Audi's dealers have big hopes for the small A3 sedan
Josh Weeks: "Dealers are really excited about the diesel lineup."
Audi had a solid year in 2012.
Audi posted a 19 percent increase in sales without resorting to heavy incentives, helping a dealer network that used to struggle with thin profit margins. Sales of large sedans and crossovers soared.
This year dealers hope for success on the smaller end of their product line: the new A3, which will go on sale in sedan form early next year.
The previous version, a hatchback that Audi calls a "sportback," didn't click with American buyers. But dealers hope the sedan will fill the hole that formed as Audi's best-selling A4 sedan grew into a larger, costlier, more feature-packed car than it used to be.
Staff Reporter Gabe Nelson spoke with Josh Weeks, outgoing chairman of the Audi National Dealer Council and an Audi dealer in Danbury, Conn., about the state of the brand.
How did Audi dealers fare in 2012?
It was another fantastic year for Audi. Their business plan is sustained, steady, profitable growth, and for the full year Audi sold over 139,000 new cars and SUVs. That eclipsed the previous sales record, set a year earlier, by 18.5 percent. The bigger news is that since 2009 we're up over 68 percent, so the brand is really growing.
What do dealers expect this year?
As we start 2013, it wouldn't surprise me to see us up another 20,000 units for this year. Profitability continues to do very well. I believe net profit will probably be up another 5 to 10 percent on average at Audi stores this year as volume continues to improve at individual stores. One of the things Audi has really made a commitment to is maintaining the level of Audi dealers that we have today. I think they might be adding a few stores here and there in key markets where they're not being well served, but in general, most volume is going to continue with the stores that we have today.
How profitable are Audi dealers right now?
They're very profitable. If you look at the last NADA dealer attitude survey, it was the highest they've ever been, ever since Audi has been taking that survey. They ranked Audi third among IHG [Import High Group] in overall franchise value. We were tops in how much the value of the franchises will increase. Obviously, what drives this is dealers feel that the products are what the customers want. With the products that we have today and the products that are coming, the future is very bright for Audi dealers.
What do Audi dealers expect from the factory in the future?
Our current bonus program ends at the end of 2013. These programs pretty much run on three-year cycles. Well, they have already committed to us that the margin and bonus program will continue from 2014 on, for another three years. So that's just something Audi dealers can bank on. The margin will remain pretty much as it is today, except for a few minor tweaks.
Are dealers satisfied with the bonus program?
There was some complexity to it when it was first rolled out several years ago, but dealers have gotten accustomed to it. I think dealers feel the margin and bonus program is fair and working for them.
What do dealers expect this year from Audi's products?
Dealers are really excited about the diesel lineup that is coming in 2013. Our customers really enjoy the driving characteristics and, of course, the stunning mpg of our TDI diesels. 2013 will see diesel offerings in the A6, A7, A8 and Q5, and by the end of the year Audi will have the largest lineup of diesels in the luxury market. That certainly is going to be the growth driver for this year.
What share of Audi's sales do you think those diesel models could get?
It's going to vary a little bit by model, but it wouldn't surprise me if in the near future diesel represents 30 percent of our business.
What have you accomplished as chairman of the dealer council?
I think we've come, in the five years that I was on the council, a long way. The biggest thing was the trust that was built between Audi of America and their dealers. I really applaud Audi's efforts to bring that trust about. They have an excellent management team.
How did the relationship used to be?
Back in 2008 was when they originally changed the margin and bonus program. Dealers were unfamiliar with it, and as they got comfortable with it, and there were some tweaks made, and profitability really started to come up for the dealers, that's when things started to improve. There was obviously a lot of investment made by Audi dealers from 2008 to 2011. A lot of exclusive stores came online. As those stores came online, more and more product was coming and dealers saw the benefits for their stores.
What do dealers think of Audi's dealership improvement program?
Right now, because volume continues to increase, dealers are having to invest and reinvest in their facilities for capacity reasons. Currently, about a third of the dealer body will be upgrading or expanding their facilities over the next few years. Of course, with improvements, there sometimes can be some angst when it comes to the manufacturer and the dealer. Usually that's due to a one-size-fits-all approach by the manufacturer. I feel that Audi is doing its best to recognize some of these challenges, and I think for the most part dealers feel this process has been a fair one. But overall, dealers would also appreciate some additional flexibility.
What sort of specifications does Audi have for its dealerships?
There's a long checklist of items. You know, they want to be sure that their brand is consistent throughout the dealer network. Dealers do their best to adhere to all these things, but sometimes you have different ordinances in different towns, so sometimes there has to be some flexibility to get some of these items approved.
How has Audi changed its preferred store design?
The current one is called a "terminal" design. The original design was a "hangar" design, with sort of a curved, sloping roof. They had side-sloping hangars and forward-sloping hangars. Now it's more of a traditional square showroom.
How is the availability of Audi models?
Inventories continue to be tight but manageable. We've seen some improvement on some of the volume models. Our core models -- A4, A6 and Q5 -- continue to have great, successful growth. But if we had more Q5s, and Q7s for that matter, we could sell some more. 2012 was also the launch of the S models: S6, S7, S8 and RS5. Those launches have been done very well.
Where there have been shortages, have you seen Audi of America working to get more vehicles to the United States?
They have been getting some more, it's just that we can certainly use some more production. The difficulty is we're dealing with worldwide demand on these cars. Audi has made a commitment -- they're spending roughly 13 billion euros over the next four years. Part of that is new production plants like the one in North America, which we hope to have come online in 2015. The reality is, over the next few years, until some of those plants come online, it's going to be difficult to get some of these models, like the Q5s and Q7s.
What do Audi dealers expect from the new A3 sedan, which will arrive for the 2014 model year to replace the sportback version?
The A3 is absolutely gorgeous. I would say, going back 10 years, the A4 was in that same segment, and as the A4 got a little bit larger and more upscale it moved out of that positioning. If you look at the 3 series and C class, they both did the same thing.
I think the A3 sedan is going to be in perfect positioning for where the A4 originally was about a decade ago. It will definitely bring in younger buyers.
What do dealers think of Audi's national advertising?
Dealers have been very pleased with Audi's marketing efforts. Of course we always look forward to the creation of another Super Bowl spot. One of the things that impresses me is, everything that Audi does -- brochures, any kind of literature, printed materials, Web sites, you name it -- just screams quality.
Do dealers think Audi is doing enough with Web marketing and social media?
Audi is very active in social media. U.S. Facebook fan growth is up 80 percent since the beginning of 2012. Currently they've got over 6 million fans, Twitter continues to grow, and they're doing things on Audi of America's YouTube channel, which had 32 million views last year. So, Audi has had an early start in social media and continues to improve all aspects of that area.
What's missing in the lineup after the 2014 model year?
Audi has done a great job of expanding the lineup with engine choices and different configurations. Right after the A3 sedan comes, I would like to see the same thing on that, if I had a wish list. Maybe that would be an A3 cabriolet, and maybe an S version of the A3 sedan. With it being a younger buyer, I think those vehicles would be welcomed in the market. Certainly an A3 cabriolet with a competitive price position would do well.
Are dealers offering many incentives to compete with other luxury brands?
If anything, Audi's growth plan has been very profitable sustained growth, and they're not resorting to some of the heavy discounting that we've seen from the IHG competitors. The result of that is our residuals continue to improve. Even without deep discounting, we're continuing to conquest some of those other brands. Last year Audi was the No. 2 cross-shopped IHG brand, and if you're looking at any of the car buff magazines, we're winning many head-to-head comparisons.
Are dealers and customers satisfied with the Audi's quality?
The IQS [Initial Quality Study, from J.D. Power and Associates] quality is the highest it's ever been, and we're seeing longer-term quality improvements. From a quality standpoint, I really think that the fit and finish of our vehicles are best in the industry. I've seen some of our competitors start to de-content some of their cars and cut corners, and Audi's actually going the other direction. Our consumers are noticing it.
What has Audi done to improve its customer satisfaction on the service side?
The big push is Kundenbegeisterung, which they refer to as KB. This is a worldwide initiative by Audi AG to improve "customer delight." During the second half of last year the Audi of America team was on the road for a long time. They did an eight-city tour, which they called "creating Audi fans immersion events," and they were well-attended by all dealership personnel.
What does "customer delight" mean?
It's about bringing awareness to everybody who either works at Audi of America or in the Audi dealer network, to be more focused on the customer. They're going to continue with workshops and further training to improve the customer experience.
Many times, improving the customer experience can be simple: doing the things that the customer expects, which is not always the easiest thing to make happen on a day-to-day level. This is really taking it to another level. There are simple things. How you greet and talk to a customer, or the things that you see at luxury hotels: they offer you a water when you arrive or when you leave. Some of these extra efforts go a long way with our customers. We refer to them as "KB moments."
What does Audi need to do to help you sell more vehicles?
We cannot rest on our laurels at all here, because the competition sees us coming, and they're going to do everything they can to maintain their positions. I think that Audi of America has got a good strategy, a good plan, and if they stick to the playbook, I can see us getting to 200,000 cars, probably before 2020.