The famous four rings of Audi have so much meaning to so many people, and the three words Vorsprung durch Technik are easily associated with the German automaker by almost everyone, even if you're not an Audi driver. In the past 20 years, Audi has expanded in South Africa, and transformed itself to the world's second biggest premium car maker, a title once held by BMW before itself displaced Mercedes-Benz for the number one position. Audi, however, remains the sportiest, and most fun of the three German manufacturers, and this is why.
High Performance Cars
Quattro, the famous four-wheel drive system that Audi introduced in 1985 is one of two performance monikers by the German auto maker. In recent years, it has come to define and be the industry standard on how to morph a name usually reserved for powerful race cars into the mainstream car for everyone. Audi's racing experience was not something new when they débuted their sports coupé with Quattro at the 1985 Geneva Motor Show. It was a success from the get go – taking all the elements from Audi's history as Mercedes-Benz's partner in rally championships against the likes of heavyweights Porsche, and the Italian, Ferrari. Of course, by the time Quattro took traction, Audi was part of Volkwagen, and a bitter rival to Mercedes-Benz owner, Daimler.Like many of the major players in the industry, many world firsts come in the premium end of the vehicles produced, and Audi is no different. Four-wheel drive was something uncommon in many mass produced cars, but Audi changed all that with Quattro. The electric differential lock is another innovation by Audi brought to us the Quattro division of the company. This system (EDL), first launched in 1994 “enables the selective braking of individual spinning wheels. In conjunction with variable torque distribution to the front and rear axles, EDL delivers remarkable traction.”
The mid-90s up till the mid 2000s where arguably the Golden Years of diesel engines, and Audi was not left out of the trend. However, instead of just throwing a diesel engine at us, Audi brought it with Quattro, first in the A6 and in their other models.
Although Quattro was readily available, it was still associated with the sporty and pricey side of Audi. That would be understandable given its racing history. Thus, in that year (1996), Team Audi won South Africa's most prestigious rally racing championship. This was of course, just one of seven other title wins during the year. Quattro had established Audi as the foremost rival against BMW's M Sport.
By the turn of the century, 1 million Audis with the Quattro name had been sold! The popularity of Audi in South Africa can be attested to the fact that the Audi TT Coupé, whose first generation came in 1999, had the first electro-hydraulic multi-plate clutch configuration of cars sold. And the fact that by making Quattro's all-wheel drive available on the A3 as well, the vehicle maker's high performance architecture could be extended even to its affordable entry level cars. And with the one million mark set, Audi again proved to its bigger rivals that it was no longer just another contender aiming for glory.
In 2001, the Audi A8L was the most powerful saloon in its segment. By comparison, the A8L Quattro had a 6 litre, V8 engine with 309 kW of power. The closest to the A8L was the Mercedes-Benz SL 500 sedan with also a V8, 5.4 litre engine. You can expect the Merc to produce 306 kW of power and 460 Nm of torque. While a 2001 BMW 740Li contains the smallest and least powerful engine at 4.4 litres and 282 horsepower respectively. You might be thinking why was BMW such an outlier here, and the simple answer is that Mercedes-Benz was bigger and better at making cars back then.
Quattro might be the standard that Audi used to prove its metal against would be rivals and actual rivals, but the S and RS range of high performance cars prove even better. It's a silent rule, really: each production model is tested out with the public, and when sales gain enough traction, S and RS badges are placed on subsequent derivatives. But to just add a badge on an automobile, without tweaking to the suitable standards, would be uncool. After all, Audi AG is not just an Eastern European brand, most of which are know for such trickery. Both S and RS are assembled by Audi's Quattro division, which is the one that makes performance cars.
Currently, there are six models adorning the RS badge, (1) RS4, (2) RS5, (3) RS7, (4) RS Q3, which is an SUV, (5) the Audi TT RS Coupe, and (9) the powerful R8. The RS4, which is every inch a sporty character with no compromises, is the current entry level offering. But unlike its lesser sibling, the normal A4, for example has a 4.2 litre V8 FSI engine able to power 331 kW, and a 7 speed S Tronic dual-clutch gearbox. That's not child's play, and if this is what an entry level model has to offer, there's no doubt a top of the range R8 is a beast in comparison. You can still get by in a standard A4, which is also impressive with its 3 litre V6 engine.
As mentioned before, there are a lot of ranges offering buyers RS engineering, but the pinnacle of Audi's engineering, the famous Vorsprung durch Technik lies in the R8. With no more than 50 000 units sold in the past seven years since it first went into production, the R8 is the most powerful of Audi's road cars. To get some perspective, consider that the R8 Spyder for example is based on the Lamborghini Gallardo platform, and well, there's no arguing Lamborghini’s record as a sports car maker the likes of Ferrari and Porsche. The relationship with Lambo, which is possible because both Audi and Lamborghini's parent is Volkswagen, puts Audi in a unique position to archrivals BMW and Mercedes. Lambo's expertise, in fact the whole shared expertise possible among Volkswagen's sports car divisions offer Audi better positioning than BMW and Mercedes-Benz.
Audi in South Africa
Recently, there have been talks that the RS6 would make its way to South Africa in 2015. That would complete the RS range available in native Germany. But what's more interesting is whether or not the Audi A1 will get its RS version, after all, there's already an S1 due for shipping to South Africa sometime in 2014, so why not take it a step further if the demand for the cars is there.During Audi's golden years, it was led by Johann de Nysschen. The Pietermaritzburg native came in at Audi from BMW as a General Manager. This saw the expansion of Quattro, and introduction of Audi's S sports performance cars. Being equipped with outstanding success and expertise from running Audi South Africa, Volkswagen of Germany, decided to place de Nysschen at the helm of Audi's Japanese operations, before finally landing the top job as Audi of America CEO. The years from 1993 to 2001 in the South African subsidiary helped towards Audi's strategy in the USA. And although he abruptly left in 2012, de Nysschen's legacy in the USA is that Audi US is now the single biggest market for these cars. Unfortunately, the success at Audi has been equally met with poor results by VW branded cars like the Golf, which for some time in the USA was known as the Rabbit, figures why they don't really sell there.
How Audi Makes Money
De Nysschen understood the business of luxury, and made Audi part of the 13%. This 13% figure is the percentage of vehicles sold in South Africa that are classified as premium cars. The popular brands obviously being German, Italian, British. The global average of luxury cars as a percentage of all vehicles sold is 11%, so there's clearly a huge above-average market in South Africa, in which Audi, with the roll-out of its latest models and competing on technology with its rivals, is well-positioned to supply. If this can be repeated in other markets, and using de Nysschen's work as a template to build on, Audi AG can move towards its goal to replacing BMW as the world's number premium car seller.
What does it mean to be the number one premium car maker? Looking at Audi's financials alongside its parent VW, and its two main rivals, Merc and BMW, best answers that question. Audi delivered 1.39 million units, while the Volkswagen namesake delivered 4.7 million units. To put this into more perspective, Audi sold less than a third of passenger cars with a VW badge, while still making almost twice the operating income at R75 billion and R42 billion receptively (in today's Euro/Rand exchange). This makes the Audi brand the single biggest contributor to the Volkswagen Group's annual income. What's also unique about Audi in comparison to other VW brands, is that it's a source of volumes and a money-making juggernaut. Volumes matter because a company gets economies of scale, and bragging rights which are an easy way to accumulate brand equity. Income matters because simply, the purpose of any car maker is to make money. These two factors, which make Audi so precious to Volkwagen might be why Porsche (VW's second best money spinner) has opened itself up to more mainstream models like very commercially successful Panamera and Cayenne, trying to replicate Audi's successful transition from a solely premium sports car maker.
In its most recent statement, BMW said, “The BMW brand retained pole position in the premium segment in 2013, with worldwide sales volume up by 7.5% to 1,655,138 units.” For Audi, this signals one thing, it will have to grow faster than BMW's 7.5% average if it is to finalize its ambitions to takeover BMW's lead by 2020. The statement goes on to further say of BMW's SUVs, the X1, X3, and X5 strengthening their positions, something that Audi, equipped with the Q3, Q5, and Q7, will pay very close attention to. And the 250 000 plus difference between the two rivals translates to another important number. At revenues of over R750 billion in 2014, on average each Audi sold costs around R600 000 each, while R1.14 trillion (yes, that's 12 zeros), BMWs cost on average R750 000. Clearly, Audi lags behind BMW if luxury cars where based only on how much they cost.
Overall, the situation between the Big 3 luxury car makers is as follows: by revenue, BMW is number 1, followed by Mercedes-Benz at R960 billion rands, then Audi. By operating profits, BMW is again the clear leader, followed by Audi; while Benz comes in third at just R60 billion. However, a more interesting result, is that Audi is the clear leader in making money because 10% every cars they sell contributes to its profit, while BMW holds the 2nd spot at a close 9.4%, and finally Mercedes-Benz at a far 6.2%. These figures are known as net margins and are important to estimate profitability.
The Audi Brand
While the accountants focus on the financials, the marketers focus on the brand value of Audi and its rivals. Here is another way we can see how Audi stacks up against its competitors. Every year, the research company, Interbrand, complies a list of the world's biggest brands. Of the 14 automotive names that appear on 2013's list, Audi comes in at number 8. According to Interbrand, the four rings of the Audi badge are worth about R77 billion. That's a massive amount, but it still pales in comparison to Mercedes-Benz's (number 2 at R319 billion), and BMW (number 3 at R318 billion). Audi clearly has a long to go before it catches up to its premium car rivals.
This was said of the Ingolstadt-based car maker, “Sporty, progressive, sophisticated—the Audi brand fuses advanced technology and design innovation with the aim of bonding with customers.” This pretty much summarises what Audi and Vorsprung durch Technik are. Over the years, Audi has been met by many challenges and overcame them. The maker of Quattro has certainly overachieved in South Africa, and its future looks bright. However, it seems that Audi's sole ambition is to become number one in the luxury auto business. In the process they risk losing their cult following, and the ingenuity that has made Audi leap from one technological advancement to another.
Author: Pierre Theron