Audi profit margin slips as plant costs offset sales gains

By Andreas Cremer

BERLIN (Reuters) - Audi's (VOWG_p.DE) profitability slipped during the third quarter as spending on plants and models outweighed gains from record sales of luxury car sales.

Audi, part of the Volkswagen group, is spending over 1 billion euros (813 million pounds) on new plants in Mexico and Brazil, and may for the first time build more cars outside Germany than within its home country in 2014.

Volkswagen's flagship division and source of about 40 percent of its profits, Audi overtook Mercedes-Benz (DAIGn.DE) in 2011 to become the world's second biggest premium automaker behind BMW (BMWG.DE).

Profit as a proportion of sales at Audi eased to 9.2 percent in the third quarter, from 9.4 percent a year ago, the carmaker said on Monday. At Mercedes the measure jumped to 8.6 percent from 7.6 percent thanks to improved pricing.

Volkswagen last week reported a 16 percent increase in third quarter operating profit.

Audi also raised its revenue guidance, predicting a "moderate" increase in revenue which totalled 49.9 billion euros last year. The brand had previously forecast a "slight" gain in 2014 revenue.

Europe's luxury carmakers avoided the worst of the downturn in their home region, thanks in part to strong demand from the United States and emerging markets.

Still, some 22 billion euros of planned spending on models, plants and technology through 2018 means Audi's operating margin may return to its 8-10 percent target range from 10.1 percent in 2013 and 11 percent in 2012, Audi said.

While quarterly sales were up 7.2 percent to 429,295 cars on demand for sport utility vehicles (SUV) such as the Q5 and higher-priced models including the A6 saloon, Audi has seen its overall 2014 sales lead over Mercedes shrink to 103,494 cars after nine months, from 118,110 a year ago.

Some of Audi's models have peaked and the brand has pushed planned overhauls of its top-selling A4 model and the Q7 SUV into 2015.

"Audi has fared much better than expected with its ageing line-up," Frankfurt-based Bankhaus Metzler analyst Juergen Pieper said. "Mercedes is at a more favourable spot in its model cycle."

After running over 90 extra shifts at its two main Germany-based assembly plants this year, Audi in September raised its delivery target to over 1.7 million autos from a record 1.58 million in 2013, relying on demand from China and Europe where it leads the premium segment.

(Additional reporting by Irene Preisinger. Editing by Keith Weir)