Exclusive Interview: Peter Schwarzenbauer, Member of the Board of Management of AUDI AG Marketing and Sales

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November 5, 2008

By: Jason Teller

During this year’s Paris Motor Show we got an opportunity to sit down with new Audi AG Marketing and Sales Board Member Peter Schwarzenbauer. On the job at Audi less than six months, Schwarzenbauer nevertheless brings with him more than two decades of industry experience. While his predecessor Ralph Weyler could appear arrogant at times, Schwarzenbauer’s overall demeanor was thoughtful, engaging and included just the right touch of humor.

This good-natured side showed up when, following our initial introductions, Mr. Schwarzenbauer flatly stated that we were so “in tune” with the Audi enthusiast crowd that maybe he should be interviewing us instead! Suffice it to say, the 45-minutes we spent together was informative and revealing. We hope you enjoy the two page interview below.

AW: Talk to us about your background and the path that led you to your current position at Audi today.

PS: I started in the automotive world 24 years ago with a brand that is a little bit south of Ingolstadt…called BMW. I worked nine years for BMW – seven of them in headquarters – and two more years in the US. That was the beginning of the ’90s, 1989 to 1992 roughly. It was probably, at least historically up to now, the biggest automotive crisis in the last 100 years. The beginning of the ’90s was just brutal. So I think I learned a lot in those years, probably more than all my time in University. This was a very rough environment. After BMW I got a call from Porche and then worked 14 years for Porsche…first three years in HQ in Stutgart responsible for sales and marketing in the German market and afterwards I was running the Porsche subsidary in Spain (responsible for Spain and Portugal)…and the last five years I was running Porsche Cars North America which is in Atlanta with responsibility for US and Canada. Now since April I am here at Audi.

AW: So now you’re back home in Germany?

PS: Actually overall I was living abroad for 20 years and everybody is saying it is like a homecoming. It is a little bit of a homecoming, but also I have to get readjusted to the German way of life.

AW: All those years abroad what interests have you picked up?

PS: I am definitely interested in sports. I like to do sports and also interested in watching them. You have to separate the two. I actively play soccer, tennis, ski and a little bit of golf. Well I wouldn’t call myself a golf player because I only play three times a year. As you know you can’t play golf if you only go out three times a year. That’s what I’m active with, but I watch sports when I can.

AW: What are you driving – what’s in your garage today?

PS: Right now I am driving an S5 and my wife is in a Q7.

Scott Keogh, Chief Marketing Officer, Audi of America: You want to tell him about the tractor, or no?

PS: That depends on how AudiWorld uses this piece [laughing]. No, it’s true I have an old tractor. It’s a Porsche tractor.

AW: I didn’t know there was such a thing.

PS: Well nobody knows. Porsche produced tractors in the early ’50s. I think about 40,000 tractors. They are all red…very old.

AW: OK but you’re not plowing dirt with this thing??? You must keep it in the garage?

PS: No, I still have it in Spain in the garage. In Spain I was driving around this little town going to buy newspapers and bread on the weekend – driving around with my son and his friends. It was a big attraction.

AW: Well you’ve given us something new to look up.

PS: Yes. One cylinder, 27 horsepower.

AW: So your time in the US makes you uniquely positioned to understand the North American market. Where is Audi today in the US relative to the other luxury brands?

PS: Well if you measure purely on volume we are obviously quite behind. If you measure it on qualitative growth I think we are on excellent track. Watch what Audi is doing the last seven years and you can get a feel. Maybe I should be asking you? But I think you can feel how our brand is growing in the US. More and more people…it started as maybe a not so well known premium brand and people are becoming more and more aware that there is another German premium brand in the market and we feel we are gaining strength. A lot research shows this. We are right at a major breakthrough in the next several years in the US. I think we have proven that we can do it. If you look at where the brand stands in Europe and who we are – we are #1 in many countries. So why wouldn’t it be possible in the US?

AW: Following that train of thought, what is your approach to marketing Audi in the US? Should it be aggressive and address the competition or should it be based on the product speaking for itself?

PS: Well it’s always several different issues that you have to address. On the one hand I think we have to be careful not to chase too much volume because this leads you very often to wrong decisions. If you measure success only on volume you start to put money in the wrong places. I think you can see some good examples right now in the American market. People thought they can buy the market – you can do this short term sometimes, but long term there is no chance you can “fool” the market. This is true of the financial area which we can see right now. The same is true for the car industry. All the companies have probably been living too long on a path of “put money, buy volume, grow” over and over. This is so unhealthy. There must be a correction in the market and this is what is happening. This is where we have to concentrate. Of course we have to and we want to grow because we think there is a natural potential for Audi in the US market, but we have to do it with small steps and a qualitative approach. We want people to come to us and think “the Audi brand is so interesting that I want to look into it”. We don’t want to just push the best monthly payment.

AW: Right. OK last night [at VW Group’s private media event] Dr. Winterkorn addressed the financial crisis. He addressed it and really talked about VW Group being a very green company. Is that the way to differentiate yourself given the current economic challenges?

PS: I think for the Audi brand now – because the entire Group is a different story because the breadth of what it does is so huge – but for the Audi brand I think we have to go into both directions. Our customer base is still expecting a highly emotional, sporty vehicle. If we were to come out tomorrow with something that is very boring, but extremely good in fuel efficiency [Schwarzenbauer really exagerates this] I don’t think it would be a long term success. This brand lives and breathes for sportiness and stylish cars. That doesn’t mean that we can ignore that there is more demand and people are more cautious now with their decision when it comes to fuel consumption. These are the things we have to address at the same time. Technically it is a huge challenge, you know because we have to keep this core essence of our brand but at the same time address concerns which the majority of consumers today share.

AW: You have examples of this here in Paris…

PS: Yes, you saw yesterday the A1 which is a highly emotional and I think very attractive. It will drive like and Audi customer will expect. But still we have the possibility of a partly hybrid concept to drive fully electrically in the city which is where most people are going to use it. And if you go outside the city you still have a combustion engine. So that is the direction where we have to go.

AW: I guess the S4 powerplant is another good example? The US enthusiasts have commented – not always positively – about the horsepower of this new S4. They want the sportiness and performance you talked about and it seemed like this V6 was a step backwards. I think you have to put it into context though.

PS: People just look at the number, but our job is to get across to the consumer and get people in touch with the car so they can feel it. You are absolutely right – on paper it seems like downsizing. People have to subjectively feel that the new S4 is better than the previous one even if the displacement may be smaller.

AW: Switching gears a little bit, we know Porsche enthusiasts back home who are also friends of the Audi brand. They say that Audi could benefit from a grassroots push, you know from neighbors and friends and family talking about their cars. I think Porsche is a little bit different because it kind of speaks for itself. From your perspective can you talk about your time with Porsche in the US and what you saw from the ownership group and the people who love the brand versus what you are seeing now from Audi owners?

PS: I don’t think that the difference is really big. Porsche is very dependent on this mouth to mouth advertising and talking about the brand. You can see the Porsche club in the US is the biggest club in the world. I think on the other side we could activate this base maybe more that we have done in the past. At the end of the day there are so many different product offers in the market, so if you are buying a new car you are going to talk to your friends and see what they are saying and what they think. Everybody has somebody in their neighborhood or friends or family who is a [sarcasm] “car expert”.

[Everybody in the room chuckles]

PS: But we do need ambassadors for our brand. We can’t just do it by paying a lot for communication. It has to be both…we have to put some enthusiast energy behind our brand.

AW: A follow up question – you’ve got your R8, TT, Q7 and A7 if and when we see it. Is there room for Porsche and Audi to co-exist in this market with product offerings that are starting to blur the lines or do they eat up each other’s market share possibilities?

PS: Definitely there is room. A lot of cross-shopping research shows they are a very different customer base. People look at the R8 and think that it would take market share from 911, but in reality it is less than 10% where we have cross shopping going on between the two brands. It is just normal competition and I don’t see any problems. On the contrary I would say that the more competition you have the more attraction you get to certain segments. Think back 10-15 years and tell me who spoke about sportscars? Nobody…but now that you have so many manufacturers offering sportscars it is a very attractive segment. I think we all win.

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