I was in Bavaria last week, taking in a way cool exhibit at Audi's museum, Audi Tradition. It chronicles the history of the DTM series – the German Touring Car Masters series of races that are wildly popular in Germany. Think NASCAR for Germans. If you're near Ingolstadt, about 40 minutes north of Munich, go have a look.
At least as striking is the health of the economy in southern Germany, where Audi and BMW call home. From the richness of Munich's modern airport stuffed with Boss, Gucci, and Prada designer stores, to the cafés packed with merry makers on the streets of Munich, you'd be hard-pressed to spot signs of any sort of economic distress. This is a rich place.
But under the surface you'll find simmering concern about economic issues from Greece to China. Germans on the street are frustrated with Greeks who don't act like Germans – Germans who pay their taxes, work for companies rather than the government, and follow a generally orderly life. Why Germans would be surprised and frustrated with Greeks who cannot or will not be more "German" is beyond me, but that's what I experienced.
The German car companies, meanwhile, are deeply concerned about what's happening in China, where double-digit growth has shrunk to single digits, a property bubble appears near bursting and sales of luxury cars have begun to slow noticeably. The Financial Times, for instance, recently reported that profits at Daimler's "Mercedes-Benz car unit would not reach the level of last year because of deteriorating market conditions in Europe and intensifying competition in the Chinese market."
The FT noted that Max Warburton at Bernstein Research said the warning is a blow for Daimler and the whole German car manufacturing sector, in particular the premium brands such as Audi, Mercedes, BMW and Porsche. "China profitability is falling and it is going to affect the earnings of all these companies," he said.
Automotive News has reported that German car companies have been bolstered by affluent customers in Europe who have not been overly battered by the weak economy. Meanwhile, fat profits from China have papered over problems elsewhere.
"But as China's red-hot auto market cools down, even in the upper realm of luxury cars, there is growing worry it will no longer have the strength to make up for a weaker Europe–or to drive the robust profits investors have gotten used to in recent years," said Automotive News.
The industry publication, however, noted that some German car company leaders are warning not to panic. "We were always spoiled with double-digit growth and now that we have just single-digit growth, the market is nervous," said Audi's chief executive, Rupert Stadler in an interview.
Audi's story is pretty interesting and the subject of much conversation in Bavaria. In a separate Automotive News story, Audi is reported to be reeling in BMW in the race for the 2012 luxury-car sales. BMW's lead was down to 2,110 vehicles in August. BMW has been on top of the global luxury car market for seven years, but Audi has made no secret of its plan to overtake its Bavarian rival. Audi's sales were up 13 per cent to 961,000 vehicles through the end of August; BMW brand sales were up 7.8 per cent to 963,110 autos over the same period.
Audi, of course, has been on a tear. According to Automotive News, Audi has pumped $25.6-billion (U.S.) into research and development since 2002, doubling the number of model lines to 12 since 2003. Audi overtook Mercedes for the No. 2 luxury spot in 2011.
Based in Ingolstadt, Audi has been generating plenty of buzz with a long list of new models, from the R8 sports car to the Q5 SUV. Audi has long said it planned to pass BMW by 2018, but Daniel Schwarz, a Commerzbank analyst in Frankfurt, told Automotive News that the luxury division of the big Volkswagen Group should overtake BMW sooner, save "surprising shifts in market share which I don't expect, especially in China." He added that Audi is "the strongest growing luxury brand, and they just launched the A3, which is close to being their best-selling car in a peak year."
The race for the premium sales crown in Canada is not nearly so close, however. Through the end of September, DesRosiers Automotive Consultants reports that Mercedes was No. 1 in Canada with sales of 24,593 (up 8.8 per cent on the year), with BMW No. 2 (23,851, sales up 7.8 per cent), and Audi is No. 3 (14,997, sales up 12.6 per cent). Audi officials have said they plan to win the premium sales crown in Canada by 2018.
Compared to China and Europe, sales of German premium brands in Canada are booming. Canada isn't the biggest luxury car market in the world, but it's one of the very healthiest and most stable. That surprised many of the Bavarians I chatted with last week.