One on One With Audi of America's New Boss, Johan de Nysschen
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ByMarty Bernstein,
Contributing Editor
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During his tenure, de Nysschen, a 44
year old native of
As he was leading the changes and
vitalization of Audi in
I spoke with de Nysschen shortly before his
trip to the
His demeanor is best described as being thoughtful, reserved, candid, very candid and precise in the issues the brand faces and the aggressive goals and objectives he has for the international brand which ranks 87th in a top 100 brand study recently published in Business Week.
The erudite EVP of Audi has inherited
a brand that has had some ups and downs in
MB:
You are new to Audi in
JdN: If we go back to the 60
Minutes fiasco, Audi was damaged. This led to a loss of consumer
confidence in the brand that we had to recover. And
I think the combination of good will, effort and dedication of the people
of Audi
MB: What was done to correct this devastating impact on the brand?
JdN: The business was rebuilt. We had to work very hard to reestablish a dealer network, reestablish a customer base and reestablish a brand image.
MB: How was this accomplished?
JdN: The focus was direct. Audi is an engineering driven company. The focus always was the product. A sustained product offensive which was triggered with the introduction of the original A4 which was the first of a new generation of Audi. We took our competitors head-on and established in each of the categories we sell in, benchmark products.
MB: Does a company’s engineering orientation hinder or help in brand building?
JdN: This is a great advantage, there are some disadvantages, but essentially it means there is almost no shortage of allocation of resources for engineering development. I would much rather be a car company run by the engineers, than one which is, for example, run by the finance guys.
MB: Success in the car business always begins with the product, doesn’t it?
JdN: Yes. And product is our passion. With that great product offensive we saw our sales come back, it enabled our dealers to have the confidence to invest in the Audi brand again. They invested significant funds in improving dealer facilities, training people, and benefited from market development conditions. We had a bit of wind at our back -- had rapid growth in sales volume and in perceptions of the brand. And today, thankfully, we are at that stage where we have a well established customer base, ever increasing customer loyalty, a dealer network that is able to present to customers the true DNA of Audi.
MB: What has been the input of Audi AG in the American branch?
JdN:
Audi’s current chairman, Dr. Martin Winterkorn, has a
fanatical commitment to product quality and reliability.
He has brought another important change to Audi.
In a market environment such as the
MB: Given the improved ranking of Audi’s quality, contrasted to the price conscious marketplace, is there a positive, profitable future ahead?
JdN: These are great cars. We have the reality, however that we are operating in a market environment that is increasingly incentive driven. I believe our industry is going to have to take a good look at our business model … because we, as the corporate leaders of our enterprise have a fiduciary responsibility to our customers, business partners and shareholders. If we are actively taking our business down a road which is clearly not sustainable, then the quicker we realize it, the quicker we reconsider the route we are following, the better.
MB: What will happen if the automotive industry fails to respond to the economic uncertainties?
JdN: A real danger exists – I see the airline business model, and I’m not an expert in that industry, but it seems to me their business model is broken. If we in the automotive industry continue down the incentive path we will, I predict, end up the same way! All investors need to generate a fair return on their investment. If our industry is giving up and giving away all this margin – and that’s not just the manufacturers, distributors, dealers, all the way down the value chain, there is nothing left to reinvest in taking care of the customer. This is why it is not a pure selfish orientation to save our business model. The customers too will face disadvantages if the industry does not improve its profitability.
MB: As in imported product, how
has the Euro’s value impacted Audi of
JdN: This is one of the areas that has crept into the Audi business model, driven, I have to acknowledge by the exchange rate disparity . We’ve seen an enormous erosion of our margins. While we are not in this market for the short term, and must take the good with the bad, there will always have exchange rate movements. It is particularly compelling when there are exchange rate movements of 30% or higher. That is where our focus has now gone. So we are not competing as aggressively in the incentive game, but will focus on improving the quality of our business.
MB: Audi is one of the top
100 brands in the world according to the recent study, yet the brand
seems not to have achieved this cache in
JdN: To me one of the issues with Audi
is – although we’ve come a long way --
the reality is we are certainly not satisfied yet with the
positioning of the brand in the
MB: Do you feel this perception of the Audi brand be improved?
JdN: One of the things which makes Audi
great is our product. We have enormous product
substance and are able to charge for it in the markets where we are well
established, such as in
MB: What has Audi done about profitability?
JdN: we have to do a lot more work. We’ve worked on pricing, we’ve rolled out a new line of cars this year with the new, updated A4, the new A6 late last year, the new A8 and we’ve taken the pricing steps on these vehicles which are more in line with the production costs. We put great technology and great material quality and craftsmanship, precision fit and finish into the cars, this costs money and you’ve got to recover it. There is not point in having a business if you are not able to generate a return.
MB: How have you implemented
profitability in
JdN: I only joined Audi US the beginning of this year but this has become a key focus for me: to maintain volumes that work very hard on improving profitability for our dealers and for ourselves. If we operate profitably we have the where-with-all to build a strong platform to launch our next offensive in the market when the economic conditions are more favorable.
MB:
What steps have you taken in the short period of time you’ve
been here in the
JdN: Every new leader must take a long hard look at understanding the present business. I’ve worked a lot with my team on getting a better handle on our processes that drive efficiencies and the incentive friction which is costly. A lot of my activity has been focused internally. I will admit to experiencing a great deal of discomfort because I’ve come from an environment, that in the last few years of my tenure in Japan, the business was running well, I could actually look at the market and our partners and I was much more engaged with the dealers. I have not been able to do that yet, but I’d like to think it lies in the future.
MB: What will you do?
JdN: The focus has been internal – getting the processes sorted out. We’ve reorganized our company quite comprehensively in terms of the organizational structure. We’ve organized according to processes, reducing overhead costs, There are no sacred cows … if we only have $1 we are going to invest it where it makes the most difference. I have shifted a lot of funding to the marketing area – both above and below the line in experiential marketing. The focus has to be to create a high degree of awareness and begin to create more consumer emotion in our marketing communications message.
MB: There has never been
much discussion – pro or con -- about Audi’s advertising in
JdN: Our dealers have given me the feedback that we were too quiet in our advertising. It was the only part of our marketing budget that received more funding. We also worked hard on the PR communication area.
MB: How aggressively has Audi used incentives?
JdN: We’ve pulled back on incentives. This is not universally popular with our dealers, but I think we have to take our medicine. I don’t believe in being part of the feeding frenzy, it’s not who we are. We’ve taken some pricing steps on our new product line-up, we have introduced a new dealer margin and bonus structure which gives our dealers significantly enhanced bonuses for exclusivity. Our goal is to look at improving the quality of the business, rather at just growing the market.
MB: Your sales are up slightly this year over 2004, what are your predictions for the next few months or year?
JdN: Our objective is
to have a bit of growth compared to last year but the sales growth is not the most imperative
goal. We won’t go backwards and we will sell
more cars this year than we did last year but there will be a change in the
quality. We’ve
seen a significant upgrade in transaction prices – a range of 11 to
18%
-- which is very substantial. In fact this equals or exceeds our worthy
competitor from
MB: When will the Q7 and the
face-lifted cabriolet be introduced in
JdN: The new models will be introduced in North American in May or June of next year.
MB: You used the term quiet when referring to Audi’s advertising, yet it is word-of-mouth that is the best media for buying a car. What are you going to do with marketing communications?
JDN I couldn’t agree with you
more. Audi communications in general have been
somewhat understated. But that’s who we
are. When you look at Audi design, there is
incredible precision and top notch design, but it is quiet.
We kinda “don’t flaunt it!”
This is very European in character. I know
the tastes in some of the regions of the
MB: Can you share any of your marketing communication plans for the future?
JdN: I
have given the direction to my marketing team that we definitely need
to work hard and will do this in conjunction with our colleagues in
MB: That smacks of corporate-speak, how far out will you go to build emotion for the Audi brand?
JdN: We have added a bit of corporate culture and would like to encourage our people to take risks. Because if you don’t take risks you are not pushing hard enough. We took some risks for our launch communications for the A6 and A4. We’ve learned from these launches. We will not continue with the “greater than” campaign.
MB: This campaign was not well received by consumers or dealers?
JdN: Let me give you some feedback on this campaign. It was kind of an intellectual campaign. Those who caught it really did appreciate the campaign. But we would have to be honest enough to acknowledge we were trying to be a little to smart for our own good! And one needs to be candid about these things. The communications that go out from here in the future will not be less adventurous, but more appealing to the senses of the heart, not rational thinking and will have an up-market, prestigious character to support our positioning.
MB: Is the recent campaign for the A3 which used an Internet ‘hunt for a thief’ concept a precursor of advertising campaigns to come?
JdN: We will be adventurous in doing things in alternative media. The introduction of the A3, you mentioned, for example in which a new kind of vehicle aimed at a younger demographic – not just age, but psychologically, free- spirited people on the Internet, worked extremely well for us. I am very pleased with the results we obtained and you will see more of this kind of thing.
MB: Building a reputation and cache for a brand is an ambitious goal, but for most difficult task, how will Audi move to these goals?
JdN: You mentioned a very important thing, Marty. You spoke about how vital word-of-mouth is in selling cars. Unquestionably there is no substitute for having customers who are ambassadors for the brand. For me this is one of the cornerstones of our strategy going forward. A lot of work is being done in-house. Taking a look at our processes as we engage our dealers with service support. We don’t want our processes to get in their way.
MB: Is Audi more dealer driven now that you are the CEO?
JdN: Our dealers play an extremely important part in closing the loop, in shaping and creating the ownership experience for our customers. Once we have our house in order, here at Audi of America, we are definitely going to take this initiative to our dealers. We are busy devising a very clearly defined service promise to our customers that we will go public with at the right time. We want to make certain the dealers have he service capacity, the trained technicians in place. But even more importantly, simply the mind set that says, “customer satisfaction is the five most important things we do in business.”
MB: How do you characterize Audi’s relationship with its dealers?
JdN: I feel very strongly about a positive relationship between the factory and our dealers. I am extremely irritated by the assessment we’ve received from our dealers in a recent study. The study indicated there is a lot at fault between us and our dealers. We should not and will not be adversarial. We are partners with our dealers and will be successful together or fail together. How? By making sure we look at all our internal processes and policies to assure we have the support our dealers need to be effective.
MB: That is a very honest, candid response to a difficult question … is that your management style?
JdN: You know, it takes two to have a bad relationship. And I am frank about issues. Unless you call things as you see them, you will not make progress. For example, I was disappointed when I saw, that under the previous management, the decision had been taken to no longer pay CSI bonuses to the dealers, but to actually use this money to bundle together into an overall improvement dealer bonus. This was agreed and implemented and we have to honor agreements – you just can’t change in the short term.
MB: Is there a but coming?
JdN:: But my disappointment comes from the fact that I then saw a downturn in our CSI results. Now it seems to me there were two ways of looking at this, one, you better put the bonuses back but in a way that avoids the symptom. I need to go to the dealers about mind-set and it is that mind-set we have to attack. And I will attack it viciously! Because great customer service is as much in the dealers interest as it is in the brand’s interest. You should not have to pay people to understand how to do their business properly.
MB: What is the state of your dealer organization?
JdN: The majority of our dealers actually do quite well. But for me, anything less than 100 percent is not good enough. When I look at our J D Power results, we do quite well, but we are not the best and so why should I be satisfied. I have told my team, I will drag this organization kicking and streaming into the new century to the point where customer service is the most important thing in our business lives. Because it is a mind-set.
MB: Can these attitudes and mind-sets be changed?
JdN: From the dealers perspective, the
Audi portfolio is getting more and more exciting all the time. Audi
of America is well established, but you’ve got to be willing to take
a
new approach to the business and have long hard look at what’s been
done before. Ask yourself the question, does
it allow you to take the business where you want to take it in the
future. And if the answer is no, then you’ve got to be willing to
make
the change. There are no scared
cow.
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Addendum: It is important to note that in the
introduction of the Q7 in