Porsche purrs back to profit, and introduces an off-roader

In 1992, Porsche was in deep trouble. Then Wendelin Wiedeking took control, changed direction – and accelerated from a £98m loss to a £220m profit. But the fast-moving chief executive is much more than a boy racer

The name Porsche evokes many images, good and bad, but what it does not conjure up is the thought of a slight gentleman with a friendly, professorial air, whose office, plastered with play-school pictures by his children, looks out over a hillside dotted with suburban bungalows. Yet Wendelin Wiedeking, the company's chief executive, is the reason Porsche remains the world's last great independent sports car manufacturer.

Mr Wiedeking has never designed a sports car or tuned a Porsche engine. Since taking over as CEO in 1992, he has killed off two much-loved model lines without replacing them and sacked thousands of workers. The cars he has introduced have been described as passionless in the motoring press .

Yet he has also turned Porsche from a loss-maker and budding basket-case into the world's most efficient car-maker, and one of the most profitable. Worldwide sales have risen sevenfold in the nine years he has been in charge and he has introduced the two most successful model ranges in the company's history (in terms of sales), the Boxster and the 911, and improved productivity by an astonishing 70 per cent.

In 1992-93 the company sold just 6,600 cars worldwide and made a record loss of £98m. In the year ending 31 July 2000, sales were at 48,800, turnover was £2.1bn, with pre-tax profits exceeding £220m (exact figures are not disclosed).

Mr Wiedeking pops up from his desk as I walk in, asks how I enjoyed the tour of the factory (it was fascinating), calls his secretary and asks, very nicely, for two coffees, which arrive with sachets of Porsche-branded sugar. The CEO, open-faced, lively-eyed and, unlike any of his cars, with a self-effacing manner, looks too nice to be a chief executive, let alone a highly ruthless one, which, surely, he must be.

Mr Wiedeking trained as an engineer rather than a manager and joined Porsche as assistant to the director of the production and materials department in 1983. When he walked through the doors of the Bismarck-era red-brick listed building in a Stuttgart suburb that houses Porsche's management, he was not to know he would leave and return a mere nine years later to run the company. "At that time it didn't really go through my mind," he says. "I just wanted to do my best and take one step after another." But how would a doctorate in mechanical engineering qualify you to turn around an international institution? Isn't management quite different from engineering? "Yes, absolutely," he says, cheerfully. "I was always interested in management, that was my ambition. Maybe I should tell you that as a student I set up some companies of my own. They still exist, in real estate and in insurance. And I made some money"

Mr Wiedeking's English is always clear in meaning, if not always grammatically correct. He learnt much of it while working at Glyco-Metall-Werke, which he joined and turned around from 1988 to 1991 before being lured back to Porsche as a board director. He was appointed chief executive a year later. But the decision to return might not have been as simple as it sounded. Porsche, despite its name and its range of ever-faster, honed sports machines, was in a mess. The company had started after the Second World War producing the 356, a simple, and not very fast variation on the Volkswagen Beetle. In 1964 it introduced the 911, which shared the Beetle's curious configuration with the engine behind the back wheels. Since the Seventies, Porsches have been associated with arrogance and the company did little to dispel the image.

In 1978, after the oil crisis of the mid-Seventies put petrol consumption firmly on the consumer agenda, it introduced the 928, a bloated touring car that returned 10 miles to the gallon in town. Flawed as it then was with its inherently unstable, yet appealing engine positioning, the 911 carried the company's flag in the Eighties, growing steadily more powerful and attracting – through specific marketing – a clientele of new-money chancers. "In the Eighties a lot of our customer base were yuppies," says Mr Wiedeking. "They were very corporate people, not entrepreneurs, and that was a mistake. Our image now is very different."

When the yuppie boom collapsed, so did Porsche's sales. In the Eighties, the company sold 25,000 cars worldwide; by 1992 the figure was 6,600. Losses were mounting every year, and Japanese manufacturers had brought out highly capable rivals, which in many cases offered just as much performance for less money. "We weren't offering good value for money," Mr Wiedeking admits. His challenge was even harder than it might have appeared because, unlike Jaguar or Aston Martin before Ford took them over, there was no obvious problem with the quality of the products. Anyone walking into a Porsche showroom in 1992 would have had a choice of the 968, 911 and 928 GTS, all beautifully made, 150 mph-plus sports cars. Yet within three years the 968 and 928 had disappeared, scrapped by Mr Wiedeking because they cost too much to build and had to be sold too expensively to attract enough customers. Japanese consultants came to Zuffenhausen, the suburb housing the Porsche factory, and turned production practices inside out, despite outrage throughout Germany. Mr Wiedeking cut 3,000 jobs, proportionally getting rid of more managers than production-line workers.

"Before rejoining Porsche I took four or five months preparing a strategic paper defining every step of my job for the next three years," he says. "I knew we had to cut our costs by at least 30 per cent." Was this before he was made CEO? "Yes. The company's situation was getting worse and worse. And I knew Porsche was in deep trouble because at my other company I had learnt a lot of techniques from the Japanese and the Americans.

Two weeks after he was appointed CEO, Mr Wiedeking decided to cut 1,850 jobs. "It wasn't an easy decision, it was a very unpopular decision, but my view was I wanted to save 6,000 employees' jobs rather than get rid of 1,850 jobs. It sounds easy but if you stand in front of them and see it in their eyes, that's a horrible situation. I never want to have to do it again. I told them all personally. I said, sorry, if we want to survive we have to make this decision, otherwise the company is dead.

"I think people understand a lot more than they're given credit for. But to understand is one thing. I don't think you would be very happy if you were told you are going to have to leave the company to save the company."

IG Metall, the powerful German manufacturing union, eventually agreed to the cuts. "Our first step was not in the shop-floor area, it was in the management structure," Mr Wiedeking says. "We got rid of 35 per cent of the managers before starting on the shop-floor, and this made the workforce happier because they realised it wasn't like in the past when workers were the first to go. That built up a level of trust and goodwill that we really wanted to save the company."

An even more controversial issue was the arrival of Shin-Gijutsu, a ruthless Japanese consulting group, essentially to wipe clean the company's organisational and production structures and start again. It is still a sensitive issue among Porsche's engineers, who have always looked upon themselves as immune to help from anyone, let alone foreigners.

One senior Porsche engineer, speaking anonymously, says: "We don't agree with everything Mr Wiedeking has done, we didn't like the Japanese telling us what to do, and we don't all agree with his views on what cars we should produce, which are more safe and mainstream than ever before. But nobody can deny the company is doing well."

Even Mr Wiedeking, who is open and straightforward, looks a little awkward when I mention the consultants. "I think ... in former times Porsche used to work like the Japanese. But we forgot how to," he says. He must have met massive resistance. "The first step was very difficult because everyone was saying, 'We don't need any help from the Japanese'." But the Japanese, he says, were in a different league with their car production methods.

They professed astonishment at the archaic working practices. Engines were assembled in a darkened cave lined by towering shelves crammed with components, with workers scrambling up and down, picking what was needed from the inventory. Each Porsche needed a different assembly line and different robots and used different platforms. Bits of engine, body panels and electronic equipment stood in piles gathering dust before being used.

So was there an arrogance in Porsche? "Porsche always tried to build the best cars," Mr Wiedeking says. "They thought, 'If the car is good, people will buy it'. But that's not true, even for Porsche. Sales volumes are related to price, even for Porsche. And at the time people here didn't even try to understand that relationship."

During 1993, Porsche's losses again hit record levels, before the company finally began to recover in the middle of the decade, as the old models were phased out and the production-line changes came onstream. In 2000 sales reached a record high. To build a 911 in 2001 takes less than half the time it did in 1991.

To tour the Porsche factory now is to see a model in efficiency. TV screens are by the doors to every floor, where workers assemble to hear the latest company moves. It sounds a bit Big Brother, but it's part of Mr Wiedeking's seemingly genuine desire to be open. "You have to be open, to let every part of the company communicate with the other, and to listen to what people say, and to pay careful attention to suggestions," he says. "But I am not running a socialist company. If you need to execute a decision against the objections of the workers' council, you do it."

Porsche now produces just two models, the Boxster, introduced in 1997, and the latest incarnation of the 911, all-new in 1998. The two models share almost every non-mechanical component from the windscreen onwards. On the assembly line, bodyframes for both are carried to each successive production point, where a new bit – wings, engine, dashboard – is clamped in by robots and humans.

There are no spare parts lying around. Each car is followed around by a robot trolley bearing its unique identification number and carrying the necessary components, from nuts and bolts to speedometer or mirror, for the relevant part of the line. The robots glide back to the warehouse and fetch what's needed for the next stage. Porsche no longer has large inventories.

I ask Mr Wiedeking whether he is aware Porsche drivers had an image problem in Britain in the Eighties. "Yes, absolutely. Now we are more socially accepted. We have tried hard with our marketing to give the brand more social acceptance. We are successful entrepreneurs and now so are our customers, for the most part." But what if there's another worldwide slump, like the one that nearly killed the company in 1989-92? "I don't think that if the economy gets worse we won't be hit by the circumstances. We are better prepared." Much of the production of the Boxster is outsourced to a factory in Finland, where Porsche can reduce production without penalties. About 900 of the company's 9,500 workers in Germany are on temporary contracts. Other divisions, such as Porsche's engineering consulting group, and its brand design agency (putting its name to everything from golf clubs to fridges) are bringing in more revenue.

The cars, Mr Wiedeking points out, are much better value. Porsche has shed its arrogance. The Boxster is sold for a relatively reasonable £34,000. The new 911, the fastest and most accomplished Porsche made, has swapped power bulges for understated curves and costs less to buy in real terms than its low-tech, low-specification predecessor did 10 years ago. Margins are far higher; unconfirmed reports say the Boxster costs less than £17,000 to make. But the main reason for Mr Wiedeking's confidence has four wheels, stands high off the ground and looks like no Porsche. The company is releasing the Cayenne, a four-wheel-drive "sports utility vehicle" (SUV) in to the Range Rover market next year.

"The Cayenne is the future. It gives us much more stability for the system," he says. Purists are horrified. SUVs are tall, inherently unstable and more fashion accessories than drivers' cars – most are never taken off-road. Mr Wiedeking is an engineer; he must recognise the contradiction in producing a "sports" off-roader. Isn't it just a marketing-led decision? And couldn't it lead to a dangerous brand dilution? "It is the first time in our history that we are moving into a new market segment, and we are expanding our customer base," he says. "Our typical customer owns three cars, a saloon, a sports car and an SUV.

"Sure, there's a compromise [in engineering a SUV]. It will never be a sports car. But it's like a sports car, because it's also a car you don't really need. I don't think there's a risk of brand dilution because we can meet the customers' needs, and give them what they want, a very sporty SUV." The company has already taken thousands of deposits, on a vehicle whose looks are still a closely guarded secret.

So has Mr Wiedeking's reign been an unmitigated success? Steve Winter runs Jaz, an independent Porsche service centre in north London, and is among the most respected figures on the British Porsche scene. "We noticed the cost-cutting changes quickly, like using shorter screws throughout the cars," he says. "But overall the cars are, if anything, better than before. But they're so user-friendly, they've lost some of their magic. Ferry Porsche [the founder's son] said design and build quality should never be compromised for the sake of profit. I wonder if that's true now."

I thought of this as I replayed the tape of Mr Wiedeking's interview, and it struck me that not once had the hallowed, polite engineer mentioned what any of his cars were like to drive. Factory workers, design and even marketing people at Porsche tend to be difficult to get off the subject, even if you're talking about a long-archaic model.

But I did remember Mr Wiedeking's concluding words. "We are projecting 75,000 sales next year. Believe me, though, our internal targets are much, much higher."