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Mid-term Production Forecast by IHS Global Insight

VW Group: Light vehicle production by Country (IHS Global InsightForecast)

(Unit)

	Brand	2008	2009	2010	2011	2012	2013	2014	2015
GERMANY	VW	1,450,994	1,284,769	1,158,187	1,177,030	1,164,901	1,254,868	1,378,410	1,369,840
	AUDI	875,487	846,687	917,778	799,640	871,747	862,754	832,072	880,393
BELGIUM	VW	52,827	39,749	0	0	0	0	0	0
	AUDI	31,821	23,644	78,664	111,076	124,886	138,201	139,564	127,103
UNITED KINGDOM	BENTLEY	7,675	3,596	5,027	6,184	5,648	7,428	6,080	7,303
FRANCE	BUGATTI	82	3	42	24	61	77	72	78
ITALY	LAMBORGHINI	2,422	1,253	1,504	1,601	1,589	2,164	2,159	1,966
SPAIN	VW	259,000	243,500	303,183	323,885	315,720	340,508	328,497	316,927
	SEAT	370,293	301,289	296,032	294,519	310,669	365,888	350,135	348,190
	AUDI	0	0	0	43,243	72,809	70,923	64,129	64,081
PORTUGAL	VW	83,818	79,793	73,138	91,615	86,715	77,496	84,633	78,247
	SEAT	10,282	6,215	6,762	16,701	13,703	13,771	12,741	10,914
CZECH REPUBLIC	SKODA	592,146	537,499	446,263	423,347	525,019	580,037	625,266	619,963
SLOVAKIA	VW	62,229	29,576	41,937	91,565	178,924	188,048	195,639	184,943
	SEAT	0	0	0	0	24,206	27,694	28,640	26,272
	AUDI	59,008	27,929	32,945	29,019	28,377	46,405	50,647	47,439
	SKODA	18,279	18,666	13,401	15,485	46,938	48,712	50,096	45,920
POLAND	VW	176,479	138,193	114,685	113,006	92,954	82,907	147,502	146,403
HUNGARY	AUDI	60,359	32,603	45,554	35,633	28,224	36,398	57,016	58,348
BOSNIA AND HERZEGOVINA	VW	1,100	0	0	0	0	0	0	0
	AUDI	372	0	0	0	0	0	0	0
	SKODA	2,266	0	0	0	0	0	0	0
RUSSIA	VW	16,206	20,653	37,806	57,084	69,666	78,851	98,390	110,377
	AUDI	0	285	3,012	6,011	8,271	9,572	10,944	11,626
	SKODA	46,763	27,074	33,628	37,439	42,978	49,982	48,557	52,368
UKRAINE	VW	5,034	0	2,529	4,644	6,368	7,293	8,255	9,279
	SEAT	785	4	460	1,122	1,488	1,617	1,625	1,806
	SKODA	30,073	3,562	6,302	12,853	20,976	26,156	28,512	30,696
KAZAKHSTAN	SKODA	320	179	426	1,249	2,115	2,893	3,246	3,670
CHINA	VW	815,861	1,113,450	1,211,156	1,261,515	1,302,354	1,337,108	1,394,718	1,460,842
	AUDI	103,379	142,244	177,758	188,394	194,899	204,704	211,147	216,276
	SKODA	55,760	131,633	154,180	160,684	170,963	171,192	219,531	234,396
INDONESIA	VW	0	56	160	174	191	210	232	255
INDIA	VW	810	1,920	30,600	39,858	60,102	74,007	89,085	112,182
	AUDI	226	1,068	1,409	1,868	2,041	2,314	2,446	2,866
	SKODA	18,345	9,220	15,277	17,606	41,607	50,540	60,548	65,978
UNITED STATES	VW	0	0	0	125,256	116,916	136,102	148,457	167,837
CANADA	VW	22,002	3,879	23,563	28,190	30,652	31,816	0	0
MEXICO	VW	443,080	319,638	394,557	364,140	466,264	472,717	506,349	525,127
	SEAT	0	0	0	0	4,346	5,544	8,554	9,053
ARGENTINA	VW	63,156	52,034	96,850	109,629	112,250	112,592	115,937	123,521
BRAZIL	VW	717,009	769,956	833,185	854,586	852,589	846,855	839,672	859,401
SOUTH AFRICA	VW	91,654	59,583	119,823	138,721	134,880	132,946	136,968	134,494
TOTAL		6,547,402	6,271,402	6,677,783	6,984,596	7,535,006	7,899,290	8,286,471	8,466,380

Source: Global LV Production Data (as of March 19, 2010)
(Note)
1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.
2. Data for 2009 are based on actual production results, in countries other than the South Africa.
3. All rights reserved. Reproduction of any data will require permission of IHS Global Insight.

IHS Global Insight Report

(01 Mar 2010) - World: VW Posts 80.6% Y/Y Decline in Net Profit

VW posted a significant decline in profit in 2009 due to currency effects and a lower-value model mix, but its financial performance remained robust.

IHS Global Insight Perspective

Significance	Volkswagen (VW) has posted a much reduced net profit of 911 million euro for 2009, an 80.6 % year on year reduction on the previous year's results because of the difficult global business environment.
Implications	However, the very fact that VW remained very much in the black in 2009 was impressive in itself, and it joins Ford and Hyundai as the OEMs that have performed the best throughout the global economic downturn.
Outlook	The company's 2009 financial performance once more endorses VW as being one of the bestpositioned global OEMs in terms of its ability to weather the current economic environment. However, it must continue to eradicate regional weaknesses in the United States and Asia.

The Volkswagen (VW) Group has posted an 80.6% year-on-year (y/y) decline in its net profit during the full 2009 calendar year to 911 million euro, down from the figure of 4.688 billion euro the year before, according to a company press release. As would be expected, there was also a corresponding decline in operating profit, which fell by 70.7% y/y to 1.855 billion euro in comparison to the figure of 6.333 billion euro in 2008. Profit before tax declined in line with the decrease of net profit, with a fall of 80.9% y/y to 1.261 billion euro. These results were achieved off the back of a 7.6% y/y decline in sales revenue to 105.187 billion euro in comparison to the figure of 113.808 billion euro which was achieved in 2008 before the very worst effects of the global credit crisis fully took hold. Commenting on the group's headline numbers, CEO Martin Winterkorn said, "The Volkswagen Group successfully mastered the difficult situation in the automotive industry last year. That is convincing proof of the strength of our multibrand group." However, while he emphasised the solid financial foundations of the VW Group following this latest set of results, Winterkorn also warned investors that the company did not expect a rapid marked improvement in business conditions during 2010. "Our success is founded on our attractive, innovative and efficient vehicles. We also have a very solid financial position and our liquidity remains high. Under these circumstances, we will once again be able to systematically expand our position on world markets during the current year. We have good grounds for approaching this year with confidence. Conditions will, however, remain very difficult."

Volkswagen Group 2009 Full Year Financial Results (Euro, bil.)

	2008	2009	% Change
Net Profit	0.911	4.688	-80.6
EBIT	1.261	6.608	-80.9
Operating Profit	1.855	6.333	-70.7
Sales Revenue	113,808	105,187	-7.6

Source: Company data

However, the group revenue decline rather belies the 2009 sales data that VW has previously published where it managed to actually post a small 1.3% y/y improvement in sales volume to 6.336 million units, in comparison to 6.257 million units in 2008. This was a hugely impressive sales performance given the prevailing conditions in the global automotive market. However, the lower outright revenue figure suggests increased sales of models in the lower vehicle segments and lower price points, something that would be borne out by the launch of the new VW Polo and strong sales of its close relation the Skoda Fabia throughout the year as a result of various European scrappage schemes. Winterkorn also mentioned the company's strong liquidity levels, stating that VW has 10.6 billion euro in cash reserves, comfortably exceeding the prior-year figure of 8 billion euro. VW also stated that it recorded positive net cash flow during the year despite the acquisition of its 49.9% stake in Porsche.

Outlook and Implications
VW appears to have disappointed some investors, especially with lower-than-expected profitability figures during the fourth quarter. Deducting the financial results for the first nine months of the year indicated that VW made an operating profit in the fourth quarter of 337 million euro and an operating margin of just 1.2%. However, it has also been clever in managing expectations about its financial performance during 2009 and 2010.VW will maintain dividend payments to shareholders this year, but it has opted against providing concrete expectations of financial performance this year, which is a shrewd strategy given the ongoing uncertainty surrounding the global economy. The company is planning a capital increase this year by issuing up to 135 million new preference shares, in order to acquire the Porsche brand of sports cars and the Porsche Holding dealership group which are worth a combined 16 billion euro in equity and debt, something that has improved extremely unpopular with some institutional investors (see Germany: 17 November 2009: VW and Porsche Criticised Again Over Shareholder Transparency; Contract to Be Agreed). As a result, VW is trying to placate these investors by paying dividends while at the same not setting concrete targets of 2010 performance, which can be easily underperformed. In its press release, the VW Group made a relatively open-ended statement regarding 2010 financial performance. It stated "The Group's sales revenue and operating profit for 2010 are expected to exceed the prior-year figures despite a shift in volumes between the markets. Interest and exchange rate volatility will remain a drag on profit." Sales performance has been very strong in 2009, but this has not quite been matched in terms of profitability as a result of currency effects and a lower value sales mix. As a result of the significantly lower profits recorded for 2009, VW has proposed cutting its dividend by 17% to 1.66 euro per preferred share.

VW is looking to continue its strategy of addressing its susceptibility to currency effects by increasing the regionalisation of its production footprint, forging ahead with plans to re-establish a production base in North America. Work on the new factory in Chattanooga is well advanced and production is on schedule to begin early next year. Meanwhile VW's acquisition of a 19.9% stake in Suzuki gives it an entry into geographical areas of the Asian market and access to minivehicle technology that will substantially enhance its global strategy. VW will now look to consolidate its relatively robust 2009 financial results by continuing with its Strategy 2018 plan, which includes a stated goal to overtake Toyota as the world's number one volume carmaker by 2018. VW will no doubt have been encouraged in this regard by the immense amount of negative publicity that has surrounded the Toyota brand recently as a result of the global vehicle recall involving floor mats and sticking accelerator pedals that have led to reports of accidents related to unintended acceleration, particularly in the United States.

(10 Mar 2010) - Germany: Audi Records 38.9% Decline in Net Profit, Vows to Return to Pre-Crisis Sales Levels
Audi has reported a decline in profitability as sales stall, but has vowed to get the business back to pre-crisis levels in the short term.

IHS Global Insight Perspective

Significance	Audi has seen profits tumble as demand for its vehicles slid during 2009.
Implications	Despite the pressures from the economic downturn, Audi seems to have survived this period better than some.
Outlook	While pressures have abated, there still remain some uncertainties in 2010, although it is expected that Audi will see sales of over 1 million units during the year, helped along again by its presence in the Chinese market.

The Volkswagen (VW) Group's Audi unit has seen a decline in profitability during 2009, a year in which it suffered a slide in sales as a result of the global economic downturn. According to a statement, the company saw revenues of 29.8 billion euro (US$40.5 billion), a decline of 12.7% year-on-year (y/y) as unit sales slipped by 5.4% y/y to 949,729 vehicles, although Audi said it was also hit by the effects of currency translations. Profitability also fell markedly over that seen in 2008, with operating profits falling by 42.1% y/y to 1.6 billion euro, while net earnings retreated by 38.9% y/y to 1.35 billion euro. Despite the difficult situation, return on investment was 11.5%, down from 19.8%, and return on sales before tax fell from 9.3% to just 6.5%. Audi added that it had also achieved a free cash flow of 2.3 billion euro, which outstripped last year's figures, while net liquidity climbed 14.8% to 10.7 billion euro. Chairman of the Board of Audi Rupert Stadler said that "This good result in a very difficult environment paves the way for our future success," adding, "Our policy of consistently improving our productivity and investing massively in the typical Audi values of design, sportiness, quality and efficiency over the past few years is now paying dividends,"

Despite the contraction in its financial performance during the downturn, the automaker revealed that it was again aiming to share profit with its staff, averaging 2,300 euro. The company added that this would be joined by a further special one-off payment averaging 1,200 euro for each member of staff to acknowledge "the exceptional performance of our employees in a crisis-ridden 2009" said Dr. Werner Widuckel, member of the automaker's board of management for human resources.

For 2010, following an announcement that sales had increased by 28.7% y/y during the first two months of the year (see World: 9 March 2010: Audi Closes Gap on Rivals in February Sales; China to Overtake Germany as Biggest Market), Stadler said that the brand was well on course to surpass the 1-million-unit target level. He said, "We aim to start growing again through new models and have set ourselves the target for 2010 of bettering the revenue and operating profit of 2009." However, the senior executive warned "The worst of the crisis appears to be behind us, but we are not yet able to give the all-clear for 2010 - We need to remain vigilant so that we can respond swiftly and flexibly to any difficulties."

Outlook and Implications
Last year was a difficult time for the automotive industry with the economic downturn and the effect that this has had on sales. However, it was arguably worse for those at the premium end of the market, which were not able to benefit from many of the schemes that have helped support market demand, particularly in Europe. Audi has reflected this during the year, while its domestic sales fell by 11.3%, despite the market soaring on the back of the scrapping incentive scheme. However, from a market perspective, the situation would have been far worse were it not for China, where sales rose by almost one-third to over 150,000 units during the year, as the country shrugged off the worst effects of the global pressures. Also, with regards to Audi's exposure to the most pressured of markets, the company successfully took steps to protect its financial position during the year by scaling back protection to stay on top of inventory levels and reduce the effect that this had on its liquidity situation.

Going forward, Audi has already announced that it is planning another round of investments over the next two to three years, aimed at both research and development (R&D) and its production operations (see Germany: 29 December 2009: Audi Confirms Plans to Invest 7.3 bil. Euro in R&D, Plant Investment by 2012). According to a statement made late in 2009, the company has set aside 5.9 billion euro to develop new products and technologies, including the expansion of its range from 34 vehicles to 42 vehicles by 2015, at which point it aims to become the world largest selling premium vehicle brand. This expansion has already been taking place for several years now, with the introduction of two sport utility vehicles (SUVs) in the Q5 and Q7, a coupe in the A5 and a sports car in the shape of the R8, as well as the creation of new niche models such as the A5 Sportback. However, this will be taken up a gear in 2010 with the launch of the A1, the automaker's second attempt on the premium end of the B segment since the ill-starred A2 which was killed off in 2005. This model will aim at this increasingly popular segment, and is hoped to become as popular as BMW's own Mini. With the relatively low entry price and its positioning in what is a relatively new segment, Audi is hoping that 80% of customers will be new to the brand, which would provide an excellent feeder into its larger models.

However, while this will go some way towards helping the brand, alongside the latest generation A8 and other new models in the pipeline for 2010, this year could well be as difficult due to the global economy, which is still under some pressure. Certainly, the early signs are good, but this is partly due to the low baseline effect from last year. Audi has already been forced to reduce production of its A3 model for a week at its Ingolstadt (Germany) plant, and it was be unsurprising if this were to take place again. However, IHS Global Insight agrees with Audi and believes that its sales will reach 1.04 million units in 2010, with the majority of its top markets either stabilising or gaining during the year. Again, it will be China that is expected to drive sales, which are now expected to climb to around 195,000 units during the year, with additional support being brought by the new A1.

(17 Mar 2010) - World: Porsche SE's Net Profit Declines 84% in H1 FY 2009/10
Special items once more dominate Porsche SE's first-half financial year results, with VW's capital increase set to have a sizeable negative effect on the company's full-year figures.

IHS Global Insight Perspective

Significance	Porsche has posted a net profit of 871 million euro for the first half of the of its financial year, an 84% y/y decline.
Implications	The failed takeover of VW and the subsequent effective reverse takeover means that this result is mainly governed by accounting effects and has little to do with overall business performance. However, there are signs that the surrounding business environment may be improving marginally for Porsche with an operating profit of 329 million euro, during the period while revenue rose by 3.7% to 3.16 billion euro.
Outlook	In the remainder of the financial year Porsche is expecting its net profit to be reduced by a number of external factors, not least that it is not participating in the capital increase planned by VW for the first half of 2010. Porsche SE's remaining share capital in VW will be diluted and the company's results will also be influenced by the number of new preference shares in VW issued and their issue price.

Porsche Automobil Holding SE, the company that controls the sports car company Porsche AG and which was previously being used as the vehicle for the company's takeover attempt of the Volkswagen (VW) Group, posted an 84% year-on-year (y/y) decline in net profit to 871 million euro during the first half of the company's financial year (FY) from 1 August 2009 to 31 January 2010. However, this large decline in net profit had more to do with accounting effects than the actual operating performance following the after-effects of the failed attempt to acquire and maintain a controlling stake in Europe's largest passenger carmaker. Porsche said in a press release that it still expects negative earnings before tax for the full FY as a result of accounting effects, although some of these effects will offset each other. One of the main influences on Porsche SE's full-year financial results will be the deconsolidation of the VW Group from Porsche SE which occurred on December 2009 and the deconsolidation of the Porsche Zwischenholding GmbH group, which mainly comprises the carmaking side of the business Porsche AG. These structural changes have already been included in Porsche SE's six-month report. With Porsche now on its way to becoming fully consolidated within the VW Group by 2011, the company has sold a 49.9% stake in Porsche Zwischenholding GmbH to VW. As a result, the holding company Porsche SE received a figure of 3.9 billion euro which has already mainly been used to pay off debt, with Porsche's SE's net debt now having been reduced to 6.1 billion euro.

Porsche SE H1 FY 2009/10 Financial Results (Euro, mil.)

	H1 2009	H1 2010
Net profit	5,619	871
Operating profit	7,342	329
Revenue	3,043	3,160

However, on the operating side of the business, which again mainly comprises Porsche AG's activities, the company did actually report some positive results. Porsche AG posted an operating profit during the period of 329 million euro, which translated to an operating margin of 10.4%. The unit's revenue also saw a positive increase of 3.7% y/y with sales rising to 3.16 billion euro. However, this was in spite of unit sales declining further still during the period to 33,670 units, suggesting a higher value model mix during the period in question. This was probably the result of this is period corresponding with the launch of the Panamera sports sedan. The Panamera sold 8,326 units between its launch in September 2009 and the end of the reporting period on 31 January. The Cayenne remained Porsche's best selling model with 13,454 units sold, representing a 19.8% y/y decline on the period during the previous year. Unit sales of the 911 came to 7,493 units (down 44.7%). Unit sales of vehicles from the Boxster model series, including the Cayman models, recorded 11.3% growth to 4,397 vehicles. Porsche stated that it continues to assume that unit sales for the full fiscal year 2009/10 will exceed the prior year figure of 75,238 vehicles.

Outlook and Implications
As has been the case in recent years, Porsche Automobil Holding SE's results are, it seems, only marginally affected by its actual core business, the sports car company known as Porsche AG. Instead these latest first-half results from Porsche's own unique FY reporting period have been massively influenced by the machinations surrounding the company's failed attempts to take control of Europe's largest carmaker, VW. In the past, Porsche SE has posted massive net profit gains as a result of the rise in value of its VW shares and share options. Likewise when its takeover attempt went bad and it had to sell off options at less than their face value, the company posted big write-downs. These external factors will again play a sizeable part in Porsche SE's full 2009/2010 FY results. As Porsche said in its statement "Porsche SE is expected to be reduced by various factors in the second half of the 2009/10 fiscal year because it is not participating in the capital increase planned by Volkswagen AG for the first half of 2010." VW will issue up to 135 million preference shares to help finance the acquisition of a 49.9% stake in Porsche SE and the 19.9% stake that the company is planning to acquire in Suzuki. This will result in a dilution of Porsche SE's share in capital of VW, with Porsche going to state that "the impact on earnings will depend on the form that the capital increase takes and will also be influenced by the number of new preference shares in Volkswagen issued and their issue price." As yet, it is difficult to fully estimate the impact this will have on Porsche although the company is forecasting that the loss for the 2009/10 fiscal year will be in the low single-digit billion-euro figure. Eventually following the full consolidation in 2011, Porsche AG and SE's sales performance and financial data will be consolidated in the results of the VW Group and the company's results will align with VW's reporting period, which corresponds with the calendar year.