Audi Aims Even Higher

Deutsch · 03-01-2007, 10:41 PM

Quote:

Europe February 28, 2007, 2:56PM EST text size: TT
Audi Aims Even Higher
The German automaker's 63% profit jump for 2006 came on global sales growth and better revenues per car. Its CEO predicts a 50% rise in sales by 2015

by Gail Edmondson

The driver of the silver, $100,000 Audi A8 cruised gracefully into Audi's headquarters plaza in Ingolstadt, Germany, passing an arc of gleaming models ranging from the sassy new TT coupe to the $130,000 R8 super sports car. For visitors arriving one by one in a continuous stream of identical, chauffeur-driven A8 sedans, the corporate choreography carried one loud message: Audi has made it.

The Bavarian automaker's profits and sales are surging, and its cars continue to win best-in-class accolades. On Feb. 28, Audi's new chief executive, Rupert Stadler, delivered 2006 financial results that matched the high-octane model lineup. Group revenues rose 17.1%, to $40.7 billion, powered by strong sales growth in Europe, the U.S., and Asia. Net profits jumped 63%, to $1.75 billion.

"By 2015, Audi will be No. 1," vowed Stadler, Audi's former finance chief, who became CEO on Jan. 1 after former chief Martin Winterkorn was kicked upstairs to become CEO of parent company Volkswagen.
Bottom-Line Bonanza

Though Audi's revenues and vehicle sales still lag behind those of German premium-car rivals BMW and Mercedes (DCX), its engineering edge and design savvy have polished Audi's premium-brand image to a high sheen. Now, global market-share gains and profit improvement are narrowing the gap and transforming Audi into an ever more powerful rival. Stadler forecasts Audi's sales will sprint from 924,085 cars in 2006 to 1.5 million by 2015.

The most telling shift was Audi's bottom line. The carmaker's 6.2% operating margin, up from 4.9% in 2005, reflected the rising number of high-priced models in Audi's overall lineup—and an increase in sales of pricey options. The 2005 launch of the $40,000 Q7 luxury sport-utility vehicle also helped boost the mix, as did sales of the spaceship-like R8 sports car.

Average revenues per car for the A6 sedan, one of Audi's most important models, have risen 70% over the past five years as well-heeled buyers outfit their cars with expensive options such as high-end audio systems, leather seats, and more powerful engines. The increase in average revenues per model helped Audi match Mercedes' 2006 operating margin and edge closer to BMW's vaunted 8% return on sales. Audi's return on investment, meanwhile, hit a record 14.2%.
Lineup Expansion

Stadler isn't bent on topping Mercedes or BMW in vehicle sales, but rather a combination of metrics such as quality, customer satisfaction, innovation, brand image, and financial performance. "If one of our competitors is selling more [than Audi] in 2015, I wouldn't worry about it," he says. "This is not a volume-based strategy alone."

Even so, Audi carried out a blistering sprint for volume in 2006, bringing new models to market nearly every month, adding sportier cars such as the $130,000, 480-horsepower R8, and new niche models like the plush, seven-seat Q7 SUV, which goes head-to-head with Mercedes' M-Class and BMW's X5.

At the Geneva Auto Show on Mar. 6, Audi will expand its lineup further with the A5 coupe, followed by a new A4 small sedan late this year. In 2008, the company will launch a baby SUV dubbed the Q5. Stadler also announced that Audi is developing a sporty small car, likely to rival BMW's hot-selling Mini.
Serious Challenger

Audi's widening product palate and huge global marketing push is finally giving it traction in the U.S., where sales are much weaker than those of BMW and Mercedes. In 2006, Audi's U.S. sales rose to 90,000 cars, up 8.5%, including 10,000 Q7 SUVs. Marketing chief Ralph Weyler says Audi will reach the 100,000-car milestone in the U.S. in 2007 and top 1 million in sales globally. In January, Audi's global sales rose 8% over the same period.

China is the real jewel in Audi's global crown. Last year, Audi sold 81,700 cars there, up 39%, defending its position as market leader among premium automakers in one of the world's fastest-growing markets. "We feel like China is our second home market," Stadler says.

It has now been 17 years since Audi launched its audacious quest to equal global luxury kingpins BMW and Mercedes. Few believed back in 1990 that Volkswagen's mid-market unit would make the premium grade. Until recently, both BMW and Mercedes dismissed Audi as a serious global rival, citing its weakness in the U.S. and smaller share of expensive models among overall sales. But Audi's gains in 2006 have proven its competitors naive.
Carbon Concerns

True, Audi was relatively late to the market with an SUV, but first-year sales of the Q7 showed its adeptness at designing models that hit a consumer nerve. Worldwide, Audi sold 52,000 Q7s in 2007, overshooting its initial forecast despite the trend toward shrinking sales of large SUVs. To address concerns about fuel consumption and emissions, the automaker recently unveiled a clean-diesel V-12, 500-horsepower version of the monster Q7, which gets better mileage than gasoline while still offering serious horsepower and torque. The diesel version sprints from zero to 100 kilometers per hour in 5.5 seconds.

The only cloud hanging over the ambitious Bavarians in Ingolstadt is the growing alarm over global warming and the threat of government regulation to force drastic cuts in emission levels. For high-performance cars such as those made by Audi, BMW, and Mercedes, the challenge of meeting cuts in carbon dioxide levels is nearly impossible, Stadler said.

For now, Audi is proffering smaller models such as the A3, which has carbon dioxide emissions below the restricted levels being debated by the European Union. It also has launched a pilot project to synchronize traffic flows with traffic lights, minimizing start-stop patterns that exacerbate emissions. But if the climate-change debate heats up, Audi's new management may have to change gears and delve rapidly into new technologies—just when the race was starting to get really fun.

Gail Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau.
Xerox Color. It makes business sense.

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I could care less if the "Horse Power wars" ended, HP has very little to do in determining whether a car handles well a not, an area of greater importance to me than anything else in the performance category.

Merc1 · 03-02-2007, 06:56 AM

Absolutely glistening reading. After reading that you really feel that Audi can do all of what they say and more. I for one will likely be in tears when they equal or even get close to MB and BMW sales wise in the U.S. What a day that will be! I've said it before, but no other luxury car maker has a better looking lineup, both inside and out than Audi does right now. I could turn Audi into a true volume player in the U.S. if they'd just put my in the head office! The key is getting people to consider and Audi, because once the test drive is done the car I would imagine sells itself for many prospective buyers. With the R8 doing all the gawking and grandstanding for the brand, it is time for the A4 to knock it out the park at prices that will bring customer into the showrooms in droves. The R8 is doing just what it is supposed to, a halo car, adding sheen to the brand, now it is time for the new A4 to capitalize on that. I can’t wait to see it!!!

M

Imhotep Evil · 03-02-2007, 07:08 AM

For Audi to succed in the USA they would need to:

- improve resale value
- improve brand image perception (once and for all, what does Audi stand for ?!)
- add more models/variants
- dump the VW link (implying dumping some VW components, and marketing)

Merc1 · 03-02-2007, 07:14 AM

Yep, all of that is true, especially the VW link and exposure/image thing. Most people just won't even consider and Audi because the brand just isn't "out there" in the public perception strongly enough. Then you have the group that won't consider one because they view Audis are glorified VWs.

Changing this is going to be tough, but it most surely can be done! The cars have been doing the talking for a while now, and sales have increased, but now it is time to turn on the marketing machine, on full blast!

M

Imhotep Evil · 03-02-2007, 07:26 AM

Agreed, perception can kill you or it can make you very succefull. The trick is controling it, and here I see BMW as the benchmark.

Merc1 · 03-02-2007, 07:29 AM

Oh yes BMW is the master at that, red hot right now. Mercedes dropped the ball with theirs mainly with products that didn't live up to their image. Even still their image is still great in the eyes of many and this is despite some very tough, horrible years. BMW and Porsche have hone their brands so well it should be taught in marketing classes, it probably is!

M

Imhotep Evil · 03-02-2007, 07:33 AM

Quote:

Originally Posted by Merc1

Oh yes BMW is the master at that, red hot right now. Mercedes dropped the ball with theirs mainly with products that didn't live up to their image. Even still their image is still great in the eyes of many and this is despite some very tough, horrible years. BMW and Porsche have hone their brands so well it should be taught in marketing classes, it probably is!

M

I can comfirm that it is taught in classes.

There are books and articles that emphase the BMW model (on some chapters).
Particulary those of Al Ries and Jack Trout.

Merc1 · 03-02-2007, 07:34 AM

Excellent!

M

Deutsch · 03-03-2007, 12:45 AM

Quote:

Originally Posted by Imhotep Evil

For Audi to succed in the USA they would need to:

- improve resale value
- improve brand image perception (once and for all, what does Audi stand for ?!)
- add more models/variants
- dump the VW link (implying dumping some VW components, and marketing)

Audi has already adressed all of your fine points, but there are also some points you're missing:

1) OK. Audi has improved residuals by reducing the complexity of options by packaging different options together and also creating "premium" models that already have a number of preselected options as std. features. This makes choices easier for customers to build a vehicle that's within their budget, as well as boost AoA's margin per vehicle because of the more well equipped vehicles being sold @ higher transaction prices.

2) OK. AoA is going above in beyond in PR events, from the Audi Forum in NYC extravaganza, to ride and drive R8 event that just wrapped last weekend in Vegas. AoA's senior management realizes they need to meet Americans half way between Audi and Audi in the U.S. to get their point across in "telling" the Audi story, they have to communicate the American way. We'll see the fruition of these efforts in a few weeks or so-s time with the launch of a new marketing campaign created by AoA's new ad agency.

3) OK. BE PATIENT, there's much much more to come our way from Audi in the near future. We've got shorter lead times first off, with the A5 going on sale six months later in the U.S. after it's European launch. Secondly, there's several more new or refreshed models to come our way in the next several years. I'm curious to see though, if AoA plans to import the A1 small premium hatch state side? Being a Mini direct rival you'd think it would fare well here as we are set to become Mini's #1 market in less than a year or so if we're not already there. Time will tell.

4) Dump the VW link? Not gonna happen, and that most certainly isn't Audi's issue, that's an individual issue. Between the two there's little in common, other than the sharing of parts (nothing new in the industry) and this will become even less prevalent in the near future. Besides that, VW is the parent company and there's no reason for Audi to go another way, there's shared benefit of resources, logistics, etc. Also, design wise there isn't much in common either, perhaps a certain quality, yes. Nothing more, they most certainly don't drive the same.

Harry Plopper · 03-03-2007, 09:50 AM

***

Mr. Stadler, whose salt-and-pepper hair belies his age, makes an audacious prediction:
by 2015, he declares, Audi will be the leader in luxury cars in the world. He is quick to note that
this does not mean selling the most cars each year,
but setting the industry pace in technological innovation, brand image and customer satisfaction.

***

Were the goals too ambitious, and Winterkorn too pretentious?

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03-02-2007, 06:56 AM	#2 (permalink)
Merc1 Contributor Join Date: Sep 2005 Location: Aurora IL USA Posts: 4,955 Thanks: 363 Thanked 672 Times in 346 Posts	Re: Audi Aims Even Higher Absolutely glistening reading. After reading that you really feel that Audi can do all of what they say and more. I for one will likely be in tears when they equal or even get close to MB and BMW sales wise in the U.S. What a day that will be! I've said it before, but no other luxury car maker has a better looking lineup, both inside and out than Audi does right now. I could turn Audi into a true volume player in the U.S. if they'd just put my in the head office! The key is getting people to consider and Audi, because once the test drive is done the car I would imagine sells itself for many prospective buyers. With the R8 doing all the gawking and grandstanding for the brand, it is time for the A4 to knock it out the park at prices that will bring customer into the showrooms in droves. The R8 is doing just what it is supposed to, a halo car, adding sheen to the brand, now it is time for the new A4 to capitalize on that. I can’t wait to see it!!! M

03-02-2007, 07:08 AM	#3 (permalink)
Imhotep Evil Devotee Join Date: Sep 2005 Posts: 3,898 Thanks: 255 Thanked 154 Times in 116 Posts	Re: Audi Aims Even Higher For Audi to succed in the USA they would need to: - improve resale value - improve brand image perception (once and for all, what does Audi stand for ?!) - add more models/variants - dump the VW link (implying dumping some VW components, and marketing)

03-02-2007, 07:14 AM	#4 (permalink)
Merc1 Contributor Join Date: Sep 2005 Location: Aurora IL USA Posts: 4,955 Thanks: 363 Thanked 672 Times in 346 Posts	Re: Audi Aims Even Higher Yep, all of that is true, especially the VW link and exposure/image thing. Most people just won't even consider and Audi because the brand just isn't "out there" in the public perception strongly enough. Then you have the group that won't consider one because they view Audis are glorified VWs. Changing this is going to be tough, but it most surely can be done! The cars have been doing the talking for a while now, and sales have increased, but now it is time to turn on the marketing machine, on full blast! M

03-02-2007, 07:26 AM	#5 (permalink)
Imhotep Evil Devotee Join Date: Sep 2005 Posts: 3,898 Thanks: 255 Thanked 154 Times in 116 Posts	Re: Audi Aims Even Higher Agreed, perception can kill you or it can make you very succefull. The trick is controling it, and here I see BMW as the benchmark.

03-02-2007, 07:29 AM	#6 (permalink)
Merc1 Contributor Join Date: Sep 2005 Location: Aurora IL USA Posts: 4,955 Thanks: 363 Thanked 672 Times in 346 Posts	Re: Audi Aims Even Higher Oh yes BMW is the master at that, red hot right now. Mercedes dropped the ball with theirs mainly with products that didn't live up to their image. Even still their image is still great in the eyes of many and this is despite some very tough, horrible years. BMW and Porsche have hone their brands so well it should be taught in marketing classes, it probably is! M

03-02-2007, 07:34 AM	#8 (permalink)
Merc1 Contributor Join Date: Sep 2005 Location: Aurora IL USA Posts: 4,955 Thanks: 363 Thanked 672 Times in 346 Posts	Re: Audi Aims Even Higher Excellent! M

03-03-2007, 09:50 AM	#10 (permalink)
Harry Plopper Oinky Wizard Join Date: Sep 2005 Posts: 3,770 My Mood: Thanks: 76 Thanked 920 Times in 478 Posts	Re: Audi Aims Even Higher * Mr. Stadler, whose salt-and-pepper hair belies his age, makes an audacious prediction: by 2015, he declares, Audi will be the leader in luxury cars in the world. He is quick to note that this does not mean selling the most cars each year, but setting the industry pace in technological innovation, brand image and customer satisfaction. * Were the goals too ambitious, and Winterkorn too pretentious? - ONLY REGISTERED AND ACTIVATED USERS CAN SEE ALL LINKS - CLICK HERE TO REGISTER

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