Bloomberg News

Audi Sees Newest Vehicles Overtaking Other Germans in U.S.: Cars

January 06, 2012

Jan. 6 (Bloomberg) -- Audi will add models to feed U.S. passion for sedans and sport-utility vehicles and gain ground on market leaders Daimler AG and Bayerische Motoren Werke AG.

Audi will use the Detroit motor show next week to unveil a concept “Vail” version of the compact Q3 SUV for the U.S. market and plans to build a sedan version of the A3 hatchback after the newest model comes to market this year, Chief Executive Officer Rupert Stadler said in an interview.

U.S. growth is critical to efforts by Audi, the top seller in western Europe and China, to replace BMW as the world’s largest luxury-car maker by 2015. The Volkswagen AG brand took a step forward last year by delivering more cars worldwide than Daimler’s Mercedes-Benz for the first time. In the U.S., BMW and Mercedes sell more than twice as many cars as Audi.

“The next pillar of the market that we have to conquer is the United States,” Stadler said in London yesterday. “We see opportunities in the SUV and sedan segments.” The Ingolstadt, Germany-based company also plans to bring back the A2 compact car, a model it discontinued several years ago, he said.

Audi will begin producing cars in North America by 2015, building 150,000 vehicles as a first step, Stadler said. BMW and Mercedes are already making SUVs in the U.S. and the Audi CEO said he’ll be looking also at assembling SUVs or sedans in the region. Local production would give the carmaker, which Stadler said is now profitable in the U.S. after years of losses, a natural hedge of $2 billion to $2.5 billion.

Small-Car Contest

The competition among the top three luxury-car brands has heated up, with Audi’s growth prompting Daimler CEO Dieter Zetsche to set a goal of retaking the top spot that it lost to BMW in 2005. To back up its pursuit, the Stuttgart, Germany- based manufacturer is rolling out a line of five sportier small cars, including a coupe and a sport-utility vehicle, to target Audi-leaning buyers like Bo Tang.

The 33-year-old purchasing manager for an energy company was eyeing an A3 wagon, which starts at 21,100 euros ($27,000), at a dealership in Frankfurt in late December after earlier considering a Mercedes B-Class. The Audi’s power, value and styling gave it an edge over the van-like Mercedes compact.

“For the same price, there are better possibilities” than a 26,000-euro B-Class, said Tang, who is looking to upgrade from her Mini. “The Audi A3 is just more comfortable and seems to be better quality than the B-Class. You also get more horsepower for your money.”

Not No. 3

Mercedes is hoping to get a second chance at customers like Tang this year after it introduces the A-Class, a sporty hatchback that will take on Audi’s A3 and BMW’s 1-Series. The carmaker is building an 800 million-euro factory in Hungary, where labor costs are a fifth the level in Germany, to be more competitive in the compact segment and counter Audi’s ties with Volkswagen.

Small cars are critical to Mercedes’s comeback strategy. Audi sold about 80,000 more cars than Mercedes in 2011. The new Mercedes models are projected to narrow Audi’s lead to about 40,000 this year, according to data from IHS Automotive. The forecasting group predicts Audi will slip back to third in 2013.

“It’s impossible to tell our customers, employees and investors that we accept being No. 3,” Daimler’s Zetsche said in a September interview. By not confronting the competition, “we were running the risk that our people assume it’s a law of nature that we grow slower than BMW and Audi.”

To underscore its ambitions, Audi will also introduce an updated version of the best-selling A4 in Detroit. The entry- level sedan will feature cleaner-running engines and sportier styling in an effort to compete with BMW’s overhauled 3-Series, which goes on sale in February. Mercedes will debut the revamped SL roadster at the show.

Super Bowl Campaign

“They were never considered as cool as BMW and Benz,” said Jesse Toprak, an automotive analyst with TrueCar.com, a Santa Monica, California-based website that tracks industry trends. “Their brand image simply wasn’t strong enough domestically in the U.S., and if you look at the luxury market, that’s what buyers buy: image.”

Boosted by Super Bowl ad campaigns and high-profile placements in blockbuster movies such as Iron Man, Audi’s brand is getting stronger, Toprak said.

The improved prospects mean that AutoNation Inc., the largest U.S. car retailer, is making new Audi dealerships a priority, opening three in the second half of 2011 for a total of five, said Marc Cannon, a spokesman for the Fort Lauderdale, Florida-based company, which has 17 Mercedes locations and 13 BMW dealers.

‘Limited Availability’

“In the past, Audi has had limited availability,” Cannon said. “Consumers’ decisions have really just come down to who’s got the best availability at the time.”

Mercedes has an image issue of its own. With the oldest customers among the top-three luxury brands -- 54 on average compared with 48 for Audi, according to San Diego-based market researcher Strategic Vision -- its reputation as an older person’s car could hamper its goal of attracting younger drivers. Audi has captured that market with sportier vehicles such as the R8 and TT that pushed design limits and helped lift the brand.

“Of course we are thinking about that type of car,” Stadler said. “In the next decade, we will have to think about the next icon in the Audi brand.”

--With assistance from Mark Gilbert and Heather Harris in London. Editors: Chris Reiter, John Brecher

-0- Jan/06/2012 16:14 GMT

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net; Chad Thomas in Berlin at cthomas16@bloomberg.net.

To contact the editor responsible for this story: Chris Reiter at creiter2@bloomberg.net.


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