The clan’s reliance on steady payouts threatens to hinder necessary changes for the sprawling auto empire’s competitiveness.To maintain the clout of Europe’s most powerful automotive dynasty, Hans Michel Piëch borrowed money in 2017 to buy about €1.1 billion ($1.3 billion) in shares of the family’s holding company from his brother Ferdinand Piëch, the combative former chairman of Volkswagen AG.
While the deal helped overcome a tumultuous internal feud at the time, it made Hans Michel even more reliant on steady dividends from VW to repay the debt. Now with the financial situation at the German automaker deteriorating, the descendants of Ferdinand Porsche, the creator of the VW Beetle, are confronting fresh strains on their cash flows.
Hans Michel, 83, who helps lead the clan that controls Europe’s largest automaker, may face pressure to maintain payments on the loan if payouts from VW and its affiliates decline further, according to people familiar with the situation, who asked not to be identified because the discussions are private. Even if concerns are mounting, there’s no indication of an immediate liquidity crunch, the people said.
Porsche Automobil Holding SE, the listed entity that controls their major assets, said it didn’t have information on the financial situation of individual members of the clan and declined to comment further. Volkswagen also declined to comment.
In a period of transformational change — with VW beset by technological upheaval, flagging demand in major markets and new rivals like Tesla Inc. and BYD Co. — the family’s interest in maintaining dividends threatens to stall bigger changes to make the sprawling auto empire more competitive.
“Volkswagen is a governance mess,” said Serden Ozcan, professor of corporate transformation at Germany’s WHU business school in Dusseldorf. “The company needs to do the unthinkable, which is to break stuff apart and divest as much as possible. I don’t think the family is ready for that.”
The clan’s stake in Porsche Holding is now worth about $7 billion, down more than $3 billion since the Porsche AG sportscar maker was listed in late 2022. At least $1 billion in dividends over that period has helped cushion the blow, according to the Bloomberg Billionaires Index.
Money is unlikely to continue to flow like in the past. Already this year, the proceeds paid out by Porsche Holding declined 25%, and the Porsche brand has said its dividend will be “significantly lower” next year.
Via the holding company, the group of some three dozen people own the majority of the voting shares of Volkswagen and also control a blocking minority in the maker of the 911 sportscar. Since Porsche’s audacious takeover bid of Volkswagen fell short in 2009, the family has leaned toward preserving the status quo rather than again putting their fortune at risk.
In a 2015 power struggle with Ferdinand Piëch, the rest of the family broke with their relative to stand by Chief Executive Officer Martin Winterkorn, who had guided VW to the top of the auto industry. When the diesel scandal then forced an overhaul, the family turned to confidant and Porsche chief Matthias Müller to lead Volkswagen and backed a course that kept the 10-brand group intact.
More recently, the German automaker hasn’t followed peers like General Motors Co. that have pulled back from China as headwinds for foreign automakers intensify.
Steered by Hans Michel and his 82-year-old cousin Wolfgang Porsche along with input from a handful of others including Ferdinand Oliver Porsche, Peter Daniell Porsche and Josef Michael Ahorner, the family’s leadership tends to be less decisive than some other automotive clans.
The Agnellis in Italy, which owe their wealth to Fiat, have been led by John Elkann for more than two decades. To diversify the family’s wealth away from autos, the grandson of former patriarch Gianni Agnelli has spearheaded a series of moves, including the 2021 merger with France’s Peugeot to create Stellantis NV.
The Quandt family, the dominant shareholder behind BMW AG, is led by a brother-sister duo, who have built up portfolios of assets outside the car industry.
The Porsche-Piëch clan is complex, but still not as unwieldy as some other German industrial dynasties with longer histories and more members. While past tensions that once divided the Porsche and Piëch sides have largely been defused after the buyout and subsequent death of Ferdinand Piëch, the family is dominated by older members.
Hans Michel, who sits on the boards of Porsche Holding, Volkswagen as well as the Porsche and Audi brands, bought out his brother who was seeking to cut ties after being ousted by his own family as VW chairman.
Known for his abrasive style, Ferdinand had alleged that other family members knew earlier about the VW diesel cheating scandal than they admitted. In the fallout, the former patriarch moved to sell his 15% stake in Porsche Holding shares, forcing other family members to act.
That put Hans Michel on the spot to keep the shares from being offered on the open market and diluting the clan’s control. To come up with the money, he had to put his own shares on the line.
A filing dated February of this year shows that Hans Michel’s German-based investment company HMP Vermögensverwaltung GmbH had taken out a bank loan of €110 million, secured by shares in Porsche Holding and other bank accounts. A previous filing from January 2021 showed that the company had pledged 25 million shares as collateral.
Personnel issues are again at the center of tensions. After picking family-favorite Oliver Blume to run both the Porsche brand and the Volkswagen group in 2022, some members have raised concerns about his electric-focused strategy at Porsche as results deteriorated, one of the people said.
But the family was slow to push for a change. Instead, internal frictions at Porsche escalated and led to the departures of CFO Lutz Meschke and sales chief Detlev von Platen in February. Bowing to investor concerns, Michael Leiters — the former CEO of McLaren Automotive who previously worked at Porsche for more than a decade — will arrive in January to succeed Blume as Porsche chief.
After years of ignoring pleas from advisors to create a broader portfolio, the families began exploring other dividend pools earlier this year.
With Germany gearing up to unlock hundreds of billions of euros in defense and infrastructure spending, Porsche Holding has signaled openness to invest. The families’ office has separately held talks with Deutsche Telekom AG about setting up a venture capital fund focused on the defense industry.
For Volkswagen, sensitivities over cash flow have contributed to delays with its latest rolling investment plan, according to people familiar with the situation. Chief Financial Officer Arno Antlitz has weighed cuts and asset sales to make good on the targeted €160 billion budget for the coming five years, partly in response to the pressure to maintain dividends, the people said. The company declined to comment.
For this year, VW forecasts automotive net cash flow at zero, and the trajectory indicates that the automaker could start burning through reserves as soon as next year. While that adds urgency to act, the company’s power players, which include unions and its home state of Lower Saxony, run the risk of paralysis as they struggle to forge a common approach.
“It seems that at VW, the willingness to change declines the tougher the challenges become,” said Hendrik Schmidt, a corporate governance expert at DWS Investment GmbH. “Our concern is that, in light of the current problems — which are manifold and highly interwoven — family reluctance to loosen the grip or commence generational change is growing.”
