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V
<
                           U    W
    Annual Report
    1993            Not for
                    Publication
                    before March 25,1994

o
>   Volkswagen
    Seat
    Skoda
    Audi
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Key Figures

                                                                                              Volkswagen Group                                          Volkswagen AG
                                                                            1993              1992           %                     1993              1992           %
 Sales                                     DM million                    76,586             85,403            -    10.3         42,949            53,182             - 19.2
 Vehicle Sales                                     Units           2,962,159           3,432,631              -    13.7      1,402,953         1,876,134             -25.2
 Production                                  Units                 3,018,650           3,499,678              -    13.7      1,240,124         1,657,605             -25.2
 Workforce                       Average over year
 (excluding trainees)                                                   253,108            273,309           -     7.4         111,901           122,749             -    8.8
 Capital Investments                       DM million                     4,840              9,254           -    47.7            1,793            4,063             -55.9
Additions to Leasing
and Rental Assets                          DM million                      5,438             6,139           -    11.4
Cash Flow
    excl. Leasing/Rental Assets            DM million                     4,556              7,004           -    35.0            4,349            4,814             -    9.7
    incl. Leasing/Rental Assets            DM million                     9,993             12,079           -    17.3
 Depreciation and Write-Down               DM million                     4,917              5,037           -     2.4            4,507            3,240             + 39.1
Depreciation on Leasing
and Rental Assets                          DM million                     3,012              2,758           +     9.2
Loss/Net Earnings                          DM million                   - 1,940                 147                  X               71               132            -46.3
 Dividend of Volkswagen AG                 DM million                                                                                67                66            + 0.5
of which on Ordinary Shares                DM million                                                                                54                54                  -

                 Preferred Shares          DM million                                                                                13                12            + 2.6

Production figures

Volkswagen                          1993           1992       Audi                                 1993           1992    North America                  1993         1992
Golf                             725,191      914,178         Audi 80                          214,194      319,370       Beetle                                    86,613
                                                                                                                                                       98,321
Passai                           216,097      326,853         Audi 100*                        110,239      150,564       Jetta (Vento)                79,517       53,241
Vento                            133,309      100,118         Audi Convertible                   9,603        9,855       Golf                         49,351       35,137
Caravelle, Kombi                  74,681       97,237         Audi Coupé/quattro                 5,481        9,265                                       828
Corrado                            8,623       16,085         Audi V8                            1,439        3,031       Caravelle, Kombi
Jetta                              3,912        5,592                                                                                                  11,060       12,490
                                                                                               340,956      492,085
LT-Kombi                           1,232        1,914                                                                     Transporter
Polo                                   0       84,268                                                                                                 239,077      188,449
                                                              Seat                                 1993           1992
Scirocco                               0        3,317
                                                              Polo                             176,327      222,222       South America/Africa      1993              1992
Transporter                     55,098    78,847              Ibiza                            142,987      112,334       Gol                    207,478           153,715
LT                              13,077    16,030              Toledo                            90,533      144,205       Voyage, Gacel, Parati   80,860            87,326
Taro, Hilux                      8,904    11,598              Marbella                          33,216       74,637       Passat                  38,905            31,252
Caddy                                0     1,645              Cordoba                           19,289            0       Jetta (Vento)           21,563            19,946
                             1,240,124 1,657,682                                                                          Golf                    20,518            15,469
                                                              Terra                              10,626       25,034
                                                                                                                          Logus, Pointer, Apollo  44,068            10,093
112,000 vehicles - incl. 11,000 from CKD sets - were
                                                                                               472,978      578,432       Caravelle, Kombi        29,686            19,796
produced by the companies of the Asia Pacific Region                                                                      Beetle                   6,389                 0
consolidated at equity.                                       Skoda                                1993           1992    Audi 100/200             1,760             2,618
•Including assembly kits for Volkswagen                       Favorit                          127,101      118,714       Audi Coupé                  78                36
 of South Africa.                                             Forman                            72,295       64,516
                                                                                                                          Voyage Saveiro               33,760       27,070
                                                              Pick-up                            20,216       16,829      Transporter                  10,959       10,280
                                                                                                                          VW trucks                     6^353        3,333
                                                                                               219,612      200,059       Gol Furgao                    2,947        3,868
                                                                                                                          Omnibus                       1,313              0

                                                                                                                          Golf pick-up                    856            857
                                                                                                                                                     507,493      385,659
This version of the Annual Report is a translation from the German original. The German text is authoritative.
S       S       ^        M   U     finanCial S t a t e m e n t S   °f   t h e Volkswagen   Group, the management report of the Volkswagen Group and Volkswagen AG and other infor-

The financial statements of Volkswagen AG will be published in the Bundesanzeiger and submitted to the Register of Companies at the Wolfsburg District Court Copies of
the financial statements are available free of charge from Volkswagen AG, Finanz-Publizität und Statistik, 38436 Wolfsburg Germany.         9   Stn°T            M
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Annual Report
1993

Volkswagen
Seat
Skoda
Audi
V - o - Not for Publication - Volkswagen AG
Launched     in 1991, the Toledo    is
Seat's   first   middle-range    model
                                         it
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Table of Contents

Supervisory Board             4    Report of the Supervisory Board
and Board of Management
                              6    Letter to Stockholders

                              8    Supervisory Board and Board of Management

                              9    Marque Management Bodies

Report of the                 12   Management Report: Volkswagen Group
Board of Management                and Volkswagen AG

Information                   20   The Major Companies within the Volkswagen Group
about the Fiscal Year
                              22   Volkswagen

                              32   Audi

                              38   Seat

                              42   Skoda

                              46   North America Region

                              48   South America/Africa Region

                              50   Asia Pacific Region

                              52   Financial Services

                              56   Personnel

                              60   Research and Development

                              64   Environmental Protection

                              66   Communication

                              68   The Volkswagen Share

                              70   Finance

Financial Statements of the   74   Balance Sheet
Volkswagen Group
for 1993                      75   Statement of Earnings

                              76   Notes on the Financial Statements

                              88   The Volkswagen Group
                                   in Figures

                                                                                     3
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Report of the Supervisory Board

Dr. Klaus Liesen              The Board of Management provided the             After five years as a member, Mr. Rolf
                              Supervisory Board with comprehensive             Diel resigned from the Supervisory Board
                              regular reports about the situation of the       on June 30, 1993. Dr. rer. pol. Bernd W.
                              Company, business trends and corporate           Voss was appointed by the Wolfsburg
                              policy during 1993. Measures of particular       District Court to succeed him.
                              importance or requiring the Supervisory
                              Board's prior approval by law or under the       Mr. Franz Steinkühler resigned from the
                              Company's Articles of Association were           Supervisory Board, to which he had
                              discussed in detail at Supervisory Board         belonged for six years, on September 30,
                              meetings. The Supervisory Board contin-          1993. The Wolfsburg District Court subse-
                              uously monitored the Company's manage-           quently appointed Mr. Klaus Zwickel to
                              ment on the basis of the written and oral        the Supervisory Board with effect from
                              reporting by the Board of Management             October 21,1993. At its meeting on
                              and was thus able to perform in full this        November 26, 1993 the Supervisory
                              function assigned to it by law.                  Board elected Mr. Zwickel to the post of
                                                                               Deputy Chairman.
                              The financial statements for Volkswagen
                              AG and the Group as at December 31,              The Supervisory Board would like to thank
                              1993, along with the 1993 Management             Mr. Mihr, Mr. Hoffmeister, Mr. Diel and
                              Report for Volkswagen AG, the Group              Mr. Steinkühler for their many years of
                              Management Report for the fiscal year            valuable service and their untiring
                              1993 and the accounts, were examined by          dedication.
                              the auditors and approved without qualifi-
                              cation. The Supervisory Board accepts the        Volkswagen lost an outstanding figure on
                              results of this audit.                           May 9, 1993 with the death of Mr. Alex-
                                                                               ander Kowling, a man whose leadership
                              The Supervisory Board's examination of           qualities, integrative skills, imagination and
                              the financial statements, the Management         consideration for others will be greatly
                              Report and the proposal regarding appro-         missed. Mr. Kowling had been with the
                              priation of net earnings available for distri-   Volkswagen Group since 1969. Having
                              bution gave rise to no objections. The           worked successfully in the field of human
                              Supervisory Board approves and therefore         resources for many years, he was
                              confirms the financial statements and            appointed to the Volkswagen Manage-
                              approves the proposal put forward by the         ment Body in January 1991, assuming
                              Board of Management regarding appro-             responsibility for Human Resources, and
                              priation of net earnings available for distri-   became a member of the Board of Man-
                              bution.                                          agement of Volkswagen AG, with respon-
                                                                               sibility for the same area, on January 13,
                              Having been requested by the Supervisory         1993. The Volkswagen Group is deeply
                              Board to establish whether any confiden-         indebted to Mr. Kowling for all that he
                              tial GM/Opel documents or data were              accomplished over the years. We shall
                              passed to or used by Volkswagen, KPMG            always honour his memory.
                              Deutsche Treuhandgesellschaft
                              conducted its own detailed investigation         With effect from June 2, 1993 the Super-
                              and found no evidence whatsoever that            visory Board temporarily assigned respon-
                              Volkswagen had been passed, was in               sibility for the field of Human Resources
                               possession of or had used such docu-            on the Board of Management of Volks-
                               ments or data.                                  wagen AG to Dr. jur. Jens Neumann, who
                                                                               subsequently held this post until
                              Mr. Karl Heinrich Mihr and Mr. Albert            September 30, 1993.
                              Hoffmeister, who had been members of
                              the Supervisory Board for twenty years           Mr. Daniel Goeudevert, Deputy Chairman
                              and sixteen years respectively, retired          of the Board of Management of Volks-
                              from the Board at the end of the Annual          wagen AG and Chairman of the Volks-
                              Meeting of Stockholders on June 3, 1993.         wagen Management Body, left the
                              Their places on the Supervisory Board            Company by mutual agreement on July 31,
                              were taken by Mr. Gerhard Kakalick and           1993. The Supervisory Board would like to
                               Dr. jur. Manfred Pilgrim.                       thank Mr. Goeudevert for his commitment
                                                                               to the Company's interests. The chair-
                                                                               manship of the Volkswagen Management
                                                                               Body has now been assumed by Dr. techn.
                                                                               h. c. Dipl.-lng. ETH Ferdinand Piëch.
V - o - Not for Publication - Volkswagen AG
been assumed by the Chairman of the
                                                                                              Board of Management of Volkswagen AG,
                                                                                              Dr. Piëch. Excepted from this arrange-
                                                                                              ment is responsibility for auditing in
                                                                                              connection with the matter pending
                                                                                              between GM/Opel and Volkswagen,
                                                                                              which has been assigned to the new
                                                                                              Board of Management member respon-
                                                                                              sible for Human Resources.

                                                                                              Mr. Juan Antonio Diaz Alvarez, Chairman
                                                                                              of the Board of Management of SEAT,
                                                                                              S.A. and member of the Board of Manage-
                                                                                              ment of Volkswagen AG, left the
                                                                                              Company on September 30, 1993 by
                                                                                              mutual agreement.

                                                                                              After more than twenty-two years on the
                                                                                              Board of Management of Volkswagen AG,
                                                                                              Dr. Frerk retired from his post on
                                                                                              December 31, 1993. The Supervisory
                                                                                              Board would like to express its sincere
                                                                                              thanks to Dr. Frerk for all that he achieved
                                                                                              during his many years with the Company.

                                                                                              Dr. Klaus Liesen
                                                                                              Chairman of the Supervisory Board

At its meeting on September 3, 1993 the        AG from September 3, 1988 to March 16,
Supervisory Board appointed Mr. Peter          1993 and was subsequently responsible
Hartz, with effect from October 1, 1993,       for Research and Development on the
to the post on the Board of Management         Volkswagen Management Body.
of Volkswagen AG carrying responsibility
for Human Resources. Mr. Hartz has also        The area of responsibility covered on the
assumed responsibility for the area of         Board of Management by Dr. jur. Peter
Human Resources on the Volkswagen              Frerk was restructured with effect from
Management Body.                               September 3, 1993. Responsibility for
                                               Legal Matters and Economics remained
Prof. Dr.-lng. Ulrich Seiffert was appointed   with Dr. Frerk until the end of the year and
to the Board of Management of Volks-           passed to Dr. Neumann on January 1,
wagen AG with effect from September 3,         1994. The post held by Dr. Neumann on
1993. This appointment was made in the         the Board of Management is now desig-
light of the increasingly global nature of     nated as covering "Group Strategy, Legal
the Volkswagen Group's development             Matters and Organization". Dr. Neumann
activities, which necessitates supervision     is also responsible for the field of Orga-
of overall product development. Professor      nization and Systems on the Volkswagen
Seiffert had previously been a member of       Management Body. Responsibility for
the Board of Management of Volkswagen          Auditing and Government Relations has

                                                                                                                                         5
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Dear Stockholder,                               This situation prompted the Board of
                                                Management to reach agreement with the
In past years the unquestioning assump-         trade union on the introduction of a four-
tion that the future would bring contin-        day working week accompanied by wage
uous growth encouraged the automobile           and salary adjustments. This move is
industry to pursue expansion strategies         intended to safeguard jobs and ensure
entailing large-scale investment. It is quite   that there will be no compulsory redun-
clear today, however, that this way of          dancies at Volkswagen AG in the next two
thinking no longer holds good. Only             years.
companies capable of manufacturing top-
quality customer-oriented products at low       We were able to achieve major progress
cost and marketing them at a reasonable         during 1993 in further enhancing the
price will be able to emerge successfully       quality of the models produced by all four
from the current recession and structural       Group marques. The quality standard exhi-
crisis with good prospects for future           bited from the outset by the new models
growth and earnings.                            launched last year was in particular con-
                                                siderably higher than that displayed by
The Volkswagen Group lost no time in            previous models at the same stage. To
 radically restructuring its strategy to take   ensure that in future we have an edge
 account of the changed economic situa-         over the competition, we have designated
tion. Rather than thinking solely in terms      certain areas of individual Group compa-
 of market shares and sales figures, we are     nies as "Centres of Excellence", which
 now focusing greater attention on produc-      are intended to serve as models for the
tivity, quality and progress towards achie-     corresponding areas at other Group
ving a sustained increase in earning            companies. The basic idea behind this
 power. Volkswagen is tackling these areas      policy is that the know-how available
with the aid of a comprehensive                 within a particular Group company should
programme aimed at improving cost struc-        also benefit the rest of the Group. The
tures. Key elements of this programme           decisive criterion for a Centre of Excel-
are measures to further lower non-              lence is the standard achieved by compa-
personnel overheads, continuously reduce        rison with our competitors on the world
component diversity, cut material costs         market. Three Centres of Excellence have
and above all improve production opera-         already been created and others will
tions by introducing "lean" processes           follow.
within the framework of the "Continuous
Improvement Process" (CIP2). These              In addition to pursuing the strategic goals
steps have already led to significant           set out above, we shall continue to devote
improvements in productivity, quality and       our innovative skills to developing new
other areas such as material in process         products for customers all over the world
and lead times. In addition to curtailment      and in so doing also move into segments
and postponement of investments in the          of the market in which we have hitherto
automobile sector - with the exception of       not been represented. All measures
investments in product development - the        aimed at optimizing the added-value chain
package of measures also involves cuts in       are not an end in themselves, but are
the workforce, which have been realized         intended to benefit the customer by en-
without social hardship by means of a           suring that we can offer high-quality,
recruitment freeze, voluntary redundan-         reasonably priced and reliable products.
cies and early-retirement schemes.
                                                All in all, I am firmly convinced that our
Despite the sharp decrease in the work-         endeavours will be crowned with success.
force, it became apparent that as a result      The same goes for the efforts of our
of the productivity-boosting measures           suppliers, with whom we work in close
implemented by Volkswagen during 1993           cooperation so that they too can further
and the continuing absence of an upward         enhance their productivity and quality
trend on the automobile markets we shall        standards.
still have around 30,000 employees more
than are actually needed in 1994 and
1995.
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Yours sincerely,

                                              Ferdinand Piëch

We therefore hope that you as Volks-
wagen AG stockholders will continue to
place your confidence in us so that we
can not only emerge from the current
recession and structural crisis in a
stronger competitive position but also
realize our goal of making Volkswagen the
most successful vehicle manufacturer in
the coming years where quality, produc-
tivity and earning power are concerned.

Against the background of the generally
difficult situation, Volkswagen AG was
able to close the fiscal year with a profit
enabling us to pay - as for 1992 - a divi-
dend of DM 2 on both ordinary and
preferred shares.

                                                                 7
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Supervisory Board and Board of Management                                                                                                     Marque Management Bodies

                                                                                                        Board of Management of
Supervisory Board                                                                                       Volkswagen AG                         Volkswagen                        Seat                            Skoda                               Audi

Dr. jur. Klaus Liesen (62)        Dr. jur.                           Dr. rer. pol. Bernd W. Voss (54)   Dr. techn. h. c. Dipl.-lng. ETH       Dr. techn. h. c. Dipl.-lng. ETH   Dr. Juan Llorens Carriö (59)    Ing. Ludvik Kalma (52)              Dr. techn. Herbert Demel (40)
Essen                             Otto Graf Lambsdorff (67)          Frankfurt                          Ferdinand Piéch (56)                  Ferdinand Piéch (56)              Chairman of the Board of        Chairman of the Board of            Spokesman of the Board of
Chairman                          Düsseldorf                         Member of the Board of Man-        Chairman                              Chairman of the Volkswagen        Management of SEAT, S.A.        Management of SKODA,                Management of AUDI AG,
Chairman of the Board of          President, Deutsche Schutz-        agement of Dresdner Bank AG        (since January 1, 1993)               Management Body                   November 4, 1993                automobilová a. s.                  Marketing and Sales
Management of Ruhrgas AG          vereinigung für Wertpapierbe-      July 22, 1993                      Member of the Board of                August 1, 1993                                                    April 16, 1991                      (since February 4, 1994)
July 2, 1987*                     sitz e.V. (German stockholders'                                       Management                                                              Prof. Dr.-Ing.                                                      Technical Development
                                  association)                       Dr. rer. pol. Ulrich Weiss (57)    April 10, 1992                        Peter Hartz (52)                  Peter Walzer (56)               Volkhard Köhler (50)                March 1, 1993
Klaus Zwickel (54)                July 2, 1987                       Frankfurt                          Peter Hartz (52)                      Human Resources                   Deputy Chairman of the Board    Deputy Chairman
Frankfurt                                                            Member of the Board of Man-        Human Resources                       October 1, 1993                   of Management of SEAT, S.A.     Commercial Affairs                  Jürgen Gebhardt (49)
Deputy Chairman                   Dr. jur. Manfred Pilgrim (52)      agement of Deutsche Bank AG        October 1, 1993                                                         (since May 5, 1993)             April 16, 1991                      Production
Chairman of the Metalworkers      Wolfsburg                          June 30, 1988                                                            Bruno Adelt (54)                  Technology and Engineering                                          February 1, 1993
Union                             Senior Executive of                                                   José Ignacio López
                                                                                                        de Arriortúa (53)                     Controlling and Accounting        November 1, 1990 to             Dr. jur. Pavel Novácek (45)
October 21, 1993                  Volkswagen AG                      Changes on the Supervisory                                               August 1, 1992                    May 4, 1993 and since           Human Resources                     Andreas Schleef (50)
                                  June 3, 1993                                                          Production Optimization and
                                                                     Board:                                                                                                     March 2, 1994                   April 16, 1991                      Human Resources
Josef Bauer (54)                                                                                        Procurement
                                                                                                                                              Dr. jur. Jens Neumann (48)                                                                            March 27, 1985
Ingolstadt                        Dr. -Ing. E. h. Günther                                               March 16, 1993
                                                                     Rolf Diel (71)                                                           Organization and Systems          Detlev Schmidt (49)             Detlev Schmidt (49)
Member of the Works               Saßmannshausen (63)                Düsseldorf                         Dr. jur. Jens Neumann (48)            September 3, 1993                 Sales                           Sales                               Erich Schmitt (47)
Committee of AUDI AG              Hanover                            Former Chairman of the             Group Strategy, Legal Matters                                           January 1, 1994                 July 1, 1991                        Purchasing, Finance and
July 2, 1987                      Chairman of the Supervisory        Supervisory Board of               and Organization                      Herbert Schuster (52)                                                                                 Organization
                                  Board of Deutsche Bahn AG          Dresdner Bank AG                   January 1, 1993                       Development                       Roland Schober (42)             Dr. -Ing. Gerald Weber (44)         November 25, 1992
Dr. rer. pol. Carl H. Hahn (67)   July 2, 1987                       June 30, 1988 to June 30, 1993     Dr. jur. Martin Posth (50)            September 3, 1993                 Finance                         Technology and Engineering
Wolfsburg                                                                                               Asia Pacific                                                            September 1, 1993               June 7, 1991                        Changes on the Board of
Former Chairman of the Board      Dr. rer. pol.                      Albert Hoffmeister (65)            (since January 13, 1993)              Folker Weißgerber (52)                                                                                Management of AUDI AG:
of Management of                  Friedrich Schiefer (54)            Wolfsburg                          Human Resources                       Production                        Changes on the
Volkswagen AG                     Munich                             Senior Executive of                August 1, 1988 to January 13,         (since March 16, 1993)            Seat Management Body:                                               Franz-Josef Kortüm (43)
January 1, 1993                   Member of the Board of             Volkswagen AG                      1993                                  Deputy, Production and                                                                                Chairman of the Board of
                                  Management of                      July 5, 1977 to June 3, 1993                                             Logistics                         Juan Antonio                                                        Management of AUDI AG,
                                  Robert Bosch GmbH                                                     Dr. rer. pol.
Wilhelm Hemer (50)                                                                                                                            December 1, 1991 to               Diaz Alvarez (55)                                                   Marketing and Sales
                                  July 4, 1991                                                          Werner P. Schmidt (61)
Frankfurt                                                             Karl Heinrich Mihr (58)                                                 March 16, 1993                    Chairman of the Board of                                            January 1, 1993 to
                                                                                                        Controlling and Finance
Trade Union Secretary to the                                          Kassel                                                                                                    Management of SEAT, S.A.                                            February 4, 1994
Executive Committee of the        Siegfried Schinowski (53)                                             (since March 16, 1993)
                                                                      Member of Works Council of                                              Changes on the Volkswagen         June 18, 1986 to                                                    Member of the Board of
Metalworkers Union                Hanover                                                               Overseas Operations and
                                                                     Volkswagen AG Kassel Plant                                               Management Body:                  September 30, 1993                                                  Management
May 3, 1989                       Chairman of Works Council of                                          Sales Strategy
                                                                     November 27, 1972                                                                                                                                                              May 1, 1992
                                  Volkswagen AG Hanover Plant                                           August 1,1975 to March 16, 1993
                                                                     to June 3, 1993                                                          Daniel Goeudevert (52)            Ricardo Ibarreche Balda (46)
Walter Hiller (61)                July 2, 1992                                                          Prof. Dr.-Ing. Ulrich Seiffert (52)
                                                                                                                                              Chairman of the Volkswagen        Production
Hanover                                                                                                 Research and Development
                                                                     Franz Steinkühler (56)                                                   Management Body                   May 5, 1993 to March 2, 1994
Minister for Social Affairs of    Gerhard Schröder (49)              Frankfurt                          (since September 3, 1993)
                                  Hanover                                                               Research and Development              January 1, 1991 to July 31,       Human Resources
Lower Saxony                                                         Deputy Chairman                                                          1993                              October 1, 1989 to May 4,
From April 9, 1986 to June 20,    Minister President of the State    Former Chairman of the             (Group Purchasing Strategy
                                                                                                                                                                                1993
1990 and since July 17, 1990      of Lower Saxony                    Metalworkers Union                 and Coordination)
                                                                                                                                              Hans-Jörg Hungerland (52)
                                  July 17, 1990                                                         September 3, 1988 to
                                                                     July 2, 1987 to September 30,                                            Sales                             Manuel Garcia Moreno (46)
Jann-Peter Janssen (49)                                              1993                               March 16, 1993
                                  Dr. rer. pol. Albert Schunk (52)                                                                            March 1, 1991 to March 31,        Sales
Norden                                                                                                  Changes on the Board of                                                 March 1, 1993 to December
                                  Frankfurt                                                                                                   1993
Chairman of Works Council of                                                                            Management:                                                             31, 1993
Volkswagen AG Emden Plant         Head of the International
                                  Department on the Executive                                           Juan Antonio Diaz Alvarez (55)        Alexander Kowling
April 9, 1986                                                                                                                                 Human Resources                   Dr. rer. pol.
                                  Committee of the                                                      Chairman of the Board of
                                  Metalworkers Union                                                    Management of SEAT, S.A.              January 1, 1991 to May 9,         Eberhard Müller (60)
Gerhard Kakalick (47)                                                                                                                         1993                              Finance
Kassel                            July 5, 1977                                                          April 10, 1992 to
                                                                                                        September 30, 1993                                                      July 1, 1986 to June 16, 1993
Chairman of Works Council of                                                                                                                  Prof. Dr.-Ing.
                                  Bernd Sudholt (47)                                                    Dr. jur. Peter Frerk (63)
Volkswagen AG Kassel Plant                                                                                                                    Ulrich Seiffert (52)              Juan José Diaz Ruiz (50)
                                  Wolfsburg                                                             Legal Matters and Economics
June 3, 1993                                                                                                                                  Research and Development          Sales
                                  Deputy Chairman of the Group                                          December 7, 1971 to
                                  and Joint Works Councils of                                           December 31, 1993                     March 16, 1993 to                 March 1, 1988 to
Walther Leisler Kiep (68)                                                                                                                     September 3, 1993                 February 28, 1993
                                  Volkswagen AG
Frankfurt                         July 2, 1992                                                          Daniel Goeudevert (52)                Development
General partner,                                                                                        Deputy Chairman                       January 1, 1991 to March 16,      Rafael Alvarez Vazquez (52)
Gradmann & Holler                 Klaus Volkert (51)                                                    January 1, 1993 to July 31, 1993      1993                              Human Resources
From March 3, 1976 to July 1,     Wolfsburg                                                             Member of the Board of                                                  May 5, 1993 to March 2, 1994
1982 and since January 26,        Chairman of the Group and                                             Management                            Werner Svetlik (55)                                               *Th¡s indicates since when the
1983                              Joint Works Councils of                                               September 1, 1989                     Procurement                                                        person in question has been a
                                  Volkswagen AG                                                                                                                                                                  member of the body concerned, or
                                                                                                        Alexander Kowling                     January 1, 1991 to March 31,
                                                                                                                                                                                                                 the period for which the person
                                  July 2, 1990                                                          Human Resources                       1993                                                               was a member.
                                                                                                        January 13, 1993 to May 9, 1993

8                                                                                                                                                                                                                                                                                   9
Management Report: Volkswagen Group
and Volkswagen AG

The major world passenger car markets           Global economy characterized by lack          slight revival in demand which had begun
(million units)
                                                of momentum                                   on the American automobile market in
                                                                                              1992 continued in 1993, although here
15                                               No signs of a global economic recovery       again it must be remembered that sales in
                                                 were in evidence during 1993. The            the previous year had been very low.
12                                               upswing in the USA was less marked than      Overall sales on the Japanese passenger
                                                 had been anticipated, while the Japanese     car market fell just short of the 1992 level.
 9                                              economy went into a sharp decline. As a
                                                result, these countries were unable to        Volkswagen Group continuing to make
 6                                              provide the economies of Western Europe       its mark as a global player
                                                with the hoped-for impetus. Germany
 3                                              meanwhile suffered its worst post-war         In the face of increasingly tough competi-
                                                slump, and in addition the German             tion the Volkswagen Group was able in
                                                economy has to cope with massive struc-       1993 to successfully maintain its position
        89    90       91        92       93    tural problems that demand innovative         as the world's fourth largest passenger
                                                and intelligent solutions. The continuing     car manufacturer and - in terms of vehicle
                                                recession in the industrialized nations had   sales - the market leader both in Germany
Western Europe                                  a particularly adverse effect on the auto-    and in Europe as a whole. Attractive
                                                mobile industry, highlighting this vital      products which in many cases break new
USA                                             sector's susceptibility to the influence of   ground as regards safety, technical so-
                                                economic trends.                              phistication and environment-friendliness,
Japan                                                                                         coupled with extensive programmes
                                                No revival in worldwide passenger car         aimed at cutting costs and boosting
                                                sales                                         productivity, will ensure that we remain
                                                                                              one of the world's leading automobile
                                                At 3.2 million, the number of passenger       manufacturers. Particular efforts will
                                                cars sold in Germany during 1993 was          continue to centre on opening up markets
                                                18.7 % down on the previous year's            with growth potential such as those in
                                                figure. This fall in demand can be ascribed   China and Eastern Europe.
                                                principally to the general economic situa-
                                                tion and to the end of the sales boom trig-   Following the creation of a separate North
                                                gered by Germany's reunification.             America Region in March 1991, further
                                                                                              regional operations covering the Asia
                                                The global recession significantly influ-     Pacific and South America/Africa Regions
                                                enced demand on the other major               were set up in 1993. By placing the
                                                markets in Western Europe, where              Group's activities outside Europe on a
                                                passenger car sales were 13.6 % lower         regional footing it is aimed to focus Volks-
                                                than in 1992. The only automobile market      wagen's interests more effectively and
                                                to exhibit an upward trend was that in        thereby bring us closer to our customers.
                                                Great Britain, which recorded an 11.6 %
                                                rise in sales. However, this increase can
                                                be attributed more to the fact that sales
                                                had hit an exceptionally low level in the
                                                previous year than to any general recovery
                                                on the part of the British economy. The

                                                Vehicles delivered to customers                        1993             1992    Change %
                                                Western Europe                                   2,011,298        2,556,993         -21.3
                                                  Germany                                          935,989        1,248,833        -25.1
                                                  Italy                                            269,576          363,916        -25.9
                                                  France                                           165,672          217,226        -23.7
                                                  Spain                                            139,750          184,190        -24.1
Photo on previous            pages:               Great Britain                                    114,894          106,793        + 7.6
The Golf    Variant          is an attractive       addition
                                                  Belgium                                           77,678           87,906        - 11.6
to Volkswagen's             Golf  range

12
Vehicle sales to dealers                                           1993                  1992 Change%         Sales by divisions
                                                                                                              (before consolidation)
Worldwide                                                    2,962,159             3,432,631         - 13.7
Volkswagen                                                   2,110,086             2,428,856         - 13.1
Audi                                                           339,261               473,495         - 28.3
Seat                                                           290,712               337,369         - 13.8
Skoda                                                          222.100               192,911         + 15.1

Sharp drop in number of vehicles                        The number of vehicles delivered to
delivered to customers by the                           customers outside Germany fell by 3.9 %
Volkswagen Group                                        to 2,178,891. Domestic deliveries to
                                                        customers fell by 25.1 % to 935,989.
The downward trend which had started to                 Despite a fall of 0.7 % in passenger car
make itself felt on major automobile                    market share to 28.6 %, the Volkswagen
markets during the second half of 1992                  Group defended its leading position in
continued in the year under report, with                Germany. In the report year 128,680
the result that the total of 3,114,880                  Group models were delivered in the new                           Volkswagen
passenger cars and commercial vehicles                  federal states (-18.3 %). In October,                            Audi
delivered to customers worldwide by the                 November and December the Volkswagen                             Seat
                                                                                                                         Skoda
Volkswagen Group in 1993 was 11.4 %                     marque was the market leader in eastern                          North America Region
down on the previous year's figure. While               Germany.                                                         South America/Africa Region
falls in sales were recorded by Volks-                                                                                   Asia Pacific Region 0.1 %
wagen (-10.0 %), Audi (- 25.1 %) and                    We should like to take this opportunity of                       Financial Services/Financing
Seat (- 15.2 %), Skoda sales were up by                 once again thanking our customers all
9.8 %. The number of commercial                         over the world for their confidence in our
vehicles delivered to customers fell by                 products and their loyalty to our Group.
7.0% to 295,332.                                        We shall continue to devote all our ener-
                                                        gies to producing highly competitive
Despite a general decline in vehicle sales              models unmatched in terms of quality,
in Western Europe, the Volkswagen                       price and service.
Group was able to maintain its leading
position on this market for the ninth year              Our dealers and their employees play a
in succession, delivering a total of                    vital role in ensuring that we are able to
2,011,298 vehicles to customers in                      forge links with our customers and fulfil
Western Europe (- 21.3 %) and achieving                 their requirements. Every day they come
a 16.5 % share of the market as against                 into contact with over 300,000 customers
17.5 % in 1992. Our largest export
markets were Italy, France, Spain, Great
Britain and Belgium.

Production                                    Units                1993                1992      Change%
Worldwide                                                   3,018,650            3,499,678           - 13.7
Passenger cars                                              2,843,481            3,291,797           - 13.6
Commercial vehicles                                            175,169             207,881          - 15.7
In Germany*                                                 1,410,700            1,928,855          - 26.9
Abroad                                                      1,607,950            1,570,823           + 2.4
* Excluding assembly kits for Volkswagen Bruxelles, Volkswagen of South Africa and Volkswagen Bratislava.

                                                                                                                                                        13
Management Report: Volkswagen Group
and Volkswagen AG

Development of the volume of purchasing        worldwide, whose satisfaction depends to      billion in 1993, primarily as a result of the
of the Volkswagen Group
and Volkswagen AG (billion DM)                 a very large extent on the service which      decline in vehicle production. By working
                                               they receive from the dealer organization.    in still closer cooperation with our
60                                             We should like to thank our dealers and       suppliers we were able to pinpoint further
                                               their employees in Germany and abroad         opportunities for savings. Purchasing by
                                               for their untiring efforts and for their      Volkswagen AG was also down and
50
                                               willingness to work together with us in a     totalled DM 21.2 billion as against DM
                                               spirit of mutual trust.                       27.8 billion in 1992, with DM 15.5 billion
40                                                                                           accounted for by raw materials and
                                               Unit sales and sales revenues down            supplies as well as semi-finished and
30                                                                                           finished products and DM 5.6 billion spent
                                               As a result of the generally adverse          on capital goods and services. The Volks-
20                                             economic situation, the number of             wagen Group once again made a major
                                               vehicles sold to the dealer organization by   contribution to promoting economic deve-
                                               the Volkswagen Group fell by 13.7 % to        lopment in Germany's new federal states,
     89       90        91       92       93
                                               2,962,159. This development was also          increasing its spending on goods and
                                               reflected in consolidated sales revenues,     services from eastern Germany by 7.4 %
                                               which dropped by 10.3 % to DM 76.6            to a total of DM 2.0 billion.
Volkswagen Group
                                               billion despite continuing growth in the
                                               rental and leasing sector. Decreases were     The continuing recession in the Western
Volkswagen AG                                  recorded in both domestic sales, which        industrialized nations led to a slight fall in
                                               fell by 13.1 % to DM 34.3 billion, and        the prices of key raw materials on the
                                               foreign sales, which were down by 7.9 %       world markets.
                                               at DM 42.3 billion. Export markets
                                               accounted for 55.2 % of the total sales       The general economic situation and
                                               revenues.                                     increasingly tough international competi-
Group volume of purchasing by divisions                                                      tion are forcing the automobile industry
                                               At 1,402,953, the number of vehicles sold     and its suppliers to take decisive action.
                                               to the dealer organization by Volkswagen      We have therefore joined forces with our
                                               AG in 1993 was 25.2% down on the              suppliers to develop strategies enabling
                                               previous year. Sales consequently fell by     them as well to make their processes
                                               19.2% to DM 42.9 billion, with export         more efficient and thus more cost-effec-
                                               sales making up 48.7 % of this total as       tive. A particularly important role is played
                                               against 49.7 % in 1992.                       here by "simultaneous engineering",
                                                                                             which means involving not only our own
                                               Production brought into line with             production departments but also our
                                               market situation                              suppliers in the development of new
                                                                                             products from an early stage. Another
                                               The Volkswagen Group was obliged to           modern concept which we have intro-
                                               make allowance for the decline in demand      duced in the purchasing sector is that of
                                               which hit the Western European markets        the system supplier, with "logistics part-
                                               in particular during 1993. All Group          ners" manufacturing complete elements
                                               marques with the exception of Skoda           such as sunroof systems or dashboards
                                               were forced to put employees on short         and supplying them in this form to the
                                               time in the course of the year, with the      Group's interlinked production system.
           Volkswagen AG                       duration of this measure varying from one
           Audi                                plant to another. The Volkswagen Group's      The success of our efforts to bring about a
           Seat                                worldwide output fell as a result by          strategic reorientation of the Volkswagen
           Skoda                               13.7 % to 3,018,650 vehicles; out of this     Group depends to a large extent on our
           North America Region
                                               total, 1,240,124 were built by Volkswagen     suppliers, for only by working together
           South America/Africa Region
           Asia Pacific Region                 AG (-25.2 %). Average production per          can we overcome the current structural
                                               working day within the Group amounted         crisis. Thanks are due to all our suppliers
                                               to 14,804 vehicles, 1.8 % down on the         for their excellent cooperation during
                                               previous year's figure. Vehicles manufac-     1993.
                                               tured abroad accounted for 53.3 % of total
                                               output.                                       Creation of a new operational sector to
                                                                                             optimize procurement and production
                                               Decrease in volume of purchasing
                                                                                             The establishment of an operational
                                               The Volkswagen Group's volume of              sector bearing the designation "Produc-
                                               purchasing - excluding sales tax - fell       tion Optimization and Procurement" at
                                               from DM 53.8 billion in 1992 to DM 43.8       Group level is intended to focus responsi-

14
bility for all production processes as well      actually required. To overcome this          Expenditure on research and
                                                                                              development by the Volkswagen Group
as all purchasing and procurement activi-        problem, we are implementing a package       and Volkswagen AG (billion DM)
ties. This step will enable us to realize        of measures which represents a com-
extensive process optimization measures          pletely new departure in the personnel
and significant improvements in produc-          sector. Among the measures included are      3.0
tivity throughout the Group.                     the four-day week (28.8-hour week)
                                                 accompanied by wage and salary cuts, a       2.5
Optimizing production through                    scheme giving employees flexibility in
continuous improvement processes                 their annual working hours in such a way     2.0
                                                 that they can take several months off at a
Volkswagen is breaking new ground in its         time, and a system incorporating a gradual   1.5
efforts to boost productivity and enhance        increase in weekly working hours for
competitiveness. Numerous ways of                young employees who have just                1.0
achieving greater efficiency were worked         completed their training and a step-by-
out and the necessary measures imme-             step reduction in working hours for older
diately put into practice by way of conti-       employees who will be reaching retire-             89     90       91      92      93
nuous improvement processes (CIP2) -             ment age in the foreseeable future.
with the power of two intended to
express the urgency of this step - incor-        These three schemes will all enable us to    Volkswagen Group
porating around 2,000-workshops held in          increase productivity and thus effectively
the course of the year. The idea is that         cut unit costs.                              Volkswagen AG
these workshops should become an esta-
blished institution not just at the individual   Expenditure on research and
plants but throughout the entire added-          development remained at a high level
value chain from supplier to dealer. Active
participation by all concerned will enable       In the fiscal year ended the Volkswagen
us to become still more competitive and          Group undertook expenditures of DM 2.9
pave the way for success in the future.          billion (-4.1 %) on research and develop-
                                                 ment, which represents 3.8 % of Group
Necessary adjustments to the                     sales revenues. Of this, DM 1.6 billion
workforce                                        was accounted for by Volkswagen AG
                                                 (- 5.6 %). Expenditures on research and
Further cutbacks in the workforce neces-         development at the other Group marques
sitated by low market demand and struc-          amounted to: Audi DM 750 million
tural changes were accomplished in 1993          (-16.5 %), Seat DM 259 million (+ 1.7 %),
without causing any social hardship,             Skoda DM 79 million (21 million).
primarily by means of a recruitment
freeze, voluntary redundancies and early-        Among the outstanding technical achieve-
retirement schemes.                              ments realized by our engineers are the
                                                 new TDI engine for the Golf, Vento,
The average number of employees in the           Passat, Audi 80 and Audi 100, the Golf
Volkswagen Group fell by 7.4 % in 1993           Ecomatic and the aluminium Audi Space
to 253,108, of whom 149,524 were with            Frame (ASF) concept vehicle. These inno-
Group companies in Germany (- 8.7%)              vative developments set new technical
and 103,584 with foreign subsidiaries            standards and confirm yet again the Volks-
(- 5.4 %). At the end of the year the            wagen Group's position as the automobile
Group employed a total of 251,643 people         industry's leading trend-setter.
incl. trainees, 8.2 % down on the 1992
figure. The workforce at Volkswagen AG           The Volkswagen Group employed a total
in 1993 averaged 111,901 (- 8.8 %),              of 13,278 staff in the research and devel-
reaching a total of 108, 467 at the end of       opment sector, 6,910 of them at Volks-
the year incl. trainees (- 8.5 %).               wagen AG alone.

New directions in personnel policy at
Volkswagen AG

The combination of ongoing productivity-
boosting processes, a poor economic
situation and reduced sales prospects
means that in both 1994 and 1995 Volks-
wagen AG's German plants will have
around 30,000 employees more than

                                                                                                                                    15
Management Report: Volkswagen Group
and Volkswagen AG

Capital investments and cash flow           Market-oriented model policy
within the Volkswagen Group (billion DM)                                                    New additions to the range of engine
(excl. leasing and rental assets)           systematically continued                       options in the 1994 model year are the 2.8
                                                                                            litre six-cylinder engine in the Audi 80
                                             The 1993 International Motor Show in          Avant and the five-cylinder turbocharged
                                             Frankfurt gave the Volkswagen Group the       engine, producing 169 kW (230 bhp), in
                                             opportunity to present a number of            the Audi S2 sports saloon. Both the Audi
                                             impressive new developments. Volks-           80 1.9 TDI and the Audi 80 Avant 1.9 TDI
                                             wagen provided renewed proof of its           are now also available with automatic
                                             market-oriented model policy in the shape     gearbox. A further innovation was
                                             of the new Golf Convertible, the Golf         presented for the first time at the Tokyo
                                            Variant, the Golf Ecomatic and the new         Motor Show in the shape of the study for
                                             Passat. Also on show was the unique           a powerful W12 drive unit in the ASF
                                            Audi Space Frame (ASF) study, featuring a      concept vehicle. The special feature of
                                            direct-injection turbo-diesel V8 engine.       this highly advanced twelve-cylinder
                                            What makes this vehicle so special is its      engine is that major components such as
                                            body design, in which both the main load-      crankcase and cylinder heads are made of
                                            bearing structure known as the "space          aluminium.
                                            frame" and the body panels - which like-
Capital investments                         wise perform a load-bearing function - are     Capital investments drastically reduced
                                            made solely of aluminium, as is the
Cash flow                                   engine. The ASF concept is now ready to        The need to implement extensive
                                            go into production and at the Geneva           measures aimed at boosting earnings,
                                            International Motor Show in March of this      coupled with the constraints imposed by
                                           year Audi was able to unveil a revolution-      the general economic situation, meant
                                           ary addition to the upper-range vehicle         that originally scheduled capital invest-
                                            market in the form of the Audi A8, the         ments - particularly in the automobile
                                           first production model with ASF body.           sector - had to be drastically curtailed or
                                           Visitors to the Frankfurt International         extended into subsequent years. Improve-
                                            Motor Show also had their first chance to      ments in productivity achieved by virtue of
                                           see the new Avant RS2, a high-perfor-           synergistic effects and optimized produc-
                                           mance sports car developed jointly by           tion processes also helped to reduce
                                           Audi and Porsche. Seat presented two            expenditure. While overall capital invest-
                                           new models in Frankfurt: the new Seat           ment by the Volkswagen Group was
                                           Ibiza, which was on show in Germany for         47.7 % down on the 1992 level at DM
                                           the first time, and the Cordoba, a notch-       4,840 million, product-related investments
                                           back saloon positioned between the Ibiza        were excepted from the economy
                                           and the Toledo. The Cordoba was launch-         measures.
                                           ed in Europe in November 1993 and has
                                           been extremely well received by the              Investments in tangible assets were
                                           market.                                         devoted primarily to new products, model
                                                                                           upgrading measures, further optimization
                                            Both motoring experts and the general          of manufacturing methods and our new
                                            public were impressed by Volkswagen's          production plants in eastern Germany,
                                            latest development in the engine sector, a     Spain and Portugal. The volume of invest-
                                            1.9 litre four-cylinder diesel engine with     ment in the leasing and rental sector was
                                           direct injection, turbocharging and charge-     11.4 % down on the 1992 figure, amoun-
                                           air cooling (TDI) for the Golf, Vento and       ting to DM 5,438 million.
                                           Passat ranges. This engine, which delivers
                                           66 kW (90 bhp), is characterized by excel-      Volkswagen AG invested a total of DM
                                           lent pulling power and, thanks to a variety     1,793 million in 1993, 55.9 % less than in
                                           of sophisticated details, requires an           the previous year. Investments in tangible
                                           average of less than five litres per 100 km     assets, which at DM 1,286 million were
                                           over the three basic fuel consumption           44.0 % down on 1992, focused mainly on
                                           cycles, while at the same time complying        measures in connection with the start of
                                           with the stringent US emission standards.       production of new models and on further
                                           In addition, it already more than fulfils the   improving manufacturing structures.
                                           emission standards for direct-injection         Financial investments fell by 71.9 % to
                                           diesel engines scheduled to come into           DM 491 million, with the major proportion
                                           force within the European Union in 1996.        of this sum relating to capital increases at
                                                                                           subsidiaries.

16
Agreement reached on assembly of              faced not only with falling earnings but
Volkswagen Transporters in Poland             also with heavy cost burdens. The rise in
                                              the price of imported materials following
In May 1993 Volkswagen AG and the             the devaluation of the peseta, the high
Polish company FSR Polmo reached              cost of financing the large-scale invest-
agreement in Warsaw on establishment          ments needed for the new plant in Marto-
of a joint venture to assemble VW Trans-      rell and the start-up costs incurred in
porters in Poznan. Volkswagen has a           connection with the new Ibiza and
25.4 % holding in this new company,           Cordoba all led to heavy losses for the
which goes by the name of Volkswagen          Seat group, necessitating implementation
Poznan. The intention is to set up an         of an extensive reorganization concept.
assembly facility capable of turning out
4,750 vehicles a year. The first phase of     The key elements of this concept are the
the project has already been completed        strengthening of the capital base and
and daily output currently stands at 20       comprehensive restructuring measures.
Transporters. Apart from enabling Volks-      As an initial step at the end of 1993 Volks-
wagen to gain a foothold in the Polish        wagen AG began the process of conver-
market, this new venture also opens up        ting receivables due from SEAT, S.A. into
opportunities for improved access to the      equity capital in the amount of DM 1
markets of Eastern Europe.                    billion at a set value of 82.3 billion
                                              pesetas. This process will be formally
AutoEuropa - a joint venture to               completed in spring 1994 by adoption of
produce a people-carrier                      the appropriate resolution by the Annual
                                              Meeting of Stockholders of SEAT, S.A.
AutoEuropa, our joint venture with Ford-      The restructuring concept also schedules
Werke AG to manufacture a people-carrier      concentration of Seat vehicle production
in the Portuguese town of Setubal, is now     at the Martorell plant near Barcelona.
well under way. With both development         Further measures include hiving off the
of the vehicle and construction of the        Pamplona plant, where the Polo is manu-
plant proceeding on schedule, it is antici-   factured, and selling off the Spanish finan-
pated that production operations can          cing company FISEAT to Volkswagen
commence in January 1995.                     Finanz GmbH on January 1, 1994. Adjust-
                                              ments to the workforce have also been
The training centre run jointly by AutoEu-    agreed with the Madrid and Catalonian
ropa and the Portuguese Government was        governments.
officially opened on February 1, 1993 and
training of the employees already             Work on Transporter plant in Taiwan
recruited for the new plant has now           proceeding as scheduled
begun.
                                              Construction of the new Transporter/Cara-
Key suppliers have entered into agree-        velle plant in Taiwan, to be operated by
ments confirming their intention to esta-     the joint venture known as Ching Chung
blish themselves in the industrial park on    Motor Co., Ltd., is continuing to proceed
the AutoEuropa site. The necessary infra-     on schedule and it is planned to
structure measures have now been              commence production in mid-1994. To
completed and construction work               enable us to create an efficient dealer
commenced on schedule.                        organization and firmly establish our posi-
                                              tion on the Taiwanese market, Transporte
Despite the general decline in passenger      and Caravelle models imported from
car sales on the European markets,            Germany have been sold in Taiwan since
demand for people-carriers has risen          March 1993 in order to prepare the
steadily in recent years and this trend is    ground.
expected to continue.

Radical reorganization concept for Seat

SEAT, S.A. was badly hit in 1993 by
sharply declining demand both in Spain
and on major export markets. The situa-
tion on the domestic market was further
exacerbated by the need for increasingly
competitive pricing. However, SEAT was
Management Report: Volkswagen Group
and Volkswagen AG

Capital investments 1994-1998            Reorganization of the Volkswagen                            leading to a drastic fall in vehicle sales.
by divisions
                                         Group's financial services sector                           Further problems were created by a struc-
(69 billion DM)
                                                                                                     tural crisis which, in the case of Volks-
                                         A reorganization of the financial services                  wagen and many other companies, neces-
                                         sector within the Volkswagen Group took                     sitated radical measures.
                                         effect at the beginning of 1994, with the
                                         companies in France, Spain and Italy be-                      For the Volkswagen Group, 1993 was a
                                         coming wholly-owned subsidiaries of the                      year in which the individual quarters wit-
                                         German company Volkswagen Finanz                             nessed varying trends where earnings
                                         GmbH. Alongside V.A.G Bank, V.A.G                            were concerned. While the first half of the
                                         Leasing and SkoFIN s. r. o., all our European                year brought a loss of DM 1,602 million -
                                         operations in the field of financial services                it must be pointed out that the second-
                                         have thus now been brought together                          quarter loss was considerably smaller than
                                         under the control of a single company.                       that recorded for the first three months of
                                                                                                      1993 - in the third quarter the Group was
                                         Following on from this step, preparations                    once again able to post a profit. Although
                                         are currently being made for transforming                    there was no relaxation of efforts to opti-
                                         Volkswagen Finanz GmbH into a joint                          mize cost structures through reduction of
                                         stock company to be known as Volks-                          material costs, adjustments to the work-
                                         wagen Financial Services AG. This move                       force, introduction of new working-hours
          Volkswagen                     will create a company which is eligible to                   schemes, curtailment of investment
          Audi                           enter the capital market and which at the                    projects and development of lean produc-
          Seat
          Skoda                          same time has access to the international                   tion processes, these improvements were
          North America Region           money markets, thereby gaining the                           more than offset in the fourth quarter
          South America/Africa Region    opportunity to avail itself of the best                     above all by Seat's earnings problems and
          Asia Pacific Region            sources of financing worldwide.                             the loss recorded by the North America
          Financial Services/Financing                                                                Region. Adjustments to the workforce at
                                         These restructuring measures represent                      our Spanish subsidiary also gave rise to
                                         the systematic continuation of a strategy                   substantial costs. The Volkswagen Group
                                         designed to take account of the expansion                   therefore closed the fiscal year 1993 with
                                         and increasingly international nature of our                a loss of DM 1,940 million as against net
                                         operations in the financial services sector.                earnings of DM 147 million in 1992. Volks-
                                                                                                     wagen AG achieved net earnings of DM
                                         It is also planned that our financial                       71 million compared with DM 132 million
                                         services activities in Great Britain should                 in the previous year.
                                         in future likewise be handled by a Group
                                         company.                                                    After transferring to free reserves DM 9
                                                                                                     million from net earnings and the balance
                                         Unchanged dividend                                          carried forward from 1992, the Board of
                                                                                                     Management and the Supervisory Board
                                         During 1993 the economic slowdown                           propose to the Annual Meeting of Stock-
                                         which had been apparent since the                           holders the payment of a dividend of
                                         second half of 1992 developed into the                      DM 2 on each ordinary and preferred
                                         worst recession of the post-war era,                        share.

                                         Proposal on appropriation of net
                                         earnings available for distribution                                                                           DM
                                         Dividend distribution on subscribed
                                         capital of DM 1,670.6 million*                                                                    66,577,000
                                         of which
                                         on ordinary shares                                                                                54,000,000
                                         on preferred shares                                                                               12,577,000
                                         Balance
                                         (carried forward)                                                                                     151,300
                                         Net earnings available for distribution                                                           66,728,300
                                         * DM 6.2 million deriving from the capital increase effec   in November 1993 carried no dividend rights for
                                           the fiscal year 1993.

18
Current situation in litigation pending       1994. Germany's economic development               Wolfsburg, February 22, ,1994
between Opel/GM and Volkswagen                is stagnating, with unemployment contin-
                                              uing to rise. Italy, France and Spain have         The Board of Management
On February 2, 1994 the Frankfurt             yet to emerge from recession and the
Regional Court rejected the Opel/GM           same is true of Japan. The only European
application for an order prohibiting Volks-   country currently experiencing an upswing
wagen from employing the seven staff          is Great Britain, which is set to record a
members who had left to join Volkswagen       growth rate of around 3 % this year.
AG at the same time as Mr. López. The         Given this general trend, 1994 is unlikely
court was of the opinion that Volkswagen      to see any major reduction in unemploy-
had in no respect acted in a manner           ment, which has risen sharply during the
contrary to the requirements of fair          recession. Although the USA and Canada
competition when taking on former             are now once again experiencing growth
GM/Opel employees. It thereby also            in terms of their gross national product,
confirmed in the proceedings on the main      the recovery is not sufficiently marked to
issue the rulings already made in favour of   bring about a significant fall in unemploy-
Volkswagen AG by the Frankfurt Regional        ment.
Court and the Frankfurt Higher Regional
Court in connection with the application      The worsened situation on major automo-
for a temporary injunction.                   bile markets has highlighted the industry's
                                              vulnerability not only to adverse economic
This decision has no effect on the action     trends but also to structural crises. One in
brought by the seven employees against        every seven jobs in Europe alone is
Opel/GM, and currently pending before         dependent on the automobile industry.
the Brunswick Labour Court, to secure
Opel/GM's refrainment from interference       The current trend indicates that overall
in the contractual relationship between       demand for automobiles in Western
themselves and Volkswagen AG as their         Europe will remain at the same low level
employer. Mr. López and Volkswagen AG         as in 1993, while the German market is
have joined this action as third parties.     likely to exhibit a slight decrease in size.
The cross-action brought by Opel/GM
aims among other things to secure a ban       In the light of this situation and the ever
on Volkswagen's employing Mr. López,          keener competition resulting from the
with the court also being requested to find   existence of excess capacities worldwide,
that Opel/GM is entitled on the merits of     it will be increasingly important for us to
its claim to damages for "poaching" of        make continued progress in improving the
employees and alleged divulging of            Volkswagen Group's cost structures.
secrets.                                      Measures in this area will this year once
                                              again enable us to make considerable
Criminal investigations by the Public         savings. While we anticipate a slight rise
Prosecutor's Office in Darmstadt and the      in vehicle sales in Germany and on the
US Department of Justice are as yet           major European export markets, a down-
incomplete. It is at present impossible to    ward trend is likely to become apparent in
say how long this will take. Volkswagen       the South America/Africa region. Sales in
has been cooperating fully throughout in      the Asia Pacific region will continue to rise
the interest of ensuring that the matter is   in 1994 and increases are also in prospect
cleared up and the investigations are          in North America. All in all, production and
concluded as soon as possible. Having          unit sales will probably be on a par with
been requested by the Supervisory Board       the 1993 levels, while sales revenues
to establish whether any confidential          should rise slightly. It is therefore realistic
GM/Opel documents or data were passed         to assume that in 1994 Volkswagen AG
to or used by Volkswagen, KPMG Deut-           will return a profit and the Volkswagen
sche Treuhandgesellschaft conducted its        Group an improvement on the 1993
own detailed investigation and found no        result.
evidence whatsoever that Volkswagen
had been passed, was in possession of or
had used such documents or data.                                                                      l   i   .   i   i   -   f   H

Prospects for 1994

Few countries exhibited any signs of an
economic recovery at the beginning of

                                                                                                                                      19
The Major Companies within the Volkswagen Group

 Volkswagen                                          Seat                          Skoda                            Audi                    Regions                                        Financial Services            Financing Companies

Volkswagen AG         Volkswagen Sachsen GmbH        SEAT, S.A.                    SKODA, automobilova a. s.        AUDI AG                                                                Volkswagen Finanz GmbH        Coordination Center
                                                                                                                                            North America
Wolfsburg             Mosel                          Barcelona, Spain              Mlada Boleslav, Czech Republic   Ingolstadt                                                             Brunswick                     Volkswagen S.A.
Subscribed capital:   DM 10,000,000                  ESP 84,000,000,000            CZK 9,642,000,000                DM 215,000,000          Volkswagen de Mexico,                          DM 700,100,000                Brussels, Belgium
DM 1,670,625,000      100 % Volkswagen AG            99.99 % Volkswagen AG         31 % Volkswagen AG               98.99 % Volkswagen AG   S.A. de C.V.                                   100 % Volkswagen AG           BEC 14,000,000,000
                                                                                                                                            Puebla/Pue., Mexico                                                          60 % Volkswagen AG
Plant locations:      Volkswagen Bruxelles S.A.      Seat Deutschland GmbH         SKODA France                     AUDI HUNGARIA           MXN 304,343,224                                V.A.G Bank GmbH               40 % Volkswagen Bruxelles
Wolfsburg             Brussels, Belgium              Mörfelden-Walldorf            Automobiles S.A.                 MOTOR Kft.              100 % Volkswagen AG                            Brunswick                     S.A.
Hanover               BEC 1,925,000,000              DM 10,000,000                 Paris, France                    Györ, Hungary                                                          DM 622,500,000
Kassel                100 % Volkswagen AG            100 % SEAT, S.A.              FRF 15,000,000                   DM 2,000,000            V o l k s w a g e n of America, inc.           100 % Volkswagen Finanz       Volkswagen International
Emden                                                                              100 % V.A.G France S.A.          100 % Audi AG           Auburn Hills, Mi., USA                         GmbH                          Finance N.V.
Salzgitter            V.A.G France S.A.              Seat France, S.A.                                                                      USD 242,422,222.92                                                           Amsterdam, Netherlands
Brunswick             Paris, France                  St. Ouen I'Aumone, France     SKODA Automobili Italia S.r.l.                           100 % Volkswagen AG                            V.A.G Leasing GmbH            NLG 226,000,000
                      FRF 50,000,000                 FRF 50,000,000                Verona, Italy                                                                                           Brunswick                     100 % Volkswagen AG
                      100 % Volkswagen AG            100 % SEAT, S.A.              ITL 1,000,000,000                                        V o l k s w a g e n Canada Inc.                DM 100,000,000
                                                                                   100 % AUTOGERMA S.p.A.                                   Toronto, Ontario, Canada                       100 % Volkswagen Finanz       Volkswagen Investments Ltd.
                      AUTOGERMA S.p.A.               Seat Italia, S.p.A.                                                                    CAD 500,000                                    GmbH                          Dublin, Ireland
                      Verona, Italy                  Milan, Italy                  SKODA Automobile                                         100 % Volkswagen AG                                                          DM 600,000,000
                      ITL 90,000,000,000             ITL 20,000,000,000            Deutschland GmbH                                                                                        V.A.G Financement S.A.        100 % Volkswagen AG
                      100 % Volkswagen AG            100 % SEAT, S.A.              Weiterstadt                                              South America/Africa                           Paris, France
                                                                                   DM 4,000,000                                                                                            FRF 95,000,000
                      AutoEuropa Automöveis Lda.     Seat UK Ltd.                  67 % SKODA, automobilova a.s.                            Autolatina                                     99.68 % Volkswagen Finanz
                      Palmela, Portugal              Crawley, West Sussex                                                                   Comércio, Negocios e                           GmbH11
                      ESC 21,266,189,000             Great Britain                                                                          Participaçôes Ltda.                            0.32 % Volkswagen AG
                      50 % Volkswagen AG             £4,000,000                                                                             Säo Paulo, SP, Brazil
                                                     100 % SEAT, S.A.                                                                       BRR 4,475,504,500                              FISEAT, S.A.
                      V.A.G Sverige AB                                                                                                      51 % Volkswagen AG*                            Madrid, Spain
                      Södertälje, Sweden             Gearbox del Prat, S.A.                                                                                                                ESP 8,207,390,000
                      SEK 84,000,000                 El Prat de Llobregat, Spain                                                            Autolatina Brasil S.A.                         100 % Volkswagen Finanz
                      50 % Volkswagen AG             ESP 9,800,000,000                                                                      Säo Paulo, SP, Brazil                          GmbH21
                                                     100 % SEAT, S.A.                                                                       BRR 849,414,330
                      Volkswagen Bratislava,                                                                                                42.58 % Volkswagen AG*                         VW Credit, Inc.
                      spol. s r. o.                                                                                                                                                        Auburn Hills, Mi., USA
                      Bratislava, Slovak Republic                                                                                           Autolatina Argentina S.A.                      USD 100,000
                      SKK 1,054,800,000                                                                                                     Buenos Aires, Argentina                        100 % Volkswagen of
                      80 % Volkswagen AG                                                                                                    ARS 99,651,560                                 America, Inc.
                                                                                                                                            51 % Volkswagen AG*
                      V.A.G Transport                                                                                                                                                      FINGERMA S.p.A.
                      GmbH & Co. OHG                                                                                                        Volkswagen of South Africa                     Verona, Italy
                      Wolfsburg                                                                                                             (Pty.) Ltd.                                    ITL 10,000,000,000
                      DM 1,000,000                                                                                                          Uitenhage, C.P., South Africa                  100 % Volkswagen Finanz
                      81 % Volkswagen AG                                                                                                    ZAR 9,362,650                                  GmbH
                      19 % AUDI AG                                                                                                          100 % Volkswagen AG
                                                                                                                                                                                           SkoFIN s. r. o.
                      VOTEX GmbH                                                                                                            Asia Pacific                                   Prague, Czech Republic
                      Dreieich                                                                                                                                                             CZK 30,000,000
                      DM 1,000,000                                                                                                          Shanghai-Volkswagen                            100 % Volkswagen Finanz
                      100 % Volkswagen AG                                                                                                   Automotive Company, Ltd.                       GmbH
                                                                                                                                            Shanghai, China
                      Europcar International S.A.                                                                                           CNY 1,200,000,000                              Volkswagen Financial
                      Boulogne-Billancourt, France                                                                                          50 % Volkswagen AG                             Services, S.A. de C.V.
                      FRF 553,500,000                                                                                                                                                      Puebla, Mexico
                      50 % Volkswagen AG                                                                                                    FAW-Volkswagen                                 MXN 100,000
                                                                                                                                            Automotive Company, Ltd.                       100 % Volkswagen de Mexico,
                      V.A.G (United Kingdom) Ltd.                                                                                           Changchun, China                               S.A. de C.V.
                      Milton Keynes, Great Britain                                                                                          CNY 1,680,000,000
                      £ 9,600,000                                                                                                           40 % Volkswagen AG
                      100 % Volkswagen Group
                      Holdings (UK) Ltd.                                                                                                    V o l k s w a g e n A u d i N i p p o n K.K.                                 * Volkswagen AG's
                                                                                                                                            Toyohashi, Japan                                                               direct and indirect holding
                                                                                   HH Producing Companies                                   JPY 23,174,100,000                                                           11 Indirect holding via V.A.G Holding
                                                                                   • • Distributing Companies                               100 % Volkswagen AG                                                            Financière S.A.
                                                                                   ^ Other Companies                                                                                                                     * As of January 1, 1994

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