Volkswagen -Ibm Final

AN ASSIGNMENT

ON

INTERNATIONAL BUSINESS MANAGEMENT

TOPIC:

VOLKSWAGEN

SUBMITTED BY:

Anil Lalvani (10057)

SUBMITTED TO: PROF. SUSHIL CHAURASIA

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Tolani Institute Of Management Studies

TABLE OF CONTENT

SR. NO CONTENT PAGE NO1 COMPANY OVERVIEW 32 BUSINESS DESCRIPTION 73 STRATEGY OF INTERNATIONAL BUSINESS 164 INTERNATIONAL MARKETING 225 INTERNATIONAL FINANCE 256 INTERNATIONAL HRM 327 SUPPLY CHAIN MANAGEMENT (SCM)

ANDGLOBAL MANUFACTURE LOCATION

36


COMPANY OVERVIEW

Volkswagen was originally founded in 1937 by the Nazi trade union, the German Labour Front (Deutsche Arbeitsfront). Literally, the word "Volkswagen" means "people's car." As a carmaker, they are under an obligation to their customers and society to supply high-quality products that are safe and environmentally compatible. The Volkswagen Group with it’s headquarter in Wolfsburg is one of the world’s leading automobile manufacturers and the largest car producer in Europe. In the early 1930s German auto industry was still largely composed of luxury models, and the average German rarely could afford anything more than a motorcycle.

The "Volkswagen Group" consists of some of the biggest names in the Automobile Industry. The Group consists of eight brands: Volkswagen, Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda and Volkswagen Commercial Vehicles. Each brand has its own character and operates as an independent entity on the market. The product range extends from low-consumption small cars to luxury class vehicles. The Volkswagen Group's models are sold in more than 150 countries. The Board of Management of Volkswagen AG comprises five members. Each Board Member is responsible for one or more functions within the Volkswagen Group. Prof. Dr. Martin Winterkorn is the Chairman. The work of the Board of Management of Volkswagen AG is supported by the boards of the brands and regions as well as by the other group business units and holdings. The Supervisory Board is responsible for monitoring the Management and approving important corporate decisions. Moreover, it appoints the Members of the Board of Management. The Supervisory Board of Volkswagen AG comprises 20 members and conforms to the German Co-determination Act. Dr. Ferdinand K. Piëch is the Chairman of the Supervisory Board of Volkswagen AG.


Group Values

Customer Nearness

Top Performance

Added Value

Renewability

Respect

Responsibility

Sustainability


A BRIEF JOURNEY THROUGH A LONG HISTORY

When in 1937 the company known as "Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH" was founded, no one could have guessed that it would one day be Europe's largest carmaker. The history of the company - with all its trials and tribulations - is first and foremost a story of impressive success. It is this very company that today company come to know as “VOLKSWAGEN”.

1937-1945

On May 28th, 1937 the "Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH" company was founded, and on September 16th, 1938 it was renamed "Volkswagenwerk GmbH". In early 1938, in what is today Wolfsburg, work begans on construction of the Volkswagenwerk plant which was to house production of the new vehicle designed by Ferdinand Porsche.

1945-1949

After the end of the Second World War, in mid June 1945, responsibility for Volkswagenwerk was placed in the hands of the British Military Government. Under the management of Major Ivan Hirst, mass production of the Volkswagen Beetle was started.

1949-1960

On March 8th, 1950 the Type 2 went into production, expanding the company's product range. The Volkswagen Bus, till today known to many as the "VW Bully", soon created rising demand thanks to its multifunctional capabilities. In 1956 a separate manufacturing base for the transporters was established in Hanover, at the same time setting down the roots of today's Volkswagen Commercial Vehicles brand.

1960-1980

On February 17th, 1972 Volkswagen broke the world car production record: with 15,007,034 units assembled, the Beetle surpassed the legendary mark achieved by the Ford Motor Company's Model T, popularly known as the "Tin Lizzy", between 1908 and 1927.


In 1973 the Passat became the first model of the new generation of Volkswagen vehicles to go into production. The Passat was built in line with the modular strategy, by which standardized components usable in a range of different models provide significant rationalization.

1980-1990

In June 1983 production of the second-generation Golf began. The car was designed for a largely automated assembly process, and in the specially erected final assembly hall, designated Hall 54, robots were deployed for the first time in vehicle manufacture.

1990-2000

With the production launch of the Lupo 3l TDI, the first production car came to offer fuel consumption of just three liters per 100kilometers, in July 1999, Volkswagen once again made automotive history.

2000-2003

In August 2002, at Volkswagen Slovakia, as in Bratislava, mass production of the Touareg, a luxury-class off-road vehicle, was started, marking the Volkswagen brand's move into an entirely new market segment.

In December 2002 the "Auto 5000 GmbH" company, operating a plant at the Group's site in Wolfsburg, started production of the Touran compact van. A special collective pay model had been developed, aimed at implementing lean production and involving flat hierarchies, team working, flexible working hours and the deployment of more process expertise by the workforce.

2003 production of the fifth-generation Golf was started, embodying a new dynamism in its design and engineering.


BUSINESS DESCRIPTION

Volkswagen’s Products and Positioning

Size, Growth Rates, and Main Products

In 2006, Volkswagen sold 5,192,576 vehicles worldwide, and sales in 2006 amounted to 5,192,576 million Euro. Volkswagen is headquartered in Germany, and the European Community (EC) represents by far the largest market for Volkswagens, with sales to EC countries comprising nearly 60% of Volkswagen’s global sales. Sales in Germany (27%) and Brazil (14%) account for the most significant segments of Volkswagen’s total sales. The U.S., Mexico, and Canada are, respectively, the seventh, thirteenth, and eighteenth largest markets for Volkswagen vehicles, with North Americans purchasing around 6% of all Volkswagens sold.


Last year, the firm's global advertising budget was $1.1 billion, with non-U.S. advertising at $933 million. This contrasts heavily with the global balance of advertising outlays for many automobile firms. For example, Toyota has an advertising budget of $1.7 billion, with non-U.S. spending of $989 million. Volkswagen’s proportionally smaller marketing focus within the U.S. serves to illustrate the relative unimportance of the U.S. to Volkswagen from a global perspective.

However, the importance of North American markets has been increasing. The automaker predicts total sales of 250,000 in 2008 in the U.S., and envisions a steady double-digit growth pattern in Canada and U.S. in the coming years. NAFTA will almost certainly act as a catalyzing factor in this growth.

Volkswagen products sold in North America include the Passat, the Jetta, the Golf, the old Beetle (only in Mexico) and the new Beetle. The Jetta is Volkswagen's best seller in the United States.

PROBLEMS FACED BY VOLKSWAGEN

Implementation of the North American Free Trade Agreement (NAFTA) has had a dramatic impact on the automobile industry in North America. The provisions of the NAFTA have led to significant changes in the nature of automobile production and purchasing within Canada, the United States, and Mexico.

IMPACT OF NAFTA ON VOLKSWAGEN

The Threat of Competition

Possibly the largest challenge facing Volkswagen as a result of the NAFTA is the reality of increased competition in Mexico from North American competitors—namely General Motors, Ford, Chrysler, and Nissan. For the first eight years of the NAFTA (until 2002), firms that do not assemble cars in Mexico were prevented from importing, leaving these five firms to battle for market share in Mexico.

In 1991, Volkswagen's share of the Mexican market stood at 38%, with Volkswagen holding a strong lead over its competitors. However, NAFTA appears to have had an immediate impact by 1995, when Mexico was in the throes of currency devaluation, Volkswagen had fallen to fourth, behind General Motors, Ford, and Nissan.

Volkswagen's market share has recovered somewhat since, amounting to 23.1% in 1997, second only to General Motors at 26.7%. However, competition in Mexico from firms that prior


to NAFTA had not placed much emphasis on the Mexican market remains a significant threat to the success of Volkswagen in North America.

Domestic Content Requirements

Another challenge confronting Volkswagen deals with the issue of parts sourcing. Presently, only automobiles that meet a standard of 56% North American content under the NAFTA rules of origin may be shipped duty free, and this standard will be increased in another four years to a permanent level of 62.5%. Although Volkswagen did not have a great deal of trouble meeting the initial standard of 50% North American content (largely because it already faced a 36% Mexican content requirement prior to NAFTA), complying with the higher 56 and 62.5% standards has and will continue to affect the firm. This requirement has forced Volkswagen to adjust its sourcing practices, causing it to rely more heavily on parts suppliers within the U.S. and Canada, rather than on the German sources that have historically supplied the largest portion of parts to the Puebla plant. If Volkswagen is unable to meet the stronger domestic content requirements, then it will face the significant competitive disadvantage of having to pay a 2.5% duty on exports to the U.S.

Labour Issues

The impact of NAFTA provisions pertaining to labour was particularly bad, these measures had an impact on Volkswagen’s operations in Mexico. The Puebla plant had already experienced its share of labour difficulties, suffering through a major strike that crippled production for a time in 1993. Despite the NAFTA Labour Commission’s lack of direct authority, public pressure brought to bear within Mexico in turn influenced the Mexican government and Volkswagen’s standards for the treatment of workers.

North American Opportunities

While it was facing the difficulties presented by the NAFTA, Volkswagen also confronted opportunities for increased exports of its vehicles from Mexico to the U.S. and Canada. The elimination of tariffs under NAFTA did allow Volkswagen to increase its exports to the U.S. and Canada. And in fact exports did increased since NAFTA was implemented. It is difficult to say, however, how much of this increase was due to NAFTA, and how much was due simply to the peso crisis and to the strength of the U.S. and Canadian economies.

It can also be argued that NAFTA has played a role in Volkswagen’s recent decision to locate a new plant in North America. While there are many factors involved in where to locate a new plant and the non-existence of tariffs make Mexico or certain parts of the U.S. look more appealing as potential sites. It is not possible to say that this plant would not have been proposed if it weren’t for NAFTA, but the fact remains that NAFTA gave the U.S. and Mexico an additional edge in the search for possible plant locations.


Major Products

New Polo

Stylish design

Comfortable

Engines and transmission {fuel efficiency – 22 km/l}

Advanced safety equipment {anti-lock braking system}


New Beetle

A classic body {protection against rust}

Self assured

Comfort and convenience


Touareg

A robust machine

Extensively equipped

A perfect symbiosis


Jetta

Airbags {with four airbags system}

High pressure diesel

Optimum transmission {5-speed manual gearbox}


Passat

Powerful and economical {the 1.8 TSI engine}

Tremendous control {top speed of 220 kmph}

The feel – good factor


Phaeton

Elegant exterior

18 way adjustable seats

Ground breaking engine

Park distance control


STRATEGY OF INTERNATIONAL BUSINESS

Modes of operation across globe

Fluctuating Market Presence in North America

In the 1960s, Volkswagen captured the North American market for the small, inexpensive automobile with the original Beetle, and soon established a Beetle assembly plant in Westmorland, Pennsylvania. However, with the rise of Japanese and other Asian manufacturers in the entry-level market during the 1970s and 1980s, Volkswagen saw its market share in North America fall precipitously. Also facing more stringent environmental and safety standards in the US and Canada in 1986 Volkswagen decided to cease all assembly operations in the U.S. and Canada and rely entirely on imports to service the market. Not facing the same constraints in Mexico, production of the Beetle continued at the Puebla plant.

Emphasis on Europe

From the mid-1980s Volkswagen's global strategy hinged on

(1) Continued growth in production and demand for the Beetle in emerging markets (especially Latin America) and

(2) A concentration on the European market as the motor of growth in innovative product lines. Indeed, the European market dominates Volkswagen's global sales. Not only has Volkswagen emerged as a leader in Europe, but in the post-Soviet era, Volkswagen has made considerable inroads in expanding production and sales throughout Eastern Europe, partly through its acquisition of Skoda

Renewed North American Focus

During the 1980s and 1990s growth in VW's European market share required that VW rely on Mexican capacity to meet demand in North America. This renewed emphasis on Mexican production was also fuelled by recognition of VW's price sensitivity in the U.S. market due to the depreciation in the dollar. (At current exchange rates, Mexican production is cost-competitive with production in Germany.) However, the most important aspect of Volkswagen's new strategy centers on the need for a strong presence in North America in the contest over global automobile markets. Part of this presence will take the form of imports from Europe (like the new Golf), but increased production in North America is also essential. Accordingly, Volkswagen has raised its level of production in North America by 34% in the past two years.


The establishment of a new assembly plant North America will be the most significant aspect of Volkswagen strategy in North America for some time to come. Building this facility will allow Volkswagen to take full advantage of North American free trade and to expand its market presence in North America.

Parts Sourcing

Volkswagen has historically relied on a system of global sourcing to supply parts to its assembly plants. In Mexico this has changed, however, as a direct result of the domestic content requirements of NAFTA. The purchase of parts from within North America, and particularly from the U.S. has expanded in order to meet the requirements of the NAFTA. Continuing to develop a network of North American parts suppliers will remain an integral part of Volkswagen’s North American strategy, especially in light of the proposal to locate a new assembly plant in North America.

Production Techniques

Volkswagen has kept up with industry wide trends towards increased use of new organizational orientations and methods of "just in time" production. Volkswagen has focused resources on its labour training programs, seeking to facilitate the rotation of work functions amongst employees. This development has allowed increased flexibility in the production of vehicles by ensuring that qualified personnel are available to accomplish a variety of tasks within their respective production segments. Volkswagen has also focused on reducing inventories through the use of "just in time" production, which has led to the creation of much closer ties between parts suppliers and assembly plants.

The New Beetle

A good sense of the Volkswagen's new marketing strategy can be derived from the high-profile launch of the new Beetle in 1998. Seeking to stage a "convincing comeback based on the needs and wants of U.S. customers", and unlike the entry-level Beetle of the 1960's, the 1999 Beetle is a modern car that is marketed to more affluent consumers whose preferences can be swayed on the basis of both performance and nostalgia. This is reflected in the new Beetle's sticker price of $15,700 U.S. for the base model, which is priced above the Golf but below the Jetta.


Fostering an Upscale Image

While the arrival of the new Beetle promises to bring increases in sales of Volkswagens, the firm is emphasizing its desire to continue to improve sales of its upscale vehicles, like the Passat and the new W-12 sports car (Germany).Maintaining this focus on developing an image as a car maker that is a rival to BMW and Mercedes is particularly important in the U.S., where expanding into the upscale market will carry with it substantial long-term gains. Accordingly, Volkswagen plans to ensure the health of its U.S. advertising budget for these vehicles, even as the ad campaign for the new Beetle is launched.

New Supplier Strategy

Purchasing costs represent approximately 60% of the cost of production for Volkswagen cars, with 60-65% of parts coming from outside suppliers. (Of these suppliers, 80% produce in Germany, and 15-18% in rest of Europe, with the remainder elsewhere in North America and Asia.)

Volkswagen has begun to include suppliers in the assembly process itself. By directly employing only engineers, managers and supervisors, and requiring suppliers to employ their own workers in the assembly plant, Volkswagen hopes to facilitate the development of new components and models. According to this new supplier strategy, parts suppliers are also expected to shoulder part of the financial burden of building the assembly plant itself. As a result, Volkswagen expects unprecedented productivity gains. If it proves effective, Volkswagen will use the strategy in production in North America and around the world.


BUSINESS MODEL

Porters five force model

Threat of new entrant:

1) Nissan, Renault, GM

2) New Technology

Bargaining power of buyers:

There will be an indirect relation between the bargaining power of buyers and various product segments. More options to choose from the segment Volkswagen operates in. Honda, Toyota (Accord, Civic, Corolla) already capturing bulk of the market due to its advanced petrol engines. Skoda has been successful mainly because of its diesel offerings (Octavia, Laura). The D segment Market has been growing consistently.

Bargaining power of suppliers

Bargaining power of suppliers would be high since VW does not deal in mass production unlike Maruti and Hyundai.

Substitutes

Volkswagen does not have substitutes in India currently for its diesel offerings except for the recently launched GM Optra and Hyundai Sonata. But Volkswagen easily scores over these products due to the brand recognition and loyalty it carries in the country. VW offers the widest range of diesel cars in the D segment. Niche products like Lamborghini & Bentley do not have competitors in the Indian market.

Competitors

Honda, Toyota, GM, Hyundai are its direct competitors.


SWOT ANALYSIS

Strengths

1) VW has boosted quality more than any other carmaker in the past five years, cutting defects by 60%.

2) Their "family culture", no leading brand.

3) The VW group has the flagship of some of the biggest and most trustworthy brands in the automobile industry.

4) Strong Procurement department with Sustainability in Supplier Relationships.

5) Strong CSR activities bringing together wealth creation and value orientation.

Weaknesses

1) VW still trails Toyota, Mercedes, Nissan, and Honda in overall quality.

2) VW's cost of capital is relatively higher than Daimler's.

3) VW bungled its communications with investors.

4) It was late in inculcating the policies of Lean and JIT approach that Toyota was using for many years.

5) Bad publicity due to being sued by GM.

Opportunities

1) Growth potential in the American and Asian markets.

2) Due to its very good results on the stock exchange, VW may expect to attract numerous new investors

3) Potential decrease in Cost with their Production Strategy.


Threats

1) A softening in auto sales in Europe and South America.

2) Risk of self-cannibalization between VW's brands, like top of the line VW's models and bottom of the line Audi's.

3) Risk of brand dilution owing to confusion between the VW Passat and the Audi A4.

4) Ever increasing fuel costs.


INTERNATIONAL MARKETING

The Indian subsidiary of German automobile manufacturer, Volkswagen AG (Volkswagen).Volkswagen entered the Indian passenger car market in 2001 by launching its car brand - Skoda. In 2007, two of its other brands Audi and Volkswagen, were also launched in India. Volkswagen Group India emphasized on all aspects of marketing mix including product, price, place and promotion. The company offered three brands including Audi, Skoda and Volkswagen that together comprised of 15 different models as of late 2009.

Volkswagen Group India mainly catered to the luxury segment of the Indian car market. The company had established presence in India through separate distribution channels for each of its brands. In its initial years, Volkswagen Group India primarily used the print media to promote its products. However, considering the growth potential of India's automobile market, the company started using electronic, digital and out of home media along with print media. In November 2009, the company launched an integrated marketing campaign to strengthen its brand image.

Evaluation of Volkswagen in its marketing strategies in India: Branding: A brand is product that is distinguished by its personality & the major element that distinguishes a brand is its tagline. In case of modern Volkswagen it simply reads Volkswagen Das Auto in English the Car. It is short, it’s catchy & it simply says what it produces. As fast as Volkswagen is concerned its size is huge, its popularity is quite restricted to Skoda &Audi. Both of these brands have very well established themselves as reliable, luxurious &quality car companies.

This was achieved by both of these car companies when they organized the Pre Monsoon Campaign which enabled their customers across its 61 dealerships a 20point free check-up of the car which included cleaning of the plenum chamber, inspecting the tire pressure & the wheel alignment, brake pads, wiper functions, all the interior & exterior lighting, among other things. This was mainly done to ensure safe & hassle free driving. On the other hand, Volkswagen had failed to capture the benefits of branding in the initial stages of their own launch, but in recent times, with their new advertisements & slogans they have been in a position to establish themselves with the likes of Toyota India & Maruti-Suzuki. Today Volkswagen has a very good grasp of the Indian Automobile Market.

This was shown when they launched their best seller Polo in India at a very competitive price in 2010 thereby beating the competition from Honda (with their car model of the Jazz). But they could not duplicate this strategy for Skoda & Audi as those are luxurious car brands. Also they have an established car market for their mid-segment cars namely the Skoda Octavia & the Audi A4 series.


MARKETING MIX RELATING TO VOLKSWAGEN

Product

The Volkswagen Touareg which is sold across India is made up of engine, seating, braking technology, etc. which is jointly developed with Porsche (which is another car company Volkswagen acquired in the year 2009). But earlier the Touareg was developed as a business venture between the 2 car companies; also the Touareg was fully serviced and given warranty by Volkswagen. This enabled the customer loyalty towards Volkswagen.

Price

In its 61 dealerships across India VW offers a high price for their cars as compared to their competitors Ford & Honda. But it makes up for those high prices by giving their customers an interest rate of a mere 4.5% to 5% as compared to 8% interest rates on the car loans given by banks to other car makers. This can be attributed to Volkswagens Financial Services, which it operates solely to support its car sales to its customers.


Promotion

V-dubs Rock promotion:Anyone who purchases or leases any 2007 Volkswagen model or select 2006 models will get a custom First Act Garage Master electric guitar

'Pods Unite' promotion:People who purchase a 2003Volkswagen Beetle sedan can get a complimentary Apple iPod.

Space Adventures:Volkswagen Brazil launched a countrywide promotion in May of 2004, giving away a suborbital space flight

Making Kong promotions

Promotions with television, print, outdoor and online campaigns as well as in-store displays at Volkswagen dealerships, sweepstakes and giveaways. Viewers of the NBC networks' King Kong “roadblock" were directed to Volkswagen.com if they wanted to see the trailer again. The result was a100-fold traffic increase to the VW site.

Promotion Podcasting

VW has developed and published 4different podcast series. This is the best example on the planet of how podcasting is a powerful new media marketing, sales and branding tool.

Go Slow´ ConceptMSN to support its new sales promotion in 2005, which was designed to launch the new go slow concept of the new Beetle. The number of catalogues requested during the period when ads were submitted exceeded the initial forecast. The presentation of Go Slow lifestyles actively engaged the audience and led the viewer to subsequent scenes by combining the contents of articles, graphics, and video clips.


INTERNATIONAL FINANCE


(1) FIXED ASSETS

The classification of the assets combined in the balance sheet and their changes during the year are presented on pages xxx to xxx. The carrying amount of fixed assets is €34,017 million at the balance sheet date. Fixed assets are composed of intangible assets, tangible assets and long-term financial assets.

(2) RECEIVABLES AND OTHER ASSETS

In addition to trade receivables, receivables from affiliated companies are composed primarily of short- and medium-term loans and receivables relating to profit distributions, including income tax allocations. Other assets primarily include tax and cost reimbursements that are not yet due (€1,709 million and €234 million respectively) and rights from foreign currency option transactions entered into (€253 million).

(3) CASH-IN-HAND AND BANK BALANCES

Of the bank balances, €335 million relates to balances at an affiliated company, of which €23 million has a term of more than one year.


(4) SUBSCRIBED CAPITAL

The subscribed capital of Volkswagen AG is composed of no-par value bearer shares with a notional value of €2.56. As well as ordinary shares, there are preferred shares that entitle the bearer to a €0.06 higher dividend than ordinary shares, but do not carry voting rights. Because of the capital increase implemented in fiscal year 2008 due to the exercise of conversion rights from the fifth, sixth, seventh and eighth tranches of the stock option plan, the subscribed capital increased by a total of €9 million to €1,024 million. The subscribed capital is composed of 294,920,207 no-par value ordinary shares and 105,238,280 preferred shares. The Annual General Meeting on May 3, 2006 resolved to create authorized capital of up to €90 million, expiring on May 2, 2011, to issue new no-par value ordinary bearer shares.

According to the resolution adopted by the Annual General Meeting on April 22, 2004, further authorized capital of up to €400 million has been created that expires on April 21, 2009. There is also contingent capital of €100 million to issue up to 39,062,500 ordinary and/or preferred shares. This contingent capital will only be implemented to the extent that the holders of convertible bonds issued up to April 21, 2009 exercise their conversion rights.

Stock option plan The Board of Management, with the consent of the Supervisory Board, exercised the authorization given by the Annual General Meeting on April 16, 2002 to implement a stock option plan. Contingent capital of €7.3 million was created for this purpose. The contingent capital increase will only be implemented to the extent that the holders of convertible bonds issued on the basis of the authorization by the Annual General Meeting to establish a stock option plan exercise their conversion rights. The stock option plan entitles the optionees - the Board of Management, Group senior executives and management, as well as employees of Volkswagen AG covered by collective pay agreements - to purchase options on shares of Volkswagen AG by subscribing for convertible bonds at a price of €2.56 each. Each bond is convertible into ten ordinary shares.

The stock options are not accounted for until the exercise date. The conversion price then received for the new shares are credited to subscribe capital or capital reserves. The conversion prices and periods following expiration of the first four tranches are shown in the following table. The information on the fifth tranche is presented as data for fiscal year 2008, although this tranche has now also expired. The total value at December 31, 2008 of the convertible bonds issued at €2.56 per convertible bond was €43,540.48 (=17,008 bonds), conveying the right to purchase 170,080 ordinary shares.

The liabilities from convertible bonds are recognized under other liabilities. In fiscal year 2008, 1,514 convertible bonds with a value of €3,875.84 were returned by employees who have since left the Company. 358,294 conversion rights from the fifth, sixth, seventh and eighth tranches with a nominal value of €917,232.64 have been exercised. 3,582,940 shares with a notional value of €9,172,326.40 were thus issued.


(5) CAPITAL RESERVES

The capital reserves comprise the share premium of a total of €5,025 million from the capital increases, the share premium of €219 million from the issue of bonds with warrants, and an amount of €107 million appropriated on the basis of the capital reduction implemented in a previous fiscal year. The share premium from the capital increase resulting from the exercise of conversion rights from the stock option plan increased the capital reserves by €209 million in fiscal year 2008. No amounts were withdrawn from the capital reserves

(6) REVENUE RESERVES

In accordance with section 58(2) of the AktG, a total of €120 million was appropriated from net income for the year to other revenue reserves.

(7) SPECIAL TAX-ALLOWABLE RESERVES

The accelerated tax depreciation at Volkswagen AG relates to write-downs in accordance with section 3(2) of the Zonenrandförderungs-Gesetz (German Zonal Border Development Act), section 6b of the Einkommensteuergesetz (EStG – German Income Tax Act)/section 35 of the Einkommensteuerrichtlinien (EStR – German Income Tax Regulations), section 7d of the EStG and section 82d of the Einkommensteuer-Durchführungsverordnung (EStDV – German Income Tax Implementing Order). There is a small amount of tax-free reserves in accordance with section 6b of the EStG.

(8) PROVISIONS

Among other items, other provisions include provisions for warranties (€2.9 billion), personnel expenses (€2.5 billion mainly for long-service jubilees, partial retirement arrangements, obligations under Time Assets and other workforce costs), other selling expenses (€1.6 billion) and risks arising from the measurement of commodity and foreign currency hedges (€0.9 billion).


(9) LIABILITIES

€933 million (previous year: €1,828 million) of the liabilities to affiliated companies and €14 million (previous year: €29 million) of the liabilities to other investees and investors relate to trade payables. €15,937 million (previous year: €11,020 million) of the liabilities is interest-bearing. €97 million (previous year: €60 million) of other liabilities relates to liabilities due after more than five years. Standard retention of title applies to the liabilities from deliveries of goods contained in the amounts shown above. Sales guarantees totaling €1.3 billion up to 2013 were entered into in the course of the sale of the gedas group; €0.4 billion of these relates to 2009. In accordance with Art 5(10) of the statutes of the Einlagensicherungsfonds (deposit protection fund), Volkswagen AG has given an undertaking to indemnify Bundesverband deutscher Banken e.V., Cologne, against any losses incurred that are attributable to measures taken by it in favor of a majority-owned bank.

Volkswagen AG has liabilities from its investments in commercial partnerships. The purchase commitment for capital expenditure projects is within the normal levels. Contingent liabilities from warranties relate primarily to guarantees given to creditors of subsidiaries for bonds issued by these subsidiaries and related swap transactions entered into. Other financial commitments Loan commitments to subsidiaries result in financial obligations of approximately €3.2 billion until no longer than 2017. The financial obligations resulting from rental and leasing agreements amount to a total of €624 million (previous year: €555 million), of which €116 million is due in 2009. Agreements with a term of up to five years - with expenditures in 2009 amounting to €77 million (including €12 million to affiliated companies) - are expected to account for a total of €165 million (including €30 million to affiliated companies). For agreements with terms of up to 25 years, the financial obligations over the entire remaining contractual term amount to approximately €458 million, including €67 million to affiliated companies (€39 million in 2009, including €10 million to affiliated companies). Around 38 hectares of land (carrying amount €3 million) are encumbered by heritable building rights. In the course of the acquisition of a 100% interest in LeasePlan Corporation N.V., Amsterdam, and the subsequent sale of 50% of the shares to two co-investors, Volkswagen AG reached an agreement with the co-investors on put options entitling these investors to sell their shares to Volkswagen AG.

The co-investors exercised this option on December 22, 2008. The selling price is the higher of (a) the fair value of the shares as calculated using a standard valuation method and (b) the co-investors’ original initial investment. The parties to the agreement have started negotiations in this regard. Volkswagen AG is currently anticipating a payment obligation of around €1,300 million. In the course of the formation of OOO VW Rus, a co-investor was granted a put option that entitles it to return its interest to OOO VW Rus at cost plus an appropriate return after six years. The option had a fair value of €-21 million as of December 31, 2008. This amount was recognized in other provisions due to the potential exercise of the option.


(10) OTHER OPERATING INCOME

Other operating income relates primarily to exchange rate gains from our deliveries of goods and services (€2.4 billion), cost allocations (€1.8 billion) and income from the reversal of provisions (€0.7 billion).

(11) OTHER OPERATING EXPENSES

Other operating expenses primarily relate to exchange rate losses from our deliveries of goods and services, including the measurement of our foreign currency hedging transactions - in accordance with the strict imparity principle (under which expected or unrealized losses must be recognized, but the recognition of unrealized gains is prohibited) - (€2.0 billion) after elimination against the provisions recognized in the previous year, and expenses for subsidiaries that are allocated to these companies (€0.9 billion).

(12) FINANCIAL RESULT

Income from investments primarily comprises income from Global Automotive C. V., Scania AB, VW Logistics GmbH & Co. OHG, SEAT S.A., MAN AG and our Chinese joint ventures. Income from profit and loss transfer agreements (primarily from AUDI AG, AutoVision GmbH, the VW Sachsen companies and VW Kraftwerk GmbH) also includes allocations of income-related taxes.

Other investment income relates mainly to income from the reversal of a write-down of the carrying amount of an investment in connection with a capital repayment, reversals of write-downs of the carrying amount of the investment in AUDI Brussels S. A./N. V., income relating to the transfer of companies to VW Global Automotive C. V. and income from the change in a provision for obligations under a profit and loss transfer agreement. Other investment expenses mainly comprise expenses from passing on investment income to an affiliated company.


REVENUE BY GEOGRAPHY

Revenue €105.2 billion (2009) Operating income €1.855 billion (2009) Profit €960 million (2009) Total assets €177.2 billion (2009) Total equity €37.43 billion (2009)

Total revenue in the fourth quarter was up 3.3% to £979.5m. Total revenue increased $1,911 million, or 32%, from a year ago.

Net interest income increased $679 million, or 30%, largely due to lower funding costs on certain trading positions. Deposit and loan growth, partially reflecting our prior year acquisition of RBTT Financial Group (RBTT) also contributed to the increase. These factors were partially offset by spread compression in our banking-related and wealth management businesses reflecting lower interest rates and higher impaired loan balances, largely in U.S. banking.

Net interest margin was 1.78%, up 36 bps, largely reflecting lower funding costs on trading positions in Capital Markets, partially offset by lower interest rates and the impact of changes in our Canadian retail product mix largely attributable to strong growth in our personal deposit accounts and home equity lending products.

Investments-related revenue decreased $145 million, or 12%, mainly due to lower mutual fund distribution fees and lower fee-based client assets resulting from capital depreciation, partially offset by higher transaction volumes reflecting improved investor confidence, and the inclusion of the full quarter of revenue from our prior year acquisition of Ferris, Baker Watts Inc. (FBW).

Insurance-related revenue increased $718 million, or 84%, largely due to the change in fair value of investments backing our life and health policyholder liabilities, which was largely offset by higher related PBCAE. For further details, refer to the Insurance section.

Trading revenue in Non-interest income increased $788 million. Total trading revenue, which comprises trading-related revenue recorded in Net interest income and Non-interest income, was $1,608 million, up $1,223 million, largely due to stronger trading revenue in our U.K., U.S. and Canadian fixed income and money markets businesses, and U.S.-based equity businesses. Lower market environment-related losses on held-for-trading (HFT) securities and gains on credit valuation adjustments on certain derivative contracts resulting from the tightening of credit spreads also contributed to the increase.


INTERNATIONAL HRM

Critical analysis of code of conducts /HR policies

Volkswagen has numerous established HR policy instruments that have proven their worth over the years. The Volkswagen Group considers it important to employ Volkswagen personnel in accordance with their individual capabilities. One example of this is the "Silver Liner" project at Audi. Here Audi deliberately employs older workers for the assembly of the Audi R8, drawing on their many years of experience. In 2001 Volkswagen launched the Work2Work programme, which offers new employment opportunities to those who are unable to continue working in their previous positions following a physical injury or severe illness. Operating under the premise that "adding value earns respect"; the goal of the initiative is to place these employees in positions that are suitable to their physical abilities and still allow them to add value. Work2Work contributes to the job security of Volkswagen personnel. Volkswagen is also trailblazers in the area of knowledge transfer, with a clearly structured programme to ensure that older employees pass on their expertise to their successors. Workplaces have been redesigned in line with ergonomic principles, a preventive health measure that benefits all Volkswagen employees and creates age-appropriate workplaces. Existing workplaces have been optimized (corrective ergonomics) and ergonomic criteria have been taken into account in the product creation process (constructive ergonomics). One goal shared by the Group management and the Works Council is to make certain that working conditions and performance requirements take the age and health of Volkswagen employees into account. We also plan to increase Volkswagen focus on preparing the company for demographic change. This was the goal of the collective bargaining agreement on processes and procedures finalized in 2007. Known as "Demographic Change I", the agreement has the goal of promoting and protecting health – with employees participating to the fullest extent possible on their own initiative. Additional objectives include creating options for flexible and variable lifetime working times and ensuring that the age structure remains balanced. In the collective agreement, a comprehensive course of action is defined, including initiatives ranging from the organization of working time to workforce planning and shaping corporate culture.


Identifying, Nurturing And Retaining Talents

Volkswagen aim to continue to attract the best and the brightest to work at Volkswagen Company. So in 2009 Volkswagen will be hiring over 2,800 apprentices and 2,100 university graduates across the Group. At Volkswagen, talented employees are systematically identified on all levels, fostered and prepared for future roles. Every year Volkswagen Best Apprentice Award is presented to the twenty apprentices who achieve the highest marks across the Group in their year. Since 2006, Volkswagen has offered young employees with up to five years of professional experience the opportunity to participate in Volkswagen “Wanderjahre” programme (the name refers to the traditional practice of newly qualified craftsman travelling the world and acquiring experience). It is primarily aimed at employees who have completed their initial training or at graduates of integrated work-study programmes, giving them the opportunity to gain international experience shortly after receiving their qualifications.

Best Apprentice Award

Volkswagen use Volkswagen Student Talent Bank to keep in contact with students who have demonstrated outstanding abilities in an internship at Volkswagen. The company builds ties to these young talents while they are still at university by offering them professional training and personal mentoring. Volkswagen has also developed the two-year Start Up direct and Start Up crosses programmers for highly qualified graduates entering the company, aimed at comprehensively integrating them into the world of Volkswagen.

From scholarships to pensions Volkswagen company pension scheme was introduced more than 60 years ago. Today,

Volkswagen makes a monthly employer contribution to every employee, which forms a building block or “pension module” of the same value under Volkswagen contributory pension scheme. Under this plan, employees can supplement their pensions by earmarking a self determined portion of their wages or salaries for voluntary contributions, which represent further modules. In addition, employees can determine the length of their lifetime working hours by “buying” blocks of time. Volkswagen personnel can take unpaid leave for up to eight years with the guarantee that the company will employ them again at the end of that period. Employees can also take advantage of Volkswagen academic support programmes.

From person to person


In 1996, Volkswagen concluded a company-wide agreement on Partnership-based Conduct at the Workplace that anticipated many aspects of the subsequent German Anti-Discrimination Act. In the context of the passage of the Anti-Discrimination Act, Volkswagen updated this agreement in early 2007. The primary goal is to prevent all types of discrimination, whether on the basis of ethnic background, gender, religion, ideology, disability, age or sexual orientation. Volkswagen Company Agreement of course requires all Volkswagen employees to refrain from any form of discrimination and support a respectful and fair working environment. In order to prevent and fight discrimination, Volkswagen regularly holds training courses and informational and educational presentations on the subject.

Learning skills and strengthening performance

A central element of Volkswagen “18plus” strategy is building a top team – and this means top skills, top physical fitness and top motivation. Volkswagen human resource development initiatives target all employees in Volkswagen company, from apprentices, career-starters and university graduates who are just starting out to specialists and managers at all levels. Volkswagen makes certain that Volkswagen employees develop their individual talents and hone their professional skills. In the framework of this systematic development of competencies, Volkswagen encourages Volkswagen experts within the different professional fields to perfect their knowledge and pass on it to the next generation. Continuing professional development for managers is another important component of Volkswagen HR development strategy. The path to a management position in the Volkswagen Group includes a selection process, redesigned in 2007, which separates technical and specialist tasks from management functions. Completing Volkswagen “Leadership License” prepares employees for management responsibilities and is designed for all employees who are taking on a management role for the first time.


Continuing development builds expertise

Volkswagen is a company that values learning and teaching. The continuing professional development of all Volkswagen employees is important to us. Volkswagen partners in Volkswagen educational ventures include Volkswagen subsidiary Volkswagen Coaching and the AutoUni. In addition, in 2009 Volkswagen is promoting the continuing ducation interests of Volkswagen employees in Germany by awarding 100 scholarships for specialist training programmes. Volkswagen Coaching offers Volkswagen employees a wide spectrum of professional training measures. Each year, this training institute organizes approximately 3,600 courses for roughly 45,000 participants and handles the vocational training of Volkswagen approximately 4,200 apprentices in Germany. It coordinates qualification in 34 trades and professions and ten integrated degree and training schemes. Volkswagen Coaching has twelve education and training centers and 68 training labs (IT, CAD, CNC, electronics, control engineering, automotive, etc.) that comprise a total of 60,000 m2 of classroom, workshop and training space.

Equal opportunities and family-friendly HR policies

Volkswagen has been actively promoting gender equality and compatibility between work and family for quite some time. The Volkswagen group for the encouragement of women at work celebrated 20 years in existence in 2009. One of the Company’s goals is to continue to increase the proportion of women from 14.2% in all fields, but especially in management, where currently 9.9% are female. In 2009, women accounted for 30.4% of the new trainees taken on by Volkswagen AG and for 21.8% of university graduate hires.

Since 1998, a mentoring program has been in place at Volkswagen in which managers assist female high potentials on their journey towards management. Having been through 16 cycles with a total of over 290 participants, this initiative has proven to be a useful HR development tool in the Volkswagen Group. Volkswagen development project for female skilled workers – Female Master Mentoring – aims to increase the number of female supervisors at Volkswagen. At Volkswagen Commercial Vehicles, the KICK program is designed to educate female apprentices in the commercial and technical fields.

Helping employees combine work and family life is an important element of Volkswagen’s strategy to become the top employer and is therefore part of Volkswagen corporate strategy. This is achieved by organizing meetings for employees on parental leave, implementing initiatives to ease the transition back into the workforce after parental leave, and offering information on childcare providers on the intranet. Telecommuting, flexible working hours and various part-time models also make it easier to balance job and family in the Volkswagen Group.


SUPPLY CHAIN MANAGEMENT (SCM) AND

GLOBAL MANUFACTURE LOCATION

Volkswagen Unusual elements: VW is buying not only materials, but also the labor and related services Suppliers are integrated tightly into VW’s own network, right down to assembly work in the plant

Volkswagen Brazilian plant employs 1000 workers 200 work for VW 800 work for other contractors: Rockwell International, Cummins Engines, Deluge Automotive, MWM, Remon and VDO, etc. VW responsible for overall quality, marketing, research and design VW looks to innovative supply-chain to improve quality and drive down costs

In 1995, Volkswagen of America began a review of its vehicle-distribution system looking for opportunities to improve customer responsiveness and simultaneously reduce system costs. An analytical tool was required to evaluate alternative designs in terms of cost and customer service level, both of which are functions of probabilistic and dynamic elements. These elements include inventory policies, demand seasonality and volume, customer-choice patterns, and transportation delays. By using an innovative combination of simulation and discrete optimization models, Volkswagen addressed the problem of analyzing a large number of alternatives efficiently. Our analysis indicated opportunities for significant savings in estimated annual transportation costs, and it provided insights on how to implement the proposed system.


IMPORTANCE OF PURCHASING

Major cost center Affects quality of final product Aids strategy of low cost, response, and differentiation

SUPPLY –CHAIN COSTS AS A PERCENT OF SALES

All industry 52%Automobile 67%Food 60%Lumber 61%Paper 55%Petroleum 79%Transportation 62%

OBJECTIVES OF THE PURCHASING FUNCTION

Help identify the products and services that can be best obtained externally; and Develop, evaluate, and determine the best supplier, price, and delivery for those products and services.


PURCHASING TECHNIQUES

Drop shipping and special packaging Blanket orders Electronic ordering and funds transfer Electronic data interchange Stockless purchasing Standardization Outsourcing

SUPPLY-CHAIN STRATEGIES

Plans to help achieve mission Affect long-term competitive position

STRATEGIC OPTIONS

Many suppliers Few suppliers

Vertical integration MANY SUPPLIERS STRATEGY

Many sources per item Adversarial relationship Short-item Little openness Negotiated, sporadic PO’S High prices Infrequent, large lots Delivery to receiving dock

FEW SUPPLIERS’ STRATEGY

1 Of few sources per item Partnership Long term, stable On-site audits & visits Exclusive contracts Low prices(large orders) Frequent , small lots Delivery to point of use


MANAGING THE SUPPLY CHAIN Options: Postponement Channel assembly Drop shipping Blanket orders Invoices purchasing Electronic ordering and fund transfer Stockless purchasing Standardization Internet purchasing


Managing the supply chain other options

Establishing lines of credit for suppliers Reducing bank “float” Coordinating production and shipping schedules with suppliers and

distributors Sharing market research Making optimal use of warehouse space

Successful supply chain management requires

A mutual agreement on goal Trust Compatible organizational cultures

Issues in an integrated supply chain

Local optimization Incentives Large lots

Opportunities in an integrated supply chain

Generation of accurate “pull” data Reduction of lot size Single stage control of replenishment


OPPORTUNITIES IN AN INTEGRATED SUPPLY-CHAIN

Generation of accurate “pull” data Reduction of lot size Single stage control of replenishment

SUPPLIER SELECTION CRITERIA

Company Financial Stability Management Location

Product Quality Price

Service Delivery on time Condition on arrival Technical support Training

GOODS MOVEMENT OPTIONS

Trucking Railways Air fright Waterways Pipelines


Volkswagen -Ibm Final

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