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Annual Report

Market opportunities

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

China

The Chinese automotive market again recorded strong growth in 2010, after remaining largely unaffected by the repercussions of the financial and economic crisis: vehicle sales rose to 11 million units. We also expect the Chinese automotive market – our largest sales market worldwide – to continue growing in the coming years. In order to be able to participate in this market’s significant growth opportunities and defend our leading market position in China, we are expanding our local product range, increasing investments and further expanding production capacities.

Brazil

Brazil was also one of the fastest growing markets in 2010. Market growth slowed following the expiry of measures offered by the government until the end of the first quarter to support demand for automobiles. In the second half of 2010, demand stabilized and deliveries reached record levels with a total of more than 2.6 million units.

For the Volkswagen Group, Brazil remains a strategically important market that offers substantial potential for the future. Thanks to our models that are produced locally and developed specially for the market, we expect to share in this growth and successfully expand our market position.

India

Demand for new passenger vehicles in India – one of the most important potential markets worldwide – rose in 2010, despite the consequences of the financial and economic crisis, and is expected to more than double in the next ten years. India will therefore be one of the world’s key automotive markets in the future. We intend to further leverage the Volkswagen Group’s special opportunities for growth by expanding manufacturing capacities in the Indian city of Pune and producing models of the Škoda and Volkswagen Passenger Car brands.

Russia

The Russian automotive market was among those hardest hit by the financial and economic crisis. After the number of vehicles sold in 2009 declined by half within the space of one year to 1.4 million units, demand for passenger cars rose in 2010 to 1.8 million vehicles. This development, which was the result of a broad stabilization of the economy, was also supported by a government premium program. In this difficult environment, the Volkswagen Group significantly increased its market share to 7.1%. In the future, we expect Russia to become one of the largest automotive markets in the world as a result of steady growth. The Group intends to exploit the opportunities for growth in Russia with its plant in Kaluga, 160 km southwest of Moscow, where we already began full-scale production of vehicles of the Volkswagen Passenger Car and Škoda brands in October 2009.

USA

Following a dramatic decline in vehicle sales in 2009 as a result of the financial and economic crisis, the market began to recover in the USA. In 2010, demand amounted to 11.6 million vehicles (+11.1%). The Volkswagen Group benefited more than average from this, increasing its market share to 3.1% (2.9)% in 2010. In the USA, the Group aims to transform itself from a niche player into a volume supplier. This goal is to be achieved with the local production of market-specific products and efficient sales structures. The construction of the production plant in Chattanooga, Tennessee, serves to ensure our ability to sustainably develop the US dollar area and, among other things, minimize sales risks arising from exchange rate fluctuations. Following the start of production in 2011, the plant will produce vehicles developed specially for the US market.

ASEAN

One of the Volkswagen Group’s main goals is to sustainably develop the ASEAN economic area, whose automotive markets as a whole possess considerable growth potential. The ASEAN region is made up of highly diverse markets: the automotive market in Thailand is dominated by pick-up models, whereas demand for multi-purpose vehicles as well as hatchbacks and notchbacks is very high in Indonesia and Malaysia. In the future, we will set up further sales companies in addition to those we already have in Malaysia and Singapore. Due to the legal framework and the high level of price sensitivity in the region, local assembly or production is presently the best way to develop these markets. We are currently investigating various options with potential partners. In December 2010, Volkswagen signed a contract with its partner company DRB-HICOM regarding vehicle assembly in Malaysia. In order to develop the local market for the long term, the Passat will be produced on a CKD basis in the DRB-HICOM plant in Pekan from the end of 2011. The Jetta and Passat models will be manufactured on the basis of local full-scale production in a second expansion phase from the end of 2012. In Indonesia, we already began local assembly in 2009.

Middle East

The Middle East region is characterized by its diverse markets. So far, the Volkswagen Group does not have any production facilities in this region; the market shares are still too small. Optimizing the distribution channels and the specific product range should enable us to better utilize this region’s potential in the future and significantly increase our market shares.

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