The launch of the brand-building, high-end showroom reflects the automaker's new confidence that its cars can follow through on its promise
On a brisk Wednesday morning earlier this month, a small group of auto journalists milled around inside the New York City Audi Forum. Chatting with company executives, they waited under floating flat screens and pulsing lights for Mayor Michael Bloomberg to arrive in the company's high-profile new R8 roadster and inaugurate both the new space and new model.
High-handed theatrics and lavish parties—the later evening opening attracted celebs such as Stephen Colbert and Wyclef Jean—are common in the auto industry. But the blitz that heralded the new Forum's opening and the U.S. unveiling of Audi's first supercar in one public event, garnished with the mayor's visit, represents the beginning of the brand's concentrated effort to claw back lost market share and battle perception problems in the U.S. market.
Shoring up Audi's position in the U.S., with the New York City Forum as a kind of crown jewel, is a top priority for the company's leadership. It sells far fewer cars to wealthy Americans than do its chief German rivals, Mercedes-Benz and BMW. According to Automotive News, during the first nine months of this year, BMW sold 155,525 cars, Mercedes 129,781, and Audi a mere 58,569.
Memory for Mistakes
Given that in its native Germany it stands shoulder-to-shoulder with both those marques, and is often voted the No. 1 German car brand, this is a bitter pill to swallow. Worse, according to this year's Luxury Institute survey of high-wealth individuals, Audi ranked ninth in perceived prestige, below the three major German luxury automotive brands as well as lower-cost imports Lexus, Infiniti, Jaguar, Land Rover, and even Volvo.
Ralph Weyler, a member of Audi's Board of Management responsible for marketing and sales, says that during the 1990s the company, to its detriment, focused on worldwide growth while companies such as Toyota's (TM) Lexus luxury division chose to focus on the burgeoning U.S. market. "You pay for your sins for a long time in this business," says Weyler.
"Our brand isn't as strongly developed in the U.S. and that causes some challenges," adds Johan de Nysschen, executive vice-president in charge of Audi of America. "But we aren't going to be able to conquer America with a marketing blitz. We need to be more targeted."
Flying Flat Screens
Hence the Audi Forum, which looms tall and boxy above Park Avenue. The 6,461 sq. ft. Forum represents Audi's concentrated effort to increase exposure to metropolitan consumers as it strives to win the high-value customers that in the U.S. are so often wooed by German competitors. "Having the Forum here is like having an embassy in New York," says Axel Catton, Audi's director of communications. "It represents a big commitment to the brand."
Tending more toward art museum looks, the Forum eschews the traditional dealership dynamics. There are no cheesy banners announcing financing offers, no sales staff, and certainly no paperwork in evidence. Short films highlighting new products and the company's F1 and Rally racing feats are beamed onto multiple 63-in. flat screens throughout the space, including a 6-x-8-ft. high-definition LED screen that floats high in the air, moving along an S-curve track in the ceiling.
The L-shaped floor plan is divided into three main areas. On a stage in the front, a demo model is bathed in fashion show lights while another area nearby is populated by glass cases with Audi merchandise and memorabilia that isn't for sale. Touch-screen kiosks throughout let visitors "virtually" customize any of Audi's U.S. models.
Bang for the Buck
Toward the back of the space, the Quattro lounge, named after the company's race-winning four-wheel-drive technology, offers free wireless Internet access and coffee for browsers and potential new customers. The space is a symphony of whites and slate grays and is filled with modernist furniture custom-made in Germany.
The area also showcases Audi partner Bang & Olufsen's home entertainment products. (The company has just begun offering a Bang & Olufsen audio option in two models, the top-of-the-line A8 sedan and upcoming R8.)
But can a brand-devoted location space really help Audi's fortunes? It certainly isn't the first auto company to have such a dedicated, high-end location: Park Avenue alone already has similar spaces devoted to Mercedes-Benz and Maserati. The enterprise comprises a major capital investment, though when asked for details, eyes rolled and lips stayed sealed.
Nonetheless, some think that the launch of the Forum reflects confidence within the company's executive hierarchy. Martyn Tipping, the president of the New York-based brand strategy firm TippingSprung, which has worked with auto manufacturers in the past, says Audi is investing heavily in the brand because it believes it finally has the follow-through in its current and upcoming product portfolio. "The time is right for them to raise awareness."
Industry observers say a controlled space like the Forum, not concerned with sales quotas, could concentrate on evangelizing Audi as a brand rather than simply selling product. "Within the past five years they've managed to resurface with a new attitude," says Patrick Hanlon the CEO of Thinktopia, a Minneapolis-based branding firm. "But, up till now it has been style without much of a story. Now they can control the environment, create a brand bubble. It's a brand Disneyland."
A Disneyland with tricked-out cars, of course. Models on display will be rare high-priced cars with the most extravagant options—just the type of high-prestige vehicles that many dealerships don't display.
Another Pricey SUV
During the Forum's launch, Audi was showing a $66,000 RS 4 specialty sports sedan as well as its Q7 SUV (see BusinessWeek.com, 10/20/06, "Audi's Adrenal RS 4"). Also on hand was an A8L W12 sedan with a hand-built interior and B&O sound system with a sticker price approaching $200,000.
Also crucial, the company is aggressively expanding its product portfolio in the U.S. The new hot-selling Q7—the brand's first SUV—is doing better than expected and siphoning sales from BMW's X5 and Mercedes-Benz's ML Class.
The highest-profile vehicle, meanwhile, is undoubtedly the new R8 supercar. It can go from a standing start to 60 mph in 4.2 seconds and is expected to cost around $130,000, putting it in a league with Ferrari and Lamborghini (see BusinessWeek.com, 9/28/06, "Audi Unleashes Its Ferrari Killer"). Though the real target, executives say, is Porsche's legendary roadsters.
Power Equals Price
A raft of other new vehicles is also planned, including a smaller SUV, the Q5, slated to go after BMW's X3, and a new A5 coupe. Currently, the company expects total volume sales to reach 890,000 cars and SUVs in 2006, a 7.2% increase from 2005. Weyler said the company was hoping to sell a million cars worldwide, 100,000 of those in the U.S., by 2008. Those figures are only made possible, he said, by new models.
The company has also started pushing two performance lines, S- and RS- badged versions of its mainstream sedans. Those editions considerably supercharge performance but also carry huge price premiums. Volumes of such vehicles remain low, though, as Audi expects to sell only 1,000 RS 4 models this year. Both BMW and Mercedes use similar halo models, the M and AMG series, respectively, to drum up excitement among brand loyalists.
The two-pronged attack—charming consumers with the Forum while wowing them with hot new models—could be Audi's best chance yet to conquer the U.S. market. Executives speculate it will take the automaker at least another five years to fully close the gap, but in the meantime, the biggest threat to the success of the Forum will come from within.
The $175,000 A8 on display during the launch was snapped up by one of the eager attendees. Resisting the temptation to turn the Forum into a proprietary, high-end dealership—and thus dilute Audi's opportunity to focus on brand rather than sales—will make or break the high-stakes, longer-term strategy.