$2-Billion Dispute With U.S. Dealers Now Resolved : Porsche Gets Back in the Fast Lane

Peter Schutz’s company may build some of the fastest production cars in the world, but the president of Porsche AG says the West German company should have slowed down on at least one of the decisions it made in 1984.

That was the plan, unveiled nearly a year ago, to start selling its sports cars through “agents” rather than franchised dealers in the United States. The proposal generated more than $2 billion in class-action lawsuits by dealers against the company and was scuttled less than a month after its inception.

“I wish I hadn’t put a lot of people through the things we put them through,” Schutz said in Los Angeles on Wednesday. “We had no intention of operating in North America without the people who built the business here.”

The lawsuits have since been dropped and, as Schutz describes it, “there is peace in the family” as the company sets out to establish a U.S. operation separate from Volkswagen of America Inc. VW had been the exclusive distributor of the expensive sports cars in the United States since 1969, but that contract expired in September, 1984, leading the West German firm to establish Porsche Cars North America Inc., based in Reno, to distribute the vehicles and provide parts for the firm’s 330 U.S. dealers.

The controversial retailing plan was to have been part of the new operation, and Schutz now says he made the mistake of announcing it to all the dealers last February without having any idea of how it would be received. He said his lawyers had advised him that discussing the proposal in advance with even a few dealers could have been branded a conspiracy against those dealers who didn’t know about it, so he had talked to no one beforehand.

“I honestly thought the dealers would see some merit in it, but there was no way to test the reaction,” he said.

Under the proposal, the sales agents would have received a commission of 8% on the sale of a car, about half the gross margin a dealer now gets on a sale.

The debacle with the dealers is one of the few things the company has done wrong over the years as its cars have become among the most sought-after in the industry. The vehicles start at about $21,440, and the company unveiled a new model Wednesday, the 928-S, that will sell for $50,000. The firm sold 44,000 cars worldwide in 1984--half of them in the United States--and expects to increase the production capacity of its Stuttgart factory to about 60,000 later this year.

“Selling more cars is not our problem,” Schutz said. “We don’t have the capacity to satisfy the demand. Our main thrust is building customer loyalty.” To that end, he is establishing pre-delivery inspection facilities at each of the two U.S. distribution warehouses where all of the cars being sold in the United States will be thoroughly checked before being shipped to dealers. And he hopes to provide 24-hour-a-day roadside service to Porsche owners whose cars break down.

He said the sale last year of non-voting preferred stock in the previously private firm should help ensure that the company remains an independent manufacturer.

“In an industry that is dominated by mergers of large corporations, we believe we can prosper as a small, independent business,” he said.