Annual Report

Risks relating to demand

Production risks relating to demand

Following the slump in the global economy, some passenger car markets recovered faster than expected in 2010 and we therefore expanded production at our international locations significantly in the course of the year. In order to ensure the necessary capacity, our suppliers also increased their deliveries above and beyond what was originally agreed. We expect demand to remain high in 2011 and possibly cause fluctuations, particularly in installation rates of equipment features and components. Through our turntable concept and highly flexible logistics operations, we ensure that we optimally adapt the programs at our vehicle and component plants to current market conditions. Our ability to implement extensive flexibility measures within the existing working time models as the situation demands also mitigates the risk.

Risks arising from changes in demand

Consumer demand depends not only on real factors such as disposable income, but also to a significant extent on psychological factors that are impossible to plan for.

Increased fuel and energy prices could lead to unexpected buyer reluctance, which could be further exacerbated by media reports. This is particularly the case in saturated automotive markets such as Western Europe, where demand could drop as a result of owners then holding on to their vehicles for longer.

In 2010, the effects of these psychological factors that cannot be planned for were again exacerbated by the impact of the economic and financial crisis on the global economic trend and the entire automotive industry. Many automotive markets were in a downward spiral, which in some cases assumed dramatic proportions, while others had to be supported through government intervention. The Volkswagen Group countered the risk of buyer reluctance with its attractive range of models and in-depth customer orientation.

In addition to buyer reluctance as a result of the crisis, a combination of vehicle taxes based on CO2 emissions – like those already structured in some European countries – and high oil and energy prices is causing a shift in demand towards smaller segments and engines. We are countering the risk that a shift negatively impacts the Volkswagen Group’s financial result by continuously developing new, fuel-efficient vehicles and alternative fuels on the basis of our fuel and drive train strategy. In the rapidly expanding markets of Asia and Eastern Europe, risks may also arise due to government intervention in the form of restrictive lending or tax increases, for example, which could adversely affect private consumption.

Dependence on fleet customer business

In fiscal year 2010, the percentage of total registrations in Germany accounted for by business fleet customers increased to 11.4% (7.7%). Following the expiry of scrapping premiums and the resulting fall in the number of private registrations, it is therefore back on a level with 2008. Although demand among business fleet customer has risen, it is still lower than in 2008. The Volkswagen Group’s share of the market for these customers declined slightly to 45.9% (46.3%). Its extensive product range and target group-oriented customer care enabled the Volkswagen Group to further extend its market lead in Europe. Registrations by business fleet customers rose by 10.9%, while the Group’s share of the market increased to 26.8% (26.0%). The fleet customer business is continuing to experience increased concentration and internationalization. Thanks to its broad product portfolio, the Group is also well positioned in view of the growing importance of the issue of CO2 and the trend towards downsizing. No default risk concentrations exist for individual corporate customers.

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