Audi: Losing the Plot?

While GM and Ford continue their slow-motion fall from grace, Audi’s headed in the other direction. The German automaker’s U.S. sales are up, moving towards record levels. The company has a raft of new vehicles on dealers’ lots and more models on their way– from mid-market entry level models to the new TT roadster to the R8 supercar. Audi’s interiors are still the industry standard for design, fit and finish. They’re modifying their distribution system to increase customer choice and reduce dealer inventories. So is all well with Audi? Yes and no.

Continuing on the yes side, Audi is poised to introduce a range of diesel powered vehicles into the U.S. market. The move comes just in time to meet pent-up demand for high mileage vehicles capable of exploiting federal “clean diesel” regulations, and may include a headline grabbing, brand-burnishing, diesel-powered sports car (the TT). At the same time, Audi has the fuel-efficient engines it needs to stay in the hunt for sales of luxury sports cars, hatchbacks, wagons and sedans.

Audi may also have discovered the “next big thing:” mid and full size hatchbacks. The American market has moved from SUV’s (with true off-road capabilities) to CUV’s (cars masquerading as SUV’s). The jump from CUV to hatchback is a logical progression (foreshadowed by the now discontinued Audi Allroad). Whether by luck or design, Audi’s ready. For model year ’09 / ’10, every model in Audi’s lineup will have a hatchback version, including their biggest model, the A8. Audi’s bread and butter A4 will be available as a sedan, wagon and hatchback. So what could go wrong?

Although Audi is well past the “sudden unintended acceleration” PR disaster that threw the company’s U.S. sales into reverse during the 80’s, reliability is the marque’s new bugaboo. While sister VW’s recent quality problems are well known, Audi owners have also been plagued with their unfair share of mechanical ailments, often without satisfactory resolution at the dealer level.

The problem is reflected by Audi’s dismal performance in JD Powers’ reliability surveys. As a direct result of these issues, Audis suffer frightening depreciation; negatively affecting leasing rates and new car sales. It’s a problem that must be sorted at both the factory gates and on the sharp end– the sooner, the better.

Meanwhile, Audi faces some important branding questions. For example, when three Audis recently received the Insurance Institute’s highest crash test rating, the company advertised the fact on TV. Since when is Audi Volvo? In fact, what is an Audi? While Ingolstadt makes some sporty cars, BWM still have that spin spun. Quality? Lexus. Prestige? Mercedes. Bargain? Infiniti. Bargain barge? Cadillac. Quirky? Acura. When you’re trying to make your move in the highly competitive luxury car market, you need to stand for something.

For years, Audi’s Quattro four wheel-drive system has been the industry leader. Audi has added the world’s slickest paddle shift/automatic transmission (DSG) to the equation. They also possess one of the best engines: a dependable and punchy four cylinder 2.0-liter turbo. If you combine Quattro, DSG and the 2.0T, you create an incredibly resourceful machine. The car can tackle severe weather conditions with confidence, deliver an exhilarating sporting experience on dry roads and waft with automatic ease in traffic. All this and entirely reasonable gas mileage.

Instead of publicly proclaiming their vague, boastful and indefensible “Never Follow” mantra, Audi should be touting themselves as master of the “practical sports sedan.” While the two-seat TT has carved a nice little niche for itself, blessing the brand with metrosexual glamour, and the R8 looks to be a terrific halo car, the company’s fortunes surely lie within its core competency: sure-footed sporting automobiles.

More specifically, Audi should concentrate on building and importing the “shooting brake” (a.k.a. sportback) concept car introduced at the Tokyo Motor Show. If Audi equipped the sportback with DSG, a 230hp version of the 2.0T powerplant (or a diesel) and Quattro four wheel-drive, they’d have America’s most versatile and practical sports car. With marginal restraint (so to speak), the sportback could generate significant U.S. profits.

Instead, Audi’s unleashed the Q7: a late-to-market, aesthetically-challenged, gas-guzzling SUV. What’s more, even though U.S. SUV sales are tanking (including arch rival Porsche Cayenne), Audi’s committed to expanding their SUV line to include the slightly smaller Q5 and smaller still Q3 SUV. The move will win few converts, dilute the brand’s message (such as it is) and distract them from their main mission.

Audi has some terrific products. But the way the company has used its tools does not bode well for their future. Audi doesn’t seem to understand its current strengths, or know how to carve-out a path to greater sales and profitability that takes advantage of those strengths. Like Detroit, Audi needs to do a little soul-searching and renew its focus on its “real” identity: fun-to-drive four-wheel drive sedans.