Germany upholds 'VW law'

PORSCHE last week lost a court bid to overturn Germany’s controversial “Volkswagen Law”, which enshrines the state of Lower Saxony’s 20 per cent shareholding in VW and its ability to block decisions.

The state court in Hannover rejected a suit by Porsche, which already holds more than 42.6 per cent of VW and recently outlined its plan to build up its stake to 75 per cent next year.

Although Porsche argued that the threshold for a blocking minority should be 25 percent, in line with standard German securities laws, the German government has defended the law and only two weeks ago passed new legislation to cement state rights over VW.

The Volkswagen Law is popular in Berlin because the state is seen as a guarantor of jobs at the Wolfsburg-based Volkswagen Group, the biggest industrial enterprise in Lower Saxony.

A Porsche spokesman said the company would appeal the court decision while the European Union may also challenge the legislation, arguing that it distorts European corporate law.

Meanwhile, Porsche last week revealed that it expects a "significant" drop in sales in the current 2008/09 financial year (ending July 31, 2009) and will continue to scale back production to reflect weakening market demand.

After production at its Zuffenhausen plant ceased for the first time on 21 November, Porsche will close the plant for a further seven days between now and the end of January 2009. However, production is expected to ramp up in the next business year with the launch of the Panamera four-door GT.

"The signs of a severe decrease in demand in the automotive industry are unmistakable the world over, and it is virtually impossible to calculate further developments particularly in the USA, the largest single market for Porsche," the company said in a statement.

"Porsche will hardly be able to escape this downward trend, so that currently we do not assume that we will be able to repeat the high total sales of the previous business year. This is indeed borne out by revenue and sales figures in the current business year from 1 August to mid-November 2008, which indicate that turnover in the first four months of the business year 2008/09, that is up to 30 November 2008, will be slightly above two billion Euro ($A3.94 billion) following 2.36 billion ($A4.65 billion) Euro in the same period last year.

"Sales show a similar development, amounting to 25,200 units after 30,700 units year-on-year." Porsche said the exact figures for the first four months will be published in an interim report due in mid-December.

The outlook tempers the release last week of Porsche's 2007/08 financial results, in which profit before tax increased 46 per cent to 8.569 billion Euro ($A16.875 billion), making it the most successful year ever in the German sportscar marque's 60-year history. Profit after tax was up 51 per cent to 6.392 billion Euro ($A12.588 billion).

"This significant jump in profit was again due to special influences in connection with the holdings in Volkswagen AG," said Porsche.

"The Porsche operative earnings before taxes have developed most satisfactorily. Corrected for special effects from hedging operations as well as the interest result of Porsche SE, it amounted to around one billion euros ($A1.97 billion). Increased development costs incurred, inter alia, for the Panamera, for the hybrid drive in the Cayenne, for new, reduced fuel consumption engines and for new vehicle models, proved a burden on the result.

"(But) this development was more than set off by positive effects from cash settled share option transactions by which Porsche participates in changes to the stock exchange price of the VW shares. By way of these transactions the further acquisition of VW ordinary shares is being hedged." Sales growth was largely attributed to Cayenne SUV, which rose 34 per cent to 45,478 units for the period. Sales of the 911 were down 16 per cent to 31,423 units, while the Boxster series (which includes the Cayman) was down 16.8 per cent for a total of 21,747 units sold.

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