Auto industry observers expected to read a lot of bankruptcy news this week, but the object of the latest rumors may turn out to be a surprise.

AFP reports, "German luxury sportscar maker Porsche sought to deflect talk of bankruptcy on Monday after acknowledging it had borrowed hundreds of millions of euros from Volkswagen and needed billions more."  A Porsche spokesman told AFP, "Porsche is not on the verge of bankruptcy," but admitted that Porsche sought the loan "as the company struggles to raise cash to finance the huge mountain of debt it undertook when bidding to take over the much larger VW."

German newspaper The Local explains, "Porsche has debts of €9 billion after it bought a 51 percent stake in Volkswagen (VW) and is having trouble getting more loans. It was forced to abandon its plan to take over VW and said the two planned to merge instead."

Porsche had attempted to buy control of VW, but was unable to obtain financing to complete the purchase.  Autoblog notes, "In fact, Porsche, which sells fewer than 100,000 vehicles per year, has accrued an astonishing 9 billion euros worth of debt (around $12.6B USD). That's 50% more debt than Chrysler."

The two are now so intertwined, however, that VW was forced to float the loan to keep Porsche alive. Forbes explains that, if Porsche fails, "Volkswagen's share price will likely tumble." 

So how is the saga likely to end?" Forbes asked. Oppenheim Research analyst Christian Breitsprecher told Forbes "that Porsche will be forced into raising cash via other, potentially painful, avenues."  The company may be forced to sell assets, intellectual property or even its "whole carmaking business, to Volkswagen. This would leave Porsche as a purely financial entity, holding a sizeable--but not controlling stake--in Volkswagen."

In that scenario, Porsche's well-regarded product lineup and U.S. dealership network would probably survive - under VW's control.

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