Saturday, March 16, 2013

Audi on a roll: Automaker setting sales records

Audi dealers across the country are struggling to meet demand for many of their models, with U.S. officials pressing the factory back in Germany to up their allotment.

It?s a far different situation from what Volkswagen?s luxury subsidiary faced two decades ago. Still roiling from a safety scandal for which it was eventually cleared, Audi sales all but dried up. And in 1992, the maker came close to pulling out of the U.S. market, a decision it reversed only at the last minute.

Today, Audi is one of the market?s fastest-growing luxury brands, setting a series of annual sales records. And though it still lags segment leaders like Lexus, BMW and Mercedes-Benz, it is rapidly closing the gap, with sales for the North American market projected to more than double to 300,000 by decade?s end, according to Audi AG CEO Rupert Stadler.

Its global goals are even more ambitious. In a race with BMW for the worldwide luxury sales lead, Audi is already running ahead of its growth targets, selling 1.46 million vehicles in 2012 and shooting for 1.5 million this year ? a goal it originally had set for 2015. By decade?s end, Stadler is looking for volume to reach 2 million.

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To get there, the maker is planning to invest more than $14 billion through just 2015 to support a product program that will cover the increasing breadth of the luxury segment, from the small A3 hatchback to an assortment of new crossover-vehicles, such as the planned Audi Q6.

"There are years in which to harvest in our industry and there are years in which you sow," said Stadler. While the cost will be significant, the payoff should come by 2020. ?We are preparing to (sell) 2 million cars annually."

Along with its new product blitz, Audi plans to rapidly expand production capacity around the world, adding a facility in Mexico, its first in North America, and another new one in China.

?In the coming year, Audi will for the first time build more cars outside Germany than within,? said Stadler, hinting that further overseas production options are under study, including plants in Russia and Brazil.

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That reflects the rapidly changing nature of the global luxury car market, long dominated by Europe and the United States. While Europe will remain ?a very, very strong pillar of our business,? that market is stable and even declining, so looking forward, Stadler sees ?the big growth patterns for Audi will be in Asia, in China, in North America, also probably in South America.?

That?s not to say Audi will have an easy time of it. BMW last month regained its global sales lead from Audi, fighting back with a mix of new products and aggressive pricing. That?s particularly true in the huge and fast-growing Chinese market, where ?premium dealers have been under a lot of pressure in recent days,? said Deutsche Bank auto analyst Jochen Gehrke.

That has translated into a lot of discounting ? and lower margins. Indeed, Audi?s net profits fell 2 percent last year, to 4.35 billion euros, or $5.7 billion, though its ramped-up investment program takes most of the blame. The company?s operating margins also dipped to a still-strong 11 percent, and ahead of the 8 percent to 10 percent target for the next two years.

A key challenge for the maker going forward will be identifying ?white space? where new products can be targeted. That?s no easy feat these days. There was a time when luxury makers routinely offered only a handful of models each, such as Audi?s small, medium and large A4, A6 and A8 sedans. Today, the highline segment is an alphanumeric soup of sedans, coupes, sports cars SUVs and hard-to-define crossovers.

Meanwhile, the market is being driven by often divergent trends. While Audi will bet heavily on new CUVs, Scott Keogh, head of Audi of America, has big ambitions for the downsized A3 sedan that journalists attending the New York Auto Show will get a sneak peek at next week.

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Audi also made headlines at the Geneva Motor Show earlier this month, unveiling its new A3 Sportback e-Tron, a plug-in hybrid hatchback. Like its high-line competitors, Audi has recognized that even upscale buyers want to go green. ?We plan to add one more (plug-in) per year,? said technology chief Heinz Hollerweger during a Geneva interview.

Audi is a very different company from the struggling luxury car maker of the 1990s. It is already a leader worldwide and rapidly gaining ground in the U.S. Operating as a virtual standalone enterprise, Audi has become the single largest financial contributor to the bottom line of parent Volkswagen AG.

It is also a key contributor to VWAG?s goal of toppling Toyota to become the world?s best-selling automaker overall before decade?s end.

So Stadler and his team at Audi will have little room for error.

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