Booming Audi Q7 Sales Mean Big Profits for Volkswagen

Audi continues to post impressive sales growth -- and fat profits for VW.

Feb 10, 2014 at 8:31PM

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The big Audi Q7 SUV has seen sales boom in China -- and elsewhere. Photo credit: Audi

Audi said last week that its global deliveries were up 11.7% in January. The German luxury giant's growth continued on a solid pace last month, despite increasing signs that the U.S. and Chinese markets are softening.

In a sign that Audi's profits could be on the rise, the brand said that its larger models, the A6, A7, A8, and Q7 SUV, all saw global sales rise significantly. The small A3 and Q3 also posted significant sales gains.

That's good news for shareholders of Audi parent Volkswagen (NASDAQOTH:VLKAY) -- and a sign that the global luxury-car market continues to show surprising strength.

Big Audis see big sales increases
Audi said that sales of the big Q7 SUV were up a whopping 40.8% in January, thanks to a big boom in China. Q7 sales were up 75% in the world's largest auto market, as China's appetite for luxury SUVs continued to generate impressive sales growth.

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Sales of Audi's full-sized models as a group, including the sharp A7 Sportback, were up more than 11% in January. Photo credit: Audi

China has become arguably Audi's most important market. The market for luxury vehicles in China has absolutely boomed over the last few years, and Audi, with about a third of the market, has been dominant. Overall, Audi's sales in China were up 18.2% in January. 

Audi's SUVs aren't just popular in China, of course. The Q7 and its midsized Q5 sibling accounted for 40% of Audi's U.S. sales in January, a month in which the brand saw just slight growth -- 0.4% -- as extreme cold weather kept buyers away from dealerships.

Meanwhile, sales in Europe were up 7.8%, impressive given the overall market -- and Audi sales more than doubled in Brazil in January.

So why is all of this important? Because Audi is a massive profit generator for Volkwagen.

Why Audi's profits are so important to Volkswagen
Consider this: Through the first nine months of last year, Audi accounted for 14.8% of the Volkswagen Group's global passenger car sales, and 43.7% of its pre-tax profits.

Fold in corporate sibling Porsche, and the numbers get even more remarkable. Over that same period, Audi and Porsche accounted for 16.5% of the VW Group's global passenger-vehicle sales -- and almost 66% of its pre-tax profits. 

(Porsche sales were up just 1.4% in January over year-ago totals -- but January of last year was a very strong month for the brand.)

VW was outsold by General Motors (NYSE:GM) and Toyota (NYSE:TM) in 2012, but its profits eclipsed both. Why? Luxury cars.

That example hasn't been lost on VW's rivals. Why is GM putting so much attention and money into Cadillac? Why is Nissan (NASDAQOTH:NSANY) making massive investments in Infiniti? Why did Fiat (NASDAQOTH:FIATY) pony up big bucks to give its Maserati brand a Super Bowl ad?

Because successful luxury-car brands generate big profits, and all of those automakers -- and many more -- want to emulate the success that VW has had with Audi.

Meanwhile, Audi's success continues -- and that bodes well for VW's first-quarter profits. 

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John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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