Strong parent backup
Audi operates a subsidiary of Volkswagen. Volkswagen is one of the leading global automotive companies engaged in the development of vehicles and engines, production and sale of passenger cars, commercial vehicles, trucks and buses, and genuine parts business. Volkswagen is the second largest automotive company in the world with a presence in more than 153 countries. In FY2010, the company recorded revenues of E126,875 million ($168,325.1 million). Moreover, Volkswagen was ranked 13th in the Fortune Global 500 list of companies. Audi’s parent company’s strong position gives it significant competitive advantage and helps the company to register higher sales growth in domestic, as well as in international markets.
Effective allocation of resources as compares to peers
The company has high return on equity (ROE) and return on assets (ROA) compared to its peer companies. The company’s competitors such as BMW and Daimler have less ROE when compared to Audi. In FY2010, BMW’s ROE was 13.9% and Daimler’s ROE was 12.4%, significantly less than Audi. In contrast, Audi’s ROE was 23.1% in FY2010. This high ROE indicates that the company is using the shareholders’ money efficiently and that it is generating high returns for its shareholders compared to its peer companies.
Similarly, BMW and Daimler have less ROA when compared to Audi. In FY2010, BMW’s ROA was 2.9% and Daimler’s ROA was 3.3%, significantly less than Audi. The ROA of Audi was 8.4% in FY2010. High ROA indicates that the company has been deploying its assets in an efficient manner and indicates the efficient management of the company towards allocation of resources compared to its peer companies.
Concerning product recalls
Audi announced recalls that cover some of its most popular models due to manufacturing and design problems. For instance in August 2011, the company recalled 34,000 lemon Audi A4 and Audi A6 vehicles due to defective engine fuel pump. In May 2011, Audi recalled 5,992 units of 2001-2004 Audi A6, 2003 Audi RS6 and 2002-2003 Audi S6 models due to a fuel system flaw. Similarly, in April 2011, the company recalled up to 10,200 Audi TTs from the 2010 model year to fix fuel tank ventilation system’s spring. Significant product recalls indicates decline in product quality which could negatively affect the consumer confidence in Audi’s products and could strain its sales.
Lack of scale compared to peers
The company lacks the scale to compete with large players in the markets in which it operates. Many of its competitors such as Daimler, Ford and Bayerische Motoren Werke (BMW) are larger in size. Daimler, for instance, recorded revenues of E97,761 million (approximately $129,777.7 million) in FY2010, while Ford recorded revenues of $128,954 million during the same period. BMW recorded revenues of E60,477 million (approximately $80,283.2 million) in FY2010.
In contrast, Audi recorded revenues of E35,441 million (approximately $47,047.9 million) which is much less than its competitors in FY2010. Lack of scale limits Audi’s ability to compete effectively with larger players.
Positive outlook for hybrid electric vehicles
Worldwide demand for light hybrid electric vehicles (HEVs) is expected to increase. Rising energy costs and increased emissions regulations are likely to increase demand for HEVs. By 2015, the US is expected to be the largest market for HEVs and plug-in hybrid electric vehicles, selling approximately 640,000 vehicles in these two categories combined. China is expected to be the second-largest market with more than 560,000 hybrid vehicles sold that same year. Global problems that include the environmental challenges of global warming and the need to conserve resources and energy are the key drivers for the automotive companies to develop HEVs.
Audi has a strong focus on developing HEVs. The company is one of the premium manufacturers of electric vehicles....