SMA8L

Having read the previous series of posts, and in some state of disbelief, I felt it best to investigate the real story rather than live in the opaque world of the "blog". So here's the real story : your dealer will make more money so that they can have super cool show rooms, charge money for previously free services and, in my opinion, sell far less units. This is the real detail::

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Audi wants to fatten dealer margins

Diana T. Kurylko
Automotive News / February 13, 2006 - 6:00 am

Audi of America wants to boost dealer profits and have more stores upgraded -- even if it's at the expense of corporate margins, says Johan de Nysschen, executive vice president in charge of the brand.

Audi will propose new terms to its year-old dealer contract that will include increasing a profit margin that dealers say is the lowest among luxury makes. The three-year contract runs through the end of next year.

Audi will discuss the issue at its annual dealer meeting in Orlando, Fla., on Tuesday, Feb. 14, after the National Automobile Dealers Association convention.

De Nysschen says low profits have prevented dealers from building new stores or upgrading existing ones. Only 92 of Audi's 267 dealers have upgraded their showrooms to the New World of Audi design rolled out five years ago.

"We have gotten to the point where there are dealers who want to invest in upgraded facilities but can't make the business work because of the low margin structure," de Nysschen says. "We need to find a mechanism to resolve that."

Working with council
De Nysschen says Audi of America has set a goal of getting dealer return on sales up to 3.5 percent in coming years: "We are working with our dealer council on how to deliver that."

Last year, Audi's exclusive and stand-alone stores had a 2.1 percent return on sales, up from 1.2 percent in 2004. Audi does not have figures for shared stores.

De Nysschen wants to make several changes:

Add a performance bonus of up to 3 percent to the 9 percent base margin.

Lower operating costs by slashing inventory levels and warranty requirements.

Modify the German-designed requirements for new dealerships for the U.S. market with less costly materials. Dealers have told Audi it costs them 40 percent less to build a new Lexus store, de Nysschen says.

De Nysschen, who became head of Audi of America in January 2005, says returning Audi to profitability is a major goal. The dealer proposals would "clearly make it more costly and would erode our margins."

But, he says, U.S. dealers often have several franchises and make investment decisions based on profits. "Dealer profitability comes first, and ours has to follow," de Nysschen says.

Low among premium brands
Jerry Nelson, chairman of Audi's dealer council and owner of Schneider + Nelson Audi in West Long Branch, N.J., opposes tying dealer margins to customer satisfaction scores. He says premium-brand dealers "are all operating in a band of 85 or higher CSI" in order to satisfy high-end customers.

Nelson says Audi's margins haven't been competitive since 2004, when the brand moved to a dealer incentive program and tied it in with the facility upgrade program.

Audi has the lowest margins of the high-end brands, he says.

The return on sales can be improved significantly by lowering inventory requirements for dealers,de Nysschen says.

Currently, Audi has an average supply of 47 days. The brand wants to cut that to a 20-day supply, says de Nysschen.

Rather than have dealers keep large numbers of cars on their lots, Audi is proposing a new system with regional distribution hubs "where Audi of America would keep cars and maintain them," de Nysschen says.

"We would deliver any car that the dealer calls for within 48 hours. That would also help us do inventory swaps on paper and dispatch the car where it is needed."

The system would be patterned on one that de Nysschen set up for Audi in Japan, where he was president. He says: "I would like to see if we could do it here. It would reduce capital needed and take away storage costs.

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Audi drops free maintenance

Diana T. Kurylko
Automotive News / February 12, 2006 - 8:20 pm

Audi of America will end its free maintenance program beginning with the 2007 model year, much to the distress of dealers.

Called the Audi Advantage, the four-year/50,000-mile program was established in the late 1980s as a way to restore consumer confidence and jump-start the brand in the United States. Only a few auto companies offer free maintenance - but they include a chief Audi rival, BMW.

"They are getting rid of it because of costs. Dealers feel it is a large advantage," said Tom Harper, incoming chairman of the dealer council, Sunday after the make meeting. Harper owns Harper's Porsche-Audi-Jaguar-Volkswagen-Infiniti-Acura in Knoxville, Tenn.

Audi will provide some free service during the first year of ownership.

Dealers want Audi to consider a modified program for repeat customers. "It is important to those who have second or third car," said Harper.

There's no doubt some loyal customers may be disappointed, said Johan de Nysschen, executive vice president in charge of the Audi brand.

"There is that danger, I have to acknowledge it," said Audi's U.S. chief.

De Nysschen said Audi needs money to fund a proposed increase in the dealer margin.

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So, need I say more. Audi has moved from it's position as "the intelligent luxury car" to just another image brand set on fulfilling a brand position that few dealers in the US can support. Despite their glorious new showrooms a lower value proposition for the consumer is not indicative of a brand that cares for the loyal customer!

:: SM

D3AeighT

Soul searching by the masses is underway.

Wowdi

barrel for them. Owners will be less likely to have their cars serviced at "Audi" prices when they can go to Pep Boys for less. This will be a net loss for Audi.

On the positive side, it will be easier to get a service appointment because whiney owners won't be entitled to free wiper blades for which they now need an appointment.

"Free" service is a double-edged sword.

Plano-4.2

Although probably a slight chance, maybe this will give some dealers an incentive to upgrade their customer service. Putting up with free crappy service is one thing, but folks will look for an alternative if they start having to pay for that.

I don't know, this doesn't sound like a big deal to me. Getting good service is the key, free or not.

aoaadviser

Hello All,

I have been reading all of these posts and see some of the same common thread, lack of information and everyone jumping to conclusions. Of couse Audi wants the dealers to see more profit, more money equates dealers contributing to things that the consumer has issues with now i.e. Goodwill, Chrome, and doing those adjustments for free to keep owners happy with the car and service related concerns. As for the Audi Advantage the information that you lack is that it is available for the 2007 model year, and yes of course it will be optional based upon if you want to pay for it up front. The preliminary information I have msrp for the program should be between 400-600 dollars and also be available for the certified vehicles as well, up to 100,000 miles. Now if you went to your local Audi dealer and for all your services up to that point of 50,000 miles it would cost you give or take 1,500.00 dollars. Before everyone jumps to conclusions I thought you may want all of the information.

D3AeighT

already knew this "exclusive" information you posted here for the very first time, seeing as you said you read all the posts on this subject.

aoaadviser

Typical,

I do not believe that I said anything about being an "official" audi advisor. I see you the typical A8 owner is again jumping to conclusions. All I was doing is giving everyone the accurate information. I just do not understand why everyone cannot stand there cars and continues to bash the car, dealers, and AOA. I have seen problem A8's that have be bought back by Audi. However alot of what everyone is complaining about is trivial and can be easily understood and repaired providing the dealer is doing there job, and the owner and dealer work on it together. These cars aren't a quick fix these cars can take a week to repair just for an engine light concern. I have worked for MB,BMW, and Audi and have been in the industry for 25 years. If you have a problem get it fixed, if one dealer will not do it go to another. Don't whine about it go to the dealer and give them as much infomation as possible and work with them. The germans and there cars have a relationship. The americans want to turn the key, look good, and expect someone to drop there pants and read the cars mind when something is wrong and expect it done in an hour. Sorry I am just venting but what some of you do not realise is that we are doing everything we can and more often than not what the owner says about the concern will determine what gets repaired, how quickly it gets repaired, and the quality that goes along with it.

ESN

de Nysschen's recent announcement that AoA will scale back on incentivizing and start pushing Audi pricing to the equivalent of BMW, on the grounds that they are equivalent cars, translates to a demonstrably more expensive purchase or lease proposition. Not exactly the way to increase market share, is it?

And, by the way, Mr. 2 posts, what's with the attitude? In your "25 years" of experience," have you learned that customer bashing, to their faces, isn't exactly the best marketing ploy?

"Sorry I am just venting but what some of you do not realise is that we [owners] are doing everything we can and more often than not what [AoA] says about the concern will determine [our next purchase or lease decision]."

D3AeighT

By your following statement........"Don't whine about it go to the dealer and give them as much infomation as possible and work with them. The germans and there cars have a relationship. The americans want to turn the key, look good, and expect someone to drop there pants and read the cars mind when something is wrong and expect it done in an hour." .....

Again, you obvisously, don't have a clue about the majority of D3 owners on this forum.

I've been with this brand for a very long time.

aoaadviser

I think what Audi is trying to do is push the product on the basis or quality and put as much of the decision making in the dealers hands. I am sure if you look at MB and BMW you will also find something wrong with them. I just cannot see how everyone can be so cynical. These are cars, they are mechanical and have some of the most advanced systems on them, we buy these cars on the premise that they are built of quality materials and workmanship. Everywhere you look in the industy the automakers are cutting back in the effort to quote our president "build better cars". So we trade on thing for another, in order to get a quality vehicle and that is what Audi is doing as we speak. I am not bashing anyone, I just do not see how nobody can look outside the box and take the pulse of the industry. I am sorry that all of you may feel I am being offensive but the reality is cars brake and we do our best to fix them and make owners happy, but on the same note that doen't happen everytime and we all hear things that we do not like to hear.