Audi starts to feel the chill from downturn

luxury carmaker Audi, Volkswagen’s key profit driver, is finally feeling the pinch from weak European markets as stagnant earnings force it to push margin-squeezing discounts.

Growing competition in Europe and China brought price pressures “that even Audi couldn’t fully extricate itself from”, finance chief Axel Strotbek said.

Chief executive Rupert Stadler offered little hope for a marked recovery this year, saying that it “will be at least as challenging as last year” and that Europe will take three years to overcome its debt and unemployment problems.

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Operating profit was almost flat last year, edging up 0.6 per cent to 5.38 billion euros (£4.7bn) despite a 10.6 per cent sales lift to 48.8 billion euros, the company said.

Audi, which contributes about 40 per cent of VW’s group earnings, saw its profit margin drop to 11 per cent from 12.1 per cent in 2011, though still above its 8-10 per cent target range.

The situation in Europe, destination of half of Audi’s global sales, implies very many risks, said Hamburg-based MM Warburg analyst Marc-Rene Tonn. “A certain amount of restraint and caution is perfectly conceivable,” he said.

Parent VW, sales of which have held up better than rivals such as Peugeot in Europe, last month scaled back its forecast for another record year in 2013. It said the goal now is to match 2012’s 11.5 billion euro operating profit.

Audi said that it shouldered 1 billion euros in additional sales costs last year, indicating greater efforts by the luxury manufacturer to use discounts when launching models.

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