Tags: Audi | BMW | overseas | Expansion

Audi Chases BMW With Overseas Expansion Drive

Monday, 16 Jul 2012 08:22 AM

 

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Audi plant manager Peter Koessler beams with pride as he points to a line of cranes towering above the carmaker's flagship site in Germany, where it is investing hundreds of millions of euros in a bid to take on rivals like BMW and Mercedes-Benz.

But the Ingolstadt plant, which made almost half of the 1.3 million Audis sold last year, is not only being charged with building cars. It is also becoming the training ground for a much more ambitious expansion plan as Audi ramps up production in lower-cost, faster-growing countries like China and Mexico.

"Customers will get the quality they've been used to," Koessler told Reuters during a two-hour tour of the plant that took in a new 300-million-euro ($368 million) body shop.

"That's not a question of factory location," he said, adding engineers would be dispatched to the new foreign plants, while local workers would receive training in Germany to ensure the cars they build match the standards of Audis made at home.

While many mass-market carmakers like France's PSA Peugoet Citroen are being squeezed by a faltering European market, premium brands like Volkswagen-owned Audi are faring better as their wealthier customers are less affected by government austerity measures. They are also benefiting from robust demand in emerging markets. Audi on Monday reported a 13.1 percent rise in June sales.

Expansion abroad is a change from the past two decades or so when Audi focused manufacturing mainly at its domestic facilities, even as rivals BMW and Daimler's Mercedes-Benz pushed overseas.

Five years ago, Audi still made 82 percent of its vehicles in the German cities of Ingolstadt and Neckarsulm.

"We need extra capacity to support our (global) growth strategy," said Koessler, citing Audi's goal to boost sales by about half to 2 million vehicles by 2020.

The share of the German plants may drop below 50 percent by 2017 as global production swells to 1.87 million vehicles, a big chunk of it at new factories in Mexico and China as well as expanded facilities in Hungary and China, according to research firm IHS Automotive.

VW's joint venture with China's FAW Group will spend about 3 billion euros through 2016 to fund Audi's expansion in China, which surpassed Germany as the brand's biggest market in 2011.

Annual capacity will more than double to 700,000 autos by 2015 there as a new plant in Foshan and an extended site in Changchun service demand for models like the A4 and A6 sedans.

In Europe, production at Gyor, Hungary, will more than triple to 125,000 vehicles from 2013, benefiting from more than 900 million euros of spending on body and paint shops and a stamping plant.

HEADING TO MEXICO

Audi's latest project is a new factory in Mexico, the brand's first-ever in the Americas, designed to assemble at least 150,000 Q5 SUVs by pulling production from Ingolstadt starting in 2016. The exact location for the plant could be announced as early as this month.

The move highlights Audi's goal to catch up with BMW and Mercedes in the United States where it aims to boost sales by 71 percent to 200,000 by 2018. BMW and Mercedes have had production footprints in the world's No.2 auto market since the 1990s and each one sells about twice as many cars as Audi there.

"Audi is stepping up its quest for the luxury-car crown, they're tapping growth markets more effectively by moving more and more production there," said Arndt Ellinghorst, analyst at Credit Suisse in London.

Building cars inside the dollar zone will protect Audi against the costly effects of exchange rate moves, and help it to widen its model lineup in the United States, said Henner Lehne, a Frankfurt-based analyst with IHS.

Distributing vehicles from central America to the United States and Europe will also allow Audi to avoid painful trade tariffs due to Mexico's free-trade agreements, said Joerg Bode, a member of VW's supervisory board which ratified the go-ahead for the new plant at a meeting on April 18.

Audi will benefit from a huge supplier network in Mexico developed by parent VW which makes the Jetta compact, its best-selling U.S. model, and the Beetle at a factory in Puebla, added Bode, economy minister of Lower Saxony, VW's second-biggest shareholder.

MORE ROOM IN INGOLSTADT

Expansion abroad does not pose a risk to Audi's German operations, the company said.

The loss of Q5 production, for example, will create valuable space in Ingolstadt for the sprawling A3 and A4 models and potentially a new product, said Koessler.

The 63-year-old plant is wrestling with growing production complexities as model lines have doubled to four over the past decade to include the Q5 and a new A5 coupe while the number of derivatives such as hybrids, high-performance cars and station wagons has almost tripled to eleven.

IHS's Lehne said it was also important for Audi to retain assembly of flagship models like the 69,600-euro A8 high-end sedan and the 111,100-euro R8 sports car in Germany to preserve the brand's core image and dispel possible concerns on quality.

"Growing internationalization is a timely strategy for Audi," Bode told Reuters.

"It may even yield jobs in Germany."


© 2014 Thomson/Reuters. All rights reserved.

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