Audi aim to unseat BMW as luxury no. 1

Bloomberg News (Berlin) - Audi AG (NSU) will spend more than 10 million euros ($14.3 million) on an indoor test track at this year's Frankfurt show to outshine BMW and Mercedes-Benz as rivalry among the three biggest luxury carmakers intensifies.

Audi, which had previously showcased its models as part of the Volkswagen AG (VOW) group's display, is investing more than ever to have its own pavilion. The biannual Frankfurt International Motor Show, Europe's biggest, runs from Sept. 15 to Sept. 25.

Ingolstadt, Germany-based Audi, which sold 1.09 million cars last year, has pledged to unseat Bayerische Motoren Werke AG (BMW) as the world's largest maker of luxury cars by 2015. Daimler AG (DAI)'s Mercedes is also planning a display with a roadway at the show. Both are following BMW, which was the first to have a track to show its cars in action at the Frankfurt event in 2009.

"Car shows are the ultimate platform for manufacturers to compete with each other, especially in the luxury sector," Wolfgang Meinig, head of the Bamberg, Germany-based FAW Research Center for Automobile Industry. "Audi is taking this battle to another level. They're breaking away from VW group presentations to take BMW and Mercedes head on."

Audi's curvy temporary exhibition hall for Frankfurt measures 100 meters (328 feet) long, 70 meters wide and 12 meters high. Integrated into the building is a 400-meter long track that loops into the interior and is partially visible from outside the building. About 30 models will be on display, and visitors can ride in about a dozen vehicles, including race cars, that will circle the hall.

'Wow Effect'

"We'll make a strong statement," Audi Chief Executive Officer Rupert Stadler said in Frankfurt last week. "It'll be surprising, emotional, architecturally great, with a real wow effect."

Audi's growth has helped boost VW's share price. The stock has risen 12 percent this year, making it the best performer on the eight-member Bloomberg Europe Autos Index. BMW has gained 8.7 percent and Daimler has dropped 6.8 percent in the period.

Manufacturers of luxury cars have to work harder to make their brands alluring to justify the price tags. Mercedes sponsors fashion shows in New York and Berlin and enlisted hip hop artist Rev Run of Run-D.M.C. this year as part of a Twitter promotion tied to its first Super Bowl commercial. Audi threw a party last year for the U.S. television Emmy awards as part of a strategy to woo Hollywood. BMW supports art fairs in Basel, London and Hong Kong and partnered with Chef Thomas Keller.

Museums, Galleries

The German automakers have also been building elaborate permanent showcases for themselves. Porsche SE opened an all- white 100 million-euro museum in 2009, following Mercedes's spiraling gallery in 2006. BMW boasts that its 250 million-euro museum and customer delivery center has become Munich's top tourist attraction since its completion in 2007.

Audi will start construction on its Frankfurt pavilion July 1 and will finish in time to host a conference a few days ahead of the show. The project, which was developed with Munich architecture and design firm Schmidhuber Partner, won't be rebuilt in its entirety after being dismantled following the Frankfurt Book Fair in October.

"The point is to surprise our customers and you couldn't have the same effect a second time," said Bernhard Neumann, head of event marketing at Audi. "The building is an expression of dynamism, lightness and elegance. There's hardly a single right angle."

BMW kicked off the track trend at the last Frankfurt car show in 2009, when it installed a roadway around the inside of its hall. The car show, which has been held since 1897, has particular importance for high-end car makers, because BMW, Audi, Mercedes and Porsche are all based within 400 kilometers (249 miles) of the fairgrounds.

Mercedes Test Drive

"The Frankfurt exhibition is one of the key shows worldwide," said Willi Diez, head of the Nuertingen, Germany- based Institute for Automobile Industry, a state-funded think tank. "It's a must for the top German luxury makers to be on a level playing field."

Mercedes also wants to make a big impact after being overtaken by Audi as the second-largest market of luxury vehicles this year.

The Stuttgart, Germany-based automaker will have a track outside its exhibition space at the fairgrounds' century-old Festhalle building. The company will allow visitors to test drive electric and fuel cell vehicles themselves, a person familiar with the company's plans said.

Mercedes's May sales rose 7.3 percent, less than half the 19 percent growth for BMW and Audi. In the first quarter, Mercedes's operating margin was 9.3 percent of sales, compared with Audi's 10.6 percent and BMW's 11.9 percent.

'Battlegrounds'

The Stuttgart-based automaker will have more space for showing new models such as the revamped B-Class compact and M- Class sport-utility vehicle with the absence of Chrysler, which had previously exhibited in the same hall before pulling out at short notice in 2009. Daimler's Smart city-car brand will occupy space attached to the Festhalle, which was commissioned under Kaiser Wilhelm II and has space for 13,500 visitors.

"The motor shows are like battlegrounds, where we all meet and vie for media attention," said Christoph Horn, head of product communication at Mercedes-Benz. "They're not just traditional trade shows anymore. We're all spending more because you need to get your share of exposure."

BMW, which previously displayed at the same position that Audi is now taking up, is ready to face the stiffer competition, said Marcel Kranz, BMW's manager of European trade shows and exhibitions. The company typically spends 14 to 16 months preparing for major car shows like the one in Frankfurt.

"We see motor shows as the 'pentathlon' of communication, because it's all there: architecture, big-scale billboards, products, motion and movies," said Kranz. "We take on the challenge to keep up" the level of exposure achieved with the 2009 show.