Audi Races to Catch BMW

Audi AG is racing to close the sales gap with BMW AG, the world's largest luxury car maker, and it may get there faster than expected.

Audi, which is owned by German auto giant Volkswagen AG, is already on track to overtake Daimler AG's Mercedes-Benz brand as the world's second-best selling premium marque after BMW by selling 1.3 million cars this year, and expects to grow faster than the overall car market in 2012 as prices hold firm despite slowing economic growth worldwide, according to Chief Executive Rupert Stadler.

"We're planning for another surge of growth next year," Mr. Stadler said in a recent interview in his office at the firm's headquarters in the Bavarian city of Ingolstadt, 50 miles north of Munich.

"We're on track to reach the 1.5 million (unit) sales mark a bit earlier than planned," Mr. Stadler said, after the company previously said it wanted to reach the 1.5-million threshold in 2015.

The company reported a 19% rise in sales volumes in the first 11 months of this year to 1.19 million units, and expects overall auto-sector sales volumes to rise 4% in 2012.



To be sure, Audi isn't the only luxury auto brand optimistic about future growth amid strong emerging-market demand. BMW, on course for record sales of 1.6 million cars from its BMW, Mini, and Rolls-Royce brands this year, is bullish about the near-term outlook in the U.S. and China. Daimler is expanding U.S. production of Mercedes-Benz cars whose global sales rose 7.3% in the first of 11 months of the year to 1.14 million units thanks to surging North American and Chinese demand. Meanwhile, General Motors Co. is revamping its Cadillac range to compete better with its German rivals.

Closing the sales gap to BMW and Mercedes-Benz in the U.S. is a cornerstone of Audi's expansion plans even though the company reckons the U.S. market is expected to show only slight growth in 2012. Mr. Stadler said Audi is currently weighing up whether to build its first North American factory in Mexico or the U.S. with production likely to start as soon as 2015.

Audi's sales in North America collapsed in the mid-1980s when customers complained of unintended acceleration when driving the Audi 5000 model. No technical evidence was found to support the allegations but they damaged Audi's reputation in the country.

Mr. Stadler said he expects demand in China, Russia and South East Asia to drive growth next year. Audi continues to bank on strong growth in China where Volkswagen was an early entrant. Audi, which opened its second plant in China earlier this month, plans to sell 300,000 cars there this year, making China Audi's largest single market ahead of Germany.

"I see the chance that we develop in the direction of 700,000 car sales in China by 2020," Mr. Stadler said. Audi plans to almost double its Chinese dealerships to 400 by 2013.

The European market, meanwhile, may stagnate at best as much of the region could fall into recession amid the lingering euro-zone debt crisis. Mr. Stadler warned that the collapse of the euro would be a heavy blow as German exports would likely be adversely affected by devaluations by replacement currencies.

Audi aims to expand its product line-up by adding more sports-utility vehicles, launching a successor for its A2 compact car, and develop new derivatives from existing models.

Mr. Stadler acknowledged recent record levels of profitability won't be sustainable in the long run as demand, pricing and the economic environment change over time.

Audi aims to generate 8% to 10% return on sales long-term, sufficient to fund growth from its own resources. Audi's operating return on sales was 12.2% in the first nine months compared with BMW's 12.8% and Mercedes-Benz car-division's 9.4%.

For now, robust overall demand has enabled Audi to hold prices in contrast with price wars in the mass-market segment. Prices of leased or second-hand Audi cars are "very stable" too, Mr. Stadler said. Market conditions next year will be "slightly more difficult for everyone" but Audi has a "very good order book," he said.

Audi benefits from significant economies of scale as part of the Volkswagen group. Audi shares technology, components and purchasing costs with the group's 10 other car brands which include Bentley and Seat.

Volkswagen has a 99.55% stake in Audi, leaving a small free float traded on Germany's main stock markets.

Source: Wall Street Journal