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EDITORIAL  FULL ARTICLE 
Can Audi avoid Icarus type fate in China?
Peter Schmidt | Editor

Published: Wed, 22nd July 2015 13:25:56 GMT
 

Audi China production 2015

Open quote signVolkswagen’s Audi Luxury car arm was the first prestige carmaker to set up stall in China. 

After receiving no doubt puzzled looks from its BMW and Mercedes peers when first entering China’s market in force, a decade further down the road, this initial scepticism quickly turned to envy as China’s prestige car market took off.

Fact, Audi was first to crack China’s prestige sector market, which on current reckoning will soon evolve into the world’s biggest market for vehicles of this type. 

Booted into action when initial scepticism gave way to a desperate ‘me-too’ spirit, both BMW and Mercedes followed Audi’s pioneering steps by also setting up shop in China. 

Back in 2003, when long-established Audi already sold over 60,000 cars in China - made up chiefly of the locally assembled A6 - same year sales of BMW and Mercedes imports reached just 13,000 and 6,500 cars in turn. 

The S-Class alone accounted for some 4,890 of these. 

Fast forward.

Last year, BMW and Mercedes sales in China reached a respective 456,000 and 281,600, whereas Audi’s sales there had ballooned to 579,000 units, with most assembled in China. 

By contrast, despite spiralling sales in China, both BMW and Mercedes continued to import many of the cars they sold in China. 

As recently as 2013, in a year when just over 80 per cent of the cars sold by Audi in China were already locally assembled, both BMW and Mercedes, in contrast, still sourced half the cars sold in China from their German and US plants. 

Audi, encouraged by forever growing demand for its cars in China, continued to ramp up its local car production capacity. 

This, it is understood, was on schedule to reach some 700,000 cars by close of this year. 

But what happens from now if the rosy glow from local sales starts to wear off?

So in the event of a notable drop in Audi’s Chinese sales, previously high output schedules at its Chinese car plants would have to be chopped by knife-wielding production planners. 

If indeed that happens, and given Audi’s current annual sales rate in China, this year’s Audi sales in China could at best reach the 579,000 it sold there during the course of last year. 

No major problem, it seems. 

Except for the view that with last year’s sales and the assumed 700,000 installed capacity in China, at best Audi would be left sitting on a conceivable spare capacity of around 120,000 units. 

So what would be BMW’s and Mercedes’ reaction if their China sales would be heading south? 

Broad brush, but if BMW and Mercedes sales in China were to plunge by say 30 or 40 per cent, such a drastic plunge in sales could be addressed chiefly by a corresponding cutback in car imports, thus leaving their Chinese production largely unaffected.

China’s car market, in the final analysis, is yet another car market, albeit with altogether different rules. 

Nevertheless, the common thread between say China, the US and Western Europe, in this automotive industry the really good times seldom last for long. 

This time, given latest undercurrents in China’s previously booming premium car market, we are treated to the first tell-tale signs of a major change, but this time into the wrong direction. 

If these first clouds on China’s previously blue horizon do eventually turn into darker and more menacing clouds, Audi it seems now looks a great deal more exposed to these expected ill winds than its notably more risk-averse BMW and Mercedes rivals which were a great deal less ambitious in their Chinese capacity expansion plans. 

So what happens if these prophets of doom warnings eventually turn into a load of hot air? 

In that event, the wheel comes full circle.

Audi’s more risk-taking bigwigs, instead of tumbling back down to earth after flying too close to the sun, would again be laughing all the way to the bank. 

The next inevitable stage would come round again - building new factories in readiness for even higher future Chinese sales
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