Audi’s profitability impacted by desire to outshine BMW image

Volkswagen Ag’s luxury unit Audi has been one of the company’s profit drivers for decades, but its bid to overcome BMW Ag as the world’s biggest premium automaker has been hurting the finance books back in Ingolstadt.

Audi’s desire to catch and pass the German competitor is also motivated by the recent performance of third-placed Mercedes-Benz, which has been lifting sales at an increasingly rapid pace lately, while also being able to improve earnings margins. Audi, which is the main profit contributor to VW AG, the second-largest automaker in the world and Europe’s biggest, has recently reported an operating profit of 1.42 billion euros for the first three months of the year, up 8.2 percent from the same period last year. The growth is currently being outshined by increased expenses for introducing new models, technology and the need to lift its presence abroad – the brand’s operating margin has gone down from 10.1 percent to 9.7 percent, with the carmaker proposing a full year goal of 8 to 10 percent. The squeeze also comes at a time when emerging markets – including China, the world’s largest auto market – are seeing tepid demand and a move away from premium models.

In the bid to become the world’s largest luxury auto producer, after passing by Mercedes-Benz back in 2011, Audi is heavily investing into lifting its current model lineup from 52 to 60 models by the start of the next decade – while also spending billions for new plants in Mexico and Brazil. Audi still remained confident in its full year prospects at the end of the day, thanks to cost reductions and its home continent turnaround process that is in full swing.

Via Reuters