Franz-Josef Paefgen, 52, has been chief executive of Audi AG since July, 1987. Before that he was the company's top product development executive. Paefgen has helped to make Audi one of the fastest-growing brands in Europe and the USA. Now his aim is to 'sharpen' Audi's image still further, while launching models like the AL2 and Allroad quattro in new segments.
Things are going well for Audi. Will it contineu?
We are carefully optimistic. This year will be another successful one for Audi. We also think that next year our sales will either be stable or go up. That is assuming that most of the major world economies remain where they are today. We see the problems in Japan, and we see the problems in Russia. But we do not expect major problems in the USA or Western Europe, including Germany.
Audi is at full capacity now. Do you have to think about adding capacity?
For the next one or two years we will have slow growth, so we think that we have enough capacity.
How long is the wait for someone who orders an A3?
By increasing production we were able to drop the average waiting time to between three and six months, depending on the market and the version. There should be no wait much over six months. (In April 1997 the wait was over seven months.)
Next year you will launch an all-new car, the AL2. First of all, will it be named AL2 or A2?
Despite a lot of discussion, we have made no decision so far. There are at least five different proposals for the name, so it's open.
It is an all-aluminum car. Can you produce such a car in high volumes?
Yes. At the moment we plan a minimum of 50,000. We would like to learn how effectively we can produce aluminum bodies in volume, and volume production starts at a minimum of 50,000 units a year.
I think it is a very interesting challenge to do a small car in full aluminum and see whether you can make it at an acceptable cost.
For a prestige car like the (aluminum-bodied) A8, another DM1,000 ($593) cost is not that much of a problem. But with a small car it is more difficult to justify that cost.
Has the cost of aluminum car production come down since the A8 was launched a few years ago?
Yes. But you can only make major changes in the cost structure of the car when you change the product. With the running production of the A8 you cannot expect major changes in cost.
You can negotiate with your suppliers to reduce cost per kilo, or you can do something when the price of aluminum goes down. But even that does not make a big difference. However, since we are designing a completely new car we can reduce costs dramatically.
Who is the customer for this car? Is it the same profile as the Mercedes-Benz A-class buyer?
We are looking for a new segment of the market. We think that sooner or later customers will no longer think merely in terms of sizes - smaller and bigger, high and low.
If customers think they are getting intelligent solutions to their problems, and the car's image is good, then they will buy it.
So it won't necessarily be the Golf-type customer. The AL2 buyer could come from any segment?
All customers who want room for four grown-up people in an intelligently designed car, comfortably seated, with all the safety features, will be interested in buying such a car.
Is the AL2 for Europe only?
At the moment I would definitely see no big market in the USA, for example. They think big and this car is not big. But I think European and Japanese markets will be interested in this car.
Will Audi offer a sport-utility vehicle or a minivan?
No. We said we are going to sharpen the image of Audi as much as we can, because in the future more and more brands will come on to the market.
You will need a strong, sharp and limited brand that is concentrated on defined segments of the market. The customer will have a clear image of what this brand stands for and which products he can expect. Therefore we made the decision not to do an MPV or big sport-utility.
We are concentrating more or less on niches which are new - with the AL2, for example. We are doing the same with the Allroad quattro, which combines the abilities of a comfortable, high-speed sedan or wagon with an off-road car. I think you will be quite surprised to see how well this car can perform.
How is demand for the TT?
So far we have roughly 18,000 orders in our books and that is before we gave the first car to any dealer. We expect more orders than we have production capacity, which is a little problem for us.
What is capacity at the Gyor (Hungary) plant where the TT is built?
Installed capacity is 30,000, which can be lifted to 40,000 per year. But we think that maybe even this is not enough.
So we are looking on one hand at the orders coming in, and on the other hand what can we do to increase this capacity even further.
Would you expand capacity at Gyor or somewhere else?
No answer at the moment. We are looking at many opportunities.
The VW brand is talking about offering luxury cars. Within the group, it seems like that should be Audi's job.
They are trying, of course, to position the VW brand higher than it has been. But just by talking about higher positioning doesn't mean you will do it. It's a question of what the customer sees. We still work hard to stay were we are. All competition is welcome, including competition inside the group.
Now that the W-12 and W-18 engines exist inside the VW group, is there a chance for you to go above the A8 and offer an A12 or A18?
I could imagine that if the market goes this way we would add something more than eight cylinders.
Seat wants to be more like Alfa, Skoda more like Volvo, and VW wants to go straight upmarket. Where does Audi fit in VW's group brand strategy?
We are Audi and we go for Audi. We created a position which is on one hand in the upper segment of the market, and on the other hand a little bit away from the classic brands like Mercedes-Benz and BMW. We try to offer a different solution - to be innovative and to be creative. I think we are being quite successful in doing this.
What is your plan for Lamborghini?
Lamborghini has a lot of potential as a brand. It is quite small at the moment. The potential is there to make it much bigger. I also think that Audi has a lot of technology which could help Lamborghini. I do not want to stretch the Audi brand too much, so Lamborghini is responsible for the super sports car segment.
They have been building only 200 or 300 cars a year. Would you like that to grow substantially with new products?
I can only answer in very general terms because we are just in the process of reviewing the situation. We will not make final plans for new products before the beginning of next year. But one thing is for sure. If you want increase the number of cars you sell, you need one or two more products.
Lamborghini had models in development when you bought the company. Are those projects being reviewed or are they being continued?
We are reviewing everything we found there, and will make a final decision at beginning of next year.
Franz-Josef Paefgen was interviewed by Automotive News Europe editor Richard Johnson on 3 November in Ingolstadt.