Porsche takes on Mercedes and BMW with new £70,000 saloon

Luxury Panamera 'simply has to be a success' for struggling German carmaker

With the Frankfurt motor show set to open its doors next week, Porsche is stealing the thunder of rivals BMW and Mercedes this weekend by starting to sell its first four-door, four-seater saloon car.

The Panamera, which has cost €1.8bn (£1.6bn) to develop and market, represents the first direct challenge by VW-controlled Porsche to the traditional German luxury car manufacturers. The question is whether the Panamera, priced from £70,000 and boasting up to 500 horsepower, is the right car at the right time. Porsche itself and the wider European car industry are under immense pressure from the downturn. And there is great scepticism among industry experts about the model strategy of BMW and Mercedes.

"Porsche has never made a long-term success of any of its sports car models which strayed too far from the 911. The 924 failed, as did the 928 and 968," said Kurt Kolb of Bähr & Fess, which specialises in car residual values.

"The new fourth-generation series simply has to be a success," said Stefan Bratzel an automotive academic at the University of Applied Sciences in Bergisch-Gladbach.

Porsche's last expansion to its range was the controversial but successful Porsche Cayenne, an off-road vehicle seen by many as the ultimate Chelsea tractor. The Panamera is longer and wider than the Cayenne, but sits significantly lower.

Porsche initially hopes to sell 20,000 Panameras a year. It certainly needs a boost. Porsche's (like Mercedes') sales dropped by 28 per cent in the second quarter of 2009 while in the nine months to June, its turnover fell by 15 per cent to €4.6bn. Despite this slide, its car-making operations remain "the world's most profitable", according to its new chairman, Michael Macht, although detailed profit figures have not yet been released.

Meanwhile, the Porsche-VW transaction has yet to be concluded. "It will take some time," a VW spokesman admitted, while insisting that only questions of detail remain to be clarified. The takeover was brought about after Porsche failed to acquire VW using a high-risk options strategy which went awry. The scheme, masterminded by its former chairman, Wendelin Wiedeking, is now being examined by German legal authorities on suspicion of insider trading.

The failed scheme turned Porsche into a massively loss-making company which reported "at least a €5bn operating loss" in July after it had initially and controversially made multi-billion profits from its options on VW shares. These option purchases artificially raised the price of the shares, squeezing hedge funds, which lost billions, calling into question the reliability of the DAX index. Among stockmarket traders, Porsche gained the reputation of being "the largest hedge fund to own a sports car manufacturer".