about their customers all that much.

• 2:30:03Ben Gilbert?

  What's the rule of luxury? Dominate your customer?

• 2:30:06David Rosenthal?

  Ferrari was owned by somebody at some point, though, right?

• 2:30:08Speaker 01

  Yeah, there were all these, oh, God, Ferrari's 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 into financial ruin.

• 2:30:20David Rosenthal?

  It wasn't his pursuit of, you know, derivatives.

• 2:30:23Speaker 01

  No, it was quite different. It was actually a very Italian thing versus the pursuit of drivers is kind of a very German thing.

• 2:30:27David Rosenthal?

  Yeah.

• 2:30:28Speaker 01

  But, um, yeah, that was a real bad situation also. None of those companies are independent anymore. It's not, it's not really possible either because of the way that regulations are structured, especially fuel economy. You have to spread out your fuel economy over your corporation and you have to hit certain targets. And so actually this, this 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 they're, 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.

• 2:30:59Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 2:31:12David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 2:31:29Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 2:31:44David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 2:32:08Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 2:32:27David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 2:32:57Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty 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/acquired and just tell them that Ben and David sent you.

• 2:33:22David Rosenthal?

  Yeah, okay, well, great. So this is perfect to wrap up on the history of Porsche here.

• 2:33:28David Rosenthal?

  As part of the VW group, they come out with the Macan, which is a huge success, both in America and China.

• 2:33:36Ben Gilbert?

  And this is the mini compact SUV.

• 2:33:38Speaker 01

  Right. The Cayenne is the midsize and the Macan is the compact.

• 2:33:41Ben Gilbert?

  Okay.

• 2:33:41Speaker 01

  Exactly. And a lot of Volkswagen stuff shared with all these cars. Engines are shared across tons of model lines now.

• 2:33:48David Rosenthal?

  Yeah. Interesting, which is such a departure for a Porsche.

• 2:33:51Speaker 01

  That's right. It's for an engineering company to doing this kind of sacrilege. 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, it's, everything is now just spread across all these brands.

• 2:34:08David Rosenthal?

  This is a little bit echoes of our Lockheed Martin episode that we just did. The heritage of the great airplanes, the great Porsches is this independent engineering, small team culture. But to operate today within the content, you have to be part of this. So the Macan's a big hit. And then we just alluded to it with the Taycan, the Mission E is the concept that they introduced in 2015. So like, yeah, pretty early. I guess the Tesla Model S came out 2013, 2012.

• 2:34:36Speaker 01

  2012 model year. So Porsche was pretty early with the concept for Mission E.

• 2:34:40David Rosenthal?

  Yeah.

• 2:34:40Speaker 01

  Not everybody was sure that was going to catch on. Electric vehicles, I don't know.

• 2:34:45David Rosenthal?

  I don't know.

• 2:34:45Speaker 01

  And a lot of people were slow as a result.

• 2:34:47David Rosenthal?

  Yeah.

• 2:34:48Ben Gilbert?

  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 gonna happen.

• 2:34:58Speaker 01

  In the car world, I mean, at least five years behind Toyota just started, just came out their first electric car like yesterday. Like, I'm not exaggerating. It was like eight weeks ago.

• 2:35:05David Rosenthal?

  We gotta talk about that another day on acquired. Like, how did that happen? I mean, they were the

• 2:35:09Speaker 01

  How did that happen?

• 2:35:09David Rosenthal?

  They were the forefront of hybrids.

• 2:35:11Speaker 01

  Totally. The Prius that they invented it all and now they're like, electric? I don't know. They're still like waiting and seeing electric.

• 2:35:17David Rosenthal?

  Wild.

• 2:35:18Ben Gilbert?

  So the Taycan 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.

• 2:35:26Speaker 01

  Yeah, no, it's, it is, it's been well received. It drives like a Porsche, which I think was everybody's fear about an electric car, that you'd lose the engine sound, you'd lose the feel of it. But the Taycan does indeed drive like a Porsche.

• 2:35:37David Rosenthal?

  Why do you think they came out with a sedan?

• 2:35:39Speaker 01

  It was a mistake for sure.

• 2:35:40David Rosenthal?

  Yeah.

• 2:35:40Speaker 01

  Yeah, I think, 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 as their first car are coming out with SUVs. You look at Rivian, Pure SUV and Truck, Hummer EV, all, there's a ton.

• 2:35:58Speaker 01

  I think Porsche made a mistake.

• 2:35:59David Rosenthal?

  Yeah. But relative to the other traditional auto manufacturers, I get the sense Porsche, you gotta be in the top tier of like best positioned for an electric future.

• 2:36:12Speaker 01

  Yeah, yeah, no, absolutely. And, and they'll continue to innovate. There's an electric Macan is coming soon, so they say, and so it'll be fine. And Taycan, I mean, one could argue that Porsche needs to come out with an electric sporty car first because they needs, if you come up with electric SUVs, that's your first one. It's like, eh.

• 2:36:28Ben Gilbert?

  They have no plans for an electric 911, right?

• 2:36:31Speaker 01

  I mean, that's what they would, they would tell you if you asked them, that's what they would say. But let's be honest here, like it's, 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.

• 2:36:45Ben Gilbert?

  Interesting thing about the Taycan. So you mentioned the next supercar will be, I don't know, an all-electric one. I haven't driven in a Taycan. I have watched videos of people driving it. I'm like, what else do you need to do to make this a supercar?

• 2:36:59Speaker 01

  You know, the thing about electric cars is they all can accelerate incredibly well. And that's like insane. And Taycan is faster than this. It's faster than everything. It does zero to sixty in like two seconds. Ridiculous.

• 2:37:07Ben Gilbert?

  But 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?

• 2:37:13Speaker 01

  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 on like really showing people what a brand can like do. And so they will, I suspect in the next couple of years, they will come out with the next supercar, which will be, you know, look like this. And they'll only make a thousand and it'll cost $2 million and it will be fully electric and do zero to sixty in one and a half seconds and be even more ridiculous.

• 2:37:42David Rosenthal?

  What are the performance characteristics of the next generation of supercars gonna look like? Like what are you?

• 2:37:47Speaker 01

  Humans can't go zero to sixty in like a second. So 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, right? This car is not 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 like the Toyota RAV4, okay? But this is the high-performance version. It does zero to sixty in like 3.2 seconds. It's faster than a CROG. So yeah, like what does a supercar even mean anymore? Like ultimately, like what does it offer that a Kia EV6 GT, by the way, $51,000 does not offer? And the answer just has to be like, it's lower, it's

• 2:38:31Speaker 01

  wider, so 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 gonna kind of be the future. But you're right, power is being democratized. Everyone can now access a car that does zero to sixty in three seconds.

• 2:38:49David Rosenthal?

  Right.

• 2:38:49Speaker 01

  And so I don't know. It'll be interesting to see how the sports car responds.

• 2:38:53David Rosenthal?

  Well, so that brings us to today when, or I guess more accurately, last fall, September 2022, when VW Group re-IPO'd 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.

• 2:39:22Ben Gilbert?

  As the investment bankers would say, like, there was 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 commingle it with a bunch of other stuff. And so, like, all shareholders of Porsche can purely just be shareholders of Porsche. And you, 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, eh, it's fine.

• 2:39:56David Rosenthal?

  It's interesting, though, like, Doug, to your point, operationally, though, you can no longer extricate these companies. So you can financially extricate them.

• 2:40:05Speaker 01

  Purportedly. 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 Taycan has, there's an Audi version of the Taycan called the e-tron GT. How do you, you know, it's all, it's all intermingled.

• 2:40:19Ben Gilbert?

  So, yeah, if it's not actually operationally any different, then you do have this question where you'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.

• 2:40:31Speaker 01

  Right.

• 2:40:31Ben Gilbert?

  Not you literally created value inside the company.

• 2:40:35David Rosenthal?

  So it's interesting, Ludwigson, Carl Ludwigson, who wrote Excellence Was Expected, he published a new edition of it last year. And in the foreword 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 gonna be the same old independent Porsche.

• 2:41:01Ben Gilbert?

  Yeah. And by the way, you can choose. To buy Porsche AG, the independent spin out of VW. Or you can also, on the stock market, go and buy Porsche SE, the family holding company.

• 2:41:13David Rosenthal?

  I didn't realize that it's still on the market.

• 2:41:15Ben Gilbert?

  So some other interesting things about Porsche today. The family, as we mentioned, has 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? Oliver Bloom is both the current CEO of VW Group and Porsche.

• 2:41:41David Rosenthal?

  Yeah.

• 2:41:42Ben Gilbert?

  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?

• 2:41:55David Rosenthal?

  Right. I guess Vito King was right. He was right in everything that he was doing. He just, he didn't win the Game of Thrones.

• 2:42:02Ben Gilbert?

  Right. Fascinating. So 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 take hand, too. So the 911 has sort of grown slowly over time. The 718, that's the Boxster Cayenne, not a lot of revenue coming from that. Yeah, that's sports car sales just slow. It's just 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.

• 2:42:45Ben Gilbert?

  China is, as Porsche would account for it, their largest market. But the reason that I put that caveat in there, because it's at 26% is China. They split out Germany from Europe and call them two different regions. So they have Germany.

• 2:43:01David Rosenthal?

  True Germans, like a true German would.

• 2:43:03Ben Gilbert?

  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.

• 2:43:15Speaker 01

  One of the interesting things is, you know, the Chinese only buy four doors. They only want four door cars. There's almost no, because there's no heritage Porsche in China. It's a luxury good. It's a, 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, sports car sales in China.

• 2:43:32Ben Gilbert?

  Wow.

• 2:43:32Speaker 01

  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 kind.

• 2:43:38Ben Gilbert?

  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.

• 2:43:45Speaker 01

  Right. But for them, they never had the sports car brand. So it's just like normal.

• 2:43:49Ben Gilbert?

  It's crazy. North America is very close to China. It's 24% in terms of sales. And then the rest of the world is 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.

• 2:44:12Speaker 01

  Last quarter they delivered 80,000.

• 2:44:13Ben Gilbert?

  Yes.

• 2:44:14Speaker 01

  Wow.

• 2:44:14Ben Gilbert?

  So last year they delivered about 350,000 cars.

• 2:44:21Speaker 01

  Man.

• 2:44:22Ben Gilbert?

  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.

• 2:44:43David Rosenthal?

  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, it's Louis Vuitton. Like they make a, Louis makes a lot of stuff.

• 2:44:55Ben Gilbert?

  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.

• 2:45:05Speaker 01

  Yep.

• 2:45:06Ben Gilbert?

  And I think that this whole time, while researching, I just had this like broken thing in my brain where I was like, how, how do they make so much stuff when they're Hermes and they're not Hermes?

• 2:45:18Speaker 01

  Yeah.

• 2:45:18Ben Gilbert?

  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.

• 2:45:31Speaker 01

  Which is funny because people see it as such a high-end brand. It's almost like the SUVs have managed to like 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 a Macan for, I don't know, 750 a month, whatever, you know?

• 2:45:48Ben Gilbert?

  Right, right. On the scale thing though, there is another order of magnitude up and these, these other brands do feel much cheaper. So at around two and a half million a year is BMW and Mercedes-Benz. And it does feel like Porsche is in a much different class than BMW or Mercedes-Benz in terms of the sort of hoity-toity-ness associated with it when you get to drive it and you get to own one. And I, 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, like there, there should be an inverse relationship between scale and brand perception, but they have managed to find this like mismatch or like, to your point, it's like skating under the radar where they are able to make a lot of SUVs and still maintain

• 2:46:33Speaker 01

  Right.

• 2:46:34Ben Gilbert?

  what they have. And the question is for how long?

• 2:46:36Speaker 01

  Right. Or, or at what scale?

• 2:46:37Ben Gilbert?

  At what scale?

• 2:46:38Speaker 01

  Like at what, if it doubled again? Like it's interesting about BMW because if you think about, if you saw Porsches as often as you saw BMWs, would it be special? Of course, the answer is no.

• 2:46:46Ben Gilbert?

  No.

• 2:46:46Speaker 01

  So.

• 2:46:48Ben Gilbert?

  What do you think the average selling price of a Ferrari is across all their?

• 2:46:53Speaker 01

  250.

• 2:46:54Ben Gilbert?

  330.

• 2:46:55Speaker 01

  Oh, that's insane.

• 2:46:59Speaker 01

  That is insane.

• 2:47:00Ben Gilbert?

  Three X's, three X Porsches.

• 2:47:02Speaker 01

  Three X Porsche. How many Ferraris are made every year or sold?

• 2:47:04Ben Gilbert?

  13,000.

• 2:47:05Speaker 01

  13,000 versus 350,000.

• 2:47:07Ben Gilbert?

  Yes.

• 2:47:08Speaker 01

  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.

• 2:47:14David Rosenthal?

  Right. These are two very different beasts.

• 2:47:16Speaker 01

  Yeah.

• 2:47:17Ben Gilbert?

  And it's fair to be like, are you a 911 plus supercar person or a Ferrari person? But the rest of Porsche shares the name Porsche, but is a completely different thing.

• 2:47:27Speaker 01

  Right. Yeah, they're nowhere near each other.

• 2:47:30Ben Gilbert?

  It's almost like Porsche should go get even more aggregate market cap by like spinning out just their like hypercar or their.

• 2:47:38David Rosenthal?

  The 911s.

• 2:47:39Ben Gilbert?

  Yeah, like just the real.

• 2:47:40David Rosenthal?

  The stock ticker is P911.

• 2:47:42Speaker 01

  Is it really?

• 2:47:42Ben Gilbert?

  Yeah, in Germany.

• 2:47:45Speaker 01

  Man, that's crazy. Ferrari is 330, you said?

• 2:47:48Ben Gilbert?

  Ferrari's average selling price is 330,000.

• 2:47:50Speaker 01

  330.

• 2:47:51David Rosenthal?

  It's interesting, right? Like, I mean, you're Doug DeMuro. You own a Carrera GT. You don't own a Macan.

• 2:47:59Speaker 01

  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. Like, I haven't went and got a Porsche SUV. Truthfully, the reason is ridiculous. I don't want to drive like things of that name brand like on a daily, like my wife would never be seen in a like a Porsche. Do you know what I mean?

• 2:48:19Ben Gilbert?

  It's the funniest thing because I'm, one of my, David, my closest friends drives a Porsche McCann and his wife drives 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 saying, ugh, I hate being seen in a Porsche. Or that you don't want to be driving around a $75,000 Porsche and yet this thing that you have.

• 2:48:39Speaker 01

  It's ridiculous. I know. It's, 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 a connoisseur. If you have a sports car, if you buy the SUV, it's like, ah, that could be, I love them, by the way. They're awesome cars. It just does not for me.

• 2:49:02Ben Gilbert?

  Right. It's like getting like the Masters logo embroidered on your golf clubs. You know, it's like, okay, like I know you didn't play in the Masters, but like.

• 2:49:12Speaker 01

  Well, okay, that's cool. Right. It's, that's exactly how I look at it. Like, okay, that's, that's fine. But I just, it's not, I'm gonna, I'm gonna stay kind of low key in my normal life.

• 2:49:20Ben Gilbert?

  What do you think I drive?

• 2:49:25Speaker 01

  It's got a Model 3.

• 2:49:27Ben Gilbert?

  That's a good guess. That's what David drives and that's probably what I would.

• 2:49:31Ben Gilbert?

  Mazda CX 5.

• 2:49:32Speaker 01

  Oh, yeah. Okay. Yeah, those are good cars. The Porsche Macan of the mainstream.

• 2:49:37Ben Gilbert?

  It's a Japanese Porsche Macan.

• 2:49:39Speaker 01

  If you ask my colleagues, they would say that, but I think it just is a normal. But I like them. They're good. I recommend those to people, too.

• 2:49:45Ben Gilbert?

  Okay, so more back to Porsche. A couple of other interesting observations, just for listeners trying to keep track of home of like, what are 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?

• 2:50:06Speaker 01

  Right.

• 2:50:07Ben Gilbert?

  BMW, as we mentioned, 10 times more units of BMW sold than Porsche's are down at 17% in terms of gross margin. So they, they really aren't marking up much above their cost of goods in order to, 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.

• 2:50:38Speaker 01

  People just pay and pay and pay. And by the way, the 330 average price thing, like, that's, I'm just like still astonished by it. That's an unbelievable amount of money, when you really think about it, for 13,000 cars a year.

• 2:50:49Ben Gilbert?

  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.

• 2:51:02Speaker 01

  I mean, Ferrari's still charging like 2 grand to put Apple CarPlay as an option in their cars. I am dead serious. Like heated seats are like 800 bucks extra in Ferraris. You get the idea.

• 2:51:11Ben Gilbert?

  Yeah.

• 2:51:12Speaker 01

  Ferrari options list will go crazy.

• 2:51:16Ben Gilbert?

  So, switching gears but staying on gross margins, because David, you brought up LVMH earlier. LVMH's gross margins, 68%.

• 2:51:28Ben Gilbert?

  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 real hard costs in cars that are just not in other luxury goods. And so you have this opportunity to

• 2:51:49David Rosenthal?

  Carbon fiber ain't cheap.

• 2:51:51Ben Gilbert?

  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. This 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.

• 2:52:19David Rosenthal?

  Going into doing this episode, I sort of wondered in the back of my mind, has Bernard Arnault and LVMH ever made a run at any of these

• 2:52:27Ben Gilbert?

  Yeah.

• 2:52:27David Rosenthal?

  luxury auto companies? And if they have not, maybe this is the reason why. Like, they're just in a better business.

• 2:52:35Ben Gilbert?

  Yeah.

• 2:52:36Speaker 01

  It's hard businesses. It's a lot of stuff.

• 2:52:39Ben Gilbert?

  It's a lot of stuff.

• 2:52:39Speaker 01

  It's a different business and it's a lot. Distribution's harder.

• 2:52:44Ben Gilbert?

  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 whose title are engineer, but

• 2:52:57David Rosenthal?

  It's cra- no, it's crafts.

• 2:52:59Ben Gilbert?

  Yeah.

• 2:52:59David Rosenthal?

  It's craftsmen.

• 2:53:00Ben Gilbert?

  68%, that's

• 2:53:02David Rosenthal?

  Yeah.

• 2:53:03Ben Gilbert?

  So if I were to guess, I would say maybe Bernard Arnault has kicked the tires on like Ferrari, Lamborghini, but more on like licensing agreements than trying to own those businesses. Cause I just don't think it actually works into the rest of the flywheel in the same way. Like, you gotta, you gotta own a factory that makes these cars. You gotta do all the R and D.

• 2:53:26Speaker 01

  Plus, skill abilities harder and

• 2:53:27David Rosenthal?

  You alluded to the dealerships and the distribution.

• 2:53:30Speaker 01

  Distribution's hard. You're shipping stuff on giant boats all the way across the world and all that.

• 2:53:34Ben Gilbert?

  Should we talk power? Move into analysis here?

• 2:53:36David Rosenthal?

  Let's talk power. Yeah.

• 2:53:38Ben Gilbert?

  So for any listeners who are new, and based on the Lockheed episode, a lot of listeners are new, there is a section we do called power, which is a way that we try to figure out what 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. Ferrari couldn't make the number of cars that Porsche does and maintain those margins.

• 2:54:20Ben Gilbert?

  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 without making so few things that you can barely, you know, even work with the company.

• 2:54:52David Rosenthal?

  Yeah, they definitely, especially relative to Ferrari, have scale economies, being part of the VW group, that they can be in SUVs in a way that Ferrari can't.

• 2:55:05Ben Gilbert?

  I think you're right, that scale economies enable them to be in the SUV business, which has great margins.

• 2:55:10David Rosenthal?

  Yep.

• 2:55:11Ben Gilbert?

  And that's a thing that you would need to have all these deep partnerships with other car brands in order to do that, or be owned by one.

• 2:55:19David Rosenthal?

  Yeah, I think that is a differentiating factor against Ferrari, but obviously lots of other car brands are in the SUV business.

• 2:55:27Speaker 01

  Right. The heritage is obviously an enormous factor.

• 2:55:30David Rosenthal?

  The brand is the obvious big one.

• 2:55:33Speaker 01

  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 Acuras and the Lexuses of the world. And even though, like, when you really look at it on paper, it doesn't make sense, there is some level of, like, this is a, the German engineering thing, like you alluded to earlier, has this incredible reputation that helps them, okay, this car's just simply built better, it's European, it's German, you know?

• 2:56:01David Rosenthal?

  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, is reliability as much an advantage for Porsche as it was in the past?

• 2:56:16Speaker 01

  Supposedly reliability is still excellent, supposedly, based on the JD Power studies and all that. Now, the question of whether it's actually important for people making decisions about 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. So you get a BMW or Mercedes Benz, it's just not as nice. It's not the same. Like you have this feel. It's certainly more special. There's a specialness to it.

• 2:56:45Ben Gilbert?

  Okay, so moving through them, branding, yes, obviously. Like especially if you're trying to enter any space and compete with a luxury brand,

• 2:56:56Ben Gilbert?

  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.

• 2:57:07David Rosenthal?

  And you can't, you can't manufacture it either.

• 2:57:09Ben Gilbert?

  No.

• 2:57:09David Rosenthal?

  Like there's, there are, they're not making any more heritage automotive brands.

• 2:57:16Speaker 01

  Right.

• 2:57:17Ben Gilbert?

  They are, they're just going to take 75 years.

• 2:57:18Speaker 01

  Right.

• 2:57:19David Rosenthal?

  Maybe, I mean, like the, there is never going to be another situation where the link between racing and production cars is like it was when Porsche was getting started.

• 2:57:33Ben Gilbert?

  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 other je ne sais quoi about it that's like the equivalent of racing versus production cars. You could imagine at some point Tesla's a heritage brand. People are going to be like, there was this crazy eccentric founder.

• 2:57:57Speaker 01

  Yeah, no, I agree with that, but it will take.

• 2:58:00David Rosenthal?

  Yeah.

• 2:58:00Speaker 01

  As many decades as you think and.

• 2:58:03David Rosenthal?

  It'll have to be for something else, though. It can't be for racing. Like, it's something else related to the cars.

• 2:58:08Speaker 01

  Right. It would have to be for something else.

• 2:58:10David Rosenthal?

  And to your point, Doug, performance is a commodity now.

• 2:58:12Speaker 01

  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. Brand is it?

• 2:58:21Ben Gilbert?

  Brand, scale economies enabling the SUV line. I think that was a good one. There's not really counter positioning, I don't think. There was in the younger days, especially the racing younger days, especially with the aggression of Porsche's advertising.

• 2:58:37David Rosenthal?

  Porsche ads have been some of the most iconic, just brand advertising of all time.

• 2:58:45Ben Gilbert?

  And they were brash. The reason it's counter positioning is because a lot of car, like 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.

• 2:59:00David Rosenthal?

  I'm thinking of two in particular. Do you have any particular favorites?

• 2:59:02Speaker 01

  Well, the most famous one, of course, is the 993 Turbo, the arena red 993 Turbo. And Porsche, they would put up one picture of the car and then there was always a tagline. That was like the thing for decades. The famous one was kills bugs fast. That's what everybody remembers.

• 2:59:15David Rosenthal?

  So good. So good. The other one that I'm thinking of is nobody's perfect.

• 2:59:19Ben Gilbert?

  It's my favorite.

• 2:59:21Speaker 01

  That ad was great. I had one for my 996 Turbo that I owned a 911 years ago and I had it framed and it said, calling it transportation is like calling sex reproduction.

• 2:59:31Speaker 01

  Which is a great example of no other luxury brand would.

• 2:59:34Ben Gilbert?

  No way.

• 2:59:34David Rosenthal?

  Touch that. Yeah.

• 2:59:36Ben Gilbert?

  But that, yeah, I loved, 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 LeMans and Porsche has nine of the 10. And it's just Porsche, Porsche, Porsche, Porsche, Porsche.

• 2:59:50David Rosenthal?

  Like number eight.

• 2:59:51Speaker 01

  BMW is like eight. And that is Porsche, Porsche.

• 2:59:55Ben Gilbert?

  Nobody's perfect.

• 2:59:55Speaker 01

  Nobody's perfect.

• 2:59:56David Rosenthal?

  So good.

• 2:59:57Ben Gilbert?

  All right. So that's modest counter positioning, but not really anymore. Switching costs, I actually don't think there are switching costs in the car industry. I think there's this really interesting thing where like Doug, you're gonna laugh. My car before the Mazda CX five was a Honda CRV. And like I, I completely reevaluated it with flat, with fresh eyes. There was nothing about being a part of that old ecosystem that carried forward to the new ecosystem.

• 3:00:24Speaker 01

  Unlike Apple where you're dialed in everything. Yeah, less than that is, that's gonna become less true, 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.

• 3:00:34Ben Gilbert?

  Yep. There's no network economies. There's like really no benefit to you own a Porsche. Therefore I own a Porsche and I get value out of you owning a Porsche. It's not particularly a thing, other than we can like go to Cars and Coffee together.

• 3:00:46Speaker 01

  Right.

• 3:00:48Ben Gilbert?

  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, the square footage in Stuttgart that they own is like some magical thing. So, all right, that does it for power. Playbook, we've talked a lot of playbook along the way, but I'm curious for ones that jumped out at you that we, we haven't hit yet.

• 3:01:15David Rosenthal?

  Yeah, I know. We just talked about it a bit, but um, 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, Porsche has invested billions in racing.

• 3:01:46Speaker 01

  In all sorts of racing.

• 3:01:47David Rosenthal?

  But it's not like there's like a software competitions out there that you know, you could enter your software in to like, build your brand prestige.

• 3:01:54Speaker 01

  Yeah, that's right. That's an interesting point. Are there any other companies that do things like that?

• 3:02:00Ben Gilbert?

  Or industries that have like a showcase.

• 3:02:03David Rosenthal?

  Right.

• 3:02:04Ben Gilbert?

  Like a very expensive showcase where you have to go build a completely different product line or.

• 3:02:08David Rosenthal?

  You know what is like this is the athletic apparel industry and Nike.

• 3:02:13Ben Gilbert?

  Yeah.

• 3:02:13David Rosenthal?

  Like they spend.

• 3:02:14Ben Gilbert?

  Yeah.

• 3:02:15David Rosenthal?

  All of their marketing budget on athletes.

• 3:02:17Ben Gilbert?

  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. And not with the exact same thing necessarily, like we're not going to sell you the exact model that rolled 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 liked 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.

• 3:03:01Ben Gilbert?

  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.

• 3:03:12David Rosenthal?

  Right. It gets back to the 40, 50 year sales cycle with this too.

• 3:03:16Ben Gilbert?

  Right.

• 3:03:17David Rosenthal?

  Everybody dreams. I mean, it's your, 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 owning a Cayenne, like, like you, you kids are, kids are getting dropped off in those at school is kind of my point. But you do dream of a Porsche, even though it's the same thing.

• 3:03:35Ben Gilbert?

  Right.

• 3:03:35David Rosenthal?

  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 911 and that was like the coolest freaking thing.

• 3:03:46Ben Gilbert?

  And everybody wanted to work there. We get unsolicited resumes all the time, blah, blah, blah. And like pay wasn't great. And but like you, it 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.

• 3:04:07David Rosenthal?

  And we killed grading.

• 3:04:08Ben Gilbert?

  But we do have Doug DeMuro with us, so we are going to give Porsche a Doug score. And it's an acquired adjusted Doug score. It's a, you know.

• 3:04:19Ben Gilbert?

  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.

• 3:04:27David Rosenthal?

  I don't know that there are any weekend categories for a business.

• 3:04:30Ben Gilbert?

  Company business, yeah, no, not really. All right. So David, what criteria are you thinking for our acquired adjusted Doug score?

• 3:04:37David Rosenthal?

  We simplified this down to just three categories for the acquired Doug score.

• 3:04:43David Rosenthal?

  Revenue growth, profitability and defensibility. Like, would you want to own Porsche as a stock? And I think those are the three components.

• 3:04:52Ben Gilbert?

  Sort of closing your eyes to where they're trading today because you always have to like evaluate entry price and all that.

• 3:04:56David Rosenthal?

  Yes.

• 3:04:58Ben Gilbert?

  Are you excited about the company's prospects 10, 20, 30 years from now?

• 3:05:01David Rosenthal?

  Yeah. All 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. Prospects 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 manufacturers. Yep. So I think there's strong, as they electrify the rest of their lineup, strong bull case for revenue growth there.

• 3:05:44David Rosenthal?

  I also think that even as we're heading into a more depressed macro environment in the past few years, I suspect Porsche will be more resilient in their growth than other luxury brand manufacturers. So I give it a seven on revenue growth potential.

• 3:06:05Ben Gilbert?

  I basically agree with you numerically. I have one knit 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.

• 3:06:28Speaker 01

  Right, because so much of their revenue is based on those SUVs that probably will not be as resilient as.

• 3:06:33Ben Gilbert?

  Right, there are Macan buyers who will become Q7 buyers.

• 3:06:37Speaker 01

  Yeah.

• 3:06:37Ben Gilbert?

  Q5 buyers.

• 3:06:38Speaker 01

  Yeah.

• 3:06:38David Rosenthal?

  Yep, totally. Ferrari really isn't a league if it's on, though. The broader universe of BMW, Mercedes, all the Japanese brands, Tesla, et cetera. In America, Ford, you know, all the Ford brands, the Chevy brands.

• 3:06:53Ben Gilbert?

  Oh, yeah.

• 3:06:54David Rosenthal?

  I think Porsche is very well positioned.

• 3:06:55Ben Gilbert?

  Porsche in a recession than like almost any other car company in the world.

• 3:06:58Speaker 01

  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 and 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 of a thing going forward. There's become this entire subculture around like specking your Porsche in this like perfect way. And that is obviously big margin stuff for them.

• 3:07:25David Rosenthal?

  Yeah, so I'm seven, you're seven.

• 3:07:26Ben Gilbert?

  I think we're pretty unified.

• 3:07:27David Rosenthal?

  Yeah, seven. Seven, yeah, seven out of 10.

• 3:07:29Ben Gilbert?

  Yep.

• 3:07:30David Rosenthal?

  Next is profitability, quite, quite strong for the automotive industry.

• 3:07:35Speaker 01

  Yeah.

• 3:07:35David Rosenthal?

  Very strong. Not strong relative to the technology industry and software or Apple.

• 3:07:44Ben Gilbert?

  That's right, we didn't say that earlier, but Porsche is a 29% gross margin, Apple's a 43% gross margin.

• 3:07:51David Rosenthal?

  Right, and I believe Porsche's operating margins are in the high teens, low twenties.

• 3:07:55Ben Gilbert?

  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.

• 3:08:01David Rosenthal?

  When you're earning $40 billion. Yes, that's a great business. I think I'd go seven again on profitability.

• 3:08:09Ben Gilbert?

  It's a nine for the auto industry.

• 3:08:11Speaker 01

  Yeah.

• 3:08:11Ben Gilbert?

  And it's like a four compared to most businesses that we study unacquired because we only study the very best businesses in the world.

• 3:08:17David Rosenthal?

  Right, it's not a media business, it's not a technology business.

• 3:08:21Speaker 01

  Right, I'm sitting here thinking it's.

• 3:08:22David Rosenthal?

  Seven might be a bit high.

• 3:08:23Speaker 01

  Margins are pretty impressive considering it's the car business.

• 3:08:26David Rosenthal?

  Yeah.

• 3:08:26Speaker 01

  That's what I'm sitting here thinking. The car business requires so much, just so much cost.

• 3:08:31David Rosenthal?

  Yeah, I'm going to revise my score down to five.

• 3:08:34Ben Gilbert?

  For the ease of the episode, we're agreeing on a score here.

• 3:08:36Speaker 01

  Okay, I like this.

• 3:08:38Ben Gilbert?

  Five feels like a good score. And honestly, like, I think five is the highest score you can give in the audio industry on profitability.

• 3:08:44Speaker 01

  Unless we're talking about Ferrari, apparently.

• 3:08:46Ben Gilbert?

  Yeah, which is like, almost not in the auto industry. It's like a completely different luxury category.

• 3:08:51Speaker 01

  Yeah, that's so true. Just happens to make cars.

• 3:08:54Ben Gilbert?

  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.

• 3:09:05Speaker 01

  Yeah, right. That makes sense.

• 3:09:07Ben Gilbert?

  What was the last one? Defensibility?

• 3:09:08Speaker 01

  Yeah.

• 3:09:08Ben Gilbert?

  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? Like, will we think of them as a BMW in 10 years when we see them around the streets?

• 3:09:26Speaker 01

  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 Porsches. 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 at any other point in its history. Now, will it diminish as a result of that? Probably, right? You can't, you can only be at a certain level for so long, at a high level for so long. But 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 Ferrari. 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'd think for a company that mostly makes SUVs.

• 3:10:07Ben Gilbert?

  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 Porsche gets to be in that conversation.

• 3:10:15Speaker 01

  That question is being asked, right?

• 3:10:16Ben Gilbert?

  At this scale.

• 3:10:17Speaker 01

  Nobody's asking, are you a Lexus person?

• 3:10:19Ben Gilbert?

  It's like they're getting away with murder by being lumped in right there.

• 3:10:21Speaker 01

  Right. Somehow they were able to both produce an SUV that gets them 350,000 units annually.

• 3:10:25Ben Gilbert?

  Yes.

• 3:10:26Speaker 01

  But also mention the same breath as Ferrari in terms of like enthusiasts.

• 3:10:30Ben Gilbert?

  I'm like, literally a 10 out of 10 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.

• 3:10:42Speaker 01

  Right, right. It's probably true.

• 3:10:44Ben Gilbert?

  They went from making the 911, the everyday supercar, to now they're like an everyday supercar company.

• 3:10:52Speaker 01

  Right.

• 3:10:52Ben Gilbert?

  They have a whole gradient of everyday supercars that you can buy, but they're all everyday supercars.

• 3:10:57Speaker 01

  And yet, people still dream. It's crazy. I agree. I completely agree. And again, their 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.

• 3:11:11David Rosenthal?

  I 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 don't think so.

• 3:11:25Speaker 01

  Nothing that they would realistically do. I mean.

• 3:11:27David Rosenthal?

  But even, okay, let's say they did, because this is what we learned from the LVMH episode. Gucci, everything you could think of to kill a brand, they did that. But the heritage there, it can always be resurrected. Gucci is always going to be valuable.

• 3:11:41Speaker 01

  The regular individual still has this thought of Gucci as like holy practice.

• 3:11:44David Rosenthal?

  You can never completely eradicate it. And I think Porsche is the same thing.

• 3:11:48Speaker 01

  Once the brand gets to a certain level, is it even possible to kill?

• 3:11:52David Rosenthal?

  I don't think so. And once you reach that level, that's when you have real brand power.

• 3:11:58Speaker 01

  Yeah.

• 3:12:00David Rosenthal?

  And I think Porsche is at that level. Because let's say they make a bunch of decisions and they kill the company. It goes bankrupt. Somebody will buy it out of bankruptcy.

• 3:12:06Speaker 01

  Huge value still in the brand name.

• 3:12:08David Rosenthal?

  Huge value is still there.

• 3:12:09Speaker 01

  Yeah.

• 3:12:10David Rosenthal?

  All right, 10 out of 10. So that gives the acquired Doug score for Porsche a 22 out of 30?

• 3:12:17Speaker 01

  Out of 30.

• 3:12:18David Rosenthal?

  Which by Doug grading standards is.

• 3:12:20Speaker 01

  Pretty good.

• 3:12:21David Rosenthal?

  That's pretty good. Your highest Doug score ever is 70.

• 3:12:24Speaker 01

  72 or 74, something like that. Somewhere in that range.

• 3:12:26David Rosenthal?

  Yeah, out of 100.

• 3:12:27Speaker 01

  You can't get any better than that.

• 3:12:28David Rosenthal?

  Yeah. So Porsche is at the top.

• 3:12:30Speaker 01

  Yeah.

• 3:12:31Ben Gilbert?

  Quick carve outs? 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 used six months ago and 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.

• 3:12:58David Rosenthal?

  Oh, this is awesome. How did I not know about this?

• 3:13:00Ben Gilbert?

  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.

• 3:13:13David Rosenthal?

  Right.

• 3:13:13Ben Gilbert?

  And so what Resort Pass 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 their inventory is, or if they are able to like buy big blocks of it upfront. But for like 100 bucks a day or 200 bucks a day, you can go and get a daybed or a cabana or, you know,

• 3:13:33Speaker 01

  Have the amenities of the resort.

• 3:13:35David Rosenthal?

  Dude, you've been holding out on me. So Jenny and I do this. We will do the same thing you do. But like, I didn't know there was a platform for it. We just call the hotels.

• 3:13:43Speaker 01

  And see what you can get.

• 3:13:44David Rosenthal?

  And like, oh, hey, yeah. Or we'll book a massage at the spa. And you're like, oh, and then with the massage, you get the like, right. But now I'm just

• 3:13:51Ben Gilbert?

  Analog Resort Pass over there. You're like the Carrera GT of Resort Pass.

• 3:13:59David Rosenthal?

  Oh, great. My carve out is I go down these YouTube rabbit holes, which is probably how originally I got to you. But I've been on a Seinfeld cast interview rabbit hole.

• 3:14:12Speaker 01

  Yeah.

• 3:14:13David Rosenthal?

  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 interviewer. He is so articulate, like incredible.

• 3:14:38Speaker 01

  If you see him interviewed anywhere or talking, talking anywhere like contemporaneously, extemporaneously, he is pretty legit. Yeah.

• 3:14:44David Rosenthal?

  He is, you would never know because he's so different than the George character.

• 3:14:48Speaker 01

  Yeah, so different.

• 3:14:49David Rosenthal?

  So he's the exact opposite.

• 3:14:51Speaker 01

  Biggest difference of all of them, for sure.

• 3:14:53Ben Gilbert?

  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.

• 3:15:12David Rosenthal?

  Right. Oh, that's so great. I should have said five. Larry David is in this compilation of Charlie Rose conversations too. Yeah, it's so good. It's so good. I think it's about an hour 20 total, but it's worth it.

• 3:15:22Speaker 01

  Interesting. Jerry's in there too.

• 3:15:23David Rosenthal?

  Jerry's in there. Yep, they're all in there.

• 3:15:26Speaker 01

  Interesting. Okay, mine is a YouTuber named Whistlin Diesel. Have you guys heard of him?

• 3:15:32Ben Gilbert?

  No.

• 3:15:32David Rosenthal?

  No.

• 3:15:33Speaker 01

  I'm not surprised. Neither, 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? He like has 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 then 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. Um, 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.

• 3:16:16David Rosenthal?

  Oh my God. He's the, the Mr. Beast of car.

• 3:16:18Speaker 01

  He's the Mr. Beast of the car world.

• 3:16:19Ben Gilbert?

  Sort of. He's like, it's like dude perfect on heroin.

• 3:16:23Speaker 01

  Right. 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 backwoods dude, but he's, channel's gotten so big that it's allowed him to do just dumb stuff. And he has become my utter guilty pleasure because you put on his video and you're going to see like deep destruction of something that a lot of people hold dear. And then you're going to see a lot of complaints in the comments of people being like, I can't believe you would do that to a Ferrari.

• 3:16:47David Rosenthal?

  Oh my God.

• 3:16:47Speaker 01

  As a YouTuber, I also feel like this is like the greatest thing ever because he takes what the haters say and just like turns it up even more. And I have to be like nice. I'm so sorry, sir. I'm like running a business here. He's like, forget about these people. I'm just going to blow it up. He flew a helicopter inside of his garage. That's a good episode. I highly recommend.

• 3:17:08David Rosenthal?

  Oh, I gotta watch that.

• 3:17:09Speaker 01

  This is all just like trash TV, but it is so good to watch. So highly recommend.

• 3:17:14David Rosenthal?

  I love that other people do this.

• 3:17:16Speaker 01

  Yeah, right. Right. I do wonder sometimes about like the danger of YouTube and like, okay, it takes now flying a helicopter inside your garage to get views. Like I started, I had a Ferrari. That was enough.

• 3:17:28David Rosenthal?

  Right. And then like you must, you've talked about this a lot that like you feel, we're going to do a whole nother episode of just you and us chatting, but um, that like you started at a time and we started at a time where you didn't have to.

• 3:17:40Speaker 01

  Right. I feel bad for all these guys now.

• 3:17:42David Rosenthal?

  Do this stuff like.

• 3:17:42Speaker 01

  Whistling diesels out there dropping G wagons through houses.

• 3:17:45David Rosenthal?

  Oh my gosh.

• 3:17:46Speaker 01

  It's a different thing, but highly recommended.

• 3:17:49David Rosenthal?

  It's great content.

• 3:17:50Ben Gilbert?

  That's actually a great, Doug, we have not talked about like everything that you do. Give us like a little bit of insight and I think David Tease, we're going to do an interview together as a, as a separate episode, but like, give us a little insight into the Doug Demuro empire and what do you have going on and where can people check it out?

• 3:18:07Speaker 01

  Right. I make a YouTube videos. My 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 Demuro. And then I also run an automotive, like a car auction website for enthusiast cars called Cars and Bids. Um, and we're selling something like 30 cars a day or auctioning 30 cars a day on Cars and Bids right now. Yeah. So all just all like enthusiast cars, you know, Porsches and BMWs and things of that variety.

• 3:18:35David Rosenthal?

  You know, the short 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 Churning Group, one of the best investors in marketplace and content businesses out there. Uh, incredibly impressive. Thank you for spending so much time with us doing this collab.

• 3:18:58Speaker 01

  This is great. So interesting.

• 3:18:59David Rosenthal?

  This has been super fun. It's, it's really rare that um, we get to chat with somebody who is not an executive at the protagonist company and also deeply gets both the products and the kind of business aspect of something like, I don't think there's anybody else we could have done this with.

• 3:19:18Speaker 01

  Maybe Vicky himself.

• 3:19:21David Rosenthal?

  He would be a little biased, I think.

• 3:19:22Ben Gilbert?

  Yeah, it's the bias that you got to worry about.

• 3:19:24David Rosenthal?

  Yeah.

• 3:19:25Speaker 01

  Totally imagine.

• 3:19:26David Rosenthal?

  Yeah, so thank you.

• 3:19:28Ben Gilbert?

  Doug, thanks so much.

• 3:19:29Speaker 01

  Thank you. Thanks for having me. It was a lot of fun. It really was. Prepping for this was so interesting, learning all this history that I didn't know, even having worked there. It was great.

• 3:19:36David Rosenthal?

  So fun.

• 3:19:37Speaker 01

  Thank you, guys.

• 3:19:38David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 3:19:45Ben Gilbert?

  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.

• 3:19:55David Rosenthal?

  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 what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 3:20:16Ben Gilbert?

  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.

• 3:20:28David Rosenthal?

  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/acquired to get started.

• 3:20:39Ben Gilbert?

  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 big 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.

• 3:21:15David Rosenthal?

  Yeah, or Avla Kohli, the CEO of Angelus. That was a great conversation with him. We had David Xu from Retool.

• 3:21:21Ben Gilbert?

  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. And 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 bimonthly Zoom calls, so we can get some feedback directly from all of you and get to meet more of you. So acquired.fm/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 DeMuro. We will see you next time. We'll see you next time.