Perspective: Audi AG Press Conference 2005

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February 23, 2006

By: Jason Teller

“2005 was a very good year for Audi”.

With those words Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Audi AG, kicked off the 2005 Audi Annual Press Conference. He did not exaggerate; in 2005 Audi posted record figures for vehicle sales, production, revenue and profit. Its 829,000 vehicles sold in 2005 were more than ever before and a year-over-year increase of 6.4%. All time best revenue of EUR 26.6 billion generated profit before tax of EUR 1.3 billion, also best to date.

A closer look at segmented sales performance shows a company which has come to have far less dependence on its own domestic (German) sales as it continues to diversify into foreign markets. In 1995 – basically the turning point in modern Audi’s remarkable 10 year string of annual growth – domestic sales represented nearly half of its worldwide sales. By 2005 that figure had shrunk to less than 30%, while combined sales in the critical US and Asian export markets grew from 13% to over 22% over the same ten year period.

Looking specifically at the US, Audi’s largest export market in 2005 at 83,000 units (6.6% annual growth), Winterkorn revealed that Audi of America would reach its breakeven point in 2006. The new Audi Q7 SUV, slated to reach dealers in the US midyear, is regarded as a significant catalyst toward achieving that goal. Audi also plans to aggressively market its profile as a premium manufacturer via further investment in its dealer network with 25 major cities highly targeted.

Turning to Asia, Winterkorn lauded Audi’s efforts in China saying that “Audi is the undisputed number one among companies offering premium cars”. Audi’s go-to-market strategy was solidified in September 2005 when it changed the sales structure there and assumed full responsibility for vehicle sales. Since then all locally built and imported vehicles are sold via an exclusive network of around 120 Audi dealers. This positions Audi for continued growth in China and further extension of its dominant market position which Audi says is the “envy of [our] competitors”. Audi sold 59,000 vehicles in the Chinese market (including Hong Kong) in 2005.

While fully acknowledging the importance of exhausting potential in more mature markets, Winterkorn also focused on Audi’s strategy to tap new markets at the same time. One example referenced was Russian where, as new markets typically permit, growth was over 50% with more than 6,100 units sold. Audi will push in Eastern Europe, India, Korea, Australia and the Middle East where it believes it can generate quick growth.

Winterkorn was succinct in identifying the foundation for Audi’s success as “the design of the vehicles”. While both Winterkorn and Rupert Stadler (Board Member for Finance and Organization who presented in-depth on Audi’s 2005 financial performance) spoke of Audi’s strengths in employees, management team and financial metrics, clearly the company acknowledges that the vehicles themselves dictate success or failure.

The aforementioned Q7 is being depended upon to contribute heavily. Winterkorn spoke about the SUV’s many technical innovations, the recent worldwide press launch held in Arizona and some of the awards already won by the vehicle despite the fact that it has yet to go on sale. Referencing the 13,000+ advanced fixed orders in Europe alone, Audi has adopted a very positive attitude regarding what has been universally hailed as a very late – although very well-put-together and fairly priced – entry into the SUV segment. By this time next year we’ll know if the market is in Audi’s favor.

Perhaps buoyed by 2005’s exceptional performance and looking to give analysts and the media alike a further glimpse into the exciting future, Winterkorn shared in towards the end of his speech the official timelines and details around a number of new products. In the same order that he spoke of them:

Audi’s super sports car – the R8 – will be launched with a 420-horsepower 4.2-liter engine. Other engine options generating even more power will subsequently be offered. Production will start at Audi’s Neckarsulm plant at the end of 2006 with market launch to follow in 2007.

Following on the success of the A3, Audi will finally offer an “S” version again. The S3 will be a three-door and should arrive later in 2006. No official word on the powerplant except the notation that it will be “a sport engine”.

Audi will boldly redesign one of its purest of all models – the TT – with a new model that will also be launched in the second half of 2006. Again no specifics were provided about the powerplant, although it appears there will be multiple offerings. The new TT will debut initially in Coupe form only.

Last, but not least, Winterkorn confirmed Audi has green lighted the A5 Coupe which will be the very first model in a new technical generation. Implying that this segment could eventually produce various model versions, Audi was emphatic that the Coupe will definitely be launched as the A5. Expect to see the new Ingolstadt built A5 Coupe in the first half of 2007.

Winterkorn concluded his speech with quick references to Audi’s ongoing motorsports participation – a source of true pride for the company. The brand new R10 race car with its high-performance TDI engine will highlight Audi’s prowess in the area of diesel technology, while at the same time Audi will be entering an advanced version of the A4 DTM with a new V8 engine.

That said, the real conclusion to the Audi Press Conference was that Audi had, indeed, had a very good year. With record production and profitability and a healthy queue of new dynamic new models waiting in the wings all signs point to an even better year for the company with four rings.

Click here for a full transcript (MS-Word) of Dr. Winterkorn’s speech.

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