Value-Enhancing Factors

The key financial indicators for the Volkswagen Group are explained in detail in the “Net assets, financial position and results of operations” chapter. However, even financial performance indicators do not illustrate the efficiency of a company’s value drivers. The Volkswagen Group regards its processes in the areas of research and development, procurement, production, sales and quality assurance, as well as its dealings with its employees and its treatment of the environment as non-financial value drivers. Below, we explain how these value drivers contribute to the sustainable increase in our enterprise value.

 

 

 

In 2007, research and development activities mainly focused on expanding the product range and optimizing the functionality, quality, safety and environmental compatibility of Group products. The ideas contributed by our employees and the expertise of external partners played a key role here.

 

 

In the following paragraphs, we present the most important models, powertrains and systems launched last year.

 

For the Volkswagen Passenger Cars brand, one highlight of 2007 was the premiere of the new Tiguan. This compact SUV is the world’s first volume model exclusively available with charged engines, in other words TDI and TSI engines. The Tiguan uses an electromechanical steering system that was developed entirely from scratch in-house together with the Braunschweig component plant and that is part of the latest generation of electromechanical steering systems. The Tiguan also offers customers innovative features such as the new touchscreen radio/navigation system, a swiveling trailer hitch and an impressive panoramic sliding sunroof, which made its debut in the new Golf Variant. In November 2007, the Tiguan HyMotion research vehicle, featuring an 80 kW fuel-cell system, was presented at the “Challenge Bibendum” environmental rally in Shanghai.

 

Following the success of the Polo BlueMotion*, the Volkswagen Passenger Cars brand presented a further seven members of the BlueMotion family last year. This family stands for fuel efficiency and environmental compatibility without compromising driving pleasure. With the addition of the BlueMotion variants of the Golf*, Golf Plus*, Golf Variant*, Passat*, Passat Variant*, Jetta* and Touran*, the eco-label became a definitive synonym for effective environmental protection. The Volkswagen Commercial Vehicles brand rounded off the BlueMotion offensive by presenting the Caddy BlueMotion study, which is close to series production.

 

In a similar vein to the successful BlueMotion models from the Volkswagen Passenger Cars brand, Škoda presented the environmentally-friendly and fuel-efficient GreenLine model range. The ‘e’ models at Audi and the “ECOMOTIVE” models at SEAT have the lowest fuel consumption and emission levels within their respective model ranges.

 

In 2007, the Audi brand presented the new Audi A4 saloon, whose innovative transmission system improves axle load distribution and thus delivers better road-holding. The vehicle is also equipped with the Audi Drive Select system, which allows drivers to fine-tune the engine, automatic gearbox, steering and damper parameters to suit their needs.

 

Also last year, the Audi brand successfully launched the new Audi A5 series, which offers thrilling driving dynamics and innovative features. The vehicle has a completely new suspension combining agile handling with optimum safety. In the Audi R8, the brand presented the world’s first headlights to use light emitting diode (LED) technology for all front-light functions – daytime running lights, indicators, dipped beam and main beam.

 

Last year’s key innovations relating to the Group’s powertrain offensive included the further development of the TSI engine family, which has already won multiple awards, the first seven-speed direct shift gearbox (DSG), and the 2.0 l CommonRail TDI engine.

 

The new 90 kW (122 PS) TSI petrol engine, which features a single-charge exhaust-driven turbocharger, combines maximum power with minimal fuel consumption. In contrast to the previous direct shift gearbox, the clutches of the new seven-speed DSG launched in early 2008 are dry rather than oil-bathed, which improves efficiency. Thanks to its new CommonRail injection system, the TDI engine offers a significant improvement in engine smoothness and acoustic comfort. In addition, it will be able to meet even the strictest of exhaust thresholds in future.

 

* Consumption and emission data.

 

 

In addition to the Volkswagen Group’s many new models that have been launched in series production, the innovative concept cars and studies presented at international motor shows in 2007 also attracted the public’s interest.

 

At the Frankfurt International Motor Show (IAA) in September 2007, Volkswagen gave the public its first glimpse of the New Small Family when it unveiled the up! small car study, a city car with a rear-mounted engine and high degree of functionality. The prototype was much praised and in November 2007 won the well-known “Concept Car Award 2007” in the UK. Just a few weeks after the IAA, at the end of October 2007, the Space up! was presented at the Tokyo Motor Show. With five doors, this minivan in the New Small Family is slightly longer than the up!. Thanks to the rear-mounted engine, it also offers a comparatively spacious interior.

 

Finally, the Space up! Blue, a further addition to the New Small Family, made its debut at the Los Angeles Auto Show in November. As well as being driven by a high-temperature fuel cell, this hybrid vehicle’s battery can be charged via an electrical outlet. An integral part of the small car studies is an innovative human-to-machine interface, which shows how drivers will be able to operate their vehicles intuitively in the future. This interface includes features such as voice control for the telephone and navigation system, plus a touchscreen that is equipped with a proximity sensor and therefore responds to the driver’s hand movements as well – after all, only when driving a vehicle is fun does it really become intuitive.

 

In Shanghai, the Audi brand presented the Audi Cross Coupé quattro, a compact SUV study. The vehicle meets the strictest emission standards and consumes just 5.9 liters per 100 kilometers. Further developments to the Audi drive select system, which allows the engine, transmission, steering and ride-damper parameters to be fine-tuned to suit the driver’s individual requirements, were also made for this vehicle. The Audi A1 project quattro celebrated its stage debut at the Tokyo Motor Show. This latest study marks the Audi brand’s entry into the young sub-compact segment. The vehicle combines a dynamic body line and optimum use of space with the highest quality. As a hybrid with a 30 kW electric motor positioned on the rear axle and offering a range of up to 100 km in pure battery mode, it opens up new possibilities.

 

The Škoda brand presented the Fabia Scout design concept, which is based on the recently unveiled Škoda Fabia Combi. This off-road style variant’s special features include generous side molding and typical SUV equipment features.

 

The SEAT Tribu, a compact, three-door SUV with a sporty feel, celebrated its world premiere at the IAA in Frankfurt. This concept vehicle embodies the evolution of the brand’s dynamic line and previews SEAT’s future design philosophy. It features a full-length panoramic roof that blends with the windscreen. Drivers can also select the drive mode of their choice from “Urban”, “Sport” and “Free-run” at the touch of a button, thereby changing the suspension, transmission and engine management parameters.

 

 

The large number of new vehicles that we will develop for existing and future markets over the coming years demands a high degree of design efficiency. The Volkswagen Group’s brands will therefore make even greater use of modular platforms in future, making it possible to increase synergies both between models in one series and across all series. For models with transversely mounted engines, there is a Modular Transverse Toolkit (MQB), while for models with longitudinally mounted engines, there is a Modular Longitudinal Toolkit (MLB). The Audi brand has already developed the new Audi A4 and the Audi A5 based on the MLB platform. The modular toolkit approach – the systematic extension of the cross-brand platform and modular strategy – will further reduce complexity, time and costs.

 

 

In 2007, 1,479 patent applications were filed on behalf of the Volkswagen Group, 1,180 of them in Germany and 299 abroad. The majority of these innovations related to drivetrain systems and electronic aids. Once again, the large number and the technological quality of the applications demonstrate our employees’ innovative strength.

 

 

Cooperation arrangements with other vehicle manufacturers are a particularly good way of tapping new market segments cost-effectively. A strategic alliance can keep development costs low by pooling skills and know-how and spreads investment costs across several partners. In 2007, we continued a number of successful joint projects, for example working with Dr. Ing. h.c. F. Porsche AG on the development and production of the Volkswagen Touareg, Audi Q7 and Porsche Cayenne models, and with Daimler AG on the production of the Volkswagen Crafter and Mercedes-Benz Sprinter models. In 2008, production of the Routan, a minivan for the US market, will start in cooperation with the Chrysler Group.

 

Volkswagen is also supporting the rapid market launch of SunFuel, a renewable second-generation biofuel. With this aim in mind, we are seeking to form cooperation arrangements with and make direct investments in companies that are dedicated to producing these fuels. Back in 2002, Volkswagen and CHOREN Industries decided to promote and drive forward the development of new fuels. In 2007, Volkswagen made a financial investment in CHOREN. The long-term aim of the cooperation arrangement is to produce SunDiesel in Germany in accordance with minimum sustainability standards. The first commercial plant, with an annual output of 15,000 tonnes, is scheduled to come on stream in 2008. Construction work is scheduled to start on the first large-scale plant, with an annual output of 200,000 tonnes, a year later.

 

In the area of biofuels, Volkswagen also has a long-standing partnership with IOGEN. The long-term aim of the cooperation arrangement is to produce cellulose ethanol in Germany. IOGEN is the world’s leading producer of cellulose ethanol, a fully renewable second-generation biofuel.

 

 

In addition to its own development capacity, the Volkswagen Group also integrates the know-how of its suppliers into the development process. This cooperation ensures that projects can be successfully completed to the required standard and within reduced development times. The creative processes, virtual technologies and core competencies required to meet the challenges posed by coming megatrends are becoming increasingly important.

 

Using external know-how for support services, in downstream processes such as series production management and in activities that are not customer-related and generate improvements is particularly effective. We also draw on the expertise of the subsequent system suppliers when developing modules and components. As a general rule, we endeavor to increase the share of the development process accounted for by our own work.

 

In 2007, research and development costs in the Automotive Division increased by 16.0% year on year. As capitalized development costs rose at a lower rate, the capitalization ratio fell to 29.4% (34.9%). The ratio of research and development costs recognized in the income statement in accordance with IFRSs to sales revenue in the Automotive Division was 5.4% (4.8%).

 

The Research and Development function employed 21,677 people (+1.1%) Group-wide at December 31, 2007, corresponding to 6.6% of the total headcount. This figure also includes the staff at the vehicle production investments Shanghai-Volkswagen Automotive Company Ltd. and FAW-Volkswagen Automotive Company Ltd. These companies are accounted for using the equity method.

 

 

 

In 2007, our procurement activities focused once again on supplier management, which we optimized further while also improving cooperation with our suppliers. In addition, we introduced a management system for procured components so as to better support vehicle start-ups.

 

 

Increased cooperation with suppliers remains the central element of our procurement strategy. In 2007, we continued our successful partnerships with the aim of optimizing material costs, improving quality and increasing innovation management. To achieve our aim, we used the established platforms – the supplier workshop meetings, the Supplier Quality forum and the Innovation forum. At these events, Procurement, Technical Development and Quality Assurance employees come together with selected suppliers to identify the potential for improvements in processes, cost and quality. Compliance with the Volkswagen Group’s environmental and sustainability standards is a key requirement. Together, the Group and its suppliers have thus worked out and successfully implemented approaches aimed at increasing competitiveness.

 

 

 

The obvious benefits of these platforms in terms of cooperation with suppliers have prompted us to add a further building block in the form of a management system for procured components. Particularly during the early stage of vehicle development before production starts, our specialists concentrate on those system suppliers whose components require intensive management due to their technical complexity. The procured component management system is an effective tool for maintaining market success, especially given the rising number of product start-ups, reduced development times and more exacting quality requirements.

 

Parallel to the optimization of operating processes, we extended the analytical methods used in our procurement activities. With the help of a cost management tool, we increased transparency with regard to the cost efficiency of component unit costs across the Group. Regression analyses of costs, cost structure analyses and analytical calculations now assist our buyers in identifying procurement potential. In addition, the cost of changes to components or tools can now be calculated more precisely, ensuring more transparent negotiations with our suppliers.

 

Detailed supply-market analyses were carried out in India, Russia and the ASEAN countries with a view to tapping these markets as part of the global procurement strategy. Assisted by numerous supplier workshop meetings, these activities yielded extensive information on the local procurement markets. The large number of interested suppliers who participated in the events pointed to the enormous potential for cooperation with companies in these regions. These procurement markets will play an increasingly important role in future, both for local production and for exports to Europe and other regions.

 

 

In 2007, the purchasing volume in the Volkswagen Group increased by 4.7% year on year to €72.0 billion. The proportion attributable to German suppliers was 49.7% (52.1%).

 

Share of total production 2007 in percent

 

 

 

 

In 2007, events in production were dominated once again by a large number of start-ups. At the same time, we continued to optimize production processes and upgrade production standards with a view to further improving efficiency.

 

 

In 2007, our model offensive again gave rise to numerous product start-ups. The most important of the year’s new models under the Volkswagen Passenger Cars brand included the Golf Variant, the Passat BlueMotion* and the Tiguan. For the Audi brand, the principal start-ups were the Audi A5, the Audi S5 and the new Audi A4. The SEAT brand started to produce the Altea Freetrack and Leon Cupra* models, while Lamborghini launched production of the Gallardo Coupé “Superleggera”*. The start of production of the Caddy Maxi was one of the most important events of the year for Volkswagen Commercial Vehicles.

 

* Consumption and emission data.

 

 

On November 28, 2007, the state-of-the-art Kaluga production plant started operation in Russia, an important future market. This means that the Volkswagen Group is now producing at 48 locations worldwide and manufacturing vehicles at 33 of them. By enabling us to flexibly adapt production at key plants to suit demand, our turntable concept provides key advantages throughout the Group in terms of maintaining an efficient and competitive production system. Together with our modular strategy, which enables the same modules and subassemblies to be used in different vehicles, the turntable concept gives us the necessary flexibility to react to fluctuations in demand at any time.

 

 

We are constantly examining the production processes in the Volkswagen Group to determine the potential for improvement. Our aim here is to manufacture products that have been designed with a view to production in short throughput times and with a firm focus on value creation, while at the same time systematically ensuring that resources are used efficiently. Products need to be optimized and processes, equipment and operating structures standardized if this aim is to be achieved. This standardization of all production processes forms the basis of a Group-wide production system. In addition, we carry out benchmark analyses in production to identify best practice approaches within the Group. Any potential for optimization that is found is acted upon immediately. We strive to increase productivity by 10% a year on average. The actual degree of optimization varies depending on the vehicle model and location.

 

On February 14, 2007, Volkswagen Sachsen GmbH’s engine plant in Chemnitz produced the eight millionth engine. Volkswagen celebrated a special anniversary in March 2007, when the 25 millionth Golf, the Group’s most important vehicle, rolled off the production line. Volkswagen Motor Polska produced its four millionth engine on May 31, 2007. Around four and a half years after production started, Auto5000 GmbH produced the 750,000th Touran in Wolfsburg at the end of June 2007. November 2007 proved to be a particularly eventful month in terms of production milestones: the Emden plant celebrated the 15 millionth Passat and Volkswagen Sachsen GmbH produced the three millionth vehicle in total in Zwickau.

 

 

 

The Volkswagen Group has a range of exciting brands with a strong image, and we further optimized their positioning in 2007.

 

 

Today, the Volkswagen Passenger Cars brand conveys quality, reliability and German engineering skills worldwide. This profile and the associated trust in the brand mean that, every year, it is the first choice of millions of customers purchasing a car. This is illustrated by the rising sales figures in all segments. In future, our brand management activities will continue to focus mainly on strengthening the Volkswagen Passenger Cars brand. With this aim in mind, we sharpened the global brand image in 2007 under the new “Volkswagen – Das Auto” slogan. The new brand mission for the long term is to be the most innovative volume manufacturer with the best quality in the relevant classes. The key differentiators in an increasingly competitive environment will be innovations that are both oriented towards customer requirements and affordable. The brand image combines the three core messages “innovative”, “providing enduring value” and “responsible”. A number of technical highlights, such as the pioneering TSI, FSI and TDI engines or the direct shift gearbox (DSG), and our BlueMotion model range, which demonstrates our keen awareness of our responsibility towards people and the environment, already express this brand image.

 

With its theme and slogan “Vorsprung durch Technik”, the Audi brand is one of the strongest automotive brands in the premium segment. In its mission to become the market leader in this segment over the medium term, Audi is continuing to rely on its brand image centered around sportiness, high quality and progressiveness. This is clearly highlighted by the most recent awards for Audi models and the “Öko-Trend” Auto-Umwelt-Zertifikat awarded by the Institute for Environmental Research for compliance with high environmental standards. The brand also continues to set standards in terms of the latest engine technology: starting in mid-2008, the world’s cleanest diesel technology will go into series production.

 

“Simply clever” – this is the core theme and slogan under which Škoda is growing into one of the most dynamic brands, particularly in Europe. The Škoda brand embodies a combination of intelligent concepts for the use of space, providing technically simple yet sophisticated and practical detailed solutions, plus attractive designs and extremely good value for money. This brand concept is gaining recognition: the vehicles bearing the logo with the winged arrow have received multiple awards for good design as well as sophisticated and innovative engineering.

 

Its core values “sporty”, “lively” and “design-oriented” have put the SEAT brand back on the road to success. The Ibiza and Leon models and the vehicles in the Altea model range are particularly representative of its brand image and market success. Supported by targeted marketing activities, the “auto emoción” slogan is becoming increasingly powerful. The Altea Freetrack, which combines the sportiness typical of the brand with strong aesthetics, will in future mark a further milestone in the positioning of the SEAT brand.

 

Bugatti, Bentley and Lamborghini round off the wide range of Volkswagen Group brands. In particular, they embody exclusivity, elegance and power.

 

With a range of vehicles from light commercial vehicles, vans and motor homes through to heavy trucks and buses, Volkswagen Commercial Vehicles offers its customers a suitable and high-performance transport solution for all their needs.

 

 

We regularly measure customer satisfaction in a number of countries with the help of targeted surveys. When conducting these studies, we concentrate primarily on products and service. The results are analyzed and assessed so that appropriate measures can then be identified. In terms of satisfaction with the product, the Audi and Škoda brands take pole position, not only within the Group, but also when ranked against competitors. The other Group brands also achieve overall satisfaction scores in line with or above competitors’ results.

 

Customer satisfaction provides the basis for customer loyalty. Loyal customers demonstrate their confidence in our brands, and this confidence is clearly reflected in the sales figures. Last year, Volkswagen was able not only to maintain brand loyalty at its already-high level, but also to increase it further. Škoda also ranks among the leaders in brand loyalty – as it has done for many years.

 

In 2007, we reorganized the Volkswagen Group’s business processes in our sales operations. A key element of this reorganization was to achieve a reduction in distribution expenses. In this context, the IT systems were standardized further, and the number of systems used in Europe was reduced, at both the wholesale and the retail level. As a result, order and distribution processes will in future be standardized and the cost of system maintenance and monitoring substantially reduced. In wholesaling, we have also identified potential synergies at the business process level, which we will use to reduce the workload in processes that do not add value. In addition, we examined the extent to which processes can be amalgamated with the aim of further streamlining the support functions in wholesaling and retailing. The capacity that is freed up can be focused on processes that do add value and overheads can be reduced. In this way, we can make the dealership system more profitable and the sales system more attractive.

 

 

Volkswagen Group Fleet International, the business unit set up to serve as the central point of contact for the international fleet business, established a strong presence in the market in 2007. In addition to successful customer acquisitions, activities focused on introducing processing systems that significantly improve customer care. The Group’s international fleet network was also strengthened. The aim of the activities was to satisfy customers’ increasing calls for time and cost savings as well as cost transparency.

 

 

Vehicle depreciation is one of the main cost factors for any vehicle owner, and the resale value is a major factor influencing the competitiveness of our products. The Volkswagen Group has therefore developed a remarketing strategy to help ensure that the residual value of our used vehicles remains competitive. In order to ensure that our success extends beyond new car sales, our brands take into account factors relevant to the sale of the used car as soon as the product development process begins. In particular, these include the quality, durability, design and equipment features of the vehicles. In addition, we consistently provide our dealership partners with attractive used cars and offer customer-oriented services as part of our used car programs.

 

 

The quality of our products and services has a decisive influence on customer satisfaction with and loyalty towards our Company. This applies not only to the actual product quality, but also to the development quality, which reflects the extent to which the product concept takes into account customer requirements. Service quality is another key factor in customer satisfaction, with every single interaction with the customer being relevant for us.

 

 

The Volkswagen Group’s aim is to always offer its customers the best quality in the vehicle class concerned. With this aim in mind, Quality Assurance launched the “Product Quality Forum” in 2005. The management criteria drawn up by the teams of representatives from Research and Development, Production and Quality Assurance include key indictors such as the number of repairs and the financial costs; these and their integration into an early warning system are now important tools for continually improving vehicle quality. In 2007, Quality Assurance also initiated a broad-based vehicle reliability program, which is being used to further improve the long-term quality of the vehicles and thus strengthen customers’ confidence in the products. We are using this program, which is being implemented in cooperation with Customer Service and Research and Development, to help monitor and analyze repairs. For example, it offers customers a hotline to call in the event that their vehicle suddenly develops a fault.

 

 

Whenever a customer requests services from a Volkswagen dealer, multiple interactions take place between the parties involved. Service quality therefore plays a key role in customer satisfaction. First and foremost, customers want quick, cost-efficient and faultless repairs. In order to be able to provide suitable repair and service solutions even faster in future, the Volkswagen Group last year reorganized functions relating to warranties, technical product support and vehicle operating costs in the Service area. These now report to Quality Assurance and are therefore more closely linked to the product development process.

 

 

 

At December 31, 2007, the Volkswagen Group employed a total of 329,305 people worldwide. It is thanks to their input that the Group set another sales volume and production record last year. Innovative and highly motivated employees guarantee the ability to develop and produce top-quality, technically superior vehicles. In order to further improve the performance and expertise of the workforce and thus safeguard the company’s long-term future, we have launched an extensive staff development initiative, the main emphasis of which is on vocational training processes, improved development paths for skilled workers and university graduates, and a substantial increase in technical expertise.

 

 

Vocational training is a key element of Volkswagen’s human resources work. The “Automotive Talent” works agreement that came into force in 2007 governs the entire process from the selection of apprentices through to their transfer to permanent employment at Volkswagen AG. The aim of the agreement is to attract young people who wish to employ their talents in the automotive industry and who identify strongly with Volkswagen. Volkswagen provides training in a total of 28 different vocations and selects applicants at its six Western German locations using a standardized computer-supported procedure. The apprentices in industrial/technical or commercial vocations are comprehensively assessed in terms of their quality awareness, customer focus, ability to work on their own initiative and team skills as well as in their area of expertise.

 

At the end of the year, a total of 9,302 young people worldwide were being trained as new additions to our outstanding team. The Volkswagen Group is expressly committed to fostering new talent and thus opening up future prospects for young people at all its locations.

 

At an international conference in Mladá Boleslav in October 2007, the Group’s Board of Management presented the seventh “Best Apprentice Award” to its most outstanding apprentices worldwide. 20 apprentices from ten countries and three continents received a certificate in recognition of their excellent achievements.

 

Opportunities for further development are available to our young specialists through the “Wanderjahre” (years abroad) program, for example. This enables young employees to learn and work at a different Group location for a year after completing their training, thereby increasing mobility, strengthening international cooperation and boosting motivation.

 

In order to meet the company’s constant demand for new specialist talent, Volkswagen has expanded the existing StIP integrated degree and traineeship scheme. Talented young people who have passed the school-leaving exam are trained in a vocational profession while studying at a university or university of applied technology close to their respective site. Following the addition of electrical engineering (in cooperation with the Braunschweig University of Technology) and information technology (in cooperation with the University of Magdeburg) in 2007, a total of 17 technical and commercial subjects are now on offer. In 2007, Volkswagen recruited 245 new employees through this program. The scope and nature of the subjects studied are agreed in close consultation with the line departments within the company. The training period is usually four years. The mix of practical experience and additional university education is a further success factor in implementing the Company’s objectives, particularly those relating to productivity and process reliability.

 

The purpose of Volkswagen’s talent development activities is to seek out, attract and retain and encourage highly qualified and motivated individuals. As an attractive employer, Volkswagen targets and recruits the best university talent by conducting marketing campaigns at universities. At the IAA in September 2007, it therefore launched a new image campaign aimed at these target groups, which supports the company’s active search for talent.

 

The trainee programs offer university graduates and young professionals the opportunity to learn about the Company in detail and form networks. The main focus of the “StartUp Direct” trainee program is on the department in which, from day one, trainees assume personal responsibility for dealing with specialist topics. The “StartUp Cross” trainee program is the right choice for anyone wishing to experience the diverse world of Volkswagen. The trainees familiarize themselves with the Group’s international locations during project placements in different Volkswagen departments.

 

Whether at universities or colleges, in Germany or abroad, Volkswagen is always in search of the best graduates. The Company’s aim is to attract clever, ambitious and dedicated people to supplement its existing outstanding team.

 

With the help of the Student Talent Bank, Volkswagen attracts first-class future employees to the Group at an early stage. This program provides an opportunity for trainees with exceptional skills to undergo a special development program.

 

For those studying for a doctorate, we offer an extensive program at the AutoUni, which offers interdisciplinary training programs and seminars. For the doctorate students, the AutoUni also serves as a platform for networking across disciplines and specialist areas.

 

Recruitment in 2007 was driven in particular by the growth in the automotive business. Although the main focus overall was on technical subjects and natural sciences, business/economics and arts subjects were also represented. Last year, more than 300 talented individuals were recruited to bolster the workforce. In the future too, it will continue to be vitally important for us to attract the best graduates from German and European universities.

 

 

Due to the technological changes and the reorganization of working practices within the Company, it is essential that employees undergo continuing professional development. The scope and content of the training measures within the Group are very much determined by operational requirements and agreed individually in meetings between management and employees. In this context, intensive use is made of the extensive range of internal training programs. For example, some 3,600 events attended by around 38,000 participants in the different specialist areas take place each year at Volkswagen AG’s six German locations. Education and work are closely interlinked at the Group.

 

Innovative methods are also used in training. Production employees at the Emden plant, for example, learn with the help of virtual-reality technology. This creates three-dimensional images of complex assembly operations in automotive manufacturing and makes all participants aware of critical assembly conditions early on.

 

In 2007, Bentley Motors Ltd. received the National Training Award, one of the UK’s highest awards for staff development, for its talent development programs “Becoming a Bentley Manager” and “Team Leader Development”.

 

The training officers regularly exchange the experience and extensive knowledge of staff development available throughout the Volkswagen Group worldwide with a view to further developing tried-and-tested concepts from individual plants and locations, standardizing these concepts by sharing best practice and establishing them throughout the Group. In November 2007, for example, 45 training officers came together at the international training managers’ conference at Audi’s Ingolstadt facility to discuss and assess the strategies and standards for staff development, skills management and vocational training.

 

In addition, “talent groups” ensure systematic personal and professional development for key employees at all levels. At Group level, the AutoUni offers training events in the form of lectures, conferences and comprehensive programs, plus study modules in cooperation with well-known universities.

 

In the course of the realignment of Volkswagen’s staff development activities, the opportunities for promotion to and career progression within management were optimized. We have significantly extended the tasks performed by management employees and the competencies necessary for those tasks. In future, we will prepare and support staff taking over management functions even more intensively.

 

In this context, the development programs and selection procedures for new leadership and management talent were revised, management levels re-defined and career development paths reorganized accordingly. This has resulted in more attractive career opportunities for line and project managers and management employees, thereby making Volkswagen considerably more attractive as an employer. By adopting a systematic international approach to talent management, we are ensuring transparency of succession planning for top positions throughout the entire Group and thus optimizing management development at Volkswagen.

 

 

We use an employee opinion survey to measure employee satisfaction within the Volkswagen Group. This takes the form of a structured survey that gathers employees’ opinions on important work-related issues. Employees complete a questionnaire and, following the evaluation phase, analyze the results with their superiors. Together, they then identify measures for improving processes within their organizational unit.

 

The opinion survey sets in motion an ongoing process that involves all employees and brings about targeted improvements in quality, productivity, information flows, management style and cooperation. Audi AG has been making successful use of this tool for some time already. Due to the positive results at Audi, we have established the opinion survey as a standard together with international human resources managers. There are plans to gradually introduce it throughout the entire Group in 2008.

 

 

In 2007, 2,539 employees moved into the passive phase of their early retirement. By 2013, this number will successively increase by a further 9,000 or so employees.

 

In 2007, a collective agreement on demographic change was concluded in light of population trends. This agreement is the first step towards ensuring that challenging business objectives can still be attained as the age structure of the workforce changes. In addition to the guidelines that were agreed upon, it includes the stipulation that existing approaches already in place at Volkswagen AG be developed further and new approaches added where necessary. In a later step, the findings obtained following the completion of the evaluation phase are to be incorporated in a further collective agreement on demographic change.

 

Volkswagen AG has launched an initiative in favor of volunteering under the motto “Ehrenamt ist Ehrensache” (It’s an Honor to Volunteer). In future, the Company will assist charitable organizations in their search for volunteers, use an image campaign to lend its support to social responsibility and make the topic a greater part of its ongoing human resources work.

 

 

In 2007, the “Partnerschaftliches Verhalten am Arbeitsplatz” (Partnership-based Conduct in the Workplace) works agreement came into force at Volkswagen AG against the background of the general equal opportunities legislation. The agreement states that any type of discrimination or harassment, particularly in the form of sexual and psychological harassment, severely upsets workplace relations and violates the personal rights of every individual. Above and beyond their legal right to complain, we offer employees an advisory service. The works agreement also specifies the consequences of misconduct and preventative measures in the area of training and communication. It marks the continuation of a long tradition at Volkswagen AG and underlines the Company’s goal of maintaining an environment of respect in which there is no discrimination

 

 

as percent

 

 

 

In 2007, our employees in Europe submitted a total of 122,071 improvement ideas. Of these, 70,152 suggestions were implemented, thereby improving the quality of our products and the efficiency of our processes and reducing costs by a total of €325.2 million. Bonuses worth some €37.0 million were awarded to staff whose ideas were implemented as an acknowledgement of their creativity and active involvement.

 

 

The Human Resources function has given much attention to the preparation and implementation of the “Volkswagen Way”. The Company and the Central Works Council see the “Volkswagen Way” as a method of organizing and continuously improving future work so that vehicles can be developed and produced for customers to the highest level of quality and cost efficiency. It is based on four works agreements that were concluded with the Central Works Council and aim to increase the efficiency of all working processes within the Company. As a result of the “continuous improvement process” in particular, Volkswagen AG expects the “Volkswagen Way” to bring substantial increases in productivity that will enable it to master the tasks facing it in the future.

 

 

 

The Volkswagen Group pursues an integrated environmental protection strategy. In other words, in addition to considering the environmental compatibility of its products, it also takes into account, assesses and reduces the environmental impact of its production processes and logistics. Not least because of this strategy, all areas of production and all Group processes are subject to a systematic continuous improvement process.

 

We are continually extending and modifying our internal environmental management system. In addition, we are dedicating an increasing amount of time and effort to both road traffic as an overall system and conservation.

 

 

Biodiversity is a valuable asset and nature a model for numerous technical solutions – including in the automotive industry. In order to highlight these facts, Volkswagen joined the “Jede Art hängt von anderen ab” (Every Species Depends on Others) campaign as a partner to the German federal government and in autumn 2007 sponsored a roadshow bearing the motto “Unterwegs für Vielfalt” (En Route to Diversity). In addition, the Chairman of the Board of Management of Volkswagen AG, Prof. Dr. Martin Winterkorn, is a member of “Naturallianz” (“Nature Alliance”) a biodiversity initiative founded by the federal environment minister, Sigmar Gabriel. Volkswagen is currently developing its own set of species conservation guidelines. For many years now, numerous nature and species conservation projects have been under way not only at Volkswagen AG’s locations in Germany, but also at the Group’s locations in Brazil, China and Mexico.

 

As a global player, the Volkswagen Group is addressing the challenges of global environmental protection and takes responsibility for its products and production locations. Between December 10 and 12, 2007, the Volkswagen Group’s environmental experts came together at its third international environmental conference in Wolfsburg to exchange information face to face. The conference identified the strategic areas where action needs to be taken as well as the strategic challenges posed by environmental protection and then drew up appropriate recommendations.

 

 

The success of the Volkswagen Group’s integrated environmental protection policy is the result of the many and varied contributions made by the individual brands. This is illustrated by the following examples.

 

Environmentally-compatible production starts at the product development stage, as the design and the choice of materials have a major influence on the subsequent production and recycling processes. Last year, the Volkswagen Passenger Cars brand revised the environmental targets of its technical development function; these are based around the three main themes of climate protection, conservation of resources and health protection. The development processes are designed such that every new vehicle model has a better overall environmental profile than its predecessor. When developing a new vehicle, we consider its entire lifecycle. In addition, the environmental management system used by the technical development function has been audited annually for compliance with the ISO 14001 standard since 1996.

 

In 2007, the Volkswagen Passenger Cars brand developed the new “Umweltprädikat” (Environmental Rating) brochure, which provides customers with environmental and product information. In this brochure, we inform our customers, shareholders and other interested parties inside and outside the Company about how we are making products and processes more and more environmentally friendly and about our successes in doing so. The Passat and the Golf were the first models to receive the commendation, which is based primarily on the results of an environmental impact study certified by the German inspection organization TÜV Nord. Further models will follow.

 

The Audi brand has completed a further retention basin for rainwater in an effort to conserve valuable drinking water resources at its Ingolstadt location. There are now a total of five basins available, with a capacity of 13,000 cubic meters. The collected water is treated and fed into the process water network. By employing special recycling processes, the paintshop at our Slovakian location in Bratislava was able to reduce the use of rinsing agents in its process baths by 95% and thus cut water consumption significantly.

 

In order to reduce energy consumption and therefore CO₂ emissions during production, VW Kraftwerk GmbH and the Audi brand among others operate their power plants on the principle of combined heat and power. This system currently makes the best use of energy resources from both a technical and ecological perspective. Since April 2004, we have also been conducting internal energy audits in an effort to continually optimize our energy consumption. These audits use standardized criteria to assess the measures taken by the individual organizational units, thereby enabling us to identify any potential for improvement, define examples of best practice and transfer these examples to other areas.

 

Logistics is an area particularly relevant to the environment. All Group brands aim to significantly reduce the volume they transport by truck. The SEAT brand, for example, is shifting increasingly from transportation by road to transportation by rail, primarily in order to cut CO₂ emissions. This mainly affects new vehicles transported from the Martorell plant to the port of Barcelona and metal and components transported from the Zona Franca plant to Martorell.

 

In Brazil, Volkswagen Commercial Vehicles is participating on a voluntary basis in an afforestation project on the Atlantic coast in an effort to conserve nature. For every truck sold with an electronic engine management system, Volkswagen plants ten trees. Numerous other Volkswagen Group conservation projects are creating biotopes and habitats for a number of rare plant and animal species, including on a 100-hectare piece of land in front of the Wolfsburg plant.

 

In the area of waste management, we are developing a composting process for solid, biodegradable waste in cooperation with the University of São Paulo in Brazil. The aim is to reduce the total volume of waste at our manufacturing location in São Carlos by 70 tonnes a year – equating to around 100% of the organic waste – thereby helping to conserve local landfill space.

 

You can find information on additions to the range of environmentally-friendly vehicles offered by the individual brands in the “Research and development” section (see above).

 

 

The Volkswagen Group’s fuel and drivetrain strategy is aimed at pointing the way to sustainable mobility. We wish to actively contribute to reducing global CO₂ emissions, local emissions such as nitrous oxides or soot particles as well as dependence on oil.

 

In addition to the use of primarily regenerative CO₂-neutral energy sources, we include conventional, oil-derived fuels in our strategic considerations. We concentrate on further optimizing their properties and thus reducing emissions.

 

As part of our drivetrain strategy, our use of TSI technology – a petrol direct injection with turbo- or supercharger – builds on the successful TDI engine concept. TSI engines have consumption levels of up to 20% less than other fuel injection engines while retaining the same exceptional driving dynamics. A further example of highly efficient drive technology is the direct shift gearbox (DSG), which is considerably more effective than conventional automatic gearboxes and reduces fuel consumption by 15%. The Touran-* and Caddy-EcoFuel* natural-gas models are also capable of running on petrol. In natural gas mode, they emit up to 25% less CO₂. Sulfur dioxide, soot and other particle emissions are almost completely eliminated.

 

Hybrid technology plays a central role in our drivetrain strategy in addition to petrol and diesel engines. Together with strategic partners and international universities, we are working intensively to integrate hybrid drives in future series products.

 

With regard to engine development, petrol and diesel engines are becoming increasingly similar. The introduction of direct injection in petrol engines marked a milestone in this area. Further developments in combustion processes also highlight the increasing similarity between the two technologies. On the diesel side, for example, work continues on homogeneous mixture formation as in petrol engines. Meanwhile, attempts are under way to make the spark plugs on petrol engines superfluous, at least in certain parts of the engine map, using a homogeneous compression ignition system. The result produced by combining the two combustion systems is referred to at Volkswagen as “CCS” and was developed based on today’s diesel engines. This combustion system allows limited pollutants such as nitrous oxides and soot particles to be reduced, while at the same time significantly improving efficiency. CCS therefore combines the benefits of diesel and petrol engines and may well prove to be one of the most important new engine concepts of the coming decades.

 

Over the long term, we expect locally emission-free mobility to gain ground, for example in the form of battery-operated electric vehicles or vehicles powered by fuel cells. Hydrogen-operated fuel-cell vehicles are currently the only emission-free system capable of providing an acceptable range. The Volkswagen Group’s research department has developed a unique high-temperature fuel cell: thanks to the use of electrodes permitting a higher operating temperature for fuel cells, the new system is smaller, more efficient and less expensive than any fuel cells to date. Although electric vehicles have the best energy rating, their range does not yet satisfy customer requirements: based on current storage technology, they can be expected to provide a maximum range of 50 km. Not until there have been significant advances in pure research into battery storage technology will pure electric traction become possible.

 

Our fuel strategy centers on diversifying energy sources and at the same time developing new fuels. The main focus here is on second-generation biofuels, which Volkswagen refers to collectively as “SunFuel”. These harbor considerable potential in terms of reducing CO₂, do not represent competition for food production and are compatible with existing infrastructure. SunEthanol is one example of a biofuel optimized for petrol engines. It is derived from straw using a biochemical process developed by IOGEN. The equivalent fuel for diesel engines is called SunDiesel. This synthetic fuel can be manufactured from a number of different primary sources such as biomass or residual biomaterials. The quality and chemical composition of the end product do not depend on those of the primary energy used. Synthetic fuels can be used in both current and future combustion engines. They can also be adapted to the requirements of enhanced engine technology more easily than conventional fuels. At the same time, they offer considerable potential for reducing harmful emissions due to their purity of composition and the fact that their properties can be tailored. Furthermore, they can be ideally adapted to the new CCS combustion system, thereby further increasing this system's potential in terms of fuel consumption and exhaust emissions.

 

 

The internal Volkswagen Environmental Award, which honors employees who take a proactive approach to environmental protection in their particular field of work, was presented for the fourth time in 2007.

 

For the first time, one of the award winners came from a product-related area: a technical development team was presented with an award for developing the world’s first seven-speed direct shift gearbox (DSG). The DSG can increase performance compared with conventional automatic gearboxes and offer greater ease of use and a reduction in fuel consumption of up to 15% compared with manual gearboxes. It requires considerably less oil and no oil change throughout its entire lifecycle. In addition, the gearbox lacks specific oil-circuit components such as a suction filter and oil cooler. Due to the more compact design, it has also been possible to minimize the weight. The DSG has so far been used in models from the Polo to the Passat.

 

This award, which was originally presented nationally, will in future be offered annually across Europe, thus ensuring that the importance of our employees’ commitment to the environment is recognized to a greater extent.

 

* Consumption and emission data.

 

 

By carrying out research and development on road traffic as an integrated system, the Volkswagen Group is assuming responsibilities that extend beyond automotive manufacturing. Our aim in doing so is to find intelligent and sustainable mobility solutions by working together with partners in science, politics and industry.

 

Together with the Council for Technical Sciences of the Union of the German Academies of Sciences and Humanities, for example, we have prepared forecasts of traffic volumes in Germany for the period to 2020. Our main findings are that traffic volumes will rise significantly and that, due to the continuous increase in traffic density, solutions will need to be drawn up at various levels. Viable mobility solutions require sound infrastructure on a sufficient scale. They also require innovative traffic management methods that capture and quickly process traffic information nationwide, use that information to prepare route recommendations and offer optimized accident and roadworks management solutions.

 

This information is a precondition for intelligent vehicle technology to fulfill its potential. For example, the approach developed by the research function under the working title “Baustellen-Lotse” (“Roadworks Pilot”) uses advanced systems technology such as adaptive cruise control and extends this to include a traffic assistance function: the vehicle helps its driver to adopt an optimal driving style in heavy traffic, thereby reducing traffic hold-ups, environmental impact and journey times and increasing road safety. At the same time, a reactive control strategy covering distance, speed and acceleration increases actual road capacity.

 

The key to greater efficiency in this area lies in a combination of intelligent roads, innovative traffic management, highly developed vehicle technology and sound infrastructure. The Volkswagen Group is participating in “Adaptive and Cooperative Technologies for Intelligent Traffic”, a German research initiative that was launched in September 2006, with a view to further developing and improving these technologies.

 

 

The Volkswagen Group is optimizing its CSR and sustainability management with its “Coordination CSR (Corporate Social Responsibility) and Sustainability” office set up in 2006. This reports to the CSR steering group, which includes all central Group functions and the Group Works Council. The Coordination office is tasked with networking internal units and improving exchange processes between the line departments. A cross-function CSR project team has been set up for this purpose.

 

The office is responsible for raising Volkswagen’s profile with regard to sustainability ratings and rankings. Efforts are concentrated, among other things, on developing and introducing an indicator-based information system for CSR and sustainability. In addition to the office’s internal advisory role, the main focus in coming years will be on active and transparent dialog with stakeholders.