Audi on a roll: Automaker setting annual sales records

Paul A. Eisenstein , NBC News – 6 days

Audi dealers across the country are struggling to meet demand for many of their models, with U.S. officials pressing the factory back in Germany to up their allotment.

It’s a far different situation from what Volkswagen’s luxury subsidiary faced two decades ago. Still roiling from a safety scandal for which it was eventually cleared, Audi sales all but dried up. And in 1992, the maker came close to pulling out of the U.S. market, a decision it reversed only at the last minute.

Today, Audi is one of the market’s fastest-growing luxury brands, setting a series of annual sales records. And though it still lags segment leaders like Lexus, BMW and Mercedes-Benz, it is rapidly closing the gap, with sales for the North American market projected to more than double to 300,000 by decade’s end, according to Audi AG CEO Rupert Stadler.

Its global goals are even more ambitious. In a race with BMW for the worldwide luxury sales lead, Audi is already running ahead of its growth targets, selling 1.46 million vehicles in 2012 and shooting for 1.5 million this year – a goal it originally had set for 2015. By decade’s end, Stadler is looking for volume to reach 2 million.

To get there, the maker is planning to invest more than $14 billion through just 2015 to support a product program that will cover the increasing breadth of the luxury segment, from the small A3 hatchback to an assortment of new crossover-vehicles, such as the planned Audi Q6.

"There are years in which to harvest in our industry and there are years in which you sow," said Stadler. While the cost will be significant, the payoff should come by 2020. “We are preparing to (sell) 2 million cars annually."

Along with its new product blitz, Audi plans to rapidly expand production capacity around the world, adding a facility in Mexico, its first in North America, and another new one in China.

“In the coming year, Audi will for the first time build more cars outside Germany than within,” said Stadler, hinting that further overseas production options are under study, including plants in Russia and Brazil.

That reflects the rapidly changing nature of the global luxury car market, long dominated by Europe and the United States. While Europe will remain “a very, very strong pillar of our business,” that market is stable and even declining, so looking forward, Stadler sees “the big growth patterns for Audi will be in Asia, in China, in North America, also probably in South America.”

That’s not to say Audi will have an easy time of it. BMW last month regained its global sales lead from Audi, fighting back with a mix of new products and aggressive pricing. That’s particularly true in the huge and fast-growing Chinese market, where “premium dealers have been under a lot of pressure in recent days,” said Deutsche Bank auto analyst Jochen Gehrke.

That has translated into a lot of discounting – and lower margins. Indeed, Audi’s net profits fell 2 percent last year, to 4.35 billion euros, or $5.7 billion, though its ramped-up investment program takes most of the blame. The company’s operating margins also dipped to a still-strong 11 percent, and ahead of the 8 percent to 10 percent target for the next two years.

A key challenge for the maker going forward will be identifying “white space” where new products can be targeted. That’s no easy feat these days. There was a time when luxury makers routinely offered only a handful of models each, such as Audi’s small, medium and large A4, A6 and A8 sedans. Today, the highline segment is an alphanumeric soup of sedans, coupes, sports cars SUVs and hard-to-define crossovers.

Meanwhile, the market is being driven by often divergent trends. While Audi will bet heavily on new CUVs, Scott Keogh, head of Audi of America, has big ambitions for the downsized A3 sedan that journalists attending the New York Auto Show will get a sneak peek at next week.

Audi also made headlines at the Geneva Motor Show earlier this month, unveiling its new A3 Sportback e-Tron, a plug-in hybrid hatchback. Like its high-line competitors, Audi has recognized that even upscale buyers want to go green. “We plan to add one more (plug-in) per year,” said technology chief Heinz Hollerweger during a Geneva interview.

Audi is a very different company from the struggling luxury car maker of the 1990s. It is already a leader worldwide and rapidly gaining ground in the U.S. Operating as a virtual standalone enterprise, Audi has become the single largest financial contributor to the bottom line of parent Volkswagen AG.

It is also a key contributor to VWAG’s goal of toppling Toyota to become the world’s best-selling automaker overall before decade’s end.

So Stadler and his team at Audi will have little room for error.

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GM posts highest annual profit ever

Stan Honda / AFP - Getty Images

Things are looking up ... mostly. The General Motors headquarters January 10, 2012 in Detroit, Michigan.

Updated at 12:20 p.m. ET

General Motors posted flat fourth-quarter income Thursday but still managed to haul in $7.6 billion worth in profits last year, up 62 percent from the prior year.

It was the highest annual profit ever for the automaker, which emerged from bankruptcy protection in 2009 after a government-led bailout.

The U.S. government still owns 26.5 percent of the company and is waiting for the share price to rise before selling in an effort to recoup the bailout money. GM stock was up 6 percent at $26.43 in midday trading after the earnings announcement.

"We will build on these results as we bring more new cars, crossovers and trucks to market," CEO Daniel Akerson said in a statement.

Full-year revenue rose 11 percent to $105 billion.

North America led the way with a $7.2 billion pretax profit. But problems surfaced that could hurt future earnings. GM lost $700 million before taxes in Europe, and lost $100 million in South America.

"We obviously have work to do still and a long way to get to the objectives we ultimately want to get to," GM Chief Financial Officer Dan Ammann told reporters.

"We clearly have work to do in Europe. We have work to do in the South America business. Frankly, we have work to do all around the company in terms of cost opportunity," he added.

GM'S fourth-quarter profit was flat with 2010. GM earned $500 million, or 28 cents per share. Revenue rose 3 percent to $38 billion. Before one-time items, GM earned 40 cents per share. Analysts expected earnings of 42 cents on revenue of $37.9 billion.

Ammann said GM has not gone far enough in cutting costs in its European operations, but declined to provide a 2012 financial forecast for a unit that the No. 1 U.S. automaker has struggled to return to profitability. Overall, GM expects 2012 sales to top the $150.3 billion it saw in 2011 and its market share to remain flat.

Last year, GM made the bulk of its income in North America, where its pretax profit totaled $7.2 billion. International Operations, which includes Asia, made $1.9 billion before taxes, but that was down.

During the year, GM's global sales rose 7.6 percent to 9.03 million vehicles to help it reclaim the title of world's largest automaker from Toyota Motor Corp.

This year, GM expects to increase its revenue as global auto sales grow and it charges more for models. However, it will make less money per vehicle as the mix of sales continues to shift to cars from trucks, which have bigger sticker prices. It also expects to invest $8 billion on new products and technology, and says pension expenses will rise. The company wants to keep expenses down by freezing its underfunded U.S. pension plan for salaried workers.

GM said 47,500 blue-collar workers in the U.S. will get $7,000 profit-sharing checks in March. The checks are based on North American performance and are a record for the company.

The company has placed Vice Chairman Steve Girsky in charge of the European management board and is adding executives in preparation for restructuring. Factory closures and layoffs are likely but could provoke a fight with powerful labor unions.

Girsky has said GM intends to fix the European unit, made up of the Opel and Vauxhall brands, and keep it in the company. GM came close to selling the unit in 2009.

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Toyota halves its annual profit forecast

TOKYO — Toyota, set to lose its crown as the world's top-selling automaker this year, more than halved its annual profit forecast to $2.6 billion, reeling from a strong yen and Thai floods that severed its supply lines.

Toyota Motor Corp's inability to make enough cars - production was also ruptured by the earthquake and tsunami in Japan in March - is expected to see it overtaken in sales this year by General Motors Co and probably Volkswagen AG.

While Toyota is poised for record production next year as it rebuilds depleted inventories, the yen's persistent strength against virtually every major currency means profit recovery will continue to be slow given its huge exposure to exports.

"Toyota is hitting a trough," said Cho Soo-Hong, auto analyst at Woori Investment & Securities in Seoul.

"Its market share will recover next year with output normalization and new model launches, but I don't expect too much from Toyota's earnings as the yen is expected to remain strong because of appetite for safe-haven assets."

Japan's top automaker expects operating profit to fall 57 percent to 200 billion yen in the year to end-March, well below a consensus forecast of 419 billion yen in a survey of 23 analysts by Thomson Reuters I/B/E/S.

The company's previous forecast of 450 billion yen, issued in August, was withdrawn last month after Thailand's worst floods in 50 years cut off the supply of parts to Toyota's factories in 10 countries. It said the floods would effectively cost the company 230,000 vehicles in lost production this business year.

With floodwaters having receded and recovery work under way at Thailand's industrial parks, Toyota has said its production has returned to normal in most regions, leaving just Thailand and South Africa operating at reduced rates. It said on Friday Thai production was expected to return to normal this month.

Toyota projected an annual net profit of 180 billion yen, down 56 percent from last year and a sharp cut from its previous forecast of 390 billion yen.

The Thai floods and the March earthquake and tsunami hit Japanese automakers particularly hard due to their dominance at home and across southeast Asia.

Toyota said the floods accounted for 120 billion yen of the downward revision to operating profit, while the yen's strength, which makes exports less competitive and eats into overseas profits when brought back to Japan, cut another 190 billion yen. These were offset by 60 billion yen in profit-boosting measures.

Once the supply issues are repaired, Toyota's new models, including the Camry sedan, are set to pose tough competition for rivals such as Hyundai Motor Co next year, analysts said.

But Chief Financial Officer Satoshi Ozawa expressed deep frustration with the firm yen, which Tokyo has failed to weaken through intervention, warning that current exchange rates could threaten Japan's very foundation as an export-driven economy.

"(The revision) is partly because Toyota's exposure to currency swings is big, but I think it also brought to light the severity of the crisis Japan is in, because the country is founded on its export strength," Ozawa told a news conference.

Toyota has committed to building 3 million vehicles a year in Japan by improving its cost structure and selling more cars at home, accounting for about 40 percent of its total global output. With more than half of that bound for export, its parent-only operating loss forecast ballooned to 530 billion yen, from a previous outlook of 370 billion yen.

Ozawa said the strong yen was forcing Toyota to raise car prices significantly in some markets, even if that dents sales volumes. Toyota expects to sell 7.38 million vehicles worldwide in this financial year, fewer than the 7.6 million it flagged in August.

"It will be difficult to keep domestic production if the dollar stays below 80 yen," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.

"When the dollar fell from 100 yen to 90 yen, or from 90 yen to 80 yen, the main question was whether Toyota can cope with the pace of the yen's strengthening. But when the dollar is below 80 yen, the problem is the absolute level of the dollar. Given this, we just can't buy Toyota shares."

Those shares closed down 0.4 percent at 2,636 yen before the forecasts were announced. The stock has fallen 18 percent this year, in line with Tokyo's main Topix index, and last month touched a 15-1/2-year low. Shares in Honda Motor Co are down 24 percent year to date.

Under a new business plan, Toyota is aiming for operating profit of at least 1 trillion yen and an operating margin of 5 percent over the next year or so, assuming parent-only sales of 7.5 million vehicles and a dollar of 85 yen. The dollar currently trades at 77-78 yen.

Ozawa said the European debt crisis posed another worry. As well as dampening demand in the region, he said, the crisis could prompt banks to pull money out of emerging markets and touch off a recession there, which in turn could also weaken those countries' currencies against the yen.

"The latter two factors would have a very big impact on our operations," Ozawa said. "We're watching developments very carefully ... as we compile our plans for next year and the year after."

Among Japan's automakers only Honda, the hardest hit by the series of natural disasters, has yet to come out with annual guidance. The chief financial officer has said he expects to provide annual forecasts by late-January.

Copyright 2011 Thomson Reuters.

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