Audi picks lower cost eastern European sites to build new SUVs

By Andreas Cremer

BERLIN (Reuters) - Audi will expand its lineup of higher margin sport-utility vehicles (SUVs) and assemble two new models at lower cost plants in eastern Europe, the German premium carmaker said on Tuesday, as it strives to boost profitability.

The Volkswagen-owned brand last month reported a 37 percent plunge in operating profit after it raised provisions to help meet the cost of the group's diesel emissions test-cheating scandal.

Audi said on Tuesday it would start building a full-sized Q8 SUV at a Volkswagen (VW) factory in Bratislava, Slovakia, next year and in 2019 add the sporty, coupe-style Q4 SUV in Gyor, Hungary.

Audi's new offerings in the fast-growing SUV market will compete with forthcoming models from German rival BMW , which is adding an X2 and an X7 to its lineup in 2018.

"We are integrating two completely new Q models into the existing production network and are raising our competitiveness in an extremely important segment," Audi production chief Hubert Waltl said.

VW's main profit contributor has been expanding in the lucrative SUV market. Audi launched a leaner Q7 model in 2015, the all-new Q2 last year and in 2018 will start making the electric e-tron quattro SUV to take on Tesla's (NASDAQ: TSLA) Model X.

Its efforts to raise margins with the new vehicles will be helped by low production costs at the chosen sites.

Labour costs in the manufacturing industries of Slovakia and Hungary were an hourly 10.70 euros and 8.40 euros per worker respectively in 2016, compared with 26.10 euros in Britain and 33.40 euros in Germany, according to Germany's Federal Statistics Office.

Audi last year slipped into third place behind BMW and Mercedes-Benz in terms of luxury car sales. An expanded lineup of SUVs may also help Audi to gain ground in the United States where it sells many fewer cars than its two German competitors.

Assigning the Q8 and Q4 to eastern Europe will further boost the share of Audis built outside the brand's German home market, where last year less than half of its 1.9 million cars were produced.

Audi's works council declined to comment when asked why German sites in Ingolstadt and Neckarsulm were not awarded the work.

The works council last year secured a pledge from management to protect jobs in Germany until 2020 and is currently in talks with executives to further extend that guarantee, a source familiar with the matter said.

Demands raised by labour leaders last month for management to assign an all-electric model to Ingolstadt were meant to remind executives of their responsibility to ensure future employment, the source added.

(Reporting by Andreas Cremer; Editing by Mark Potter)

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