Volkswagen South America: Market with Perspective!

Volkswagen Group Americas Investor and Analyst Conference

Carsten Isensee
CFO, Volkswagen do Brasil Ltda. Chattanooga, 27 September 2011

Disclaimer

This presentation contains forward-looking statements and information on the business development of the Volkswagen Group. These statements may be spoken or written and can be recognized by terms such as expects, anticipates, intends, plans, believes, seeks, estimates, will or words with similar meaning. These statements are based on assumptions relating to the development of the economies of individual countries, and in particular of the automotive industry, which we have made on the basis of the information available to us and which we consider to be realistic at the time of going to press. The estimates given involve a degree of risk, and the actual developments may differ from those forecast. Consequently, any unexpected fall in demand or economic stagnation in our key sales markets, such as in Western Europe (and especially Germany) or in the USA, Brazil or China, will have a corresponding impact on the development of our business. The same applies in the event of a significant shift in current exchange rates relative to the US dollar, sterling, yen, Brazilian real, Chinese rinminbi and Czech koruna. If any of these or other risks occur, or if the assumptions underlying any of these statements prove incorrect, the actual results may significantly differ from those expressed or implied by such statements.

We do not update forward-looking statements retrospectively. Such statements are valid on the date of publication and can be superceded.

Market with perspective !

Agenda

A. South America and Brazil Overview

B. The Automotive Market in South America

C. Volkswagen do Brasil

A. South America / Brazil Impressions

Key Facts

Macro Outlook

Challenges for Brazil

South America - Impressions

Venezuela Guyana Suriname Colombia French Guyana Ecuador

Peru Bolivia Chile

Brazil
Paraguay

Uruguay

Argentina

South America - Country information

Country Capital Territory
(Mio. Km2)

Population Mio.

Population density (inhabitants per Km2)

GDP USD Bio 2010

Population density / 1,000 (Inhabitants)

Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela

Buenos Aires La Paz Brasilia Santiago de Chile Bogot Quito Asuncin Lima Montevideo Caracas

2.8 1.1 8.5 0.8 1.1 0.3 0.4 1.3 0.2 0.9

15.53% 6.16% 47.78% 4.25% 6.39% 1.59% 2.28% 7.21% 0.99% 5.14%

41.8 10.1 203.4 16.9 44.7 15.0 6.5 29.3 3.3 27.6

10.49% 2.53% 51.03% 4.24% 11.21% 3.76% 1.63% 7.35% 0.83% 6.92%

14.9 9.2 23.9 21.1 40.6 50.0 16.3 22.5 16.5 30.7

370.3 19.4 2,090.3 203.3 285.5 58.9 18.5 152.8 40.3 290.7

214 52 146 171 58 58 78 54 220 151

Total

17.4

100%

398.6

100%

22.9

3,530.0

Source: FMI, Welt-Blick.de (Status: July 2011), VDA Tatsachen und Zahlen, 74. Folge 2010;

South America: Worldwide comparison (Cars and Lights) 2006 - 2010

North America
in thousand cars

Europe

19,306 15,906 13,973

21,099

21,114 18,367

2006

2008

2010

2006

2008

2010

South America

Asia and Pacific

30,161

18,310

19,989

3,134

4,113

4,793

2006

2008

2010

2006

2008

2010
7

Source: IHS Global Insight World Car Industry Forecast, 03-2011

Brazil offers worldwide competitive strengths: Diversified industrial base and export platform

No. 1 producer of Iron ore No. 1 producer of Orange juice No. 1 producer/consumer of Coffee No. 1 producer of Chicken meat

3rd largest producer of Corn 3rd largest producer of Bauxite 3rd largest producer of pork 3rd largest road network

22% of the worlds arable lands 80.3 million internet users Self sufficiency in oil, with a production of 1.8 mio. barrel / day, being the 15th

No. 1 producer of Sugar

No. 1 producer of Soybeans No. 1 maker of Regional Jets 2nd largest producer of Ethanol 2nd largest producer of Manganese 2nd largest producer of beef

3rd largest footwear producer

6th largest grain producer 8th largest chemical industry 9th largest steel maker

largest oil producer

Huge offshore Reservoirs in oil & gas

Source: B-FT Regional Treasury South America / Brazilian Steel Insittute / Abicalados / Abiquim / IBGE

Brazil Macroeconomics: Solid base for sustainable growth

Consumer Inflation (INPC) - In % p.a. Interest Rate (SELIC) - In % p.a. Exchange Rate - BRL / USD

28.7

12.1 2.5 1.2

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Consumer Inflation (left axis) Interest Rate (left axis) Exchange Rate (right axis)

6.5 1.6

20

Source: Central Bank / IBGE

Fiscal Indicators: Comfortable position for Brazil

Gross Public Debt 2010 (in % of GDP)

220.3% 142.8% 119.0%

55.1%

60.1%

83.2%

85.1%

91.6%

93.0% 96.2%

Brazil

Spain

Germany

Euro Area

USA

Portugal

Ireland

Italy

Greece

Japan

Fiscal Balance 2010 (in % of GDP)

-2.6%

-3.3%

-4.6%

-6.0%

-9.1%

-9.2%

-9.5%

-10.5%

-10.6%

-32.4%
Brazil Germany
Italy Euro Area Portugal Spain Japan Greece USA Ireland

Source: Bloomberg / IMF / Central Banks

10

Brazil export of primary goods and solid domestic market: Pillars for growth market convergence
Export of raw material
Export/ 12.0 GDP % 13.2 14.6 13.4 12.7 11.8 12.0 9.6 9.8

Strong domestic market

(in Billion USD)

7.5 5.7

5.2 4.0

Growth factors

2.7

02

03

04

05

06

07

08

09

10

2002
Internal Demand

2004

2006

2008

2010

Commodities

Total Export

External Demand

Total GDP (%)

Source: MDIC 2010 / IBGE

11

GDP Evolution: Top 5 Economies until 2020

1990 2000 2010 2020 China USA Japan India Brazil Germany France

1
2 3 4 5

USA
Japan Germany France Italy

USA
Japan Germany Great Britain France

USA
China Japan Germany France

6
7 8 9 10
Source: Global Insight.

Great Britain
Canada Spain Brazil China

China
Italy Canada Brazil Mexico

Great Britain
Italy Brazil India Canada

Great Britain
Russia Italy

12

B. Automotive

Development Automotive Sector

Potential to Grow

Evolution of Competition

13

Evolution of the Brazilian Automotive Sector

Phase1:
High Volatility / Emerging market
4.0 3.5 3.0

Phase 2:
Uncertainty, divestments and restructures

Phase 3:
Macroeconomic Stability

2.5
2.0 1.5 1.0 0.5 0.0

10 Years to recover from 1997 sales levels

0.7 0.7 0.2 0.0
(in Million vehicles)

3.6 3.3

0.6 0.5

Source: MDIC 2010 / IBGE

14

New level/echelon for the Brazilian car industry: Over 5 Million units until 2018
50 % New customers in 2010
3.3 1.7 1.2 0.5
6.5 6.0 5.5 5.0
Max

Forecast car industry

(in Million units)

Industry Forecast

Min

4.5
4.0 3.5 3.0
0,0 2,5 0.0 2010

2012 Automotive Spending Power

2014

2016

2018

New car buyer

Again buyer

New customer New car

New customer Used car

Global Insight

PwC

JD Power

Source: Roland Berger / PwC / JD Power / Global Insight

15

Brazil: Upside potential from demographic reshape until 2020

Demographic Bonus 1990 2010 2020

4.8%

7.4%

9.2%

60.5%

68.5%

70.7%

34.7%
2 1.5 1 0.5 0 0.5 1 1.5 2 2 1.5 1

24.1%
0.5 0 0.5 1 1.5 2 2 1.5 1

20.1%
0.5 0 0.5 1 1.5 2

Men Total Population

(in Millions)

Women

Men

Women

Men

Women

146.8 65 years or more

193.1 15 a 64 years

207.0 0 a 14 years

Source: IBGE / Bradesco

16

 will lead to a much improved income redistribution! Especially the C Class for the automotive industry
(in %)

A&B > BRL 4,807 Class C from BRL 1,115 until BRL 4,807 Class D from BRL 804 until BRL 1,115 Class E

11.4

10.6

12.1

13.0

14.0

15.1

14.8

15.3

42.5

42.1

46.4

45.9

48.9

51.2

52.7

54.5

16.1

16.7

15.8

16.7

15.3 21.8 2007

14.3 19.4 2008

13.7 18.8 2009

13.1 17.1 2010*

30.0

30.5

< BRL 804

25.8 2005

24.4 2006

2003

2004

* 2010 estimated on average trend

Source: IBGE

17

Positive household evolution: Potentially 10 Million new customers by 2015

(in Millions)

Memo: Amount of households with spending power > EUR 11,000 p.a. (equivalent to the minimum purchase price of a vehicle)

32.1 22.5

7.0

10.7

2001

2005

2010

2015 F

Total Households

45.5

52.9

57.3

64.6
18

Source: Roland Berger / Automotive Market Outlook

Main growth for Brazil is expected in the northern Region

Cars per 1,000 Inhabitants:
2009 2010

Cars per 1,000 Inhabitants in Brazil

~ 67 Cars

~ 200 Cars

Source: Anfavea & Worldbank

19

Brazilian growth: Positive stimulus to neighboring economies in South America (in Million cars)
7,0 7.0 Colombia Chile Ecuador Peru Uruguay

6.0 6,0 5.0 5,0

4.0 4,0

3,0 3.0

Venezuela Argentina

2.0 2,0 1.0 1,0

Brazil
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2015
20

0,0 0.0

Source: Global Insight 2011-01

Brazil: OEM production sites 2010

GO GOIS Anpolis Catalo CE CEAR Horizonte

CE
SP SO PAULO Taubat & S.B.Campo S.B.Campo BA BAHIA

BA BA GO
SP SP PR PR RS MG RJ RJ

Camaari MG MINAS GERAIS Betim Juiz de Fora Sete Lagoas RJ RIO DE JANEIRO

S.C.Sul & S.J. Campos

Indaiatuba Sumar

PR PARAN So Jos dos Pinhais

Porto Real RS RIO GRANDE DO SUL Gravata

21

... until 2016 so far 7 new facilities in the pipeline !

GO GOIS Anpolis Catalo Itumbiara CE CEAR Horizonte

CE

GO

CE
SP SO PAULO Taubat & S.B.Campo S.B.Campo S.C.Sul & S.J. Campos Indaiatuba & Sorocaba Sumar Piracicaba Jacare PR PARAN

PE PERNAMBUCO Goiana BA BAHIA Camaari MG MINAS GERAIS Betim Juiz de Fora Sete Lagoas RJ RIO DE JANEIRO

PE SP GO

BA
MG RJ

BA

SP PR
RS

MG

PR
So Jos dos Pinhais Letter of Intention

(not defined)

Porto Real

RJ

RS RIO GRANDE DO SUL Gravata

RS
22

(not confirmed)

Additional production capacity of 1.5 Million cars in Brazil

5,300,000

3,800,000

23

C. Volkswagen do Brasil

VW History

Sales Evolution

Brazilian Challenges

Volkswagen do Brasil Sustainability

24

Present in Brazil since 1950

25

Volkswagen Brazil Sales Evolution (vehicles)

> 2010 684,381 537,975 409,832 585,186 697,354

+ 300,000 (until 2010)

Memo I: Data is net of Truck & Bus Division, which has been sold in 2009 to MAN Memo II:Considering only Cars & Lights Registrations
Source: Anfavea

26

Brand Volkswagen - Market Share comparison Base: August 2011

23,2% 22,8%

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

Rank 7

Rank 8

Rank 9

Rank 10

Argentina
Source: Volkswagen

Brazil

Germany South Africa

Austria

China

Mexico

Sweden

Belgium

Turkey
27

Market Share Brazil - Cars & Lights

21.9%

22.8%

20.9%

20.6%

Competitor 1

24.6%

24.5%

22.7%

22.4%

Competitor 2

19.8% 20.6% 19.8% 10.1% 9.7% 10.1%

18.5%

9.5%

Competitor 3

Others

23.2%

22.9%

26.4%

29.0%

2008

2009

2010

2011 Jan to Aug

28

Brazil - Market Segmentation

Segment Distribution 2010

1.4% 9.1%

14.5%

B/C A A0 A00

75.0%

29

Sales Profile Brazil - Cars & Light Commercials

By type of Sale Financing Share by Bank
2.0% 5.0% 3.0%
4.0% 4.0% 18.0% 34.0% 35.0% 40.0% 39.0% 39.0% 4.0% 8.0% 5.0% 4.0%

8.0%

8.0%

40.0%

53.0% 38.0% 23.0%

52.0%

15.0%

2008

2009 Financing Cash

2010 Leasing

2011* Consorcio
Volkswagen Bank ABN/Santander Ita/Unibanco HSBC

18.0%
BB/BV Safra Finasa Others

Source: Volkswagen Bank / Megadata

30

The main Brazilian Challenges

INFRASTRUCTURE / TAXES

Tackle Custo Brasil

RAW MATERIAL

LABOUR

31

Brazil has one of the highest retail tax burden in the world (a)
Sales taxes in Brazil [%] Sales taxes1) global comparison [%]

< 1.0 L Engine (Flex / Gas)

1.0 2.0 L Engine Flex Gas Flex

> 2.0 L Engine Gas Light Commercial

48.1%

46.0%
43.6% 43.5% 37.1% 55.0%
34.0% 25.0%

44.3% 41.0%
48.0%

37.0%

41.0%

29.7%
11.0%

30.9%
13.0%

43.0% 33.6% 18.0%

27.9%
IPI 2) ICMS
4) 3)

43.2%

7.0% 12.0% 12.0% 11.6%

25.1%
4.0%

28.1%
12.0% 11.6%
Brazil Brazil Germany India Japan

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

12.0% 11.6%

19.0%

14.5% 9.1% 6.1%

5) 5)

PIS / 11.6% CONFINS

1) Based on mid-size passenger cars 2) Federal Tax applied over industrialed products on added value. Same concept as IVA (7% - 25%) / Production tax (Brazilian VAT) 3) State Tax applied over added value. Same concept as IVA (12%) / State-owned purchase tax 4) Federal-owned purchase tax / Federal Tax applied over revenue (11.6%) 5) Average of California, Florida, Texas and Michigan

USA

For Local Production For BU Imported (Except Mercosul / Mexico) Source: JP Power; Roland Berger

a) Updated as per recent import protections announced by the Government

32

Import Taxes and Duties on Fully Built-Up Vehicles (imported from)

TAX RATE COUNTRIES
Mercosul: Argentina Uruguay Paraguay
Mexico Europe Others: Colombia

0%

0% 35%

35%

Ecuador

Peru Venezuela
Source: Volkswagen

33

Supplier base in South America - Material management VW do Brasil

Local Material CKD Dir. Import 88% 10% 2%

VW Argentina
Local Material 50% CKD 35%

Direct Import 15% Numbers of Suppliers

73 140

Numbers of Suppliers
336 544 208
Total Local Global Suppliers Suppliers

67
Plants
Total Local Global Suppliers Suppliers

~ 75% of turnover managed by global suppliers

34

Brazil needs to invest in education

Labour Skills
Graduated engineer yearly

30,000

400,000

Investment in R&D (% of sales) 1.02% 2.68%

Annual investment per student in education (USD) 2,080 7,325 8,270 9,312

35

Competitive advantage for VW in Brazil

Cost-driven

Restructure

Process reengineering plus Portfolio renewal over existing Platforms: Gol G5/Voyage; Saveiro SC/Saveiro DC; Saveiro Cross/Fox; CrossFox/Suran;

Turn VW SAM into the most competitive company based on group technologies: Use of group car platform; Use group powertrain; Use of group electronic platforms

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Biggest dealer network (620 Dealers) with adequate geographical country coverage Nearness between VW production facilities and the main markets Solid compliance with Brazilian and Mercosul content throughout VW production processes Strong financial partner with VW FS with an excellent infrastructur Ample and well diversified Product Portfolio with 21 different models
36

Sustainability Volkswagen do Brasil

37

Sustainability

38

APPENDIX
39

South America production: What is where produced ?

ANCHIETA
VW Gol G4 VW - Gol G5

TAUBAT

CURITIBA
VW New Fox 2D

PACHECO
VW New Spacefox/Suran

VW Parati

VW New Fox 4D VW Polo Hatch VW Voyage VW SuranCross

VW Polo Sedan

VW New Crossfox

VN Kombi

VN Amarok DC

VN Saveiro CE

VW Golf VN Amarok SC

VN Saveiro Cross

VN Saveiro CS Local Produced Models

VW New Spacefox/Suran

13
Turntable
Temporary
40

VWB imported cars: What is imported from where ?

Germany
VW Passat

Mexico
VW New Jetta

Slovakia
VW Touareg

VW Passat Variant

VW Jetta Variant

VW Passat CC

VW Beetle

VW Tiguan Imported Models

8
41

Brazilian Central Bank measures to tighten credit availability (since 12/2010)

Compulsory Deposits:
- Applied for Banks with Time Deposits over BRL 10 Billions Increased from 20% to 25% (applicable for the delta in excess above limit); - Retail Bank Accounts Cash deposits from Individuals forced banks to freeze 12% with the Central Bank (vis-a-vis the previous 8%)

Vehicles Financing:
Relevant Net Worth Ratio increased from 11% to 16.5% (above Basle III)

42

Credit Constraint actions affecting Vehicle Financing (since 12/2010) PRIOR CURRENT
SITUATION
Capital (*) Requirement

SITUATION
Capital (*) Requirement

Down-payment Retail Financing Installments: 6 24 months 25 36 months

Down-payment

No changes less than 20% more than 20% 16.5% 11.0% 16.5% 11.0% 16.5% 11.0% from 11.0% to 16.5%

37 48 months

less than 30% No Restriction 11.0% more than 30% less than 40% more than 40%

49 60 months 61 months on

all

(*) Net Worth / Assets Ratio Credit Availability: Example: Car Financing for 100,00: - Prior = 11.0 (Net Worth) / 89.0 (Other Funding Sources) - Current = 16.5 (Net Worth) / 83.5 (Other Funding Sources)
Source: Volkswagen

43

Volkswagen South America: Market with Perspective!

Volkswagen Group Americas Investor and Analyst Conference

Carsten Isensee
CFO, Volkswagen do Brasil Ltda. Chattanooga, 27 September 2011