This section explains the specific risks arising from our business activities in the coming years.

Macroeconomic risk

We believe the main risks to the global economy are high energy and commodity prices, increasing international trade restrictions, persistent imbalances in foreign trade and the escalation of political conflicts.

The mounting debt problems in many industrialized nations have led to greater instability in the financial and currency markets and the international banking system. Together with the growing uncertainty among market participants and the difficult situation in the refinancing markets, this may have a severe impact on the Volkswagen Group’s risk position. Although we currently consider the risk of renewed global recession to be relatively low, the above-mentioned developments could result in a prolonged period of below-average growth for the global economy.

Likewise, changes in legislation, taxes, or customs duties in individual countries may have a severe adverse effect on international trade and present significant risks to the Volkswagen Group.

Sector-specific risk

The growth markets of Asia, South America, and Central and Eastern Europe are particularly important in terms of the global trend in demand for passenger cars. Although these markets harbor the greatest potential, the overall environment in some of the countries in these regions makes it difficult to increase unit sales figures there; some have high customs barriers or minimum local content requirements for domestic production, for example. In China, the reduction in the number of new vehicles allowed to be registered in Beijing could be followed by further restrictions on registrations in other metropolitan areas. Furthermore, consumer confidence in some of these countries is being depressed by the global economic slowdown.

Likewise, the risk of transported freight in particular being shifted from commercial vehicles to other means of transport cannot be entirely ruled out.

Price pressure in established automotive markets as a result of the high level of market coverage is a particular challenge for the Volkswagen Group as a supplier of volume and premium models. In the automotive markets of Western Europe, the USA and China in particular, manufacturers are using price discounts to promote sales of their own vehicles, thereby putting the entire sector under pressure.

Western Europe is one of Volkswagen’s main sales markets. A drop in prices due to the economic climate and a resulting fall in demand in this region would have a particularly strong impact on the Company’s earnings. Volkswagen counters this risk with a clear, customer-oriented and innovative product and pricing policy. Outside Western Europe, its overall delivery volume is broadly diversified across the markets of North America, South America, Asia-Pacific, and Central and Eastern Europe, with the Chinese market accounting for an increasing share of the volume. Furthermore, we are already market leader in numerous existing and developing markets or are working resolutely to become market leader. Meanwhile, strategic partnerships afford us the opportunity to increase our presence in the relevant countries and regions and cater to regional requirements.

We continue to approve loans for vehicle finance on the basis of the same cautious principles applied in the past, taking into account the regulatory requirements of section 25a(1) of the KWG.

In many markets, the economy continued to recover during fiscal year 2011. Our trading and sales companies continue to feel the effects of the financial and economic crisis, however: it remains difficult to raise bank loans to finance business operations. During the economic crisis, we offered dealers financing on attractive terms via our financial services companies with the aim of reducing the risk of their insolvency. We also established a risk management system so that we can promptly counteract liquidity bottlenecks that could hinder smooth business operations.

The provisions of the new Block Exemption Regulation, which have been in force for after-sales service since June 2010, as well as the amendments included in EU Regulation 566/2011 dated June 8, 2011 expanding independent market participants’ access to technical information, mean that Volkswagen may be exposed to increased competition in the aftermarkets.

The European Commission is planning to end design protection for visible vehicle parts. If this plan is actually implemented, it could adversely affect the Volkswagen Group’s genuine parts business.

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