German luxury carmakers aim expansion despite gloomy outlook

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A man looks at an Audi sports car on display in showroom in Beijing. Booming auto sales in China have spurred manufacturers to step up production so fast that concerns over "blind investment" and overcapacity in the sector are emerging, analysts said. China's auto market overtook the United States in 2009 as the world's largest and will remain so this year with up to 17 million vehicles expected to be sold. Photo - Liu Jin/AFP/Getty Images

Audi AG is leading an optimistic drive among major automakers to bolster production, with the luxury car maker on a dynamic hiring spree to expand its production capacity by as much as 57%. These moves come at a time when the US and European markets are showing signs of a decline in the wake of plunging stocksand a belligerent Western sovereign debt crisis.

Besidesadding500new employeestoits existing 14,000 strong workforce, the German automaker is additionally employing extra shifts and cutting short vacation breaks on its second-largest manufacturing plant in Germany. The move comes as Audi plans to swell production of its A8 flagship sedan, a luxury model that is priced at a staggering 69,600 euro ($101, 400), from 115 to 180 units a day.

In fact, Audi’s aggregate output may soar as high as 21% to reach a record 260,000 vehicles in 2011, Albrecht Reimold, head of the car makers factory in Neckarsulm, Germany, forecasted in an interview with Bloomberg.

However, further ongoingexpansion in Spain and China indicates a much broader plan by Volkswagen, Audi’s parent group, as ithastens to exploit soaring demand in emerging markets.

Massive import taxes have caused car prices to swell to immense proportions with recently launched Audi A8 carrying an estimated price tag of 271,536. China remains the most viable luxury car market and an inevitable magnet for European automakers such as Audi.

Statisticshighlight thatChinas wealthy set to increase every year, with a whopping 960,000 individuals owning assets worth 10 million yuan, a figure that is 9.7% up from 2010.

RIVALS HIT BACK

BMW and Mercedes Benz, chief contenders in the upscale vehicles market, seem to be resonating Audis surprising surge of optimism. The luxury automakers are moving in toshore upproduction in response to Audis ambitious expansion plans.

Mercedes Benz, following Audi’s suit, is putting on additional shifts, prolonging work hours and cropping breaks on its existing factories, besides building new plants, including one in Hungary, to boost its capacity. The German car manufacturer further announced a plan last month to build a $298 million expansion to its Vance plant in Tuscaloosa, USA.

BMW is also moving quickly to keep Audi at bay, especially at a time when analysts’ forecasts suggest Audi may steal its crown as the worlds largest luxury car maker by 2015. The Munich-based manufacturer has scheduled continuous production in its component factories in Austria, the UK and Germany, besides cropping the summer break at its production plants. BMW also vowed to boost its investment in its joint-venture plant in Shenyang, China to a staggering $1 billion Euros, highlighting plans tocounter Audi’s offensive in the Chinese car market.

GREAT EXPECTATIONS

Automakers have largely been on a positive rebound since the beginning of the year as the gloomy shadow over the global economy began to fade away from the auto industry. Nevertheless, manufacturers such as Audi still seem to be cautious of the skyrocketing European sovereign debt and a US credit-rating downgrade that is sparking fears of a calamitous double-dip recession.

Audi cites promising forecasts as the key driver of the latest twist in its plan of action, favoring its own predictions over discoursing market signals. Were aware of expectations that conditions may change to the worse, but we trust our own forecasts suggesting that things will stay good, an executive at Audi remarked.

Sources: Bloomberg

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