Audi of America enjoyed its fourth consecutive annual sales record in 2003. But sales of 86,421 represented less than 1 percent growth over 2002 sales, and that has dealers concerned.
The economy and an aging A6 sedan, one of its core products, finally caught up with the brand. The redesigned A6 isn't due here until late this year as a 2005 model.
Despite the flat year, Audi was helped in 2003 by the introduction of the redesigned A8 L luxury sedan, the flagship of the brand.
In late 2003, Bill Hoehn, of Hoehn Audi in Carlsbad, Calif., became chairman of the Audi National Dealer Council. Hoehn, who has been a member of the Audi National Dealer Council for four years, spoke with Staff Reporter Ralph Kisiel.
How was 2003 for Audi?
In one word, it was flat. The introduction of four great new products - the A8 L, S4, RS6, and TT 6-cylinder didn't provide enough incremental volume to improve the overall picture for the franchise.
What are Audi's prospects for 2004?
I think it's going to be tough sledding in '04, considering that the A6 is on its way out and no new products. I think '04 is going to be a real challenge. Nothing new is coming until fall.
How about for the luxury and near-luxury segments?
I think they will be improving. I think the economy's improving, and consumer confidence seems to be going up.
What's the hot product for Audi?
The hottest product is the S4, and second to that is the A8 L. Audi is conservative on their imports, so, therefore, the gross profits will probably remain strong throughout the year on the S4.
What's the weak link?
The weak link clearly is the A6 because the model changeover is lagging the changeover of the competing BMW and Mercedes-Benz models. So it's a phase-out year for the A6.
How do the dealers feel about the bold, distinctive grille on the redesigned A6?
I've seen the car, as has the dealer council, and it's impressive. The large grille harks back to historical tradition for Audi. But I have heard that it's somewhat controversial among the European press because it's so dramatic. But I thought the car was fantastic looking. That will be the distinguishing feature on all the new models.
Is there any other new product on the way that excites dealers?
There's going to be a redesigned A4 coming earlier than we anticipated. Then the A3's going to come, and then whatever iteration of the Pikes Peak concept they decide to bring to the United States. Plus the Le Mans concept (unveiled at the Frankfurt auto show) I think is an exciting halo car. It's several years out.
Is there a market for the Le Mans quattro here?
I think so, as a halo car - a car to bring in more traffic.
What is the role of the Audi dealer council?
We're an advisory council. We're not elected. So in that sense we don't represent the particular dealers in our area. We're chosen by the factory to give our advice and insight on strategy and marketing.
What is the dealer council's top priority this year?
My top priority is to keep dealer profitability at the forefront of everyone's thinking in Auburn Hills, Mich. And hopefully I'll be able to convince the rest of the dealer council that that should be our No. 1 priority.
How involved is the dealer council in manufacturer driven programs?
I would say that the dealer council is involved and influential, but at the end of the day, (Audi of America Vice President) Len Hunt and the rest will carry the baton. However, they are open, and I would say even eager, to have our input.
How would you grade the effectiveness of the dealer council?
I would give us a B. Clearly as can be seen in the latest NADA survey, the dealer body would not give us nearly that high a mark. And the discrepancy I feel is caused by two factors. One, we're an advisory rather than a representative council and do not formally solicit input from the dealer body as a whole. And two, we haven't done a good job of communicating the content of the dealer council meetings. We are working on that.
What's the main thing the factory can do to help the dealers?
The most important thing they can do is to simplify the maze of programs, incentives, standards, etc., that constitute the current terms of trade. Thankfully, I believe that the council has been successful in helping develop a new easier-to-understand, and easier to embrace, terms of trade for 2005.
Can you give an example of better terms?
Basically the terms of trade for '05 are going to be based upon dealer investment in the franchise as opposed to varying and seemingly whimsical levels of performance. So in 2005 dealers will know that if they give Audi the type of exclusive facility they want - and their jargon is "The New World of Audi" - they will be compensated for that commensurate with their investment. That will be the only way that they are incentivized, according to the new terms of trade.
Have dealers been promised a specific level at this point?
Audi will pay dealers up to $750 a new car and pre-owned car for full exclusivity. I think those are good terms.
What do you mean by "terms of trade"?
That's the jargon that Audi uses to describe the relationship between the factory and the dealer and the programs that are in effect for a particular year.
What are other dealer concerns this year beyond profitability?
Simpler terms of trade and product quality. Audi's been plagued with its share of product glitches in the last few years, as have the other German manufacturers. And lastly but not least, to increase gross profits by shortening supply lines and shortening product cycles. Product cycles are too long, compared to the Japanese. The A6, for example, is outdated compared to the new BMW 5 series or the Mercedes-Benz E class.
Is the factory responding to these concerns?
I think we are getting some response from the factory. I think the crew in Auburn Hills wants to be responsive, and tries to be responsive, and is eager to get our input. So in that respect, I think things are improving.
Did the factory respond to dealers' satisfaction over the ignition coil problem last year?
I think they did as well as they could. Audi's not the only German manufacturer experiencing some of these supplier problems. Mercedes experiences them, and BMW does as well. So hopefully the German manufacturers and suppliers are learning, because the Japanese seem to never be caught shooting themselves in the foot.
How satisfied are dealers with Audi?
Satisfaction isn't where it should be, and that's going to be tough to improve in 2004. But I believe that the simplified terms of trade and the new product that's coming in '05 is going to help. But an Audi dealer must be able to attain operating profits commensurate with other high-line franchises in order to be satisfied.
So I think '04 is going to be a challenging year for dealer attitude until the new product and new terms of trade arrive.
New-car profitability is tough because although the niche car, such as A8 L and S4 bring good gross profits, the only volume car that we currently have, the A4, doesn't because of too high availability. There are too many cars in the pipeline, too much inventory.
Are they aware of the problem and doing anything about it?
Yes. My experience with the Japanese high-line imports is that they are much better at controlling the supply. Why that is, I don't know. But Audi's certainly aware of its own situation.
Do Audi dealers have the right product mix?
I think we have too narrow a product mix compared to the competition. We're really only competing in the A4 segment, the A8 segment, then a couple of niche products like the TT. When the new A6 arrives that will help, but we still aren't competing in the SUV segment.
What do you think about the A3 that arrives here in 2005?
I hope it's going to be an important addition. But my concern is that other entry-level European cars, such as the Mercedes C coupe, have not been acceptable in the United States. Hopefully the Audi will be better accepted.