15 October 2008
Johan de Nysschen Address to German-American Chamber of Commerce
Engines of Independence — Bringing Clean Diesel to the U.S.
Good day ladies and gentlemen. It is a pleasure and an honor for me to be speaking to you today.
Audi, like the members of the German-American Chamber of Commerce, is a proud contributor and promoter of the contributions made by German business to the American economy and the American way of life.
These contributions are substantial, significant and on-going. They are the modern manifestation of what has been a long-term historical reality.
Many of these contributions were celebrated in cities across America earlier this month on German-American Day.
One of the first pioneers to arrive in the Jamestown colony was a German physician and botanist named Dr. Johannes Fleischer. He was soon followed by a group of German glassmakers, wainscot sawyers and metallurgists.
Not only did these and other Germans bring to America both the knowledge and the expertise that planted the seeds of America's growth into an industrial powerhouse, they also brought an idea that helped drive the American economy in creating the highest standard of living in the world.
That idea was that scientific innovation, applied to the real world – technology -- could overcome the seemingly insurmountable challenges presented by an uncertain environment and thus can free you from depending upon others to fuel your growth and your progress.
Now, I'm not saying that it was only the German contributions that allowed Jamestown to be the first colony to survive.
But it is certain that this idea – that technology drives progress – was embraced by many in the founding generation and it became not only central in the vision of the new, independent nation they wanted to create but also central in steering the vision into reality.
And over the years, it is this idea that remains one of, what I call, America's, "Engines of Independence."
Audi's belief that technology drives progress is the inspiration behind a product that is an example of an engine of independence. This engine can help America steer away from its reliance on foreign sources of energy and toward a cleaner, more sustainable future.
It is our proprietary Turbo Direct Injection diesel technology known as TDI. It was invented by Audi and it is the cleanest, most efficient diesel in the world.
As I speak to you, Audi is sponsoring what we're calling the "Audi Mileage Marathon". 23 TDI powered vehicles are being driven across the country to raise awareness of the benefits of this technology to America and American drivers.
The first of these vehicles will be introduced in this country early next year. It will be the Audi Q7 TDI. And given that this is an election year, I call our Q7 "the candidate for diesel."
But, as is also true in this election year, no one is prepared to buy what a candidate promises without first hearing how the people, the platform, the policies and the organization that the candidate represents is in touch with the current economic realities.
I will return to the subject of the promise of clean diesel technology in a moment, and spend a few minutes explaining to you why my company is in good shape to weather the current economic storm.
So, I'll begin by saying that as I look at the automotive market, I am optimistic.
Yes … I know what you're thinking … "this guy is out of touch with reality."
And yes, I know that hearing me claim to be an optimist may surprise those who know me to be a hard-bitten realist.
Well, the fact is that I can be both at the same time.
Let me tell you why, from where I'm sitting, I see my glass as half full.
One, very important reason, is that I am looking at a brand that has extraordinary momentum around the world.
Audi is part of the VW Group, with which a market capitalization of $127.5 billion, has surpassed Toyota as the most valuable automotive company in the world. And within the Group, Audi is considered to be the jewel in the crown, generating half of the Group's profits. So Audi is a very valuable company and brand.
2007 marked twelve consecutive years of record sales volume growth and, in spite of the economic downturn, it looks like 2008 will be another year of growth with sales volume on track toward exceeding one million units worldwide.
Most of this growth has occurred in Europe, where Audi is unquestionably entrenched as one of the premier luxury automotive brands. However, if there is one area where we still need to improve, it is to be entrenched as a luxury brand also on a global basis. Our global strategy now focuses on strengthening the brand and expanding our presence in Asia and North America. In China, Audi is already the market leader amongst luxury brands. In the US, we have incredible potential for growth.
If you look at our brand in this market, our upward trajectory is obvious, with 20% growth over the past 3 years. In a time of economic uncertainty, this momentum provides a reason to be optimistic.
Not only have we increased volume and market share, we have increased the value of our brand while decreasing the complexity and the cost of the way we do business.
We have decentralized many operations and resized and reorganized into a leaner, more customer-focused organization.
The sales results support the success of this strategy.
Our product portfolio has improved the perception by US consumers of our brand and brought us to levels of brand awareness and customer consideration that are the highest in our history.
In short – just as Joseph advised Pharaoh to make a strategy during the prosperous days to prepare for the lean days that would inevitably come – we had a strategy for our brand that we began implementing years ago which has put Audi in a better position to weather the current lean economic times than many other manufacturers.
This reality is perfectly illustrated by the current statistics.
While the luxury auto market in the US is down 12% this year – including a 28% drop in a tumultuous September, Audi sales volume is very stable and virtually even with last year, even though the volume model, the A4, was at the end of its lifecycle, being replaced by a new model only a few weeks ago.
So I can look around and see that Audi's share of what's left on the table is actually going up.
Of course I am concerned about the panic in the financial markets. This is destroying economic value, fuels investor and consumer uncertainty and precipitates yet further withdrawal from the markets and reluctance to spend. At the very least Audi is less vulnerable than most.
Over 50% of our customers have a credit score of 740 and above which translates into a monthly lease delinquency rate of 1% and below.
Not only do we have low credit risk, but we have proactively managed our lease portfolio particularly with regard to our residual values. We have actively engaged our dealers in the used car business, creating a sub brand called Audi CPO which brings new customer groups to our dealers and provides a lower cost of entry for these customers into the Audi brand. We expect to sell over 32,000 CPO vehicles this year and the combination of new vehicle sales and used vehicle sales performance has resulted in the Audi dealer network being alone in reporting year over year growth in dealer revenue and profitability.
Thus, the brand and our dealers are relatively healthy.
Enthusiastic dealer engagement in purchasing off lease vehicles from us has resulted in robust residuals. But even here, we were not satisfied, so we took steps already 3 years ago to further support consumer and trade confidence in used Audi vehicles by establishing eleven vehicle reconditioning centers for off-lease used cars around the country.
It's all part of our larger strategy to move Audi into the top-tier of luxury manufacturers by becoming perceived as a brand to value … not as a value brand.
But, we still face challenges here in the US. For one, brand awareness is much lower than for our key competitors. The luxury market in the US is dominated by M-B, BMW, and Lexus. So we must move away from the understated, tread softly approach and convey a bold and assertive message to clarify the positioning of the Audi brand. This may not be very European, but this is not Europe.
You will continue to see our growth strategy in action through 2008 and into 2009. Certainly, we may make some adjustments based on the current financial crisis, but I feel confident that our brand will stay on course.
We have the strength to weather the storm in a liquidity and credit crises.
And so, ladies and gentleman, that is who we are … that is our platform … and those are our polices.
So let me now return to why it is time for Audi to bring clean diesel to this country.
We believe … and can prove … that the innovation and new technology that we are bringing from Germany drives real progress in the American luxury market.
For Audi, it is the engine of independence that is now in America.
Earlier, I alluded to our diesel program and Audi's proprietary TDI technology.
Clean diesel is a cornerstone of our US growth strategy.
Audi's first TDI clean diesel offering will arrive in the Audi Q7 full-size SUV. It will be in show rooms early next year, and I hope to announce more products powered by TDI very soon.
I am glad to say, Audi is not alone in bringing a new product category to the US. Our key German competitors are pursuing similar diesel developments and products. Together we offer America an opportunity to overcome a seemingly insurmountable challenge … the challenge of oil dependency.
I believe that now is exactly the right time to bring clean diesel technology to this market … because I believe it represents an engine of independence for America.
I know that's a big statement, but I truly believe it. Let me tell you why.
Audi clean diesel engines consume about 30% less fuel than gasoline engines of equivalent power. It produces about 25% less CO2 emissions, and with the emission control technology now available, NOx emissions are reduced by 90%, while particulate emissions are reduced by 98%. So it's a compelling message, for the individual and for the environment.
But there is also a national strategic imperative. The EPA estimates that if 1/3 of vehicles on the road in the US were powered by clean diesel, a figure surpassed by Europe, then we would save 1.4 million barrels of oil per day. That happens to be the amount of oil we import daily from Saudi Arabia.
We can dream about discovering new oil fields to make this country less dependent on foreign oil, or we can embrace the technology that achieves the same result.
And this is only phase 1. Phase 2 kicks in when the oil industry masters the ability to produce bio-diesel from ecologically sustainable waste organic material – not part of the food chain – in economically viable quantities. The technology exists, and the production challenges will be solved. Then we will have reached the point of renewable energy and economically viable transportation.
Unfortunately, America stands in its own way.
Because, if the U.S. Government is serious about reducing its dependence on foreign oil, it must -- and can -- do more to encourage consumers to drive more fuel efficient vehicles.
Current taxation on diesel fuel dramatically increases the cost of driving ultra-low emission "clean diesel" vehicles. Consumers are clamoring for more fuel-efficient options … just look to the long waiting lists for the most popular hybrid models.
And while hybrids absolutely have a place in our quest for energy independence, it is not the utopic answer. Clean diesel is a technological breakthrough a century in the making.
In fact, when it comes to fuel economy, clean diesel is a better option than hybrids for those looking for good highway mileage. Hybrids work best under heavy stop go traffic with short commutes. But typical American driving patterns are light intra-suburban and open road traffic … conditions under which hybrids do not perform well and where clean diesel excels.
Unfortunately, too many Americans think of diesel as smelly, dirty, noisy and generally associated with trucks.
New, ultra-low emissions fuel and technology … largely, German technology … has combined to produce engines that meet the strict regulations of the EPA and California.
Clean diesel makes it possible to create a car-lover's car without the guilt. This means that Americans can continue to love their SUVs … yet if they want performance, we can deliver that too.
For instance, the Audi Q7 TDI … a seven-passenger SUV … combines the power and capacity of a V8 gas-powered SUV, with the fuel efficiency and ultra-low emissions of clean diesel.
And the Audi A3 Sportback is agile, yet functional for the active lifestyle.
As more and more drivers convert to clean diesel, the effect quickly multiplies.
J.D. Power & Associates forecasts that diesels will account for 14 percent of the U.S. auto market in 2017, up from just 3 percent today -- meaning that Americans could save more than 29 billion gallons of gasoline and reduce CO2 emissions by over 250 million metric tons over the lifetime of their vehicles.
All of this may be news to many Americans, but in reality clean diesel was a long time coming. But it wasn't until the EPA mandated standard ultra-low sulfur levels in diesel fuel nationwide, that it became possible for automakers to begin producing commercially viable clean diesel vehicles, as have been in use in Europe for years.
Recently, both houses of Congress came one important step closer to extending tax credits on energy-efficient technologies like plug-in electric vehicles, yet another indication of the government's support of cleaner modes of transportation.
Yet while we may applaud their support of tomorrow's technologies, consumers need access to cleaner, more efficient fuels today. That means reducing the tax rate on diesel to make it more competitive with gasoline.
The market is ready for this change. Demand is rising for more fuel-efficient and greener vehicles. This summer, Consumer Reports found that 31 percent of consumers in the market for a new car considered fuel economy their most important consideration, up from 16 percent in 2007.
Automakers are rising to the challenge, rolling out more of today's fuel-sipping hybrids and clean diesels and working on new technologies for tomorrow, including cars that run on electricity, fuel cells, biofuels, compressed natural gas and hydrogen.
Automakers with clean diesel technology in hand recognize the particular challenges of introducing clean diesel to U.S. consumers.
And though these same consumers have long held a justifiably negative view of past diesel efforts, the prospects for clean diesel fuel are positive. Turning again to Consumer Reports, they found that 30 percent of prospective buyers, up from 11 percent last year, were considering diesel.
That's why over the next 12 months clean diesels will be hitting the show rooms of America. And it's why Audi is sponsoring the Mileage Marathon. We need to show drivers nationwide that they don't have to wait for fuel-efficient, ultra-low emissions driving.
It's here. It's proven. Everyone's ready to go clean – all we need is the green light from lawmakers.
I ask all of you … business leaders, influencers, and especially those who understand the benefits of diesel technology … to focus a portion of our political affairs efforts on encouraging leaders at the state and federal level to change counter-productive policies.
As they have discovered in Europe, taxing clean diesel fuel at a lower rate than gasoline encourages consumers to purchase cleaner, more fuel-efficient vehicles.
When it comes to tax credits, we believe that clean diesel is viable, attractive, and, when you actually compare fuel efficiency a more real world solution for most drivers than hybrids, so all we ask is a level playing field that gives consumers a choice.
Yes, doing so will be good for Audi and for other German manufacturers who are bringing diesel technology to America.
Much more importantly, it will be good for America and a contribution to this country that all German companies who do business here can point to with pride.
For our part, Audi is investing heavily in helping Americans understand that Audi TDI clean diesel is anything but the diesel engine of yesterday.
As I told you earlier, we are currently sponsoring the Audi Mileage Marathon. I invite you to look us up on the web at audimileagemarathon.com.
I am participating in it everyday and, in fact, immediately after this speech I have to return and begin the next leg of the journey -- which will take us from Las Vegas to Mammoth Lakes to San Francisco and Monterey, finally ending in Los Angeles.
I can tell you that the reception we are receiving around the country … the press coverage it is generating … and the minds it is changing continually reinforces my optimism while facing down an economic storm.
When it's over, I'll return to our new headquarters outside of Washington DC.
So, if any of you are in the neighborhood and would like to hear more about the Audi TDI clean diesel's role as an engine of independence for America, I invite you to stop by for a conversation about the future over a glass of good German beer.
Thank you for your attention.