I was reading an announcement this week with AUDI stating they are going to fight back against the fierce competition they have been under of late. This is not just an AUDI problem and has been more of a trend with the premium vehicle sales in South Africa.
Over the last decade from about 2014 onwards the premium sector has seen it's sales shrink by as much as 70%. This is a catastrophe for those legacy brands which would include Mercedes, BMW along with Audi.
Audi in particular does not have the models it requires in order to take the attack to it's competitors. The problem the premium brands have been facing is the cost of living has increased rapidly due to inflation and combining this alongside cheaper Chinese imports with upgraded features consumers are spoilt for choice.
The premium sector is by no means that large, but lies between the 32 000 - 35 000 annual sales region. The leading legacy brand in this sector is BMW followed by Audi and then Mercedes.
The popular AUDI A4 model was discontinued in SA last year and the current model range is looking more like ageing stock and finally they have a plan to fight back. 13 new models over the next 18 months will be launched into SA as no AUDI's are assembled locally anymore.
I think it is common knowledge the biggest selling factor for the Chinese vehicles versus the rest has not only been price, but the extended service warranty plans now being offered for 7 years or 200 000 km. In the past you saw 3 or 5 year plans with a maximum of 100 000 km. That figure has been raised to 150 000 km recently which is still not enough.
The Chinese manufacturers have been heavily financed by their government with subsidies being given so they are still making a profit if they sold the vehicle for cost. This has allowed the Chinese to attack their competitors by severely undercutting the price which is how they have grown. The resale value will become a problem and the consumers will find out the hard way which is still going to happen. This is still going to hit the Chinese auto makers hard and this is no done deal with their increased market share.
The Chinese government has already discussed dropping their subsidies and when that happens the Chines auto honeymoon period is over. There are too many Chinese brands on the market and in this particular sector will cannibalize each other leaving 2 or possibly 3 left.
Audi has a secret weapon which the Chinese cannot compete against and that is a 15 year Freeway policy. The 15 year service warranty plan covers everything and there is no balloon payment once the plan ends. Basically you are leasing your vehicle from Audi and through this method your monthly payments are far less making the vehicle more affordable.
Audi has been known for their quality and there is no question an Audi would survive 300 000 km if service and maintained by the dealerships. The vehicle would retain more of it's value knowing there is x amount of years left on the service warranty plan. Audi also mentioned they will be reducing their pricing model so at least they are being flexible because they know they can increase their market share with the correct strategy.
When buying our vehicle last month I noticed many Chinese vehicles that had low mileage and had their prices dropped significantly due to not holding their value. The depreciation of a Chinese vehicle with very low kilometers (less than !0 000 km) was around 30% because it was now second hand. Not only do they have no available spares on many models the insurance premium is that much higher for the Chinese vehicles. I did look at two Chinese models with an open mind, but walked away knowing it was a bad purchase even though the price was seriously good. If I had bought one I know the value would drop off the edge being a 3rd hand car when I sold and you would be stuck with a Chinese vehicle.
Audi at the end of the day may cost you more overall but the safety net is what the company are offering and expect Mercedes and BMW to offer similar packages going forward. Personally I have always liked Audi vehicles and it is great to see them finally wake up and fight back.
