Marketing Strategy Recommendation Team Maxxim presents Volkswagen AG Marketing Strategy Recommendation EBA 605, Dr. J. Coleman Saturday, April 22, 2006

Agenda Current Situation & Trends Performance Review Key Issues Objectives Marketing Strategy Action Plan Projected Profit-and-Loss Statement Controls Contingency Plans

Market Situation Mature passenger car market in North America and Europe Sales expected to rise 0.6% and 1.6% for North America and Europe, respectively, through 2009 Global passenger car sales are forecast to grow by around 7 million units through 2009, or just under 3% annually India and China is expected to account for more than half of this growth

Car Sales According to Groups, Worldwide Mil. Vehicles GM 8.2 Ford/Volvo 6.8 Toyota/Daihatsu 6.7 Volkswagen 5.2 DaimlerChrysler 4.7 PSA 3.4 3.0 Honda 2.9 Nissan Weitere: Hyundai Konzern: 1,93 Mio. Suzuki Konzern: 1,21 Mio. Mazda Konzern: 1,10 Mio. Mitsubishi Konzern: 1,03 Mio. 2.5 Renault 1.9 Fiat/Ferrari 1.2 BMW Source: manufacturer`s data, JAMA.

Global Competitive Overview *Numbers based on 2004 Marke tshare

WORLD CAR POPULATION Greater Demand & Less Resources Developing World = 300% Increase Between 1995 & 2020 Greater Demand & Less Resources Accelerated Greenhouse Emissions Environmental & Energy Trends = Negative Economic Impacts This slide shows the worldwide growth in automobile population. In North America and Western Europe, the growth in automobile population is roughly equivalent to the growth in human population. But in the developing world, growth is almost exponential because of expanding economic growth. So business will be good, and none of us will have to switch careers in order to make a living. This accelerated growth in the world’s automobile population is accelerating the pressure on finite oil reserves. Experts have been predicting a decline in oil supplies for the last 50 years, and they just keep finding new fields and pushing the envelope forward. But we all know the problem of basing the prospects for future events on past events. If that worked, then healthy people could drop their insurance, train-wrecks that haven’t happened yet, never would, and we would always have plenty of petroleum reserves. There have been no major new oil field discoveries since 1988, and today, the best estimations are that we can expect to see a permanent global decline in oil production within 15 to 20 years - which doesn’t stack up very well against the growth in demand. Another pressure for change centers on greenhouse emissions, global warming, and climatic change. From the last ice age until the industrial revolution in the last century (~10,000 years), the atmospheric level of CO2 had varied only about 5%. But beginning with the industrial revolution and projecting forward to 2030, the amount of atmospheric CO2 will have doubled - all in about 150 years time. Global warming and the resulting climatic changes are about as close to proven as something like this can be, and the post-industrial increase in greenhouse gases looks like the culprit. One of the biggest single contributors to the rise in greenhouse gases is the burning of fossil fuels. With hydrocarbon fuels, C02 emissions are roughly proportional to the amount of energy consumed, so a reduction in energy consumption naturally reduces CO2 emissions. So when we look at the entire picture, there are compelling reasons for a switch to more efficient transportation technologies. And one doesn’t have to subscribe to the Malthusian meltdown theory in order to appreciate it. Ultimately, the justification comes down to the task of insuring economic stability over the long haul. The economic ramifications of mounting environmental problems, changing weather patterns, and future monopolies and instability in energy supplies could be enough to threaten the very foundations of our industrialized societies. It’s in our own interests - it’s just good business practice - to create a more energy efficient and sustainable system. And I think it even makes sense in terms of profits.

Competitive Situation General Motors, Nissan and Toyota have cut into Volkswagen’s market share Volkswagen once held a 50% market share in China, it’s now around 20% China and India both serving as key manufacturing locations with major players

Volkswagen Group Market Share - 2005

Corporate Overview HQ: Wolfsburg, Germany US Operations: Auburn Hills, MI Europe’s #1 automobile manufacturer Annual production: 5M vehicles Annual sales: $121,345/ 10.9 YOY growth Employees: 342,502 worldwide

Key Milestones 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s Factory opened in Wolfsburg, Germany 1940s Production of first Volkswagen Company turned over to German government 1950s VW begin building foreign plants Launched “Beetle” in US market Developed Microbus 1960s Sold stock to the German public Purchased Auto Union (AUDI) US Beetle sales took off 1970s Beetle discontinued in every country except Mexico 1980s Begin car venture in China Purchased SEAT Formed Autolatin in Brazil 1990s Built China’s largest auto plant Integrate Skoda Acquires Rolls-Royce and Bugatti Launched New Beetle in US 2000s Spent 3.1B to modernize factories The final Beetle ended a 70-year run Invested 1.7B in China (Asia/Pacific) Bernd Pischetsrieder joined company

Volkswagen Global Marketing Mix Brand portfolio Volkswagen Audi Seat Škoda Bugatti Bentley Lamborghini Commercial vehicles Unique brand identity for each nameplate Complete product range Mostly standardized products with minor adaptations Development of distribution partners Separated distribution channels for each brand International standardization of dealers 1 Setting prices with regard to competitors Price discrimination across regions No price competition in emerging markets Strict cost controlling 2 Global Marketing Mix 4 Localized communication Emphasis on the European market Brand advertising Emotionalization 3

Financial Services Division Volkswagen Group Automotive Division Financial Services Division VW Brand Group Audi Brand Group Commercial Vehicles Other Companies Financial Services Europcar VW P Cars *Passat *FOX *Jetta *Beetle *Golf Skoda Bentley Bugatti Audi SEAT Lamborghini Buses and Vans Financing Servicing Dealer & Customer Financing Leasing Insurance Fleet business Rental Business Source: www.volkswagen-ir

Key Issues Extreme global competition, particularly from American and Asian manufacturers Slow revenue growth due to inflated cost of raw material and rising administrative costs Stagnant demand because of overcapacity and product proliferation in western markets Controlling cost while simultaneously generating revenue Rapid foreign investment in Chinese and Indian markets

How do we tackle these issues?.....

Increase operating cash flow Increase sales and market share Objectives Increase operating cash flow Increase sales and market share Expand targeted-market segment Maximize fuel efficiency Be first to market with new product Introduce hybrid vehicle, Ŝkoda Octavia, in India Conduct financial feasibility study Volkswagen AG

Financial Feasibility The text of this press release and the text of the 2005 annual report are available to download from the official Škoda Auto media web site (http://media.skoda-auto.com). For further information please contact: Evžen Krauskopf Corporate Communications Phone: +420 326 811 784 Fax: +420 326 811 946 E-mail: evzen.krauskopf@skoda-auto.cz

Financial Feasibility – Labor Costs

Financial Feasibility – Labor Costs

Financial Feasibility – Labor Costs

Financial Feasibility Reported Annual Income Statement Actual Projected Currency 2003 2004 2005 2006 2007 2008 2009 2010 2011 Auditor Status Dollars Dol lars Consolidated Yes Scale millions Sales revenue 109,394 121,346 112,826 116,211 119,697 123,886 128,842 135,284 142,048 C ost of sales 97,597 106,992 97,576 100,503 103,518 106,624 109,822 113,117 116,510 Gross profit automotive division 11,798 14,353 15,250 15,708 16,179 17,263 19,020 22,167 25,538 Gross profit financial services - Depreciation & Amortization 10,541 9,251 8,352 7,517 7,211 6,920 6,644 6,382 6,133 Distribution costs 9,880 10,291 10,718 11,255 11,845 12,467 13,152 13,876 Administrative expense 2,800 2,852 2,904 3,021 3,141 3,267 3,398 3,53 4 Selling & distribution expenses General administration Other operating income 5,393 5,602 5,819 6,052 6,294 6,545 6,807 7,080 Other operating expenses 3,477 3,162 2,875 2,990 3,109 3,234 3,363 3,498 Operating profit 3,589 4,548 5,029 4,965 5,461 6,598 9,061 11,710 Net Cash Flow 22,339 12,840 12,900 12,546 12,175 12,381 13,242 15,443 17,843

Financial Feasibility – Break Even Point

Financial Feasibility – Sales Per Year

Financial Feasibility – Sales Per Year

Weighted Average Cost of Capital Component Weight Cost Weighted Cost Common Equity 0.75 $125,000,000 $97,750,000 Debt 0.15 $18,750,000 Preferred Stock 0.1 $12,500,000 WACC 0.1291 $16,137,500

Financial Feasibility – Profit/Loss Statement It will take 2.5 years to recover

Marketing Strategy Enhance regional presence and geographical spread Increase customer orientation – Leapfrog approach Niche penetration Technological differentiation More efficient use of resources

Action Plan Select “premier” dealerships to carry the Ŝkoda hybrid Develop dealer training programs Project and sales managers collaborate to acquire new customers and increase customer loyalty Build awareness of Ŝkoda hybrid through sales promotions and easy financing Use Volkswagen Group’s brands to increase customer awareness 80% of all new car purchases in India are financed—the global average is 70%

Volkswagen Group Brand Portfolio Sophistication Zones of Low Demand Functionality Emotion

Positioning Statement: For the cost conscience buyer, Volkswagen The VW Customer Positioning Statement: For the cost conscience buyer, Volkswagen offers reliability and value. Value Proposition: Target Market: Cost conscience buyer (parents, females, young adults) Benefits offered: German technology Relative price: Affordable, reliable

Controls & Contingency Plan Design service programs that address potential concerns Continued research and development aimed at product improvements or modifications that appeal to target segment Increase penetration with market segments and/or distribution intensity

The Golden Steering Wheel to the New Škoda Octavia The new Škoda Octavia won the Bild am Sonntag‘s prestigious Golden Steering Wheel award during a ceremony in Berlin. The 2nd generation Škoda Octavia has taken first place in the compact and mid-size car category ahead of newcomers such as BMW 1 or Mercedes A Class. Evaluated by the Bild’s jury of 27 judges, the new Octavia has won in three out of eight disciplines: spaciousness, value for money, and finish work. The 27-member jury included renowned car experts as well as celebrity car connoisseurs. At the wheel of the new Octavia there have appeared, among others, former world rally champions Walter Röhrl and Rauno Aaltonen; former Formula One driver Hans-Joachim Stuck; lady-driver Eve Sheer; AvD director Wolfgang Ernst, Duke of Ysenburg and Bündingen; soccer legend Franz Beckenbauer; TV stars Jörg Wontora, Kai Pflaume, Frank Elstner, Caroline Beil, Barbara Schöneberger, Peter Boenisch, or singers Patrick Lindner and Thomas Anders. The Axel Springer publishing house awarded the Golden Steering Wheel for the first time 29 years ago and since then, it has awarded the trophy annually to the best four new cars of the year. A Škoda model has won the Golden Steering Wheel for the second time in history. In 1999, the trophy went to the Škoda Fabia. The new Škoda Octavia, launched on the market last spring, continues the tradition of its successful predecessor of the same name. The Octavia has passed the mark of a million cars manufactured since it had been first introduced in 1996. The world premiere of the 2nd generatoin Octavia took place at the Paris Motor Show this autumn. http://www.skoda-auto.com/global/aid/news/newoctavia/2004_04_goldenwheel.htm?c={4CB1A946-92F4-4D13-964F-1137838CD68F}

Look how roomy….

Look at that automatic console!

Ŝkoda Octavia Hybrid

Ŝkoda Octavia Hybrid

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