Audi
Audi's S5 coupe is critical to the automaker's ambitious growth plans.
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By Paul A. Eisenstein, msnbc.com contributor
?The smell of smoke is readily apparent, though it takes a second to realize it?s from the nearby wildfires and not from the tires of the new Audi S5 as it goes screeching through a tight, winding Colorado mountain pass.
The German automaker recently gave a handful of American journalists the chance to test its latest products, including the S5 coupe and smaller S4 sedan and the new all-road crossover, vehicles critical to Audi?s ambitious growth plans. But as solidly planted as the two sporty offerings might be, there are some clear bumps in the road ahead for Audi.
In an unexpected announcement, Audi AG CEO Rupert Stadler said this week that the automaker is pushing back by a full five years its goal of becoming the world?s largest premium auto manufacturer. He told the German publication Sueddeutsche Zeitung that is not likely to happen until 2020.
?The road is getting bumpier,? Stadler said, while stressing that the automaker?s goal is to ?seize and secure the top position.?
When Stadler announced his plans a few years back, it came as little surprise to Europeans, who have seen the Volkswagen AG subsidiary steadily gain ground ? recently overtaking rivals like BMW and Mercedes-Benz in a number of key markets.
But it?s a shock to many Americans because the brand has long operated in the shadows of those rivals, as well as being overshadowed by Lexus, Toyota?s high-end marque that was, until last year, the consistent U.S. luxury sales leader.
?In Europe, Audi has been strong for years,? said brand marketing manager Loren Angelo during the recent Colorado product preview. ?But, here in the U.S., it was a very different situation.?
Audi was a fast-rising upstart back in the mid-1980s, breaking out from the staid, upscale mainstream with distinctively styled products like the 5000 sedan.? But the manufacturer got caught up in a safety-related scandal that all but destroyed the brand when the 5000 was alleged to have suffered from unintended acceleration problems similar to those recently plaguing Toyota and Lexus products.
As with Toyota, a federal investigation eventually cleared Audi ? putting most of the blame on driver error ? but the German import lost most of its momentum, and by 1992 sales had tumbled more than 80 percent, leading parent VW to seriously consider pulling Audi out of the American market.?
In the end, the company decided to tough it out, but it would be nearly two decades before Audi regained that lost momentum. Questions of survival were raised again in the middle of the last decade when Audi of America entered what Angelo described as a ?period of stagnation.?
VW nudged things back into gear by giving Audi more autonomy ? it now operates as an almost independent company ? though it continues to share some engineering resources as well as many underlying components with Volkswagen and other VW Group brands.
The strategy paid off. A flood of new products, including the R8 supercar, clicked with consumers, and Audi sales took off? in a way they hadn?t since the early days of the old 5000 sedan. Ironically, it was one of the more resilient luxury brands during the recent recession.
It ended 2011 with record U.S. sales of 117,561 and has since set new records every month. Last year, the brand reached a 10 percent share of the American luxury market. The goal, according to Angelo, is to reach 11 percent for 2012? And for the moment, the U.S. subsidiary is still targeting a near-doubling of sales, to at least 200,000 a year, by 2018.
To get there, Audi recently announced that it will finally move ahead with long-debated plans to open a North American assembly line. The facility, which will open in Mexico by 2016, will help offset the exchange rate penalty Audi now faces importing products produced in the eurozone. The new plant will serve a variety of markets, however, addressing another serious challenge to Audi?s broader global growth plans.
?I wasn?t surprised? to hear CEO Stadler delay Audi?s plan to become No. 1 in the luxury segment, said analyst Dave Sullivan, of AutoPacific, Inc. ?A lot of that has to do with capacity,? he said, ?the biggest thing that?s holding them back.?
Indeed, dealers in the U.S. and a number of other markets routinely complain about the long waits for some of Audi?s more popular products, such as the A5.
But there are other challenges ahead.? In the U.S., Audi still doesn?t have the level of brand awareness that it needs to generate 200,000 annual sales, company officials admit. However, they?re quick to trot out numbers to show that their brand?s ?purchase consideration? ? a factor measuring how many luxury buyers even look at an Audi ? is rapidly on the rise, from just 42 percent in 2006 to 60 percent last year.
Growth in the American market is certainly important ? perhaps even more significant considering the crisis in Europe that is leading to a Continentwide slide in car sales, both luxury and mainstream. Complicating matters is an unexpected slowdown in the Chinese market, which had been the world?s fastest-growing outlets for luxury vehicles until recently.
Not only has the pace of growth slowed to a crawl but luxury makers ? notably including competitor Mercedes ? have had to offer new incentives and even cut prices on many of their products.
Nonetheless, Sullivan and other analysts believe that Audi remains ahead of the luxury segment curve. It has built a clear reputation for design leadership and has a solid following for its Quattro all-wheel-drive technology.
It continues to struggle to improve quality and customer satisfaction, according to recent surveys. But the general trend is upward. And if Audi can simply maintain that momentum, Stadler and other officials contend, it is well-positioned to upset the luxury segment pecking order ? just a little later than originally planned.
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