Audi hopes that high sales of its volume brands in China will compensate for the decreasing demand for large luxury cars in the country. Audi officials say that because of the slowdown of Chinese economy, its two local plants have had lower capacity utilization. It also had to increase incentive spending for its older models and has shifted away from its more profitable upper segment models like the A6 Long.
Volkswagen’s luxury unit thinks that it is in a good position to have a bigger share of the overall market as it shifts into growing smaller segments. However, there’s still the risk that the sales decline and the recent discounting trend will make premium brands rely more than ever on volume growth to achieve more profits.
At the recently held Consumer Electronics Show Asia in Shanghai, Audi executives agreed with BMW’s comments about the down trend in China. It used to be that the Chinese market gave high contribution gains but this stage is now over. Audi sales chief Luca de Meo said that the car market in China is now “more normal.”
It used to be that each car sold there provided exceptionally high profits and output significantly fell behind demand. It was difficult to produce a sufficient number of models and avoid congestion at the plants and its suppliers. It was easy to sell cars in China, even those that would soon be replaced. Audi officials mentioned “lifecycle management,” which involves adding discounts or free content as the product gets older.
Dietmar Voggenreiter, who has overseen Audi’s China operations since 2007, said that the “turning point” was when huge discounts were given for the Mercedes-Benz S class in early 2012. Since 2007, sales of Audi units have grown sixfold to nearly 580,000 cars in 2014, ensuring its status as the best-selling premium brand in China, outpacing BMW and Mercedes-Benz.
Audi also considers China as its biggest single market, more than double the size of Germany, its second biggest. Contributing mainly to this sales growth is a massive government stimulus presented in 2009 to boost domestic spending, sustain employment and make up for the steep decline in exports from the worldwide financial crisis.
The expansion of Audi has slowed every month of this year from 15% recorded in January to only two-tenths of 1% in April. The automaker predicts that volumes will exceed 600,000 in 2015, which may translate to a growth rate of as low as 3.6%.
Audi asked not to give details, explaining that its main goal is to continue to increase its share of China’s market, which accounted for one-third of the 1.68 million premium cars sold in 2014.