Porsche VW

Sources at Volkswagen in Wolfsburg said Porsche was not in a financial position to stem a merger and did not appear to be sincerely interested in a takeover bid by VW either. Porsche's management, they said, did not realize how dicey the situation was for the sports carmaker.

"For a merger of Volkswagen and Porsche, we need to systematically analyze the current situation of Porsche and we need to have a clear picture of the actual conditions there," Volkswagen CEO Martin Winterkorn was quoted as saying in Monday’s edition of the Berliner Zeitung. Volkswagen would need "full transparency" to continue talks, he said.

VW's chief labor representative, Bernd Osterloh, said the talks set for Monday had been called off because "the current atmosphere was not conducive to a constructive dialog."

"We were not the ones who had asked for talks and we will not allow Volkswagen and individuals in our company to be disparaged just because Porsche has no clear strategy," Osterloh said.

Friction between the two sides intensified after the Porsche and Piech families, who control the two carmakers with crossover share holdings, instructed the companies to draft merger plans within the past weeks.

In the negotiations it emerged that the more likely scenario would be that Volkswagen would instead end up swallowing Porsche.

The economic crisis has changed the equation

In one of Germany's great corporate takeover battles, Porsche last year managed to buy a controlling stake in the vastly larger Volkswagen.

But the tables were turned this year following the global economic meltdown, which severely hit the auto industry, with Porsche looking to Volkswagen, Europe's largest automaker, as a knight in shining armor.

Ferdinand Piech, VW board chairman, underscored Porsche's predicament last Monday when he said that the Stuttgart-based company was running short of cash.

The head of the Porsche works' council, Uwe Hueck, said he plans to lead thousands of workers in a protest march this coming Monday to demonstrate against what he called Piech's perceived arrogance.

VW's Osterloh remarked it was time for the Porsche family "to clearly say what it wants and what it doesn't want."

Porsche, in the meantime, along with another German sports car maker, BMW, is apparently exploring the possibility of state loans to shore up the steep drop in demand for its vehicles. However, according to Monday's edition of the weekly news magazine, Der Spiegel, "the two companies have not yet made an official request."

Porsche is reported to have debts totaling some 10 billion euros ($13.5 billion).

gb/dpa/AFP/AP

Editor: Kateri Jochum