Audi Gears Up for Next Phase in U.S. Market Push

Audi Group of America Inc. is ready to move on up.

This year will mark a big push by the importer into the upper reaches of the U.S. luxury market, as the top-end A8 model picks up momentum and the new A6 and A7 roll out in what Audi is billing as Phase Two of its brand development in North America.

The U.S. arm, meanwhile, is reconsidering its initial decision not to sell the upcoming Q3 model, Audi’s smallest cross/utility vehicle to date, after watching segment sales balloon 22.3% in 2010.

Also with better prospects to join the U.S. lineup is the A1 small car that launched in Europe late last year, though Audi of America President Johan de Nysschen says that will have to wait for the next-generation model to arrive.

And more diesel engines are on the way, officials say.

The moves are part of Audi’s drive to continue momentum from 2010, when it sold a record 1,092,400 vehicles worldwide and all-time high 101,629 in the U.S.

Longer-term, the brand has a goal of doubling U.S. sales to 200,000 units in 2018 and selling more than 1.5 million vehicles worldwide on its way to becoming the top luxury brand. This year, Audi is targeting global sales at 1.2 million units and expects double-digit volume growth in the U.S.

Already, Audi is drawing more affluent American buyers with the introduction of the A8 late last year, de Nysschen says. But additional movement in that direction is expected, as Audi America aims to shift a bigger portion of its sales to higher-priced vehicles.

A6, introduced in Detroit, one of three key new models in Audi’s drive up-market.

Currently, about 13% of the brand’s U.S. sales are in the upper end of the luxury market, and Audi wants to double that stake within the next few years.

“The arrival of the A8, A7 and A6 give us very powerful tools to attack the high segments,” Audi’s U.S. chief says in an interview. “So that demographic will definitely shift. We’ll get the captains of industry into our brand now. And that obviously has good implications for the product line in the future.”

De Nysschen says the new A8, which went on sale in November, hasn’t fully launched in the U.S., yet demand already is outpacing supply. Audi expects to deliver better than 5,000 of the top-of-the-line sedans this year, and most are spoken for well before they cross the Atlantic.

“Our forward sales are accounting for 90% of the vehicles in the pipeline, which means the buyer who wants to buy one on impulse right now probably won’t find one,” he tells Ward’s. “Usually it is considered a benchmark if you can get your forward sales at 20%-30%. To have it at 90% is unheard of.”

Audi has committed to increasing the A8’s U.S. allocation by “a couple-hundred” units, and de Nysschen continues to push for more. But the car remains hot in most markets, particularly China, where a leading 12,000 long-wheelbase models will be sold this year.

“Fortunately for us, this is happening around the world,” Peter Schwarzenbauer, Audi’s global sales chief, says of worldwide demand for the new A8.

The A6, which bowed this week at the North American International Auto Show, will arrive in the fourth quarter and the 5-door A7 is expected to reach the U.S. by summer.

With the flood of product at the top end, Audi says there’s still some work ahead to bring customer satisfaction with its cars and dealers up to snuff.

Audi placed a below-industry average 12th in the latest J.D. Power & Associates’ Initial Quality Satisfaction ranking, and its showroom experience was rated below average in four categories covered by Power’s Sales Satisfaction Index.

But de Nysschen says the importer is in the process of rolling out a new dealer initiative aimed at buffing up the sales process that will be detailed next month at the National Automobile Dealers Assn. convention in San Francisco.

“The focus now is on to the (up-market) shift, and very much hand in hand with that is the overall showroom experience,” he says. “(That) is going to be a very prominent focus for us going forward.”

The Q3 is back in play for the U.S., but executives decline to say when a decision will be made on the vehicle. Q5 sales rose 70.5% last year, and de Nysschen says Audi America could move 50% more Q7 CUVs if it had the product to sell.

“I think we have to notice what’s happening around us,” de Nysschen says. “We will seriously take a look (at importing the Q3).”

Schwarzenbauer expects the Q3 to follow in the tracks of the highly successful Q5.

“I don’t remember in my 25 years in the auto industry, one model that was successful in every country,” he tells Ward’s. “But the Q5 was a huge hit around the world. We think the Q3 could write a similar success story.”

Schwarzenbauer says the CUV segment “has more potential in the future,” suggesting additional models could be in the pipeline.

He expects big things from the small A1, as well, which is slated to retail 120,000 units in 2011, its first full year on the market. Europe and a handful of South American countries account for most of the planned volume. Capacity could be increased further if demand exceeds expectations, Schwarzenbauer says.

With a growing number of entries in the small-car market, de Nysschen says Audi may have decided to sell the A1 in the U.S. if the call were being made today. But because the car wasn’t designed with America in mind, that will have to wait until the next go-around.

“We expect (that market) will gain some traction over the next seven years that we have before we could introduce a successor model,” he says. “And most likely, the successor model will come to the U.S.”

Audi’s U.S. diesel push will include greater supply of Q7 and A3 diesels and TDI options for the A8 and new A6 beginning in 2012.

“Diesel is taking off,” Schwarzenbauer says, noting penetration totals 43% of U.S. Q7 sales and more than half of the A3s delivered are equipped with diesels. “We increased capacity and in the next months to come we will have more supply into the U.S.”

Audi’s up-market play won’t include a model beyond the A8 any time soon.

The A8 “is a car that could reach $200,000 if you want it to,” de Nysschen says. “That’s probably high enough for the foreseeable future. (And) we have to work a little bit within the constellation of the (Volkswagen Group) and all the other brands.”

That said, de Nysschen says he doesn’t plan to try to roadblock a potential return of the VW Phaeton luxury sedan to the U.S., but he also signals Audi won’t give market ground without a fight.

“If our colleagues from Volkswagen introduce the Phaeton and they beat us at our own game, shame on us,” he says.

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