Audi’s profit margin suffers from attempts to catch up to BMW

Article by Andrew Christian, on May 8, 2015

Audi’s profit margin has been adversely affected by its efforts to catch up to rival BMW. Audi’s operating margin fell to 9.7% from 10.1% a year ago, reaffirming its target range of 8 to 10%, despite having higher underlying earnings from sales of its luxury saloons and SUVs.

Last Monday, Audi said that its operating profit for the first quarter increased by 8.2% to 1.42 billion euros (1 billion pounds), driven by the mounting demand for the A6 saloon and Q3 sport-utility vehicle.

However, Audi’s margins are being squeezed because of expenses related to improving the models, developing technologies, and expanding in foreign markets amid the fierce competition among premium automakers and the sluggish demand in emerging markets. In a statement, finance chief Axel Strotbek said that even with the persistent high investment, the company continues to pursue its “ambitious profitability targets."

The automaker is also planning to expand its lineup to 60 models by the year 2020, from its current 52 models. To accomplish this, it will invest over 1 billion euros ($1.11 billion) in new plants in Mexico and Brazil.

Last week, Daimler said that the quarterly return on sales from ongoing business at Mercedes Benz Cars increased to 9.2% from 7% the previous year. The boost came as the result of strong demand for an assortment of new models, one of which is the revamped C-Class saloon.

Audi said that even with the challenges it faces in global economies and the foreign currency exchange markets, it isn’t changing its guidance for higher revenue and a "significant" sales gain for 2015.

Volkswagen, the parent of Audi, announced higher-than-expected earnings due to cost reductions and the strengthening auto recovery in Europe.

Topics: audi, bmw, profit

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