When Mercedes-Benz acquired Audi for $928 million
Audi, one of the most recognized brands is a subsidiary of the Volkswagen group, but once upon a time, Mercedes was its owner!
Until some months ago, Volkswagen owned 99.64% of Audi’s shares. The fact that VW had to pay $267 million for the remaining 0.36% shares contextualises how huge Audi AG (Aktiengesellschaft/Public Limited) is.
The materialisation of Volkswagen
1938 Volkswagen Prototype
Volkswagen was Adolf Hitler’s brainchild that morphed in 1932. Initially, other carmakers of Germany apprehended the speculated ‘KDF-Wagen’ (Kraft-durch-Freude-Wagen/Strength through Joy Car), that was supposed to be the actual “volkswagen/people’s car”. The speculated price for this mover in 1938 was 990 Reichsmarks ($7300 in 2020). A team of engineers led by Ferdinand Porsche designed a sedan capable of transporting two adults and three children at the speed of 100 km/h. This prototype was vigorously tested with 2 million km clocked by 1938.
Nonetheless, World War 2 halted passenger car production and research around the world. However, the Volkswagen brand acted crucially in improving the post-war West German economy. Statistically, West Germany was the sixth greatest carmaker in 1950, while East Germany ranked tenth. The latter was dethroned by Brazil in 1951, while the former climbed up the second place by 1958, with a growth rate of 50.76%. This was second only to Japan’s astronomical 126.41%. The erstwhile Volkswagenwerke GmbH’s (Gesellschaft mit beschränkter Haftung/Private Limited) contribution to Germany’s total car production reached 30.51% in 1958.
With VW’s importance established, I will now elaborate on the Auto Union AG, the former parent of Audi.
The Auto Union before World War 2
1931 Horch 670 Sport Cabriolet
The Audi we know today, traces its origins back to 1896, with the founding of the ‘Wanderer-Werke AG’, a bicycle-maker. 1904 witnessed August Horch founding the ‘Horch & Cie Motorwagenwerke AG’, as he proceeded to set up the ‘Audi Automobilwerke AG’ in 1910. The final brand of this group appeared in 1916 in the form of DKW (Dampf-Kraft-Wagen/Steam-powered car). The four companies began producing automobiles at separate occasions, but united under the Auto Union AG in 1932. Their umbrella, symbolised by the four interlocking rings, sought quick expansion in Germany’s growing automobile market with a strategic distribution of market segments. DKW produced motorcycles and compact cars; Wanderer – mid-sized cars; Audi – premium mid-sized cars; and Horch – halo luxury cars. As the second greatest carmaker in Germany, the union functioned well with tough competition from Opel and Daimler. The fact that the Auto Union competed with Daimler even on racetracks in GP races establishes them as each other’s archenemies!
The Auto Union in the aftermath of World War 2
1952 DKW Schnellaster
With a doomed national economy, hyperinflation, and bombed factories, the union was challenged. Germany’s division further handicapped all of Auto Union’s infrastructure in Saxony, which was to be taken over by the Soviets. Most of the chief administration and workforce fled to the Capitalist West, where they restarted the Auto Union GmbH in 1949 in Ingolstadt, Bavaria. The Chemnitz and Zwickau factories were used by the Communist rule to produce the pre-war DKW F8 and F9 saloons, rebranded under the IFA brand (Industrieverband Fahrzeugbau/Industrial Association for Vehicle Construction). However, a lawsuit from the West soon restricted the usage of these designs. Later, the infamous Trabant produced their cars in these factories until 1990.
The Auto Union survived and continued making bikes and cars such as the DKW Schnellaster and Meisterklasse F 89 P. Shockingly, Volkswagen was not the first to seek an association with the Union. Instead, it was Daimler-Benz that acquired a hefty 87% controlling stake in it. By 1960, the Auto Union AG was a fully owned subsidiary of its former nemesis. Meanwhile, Mercedes had already licenced the Auto Union marque to sell the 1000 sedan and the 1000 Sp coupé. Benz invested over 340 million Deutsche Marks ($928 million in 2020) in their acquisition, which also included the Auto Union’s Düsseldorf factory. Mercedes-Benz began producing vans with the new OM 616 diesel engine there, and the factory produces 700 Sprinter vans each day even in 2020.
1966 Audi Super 90 F103
Soon, Mercedes delegated Ludwig Kraus, the man behind the 300 SLR, to lead the Auto Union. It gets messy from here on, as Daimler helped DKW build the F102, which was succeeded by Ludwig’s Audi F103 (Mercedes M118 I4 engine) in 1965. However, by this time, Daimler had begun the process of selling this recent acquisition to Volkswagen. To justify this transaction, I may quote Daimler-Benz’s Media webpage, “In 1964, Daimler-Benz sold Auto Union to Volkswagen and used the profits to build the truck plant at Wörth. Moreover, Auto Union was focused on the lower market segment; for Daimler-Benz AG to enjoy success in the lower mid-range would have meant too great a financial investment.”
1960 Mercedes-Benz W119 concept
Since Ludwig remained with the Auto Union, he designed the Audi 100 in 1968. His Daimler association was evident as the 100 resembled the Mercedes W119 prototype. Volkswagen acquired yet another brand the following year, in the form of the NSU Motorenwerke AG. What had led this humble business towards bankruptcy was the rotary engine-powered Ro 80 sedan. As costly as the research and development of such an unconventional engine is, rotaries were also unreliable. NSU’s factories were later used to produce Audi, Volkswagen and Porsche cars as the brand was merged with the Auto Union to form the ‘Audi NSU Auto Union AG’. However, the NSU marque was phased out in 1977 with the ultimate Ro 80 rolling off the assembly line. The merger’s name was shortened to Audi AG in 1985.
NSU Ro 80
Reminiscents of both Auto Union and NSU still remain, as Audi retains the original Auto Union logo, and also because Audi formed two new wholly owned subsidiaries, ‘Auto Union GmbH’ and ‘NSU GmbH’ to protect the historical trademarks and intellectual property of both the Auto Union and NSU.