Is Audi's Strategy Of Striking When The Competiton Is Down Going To Yield Long Term Benefits?

Kudos to Audi for doing well. I wish them on-going good fortune. Should I have to buy a new car today, it would likely be an Audi A5 cab. And that's from a guy with 2 (Bangle-free) BMWs in his garage.

— Steve (View Profile)

Posted on 9/30/2009 11:51:15 AM | reply to this comment | Votes: 4   

Advertising? I'd rather they use that money to offset the costs of their overpriced vehicles.

Is it the cars that are making the difference in sales, or is it the advertising? Anyone who purchases a car based on advertising is a Lemming. Maybe its me, but Audi is starting to look like a German Toyota. Dull cars with plenty of advertising and high sales.

— LexSucks (View Profile)

Posted on 9/30/2009 12:39:19 PM | reply to this comment | Votes: -8   

The R8 is a Mid-engined sports car. The BMW is a front engined sports car. They're two different types of vehicles. Apples and Oranges dude.

— LexSucks (View Profile)

Posted on 9/30/2009 12:45:31 PM | reply to this comment | Votes: -6   

LexSucks - do you look for audi threads just to start some crap with people like me who happen to love that brand?

— 1dott8 (View Profile)

Posted on 9/30/2009 1:37:16 PM | reply to this comment | Votes: 8   

As a brand- I don't love Audi, but...........as a B6 S4 owner I can honestly say it is the best car I've ever owned. And I've owned a lot- Corvettes, BMW's, Twin Turbo Z's, Toyota 4 Runners, Jeep Wranglers, and even a current Rangie. To answer the post I hate to say it but Audi is becoming toooo much like Merc and Bimmer in interior quality- or rather the lack of it. The current A5/A4 has a very cheap plasticky console/buttons compared to my S4 and even an Audi exec recently said he was not pleased w/ the interior of the R8 versus the cost...
My point is I see Audi moving away from being the unique car with superb quality it once was to just another German car company trying to compete volume wise with Merc/BMW. True, Audi leases suck, residuals on some models (like mine) tanked but............at the end of the day it was a better car in quality by far than the competition. Now the current S4 has a boy-racer V6 (its nice and powerful but still too boy racer for me)
and a cheaper plasticky interior than mine. So sure it competes better against BMW value wise now but does Audi really need to lower itself to that standard? I think not. Both Bimmer and MB have lowered their quality immensely in most segments (not all- witness the S class and CLS or the 6 series and 7er) but still it is a far cry for both since the quality rich interiors of the 90's. And now I see Audi heading that direction. If Audi truly wants to compete then they need to shy away from keeping up with the Joneses and continue the unique designs and quality from 1999-2004 that got them to where they are today. If they whore themselves out to the competition by becoming like them then why buy an Audi? Truth is most people by Audi's becasue they are unique and different- quircky almost. Take that away and they are just another German car company trying to make a quick buck. Are you listening Mr. Winterkorn????

— BondMI6 (View Profile)

Posted on 9/30/2009 3:45:36 PM | reply to this comment | Votes: 4   

their efforts will pay off. but in the end, they will still be third string.

— 1995e34 (View Profile)

Posted on 9/30/2009 4:17:42 PM | reply to this comment | Votes: -2   

Kudos to Audi. Expanding and improving your products is always a good move, but its a great move when your competition is standing still (or is too busy turning sedans into GT's as in BMW's case).

And in the interest of transparency, I own two BMW's.

— thstone (View Profile)

Posted on 9/30/2009 5:49:21 PM | reply to this comment | Votes: 3   

Audi's strategy of striking when the competition is down is going to yield huge results, in fact it already has.

Audi's global sales increased 4.1% last year whereas BMW's and Mercedes-Benz's declined 5.1% and 5.7% respectively. Audi experienced a 30% increase in profitability to $2.81 billion whereas BMW suffered a 90% profit decline to just $415 million for 2008.

Audi has seen its global sales fall far less than BMW's and Mercedes-Benz's this year. Most importantly, though, is the fact that Audi is MUCH more profitable than both BMW and Mercedes-Benz right now and is the market leader in China.

Audi will use its profitability advantage over its rivals to allocate more money to Research & Development while continuing to develop fuel-efficient cars in addition to high-performance RS models.

I simply don't see BMW being able to match Audi in terms of profitability considering Audi has a huge cost advantage due to being a part of the Volkswagen Auto Group, which gives Audi crucial economies of scale. Audi will save tremendously by being able to share parts, transmissions, engines, and platforms with other VAG brands such as Volksagen, Porsche, and Bentley.

Furthermore, BMW maybe the market leader in the U.S., but we all know that China's economy is going to grow significantly faster than the United States' in coming years. China's luxury auto sector is also going to grow much faster than the United States' in the next 10 years.

I do believe Audi will achieve its goal of becoming the world's leading premium brand by 2015 and will outsell both BMW and Mercedes-Benz globally at that time.

Considering Audi has:

1. Hundreds of millions more in profit during this recession than BMW and Mercedes-Benz

2. A far smaller decline in global sales compared to BMW and Mercedes-Benz

3. Market-leading status in the rapidly growing Chinese market, which many predict will overthrow the United States for biggest luxury auto market (it already is the largest auto market overall in terms of global annual sales)

4. Economies of scale by being a part of a huge industry conglomerate, which BMW and Mercedes-Benz don't have.

Throw in the fact that:

1. Audi is widely considered to have the best interior ergonomics, design, and quality when compared to BMW and Mercedes-Benz.

2. BMW is in the process of creating excellent-handling but what many see as ugly and perhaps useless models (5-series GT, 3-series GT, X6)

I don't see Audi being stopped.

— GermanNut (View Profile)

Posted on 9/30/2009 7:07:18 PM | reply to this comment | Votes: 3   

LexSucks, Profitability is the single most important thing for any company. If there is no profit there are no cars, simple as that.

Why bring up Toyota? Toyota does not have an A4/C-class/3er competitor not to mention an A6/E-/5er, A8/S-class/7er or upmarket SUV competitor either.

If Audi is more profitable and sells MORE cars than a DIRECT rival (MB and BMW are DIRECT rivals since they have competing models in just about every single class and the prices between the three are far closer to eachother than to Toyota's prices) then, YES, Audi's cars are MORE desirable than BMW and Mercedes-Benz.

— GermanNut (View Profile)

Posted on 9/30/2009 9:44:21 PM | reply to this comment | Votes: 2   

I believe the goal of any business is to gain an advangtage over all competitors. If you see a weakness or vulnerability then you try to capitalize on it by demonstrating superiority or/and by challenging theirs. Audi was in a position to do both financially. Whether the benefits are long term will involve other dynamics such as how well they retain new customers, which for the most part is whole different challenge.

— Need4Speed (View Profile)

Posted on 10/1/2009 9:39:54 AM | reply to this comment | Votes: 2   

Yes, LexSucks maybe YOU would prefer a BMW 7-series or Benz S-class over an Audi A8, but there are others, like myself, who would take the A8 anyday.

If Audi outsells BMW globally, and Audi and BMW are both competitors who have competing cars in just about every single segment that they offer cars in at a similar price (except the Audi R8 which has no direct rival from BMW and the BMW X6 which Audi does not have a direct rival for) then Audi is more desireable than BMW as a whole. Yes, in certain segments, such as the luxury-sedan segment, BMW's 7-series would be considered more desireable than Audi's A8 but in the mid-sized segment the Audi A6 is more desireable than BMW's 5-series since the Audi A6 outsells the 5-series globally.

If neither company is in the black? Huh....Audi has made over $1 billion in profit through just the second half of this year. Audi is obviousoly in the black.

BMW, however, is NOT in the black. For the first two quarters of 2009, BMW has lost 33 million Euro, although in Q2 BMW saw a profit they are still down for 2009 as a whole.

In this case Audi is not 1-2% more profitable but more like 50% more profitable.

If Audi outsells BMW globally on the whole, then Audi as a company builds more desireable cars than BMW. Yes, this does not have to apply to every single segment as I pointed out above but on the whole if Audi outsells BMW than Audi is more desireable.

The above paragraph works because both companies are direct competitors who offer competing models in just about every single segment they compete in and the prices are very close to eachother in each segment.

Toyota nor Ferrari would be valid examples to try and disprove my point because neither offers competing cars, nor do they offer similar prices.

— GermanNut (View Profile)

Posted on 10/1/2009 2:40:38 PM | reply to this comment | Votes: -1   

To answer your question: The Audi RS6, RS4, and R8 V10 are more desireable than the BMW M5, M3, and M6 respectively.

Not only are the Audi RS6, RS4, and R8 V10 more expensive than their BMW M counterparts, but the RS Audis are also much more exclusive and rarer. The Audi RS models are not seen very often because Audi intentionally restricts the supply.

What BMW is more desireable than the Audi R8 V10??

There certainly has never been any BMW that has a BMW officially reported 0-60 mph time below 4 seconds and a quarter mile time below 12 seconds, or a base MSRP of $146,000 for that matter.

Keep your silly anti-Audi arguements coming LexSucks and I will be happy to knock each point of yours down with hard, factual data instead of just nonsense (which is what you do).

— GermanNut (View Profile)

Posted on 10/1/2009 4:34:52 PM | reply to this comment | Votes: -2   

i think vw has the right idea to acquire more brands while the they can still get them cheaper. it's the whole buy low sell high mode of profitability.

however, over-expansion comes at a price. gm was at the top of its prime when it sold over 9.3 million vehicles globally in 2007; it then reported a 31 billion dollar net income loss in 2008. toyota followed suit to claim the title of being the biggest automaker. toyota was reporting a near 21 billion dollar operating profit in 2008. now they're forecasting a 4.9 billion dollar operating loss.

no one is unstoppable. analysts thought toyota was unstoppable a couple of years ago. now they're just like everyone else. porsche was reporting incredible earnings just a couple of years ago as well. they were so strong that they were able to buy up vw. the dividends paid off.... but now, they got swallowed up by vw... therefore no brand is invincible. not vw and certainly not audi.

germannut:
you're just spewing crap again. you've misunderstood the concept of desirability, yet again. the desirability of a brand can empirically determined by comparing the sales of its products against its competition. you're marking up audi's desirability over the other luxury brands by making up crap that's subjective to your taste and opinion. profitability is NOT the main issue. toyota didn't achieve 8th on businessweek's best global brands list by making profits (because they're not). fyi, bmw is 15th and audi is 65 on that list. the bottom line is that audi cannot reach other german brand's sale volumes because there's a desirability issue. it's really that simple.

and toyota does have direct competitors to german luxury car makers... it's called lexus. the brand isn't that competitive on a global scale. however, it does current claim the american market as america's number one. you ignoring lexus' command of the american market while you fanboyishly embracing audi's leader role in the chinese market, is hypocritical. you need to know that there's currently more people buying luxury cars in america than anywhere else in the world, even in china. the cheaper prices of cars sold in america in general (luxury or not luxury) are amazing, however...

audi trying to establishing its rs lineup (r8 not part of the rs lineup) is probably the most useless and unprofitable thing audi can do. they don't sell that many because there's not that much DEMAND for them! hence the desirability issue. spending a big budget on technologies, designs and development of the rs cars is very silly, since audi maintain its profitable advantage over its rivals by rebadging cars, sharing platforms and ENGINES. development of rs cars doesn't allow for that. and the rs badge doesn't have any real racing heritage in it, because they don't race any of the rs cars. that's why the demand for the entire rs lineup fails to match its competitors. it's really the same case as the lexus f lineup. but at least

— validus00 (View Profile)

Posted on 10/1/2009 7:10:58 PM | reply to this comment | Votes: 2   

Validus00, your arguement that Audi cannot reach the other German brand's sales volumes because there's a desireability issue is FLAWED.

So what if BMW outsells Audi by a huge margin in the United States. In case you missed it: Audi outsells BMW by a HUGE margin in China.

Obviously Audi can match the sales volumes of its German peers if you consider that Audi cut the sales gap with BMW by over 65% in just 8 months. In 2008 BMW outsold Audi by 197,000 cars. Through August of 2009, BMW outsold Audi by just 63,000 cars.

There clearly is no desireability issue, otherwise Audi would be seeing its effects during a global recession, but it's not. Audi isn't seeing the desireability issue holding it back at all in terms of global sales declines versus its main rivals, BMW and Mercedes-Benz. Both BMW's and Mercedes Benz's sales have fallen over 16% globally whereas Audi has fallen just 7.5%. BMW and MB both saw more than 5% global sales declines in 2008 whereas Audi saw a 4.1% global sales increase.

Lexus is a speck in the dust compared to the Big German 3. Lexus currently sells about half of what BMW, MB, and Audi do globally.

You need to understand that even though there are more people buying luxury cars in America than anywhere else in the world, even China, this trend simply will not last. The Chinese market is the key to the future. Why else would senior executives at BMW, Mercedes-Benz, and Audi openly admit precisely that?

Audi spending money and resources trying to establish its RS lineup is one of the most useful and profitable things Audi can do. Just like the R8 is considered Audi's halo car in terms of looks and performance, the RS models are built for a very similar reason. When people see an Audi R8 driving, they start to associate the Audi brand with high-performance and striking design. The R8 has the effect of being a driving advertisement for the Audi brand wherever it is seen. The RS-cars are seen as being the pinnacle of Audi engineering and performance and if the RS-cars are strong competitors, it will cause other prospective buyers to go and buy the regular A4, A6, TT models.

Your arguement that Audi doesn't sell that many RS cars because there is not that much demand is FLAWED. Does Audi not sell that many R8s because there is a lack of demand? Clearly not. Audi could triple its output of R8s if it wanted to and each one would be sold. Audi doesn't do this because its wants to restrict supply in order to charge higher prices and at the same time preserve resale values. That is why Audi restricts the supply of its RS cars. In case you didn't know Invalidus, every single B7 RS4 was sold out. The same goes for the European-only RS6.

Face it, Audi is doing significantly better than BMW and Mercedes-Benz both in terms of sales and profitability.

— GermanNut (View Profile)

Posted on 10/2/2009 12:36:58 AM | reply to this comment | Votes: -1   

your consistent fixation on audi's performance in the chinese market meanwhile sidestepping audi's poor sales in america does not undermine the basic FACT that 20% more people in the WHOLE world buy a bmw than an audi (1.2 million cars vs. 1.0 million cars in 2008). see how audi fails to match bmw's sale volume now?

i see you're comparing audi's sales in china against bmw's sales in america, so let's do some comparison: bmw's sold in america is 40% greater in volume than audi's sold in china (93,563 vs. 66,866 first six months in 2009 in respective markets). bmw has also experienced a massive 31% growth vs. audi's 10% growth in the china so far in 2009, year-to-date.

the entire rs lineup is clearly a big mistake. it is definitely NOT profitable; they pour too much money into developing something that's sold in waaaay too little volume to truly justify its existence. that's not profitable in economics terms.

and it gets worse. the rs clearly doesn't represent the "pinnacle" of audi engineering, because audi doesn't even advertise using rs cars as marketing tools. where's the rs version of the r8? nowhere to be found. the r8 v10 seriously should have gotten the rs badging but didn't. that's their own fault for ditching the rs badging.

in motorsports, the "s" badge represent a lot more racing pedigree than the rs can ever represent, but that was so long ago no new customer is going to remember and recognize.

you keep insisting that there's no problem with desirability and audi's good gross profit makes audi a desirable brand. let's look at the audi brand from a macroecon point of view and then a microecon point of view. in macroeconomics, it is obvious that audi suffers from 20% less demand for the equivalent substitute good (if compared to what bmw offers). on the microeconomics scale, the average buyer does not know nor care about how much audi is profiting per car, compared to bmw. so profitability is clearly not an issue. so by sheer volume, bmw is more desirable as a brand. bmw's brand strength compared to audi's is obvious in businessweek's global 100 company list.

so tell me. which brand is more desirable to the average marketable customer, you dim wit? if you say the following answer, "audi is more desirable to the average chinese customer. but bmw is more desirable to the average earthling customer." then that would be the correct answer and you will no longer be a dim wit.

— validus00 (View Profile)

Posted on 10/2/2009 10:11:49 AM | reply to this comment | Votes: 1   

Let's look at both BMW and Audi on a global basis for 2009:

BMW's sales lead of 200,000 cars over Audi in 2008 has shrunk rapidly.

BMW's 2009 global sales YTD (through August, since Sept. global sales will not be released until October 6, 2009 at the earliest): 679,873

Audi's 2009 global sales YTD (again, through August): 616,860

That is a difference of 63,013 units between BMW and Audi.

Yes, although 2009 is not over yet, it is more than 75% over. We will see yet again that BMW fails to post a global increase for September.

We only have 3 months remaining and BMW will not grow its sales lead over Audi to 100,000 units.

Audi didn't need to badge the R8 V10 an 'RS' model because the Audi R8 has enough history on its own for people to remember. Furthermore, when the regular R8 V8 was so successful and praised universally, why would Audi slap on an RS badge for no reason.

On a macroeconomic level, It is clear that Audi DOES NOT suffer from a 20% less demand for equivalent substitute good (if compared to what BMW offers). Audi suffers from less than 10% less demand when compared to what BMW offers if you look at 2009 sales data, instead of old 2008 data.

on the microeconomic level, the average buyer may not know how much Audi is profiting per car compared to BMW nor may they care. We all know that without profit, BMW will not be able to sustain its level of innovation and alternative-fuel model flurry.

Yes, BMW is more desireable to the average customer when compared to Audi. At the same time, you must not turn your back on the facts that clearly show Audi is gaining HUGE momentum. That 20% less demand you spoke of has been cut more than half for 2009. Furthermore, Audi is making more money so they will be better-positioned than BMW to invest a greater amount of money in Research & Development to stay on the leading edge of design, performance, fuel-efficiency, etc. whereas BMW may start to lag behind and its sales consequently stagnate while Audi's continue to increase.

This means that now the difference between the two brands is less than 10% globally.

— GermanNut (View Profile)

Posted on 10/2/2009 12:43:06 PM | reply to this comment | Votes: 1