An employee works on an Audi A3 car in the...

An employee works on an Audi A3 car in the new factory at Gyor, Hungary as the factory is inaugurated. (June 12, 2013) Credit: Getty Images

Audi AG, the world’s second-largest maker of luxury cars, said a new sedan version of its compact A3 will outsell existing hatchback and convertible variants to help narrow the gap with market leader BMW.

“We assume every second A3 customer will opt for the sedan in the future,” Josef Schlossmacher, an Audi spokesman, told journalists late yesterday in Budapest before a ceremony today at the manufacturer’s plant in Gyor, Hungary, marking the start of the new sedan’s production.

Profit from Audi is critical to funding a strategy by parent company Volkswagen AG to overtake General Motors Co. and Toyota Motor Corp. as the world’s biggest automaker by 2018. Audi invested more than 900 million euros ($1.2 billion) to expand the Gyor factory. VW, which is also spending money to add plants in China and gain full control of its MAN SE truck unit, said today that it sold 1.2 billion euros in mandatory convertible notes to help finance growth.

Audi accounted for 56 percent of Wolfsburg, Germany-based Volkswagen’s first-quarter operating profit. VW Chief Executive Officer Martin Winterkorn pledged in April to increase the group’s presence in the premium-car segment, where profit margins are higher than for mass-market models.

VW, Europe’s largest automaker, also owns sports-car manufacturer Porsche, British luxury-car producer Bentley and the Lamborghini and Bugatti supercar brands.

The Gyor plant is one of the world’s largest engine manufacturing facilities. Audi also assembles the TT sports car and the A3 convertible at the site. The Gyor expansion project more than triples the plant’s annual car production to 125,000 vehicles.

Targeting BMW

Audi plans to dethrone Munich-based BMW as the world’s best-selling premium-car maker by the end of the decade. It has ranked second in luxury-vehicle deliveries since overtaking Daimler AG’s Mercedes-Benz brand in 2011.

The three German premium-vehicle producers are all targeting record sales in 2013 as rising demand in China and the U.S. offsets a sixth consecutive year of industrywide declines in their home region. Audi delivered 1.46 million cars and SUVs in 2012, its best year so far, with demand driven by the new- version A3 and fresh high-performance cars like the SQ5 SUV.

BMW’s namesake brand regained the monthly sales crown in May, after Audi beat it in sales in April, as the small X1 sport-utility vehicle and new 3-Series sedan won customers. BMW’s global deliveries last month rose 7.8 percent from a year earlier to 139,161 cars and SUVs. That compares to 6.4 percent growth to 137,200 deliveries at Audi and a 7.3 percent jump to 121,360 at Stuttgart-based Mercedes.

2013 Forecasts

Audi expects a “slight” increase in revenue this year and an operating margin at the upper end of its long-term target range. Operating profit last year climbed 0.6 percent to 5.38 billion euros as revenue rose 11 percent to 48.8 billion euros. The 11 percent margin beat its target of 8 percent to 10 percent.

BMW, Mercedes and Audi are boosting production capacity outside Europe to tap rising demand and reduce exposure to currency swings. Audi held the groundbreaking for a plant in Mexico in May and is considering producing cars in Brazil. It will open a factory in Foshan, China, later this year to produce the new A3 sedan for the domestic market. Audi said earlier this year it anticipates China and North America to be the sedan version’s main sales regions.

The production expansion is part of Audi’s efforts to break out of its Germany-dominated manufacturing network. Until 2009, Audi produced 75 percent of its vehicles in Ingolstadt and Neckarsulm. By 2017, the share coming from the German plants is forecast to fall to 45 percent as annual production rises to 1.9 million vehicles from 1.5 million units in 2012, according to data from IHS Automotive.

Audi plans next year to build more cars outside Germany than within the country for the first time.

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