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Currency chills U.S.-made Audi

Mon, 28 Jun 2010 00:00:00 -0700

Audi has put on ice the option of manufacturing in the United States because of the euro's recent slide against the dollar.

The decision against U.S. production means Audi, unlike sister division Volkswagen, isn't ready to design a car primarily for the United States. But Audi of America's plans to double sales by 2018 remain unchanged.

"We don't need a plant in the United States for our plan to produce 1.5 million cars a year in 2015 at the latest," Audi CEO Rupert Stadler said. But nothing has been decided beyond 2015, he said.

Stadler spoke in Berlin last week on the sidelines of the presentation of the redesigned A1 small car.

In 2009, Audi's global production fell 10 percent to 924,000.

Said the brand's product development chief, Michael Dick, "U.S. production doesn't pay off at the current dollar exchange rate."

If Audi changes its mind, it could share part of a new plant being built in Chattanooga, Tenn., by its parent, Volkswagen AG. But Audi insiders appear to disagree about how easy that would be.

"If we use the available capacity, we could launch production in the United States in six months," Stadler said. Building a greenfield plant would take three years, he said.

In April, though, Audi of America President Johan de Nysschen told Automotive News that the brand could not easily build an Audi model on the VW assembly line.

"We can't share the line," he said. "Volkswagen needs the volume for itself, and Audi and VW no longer share the same vehicle architecture." Audi mounts engines longitudinally and VW transversely.

De Nysschen said VW designed the Chattanooga plant for a mirror-image expansion, "and we could share the paint shop."

Carmakers typically use local production--such as BMW AG's plant in Spartanburg, S.C., and Daimler AG's plant in Vance, Ala.--as a hedge against currency swings. At the height of the dollar's weakness in 2008, analysts estimated that Daimler, BMW and VW were being hit by a combined $1.5 billion annually in currency losses because of their heavy reliance on exports from Germany.

VW's $1 billion plant in Chattanooga, with an initial capacity of 150,000 cars a year, will allow VW to match more of its U.S. revenues against U.S. factory costs, thus softening the impact of dollar-euro swings.

But recent currency swings have erased some of the benefits of building here. John Hoffecker, a managing director of the consultancy AlixPartners in suburban Detroit, said that when VW unveiled plans for the Tennessee plant in 2008, it made good sense from a currency standpoint, and VW "looked brilliant" as the euro got even stronger.

Now that the euro has weakened in the wake of the Greek financial crisis, Hoffecker said, the factory still makes sense from a long-term perspective but doesn't deliver nearly the previously anticipated short-term payoff.

The Chattanooga plant also is part of a plan to increase U.S. sales to 800,000 vehicles by 2018. The VW brand sold 213,454 cars in the United States last year, down 4 percent from 2008.

Audi, on the other hand, has said repeatedly that its strategy is profitable growth rather than volume. Audi's target is to increase U.S. sales to 200,000 vehicles by 2018. Its 2009 U.S. sales fell 6 percent to 82,716.

De Nysschen has said that Audi would need a volume vehicle with sales of at least 100,000 a year to justify local production and that no plans exist for a U.S.-specific model.

Dick also dismissed building a car just for the United States. He said it might be possible to design a car that meets the tastes of U.S. customers but suits other markets as well.

It likewise doesn't make sense to bring engines and transmissions from Europe for installation in U.S.-assembled cars. "Then the localization is too small," Dick said, "and you haven't accomplished anything."

Diana T. Kurylko and Jesse Snyder contributed to this report

By Guido Reinking- Automobilwoche