The Volkswagen Group sees the greatest growth potential – above and beyond the established markets in Brazil and China – in India, Russia and the USA, as well as in the ASEAN and Middle East regions.

China

Growth in China slowed in 2011 (+7.6%) after the automotive market grew by more than one-third in the previous year. The market volume amounted to 12.3 million vehicles. We expect growth in our largest global sales market to continue in the coming years, and to shift from the large metropolises to smaller cities. We are continuously expanding our product range to include models that have been specially developed for this market, increasing investments and expanding production capacity. In this way, we are laying the foundations for participating in the major growth opportunities offered by this market and defending our market leadership in China for the long term.

Brazil

Imports were the main source of growth in the Brazilian automobile market in the first three quarters of 2011. Competitive pressure in the market increased substantially, due in particular to new market entrants from South Korea and China. Towards the end of 2011, the government raised vehicle import taxes on significantly to protect local industry and create additional incentives for investments in the automotive sector. Extremely high inflation, a tail-off in lending and the declining consumer confidence also hit demand for cars hard. As a result, the market value was up only slightly year-on-year to 2.6 million vehicles at the end of the year. Brazil remains a strategically important market for the Volkswagen Group and continues to offer substantial potential for the future. We shall continue to leverage these growth opportunities in the future and to expand our market position with models that we have developed specially for the market and that we produce locally.

India

Volkswagen Group deliveries in India almost doubled in fiscal 2011, although the initially rapid growth of the new vehicles market eased in the second half of the year. We are increasing production capacity at our Pune facility to an annual figure of 130,000 vehicles in order to cope with growing demand. Since October 2011, the new ŠKODA Rapid compact saloon has also been produced there and will make a major contribution to future sales in India. We are significantly expanding our dealer network and investing in training for sales and service staff and in genuine parts logistics so as to further boost our growth. We expect that demand in the Indian market will more than double in the coming years and that India will be one of the most important automotive markets in the future.

Russia

The financial and economic crisis hit the Russian automotive market particularly hard. Its rapid recovery in 2010 and in particular in 2011 was due to the broad-based stabilization of the economy, which benefited from comprehensive government stimulus programs. Despite this renewed more difficult environment, the Volkswagen Group saw a clear rise in its market share in 2011 to 8.8%, with demand for cars rising to 2.5 million vehicles. In the future, we expect that Russia will grow steadily to become one of the largest automotive markets in the world. We are leveraging our growth opportunities in Russia with our plant in Kaluga, 160 km southwest of Moscow, and our partnership with GAZ, a local manufacturer. GAZ will produce Volkswagen Passenger Car and ŠKODA brand models from 2012 onwards under a contract manufacturing agreement. This will enable us to further expand our production capacity so as to satisfy rising demand for our models in the Russian market.

USA

In the reporting period, the automotive market in the USA largely recovered from the slump in vehicle sales following the financial and economic crisis in 2009. The market for passenger cars and light commercial vehicles amounted to 12.8 million vehicles in 2011; this corresponds to an increase of 10.3% compared with the prior-year figure. We expect the US vehicle market to continue its recovery in the coming years. Thanks to the successful launch in September 2011 of the Passat, which was specially developed for this market and was voted “Car of the Year” by Motor Trend magazine, the Volkswagen Group was able to benefit more than average from this growth, lifting its market share to 3.5% (3.1%). We are continuing to systematically pursue our goal for the USA of developing from a niche provider into a volume supplier. For example, we are further expanding the production of products created specially for this market and are enhancing our sales structures on an ongoing basis. We have completed our manufacturing facility in Chattanooga, Tennessee – a significant milestone in our strategy for the long-term penetration of the US dollar area. In addition, this allows us to minimize sales risks resulting from exchange rate volatility.

ASEAN

The Volkswagen Group is aiming to sustainably develop in the ASEAN economic area, whose automotive markets offer substantial growth opportunities in the aggregate. However, the individual markets in the region are extremely mixed: demand in Thailand, for example, is mainly for pickup models, whereas in Malaysia and Indonesia demand is strongest for MPVS, hatchbacks and notchbacks. In addition, high import duties and extreme price sensitivity in the region require us to assemble our vehicles locally. This is the only way we can strengthen our market position by offering competitive prices. Even without local production at our DRB-HICOM partner facility, which has been manufacturing the Passat since October 2011, we managed to more than double our full-year sales volume in Malaysia. The Volkswagen Group Malaysia is strengthening its sales structure by investing in the wholesale organization and rapidly expanding its dealer network. Audi is examining whether selected models can be assembled locally together with DRB-HICOM. We are looking at whether we can expand our SKD assembly facilities in Indonesia by including additional models in the manufacturing program there and by reviewing our options for increasing localization. We are also investigating to what extent certain Volkswagen Passenger Car and Volkswagen Commercial Vehicles models can be assembled locally and are working hard to improve sales structures. In addition, we are negotiating with potential partners to import vehicles into the Vietnamese and Philippines markets.

Middle East

Despite the uncertain political situation in the Middle East region, the market as a whole offers growth opportunities. We aim to leverage this potential even without our own local production facilities by offering a range of vehicles tailored to this market. In addition, the Volkswagen Group will optimize its sales channels and so increase its market share for the long term.

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