Audi Thrives Worldwide

By Ian Grasso

12.11.2007

And a suggestion for GM

Although many question the Volkswagen Automotive Group’s plans to become the world’s biggest automaker, no one can doubt the real potential of its Audi subsidiary in the luxury/near-luxury market. The company reported this morning that they sold 893,600 cars around the world from January to November of 2007. Despite lower sales in Germany, they are enjoying their 12th consecutive record sales year. With spectacular growth in China and Eastern Europe, it is probably only a matter of time before the subsidiary (99.7% owned by VW) sells one million cars a year, effectively doubling its global sales in 15 years. This milestone will firmly plant the Ingolstadt, Germany based automaker in the league of its rival BMW, itself on track to sell about 1.4 million cars this year including its MINI and Rolls units.

From humble roots, and formerly derided by Porsche fans everywhere for partially designing the lame 924, Audi is now absolutely essential for VW’s overall financial health. It was responsible for €1.81 billion in profit on its aforementioned sales, whereas 2.7 million VW branded cars brought in €1.38 billion. Wait, Audi makes more money than VW? Yes they do, and they do it in style, having won Le Mans 6 times with the R8 (its opportunity for 5 straight victories only broken up by the Bentley Speed 8, which shared the R8’s drivetrain) and the new TDI R10. In the U.S., Audi’s sales have increased 8.7% this year, while the VW Group’s overall sales have been flat, signaling less demand for low and mid-market offerings by the automaker.

Audi will sell about 90,000 vehicles in the United States this year. An amazing number, considering not even 15 years ago the brand was on the verge of leaving the world’s highest volume car market. Audi was dogged not only by negative press (the Audi 5000’s “unintended acceleration” syndrome – was a 60 Minutes expose that turned out to be quite untrue) but more importantly, cars that looked exactly like what they were: boxy veedubs with leather, 5 cylinder engines and a corner on the very small AWD sedan market, which it shared with used AMC Eagles and various Subaru wagons.
After a loss of over 100 million Deutsche Marks in 1993 and the diagnosis of “unintended acceleration” as “brake pedal/gas pedal spatial disorder,” Audi’s modern history started in earnest with the introduction of the A4 Quattro in 1994.

Based on the VW Passat B5 platform, the A4 gave you almost-BMW styling and almost-BMW performance with a better interior for about 5 grand less than you could touch a similarly equipped 325i or 328i in the heady days of the Internet boom and 100% employment. Additionally, and surely not overlooked by its creators, was its awesome “upgradablity” – a 1.8T engine with an upgraded ECU could easily be pushed from 150 towards 180 HP for about 200 bucks. Not only was the car a hit with those who loved the (real or imagined) safety of AWD, but also with a younger crowd of modifiers and enthusiasts stepping up from the Jetta. With this car, followed closely by the A6, the TT roadster, and the 250HP bi-turbo S4, Audi successfully joined BMW and Mercedes in becoming a “real deal luxury moniker.” Audi successfully marketed itself as a “less ostentatious” BMW while all the while cribbing the best of Bayerische (burnt orange interior lighting anyone?). Audi’s disciplined marketing concentrated on its rally racing roots, the Le Mans and ALMS-dominating R8, and high technology – all-aluminum space-frames, CVT, and FSI direct injection engines.

VW’s management of Audi presents a business case study for a particular General Motors-owned foreign label close to my heart; the perpetually moribund Saab. Like Audi, Saab vehicles are based on common platforms and engines with their corporate overlords, have a deep history of performance long ignored, and a name that probably has too many vowels or at least vowels placed together in non-standard arrangement. Then again, Saab only sells about 120,000 units a year worldwide, only 25% more than Audi sells in the U.S. alone, and has been pronounced on its deathbed by the automotive press for at least the past 7 to 10 years.

Unfortunately, Saabs are best known in the American mass market for having their ignition between the seats, wicked torque steer, and a propensity to be owned by college professors. Any time you mention to someone that you own or are thinking of buying a Saab, they say “Oh, Saabs are good looking cars, but I haven’t ever seen a dealership.” True enough, as the Saab dealer network is on life-support. Car shopping with my step-mother in Des Moines a year or so ago, we found the Saab dealer in a far corner of a Mitsubishi dealership proudly displaying approximately one dust covered 9³.

As much sympathy as I have for any owner of a joint Mitsubishi/Saab dealership, I could not in good conscience recommend a car that was so obviously unsupported. She ended up buying a Bimmer.

Not bad, no more Saabarus please

My point in praising Audi and then trashing Saab is pretty simple. GM needs to conjure Audi and its B5 A4 with its upcoming Saab launches. GM has in Saab a quirky brand with currently limited appeal that is ripe for growth in the U.S., much like Audi in the early to mid 90’s. For once, Saab has a real winner on their hands with the new 9³ and Turbo X detailed below on this blog. GM needs to quickly take advantage and create cachet for the brand not only in the United States, but internationally – particularly in Asia. Audi not only builds A4s and A6s in China, but it’s their third biggest market behind Germany and the UK and ahead of the U.S. I don’t need to point out (but I shall) that China and Russia are pretty much the only big time growth markets in the auto business right now. Add to the fact that the market conditions are actually good in the U.S. for a near-luxury/luxury launch. Lexus, BMW, Mercedes, Infiniti and Audi are seeing healthy sales growth even with recession likely in the near term and the credit markets tightening. Even dowdy old Mercedes is having a successful launch with their new C-class.

Of course, if they want to look at how NOT to launch the vehicle, Saab and GM only need to look to their Swedish friends Ford and Volvo. The have completely botched the C30 – a cool car that has gotten zero marketing support in the United States and probably came to the market about 3 years too late.

Oh yeah, and get rid of “Born from Jets.”

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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9 Comments

  1. Audi’s chances look great, and I think they’ll catch BMW and Mercedes-Benz in the near future. VW’s plans for world domination are ridiculous but their plans for Audi brand on it’s own are very doable. In terms of Saab, it could be situation of too little, too late because they should have had both re-design and AWD years ago.

  2. Let’s hope then VW don’t decide to step-up further in Audi territory or even higher as we witnessed with the Patheon.

    As for Saab, the main trouble is the dealers network, here in Canada. Saabs are sold in Saturn dealers, though it don’t improve the situation, it’s better then sold at a tiny Mitsubishi dealer. It reminds me of an article then I spotted at Autoblog and on Auto123.com, still surprising and intriguing to read this.

    And some Canadian auto journalists seems to love the Volvo C30, the annual French-Canadian book “Le Guide de l’Auto” had chosen the C30as their COTY O_o

  3. I don’t take your criticism as SAAB-bashing, and I’m a pretty heady SAAB fan myself, as well as an Audi fan.

    The number one problem with the SAAB dealer network in the US is that it’s being gobbled up by GM’s premium brand hierarchy– most SAAB dealers in the US are tucked away like a little comma next to giant H-shaped HUMMER dealers. To their credit, the sales folks I’ve talked to were very nice and truly liked the SAABs they were selling, but they were more knowledgeable about the HUMMER and Cadillac product which was obviously going out the door a bit faster.

    Also, just to pick your bones, the slogan is actually “Born from Jets”.

  4. Great read. I am in my second consecutive Audi, third in my driving lifetime. I love ’em and encourage folks to consider them when shopping.

  5. I am a huge Saab fan and I think they’re on their way back with the new car with AWD. And they have two entirely new models coming after that. It seems as if Gm has finally started paying attention to Saab and giving it money and product instead of treating it like a special needs child.

  6. Chris-

    Thanks for pointing out “born from jets” – I hate that campaign so much that I can’t remember the tag line!

    To Stephane- I totally agree with you, the C30 is a great car (I test drove one of the first models with the swede flag on the roof)- but how much magazine, Internet, and television exposure has this fab hatch received? Just about none other than on swedespeed.com.

    Ian

  7. There are indeed parallels between what Audi used to be and what Saab is now. and I’d love to see Saab become in the future what Audi is now, as far-fetched as that might seem at this moment in time. I had a Saab 99, two Saab 900s, a 9-3, and am currently scouring used car listings for an almost-new 9-3 Combi for my wife. I am a big Saab fan, but I’m not blind to all the missteps they’ve made and I’d like to see them get going towards a more positive future.

  8. I think Saab just needs to pack it in. I’m sorry but I just can’t see them coming back at this point.

  9. Many years ago, I had a Saab 900 Turbo. I loved that car. Black, coupe, fabulous. Since then… I am very angry with GM’s mismanagement. Why is the 9-5 ten years old? Why don’t they give Saab a redesigned Caddy SRX? Why don’t they have a proper engine in the aforementioned 9-5? What happened with the dealers?

    But above all, why are the cars so boring now? Where’s the excitement?

    Over the last seven years (I guess eight, now that it’s 2008), I have had four Audis. Loved all of them. My first was a 2000 A6 2.7T quattro. Flawless. Then I got my son a used ’98 A4 1.8T quattro in 2002. He loved it, tuned it, ruined it. Then I got a 2005 S4 Cabriolet, which I still have. It’s gorgeous, and the exhaust note is addictive. Finally, I bought an A3 2.0T DSG to replace the A4–not for my son, but for me, to drive in the winter… and to give to my younger son near the end of this year. It’s the best small car I’ve ever driven.

    In short, Audi has become a true luxury brand in a very short time. The stunning R8 and lavish A8 exemplify that. They are worthy of anybody’s dream car list. Audi also has top-notch designers and engineers; the turbo four is second to none and DSG is still revolutionizing the industry due to Audi/VW and BorgWarner. Saab? What happened? I don’t think they should become Audi… they don’t need to be full-on luxury/sport. But how about something better than where they are now?

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