Audi's U.S. chief expects the brand to post another U.S. sales record in 2017.
It's an ambitious goal, given that U.S. sales this year are expected to be flat, especially in the luxury market. Scott Keogh, president of Audi of America, said he's convinced Audi can do it — without resorting to excessive incentives — based on the strength of its lineup.
Keogh, 48, spoke with News Editor Sharon Silke Carty May 26 about Audi's outlook for 2017, the political climate and how parent company Volkswagen AG's diesel scandal will alter Audi's sales this year.
Q: Can Audi set another U.S. sales record in 2017?
A: I think we will have another record for Audi America. We broke through 210,000 units last year. I think it's worth pointing out that if you look at Audi America in general, it took us 40 years to sell 100,000 cars for the very first time. We did that in 2010. So we were in the market for 40 years, and we doubled that in 2015, just five short years later.
The biggest reason I believe that is because we have a host of new products entering the marketplace. If you look at March and April, we basically launched the all-new Q5. This is a vehicle that sits in a segment that basically forms 25 percent of the entire luxury market. Obviously a crucial segment. We feel we have an extremely strong car. And we have, of course, the whole new A5 family entering the market now. That's the A5 coupe, A5 cabriolet, and for the first time introduced in America, the A5 Sportback.
So these new products give me a lot of confidence that we at Audi can continue to grow.
But one thing I definitely want to make clear on top of that is that I think the luxury market has plateaued or is about plateauing. If you look at the economic crisis and coming out of it in 2010 — from 2010 to 2015, the luxury market basically grew 48 percent. So we were receiving on average 10 percent growth rates per year. If you look at the luxury market in 2016, that's the very first year the luxury market went down [since the recession]. And, if I look at this year to date, the market is barely up.
One of the key signals I see is that the month of April was down. Clearly in my mind, the market is peaking. It's telling us something, and I think the market is going to be flat to down. That's a big issue.
In what way?
That has a lot of impact on business behaviors, looking at total inventory and dealer stock. Certainly, you want to look at the amount of discounting and pricing power in the marketplace.
Finally, we really want to keep an eye on the health of our dealer network. For us, I can't stress enough: Yes, we want to grow, and yes, I think we have an opportunity to grow. But we are not going to recklessly grow if the market is not there. We still want our dealers to make money. We want to have a nice, fair supply and not spend too much on incentives.
Are you worried about the industry's heavy use of incentives?
I am an optimist and I think most people in the industry have seen the damaging repercussions of losing pricing power. I think in general the behavior is significantly better than it was heading into the last collapse, in the 2006 to 2007 window.
But let's not be naive. It's a competitive business. Everyone wants to grow and nobody wants to ever blink. Certainly that's going to lead to heightened competition and heightened pricing power. You can sort of see that happening already.
I think we're seeing signals of that happening in the general market, when you see the types of credit tiers that are being taken on, and if you look at the leasing mix and leasing portfolio. These are all signs that the market is peaking and you need to watch your business principles, not just your growth principles.
If you look at the new product launches for Audi, I think this is a great opportunity. With supply being tight, with cars being new, it gives us a chance to be smart with incentives. It's giving our dealers the chance to hold prices. We've been able to grow smartly. If we can keep that combination of gaining share and holding pricing power — that is something I am profoundly focused on.
Who is Audi taking market share from?
It's a combination: BMW, which was down last year, and it's certainly a fair amount of Lexus. And then it starts to spread across a large number of brands. Without a doubt, the most cross-shopped brand you see is BMW.
Historically, our problem had been that we didn't get enough of our day in court. Not enough people considered us. If you don't have enough traffic and people considering you, you end up discounting the cars.
The health of the brand has never been better. We've never had higher brand awareness. With the new products, the pot keeps getting stirred. This is something we believe in. We will keep spending money on marketing — on everything from buying search terms to being active with digital video, to being active with traditional advertising and with the dealer advertising groups.
It's a positive and virtuous cycle.
How does the talk about trade issues affect Audi? Is the company taking steps to move production to the U.S.?
Look, it's difficult to move an industry such as ourselves based on what might happen, based on conjecture and proclamations that are out there. We can only move on things that become a reality.
We are planning for things all of the time. We have 10-year plans and look at these things. We have seen no specific impacts on trade to date. If you look at what the president has said, he wants to look at trade as being in the interest of America. I think he is going to go out and make fair and pragmatic deals.
Companies do not set trade deals. Countries set trade deals and then companies cooperate within those parameters. And that's exactly what we will continue to do.
Is Audi concerned about any other political issues?
Well, the other topic is what will and will not happen in terms of greenhouse gas and CAFE standards. At Audi AG, we are investing quite aggressively with battery electric vehicles. We will be bringing at least two to three of those to the United States.
We are aggressively preparing to launch those cars. And what does or does not happen to CAFE standards doesn't matter. Honestly, we have to move forward with our plans. We think there is a market for these vehicles. I'm always a fan of not pursuing legislation or being moved by legislation. Ideally, I like to be guided by the marketplace.
No consumer walks into the showroom and says, "I really love this brand and I'm going to help them achieve their CAFE standards and [zero emission vehicle] mandates." That does not happen. A consumer says they want to buy the coolest, best car at the best price. Our job is to be marketers and our job is to be innovators. I think if we get it right, with the ZEVs specifically, a consumer is going to get behind the wheel and say, "I am driving the future."
How will the diesel emissions probes affect Audi this year?
It's something that is profoundly disappointing. I've said since day one: Audi will do the right thing for our customers, for our dealers, and for this brand in America. That being said, have we been able to navigate through this profound challenge? The answer is yes. We've had 76 months of record sales. If you look at our dealerships, the blue sky values are still top three or four in the industry, and that's obviously something we're proud of.
What's happened this year is an extremely large amount of 2-liter TDI customers have come back to the marketplace. They've either registered to have their car repaired or traded in. As you can see, this has put a lot of stimulus into the marketplace. That clearly put some upfront action in the marketplace, which is why I feel later in the year that stimulus won't be there.
Obviously with the 3-liter TDI, we are just now opening up the website. We are just in the process now of communicating with these customers and these customers will begin to make their selections to trade in the car, get it repaired or do a buyback and get another vehicle.
We will continue to look out for our dealers; they are the ones who have borne the brunt of this challenge and they are the ones who responded splendidly. We will navigate through this.