VW's emission-cheating scandal could hurt Audi's stunning story in the US

As Volkswagen's emission-cheating scandal grinds on, the controversy is threatening to undermine one of VW Group's most critical brands: Audi.

The damage is especially apparent in the US, where the cheating scandal first broke.

In the American market, the VW comeback story has been a disaster - VW has less than 3% market share and trails global rivals such as GM and Toyota by a wide margin.

Audi, by contrast, has been a great success: after decades of Mercedes, BMW, and Toyota's Lexus brand dominating the so-called "Tier 1" luxury market, Audi had crashed the party and is now effectively the fourth member of that exclusive club.

This has been a boon for VW because luxury cars, and especially luxury crossovers and SUVs, can deliver substantially higher profits to a car maker than the sort of mass-market vehicles that are VW's bread-and-butter.

On Thursday, Bloomberg's Christoph Rauwald reported on this issue:

Earnings from Audi are critical for Volkswagen to weather the emissions-cheating scandal. Europe's biggest carmaker is facing billions of euros in costs triggered by its admission eight months ago to manipulating millions of diesel-powered cars to pass emissions tests. As part of the fallout from the scandal, Audi will recall about 2.3 million cars, about a fifth of the total affected worldwide. The upscale brand was also responsible for developing one of the engines that U.S. authorities say breach emission rules.

Fortunately for Audi, the number of diesels it sold in the US is fairly small, so the brand is unlikely to be profoundly damaged in a region where its progress has been spectacular.