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ECONOMY

Porsche power struggle intensifies as earnings hit a wall

A power struggle between Volkswagen chairman Ferdinand Piëch and Porsche’s management continued to intensify on Friday, just as the company announced that sales had crashed 15 percent.

Porsche power struggle intensifies as earnings hit a wall
Photo: DPA

Porsche CEO Wendelin Wiedeking and Piëch have been exchanging increasingly nasty words in recent days, the daily Süddeutsche Zeitung reported Friday. Piëch blames Wiedeking for increasing the company’s mountain of debt, now around €9 billion, in a failed attempt to take over Volkswagen.

Wiedeking, in turn, has said Piëch has harmed the company with his public criticisms at a sensitive time when the two companies are discussing a merger. Piëch is the grandson of Porsche founder Ferdinand Porsche and left a career at the company to work for Volkswagen in the 1990s.

In a letter to Piëch dated May 13, cited by the newspaper, Wiedeking warned Piëch that he would be help “personally responsible” if Porsche were harmed by Piëch’s verbal assaults.

In the rarified world of German boardrooms, such strong language is almost unheard of and reflects the complex pressures brought on by rivalries between the Piëch and Porsche clans, collapsing car sales, industry consolidation and a credit crunch brought on by the financial crisis.

The sports car maker has now turned to a government loan program for help and has requested a €1.75 billion line of credit to help Porsche restructure its debt. A decision by the government could come within days. Porsche is also in negotiations to sell a major stake, likely 25 percent, of the company to an investment fund owned the government of Qatar.

Sales figures released by the company Friday show that Porsche’s situation is becoming desperate. Sales fell 15 percent in the first nine months of Porsche’s fiscal year to €4.6 billion euros. Porsche said its operating profit was also less than in the same period a year earlier, but did not provide figures.

“A look at global unit sales makes clear that no region is being spared the sharp decline in automobile markets,” a statement said.

Deliveries fell 27.6 percent to 53,635 vehicles on a 12-month basis, as luxury cars in particular paid a price for weaker consumer sentiment. At Porsche, sales of its iconic 911 model fared much better than that of the Cayenne sports utility vehicle, but were still off by 18.2 percent.

Looking ahead, the company declined to give a precise forecast but said sales were likely to fall below the level in its previous fiscal year.

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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