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Audi on target to dominate

Flagship: Audi expects its new Sydney dealership to sell twice as many cars as the previous outlet in the same region.

BMW and Mercedes-Benz edge closer to playing second fiddle to Audi

Audi logo21 Aug 2009

By MARTON PETTENDY

AUDI continues to claim it will be the number one luxury vehicle brand in the world – and in Australia – within five years, but concedes it is unlikely to outsell its arch German rivals any earlier, as previously forecast.

The Volkswagen premium division’s widely publicised ‘Route 15’ plan to sell 15,000 vehicles in Australia and 1.5 million vehicles globally in 2015 appears well on target, with Audi selling one million vehicles worldwide for the first time last year and Audi Australia’s year-to-date sales of 6554 being 12.1 per cent up on its 2008 result, in an overall market that is down 15.3 per cent.

Audi expects to sell in excess of 10,000 vehicles in Australia for the first time this year, which is still well short of the 18,540 vehicles Mercedes-Benz sold here last year (14,089 excluding commercial vehicles) and the 17,263 vehicles BMW sold in 2008, when it was Australia’s top-selling luxury brand. Lexus (6670) was a distant fourth, behind Audi’s 9410.

With 9442 sales to July, however, BMW Australia’s sales are 11.6 down year-on year, while Mercedes’ sales are 7.2 per cent down overall at 10,827 (8426 not counting commercials).

Audi is already the most popular luxury brand in Europe, but for it to outsell BMW in Australia in 2015, Audi either plans to do far better than its official public target of 15,000 or it expects BMW sales to continue to decline – or both.

The last time BMW Australia posted an annual sales decrease was a decade ago in 1999, and although it plans a number of additional models including the 5 Series GT, the number of global Audi models will expand from 32 to 40 by 2015.

Audi Australia managing director Joerg Hofmann has consistently said he hopes to realise the Route 15 dream ahead of schedule and maintains the company is ahead of its forecast after four years of double-digit sales growth.

 center imageLeft: Audi board member for sales and marketing, Peter Schwarzenbauer.

Speaking at last week’s official opening of Audi Australia’s new $50 million ‘Lighthouse’ corporate headquarters and retail outlet, which is claimed to be the world’s largest Audi dealership, Audi AG board member for sales and marketing Peter Schwarzenbauer said the Route 15 strategy would no longer be achieved ahead of time.

“I think ahead of time would be now a bit too bullish,” he said. “But I can tell you now after where we finished the year 2008, when for the first time ever we sold more than one million cars, which was our 13th consecutive record year, we were the only car company in January, which was the worst time in the crisis, to set clear targets.

“Back in January we said we expected the worldwide market to be down between 15 and 20 per cent in 2009, and we as Audi are going to be down 10 per cent compared to our record year of 2008.

“If you look at the current situation, January to July, the worldwide market is down 18 per cent – pretty much in the range which we have seen in January – we are down eight per cent, so we are performing much, much better than the market.

“So that means we are gaining market share against our competitors and we still stick to our goal of finishing the year roughly 10 per cent below last year.

“So having said that, I think beside our extremely successful result here in Australia we have now on a worldwide basis 35 markets performing over last year already. In some markets it seems to be that at least the worst part of the crisis is over.

“We are now in Europe the number one premium brand, so our goal – what we want to achieve by 2015 – currently we are achieving this in Europe ... and in Australia we are getting step by step closer and closer, and I have no reason not to believe that we will achieve our original goal of being the number one premium brand in the world.”

Asked to clarify if Audi would outsell BMW and Mercedes-Benz in Australia by 2015, Mr Schwarzenbauer said: “Yes, definitely. Mercedes maybe a little bit earlier, BMW will take maybe a little bit longer, but 2015 remains our goal.”

Mr Hofmann conceded 15,000 sales would not be enough to overtake BMW on current figures, but said he hoped to exceed the 15,000 target and suggested the Bavarian brand has already achieved its sales potential in Australia.

“No. But 15,000 is the first step and I believe we can do a little bit more. I always say there is a limit for a premium brand in Australia of about 18,000 cars a year.

“You see that pretty much what happens with both of our two German competitors – especially BMW, which is at about that level – (is that) then it starts to get harder and harder… the margins start to get sacrificed.

“I believe the maximum for a brand like us is about 18,000 cars in Australia. This is a level where you can just sell profitable cars, (without) deteriorating the brand image,” said Mr Hofmann, who added that Audi was already on track to record the conquest sale it needed to overtake its chief German rivals.

“It (Audi) is already now (attracting a high number of sales from other brand). We are the only growing premium brand now and if you look at our sales most them are conquest.”

On the sensitive subject of profitability, Mr Schwarzenbauer insisted sales volume would not be achieved without meeting profit targets.

“I think it’s important to add that we always talk about volume but volume for the sake of volume is not our main goal,” he said.

“This building we invested in because we think we can make money here. Within our key goals for 2015, volume was only one of the goals. The other goal was really to be a profitable car company and so what we always say is we want to grow, we need to grow, but we are only going to do it if it makes business sense and not just for the sake of the volume.

“In the crisis I think we all have seen some of the other car companies that were only focussed on volume. So it’s always a combination of does it make financial sense to grow … and then we do it, but not for pure volume reasons.”

Audi Australia became a wholly owned subsidiary of Audi AG in 2004 but, unlike its two German counterparts, has not made public its financial results since 2006. Mr Hofmann stated earlier this month that Audi would record its highest profit figure ever in 2009.

“We will achieve our financial budget to Germany by more than $1 million (this year),” he said at the R8 V10 launch. “That is, Audi Australia will make $1 million more profit than was in the plan.

“You can only build new dealerships, invest in brands and do sponsorships and whatever if you're profitable. You can't make profit if you discount. All our dealers make money. Our dealer average return on sales is above two per cent, even in the (financial) crisis. Our benchmark dealers are (making) between three and four per cent (profit on turnover),” he said.

Audi’s 16,000 square-metre Lighthouse HQ at Victoria Park, Zetland, is expected to sell twice as many vehicles as the previous Audi outlet in the same Sydney region (about 10 per cent of total sales or 1000 vehicles in 2010), and its ‘billboard value’ was estimated by Mr Hofmann at about was €1.5 million ($A2.58m) a year because 45,000 vehicles passed by its every year.

Asked if he thought Audi AG’s $50 million investment in the new retail and wholesale centre was worthwhile, Mr Schwarzenbauer said: “I can tell you in about two or three years.

“You always have to see when you open a new dealership of this size and with this kind of investment. You can’t expect to make money from the first day it takes a while until you come to a certain volume. So that’s why we always say after two or three years you have to be at least on the black side.

“There is always two ways of looking at it. One of course is a brand statement where you say we believe in this market and we believe we have an extremely bright future here in Australia, so this is one reason of doing something like this.

“And the second reason of course it not only has to be good looking, it has to make money and this is what the business plan showed us, what Joerg and his team presented. Due to the success of the team here in Australia over the last few years and due to the fact we see even more potential here in the future, we decided to make the investment here.

“So it’s based on both pillars: one, the brand statement, and second, we are in the business to make money,” said Mr Schwarzenbauer, who added his first impressions after touring the facility earlier in the day were “absolutely great”.

“You have to drive right by here so I think the location (between the airport and the city) is good. The building looks really impressive. It’s quite a brand statement we’re doing here, so I was extremely pleased when I came this morning,” he said.

The former BMW and Porsche executive said that while the Lighthouse’s striking ‘terminal’ design followed Audi’s new global corporate identity previously seen at the Five Dock dealership in Sydney, its combination of head office and retail outlet was also a blueprint for other Audi markets.

“The combination of having the dealership and the importership in the same building, this is a pilot project we are trying out to see if it will work in other markets,” he said. “First experience is that this is very fruitful for both sides.

“The dealers understand a little bit more what are the issues on the wholesale side and vice-versa for people working on the wholesale side, who are basically walking through the dealership every day. They talk to their colleagues at the dealership, so this could be a model also for other markets.”

Of Audi Australia’s 34 dealers, there are currently six terminal-style dealerships in Australia, with a total of 15 to soon be in operation. However, Mr Hofmann again denied that Audi Australia would open a new factory-owned outlet within the next three years.

“At the moment we don’t have another plan for that kind of factory-owned facility in Australia,” he said.

“It’s a very clear statement as I’ve said many times. We have a flagship facility, a benchmark facility. Audi Australia and the factory own this … so I can promise you we don’t have a plan to open another factory-owned facility in Melbourne in the next three years – certainly not.”

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