GERMAN LUXURY car-maker Porsche has abandoned its take-over bid for mass-market rival Volkswagen in favour of a merger into a company unofficially dubbed “Volksporsche” – the “People’s Porsche”.

In a deteriorating auto market the end of Porsche’s bid is a nod to the growing burden of €9 billion of debt it has run up buying 51 per cent of VW since 2005.

Few details are available of how the new company will be structured, although Porsche expects a plan for an “integrated car group” to be ready within a month.

The brands within the new company – Porsche, Volkswagen, SEAT, Skoda, Bentley, Bugatti, Audi and Lamborghini – would retain their separate identities.

The announcement came after a secret meeting in Salzburg on Wednesday with the Porsche and Piech families who control the Stuttgart-based luxury car-maker.

It remains unclear how the Porsche holding company will repay its VW share loans to banks in coming months.

Speculation grew last week that the cash-strapped holding company may have to sell the company silver – the sports car division – to the cash-rich VW group.

The compromise has been welcomed by the state of Lower Saxony, VW’s second-largest shareholder and home to its biggest Wolfsburg factory.

“This represents the chance to continue the success stories of Volkswagen and Porsche together,” said state premier Christian Wulff.

With its 20 per cent blocking minority, no important decisions at VW can be made without the agreement of the state government.

The new merger agreement has been interpreted as a victory for Volkswagen chairman Ferdinand Piech, who is also a member of the Porsche family. He favoured closer ties between the two companies to protect joint development projects but was critical of the terms of Porsche’s increasingly hostile takeover.

Now Mr Piech and VW unions will be looking for a better deal for their workers in the newly merged “Volksporsche”.

Influential VW union leader Bernd Osterloh said yesterday it was “a completely open question” whether the merger talks sought by Porsche would end in success.

The biggest loser might be Porsche chief executive Wendelin Wiedeking. He faces an uncertain future in any merged company after the collapse of his bid for Volkswagen, which produces 50 times as many cars annually as Porsche.

“It’s not a marriage made in heaven, but a sensible union,” he said of the deal to Porsche workers yesterday.