In the U.S., German automakers
rule the luxury market. But among them, Audi looks at
first like an absolute laggard. The four rings sold 224,111
new vehicles in the United States in 2019. Far behind, BMW’s 324,826 and Mercedes-Benz’s 357 ,729. But a closer look at history tells
a bit of a different story. A premium brand owned by German
automotive colossus Volkswagen, Audi had for much of its history been a
kind of also ran in luxury. So Audi has been kind of
like the other German automaker. Everyone’s super familiar with
BMW and Mercedes-Benz. Over its history, Audi has gone from
being a scandal ridden name no one wanted to touch to a fearsome competitor
that had about a decade of solid sales growth in the United States. It became a brand of choice among
young buyers seeking a sleek, tech savvy luxury car brand they
could call their own. However, that streak has broken
and Audi management has acknowledged slumping sales, compliance concerns, and
continued fallout from the diesel cheating scandal that rocked Audi’s parent
Volkswagen, o ne of the world’s largest automakers. Now Audi is trying to
get the magic back. The modern Audi story
starts with a scandal. The brand faced severe scrutiny and criticism
in the late 1980s over a spate of reports saying the brands
Audi 5000 model was unintentionally accelerating. As with some other
unintended acceleration scandals facing other automakers such as Toyota. Research since then has cast doubt
on the claim that unintended acceleration was caused by equipment
problems in the cars. Nevertheless, at the time, the case did
serious damage to the Audi brand with image and
safety conscious baby-boomers. Audi sales reportedly cratered 84 percent
between 1985 and 1991, at one point hitting sales of just
12,000 vehicles a year. Of course, at the time, there was
also a larger recession in the U.S. economy. But as bad as the scandal
was, it may have created an opportunity for the brand that later
contributed to its growth. And it seemed like it really kind of
rode the wave of the German luxury brands and trying to capture that
person that had money to spend obviously, but didn’t necessarily want a
BMW or a Mercedes because those were seen as kind of
the old guard, particularly Mercedes. So I think that Audi kind
of was up and comer. Yet still German luxury brand that
people turn to in those times. The fallout from the scandal turned
Audi into a somewhat obscure brand, but its obscurity gave it a kind
of freshness and allowed it to connect with a new generation of buyers
who didn’t associate Audi with their parents. As BMW and Mercedes battled each
other for the title of top luxury brand in the U.S. and around the world. Upstart Audi had
the advantage of looking a bit less established. You had the millennials, the
oldest millennials, who I call the trophy generation. You had them just starting to come
into luxury, just starting to come into peak earning years, just starting to say,
I’m going to treat myself and I’m going to get a luxury vehicle. And by the way, I want
one that my parents didn’t drive. The brand reinforced this youthful image
through its marketing and it gained attention as a car of
choice for celebrities at the time. Relative to BMW and relative to
Mercedes-Benz, the Audi, the emerging Audi customer was a lot younger. They were very affluent at a younger
age than than BMW Mercedes customers, which meant that there was a lot
of upside potential in getting these people into the brand, because as time
would go by, you can move these people up into yet more expensive
products i n the Audi portfolio. Audi’s popularity skyrocketed, annual sales
grew 161 percent from 2002 to 2019. Compare that to BMW, which grew 40
percent, and Mercedes, which grew 67 percent in the same time. But it wasn’t just its
newness that resonated with customers. Audi gained a reputation as an
innovator in design, especially when it comes to including new
technology and its cars. Of course, the brand has long been
well-known for its Quattro all wheel drive system, which many regard as one
of the top such systems on the market. While Mercedes and BMW specialized
mostly in rear wheel drive models, Audi served customers increasingly
interested in the advantages of delivering power to all four wheels for
better control in snow and rain and light road driving. But the brand also overhauled its
product portfolio and released some attention grabbing vehicles to show
off its engineering and design prowess. Over the years because
they’ve had that connection with Volkswagen, they’ve been struggling to try
to make themselves known as something more than just a
luxury version of a Volkswagen. And in later years,
they have accomplished that. In 2006, it released the first Audi R8,
a mid-engine sports car with a six figure price tag that acted as a
kind of halo for the brand. The Audi R8 was the first
production vehicle to have LED headlamps. That may seem like a trivial detail,
but it made a big impression. So the Audi R8 was the first
vehicle of Audi to get these stunning headlamps. And I remember doing a presentation
in Germany and I said this is a brand that will single
handedly revitalize themselves just through headlamps. Audi also got special recognition
for its interiors, a key strength in the luxury market, and
it became strong in tech. Two areas where Audi has stood
out in particular are semi-autonomous driving features and
infotainment systems. Audi has become a real
leader in the technology space. You know, a lot of
the really innovative infotainment and semi-autonomous technologies have been
viewed as Audi products. And certainly that has made the brand
very appealing and very relevant to younger luxury customers. Audi is regarded as something of
a pioneer in integrating technology into its vehicles. And therefore, some say it
may have something of a lead over other manufacturers when it
comes to embedding. Sometimes buggy and difficult new
features in its cars. So far, the brand has managed
to retain its youthful appeal. To this day, Audi customers definitely
remain younger than BMW customers. Mercedes-Benz customers. And that’s a
pretty enviable position for the company to be in. But in recent
years, Audi around the world has shown signs of slowing
down, even stumbling. And it has faced a challenging market
conditions in China, as well as headwinds from new emissions
regulations in Europe. In the U.S., the brand enjoyed an
incredible streak of more than 100 months of year over year sales
increases from November 2009 to October 2018. Its first month of falling sales
in a decade came in November of 2018 Worldwide the brand also hit the
skids after years of solid growth, Audi global sales fell 3.5 percent in 2018. At the time, Audi attributed the
drop to challenging market conditions and difficulties presented by Europe’s switch
to the worldwide harmonized light vehicle test procedure , a
new standard for regulating emissions. In 2019, global sales
recovered and rose 1.8 percent. That outpaced Mercedes in terms
of growth, but was behind BMW. Though over the long term Audi has
grown tremendously, in recent years, it has actually trailed
its German rivals. In a comment to CNBC, Audi pointed out
that the last three months of 2019 were its best fourth quarter
on record for the U.S. and that it did outpace both Mercedes
and Lexus in year over year growth in the U.S. in 2019. After years of cultivating an image as
a cutting edge, youthful and almost insurgent luxury brand, Audi has, in
the eyes of many consumers, become another established brand. Originally that buyer was a lot like
that BMW buyer or the Mercedes buyer that wanted something different. They didn’t
want to be that stereotypical BMW buyer insert the joke about that
person here, but still wanted that German luxury experience. And I think that that
has been great for them. But now, how many years later
– 15 or so years later. It’s also becoming a little bit of
a detriment to them, because now they are becoming the mainstream. Some industry watchers have also seen
the brand falter slightly on other metrics. Over the last decade, Consumer
Reports has several times ranked Audi as a top brand for reliability,
often ahead of its German rivals and even in front of Japanese
brands famous for their dependability. But the latest data Consumer Reports
is collecting suggests Audi has been struggling on reliability recently. We’ve seen something change there. And very recently, the reliability data
that we’re getting from our members is showing some problems. And that is attributed to some
of the changes that they’ve made. There is a new infotainment system, a
new electronics, a new power trains that they’re launching. And they do
appear to have seen some struggles with those where they’re no longer a
top five automobile in terms of reliability anymore. One issue facing oudeh is an
issue facing nearly all automotive brands today. There is just a lot
more competition which is pushing all automakers to raise their game. Audi told CNBC it works to
address issues highlighted by quality measurement groups such as Consumer Reports
and attributed its recent fall in rankings to a large number of
all new vehicles it released between September of 2018 and March of 2019. Throughout 2020, it expects to
rise in reliability rankings. So a lot of the things that
made Audi exceptional, its unique all wheel drive system, its abundance of
technology have been adopted by competitors, even mainstream brands
at lower price points. Buyers who may not need a German logo on
the hood can save a lot of money by shopping elsewhere. Now that Audi has become something of
an established brand, it is faced with having to decide how it continues
to compete and grow its customer base. Audi parent Volkswagen is planning
big investments in electric cars, and the Audi brand has already
released a closely watched electric sport utility vehicle called the e-tron. Audi has said it plans to invest
roughly $16 billion through 2023 in electric cars, digital services
and autonomous driving. By 2025, the Audi portfolio will already
include more than 30 models with some kind of electric drive. Of those, 20 will be fully
electric vehicles the company has said. The question is, can oudeh maintain its
youthful tech forward image in an increasingly electric era when there is a
new brand on the scene which seems to have already
carved out that niche… Tesla. Some industry watchers note that in
terms of sales, Tesla seems to control the electric car market
and interest in so-called Tesla-killers from rival firms has been limited. The e-tron sold 5,369
units in the U.S. in 2019. That’s less than half of the roughly
13,250 Tesla Model Xs and SUV, now several years old, that starts at
a similar price as the e-tron. Of course, the e-tron was only
on sale from May to December. A bit more concerning is the lead. Tesla seems to have over competitors
in battery technology and the superior range available on its cars. Range anxiety is still a huge issue
for many would-be electric car buyers. The e-tron gets far less range than a
model X, 204 for miles on a single charge, compared with 328 miles per
charge on the Tesla’s long range version. Audi told CNBC it has
a strong commitment to electric vehicles and noted that it will be releasing
new versions of the e-tron in coming years. The other challenge for Audi
and really many incumbent luxury carmakers is the kind of
brand power Tesla has. Tesla is a tech forward brand with
sleek design that appeals to a younger audience. All attributes. Audi has been known
for throughout its heyday. It almost feels as if Tesla has taken
that from a lot of these luxury automakers and has taken that idea. This is the pinnacle of aspiration. Audi has mastered certain elements of
the luxury vehicle game that some industry watchers say make it a formidable
rival, even for the likes of a much buzzed about upstart like Tesla. The other thing that they really continue
to excel at and this is something that Tesla’s still lack
is really, really excellent build quality. You get inside an Audi
and these interiors are just incredible. I mean, in my opinion,
they’re better than BMW. Interiors are better
than Mercedes-Benz interiors. Perhaps Audi is strongest weapon is
its decades of experience competing with some of the most formidable
brands in the luxury car business?