Audi Plots Overhaul to Regain Lost Ground to BMW, Mercedes

(Bloomberg) -- Volkswagen AG’s Audi division will present a new plan in May to reignite momentum after falling behind rivals Mercedes-Benz and BMW AG amid surging technology spending and stricter emissions tests in Europe.

“We’re going to work hard on our cost structures,” Audi Chief Financial Officer Alexander Seitz said Thursday at a press conference in Ingolstadt, Germany. “But operationally we’re going to face a year of cleaning up.”

Part of the plan is a reduction of Audi’s workforce by as much as 15 percent over the next five years through early retirement and leaving vacant positions unfilled to help save costs, Handelsblatt reported. Audi has a job guarantee preventing forced layoffs until 2025. A spokesman declined to comment on the report.

Audi’s struggles from higher spending on electric models like the E-Tron crimped returns last year to 6 percent from 7.8 percent, as global deliveries fell. VW’s largest profit contributor was also hit by a 800 million euro ($904 million) fine by German authorities triggered by the diesel-emissions scandal. Audi has widened an efficiency drive to save 15 billion euros by 2022 after a tumultuous year that culminated with the temporary arrest of former Chief Executive Officer Rupert Stadler over his role in VW’s biggest corporate crisis.

Cost cuts will account for about two-thirds of the 15-billion-euro push. Part of this will be trimming back Audi’s bloated management ranks for savings and speedier decision-making, CEO Bram Schot said, declining to outline a number because talks with labor unions aren’t finalized.

Higher Sales

Audi targets slightly higher deliveries and revenue this year, and an operating profit margin between 7 percent and 8.5 percent. That should shift to between 9 percent and 11 percent as early as next year, helped by moving the accounts of some companies doing business for other VW group brands to the parent company. Sister brand VW made similar changes earlier.

VW CEO Herbert Diess this week singled out labor costs as a “big concern” at the main VW and Audi brands. There might be “some smoke” emanating from Audi’s headquarters and main factory in Ingolstadt, Chief Financial Officer Frank Witter said.

Audi will launch five fully-electric and seven plug-in hybrid models within 24 months to overhaul its lineup and consider switching one of its existing model lines to battery power. It will broaden the lineup to 30 electrified cars by 2025.

To free up funds, the brand is weeding out its lineup of combustion engine cars, with the future of its aging iconic TT model and the R8 two-seater sportscars uncertain. No decision has been made yet regarding successor models, development chief Hans-Joachim Rothenpieler said. Future sportscars might be electric, CEO Schot said.

Audi will invest 14 billion euros on new technology including autonomous driving, electric cars and digital services by end-2023 and will cooperate more fully with sister brands VW and Porsche help lift returns and plans to put a greater focus on its largest market China.

Audi targets sales of 1 million cars in China in the mid-term from currently around 600,000 cars, Seitz said. The carmaker is reviewing strategic options for its joint venture in China after local rules for foreign manufacturers were eased in the brand’s largest market.

VW CEO Diess said earlier this week the group plans to provide an update on its China strategy early next year.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann, Chad Thomas

©2019 Bloomberg L.P.