1.26.2007

Why Audi Won’t Build Cars in the U.S.

            You make cars, and you want to sell more cars in another country around the world. You don’t have a factory in that other country. Should you build one there?


            The short answer is yes, at least from a lean standpoint. But does it ever make sense to NOT build that factory, and just keep exporting cars across the ocean?


            Audi thinks so, according to what one of its executives said at the Automotive News World Congress recently. I find that interesting, and I’m reporting on it here in hopes of sparking some discussion of this point.


            The comment came after a presentation by Johan de Nysschen, executive vice president, Audi of America.


            The key point of his speech was that even though Audi is an extremely successful luxury brand on a global basis, it sells relatively few cars in the United States – and its executives want that to change.


            “We are very Euro-centric, which is the biggest difference between Audi and our friends from Stuttgart and Munich. BMW and Mercedes-Benz are certainly more global,” de Nysschen said. “For us to execute our long-term strategy of attaining 1.4 million global sales by 2015, we have to reach out, and we’ve identified two major markets as our next areas for strategic conquest – North America and Asia.”


            Audi is already the leading premium brand in China, he added, but hopes to increase sales in Japan and India.


            And in North America, Audi plans to “stop being so understated,” de Nysschen said. The company has chosen a new advertising agency and increased its ad budget. More importantly, it is also launching 19 new products in the U.S. between 2005 and the end of this year.


            Following his talk, de Nysschen was asked the obvious question by a member of the audience: How can Audi do all this and continue to make money exporting cars from Europe? In other words, will Audi build a plant in North America?


            The answer, at least for now, was no, and de Nysschen gave several reasons. First, he said, it doesn’t pay to build a plant on this continent unless that plant will produce at least 100,000 vehicles a year – and Audi anticipates selling 90,000 here this year.


            Second, he said Audi cars feature extensive sophisticated technology produced by European suppliers, and that technology would have to be imported from Europe to any plant in North America.


            Third, he said Audi was unlikely to expand capacity through new construction anywhere “until we’ve used up more capacity from our colleagues at VW.”


            There might be some validity to de Nysschen’s first point about volume, though it certainly seems Audi will pass that 100,000-vehicle threshold within just a few years if its strategy succeeds – and it would take more than a year to build a new plant and begin operations.


            The second justification seems a bit dubious. Are there no companies in North America capable of producing the technology Audi needs? Even if there aren’t, if Audi set up a factory here, it would be perfectly logical for many of its suppliers to also set up operations here, near that factory.


            And while I understand the third point, simply having excess capacity doesn’t justify using it if it’s in the wrong place. GM and Ford are building factories in China at the same time they are closing them here (though that may also have something to do with import restrictions).


            Is Audi’s position smart or dumb? Post a comment and let us know what you think.


 


           

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