Ambitious Audi needs to crack America: US sales at British levels
09-11-06, 08:43 AM
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Ambitious Audi needs to crack America: US sales at British levels
Ambitious Audi needs to crack America
New TT coupe will add excitement, but why are U.S. sales only at British levels?
http://www.detnews.com/apps/pbcs.dll...29/1148/AUTO01
New TT coupe will add excitement, but why are U.S. sales only at British levels?
LE CASTELET, France -- Why don't Americans buy many Audis?
The company, a subsidiary of Germany's Volkswagen, has been fabulously successful in Europe where it threatens the hegemony of Mercedes and BMW. In important emerging markets like China, Audis are lusted after like any other important luxury brand.
But in the U.S. its sales are pitifully small.
"Last year, Audi's volume in (the U.S. and Canada) barely exceeded the volume it sold in the British market, despite the U.S. market being seven times the size of the British market," said Adam Jonas, analyst with investment banker Morgan Stanley in a recent report.
Audi lost about $260 million in North America last year, Jonas said.
According to Walt Madeira, British-based Europe Sales Forecast Manager for CSM Worldwide, Audi's ambitious global sales forecasts of 1 million vehicles by 2008 won't be achieved until 2010, while the 1.4 million global sales target by 2015, will be missed by a year.
Sluggish sales in the U.S. will be an important factor in this scenario, with CSM forecasting U.S. sales of 88,289 in 2006 (market share 0.52 per cent) gradually improving to 109,099 in 2009 (0.63 per cent) before tailing off again to 94,023 (0.53 per cent) in 2012. Meanwhile the likes of BMW, Mercedes, Cadillac and Lexus sell at least three times as much, with BMW sales expected to hit 307,378 by 2012, Mercedes 234,531, Lexus 474,984, and Cadillac 298,346. Maybe Audi's new TT coupe can help to turn around the negativity.
Eye-catching looks
The new TT was launched to the media here in Le Castelet, a village in the mountains behind the French Mediterranean port city of Toulon. The new car is an impressive amalgam of eye-catching looks, terrific performance and the latest technology. The previous TT was a much simpler design; the new one, which is longer, wider and higher, seems to be almost over-designed, all angles and cute little design features.
Performance from the 3.2 litre 250 bhp V6 engine is fabulous, with 0-62 coming up in 5.9 seconds. Four-wheel drive is standard. There is also a 4-cylinder 2.0 litre direct injection petrol 200 bhp powered front-wheel drive version which dashes to 62 mph in 6.6 seconds. Both versions can be ordered with the S tronic automatic gearbox, formerly known as the DSG gearbox and developed by VW, which uses two clutches and prodigious computer power to produce lightening quick changes.
Sales in the U.S. start early in 2007. No word yet on prices.
As you would expect from a company claiming to be at the cutting edge of technology there are some interesting new ideas in the TT. The body is built with a blend of aluminum and steel, cutting the weight by 48 per cent. Audi also introduces an optional suspension called "Magnetic Ride", using oil in the damping system filled with magnetic particles. This stiffens the suspension using an electric charge through the particles and it adapts much faster than conventional systems. This allows the suspension to sense when it needs to stiffen rapidly - in milliseconds says Audi - and protects the occupants from severe bumps or potholes. The driver can also select a stiff suspension setting to make driveability more sporty.
How many pilots are out there?
Dr Peter Wells, research fellow at the Centre for Automotive Industry Research at the Cardiff Business School in Wales, says the TT is not a typical reflection of Audi design.
"The TT always struck me as a car that somehow escaped the normal strictures of the product development system rather than arising from it. Audi remains an awkward combination of great engineering and dull styling. Yes, this has a certain appeal, but how many airline pilots are there out there," Wells said.
Wells also believes that the structure of Audi within the VW empire is a potential problem, because it has to compete for investment funds. He also worries about the quality of management. Audi has only just unveiled its huge new SUV, the Q7, while the market has been full of full-sized SUVs for years, and consumers are starting to look for smaller vehicles.
"It suggests a management seriously off the pace and out of touch with the market, unable to bring the right product to bear in sufficient time," Wells said.
The potential for the China "bubble" to burst was also a worry.
Indian summer
"I wonder whether Audi has been enjoying something of an "Indian summer", that has masked some more fundamental structural issues, notably the high cost of manufacturing in Germany, and while there is quite a good spread of sales around the A3, A4 and A6, it is hard to see where the real growth will come outside theses core segment areas," said Wells.
As part of its plan to raise sales to 1 million by 2008, and 1.4 million by 2015, Audi has announced several new products, including the A5 coupe due in 2007, which will compete with the BMW 6 Series and Mercedes CL, the Q5 small SUV in 2007, which will line-up against the BMW X3 and Land Rover Freelander, and the R8 mid-engined super car due in 2007. The big-selling BMW 3 Series rival the A4 will be renewed in 2008. The little A3 will be redesigned in 2009.
Morgan Stanley's Jonas has no doubts that Audi is in excellent shape, and will be able to raise its profits and sales to at least match management's predictions.
"Audi is in the initial stages of a strategic transformation as it enters a period of super-normal growth, higher margins and improved asset efficiency," said Jonas in the report.
Jonas reckons that Audi has been so successful, if it were valued separately from its owner VW, it would account for more than 100 per cent of VW's stock market value.
Worth more than VW
"Our fair valuation of Audi represents over 100 per cent of Volkswagen Group's current stock market value. We now assume that 6 per cent (profit) margins are sustainable at Audi versus 5 per cent previously. We also believe Audi's target of 1 million sales by 2008 is conservative," said Jonas.
The 1.4 million sales by 2015 will be met, according to Jonas. The new models will improve the profitability of the loss-making North American operation. Jonas wonders if Audi could eventually split from VW and become an independent car maker.
"Audi remains remarkably independent from VW group in terms of manufacturing, engineering and distribution. Apart from (China) the limited A3 assembly in Belgium and Q7 production in Bratislava (Slovakia), there are no other instances of VW and Audi making cars in the same factory. VW offers Audi cost advantages, but brings revenue and strategic disadvantages," said Jonas.
Jonas acknowledges the problems posed by an under-performing U.S. market, where the Audi dealer network suffers from below-average profitability. Audi is trying to recruit more exclusive dealers. The dollar's weakness has also dragged down profits in the U.S., while Lexus and Infiniti, both big players in the U.S. but bit players here, are planning to crank up sales in Europe to threaten the incumbents like BMW, Mercedes and Audi.
VW link
CSM Worldwide's Madeira agrees that China and the U.S. are the keys to Audi long-term success. In the U.S. Audi's link with down-market VW is also a sales inhibitor, and this has made it difficult for Audi to raise its brand perception.
"At the moment, BMW and Mercedes generate more enthusiasm in North America. Mercedes is the ultimate in luxury and BMW is the ultimate driving machine. Lexus is refinement. The Audi North American slogan is "Never Follow". But the fact is that new Audi product initiatives usually follow what the competition already offers," said Madeira.
"Audi must distance itself more from the VW brand in the U.S. and stop being perceived as a glorified VW and stand up to its own value creation. The luxuriously priced VW Touareg and Phaeton overshadow the Audi Q7 and A8 (luxury sedan). The distance in brand perception has been achieved in Europe and China," he said.
There is another historical issue - the unintended acceleration controversy - which may still be undermining Audi in the U.S. In the 1980s some 1,200 Audi 5000s were involved in accidents which were claimed to have been cause by the cars surging forward suddenly and inexplicably. The issue was taken up by the current affairs programme "60 Minutes" on CBS TV, and Audi sales crashed from around 75,000 in 1985, to about 14,000. Later investigations failed to find any fault with the cars.
A word in your ear
According to Madeira, the opinion of dealers in the U.S. have much more impact than those in Europe.
It wouldn't be impossible to imagine an unscrupulous dealer quietly reminding customers of rival brands of the "unintended acceleration" incident.
Madeira said the Audi TT is likely to be a success because of its cult status globally, but peak demand is only likely to be around 60,000.
"The Audi TT is unique and shouts out quality vehicle and generates enthusiasm. Audi is moving in the right direction, but it still trails Mercedes and BMW on brand value and image. Sales must rise in North America to accompany the success in Europe," Madeira said.
The company, a subsidiary of Germany's Volkswagen, has been fabulously successful in Europe where it threatens the hegemony of Mercedes and BMW. In important emerging markets like China, Audis are lusted after like any other important luxury brand.
But in the U.S. its sales are pitifully small.
"Last year, Audi's volume in (the U.S. and Canada) barely exceeded the volume it sold in the British market, despite the U.S. market being seven times the size of the British market," said Adam Jonas, analyst with investment banker Morgan Stanley in a recent report.
Audi lost about $260 million in North America last year, Jonas said.
According to Walt Madeira, British-based Europe Sales Forecast Manager for CSM Worldwide, Audi's ambitious global sales forecasts of 1 million vehicles by 2008 won't be achieved until 2010, while the 1.4 million global sales target by 2015, will be missed by a year.
Sluggish sales in the U.S. will be an important factor in this scenario, with CSM forecasting U.S. sales of 88,289 in 2006 (market share 0.52 per cent) gradually improving to 109,099 in 2009 (0.63 per cent) before tailing off again to 94,023 (0.53 per cent) in 2012. Meanwhile the likes of BMW, Mercedes, Cadillac and Lexus sell at least three times as much, with BMW sales expected to hit 307,378 by 2012, Mercedes 234,531, Lexus 474,984, and Cadillac 298,346. Maybe Audi's new TT coupe can help to turn around the negativity.
Eye-catching looks
The new TT was launched to the media here in Le Castelet, a village in the mountains behind the French Mediterranean port city of Toulon. The new car is an impressive amalgam of eye-catching looks, terrific performance and the latest technology. The previous TT was a much simpler design; the new one, which is longer, wider and higher, seems to be almost over-designed, all angles and cute little design features.
Performance from the 3.2 litre 250 bhp V6 engine is fabulous, with 0-62 coming up in 5.9 seconds. Four-wheel drive is standard. There is also a 4-cylinder 2.0 litre direct injection petrol 200 bhp powered front-wheel drive version which dashes to 62 mph in 6.6 seconds. Both versions can be ordered with the S tronic automatic gearbox, formerly known as the DSG gearbox and developed by VW, which uses two clutches and prodigious computer power to produce lightening quick changes.
Sales in the U.S. start early in 2007. No word yet on prices.
As you would expect from a company claiming to be at the cutting edge of technology there are some interesting new ideas in the TT. The body is built with a blend of aluminum and steel, cutting the weight by 48 per cent. Audi also introduces an optional suspension called "Magnetic Ride", using oil in the damping system filled with magnetic particles. This stiffens the suspension using an electric charge through the particles and it adapts much faster than conventional systems. This allows the suspension to sense when it needs to stiffen rapidly - in milliseconds says Audi - and protects the occupants from severe bumps or potholes. The driver can also select a stiff suspension setting to make driveability more sporty.
How many pilots are out there?
Dr Peter Wells, research fellow at the Centre for Automotive Industry Research at the Cardiff Business School in Wales, says the TT is not a typical reflection of Audi design.
"The TT always struck me as a car that somehow escaped the normal strictures of the product development system rather than arising from it. Audi remains an awkward combination of great engineering and dull styling. Yes, this has a certain appeal, but how many airline pilots are there out there," Wells said.
Wells also believes that the structure of Audi within the VW empire is a potential problem, because it has to compete for investment funds. He also worries about the quality of management. Audi has only just unveiled its huge new SUV, the Q7, while the market has been full of full-sized SUVs for years, and consumers are starting to look for smaller vehicles.
"It suggests a management seriously off the pace and out of touch with the market, unable to bring the right product to bear in sufficient time," Wells said.
The potential for the China "bubble" to burst was also a worry.
Indian summer
"I wonder whether Audi has been enjoying something of an "Indian summer", that has masked some more fundamental structural issues, notably the high cost of manufacturing in Germany, and while there is quite a good spread of sales around the A3, A4 and A6, it is hard to see where the real growth will come outside theses core segment areas," said Wells.
As part of its plan to raise sales to 1 million by 2008, and 1.4 million by 2015, Audi has announced several new products, including the A5 coupe due in 2007, which will compete with the BMW 6 Series and Mercedes CL, the Q5 small SUV in 2007, which will line-up against the BMW X3 and Land Rover Freelander, and the R8 mid-engined super car due in 2007. The big-selling BMW 3 Series rival the A4 will be renewed in 2008. The little A3 will be redesigned in 2009.
Morgan Stanley's Jonas has no doubts that Audi is in excellent shape, and will be able to raise its profits and sales to at least match management's predictions.
"Audi is in the initial stages of a strategic transformation as it enters a period of super-normal growth, higher margins and improved asset efficiency," said Jonas in the report.
Jonas reckons that Audi has been so successful, if it were valued separately from its owner VW, it would account for more than 100 per cent of VW's stock market value.
Worth more than VW
"Our fair valuation of Audi represents over 100 per cent of Volkswagen Group's current stock market value. We now assume that 6 per cent (profit) margins are sustainable at Audi versus 5 per cent previously. We also believe Audi's target of 1 million sales by 2008 is conservative," said Jonas.
The 1.4 million sales by 2015 will be met, according to Jonas. The new models will improve the profitability of the loss-making North American operation. Jonas wonders if Audi could eventually split from VW and become an independent car maker.
"Audi remains remarkably independent from VW group in terms of manufacturing, engineering and distribution. Apart from (China) the limited A3 assembly in Belgium and Q7 production in Bratislava (Slovakia), there are no other instances of VW and Audi making cars in the same factory. VW offers Audi cost advantages, but brings revenue and strategic disadvantages," said Jonas.
Jonas acknowledges the problems posed by an under-performing U.S. market, where the Audi dealer network suffers from below-average profitability. Audi is trying to recruit more exclusive dealers. The dollar's weakness has also dragged down profits in the U.S., while Lexus and Infiniti, both big players in the U.S. but bit players here, are planning to crank up sales in Europe to threaten the incumbents like BMW, Mercedes and Audi.
VW link
CSM Worldwide's Madeira agrees that China and the U.S. are the keys to Audi long-term success. In the U.S. Audi's link with down-market VW is also a sales inhibitor, and this has made it difficult for Audi to raise its brand perception.
"At the moment, BMW and Mercedes generate more enthusiasm in North America. Mercedes is the ultimate in luxury and BMW is the ultimate driving machine. Lexus is refinement. The Audi North American slogan is "Never Follow". But the fact is that new Audi product initiatives usually follow what the competition already offers," said Madeira.
"Audi must distance itself more from the VW brand in the U.S. and stop being perceived as a glorified VW and stand up to its own value creation. The luxuriously priced VW Touareg and Phaeton overshadow the Audi Q7 and A8 (luxury sedan). The distance in brand perception has been achieved in Europe and China," he said.
There is another historical issue - the unintended acceleration controversy - which may still be undermining Audi in the U.S. In the 1980s some 1,200 Audi 5000s were involved in accidents which were claimed to have been cause by the cars surging forward suddenly and inexplicably. The issue was taken up by the current affairs programme "60 Minutes" on CBS TV, and Audi sales crashed from around 75,000 in 1985, to about 14,000. Later investigations failed to find any fault with the cars.
A word in your ear
According to Madeira, the opinion of dealers in the U.S. have much more impact than those in Europe.
It wouldn't be impossible to imagine an unscrupulous dealer quietly reminding customers of rival brands of the "unintended acceleration" incident.
Madeira said the Audi TT is likely to be a success because of its cult status globally, but peak demand is only likely to be around 60,000.
"The Audi TT is unique and shouts out quality vehicle and generates enthusiasm. Audi is moving in the right direction, but it still trails Mercedes and BMW on brand value and image. Sales must rise in North America to accompany the success in Europe," Madeira said.
http://www.detnews.com/apps/pbcs.dll...29/1148/AUTO01
09-11-06, 04:06 PM
#2
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Hmm....I really like Audi as a brand and consider them a better value compared against other german makes like BMW and MB (I know, that last sentence sounded like a description of Lexus).
Anyhow, even though I love their designs, I think they are very polarizing (big grills anyone?). So that may be a factor which is hurting sales. In addition to that, reliability concerns, even though they've improved, have always plagued Audi. I can live with an Audi being compared with VW, just like Lexus is to Toyota, but I'd rather have Toyota's reliability over VW's. Well, at least until recently, since Toyota and Lexus have had their fair share as well.
Lastly, I think a big factor which hurt Audi is big daddy VW itself. Corporate glut, product delays, and a failed attempt by VW to move upmarket didn't help Audi any. $30k Golf/Jettas? $40k Passats? And then the $90k Phaeton? All this while Audi dealers were begging for an SUV to compete in the US market.
Anyhow, even though I love their designs, I think they are very polarizing (big grills anyone?). So that may be a factor which is hurting sales. In addition to that, reliability concerns, even though they've improved, have always plagued Audi. I can live with an Audi being compared with VW, just like Lexus is to Toyota, but I'd rather have Toyota's reliability over VW's. Well, at least until recently, since Toyota and Lexus have had their fair share as well.
Lastly, I think a big factor which hurt Audi is big daddy VW itself. Corporate glut, product delays, and a failed attempt by VW to move upmarket didn't help Audi any. $30k Golf/Jettas? $40k Passats? And then the $90k Phaeton? All this while Audi dealers were begging for an SUV to compete in the US market.
09-11-06, 04:30 PM
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The reason the Audi 5000 was said to accerolate fast was because the gas and brake were too close together and someone would hit the gas trying to hold the brake.
Thats why people say "I'm Audi 5000"
Thats why people say "I'm Audi 5000"
09-12-06, 08:47 AM
#4
Compared to BMW or MB, Audi's finish/ quality is better.
In fact Audi sells more cars in Germany than BMW. IMO the main reason for the poor Audi quality record is the poor Audi dealer network in the US
In fact Audi sells more cars in Germany than BMW. IMO the main reason for the poor Audi quality record is the poor Audi dealer network in the US
09-12-06, 09:15 AM
#5
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I agree, particularly the interior.
I see more Audi cars on the road in Europe compared to here.
I see more Audi cars on the road in Europe compared to here.
09-12-06, 02:50 PM
#6
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No room in America for another top brand. People have shown in America, its only about 3 main cars, BMW, Benz and now Lexus. Everyone else plays 2nd or 3rd fiddle.
Audi for some reason, with great styling and great interiors, just cannot catch on here. It can't be reliability b/c BMW is a lil better and Benz maybe worse.
IMO, their marketing here sucks. I think Audi, I think AWD and giant grills and nicely styled cars. What is their gimmick? What do they offer no one else does? What have they perfected outside the AWD most Americans don't need?
Great brand, they should go back in time or send the Terminator back 20 years and kill the 60 minutes staff...
Audi for some reason, with great styling and great interiors, just cannot catch on here. It can't be reliability b/c BMW is a lil better and Benz maybe worse.
IMO, their marketing here sucks. I think Audi, I think AWD and giant grills and nicely styled cars. What is their gimmick? What do they offer no one else does? What have they perfected outside the AWD most Americans don't need?
Great brand, they should go back in time or send the Terminator back 20 years and kill the 60 minutes staff...
09-12-06, 05:07 PM
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- Audi pioneered aluminum frames and body panels
- DSG > SMG
- Quattro > *
- the LeMans circuit is regarded as a way of measuring engineering performance, have you seen Audi's record?
I think many car brands have had valuable contributions to the engineering community, these are just a few of Audis. If their cars weren't as good as BMW or Merc, wouldn't sales also suffer at home? High sales doesn't mean better, I think we all know that. Americans are vain and pathetic people for the most part and as a whole their opinion on cars is meaningless. They drive on ****ty roads and on dirt. They don't care about performance or fit and finish, they care about things that don't matter from an engineering standpoint.
- DSG > SMG
- Quattro > *
- the LeMans circuit is regarded as a way of measuring engineering performance, have you seen Audi's record?
I think many car brands have had valuable contributions to the engineering community, these are just a few of Audis. If their cars weren't as good as BMW or Merc, wouldn't sales also suffer at home? High sales doesn't mean better, I think we all know that. Americans are vain and pathetic people for the most part and as a whole their opinion on cars is meaningless. They drive on ****ty roads and on dirt. They don't care about performance or fit and finish, they care about things that don't matter from an engineering standpoint.
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09-12-06, 07:39 PM
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- Audi pioneered aluminum frames and body panels
- DSG > SMG
- Quattro > *
- the LeMans circuit is regarded as a way of measuring engineering performance, have you seen Audi's record?
I think many car brands have had valuable contributions to the engineering community, these are just a few of Audis. If their cars weren't as good as BMW or Merc, wouldn't sales also suffer at home? High sales doesn't mean better, I think we all know that. Americans are vain and pathetic people for the most part and as a whole their opinion on cars is meaningless. They drive on ****ty roads and on dirt. They don't care about performance or fit and finish, they care about things that don't matter from an engineering standpoint.
- DSG > SMG
- Quattro > *
- the LeMans circuit is regarded as a way of measuring engineering performance, have you seen Audi's record?
I think many car brands have had valuable contributions to the engineering community, these are just a few of Audis. If their cars weren't as good as BMW or Merc, wouldn't sales also suffer at home? High sales doesn't mean better, I think we all know that. Americans are vain and pathetic people for the most part and as a whole their opinion on cars is meaningless. They drive on ****ty roads and on dirt. They don't care about performance or fit and finish, they care about things that don't matter from an engineering standpoint.
I think they need better marketing. I never ever see an Audi ad...
09-13-06, 07:12 PM
#11
You are right about that, also Audi needs to listen better to what the US market wants. Although I am not in the US, I noticed that the US markets wants big engines (big V6 and V8), and prefer rearwheel drive in the uppermarket.
Audi does not offer rearwheel drive, and although quattro is a technically better solution, it makes the car relatively expensive.
Furhermore, Audi need to get a better dealernetwork, that is independent from VW.
09-13-06, 10:38 PM
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I believe there are two main reasons for the lack of sales
1) Resale/Residual. A friend of mine was looking at an A6 and was told that the car had a 48% residual after 3 years/36K. Compare this with a 5-series that is up in the low 60s and you can see that the BMW is going to sell better simply due to a lower lease price.
2) Size. The A4 is SMALL. I personally LOVE the looks of the S4, but that back seat is terrible. The fact is the entry level luxury market is hot right now - but people need to fit their kids back there. I think the IS is getting away with a small back seat because the car appeals to a younger crowd. The A4 needs to get bigger and faster.
Now there are a host of other niggling things (A6 looks, past reliability issues, etc.) but I honestly think that the above two items are hurting them the most.
1) Resale/Residual. A friend of mine was looking at an A6 and was told that the car had a 48% residual after 3 years/36K. Compare this with a 5-series that is up in the low 60s and you can see that the BMW is going to sell better simply due to a lower lease price.
2) Size. The A4 is SMALL. I personally LOVE the looks of the S4, but that back seat is terrible. The fact is the entry level luxury market is hot right now - but people need to fit their kids back there. I think the IS is getting away with a small back seat because the car appeals to a younger crowd. The A4 needs to get bigger and faster.
Now there are a host of other niggling things (A6 looks, past reliability issues, etc.) but I honestly think that the above two items are hurting them the most.
09-13-06, 10:44 PM
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of the three german automakers they're the least expensive of the 3 so people wanting in on the entry level luxury european nameplate will look at the 4 rings. it's kind of funny, but i see more A4 in south orange county than i do e90's right now...seems to be a trendy thing to do.
I was one of the biggest fanboy for Audi but have lost it because they dont care about the current customers and add to that their resale SUCKS it's pointless.
I was one of the biggest fanboy for Audi but have lost it because they dont care about the current customers and add to that their resale SUCKS it's pointless.
09-13-06, 11:15 PM
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I believe there are two main reasons for the lack of sales
1) Resale/Residual. A friend of mine was looking at an A6 and was told that the car had a 48% residual after 3 years/36K. Compare this with a 5-series that is up in the low 60s and you can see that the BMW is going to sell better simply due to a lower lease price.
2) Size. The A4 is SMALL. I personally LOVE the looks of the S4, but that back seat is terrible. The fact is the entry level luxury market is hot right now - but people need to fit their kids back there. I think the IS is getting away with a small back seat because the car appeals to a younger crowd. The A4 needs to get bigger and faster.
Now there are a host of other niggling things (A6 looks, past reliability issues, etc.) but I honestly think that the above two items are hurting them the most.
1) Resale/Residual. A friend of mine was looking at an A6 and was told that the car had a 48% residual after 3 years/36K. Compare this with a 5-series that is up in the low 60s and you can see that the BMW is going to sell better simply due to a lower lease price.
2) Size. The A4 is SMALL. I personally LOVE the looks of the S4, but that back seat is terrible. The fact is the entry level luxury market is hot right now - but people need to fit their kids back there. I think the IS is getting away with a small back seat because the car appeals to a younger crowd. The A4 needs to get bigger and faster.
Now there are a host of other niggling things (A6 looks, past reliability issues, etc.) but I honestly think that the above two items are hurting them the most.