Interview: 2007 Outlook with Audi of America Executive VP Johan de Nysschen

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March 1, 2007

By: Jason Teller

In January we sat down with Audi of America head Johan de Nysschen to talk a little about 2006 success, but more about a number of interesting items for the auto maker in 2007. Everything from the ultra-hot Audi R8 to Audi’s Certified Pre-Owned Program to the Audi Q7 SUV was on the agenda. As usual de Nysschen spoke passionately, yet always with a sense of quiet confidence. Here’s the transcript of that interview in its entirety.

AW: Congrats on the great year in 2006. One of the hottest things on people’s minds in 2007 is the new R8. Everybody is fascinated by the car and has questions about how it will roll out in the US. Can you talk to us about it?

JdN: The R8 by definition is a low volume model for Audi. We have the requirement for a fairly advanced level of technical know-how, but also the way that we would like to market this car is really aimed at a very, very discerning individual who in many respects is probably a newcomer to the Audi brand. Clearly there are a lot of people who are already familiar with Audi and who drive our high end cars who will also be R8 customers, but the majority of R8 customers will be new to the brand.

The R8 therefore has to perform a role of being a halo car for the brand. In this regard we consider it very important that the whole experience of the customer and arena in which he or she engages the brand should be carefully crafted. This then brings the need to have pretty exacting demands of the dealers when it comes to the selling, distribution and servicing of these cars.

We have told dealers: these are the standards that you must meet. And these standards obviously come with a price tag attached, and it is up to each and every dealer to assess the potential of a car of this caliber in their area of responsibility. They must weigh out the profit opportunity versus the investment and make a business decision.

AW: Not many people will be able to own this car from either a price point or an availability perspective. That said, those potential repeat Audi buyers have their favorite dealer and they are hoping to buy from that dealer. Enthusiasts also have their favorite dealers and are hoping and wishing for an R8 to come through. Can you talk about the investment costs to be an R8 dealer?

JdN: The areas that we are focusing on are the need for the dealers to have showroom modules to display the car properly which includes a specific display unit, interactive video materials, and a car configurator. With these cars being such low volume it is very possible that a dealer may not always have one in inventory for potential buyers to see. We are looking for a showroom of a certain caliber and size to accommodate the car. There is an investment required in training – both in the sales and after sales or technical arena. There is an investment required for marketing for the car. We also want to ensure that we can offer, as part of the ownership experience, the ability for R8 owners to take advantage of the European Delivery program. That has a high degree of value to it. And then let’s not forget the technical tools and equipment. When you add all these things up it does come to a fairly substantial sum.

AW: So this is a package / program for a dealer to opt-in to, right?

JdN: Correct.

AW: How many dealers do you think will participate (out of the roughly 270 US dealers)?

JdN: The supply of the car is going to be carefully managed since it is a hand built, low volume car. The US will receive only 200 units in the first year. So in the beginning we see a very small number of dealers, and that will grow as the availability of the car increases. Ultimately I think we’ll start with no more than 20 dealers.

AW: That small, really?

JdN: Yes, and that will grow over time to perhaps between 80-100 dealers.

AW: OK, well while we are on the topic of dealers can we discuss the CPO (Certified Pre-Owned) program? You sold more new cars than ever before in 2006, but did not disclose figures around CPO.

JdN: We’ve had good growth on the CPO business compared to 2005. What is really important is that the transactions prices themselves have been increasing more rapidly than the volume. That means there is a better quality of car going through the CPO program. However, that being said, if we want to continue our business performance on the new car side we are going to have to see an even greater acceleration on the CPO side. For this reason we have set ourselves a 2007 target of 10% higher than 2006.

AW: What was the 2005 to 2006 year-over-year growth in CPO?

JdN: We sold about 25,500 CPO cars in 2006. The CPO’s went up by about 5% this past year and we now have a 10% target for next year.

AW: So it does go hand-in-hand – sell more CPO vehicles to help sell more new vehiclesÂ… I’d like to change gears now and talk about the Audi Collection. Our readers are passionate about all the Audi goodies available in Europe. How are you going to deal with that in the US market – is there enough of a demand here and how will you fill it?

JdN: It has been a struggle for us. There is indeed a sizeable core of Audi enthusiasts who wish to buy these articles whether for their cars or other lifestyle accessories. When we have discussed with our dealers how they could actively merchandise these items many have pushed back. They believe that if they stock all these things in their showrooms that every customer who buys a car will also say “I want to go and pick something for free”. We think the solution is to make these things available on the internet where we can offer better access and this is something we are definitely working on now.

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