Report on Expected Developments

In spite of high oil and commodity prices, the global economy and global automotive demand will both continue to grow in 2007. Thanks to its expanded model range and innovative services, the Volkswagen Group expects deliveries to be slightly higher than in 2006.

In the previous chapter, we described the main risks to our operating activities; in the following sections, we will outline the opportunities for the Volkswagen Group arising from expected future developments.

The opportunities identified are integrated in our planning activities early on so that we can implement effective measures to respond to the additional potential in good time. Opportunities for the Volkswagen Group include in particular the tapping of new markets, the development of new models and technical innovations.

GENERAL ECONOMIC DEVELOPMENT
Our plans assume that global economic growth in 2007 will weaken slightly compared with the previous year. Growth will continue to be slowed by high oil and commodity prices and the more restrictive monetary policy in many countries. We expect the strongest growth to be recorded in Asia, especially in China and India, as well as in South America.

NORTH AMERICA
In the USA, GDP growth is likely to fall to below 3.0% due to increased interest rates and high energy prices. We expect growth in Canada to be slightly less than that of the previous year. We also anticipate a more marked decline in growth for Mexico.

SOUTH AMERICA/SOUTH AFRICA
For Brazil we are forecasting a higher increase in GDP than last year. In Argentina, the very strong economic growth is likely to continue, albeit with a lower rate of expansion than in the previous year. We expect the positive development in South Africa to continue, given that conditions for commodity exports remain favorable.

ASIA-PACIFIC
China will remain on its very dynamic growth path in 2007. In Japan, GDP growth will be in the region of 2.0%. We expect the strong expansion in India to continue.

EUROPE
We assume that GDP growth in Western Europe in 2007 will be lower than in the previous year. Similarly, the economic expansion is likely to weaken in Central and Eastern Europe. However, the growth rate will be considerably higher than that of Western Europe.

GERMANY
Following the sharp increase last year, we expect growth in the German economy to be under 2.0% owing to a decline in domestic demand. Unemployment, measured as on average over the full year, will only fall slightly.

DEVELOPMENT OF AUTOMOTIVE MARKETS
Our forecasts are based on the assumption that global automotive demand will slow down in 2007. In particular, we assume that new passenger car registrations in Western Europe will decline slightly and that growth in the Chinese market as a whole will be marginally less than in the previous year.

NORTH AMERICA
For the USA, we expect a slight overall increase in the market as a whole. Rising fuel prices will continue to shift demand from light commercial vehicles to passenger cars. The Canadian and Mexican passenger car markets are likely to grow moderately.

SOUTH AMERICA/SOUTH AFRICA
Following the sharp increase in 2006, we expect the growth in new passenger car registrations in South America to slow down substantially. For the Brazilian and Argentinian market, we assume that sales figures will be on a par with the previous year. The positive development in South Africa is expected to continue.

ASIA-PACIFIC
In 2007, we expect the growth in demand to continue in the total Asia-Pacific region. While the growth will be somewhat lower in China and India, we expect the number of new passenger car registrations in Japan to rise following a decline in 2006.

EUROPE
In 2007, demand for passenger cars in Western Europe as a whole is likely to decline slightly compared with 2006. Of the large markets, only France is likely to record a year-on-year increase. In Central and Eastern Europe, particularly in Russia, we anticipate a further increase in the number of new passenger car registrations.

GERMANY
We expect new registrations on the German passenger car market to fall slightly. This is primarily due to purchases brought forward in 2006 ahead of the increase in value added tax in 2007.

DEVELOPMENT OF EXCHANGE RATES
Our planning for fiscal year 2007 regarding unit sales and factory capacity utilization is based on the estimates of economic institutes and capital market players regarding the development of exchange rates worldwide. The majority of them believe that the US dollar, sterling, the Brazilian real and the Chinese renminbi will weaken against the euro.

DEVELOPMENT OF INTEREST RATES
We expect interest rates in the euro zone to continue increasing in 2007. By contrast, interest rates in the USA are likely to fall marginally.

DEVELOPMENT OF COMMODITY PRICES
We expect prices for commodities and steel to remain high in 2007. It is highly unlikely that the supply situation will ease very much.

GROUP STRATEGY 2015
A clear, long-term orientation is essential for making decisions on short- and medium-term measures. In view of this, we have geared our operating policies towards sustainable market success and income generation as part of the Group Strategy 2015.

Transparent and uniform processes throughout the Group are designed to bring about shorter development, vehicle order and throughput times, to increase the efficiency of capacity utilization in the plants and to boost the effectiveness of the distribution network. In future, the Volkswagen Group will focus exclusively on its core areas of competence. In all other areas, it will work together with external providers on the basis of agreements governed by mutual trust, contracts or company law. The financial targets of the Group Strategy 2015 for the Automotive Division include an ROI of at least 9% and an operating return on sales before tax of 6.9%. Further targets are: for the Volkswagen Group to be the world leader in terms of customer satisfaction, quality and delivery performance. For the brands and their products to be clearly and separately positioned in the market. For the Group to be the employer of choice for extremely competent and highly motivated employees and the cooperation partner of choice for high-performance suppliers and dealers.

MAIN AREAS FOR FUTURE DEVELOPMENT
To an ever increasing extent, customer demand for individualization is determining the development trend in the automotive sector. In addition to this are legal and social requirements regarding the responsible use of available resources. Thus, the challenge facing the Volkswagen Group in the future is, on the one hand, to further diversify its products and, on the other hand, to develop resource-friendly vehicles and powertrain concepts. The use of new, renewable energy sources is becoming increasingly important in view of the finite nature of fossil fuels and the mounting climate debate.

Furthermore, the safety of car passengers and other road users continues to be the main focus of our development work. We constantly develop and improve driver-assistance systems that enhance safety, such as ABS and – above all – ESP. In future, assistance systems such as the lane change assistant, lane keeping assistant and Adaptive Cruise Control will contribute to a significant increase in vehicle safety. To this end, vehicles will be equipped with “environment sensors” and corresponding evaluation software. These assistance systems are designed to help drivers and enhance their safety, but ultimate control remains with drivers.

In response to continually rising cost pressure, we will systematically further develop and expand the modular strategy: the aim is to harness component synergies across vehicle classes, so that vehicles can be developed with a modular and therefore more flexible design. Once developed, components can then be used in different models without the need for expensive and time-consuming changes. The use of common components in high volumes allows us to reduce development and production costs considerably. To implement the modular strategy across the Group, we will network the technical developments of all locations. The new “module books”, which document the components and subassemblies that are currently used, will be helpful in this regard. Vehicles developed for new markets, such as Russia and India, must comply with specific regional requirements and take into account local supplier structures.

The direct shift gearbox (DSG) has successfully established itself in the market. In 2006, we delivered almost twice as many vehicles with this innovative technology as in the previous year. As a result, we will be able to make this technology available for other vehicle classes and enhance it systematically.

NEW MODELS
2007 will see a number of start-ups:
The Volkswagen Passenger Cars brand will extend the “Cross” product brand, which began with the CrossPolo in 2006, by launching the CrossGolf and CrossTouran models. The market launch for both models is scheduled for the first quarter. Besides the new Golf Variant, the Tiguan compact SUV will be the highlight of the Volkswagen Passenger Cars brand in 2007.

In the first quarter, Škoda will present the redesigned Fabia hatchback, featuring a high roof for added comfort.

The Audi brand will add two new models to its product portfolio: the new Audi A5, a sporty, elegant coupé with dynamic proportions, and the Audi R8, a sports car with a captivating design and high driving dynamics. Audi also plans to launch the successor to the TT Roadster and the new Audi A4 saloon.

With the Altea XL Crossover, the SEAT brand will add a variant with a longer wheelbase and a more spacious interior design to its Altea model range.

In order to meet the demands of commercial customers more closely in the future, the Commercial Vehicles business line has developed a “Maxi” version of the popular Caddy model with a longer wheelbase.

Volkswagen Financial Services AG will continue the successful mobility offensive initiated in 2006 and apply it to other markets. In future, thanks to the close cooperation with the Group brands, a greater number of innovative financial services will be offered for Group vehicles.

EXPECTED DELIVERIES TO CUSTOMERS AND MARKET SHARE
For 2007, we aim to achieve a slight increase in deliveries to customers compared with 2006. Improved customer satisfaction and the success of our new models will be instrumental in achieving this target. We intend to maintain or expand our market share by moving into additional segments.

For the Western European passenger car market, we expect a moderate decline in our deliveries to customers; this is due to the saturated state of the market, combined with a slight decline in market share. In Germany, too, with falling unit sales, we expect our share of the passenger car market to decrease following the sharp increase in 2006. The growth in our sales volume in Central and Eastern Europe is developing in line with the forecast market growth, meaning that our share of the passenger car market will be on a par with that of the previous year.

We expect delivery figures in the North American passenger car market to continue rising in 2007. This will lead to a slight increase in our share of this passenger car market.

Our share of the South American/South African passenger car market is likely to be slightly below the previous year’s level, as sales rise moderately.

We expect our delivery volume in the Asia-Pacific region – notably in China and India – to rise in line with the positive economic growth in these markets. The Volkswagen Group’s share of the passenger car market will remain on the same level as the previous year.

NEW MARKETS
We see the future growth centers of the global automotive market as being in India, Russia and Southeast Asia.

In less than ten years’ time, India will be one of the five most important automotive markets in the world, after the USA, China, Japan and Germany. In order to benefit from this development, we are planning to set up a plant in India for the Volkswagen Passenger Cars brand in addition to the existing Škoda production facility there. This plant will produce a vehicle specially designed for the needs of Indian customers.

Within the next years, Russia will be one of the ten largest automotive markets in the world. The Group’s sales company Volkswagen Group RUS OOO is already successfully engaged in importing and selling vehicles of all Group brands. In order to exploit the growth opportunities in the Russian market even more effectively, we plan to build a plant in Kaluga, a city southwest of Moscow. Production of Volkswagen and Škoda brand vehicles in the Russian Federation is scheduled to start in 2007.

INVESTMENT AND FINANCIAL PLANNING 2007 TO 2009 AUTOMOTIVE DIVISION
IN € BILLION

INVESTMENT AND FINANCIAL PLANNING 2007 TO 2009
Investments in the Volkswagen Group’s Automotive Division will be €24.7 billion in the period 2007 to 2009. As well as investments in property, plant and equipment, this total amount also includes additions to capitalized development costs and investments in financial assets.

Of this total, €17.7 billion is attributable to the acquisition of property, plant and equipment, of which €10.7 billion will be invested in Germany alone. Having achieved a relatively low ratio of investments in property, plant and equipment to sales revenue (capex) in recent years, this will remain at a competitive level of below 6%, as set out in the previous year’s budget.

Most of the total amount invested in property, plant and equipment in the Automotive Division during the planning period (€11.8 billion) will be spent on modernizing and extending the product range. The main focus will be on successor models and new derivates in virtually all vehicle classes. In this way, the Volkswagen Group continues its model initiative with a view to covering its markets more effectively. In terms of powertrain production, new generations of petrol engines with improved performance, fuel efficiency and therefore lower emission levels will be introduced. In future, we will use common rail technology for our diesel engines. Direct shift gearboxes (DSG), which continue to constitute a unique selling point for the Group worldwide, will be further developed, with capacity being adapted to meet the rising demand.

We plan to invest €5.9 billion in non-product related items over the next three years. Due to quality and cost targets, manufacturing the new products will also require adjustments at the press shop, painting and assembly facilities. Apart from production, we will invest mainly in the areas of development, quality assurance, genuine parts supply and information technology. Investment planning also includes the construction of new plants in Russia and India. In this way, the growing markets will be supplied with vehicles from local production.

We aim to finance investments within the Automotive Division using internally generated funds. For the planning period, we forecast cash flows from operating activities of €31.9 billion. The funds generated will thus exceed investment requirements for the Automotive Division by €7.2 billion, thereby continually improving the liquidity situation.

The joint venture companies in China are not consolidated and therefore not included in the figures given above. These companies will invest a total of €1.9 billion in the period 2007 to 2009, to be financed using the joint venture companies’ own funds.

Investments in the amount of €19.8 billion are planned in the Financial Services Division for the period 2007 to 2009, with investments in leasing and rental assets (net of disposals) accounting for €10.4 billion, and the increase in receivables from leasing, customer and dealer financing accounting for €9.1 billion. As is common in the industry, the planned cash flows from operating activities of €9.2 billion will not be sufficient to finance these investments in full.

The additional capital requirement of €10.6 billion will be financed mainly by debt issuance programs in the money and capital markets and by customer deposits from the direct banking business.

TARGETS OF VALUE-BASED MANAGEMENT
Based on long-term interest rates derived from the capital market and the target capital structure (fair value of equity to debt = 2:1), the minimum required rate of return on invested assets defined for the Automotive Division remains unchanged at 9%.

The restructuring measures undertaken, in particular the collective wage agreement reached in 2006 and the personnel adjustment programs, will reduce costs considerably and help to restore the earnings power of earlier years. The cost savings made as part of the ForMotionplus program will also help to further improve the cost-effectiveness of our products.

FUTURE ORGANIZATIONAL STRUCTURE OF THE GROUP
At its meeting on January 11, 2007, the Supervisory Board approved the plans of the Chairman of the Board of Management for restructuring the Board of Management and executive committees and for reorganizing the Group.

Three areas of responsibility will be added to the Board of Management: Group Research and Development will be led by Prof. Dr. Martin Winterkorn in addition to his other tasks. Prof. Dr. Jochem Heizmann will be responsible for the second area of responsibility, Group Production. Management of Group Sales will be decided upon at a later date.

The previous Volkswagen and Audi brand groups will be discontinued, with all individual Group brands to be placed on an equal, independent footing in future.

The Group Board of Management will remain in place, joined by the Chairpersons of the Volkswagen Passenger Cars (Prof. Dr. Martin Winterkorn, in addition to his other duties), Škoda (Mr. Detlef Wittig), Bentley (Mr. Franz-Josef Paefgen), Audi (Mr. Rupert Stadler), SEAT (Mr. Erich Schmitt) and Commercial Vehicles brands (Mr. Stephan Schaller). Another new member of the Group Board of Management is Mr. Stephan Grühsem, Head of Group Communications.

SUMMARY OF EXPECTED DEVELOPMENTS
In 2006, we made significant progress in improving the Volkswagen Group’s competitiveness and earnings power. In 2007, we will continue to push ahead with our activities to improve cost structures and processes. In conjunction with our attractive model program and the planned new products, this makes the Board of Management confident that we will achieve consolidated profit before tax of at least €5.1 billion in 2008.

This report contains forward-looking statements on the business development of the Volkswagen Group. These statements are based on assumptions relating to the development of the economies of individual countries, and in particular of the automotive industry, which we have made on the basis of the information available to us and which we consider to be realistic at the time of going to press. The estimates given entail a degree of risk, and the actual developments may differ from those forecast.

Consequently, any unexpected fall in demand or economic stagnation in our key sales markets, such as Western Europe (and especially Germany) or in the USA, Brazil or China, will have a corresponding impact on the development of our business. The same applies in the event of a significant shift in current exchange rates relative to the US dollar, sterling, yen, Brazilian real, Chinese renminbi and Czech koruna.

PROSPECTS FOR 2007
Growth in global demand for automobiles will probably slow in 2007. We believe that growth rates will be lower in particular in China and the South American markets. In the Western European markets, including Germany, we are expecting a decline in the number of new registrations, while the North American markets are likely to experience slight growth. Pressure is likely to continue from high energy and commodity prices, coupled with political uncertainty in the Middle East. Competition in the automotive industry will most probably become even fiercer.

The Volkswagen Group is in a good competitive position thanks to its attractive model range. The large number of new vehicles that we will launch in 2007, in existing and new segments, will extend our product portfolio and further improve our competitive position. We are therefore expecting a slight increase in deliveries to customers in 2007 compared with the previous year. The Volkswagen Group’s 2007 sales revenue will consequently increase year-on-year. We will continue to vigorously drive forward the activities to improve cost structures and processes in 2007. This, along with the steps we undertook in 2006, will lead to a sustainable improvement in our competitiveness. The operating profit for 2007 is expected to be above the 2006 operating profit before special items. Because of our intensive efforts to modernize and expand our model range, the ratio of investments in property, plant and equipment (capex) to sales revenue will be higher in 2007 than it was in 2006. We will continue to adopt a disciplined approach to investments in property, plant and equipment, and will maintain this ratio at a competitive long-term level of below 6%, without compromising new projects. We are again expecting a positive net cash flow in the Automotive Division.

DECLARATION BY THE BOARD OF MANAGEMENT OF VOLKSWAGEN AG
The Board of Management of Volkswagen AG is responsible for preparing the consolidated financial statements and the Group management report. Reporting is governed by International Financial Reporting Standards (IFRSs) as adopted in the EU and the Interpretations of the International Financial Reporting Interpretations Committee (IFRIC). The Group management report was prepared in compliance with the provisions of the German Commercial Code (HGB). Volkswagen AG is required by section 315a of the HGB to prepare its consolidated financial statements in accordance with the standards issued by the International Accounting Standards Board (IASB).

The accuracy of the consolidated financial statements and of the Group management report is safeguarded by internal control systems, the implementation of uniform Group-wide directives and by employee training and continuing education measures. Compliance with legal requirements and internal Group directives, and the reliability and proper functioning of the control systems, are continuously reviewed across the Group. The early-warning function stipulated by law is implemented by a Group-wide risk management system that enables the Board of Management to identify potential risks at an early stage and to initiate appropriate countermeasures where necessary.

In accordance with the resolution adopted by the Annual General Meeting, the independent auditors PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover, have audited the consolidated financial statements and the Group management report, and have issued their unqualified auditors' report reproduced following the notes to the financial statements.

The consolidated financial statements, the Group management report, the audit report and the measures to be taken by the Board of Management to ensure early identification of going concern risks have been reviewed in detail by the Supervisory Board Audit Committee and by the Supervisory Board of Volkswagen AG in the presence of the auditors. The result of this review is presented in the report of the Supervisory Board.

Wolfsburg, February 20, 2007
The Board of Management