Economic Situation and Automotive Market

Russian Car Market

GORELIKOVA Natalia VOLKSWAGEN Group Rus Group Marketing 15.09. 2009 Russian car market is highly dependent on oil price

Oil Price Urals PC Car Market 900 140 Oil price, $ \ barrel ( URALS) PC Market \‘000 units 800

120 700

100 CRISIS 600

500 80

400 60 300

40 200 2005 2006 2007 2008 2009 20 100

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09

2 Source: Ministry for economical development Total PC Market Dynamics, 2004-2009 FC Dropdown of the market by 51% YTD vs. same period of last year. Forecast for 2009 (8+4) = 1.390.000 units

2004 – 2009 FC YTD 08 – YTD 09

+15% 2.709 1.873.092 -51% -49% 2.347 +39% 685.975 473.659 25% -8% 25% 742.259 +28% 1.683 32% -42% -45% +7% 1.390 +21% 1.311 924.821 693.192

1.096 41% 2.022.661 29% 260.034 711.221 -3 % 400.000 1.399.433 28% -51% 1.604.644 +26% 75% 698.082 +2% 54% 989.545 75% +62% 68% 990.000 -52% 64% 59% 664.787 599.886 71% 72% +65% 397.656 46% 36% +19%

2004 2005 2006 2007 2008 2009FC Jan-Aug 08 Jan-Aug 09

Foreign Domestic Foreign Domestic

3 Source: AEB, status Aug 09 \ Forecast K-VM-V, status Aug 09 VGR Group marketing, 11/09/09 Economic situation and automotive market

Summary Sales structure ( cash \ credit )

Less access to financing due to high interest rates. Although 15% 12% 15% 16% first positive signs observed in April: 20% - Declining MOSPIME and re-financing rate of CB ( 10,75%) 27% 35% - Growing share of credit sales ( ~25% in August ) 42% - Slightly growing trend of Ruble up from March 51%48%

Price jump (above 20%) for foreign brands in Jan.-Apr.09 due to Ruble devaluation and customs tax increase (+ 5% for new PC from 01\09). Adaptation period on the market

Further drop of sales in Jan.-August’09 despite heavy 88% discounts\ sales out actions for stocks from the last year ( -51% to 85% 85% 84% 80% YTD’08) 73% 65% Lack of liquidity \ overstock in the network. Optimization of profit 58% 52% \ cost structure. Sometimes changing ownership in dealer groups 49%

Stabilization starter from summer mainly due government 51% measures in automotive sector 47% Slight reveal is expected in Autumn 42% 35% 2003 2004 200527% 2006 2007 2008 Jan Feb Mar Apr 15% 09 09 09 09 cash credit

Source: AUTOSTAT \ PWC & VGR Monitoring 4 Concern ranking Jan. – Aug. 2009 ( inklusive LCV)

kum. vs. kum. Veränderung 08/09 08/08 AaKs zu 2008 1(1) AVTOVAZ 241.405 -43,6%

2(2) GM Group 104.167 -55,2%

3(8) VW Group 65.335 -21,2%

4(3) FORD Gr oup 64.073 -55,3%

5(5) TOYOTA Group 52.421 -61,9%

6(6) NISSAN Gr oup 50.820 -53,4%

7(10) RENAULT 48.829 -35,4%

8(4) HYUNDAI 46.475 -67,6%

9(12) KIA 41.452 -37,4%

10(7) GAZ Group 37.485 -59,5%

11(11) DAEWOO 34.928 -51,0%

12(15) PSA 30.182 -19,6%

13(9) M ITSUBISHI 27.937 -64,8%

14(13) MAZDA 23.850 -54,6%

15(16) UAZ 18.871 -48,5%

16(14) HONDA 17.792 -64,8%

17(17) SUZUKI 13.580 -49,9%

18(19) FIAT GROUP 10.908 -36,6%

19(23) BMW Group 10.768 -16,6%

20(22) M ERCEDES 7.932 -39%

5 Source: AEB VGR Group marketing, 11/09/09 CONTENT

1. AUTOMOTIVE MARKET OVERVIEW

2. INDUSTRIAL ENGAGEMENT OF FOREIGN OEM’S IN RUSSIA

3. GOVERNMENT SUPPORT MEASURES

4. VOLKSWAGEN GROUP PERFORMANCE IN RUSSIA

5. RUSSIAN AUTOMOTIVE MARKET FORECAST

6 Production of foreign brands in Russia 2004-2009FC Local production is the main success factor for foreign brands in Russia Customs preferences for OEMs, acting under decree #166 let minimize import tariff on components Regions create attractive investment climate for foreign OEM’s Import tax increase by 5% ( 15% for LCV) contributes better pricing of “new domestics” Local production of foreign brands Main Automotive Clusters

(‘000 units) 700 Total market expected to fall deeper than “new domestics”: 600 -49% market -40% new domestics -40% 500 +29%

400 +66% +76%

300 593 +23% 459 200 350 277 100 128 157

2004 2005 2006 2007 2008 2009FC 7 Source: AUTOSTAT annual report 08 / Forecast VGR Overview production facilities of foreign brands Total volume in ‘08 about 600.000 units. Total investments (plan) ~ 5 Bio. $

Investments, Mio. $ production 2008 Factory City Brands Start Customs regime innitial Plan tsd. units

Avtotor Kaliningrad Kia, BMW, Hummer,

General Motors 1994 250 250 104 FEZ

Avtoframos Moscow Renault 1999 230 380 72 Decree#166

Ford Vsevolozhsk Ford 2002 230 330 65 Decree#166

СП GM АvtoVaz Togliatti Chevrolet 2001 338 338 55 -

ТagАz Тaganrog Hyundai 1997 270 320 99 -

IzhАvto Izhevsk Kia 2003 90 90 59 Decree#166

Sollers Nab. Chelni Sssang Yong, Fiat 2006 180 180 36 FEZ

Sollers Elabuga Fiat 2008 180 180 0 FEZ

Toyota St. Pete Toyota 2008 180 220 0 Decree#166

GM St. Pete Chevrolet, Opel 2007 115 300 41 Decree#166

Volkswagen Kaluga Volkswagen, Skoda 2008 450 1.200 62 Decree#166

Nissan St. Pete Nissan 2009 200 200 0 Decree#166

PSA-Mitsubishi Kaluga Mitsubish, Peugeot 2010 243 400 0 Decree#166

Hyundai St.Pete Hyundai 2010 400 400 0 Decree#166

Suzuki St.Pete Suzuki 2009 120 120 0 Decree#166

Others 0- Total 3.138 4.908 593

Source: АUTOSTAT \ annual report 2008 FEZ – free economic zone 8 Influence of crisis on Russian automotive industry

SUZUKI and MITSUBISHI postponed industrial projects Frozen industrial projects Great Wall refused to build factory in Tatarstan

Key manufactures reduced working schedule at the factories ⇒ AVTOVAZ, GAZ, TAGAZ, Renault, GM (3-4 days week) Drop of sales Temporary suspension of production, prolonged holidays ⇒ Ford, Toyota, GM, Renault, AVTOVAZ, IZH-AVTO Personnel cuts planned ⇒ GM-AVTOVAZ (400) and IZH-AVTO (5000)

VOLGA SIBER project is under threat

Overstock \ Production cuts AUTOFRAMOS announced volume reduction of Logan (from 80 to 50 thousand cars p.a.)

Government support of AVTOVAZ ( 25 bill Rub) Obvious liquidity problems GAZ should get 4 bill Rub from Russian authorities of Russian manufacturers IZH-AVTO is close to bankruptcy, no government support

9 Source: Public Media CONTENT

1. AUTOMOTIVE MARKET OVERVIEW

2. INDUSTRIAL ENGAGEMENT OF FOREIGN OEM’S IN RUSSIA

3. GOVERNMENT SUPPORT MEASURES

4. VOLKSWAGEN GROUP PERFORMANCE IN RUSSIA

5. RUSSIAN AUTOMOTIVE MARKET FORECAST

10 Government credit program

TOTAL SALES (from Apr. to Aug.) KEY HIGHLIGHTS # of application # of approved sales per month credits average Demand for subsidized credits is not so high as was 42. 372 23. 411 5. 500 expected by Russian authorities. Share of cars bought using program is 5-6% from total sales of new cars; SHARE OF BANKS According to Government estimations till the end of 2009 up to 100.000 of subsidized loans will be provided Sberbank (initially was expected up to120.000); 83% Government measures to increase amount of VTB24 applications: 3% 14% Rosselkhozbank Car cost was increased from 350K Rub up to 600K Rub List of models was expanded (up to 50 models) SHARE OF BRANDS LCV models were also included Down-payment was decreased from 30% to 15% Lada List of banks was expanded: GAZPROMBANK (state 80% bank) and non commercial banks could provide Other brands credits: Bank of Moscow, Alfa bank, UNICREDIT 5% 15% Renault Logan

Source: Autostat, Minpromtorg 11 Government support of local automotive industry Subventions 2\3 of refinancing rate ( 7,1%) for locally manufactured cars, priced below 600.000 Rub ( traditional locals + new domestic ) –23,5 thousand approved applications ( ~5% of total sales volume Apr-Jul ’09) Increase of customs tax for new imported cars from 01\09 ( PC by 5% , LCV by 15% ) + protective taxes against second hand import Procurement program for 12,5 bn. Rub. ( State purchases) Direct support of AUTOVAZ (25 bn. Rub) and other locals (GAZ, SOLLERS) Renewal of municipal car park in regions ( additional 20 bn. Rub. from State budget) Free transport of locally manufactured cars to Far East Federal District Prolongation decree #166 “Industrial assembly” Delay of Euro 3 introduction till 2011 Withdrawal of double VAT for trade in of used cars Reduction re-financing rate of Central bank from 13%( Nov ’08) to 10,75% The environment ministry and MINPROMTORG work on the idea of special certificate, which will be given after utilizing an old car. This certificate gives an opportunity to spend 50 000 Rubles for buying a new locally produced car – PILOT PROJECT FROM JAN’10

Source: public media 12 CONTENT

1. AUTOMOTIVE MARKET OVERVIEW

2. INDUSTRIAL ENGAGEMENT OF FOREIGN OEM’S IN RUSSIA

3. GOVERNMENT SUPPORT MEASURES

4. VOLKSWAGEN GROUP PERFORMANCE IN RUSSIA

5. RUSSIAN AUTOMOTIVE MARKET FORECAST

13 VGR monthly market share development 2008-09 (PC only)

8,0% ∅ VGR ‘08 = 4,4% ∅ VGR ’09 YTD = 6,6% 7,2% 7,1% 7,2% 7,0% 6,6% 6,9% 6,2% 6,0% 6,0% 5,3% 6,0% 5,6% 4,9% 5,0% 5,0% 5,0% 4,6%4,5% 4,1% 3,9% 4,0% 3,5% 3,3% 3,4% 3,1% 3,2%3,0% 3,1% 3,0% 3,1% 2,9% 3,0% 2,7%2,6% 3,0% 3,0% 2,2% 2,3%2,2% 2,9% 2,4% 2,5% 2,5% 2,3% 2,0% 2,0% 2,5% 1,9% 1,9% 2,0% 1,9% 2,3% 1,8% 1,6% 2,0% 1,5% 1,9% 1,8%1,9% 1,8% 1,4% 1,3% 1,6% 1,3% 1,4% 1,2% 1,1% 1,0% 1,3% 1,3% 1,2% 1,0% 1,1% 1,3% 0,6% 0,7% 0,6% 0,7% 0,7% 0,7% 0,7% 0,6% 0,6% 0,6% 0,6% 0,5% 0,5% 0,1% 0,2% 0,2% 0,0% 0,0% 0,0% 0,1% 0,0% 0,0% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,0% 0,1%

r v 9 9 9 eb g 09 09 Jan Jul Oct e09 l 0 F Mar Ap May Jun Au Sept No Dec eb pr0 n Jan09 F Mar09 A Ju May0 Ju Aug

Seat Audi Skoda VW PKW VGR 14 Source: VGR \AEB VGR Group marketing, 11/09/09 Strategy and key success factors VGR in crisis

Local production in Kaluga, wide range of locally manufactured models

Up-to-date portfolio. Fresh models of all Volkswagen group brands

Presence in all important price segments. Diversified portfolio – less risk in crisis situation

Strong brand heritage / expertise of VW brands in terms of product quality

Inter-brand synergies: Lower product development-, structure costs, single back office etc.

Healthy and well-balanced financial situation, good risk management (i.e. dealer network policy )

Shifting profit center towards spare parts & service. Loyalty & after sales programs

15 Portrait VGR Factory in Kaluga The biggest foreign investor in own capacities in the automotive industry in Russia

KEY FACTS MODEL RANGE

VW PASSAT/ PASSAT CC

VW JETTA / GOLF

VW TIGUAN / TOUAREG Investments: 774 Mio Euro project, thereof 570 Mio. Euro factory SKODA OCTAVIA/ OCTAVIA TOUR Capacity: 150.000 units/year ( 2010 )

Staff: about 3.000 employees SKODA FABIA

Prod. Plan 2009: 85.592 units Other models

16 Factory in Kaluga

Logistics Assembly work Painting shop

Stamping shop Body making

Quality Check

17 Factory in Kaluga: Body Making

18 Factory in Kaluga: Painting

19 Factory in Kaluga: Assembly

20 Brands of the Volkswagen Group in Russia

Volkswagen – Das Auto. Audi – Vorsprung durch Technik 16 models 17 models

13 Car models 18 Car models Škoda – Simply clever Volkswagen Nutzfahrzeuge 9 models 7 models

4 Car models 21 Future Brands of the Volkswagen Group in Russia Bentley – "The Sporting Grand Tourer" SEAT – auto emoción 6 models 9 models

Lamborghini – "The ultimate sports car" SCANIA – „Pride & Trust“ 3 models 7 variants of trucks and buses

22 CONTENT

1. AUTOMOTIVE MARKET OVERVIEW

2. INDUSTRIAL ENGAGEMENT OF FOREIGN OEM’S IN RUSSIA

3. GOVERNMENT SUPPORT MEASURES

4. VOLKSWAGEN GROUP PERFORMANCE IN RUSSIA

5. RUSSIAN AUTOMOTIVE MARKET FORECAST

23 Russian Market has high potential in future even though it is decreasing now

350 Car density \ 1000 citizen Summary

Moscow 304 300 286 Low car density in Russia 268 303 243 253 281 250 254 More than 46% of cars are older than 10 228 years 217 200 Ø Russia St. Pete 205 More than 60% of Russian car park consists 150 187 of technically old local produced cars 160 171 151 100 Total amount of cars in Russia is around ~ 32 mil. cars 50 For example: car density in Germany ~ 520\1000 0 2004 2005 2006 2007 2008

24 Source:Source: AUTOSTATAUTOSTAT \\ annual annual reportreport 20082008 Forecast VGR: PC market development 2009-2019 Russian market will reach the level of the last year only by 2015

3.500 (‘000 units)

3.000

2.500

2.000

1.500

Mid-Term VW Concern Vision VW-Group RUS forecast 1.000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 VW Forecas t 2.700 1.390 1.520 1.790 2.100 2.370 2.600 2.750 2.900 3.000 3.100 3.200

25 Source: VGR \ AEB THANK YOU !