Audi in China

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Case Details:

Case Code : BSTR431
Case Length : 16 Pages
Period : 1988-2012
Pub Date : 2013
Teaching Note :Not Available
Organization : Audi, Volkswagen
Industry : Automobile
Countries : China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We will keep going on with the things that we have done. China has a lot of potentiality, since the sales of cars have reached 1 million, we will move to 2 million."

-Rupert Stadler, Chairman of the AUDI AG Board of Management, 2012.

Audi Conquers China

In 2013, Germany-based luxury automobile manufacturer Audi AG's (Audi) China arm, Audi (China) Enterprise Management Co. (Audi China), entered its silver jubilee year in China. Over the years, it had had a hugely successful run in the country, had established its own benchmarks and standards, and had become the most popular luxury brand in China. In the year 2012, Audi sold 405,838 units in China, an increase of 29.6% over the previous year. Luca de Meo ( de Meo), board member for sales and marketing, Audi AG, said, “In the year 2012, we continued the success story in our biggest sales market.With this record we have increased our lead over the competition, further strengthening our number one position in the premium segment in China.”

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Audi AG's history in China dates back to 1986, when it contacted First Automobile Works Group Corp (FAW) to conduct a feasibility study on automobile technology. In 1988, FAW and Audi signed an agreement for producing the Audi 100 model as a completely knocked down (CKD) unit . In 1990, Audi's parent company, Volkswagen, formed a JV with FAW and formed the FAW-Volkswagen Automotive Company (FAW-VW), with its headquarters in Changchun. In 1990, FAW started an assembly line for Audi with the capacity to produce 50 vehicles every day. In 1993, Audi became a stakeholder in the FAW-VW JV, with a ten percent stake . In 1996, the production of the Audi 200 with the advanced V6 engine began. Sensing the potential of the Chinese automobile market, Audi started strengthening its product line and brand appeal by importing a few of its models into China. In 1999, Audi started producing a few international models at the Changchun plant and made them accessible to Chinese customers.

Audi China was established in 2009 in Beijing. Prior to it, Audi functioned as a subsidiary of FAW-VW. As of 2013, Audi's product range in China was a mix of three locally produced models (the A4, the A6, and the Q5) and 22 imported models .

Audi was hugely successful in China and the country became its largest market, surpassing its home country, Germany, in 2011. According to Dominique Boesch (Boesch), general manager of the Audi sales division, FAW-VW, “We have a steady price system and steady dealer development to seek qualitative growth,” From the time Audi entered China, it established itself as the car of choice for the political elite in the country, due to which it was unable to establish appeal among the youngsters and other segments. Shaun Rein, managing director of China Market Research Group, said, “Audi is seen as being a bit old-fashioned because of its association as being a government car. Wealthy consumers today want something sexier, more indulgent, which is why BMW and Mercedes have done well... Ten years ago, everyone wanted to be in government as that was seen as the ticket to wealth. Today, the new wealthy consumer doesn't want to be associated with officialdom.”

But according to a new policy framed by the Chinese Government in 2011 to encourage Chinese automobile manufacturers and reduce the expenditure of officials, bureaucrats were required to use local brand cars rather than Audis. Analysts opined that the new policy might have an adverse impact on the international automobiles in general and on Audi in particular.

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