Shaping the
transformation
together.
A N N UA L R EP O R T 2017
Key Figures
V O L K SWA G E N G R O U P
Volume Data1 in thousands
Deliveries to customers (units)
Vehicle sales (units)
Production (units)
Employees at Dec. 31
Financial Data (IFRSs), € million
Sales revenue
Operating result before special items
as a percentage of sales revenue
Special items
Operating result
Operating return on sales (%)
Earnings before tax
Return on sales before tax (%)
Earnings after tax
Automotive Division2
Total research and development costs
R&D ratio (%)
Cash flows from operating activities
Cash flows from investing activities attributable to operating activities3
of which: capex
capex/sales revenue (%)
Net cash flow
Net liquidity at Dec. 31
Return on investment (ROI) in %
Financial Services Division
Return on equity before tax4 (%)
V O L K SWA G E N A G
Volume Data in thousands
Employees at Dec. 31
Financial Data (HGB), € million
Sales
Net income for the fiscal year
Dividends (€)
per ordinary share
per preferred share
2017
2016
%
+4.3
+3.7
+4.5
+2.5
+6.2
+16.5
–57.1
+94.5
+90.8
x
–3.9
–42.4
+10.6
–1.3
x
–17.7
10,741
10,777
10,875
642.3
230,682
17,041
7.4
–3,222
13,818
6.0
13,913
6.0
11,638
13,135
6.7
11,686
17,636
12,631
6.4
–5,950
22,378
12.1
10,297
10,391
10,405
626.7
217,267
14,623
6.7
–7,520
7,103
3.3
7,292
3.4
5,379
13,672
7.3
20,271
15,941
12,795
6.9
4,330
27,180
8.2
9.8
10.8
2017
2016
%
117.4
113.9
+3.1
76,729
4,353
3.90
3.96
75,310
2,799
2.00
2.06
+1.9
+55.5
1 Volume data including the unconsolidated Chinese joint ventures. These companies are accounted for using the equity method. 2016 deliveries updated to reflect
subsequent statistical trends.
2 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.
3 Excluding acquisition and disposal of equity investments: €17,512 (€18,224) million.
4 Earnings before tax as a percentage of average equity.
This version of the annual report is a translation of the German original. The German takes precedence. All figures shown in the report are rounded, so minor
discrepancies may arise from addition of these amounts. The figures from the previous fiscal year are shown in parentheses directly after the figures for the
current reporting period.
NORTH AMERICA+4.0%EUROPE/OTHER MARKETS+2.6%2015201620174,5054,6184,738201520162017932939976201520162017ASIA-PACIFIC+4.3%3,9354,3194,506SOUTH AMERICA201520162017559422522+23.7%
Moving Globally
VOLKSWAGEN GROUP deliveries – in thousand units
Moving
Globally
Key
Figures
NORTH AMERICA+4.0%EUROPE/OTHER MARKETS+2.6%2015201620174,5054,6184,738201520162017932939976201520162017ASIA-PACIFIC+4.3%3,9354,3194,506SOUTH AMERICA201520162017559422522+23.7% We are making the Volkswagen Group
more open and efficient,
more innovative and customer-centric.
The figures show
that we are on the right track.
2
Contents
1
2
TO OUR SHAREHOLDERS
DIVISIONS
07 Letter to our Shareholders
21 Brands and Business Fields
10 The Board of Management of
24 Volkswagen Passenger Cars
Volkswagen Aktiengesellschaft
12 Report of the Supervisory Board
26 Audi
28 ŠKODA
30 SEAT
32 Bentley
34 Porsche
36 Volkswagen Commercial Vehicles
38 Volkswagen Truck & Bus
40 Scania
42 MAN
44 Volkswagen Group China
46 Volkswagen Financial Services
Contents
3
3
4
5
GROUP MANAGEMENT REPORT
CONSOLIDATED FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
51 Goals and Strategies
195 Income Statement
326 Five-Year Review
54
Internal Management System
196 Statement of Comprehensive Income
327 Financial Key
and Key Performance Indicators
198 Balance Sheet
Performance Indicators
56 Structure and Business Activities
200 Statement of Changes in Equity
59 Corporate Governance Report
202 Cash Flow Statement
67 Remuneration Report
203 Notes
84 Executive Bodies
315 Responsibility Statement
88
Disclosures Required Under
316 Auditor’s Report
328 Glossary
330 Index
332 Scheduled Dates
Takeover Law
91 Diesel Issue
95 Business Development
108 Shares and Bonds
114 Results of Operations,
Financial Position and Net Assets
130 Volkswagen AG (condensed,
in accordance with the German
Commercial Code)
134 Sustainable Value Enhancement
157 Report on Expected Developments
164 Report on Risks and Opportunities
190 Prospects for 2018
This annual report was published
on the occasion of the Annual Media
Conference on March 13, 2018.
A completely new ball game has begun.
With new trends, new technologies,
new alliances. At Volkswagen,
we are harnessing the radical changes in
our industry to make a new beginning.
– MATTHIAS MÜLLER –
1
To our
Shareholders
TO OUR SHAREHOLDERS
07 Letter to our Shareholders
10 The Board of Management of
Volkswagen Aktiengesellschaft
12 Report of the Supervisory Board
To our Shareholders
Letter to our Shareholders
7
Letter to our
Shareholders
What do you think makes a good company?
First of all, a good company certainly delivers compelling
business results. And definitely implements the necessary
measures to remain successful tomorrow and far into the
future. But I imagine that you, just like me, also believe there
is more to a good company than this – namely the essence
of the organization: what drives it and keeps it together. So
ultimately it’s about attitude and values.
Results, future, attitude: where does your Company stand,
where does the Volkswagen Group stand now, in these three
dimensions?
As far as business figures are concerned, the answer could
hardly be clearer: 2017 was an exceedingly successful year for
us. Around the world, 10.7 million customers – more than ever
before – chose a vehicle from one of our brands. We are grateful
for the trust that this embodies. Our financial figures were
also very convincing: sales revenue rose to €230.7 billion. At
€13.8 billion, our operating profit was better than ever – despite
negative special items of €3.2 billion. And at 7.4 percent, the
operating return on sales before special items also exceeded
the original forecast. The key performance indicators show
that our operating business is strong and the Group’s financial
situation is solid. The fact that we are in such a good position
today after everything that has happened in recent years is the
result of really great teamwork. And I would like to thank our
employees all over the world for that.
It goes without saying that you as shareholders will participate
in your Company’s success. The Board of Management and
Supervisory Board will therefore propose a dividend of €3.90
per ordinary share and €3.96 per preferred share for fiscal year
2017. This corresponds to a payout ratio of 17.3 percent.
Looking ahead, we – like the entire industry – are facing major
challenges and radical change. But here, too, there is reason to
be optimistic. This is also reflected in our share price, which
returned to the pre-crisis level at the end of 2017. We believe
this also expresses the confidence shown by financial markets
in our realignment. And, indeed, TOGETHER – Strategy
2025, our plan for the future, is taking effect and becoming
increasingly tangible.
With Roadmap E as a key element of this strategy, we are
demonstrating how we intend to help e-mobility achieve its
breakthrough – not just in our Company, but throughout the
entire industry. At the same time, on the road to emission-free
mobility, we are pressing ahead with the full range of drive-
trains including efficient, ultra-modern combustion engines.
Through out the Group, we have begun working hard on the
other major future trends as well. On artificial intelligence, new
mobility services, digital connectivity and, last but not least, on
fully automated vehicles like our Sedric: the first car from the
Group to come without a steering wheel or pedals.
By the end of 2022, we plan to invest over €34 billion from
our own resources in the key technologies of tomorrow.
8
Letter to our Shareholders
To our Shareholders
Each setback should above all
encourage us to devote all our energy
to bringing about the transformation
at Volkswagen.
– M AT T H I A S M Ü L L E R –
To our Shareholders
Letter to our Shareholders
9
This, too, shows that Volkswagen is changing course. We are
steering towards the future. We are not stopping halfway, we
are picking up the pace. With a clear goal in front of us: to
transform the Volkswagen Group from an automaker into a
company that brings sustainable mobility to people all over
the world. I firmly believe that we can do this. Because we are
following a clear plan for the future. Because we have very
successful operations. And because within the Group we have
the critical mass, innovative capacity and financial discipline
to spearhead this change.
You might be asking yourself: “That’s all well and good,
but what about the third criterion you mentioned at the
beginning, the attitude in the company, our values?” I have to
admit: it is here that we are still furthest from our goal.
Changing the culture of a large organization is hard. It requires
time, endurance and determination. In spite of all the progress
I see every day – and which I find heartening – we still repeatedly
encounter setbacks. They hurt, but they are inevitable. What’s
important is how we deal with them. What we learn from them.
Each setback should above all encourage us to devote all our
energy to bringing about the transformation at Volkswagen.
It’s about more open cooperation between our brands. About
more speed, pragmatism and decisiveness. A critical ability
and the reduction of power distances. And last but not least,
we need authentic, vibrant leadership based on values and
integrity.
So if you were to ask me today: “Is Volkswagen a good
company?”, then my answer would be: “Yes, Volkswagen is an
exceedingly successful global company. Yes, we are working
very hard on the future of mobility and therefore also on our
own future. And yes, at Volkswagen we have recognized how
essential a solid foundation of values and a healthy corporate
culture is.”
But at the same time, it’s also true that our Group is not yet as
good as it could be. We still have quite a way to go. For me, this
means one thing in particular: we have many opportunities to
turn Volkswagen into an even more successful – and an even
better – company. For our customers, employees and business
partners. For the environment and society. For our investors.
And for you, our shareholders.
Our Group still has enormous potential. We want and we
will exploit this. I am looking forward to counting on your
continued support as we move forward together on this
journey.
Sincerely,
Matthias Müller
The Board of Management
To our Shareholders
The Board of
Management
of Volkswagen Aktiengesellschaft
Matthias Müller
Chairman of the Board of Management
of Volkswagen Aktiengesellschaft
Prof. Rupert Stadler
Chairman of the Board of
Management of AUDI AG
Hiltrud Dorothea Werner
Integrity and Legal Affairs
Dr.-Ing. Herbert Diess
Chairman of the Brand Board of
Management of
Volkswagen Passenger Cars
To our Shareholders
The Board of Management
11
Prof. Dr. rer. pol. Dr.-Ing. E.h. Jochem Heizmann
China
Frank Witter
Finance and Controlling
Dr. rer. pol. h.c. Francisco Javier Garcia Sanz
Procurement
Dr. rer. soc. Karlheinz Blessing
Human Resources and Organization
Andreas Renschler
Commercial Vehicles
12
Report of the Supervisory Board
To our Shareholders
Report of the Supervisory Board
(in accordance with section 171(2) of the AktG)
Ladies and gentlemen,
In fiscal year 2017, the work of the Supervisory Board of
Volkswagen AG and its committees focused once again on
realigning the Volkswagen Group as part of the Group’s
TOGETHER – Strategy 2025, and the investigation of the diesel
issue. The Supervisory Board of Volkswagen AG addressed
the Company’s position and development regularly and with
particular intensity in the reporting period. We supervised
and supported the Board of Management in its running of the
business and advised it on issues relating to the management
of the Company in accordance with our duties under the law,
the Articles of Association and the rules of procedure. We also
observed the relevant recommendations and suggestions
of the German Corporate Governance Code (the Code) at
all times. The Supervisory Board was directly involved in
all decisions of fundamental importance to the Group. We
additionally discussed strategic considerations with the Board
of Management at regular intervals.
The Board of Management regularly, promptly and compre-
hensively informed the Supervisory Board in writing or in
person on all matters of relevance to the Company relating
to its strategy, the business development and the Company’s
planning and position. This also included the risk situation and
risk management. In this respect, the Board of Management
also informed it in particular of improvements to the risk and
compliance management system with regard to the diesel
issue. In addition, the Board of Management informed the
Supervisory Board on an ongoing basis about compliance-
related topics and other topical issues.
In all cases, we received the documents relevant to our decisions
in good time for our meetings. At regular intervals, we also
received a detailed report from the Board of Management on
the current business position and the forecast for the current
year. Any variances in performance that occurred as against
the plans and targets previously drawn up were explained
by the Board of Management in detail, either in person or in
writing. Together with the Board of Management we analyzed
the reasons for the variances so as to enable countermeasures
to be derived. In addition, the Board of Management presented
regular reports on current developments in connection with
the diesel issue at the meetings of the Special Committee on
Diesel Engines.
The Chairman of the Supervisory Board consulted with the
Chairman of the Board of Management at regular intervals
between meetings to discuss important current issues. Apart
from the diesel issue, they included the Volkswagen Group’s
strategy and planning, the business development, the Group’s
risk situation and risk management, including integrity and
compliance issues.
The Supervisory Board held a total of twelve meetings in
fiscal year 2017. The average attendance ratio was 84.6 %; all
of the members of the Supervisory Board attended over half
of the meetings of the Supervisory Board and the committees
of which they are members. In addition, resolutions on
urgent matters were adopted in writing or using electronic
communications media.
To our Shareholders
Report of the Supervisory Board
13
CO M M I T T E E A C T I V I T I E S
The Supervisory Board has established five committees in
order to discharge the duties entrusted to it: the Executive
Committee, the Nomination Committee, the Mediation Com-
mittee in accordance with section 27(3) of the Mitbestim-
mungsgesetz (MitbestG – German Codetermina-tion Act),
the Audit Committee and, since October 2015, the Special
Committee on Diesel Engines. The Executive Committee
and the Special Committee on Diesel Engines each consist
of three shareholder representatives and three employee
representatives. The members of the Nomination Committee
are the shareholder representatives on the Executive Committee.
The remaining two committees are each composed of two
shareholder representatives and two employee representatives.
The members of these committees as of December 31, 2017 are
given on page 87 of this annual report.
The Executive Committee met 17 times during the past fiscal
year, mainly discussing current matters related to the diesel
issue. The Committee also prepared the resolutions by the
Supervisory Board in detail and dealt with the composition of,
and contractual issues concerning the Board of Management
other than remuneration.
The Nomination Committee is responsible for proposing
suitable candidates for the Supervisory Board to recommend
for election to the Annual General Meeting. This Committee
did not hold any meetings in 2017.
The Mediation Committee did not have to be convened in the
reporting period.
The Audit Committee held five meetings in fiscal year 2017.
It focused primarily on the consolidated financial statements,
the risk management system including the effectiveness
of the internal control system, and the work performed by
the Company’s Compliance organization. In addition, the
Audit Committee concerned itself with the Group’s quarterly
reports and the half-yearly financial report, as well as with
current issues and the supervision of financial reporting and
the financial reporting process, and the examination thereof
by the auditors. Moreover, the Audit Committee initiated
the call for bids for audits and other audit-related services in
the Volkswagen Group from fiscal year 2020. In this process,
Volkswagen AG and other public-interest entities of the
Volkswagen Group follow the selection procedure within the
meaning of Article 16(3) of Regulation (EU) No 537/2014.
The Special Committee on Diesel Engines is responsible for
coordinating all activities relating to the diesel issue and
preparing resolutions by the Supervisory Board. To this end,
the Special Committee on Diesel Engines is also provided with
regular information by the Board of Management. It is also
entrusted with examining any consequences of the findings.
The Chairman of the Special Committee on Diesel Engines
reports regularly on its work to the Supervisory Board. In
fiscal year 2017, the Special Committee on Diesel Engines met
on eleven occasions, in which, among other topics, details
pertaining to the settlements with the US authorities as well
as the Supervisory Board’s proposed resolutions regarding
formal approval of actions of incumbent members in fiscal
year 2016 were discussed.
Furthermore, as a rule, the shareholder and employee represen-
tatives met for separate preliminary discussions before each
of the Supervisory Board meetings.
TO P I C S D I S C U S S E D BY T H E S U P E RV I S O RY B OA R D
The Supervisory Board’s first meeting in the reporting period
was held on January 11, 2017. A key topic at this meeting was
the approval regarding the conclusion of settlements with US
authorities.
On January 26, 2017, the Supervisory Board held a conference
call to discuss changes in the composition to the Board of
Management.
At the Supervisory Board meeting on February 24, 2017, we
dealt in detail with the new remuneration systems for the
Board of Management and Supervisory Board of Volks-
14
Report of the Supervisory Board
To our Shareholders
Hans Dieter Pötsch
wagen AG. Following a detailed examination, we also
approved the consolidated financial statements and the
annual financial statements of Volkswagen AG for 2016
prepared by the Board of Management, as well as the combined
management report. We examined the dependent company
report submitted by the Board of Management and, following
completion of our examination, we came to the conclusion
that there were no objections to be raised to the concluding
declaration by the Board of Management in the report. In
addition, we particularly discussed the current state of affairs
with respect to the diesel issue.
Another meeting of the Supervisory Board was held on March
28, 2017 at which we mainly discussed the current state of
affairs with respect to the diesel issue and the agenda for the
57th Annual General Meeting of Volkswagen AG, particularly
the Supervisory Board’s proposed resolutions.
The Supervisory Board meeting on April 26, 2017 concentrated
on strategic topics such as e-mobility and the focus of the
China business. Furthermore, the Board of Management
reported, among other things, on the collaboration with the
monitor.
To our Shareholders
Report of the Supervisory Board
15
Two more Supervisory Board meetings were held on May 9
and 10, 2017 within Volkswagen AG’s 2017 Annual General
Meeting. Their agenda included in particular preparations for
and the post-completion analysis of the 57th Annual General
Meeting of Volkswagen AG on May 10, 2017, the composition
of the committees, and the current state of affairs with respect
to the diesel issue.
A meeting of the Supervisory Board was held on July 26, 2017
at which we addressed the topic of the allegations of supposed
cartel infringements that were discussed in the media.
equity of Volkswagen Bank GmbH by Volkswagen Financial
Services AG, and an advisory mandate.
CO N F L I C T S O F I N T E R E ST
Mr. Hans Dieter Pötsch was a member of the Board of
Management of Volkswagen AG until October 2015. His move
to the Supervisory Board had already been planned irrespective
of the diesel issue. In order to avoid conceivable conflicts of
interest, Mr. Pötsch always left the meeting room prior to
discussions and resolutions adopted by the Supervisory Board
that might relate to his conduct in connection with the diesel
issue.
In a conference call on August 1, 2017, the Supervisory Board
received information on the measures taken as part of the
“National Forum Diesel”.
No other conflicts of interest were reported or were discernible
in the reporting period.
The agenda of the Supervisory Board meeting on September
29, 2017 included a status report on the Group strategy
TOGETHER – Strategy 2025 and the current state of affairs with
respect to the diesel issue.
The Supervisory Board held a meeting on November 2, 2017,
in which we discussed not only the current state of affairs with
respect to the diesel issue, but also the Volkswagen Group’s
investment and financial planning.
At the Supervisory Board meeting on November 17, 2017,
we discussed in detail the Volkswagen Group’s investment
and financial planning for the period from 2018 to 2022.
The current state of affairs with respect to the diesel issue
was another focus of the meeting. When issuing our annual
declaration of conformity with the Code, we also decided on
the diversity concepts for the Board of Management and the
Supervisory Board as well as the profile of skills and expertise
for the Supervisory Board as a whole, and the targets for the
composition of the Board. The profile of skills and expertise
for the Supervisory Board as a whole, and the targets for the
composition of the Board, are described on pages 61 to 62 of
the Corporate Governance Report.
In addition to the above, we voted in writing on a variety of
items in the reporting period, including an increase in the
CO R P O R AT E G OV E R N A N C E A N D D E C L A R AT I O N O F CO N F O R M I T Y
The Supervisory Board meeting on November 17, 2017
focused on the implementation of the recommendations
and suggestions of the Code at the Volkswagen Group. We
discussed in detail the version of the Code dated February 7,
2017, as published by the relevant government commission
on April 24, 2017, and issued the annual declaration of con-
formity with the recommendations of the Code in accordance
with section 161 of the Aktiengesetz (AktG – German Stock
Corporation Act) together with the Board of Management.
The joint declarations of conformity by the Board of
Management and the Supervisory Board are permanently
available at www.volkswagenag.com/ir. Additional informa-
tion on the implementation of the recommendations and
suggestions of the Code can be found in the corporate
governance report starting on page 59 and in the notes to the
consolidated financial statements on page 312 of this annual
report.
M E M B E R S O F T H E S U P E RV I S O RY B OA R D A N D B OA R D O F
M A N A G E M E N T
In the election of employee representatives to the Supervisory
Board of Volkswagen AG on April 6, 2017, Ms. Ulrike Jakob,
Deputy Chairwoman of the Works Council of Volkswagen AG,
Kassel plant, Ms. Bertina Murkovic, Deputy Chairwoman of
16
Report of the Supervisory Board
To our Shareholders
the Works Council of Volkswagen Commercial Vehicles, and
Mr. Athanasios Stimoniaris, Chairman of the Group Works
Council of MAN SE and of the MAN SE Works Council,
were elected as members of the Supervisory Board. They
succeeded Mr. Uwe Fritsch, Mr. Stephan Wolf and Mr. Thomas
Zwiebler. The term of office began at the end of the Annual
General Meeting on May 10, 2017. The remaining employee
representatives on the Supervisory Board were reappointed
for a further term.
Effective December 14, 2017, the State of Lower Saxony
delegated the new Deputy Minister-President and Minister
of Economic Affairs, Labor, Transport and Digitalization,
Dr. Bernd Althusmann, to the Supervisory Board of
Volkswagen AG to succeed Olaf Lies for the latter’s remaining
term of office.
Ms. Annika Falkengren stepped down as a member of
the Supervisory Board with effect from February 5, 2018.
Effective February 14, 2018, the Braunschweig Registry Court
temporarily appointed Ms. Marianne Heiß as a member of
the Supervisory Board until the end of the Annual General
Meeting on May 3, 2018. The Supervisory Board will propose
electing Ms. Heiß as a member of the Supervisory Board at the
Annual General Meeting on May 3, 2018.
Ms. Hiltrud Dorothea Werner has been the Group Board of
Management member responsible for “Integrity and Legal
Matters” since February 1, 2017. She succeeded Dr. Christine
Hohmann-Dennhardt, who left the Board of Management of
Volkswagen AG on January 31, 2017.
The Honorary Chairman of
the Supervisory Board,
Dr. Klaus Liesen, passed away on March 30, 2017 at the age of
85. Dr. Liesen served as a member of the Supervisory Board of
Volkswagen AG between 1987 and 2006 and as its Chairman
from 1987 to 2002. During this time, he made a considerable
contribution to the expansion and internationalization of the
Group. With his experience in business and his shrewd and
diplomatic manner, he earned great respect and recognition
in the process.
Dr. Martin Posth, a former member of the Board of Management
of Volkswagen AG, died on September 17, 2017 at the age of 73.
Dr. Posth was Board member with responsibility for Human
Resources from 1988 to 1993 and for the Asia-Pacific region
from 1993 to 1997. During his tenure in the Volkswagen
Group, he decisively shaped the development of the Company,
demonstrating great commitment and expertise.
They will not be forgotten.
AU D I T O F T H E A N N UA L A N D CO N S O L I DAT E D
F I N A N C I A L STAT E M E N T S
In line with our proposal, the Annual General Meeting of
Volkswagen AG on May 10, 2017 elected PricewaterhouseCoopers
GmbH Wirtschaftsprüfungsgesellschaft (PwC) as auditors for
fiscal year 2017. The auditors audited the annual financial
statements of Volkswagen AG, the consolidated financial
statements of the Volkswagen Group and the combined
management report, and issued unqualified audit reports in
each case.
The Supervisory Board commissioned (PwC) on November 17,
2017 with an external content-related audit of the combined
separate nonfinancial report for 2017.
In addition, the auditors analyzed the risk management
and internal control systems, concluding that the Board of
Management had taken the measures required by section 91(2)
of the AktG to ensure early detection of any risks endangering
the continued existence of the Company. The Report by the
Board of Management on Relationships of Volkswagen AG
with Affiliated Companies in Accordance with Section 312
of the AktG for the period from January 1 to December 31,
2017 (dependent company report) submitted by the Board of
Management was also reviewed by the auditors, who issued
the following opinion: “In our opinion and in accordance with
To our Shareholders
Report of the Supervisory Board
17
our statutory audit, we certify that the factual disclosures
provided in the report are correct and that the Company’s
consideration concerning legal transactions referred to in the
report was not unduly high.”
The members of the Audit Committee and the members of
the Supervisory Board were provided in each case with the
documentation relating to the annual financial statements,
including the dependent company report, and the audit
reports prepared by the auditors in good time for their
meetings on February 22, 2018 and February 23, 2018
respectively and the report from PwC on the external content-
related audit of the combined separate nonfinancial report
for 2017. The auditors reported extensively at both meetings
on the material findings of their audit and were available to
provide additional information.
into consideration the audit reports and the
Taking
discussion with the auditors and based on
its own
conclusions, the Audit Committee prepared the documents
for the Supervisory Board’s examination of the consolidated
financial statements, the annual financial statements of
Volkswagen AG, the combined management report, the
dependent company report as well as the combined separate
nonfinancial report and reported on these at the Supervisory
Board meeting on February 23, 2018. Following this, the
Audit Committee recommended that the Supervisory Board
approve the annual financial statements. We examined the
documents in depth in the knowledge and on the basis of
the report by the Audit Committee and the audit report as
well as in talks and discussions with the auditors. We came
to the conclusion that they are due and proper and that the
assessment of the position of the Company and the Group
presented by the Board of Management in the management
report corresponds to the assessment by the Supervisory
Board.
the Board of Management and the consolidated financial
statements at our meeting on February 23, 2018, at which the
auditors also took part in discussions on the agenda items
relating to the financial statements. The annual financial
statements are thus adopted. Upon completion of our
examination of the dependent company report, there are
not any objections to be raised to the concluding declaration
by the Board of Management. We reviewed the proposal on
the appropriation of net profit submitted by the Board of
Management, taking into account in particular the interests
of the Company and its shareholders, and endorsed the
proposal. PwC conducted an external content-related audit
of the combined separate nonfinancial report for 2017 to
attain limited assurance and issued an unqualified report.
Upon completion of its own independent examination of
the combined separate nonfinancial report for 2017, the
Supervisory Board did not have any objections.
We would
like to express our thanks and particular
appreciation to the members of the Board of Management,
the Works Council, the management and all the employees
of Volkswagen AG and its affiliated companies for their work
in 2017. With your immense personal commitment, great
loyalty and readiness to support the changes implemented,
you all helped the Volkswagen Group to conclude fiscal year
2017 successfully and develop positively in many areas under
the Group’s TOGETHER – Strategy 2025.
Wolfsburg, February 23, 2018
We therefore concurred with the auditors’ findings and
approved the annual financial statements prepared by
Hans Dieter Pötsch
Chairman of the Supervisory Board
S
N
O
I
S
I
V
I
D
2
Divisions
DIVISIONS
21 Brands and Business Fields
24 Volkswagen Passenger Cars
26 Audi
28 ŠKODA
30 SEAT
32 Bentley
34 Porsche
36 Volkswagen Commercial Vehicles
38 Volkswagen Truck & Bus
40 Scania
42 MAN
44 Volkswagen Group China
46 Volkswagen Financial Services
Divisions
Brands and Business Fields
21
Brands and Business Fields
Amid fierce competition in a market environment that remained challenging,
we achieved a new vehicle sales record with our brands in 2017.
Special items from the diesel issue again affected the operating profit.
G R O U P ST R U C T U R E
The Volkswagen Group consists of two divisions: the Automotive Division and the Financial Services Division.
The Automotive Division comprises the Passenger Cars, Commercial Vehicles and Power Engineering business
areas. We report on the Passenger Cars segment and the reconciliation in the Passenger Cars Business Area. The
Commercial Vehicles Business Area and Power Engineering Business Area correspond to the segments of the
same name. Accordingly, the activities of the Automotive Division comprise the development of vehicles and
engines, the production and sale of passenger cars, light commercial vehicles, trucks, buses and motorcycles, as
well as the genuine parts, large-bore diesel engines, turbomachinery, special gear units, propulsion compo-
nents and testing systems businesses. The Ducati brand is allocated to the Audi brand and thus to the Passenger
Cars Business Area. The Financial Services Division, which corresponds to the Financial Services segment,
combines dealer and customer financing, leasing, banking and insurance activities, fleet management and the
mobility offerings.
V O L K S W A G E N G R O U P R E P O R T I N G S T R U C T U R E
A U T O M O T I V E
D I V I S I O N
Passenger Cars Business Area
Commercial Vehicles Business Area
m
Power Engineering Business Area
sw
Volkswagen
Commercial Vehicles
MAN Power Engineering
ia
Scania Vehicles and Services
s
MAN Commercial Vehicle
Co
Volkswagen Passenger Cars
Audi
ŠKODA
SEAT
Bentley
Bentley
Porsche Automotive
Others
F I N A N C I A L S E R V I C E S
D I V I S I O N
Dealer and customer financing
Leasing
Direct bank
Insurance
Fleet management
Mobility offerings
22
Brands and Business Fields
Divisions
In this chapter, we present the key volume and financial data relating to the Group brands and to Volkswagen
Financial Services. In light of the considerable importance of the development of business in the world’s largest
single market for the Volkswagen Group, we also report on business developments and the results of our
activities in China in this chapter.
The production figures and deliveries to customers are differentiated by brands and their models that carry
the corresponding brand logo. Unit sales figures contain vehicles sold by respective brand companies, including
models of other Group brands. In some cases, there are marked differences between delivery figures and unit
sales as a result of our business development in China.
When realigning our Group structures, we have reclassified companies from the Volkswagen Passenger Cars
brand to the Group starting in 2017. This will allow us to increase transparency and comparability. Along with
cross-brand logistics and services, importers that also distribute vehicles from other Group brands have been
separated out from the Volkswagen Passenger Cars brand. These will be disclosed in the line “Other” and will
continue to be presented in the Passenger Cars Business Area. For the Volkswagen Passenger Cars brand, the
reclassifications lead to reductions in unit sales, sales revenue and operating profit.
In addition, we explain unit sales and sales revenue in the Europe/Other markets, North America, South
America and Asia-Pacific regions.
K E Y F I G U R E S B Y M A R K E T
At €17.0 (14.6) billion, the operating profit before special items in fiscal year 2017 exceeded the prior-year
figure. Special items, which resulted solely from the diesel issue in the reporting year, weighed on the operating
profit by €3.2 billion (previous year: operating profit reduced by €7.5 billion).
Amid fierce competition in a challenging market environment, the Volkswagen Group set a new sales record
of 10.8 (10.4) million vehicles in fiscal year 2017. Sales revenue increased by 6.2% to €230.7 billion.
In the Europe/Other markets region, unit sales rose by 2.1% year-on-year to 4.7 million vehicles. At €142.8 bil-
lion, sales revenue was 3.4% higher than in 2016, due among other things to higher volumes. Exchange rate
effects had a negative impact.
In North America, we sold 1.0 million vehicles, a 2.5% increase compared with the previous year, driven by
stronger demand in the USA and Canada. Volume and mix effects lifted sales revenue by 9.5% to €38.8 billion.
The economic environment in the markets of the South America region improved during the reporting
year. The Volkswagen Group’s sales there rose by 25.1% to 0.5 million vehicles. Sales revenue rose by 25.3% to
€10.0 billion, which was due both to higher volumes and positive mix effects.
In the Asia-Pacific region – including the Chinese joint ventures – we sold a total of 4.5 (4.4) million vehicles
in fiscal year 2017. At €39.1 billion, sales revenue exceeded the prior year by 9.4%. This increase especially
resulted from a higher import volume and an improved components business at our fully consolidated
companies. This figure does not include the sales revenue of our equity-accounted Chinese joint ventures.
Divisions
Brands and Business Fields
23
K E Y F I G U R E S B Y B R A N D A N D B U S I N E S S F I E L D 1
Thousand vehicles/€ million
2017
2016
2017
2016
2017
2016
V E H I C L E S A L E S
S A L E S R E V E N U E
O P E R A T I N G R E S U L T
Volkswagen Passenger Cars2
Audi
ŠKODA
SEAT
Bentley
Porsche Automotive3
Volkswagen Commercial Vehicles
Scania4
MAN Commercial Vehicles
MAN Power Engineering
VW China5
Other6
Volkswagen Financial Services7
Volkswagen Group before special items
Special items
Volkswagen Group
Automotive Division8
of which: Passenger Cars Business Area
Commercial Vehicles Business Area
Power Engineering Business Area
Financial Services Division
3,573
1,530
4,347
1,534
937
595
11
248
498
92
114
–
4,020
–840
–
–
10,777
10,777
10,077
700
–
–
814
548
11
239
478
83
102
–
3,873
–1,638
–
–
–
10,391
10,391
9,729
662
–
–
79,979
60,128
16,559
9,892
1,843
21,674
11,909
12,789
11,087
3,283
–
105,651
59,317
13,705
8,894
2,031
20,710
11,120
11,303
10,005
3,593
–
–30,288
31,826
–56,617
27,554
–
–
230,682
196,949
158,466
35,200
3,283
33,733
–
–
217,267
186,016
150,343
32,080
3,593
31,251
3,301
5,058
1,611
191
55
4,003
853
1,289
362
193
–
–2,335
2,460
17,041
–3,222
13,818
11,146
9,309
1,892
–55
2,673
1,869
4,846
1,197
153
112
3,733
455
1,072
230
194
–
–1,343
2,105
14,623
–7,520
7,103
4,668
4,167
718
–217
2,435
1 All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.
2 2017 figures take account of the reclassification of companies; prior-year figures were not adjusted.
3 Porsche (Automotive and Financial Services): sales revenue €23,491 (22,318) million, operating profit €4,144 (3,877) million.
4 Including financial services.
5 The sales revenue and operating profits of the joint venture companies in China are not included in the figures for the Group. These Chinese companies are
accounted for using the equity method and recorded a proportionate operating profit of €4,746 (4,956) million.
6 Prior year adjusted. In operating profit, mainly intragroup items recognized in profit or loss, in particular from the elimination of intercompany profits; the figure
includes depreciation and amortization of identifiable assets as part of purchase price allocation for Scania, Porsche Holding Salzburg, MAN and Porsche.
7 Starting January 1, 2017, Porsche’s financial services business is reported as part of Volkswagen Financial Services. Prior-year figures were not adjusted.
8 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.
K E Y F I G U R E S B Y M A R K E T 1
Thousand vehicles/€ million
2017
2016
2017
2016
V E H I C L E S A L E S
S A L E S R E V E N U E
Europe/Other markets
North America
South America
Asia-Pacific2
Volkswagen Group2
4,731
992
526
4,527
10,777
4,635
968
421
4,367
10,391
142,753
138,079
38,818
9,988
39,123
35,454
7,973
35,761
230,682
217,267
1 All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.
2 The sales revenue of the joint venture companies in China is not included in the figures for the Group and the Asia-Pacific market.
24
Volkswagen Passenger Cars
Divisions
The Volkswagen Passenger Cars brand systematically pushed ahead with its
“Transform 2025+” strategy in 2017 and considerably improved its operating profit.
The global product initiative has launched successfully with more than ten new models.
B U S I N E S S D E V E L O P M E N T
The Volkswagen Passenger Cars vision is “Moving people and driving them forwards”. The “TRANSFORM 2025+”
strategy therefore centers on a global model initiative through which the brand aims to lead innovation,
technology and quality in the volume segment. More than ten new models were launched on the market in the
reporting year. The Arteon, Volkswagen’s new top-of-the-range saloon, received the Golden Steering Wheel 2017,
among other accolades. The Polo set new benchmarks in the small car segment. In the SUV segment, the brand
expanded its range with the young, sporty T-Roc, the Tiguan Allspace, the Atlas for the US market and the
Teramont for China.
Volkswagen wants to actively shape the current phase of technological transformation in the automotive
industry. The brand is therefore developing a new generation of fully networked electric vehicles based on the
Modular Electrification Toolkit (MEB). The MEB concept car, the I.D. BUZZ, turned heads at the Detroit Auto Show:
This fully electric microbus brings the legendary VW camper-van feeling right up to date. The brand showcased
another member of the I.D. family in 2017: the I.D. CROZZ concept SUV. The first vehicles in the I.D. family are being
produced at the Zwickau site, which is being developed into the Group’s European center of expertise for e-mobility.
Worldwide, the Volkswagen Passenger Cars brand delivered a record 6.2 million vehicles in 2017 (+4.2%).
While sales slipped slightly in Germany due to the diesel issue, they rose in all other core regions of the world.
The brand recorded strong growth above all in China (+5.9%), Brazil (+19.7%) and the USA (+5.2%). The Tiguan
was especially popular. With 720,000 vehicles delivered in the reporting year, it was one of the world’s most
successful automobiles in 2017.
Sales by the Volkswagen Passenger Cars brand in 2017 totaled 3.6 (4.3) million vehicles; the decline results
from the reclassification of companies in the Group. The difference between deliveries and unit sales is mainly
due to the fact that the vehicle-producing joint ventures in China are not attributed to Volkswagen Passenger
Cars brand companies.
The Volkswagen Passenger Cars brand produced 6.3 million vehicles worldwide in 2017; this was 4.0% more
than in 2016. In late August, the 150 millionth Volkswagen rolled off the assembly line at Volkswagen’s main
plant in Wolfsburg.
S A L E S R E V E N U E A N D E A R N I N G S
Sales revenue at the Volkswagen Passenger Cars brand in 2017 was down 24.3% year-on-year at €80.0 billion.
This was due to the reclassification of companies. Operating profit before special items rose to €3.3 (1.9) billion.
Volume-, mix- and margin-related factors as well as product cost optimization had a positive effect, while
higher fixed costs as a result of expansion and higher depreciation and amortization charges due to the large
volume of capital expenditure had a negative impact. The operating return on sales before special items
increased to 4.1 (1.8)%. The diesel issue gave rise to special items of €–2.8 (previous year’s total –5.2) billion.
150 million
Vehicles manufactured since 1945
Divisions
Volkswagen Passenger Cars
25
P R O D U C T I O N
V O L K SWA G E N PA S S E N G E R C A R S B R A N D 1
Units
Golf
Jetta/Sagitar
Tiguan
Polo
Passat/Magotan
Lavida
Bora
Santana
Gol
up!
Touran
Lamando
Atlas/Teramont
Saveiro
Beetle
Fox
Sharan
Touareg
Arteon/CC
T-Roc
Suran
Phideon
Scirocco
Phaeton
2017
2016
2017
2016
%
968,284
883,346
769,870
755,506
660,996
507,574
334,900
293,313
203,148
158,795
144,676
138,943
129,724
66,431
59,483
50,739
45,695
42,407
37,972
22,724
21,093
13,014
8,199
–
982,495
Deliveries (thousand units)
968,135
Vehicle sales
548,687
Production
6,230
3,573
6,317
5,980
4,347
6,073
794,388
Sales revenue (€ million)
79,979
105,651
Operating result before
special items
as % of sales revenue
3,301
4.1
1,869
1.8
+4.2
–17.8
+4.0
–24.3
+76.6
1 2017 figures take account of the reclassification of companies; prior-year figures were
not adjusted.
711,878
547,187
236,427
312,177
160,130
169,970
164,248
146,285
386
47,460
61,940
50,273
41,949
47,495
44,091
–
20,163
5,131
11,963
452
6,316,832
6,073,310
T-Roc
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
30.1 %
%
9.5 %
%
6.7 %
53.7 %
%
i
F U R T H E R I N F O R M A T I O N
www.volkswagen.com
m
26
Audi
Divisions
Audi set another sales record in 2017. The new generation of the Audi A8 is designed
for highly automated driving. The “Audi AI” trademark will prospectively stand for
autonomy, intelligence and innovation.
B U S I N E S S D E V E L O P M E N T
“Vorsprung” is an active brand promise that is delivered throughout the world, making Audi one of the most
highly desired brands in the premium segment. In 2017, the brand with the four rings unveiled the new Audi A8.
At the first Audi Summit, it also presented further technological milestones in cutting-edge fields such as
sustainable production, lightweight construction, connectivity, automated driving and digital services. The
fourth generation of the A8, Audi’s flagship, is rolling off the assembly line as the world’s first production model
designed for highly automated driving. The “Audi AI” trademark will prospectively stand for autonomy,
intelligence and innovation. The Audi of the future will use machine learning to continuously develop its
capabilities, adapt to users’ individual needs and suggest services. This will make our customers’ lives easier
and their journeys safer.
In the 2017 fiscal year, the Audi brand set a new sales record, delivering 1.9 million vehicles (+0.6%). Sales
increased in North America (+8.4%) and China (+1.1%), among other regions.
Audi sold 1.5 (1.5) million vehicles in 2017. The Chinese joint venture FAW-Volkswagen sold a further
552 (536) thousand Audi vehicles. The Q2 and A5 models proved particularly popular with customers. Unit sales
at Automobili Lamborghini S.p.A. amounted to 3,897 (3,465) vehicles.
Audi produced 1.9 (1.9) million vehicles globally in the reporting year; this was 1.3% fewer than in the
previous year. At Lamborghini, production of the Urus, the world’s first super sport utility vehicle, started in
2017. Lamborghini produced a total of 4,056 (3,579) vehicles in the reporting period.
S A L E S R E V E N U E A N D E A R N I N G S
At €60.1 billion, sales revenue for the Audi brand in 2017 exceeded the prior-year figure by €0.8 billion. At
€5.1 (4.8) billion, operating profit before special items was higher than in the previous year. Product cost optimi-
zation and improved price positioning had a positive effect. This was offset by, among other factors, higher
depreciation and amortization charges connected with the expansion of the international model and technol-
ogy portfolio as well as international production structures. The operating return on sales before special items
amounted to 8.4 (8.2)%. The diesel issue gave rise to special items of €–0.4 (previous year’s total –1.8) billion. The
financial key performance indicators for the Lamborghini and Ducati brands are included in the financial
figures for the Audi brand.
A8
Highly automated driving
Divisions
Audi
27
P R O D U C T I O N
A U D I B R A N D
Units
Audi
A4
A3
Q5
A6
Q3
A5
Q7
Q2
A1
TT
A7
A8
R8
Q8/e-tron
Lamborghini
Huracán Coupé
Aventador Coupé
Huracán Spyder
Aventador Roadster
Urus
2017
2016
2017
2016
%
1,882
1,878
4
1,530
1,879
60,128
5,058
8.4
1,871
1,868
3
1,534
1,903
59,317
4,846
8.2
+0.6
+0.6
+10.4
–0.3
–1.2
+1.4
+4.4
325,307
313,380
289,959
259,618
205,006
119,595
106,515
102,084
95,346
22,174
16,968
15,854
3,179
368
Deliveries (thousand units)
357,999
361,983
Audi
Lamborghini
297,750
Vehicle sales
276,211
Production
231,452
Sales revenue (€ million)
Operating result before
special items
as % of sales revenue
65,117
103,344
19,419
105,252
26,886
26,308
24,179
3,688
–
1,875,353
1,899,588
1,822
1,008
827
278
121
4,056
1,315
587
1,104
573
–
3,579
Audi brand
1,879,409
1,903,167
A8
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
48.4 %
%
14.8 %
%
1.2 %
35.6 %
%
i
F U R T H E R I N F O R M A T I O N
www.audi.com
m
28
ŠKODA
Divisions
The ŠKODA brand continued its SUV initiative in fiscal year 2017 with the new Karoq.
The model helped ŠKODA achieve a new sales record, with 1.2 million vehicles delivered.
B U S I N E S S D E V E L O P M E N T
Intelligent concepts and excellent value for money are the hallmarks of the successful ŠKODA brand. In line
with its motto, “Simply Clever”, it combines future-oriented functionality with an impressive space concept
that is technically simple but delivers sophisticated and practical features. ŠKODA celebrated the world premiere
of the new Karoq in 2017, expanding the Czech brand’s range of SUV models. The robust, compact vehicle has
been completely redeveloped with the emotional and dynamic features of ŠKODA’s new SUV design language.
The vehicle offers exceptional spaciousness, new driver assistance systems, full-LED headlights and – for the
first time in a ŠKODA – a freely programmable digital instrument panel. In addition, ŠKODA presented the
Vision E concept car in 2017. The electric-powered concept vehicle enables highly automated driving and takes
vehicle-driver connectivity to a new level.
Worldwide, the ŠKODA brand delivered 1.2 million vehicles to customers in the reporting year (+6.6%),
thereby achieving a new sales record. China, where deliveries increased by 2.5%, was once again the brand’s
largest single market. Sales in Western Europe rose by 5.2%. They were up 13.3% in Central and Eastern Europe.
ŠKODA’s unit sales rose year-on-year to 937 (814) thousand vehicles in 2017. The new Kodiaq met with a
very positive reception in the market and had a major part in boosting unit sales. The difference between
figures for deliveries and unit sales is mainly due to the fact that the vehicle-producing joint ventures in China
are not attributed to ŠKODA brand companies.
ŠKODA produced 1.2 (1.2) million vehicles worldwide across seven series in fiscal year 2017. At the end of
September 2017, the plant in Kvasiny, Czech Republic, produced the 20 millionth vehicle since the brand was
established.
S A L E S R E V E N U E A N D E A R N I N G S
The ŠKODA brand’s sales revenue increased by 20.8% year-on-year to €16.6 billion in the past fiscal year.
Operating profit improved by 34.6% to €1.6 billion; the increase resulted above all from the higher volume and
mix effects, with exchange rate effects having a positive and an increase in fixed costs a negative impact.
Operating return on sales rose from the previous year’s 8.7% to 9.7%.
20 million
Number of vehicles produced since the establishment of the brand
Divisions
ŠKODA
29
P R O D U C T I O N
Š KO D A B R A N D
Units
Octavia
Rapid
Fabia
Superb
Kodiaq
Karoq/Yeti
Citigo
2017
2016
2017
2016
%
420,802
210,002
209,471
147,103
123,982
81,963
38,749
445,415
Deliveries (thousand units)
216,603
Vehicle sales
203,308
Production
148,880
Sales revenue (€ million)
1,167
Operating result
95,417
41,247
as % of sales revenue
1,232,072
1,152,037
1,201
937
1,232
16,559
1,611
9.7
1,126
814
1,152
13,705
1,197
8.7
+6.6
+15.2
+6.9
+20.8
+34.6
Karoq
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
70.4 %
%
0.0 %
%
0.1 %
29.5 %
%
i
F U R T H E R I N F O R M A T I O N
www.skoda-auto.com
m
30
SEAT
Divisions
In addition to the fifth generation of the Ibiza, the SEAT brand also unveiled its compact
Arona in the reporting year, expanding its range of SUVs. The previous year’s positive
performance continued in impressive fashion in the results for 2017.
B U S I N E S S D E V E L O P M E N T
SEAT delivers solutions “Created in Barcelona” to make mobility easy. Having entered the SUV market for the
first time in the previous year with the Ateca, the Spanish brand continued this path in fiscal year 2017,
presenting a further model series in the form of the Arona. This marries the benefits of compact dimensions
with the features of a crossover model and underscores the brand’s sporty and dynamic claim with its attractive
design. It also boasts a wealth of driver assistance systems and impressive connectivity. Other models presented
in 2017 included the limited-edition Leon CUPRA R and the new generation Ibiza. The Ibiza is the first model to
be based on the Modular Transverse Toolkit and marks a decisive step into the future for the brand.
SEAT increased its deliveries to customers by 14.6% in 2017 to 468 thousand vehicles. Almost all markets
contributed to this rise, with the most significant increases achieved in Poland (+24.8%), Spain (+23.1%), the
United Kingdom (+18.3%), France (+15.6%) and Germany (+13.4%). This made SEAT one of the fastest-growing
brands in Europe. The Ibiza, Leon and Ateca models were particularly popular with customers, and the new
Arona was positively received by the market.
The SEAT brand sold 595 thousand units in the reporting period. This was 8.5% more than in the previous
year. The Q3 produced for Audi is included in this figure.
In 2017, SEAT produced 479 thousand vehicles, an increase of 14.9% year-on-year.
S A L E S R E V E N U E A N D E A R N I N G S
SEAT continued its upward trend in fiscal year 2017. At €9.9 billion, sales revenue exceeded the previous year’s
record figure by 11.2%. Operating profit improved by 24.8% to €191 (153) million, another new record. Negative
effects from cost increases were compensated for by the higher volume, positive mix effects and improved
margins. The SEAT brand’s operating return on sales was 1.9 (1.7)%.
24.8%
Increase in profit in 2017
Divisions
SEAT
31
P R O D U C T I O N
S E AT B R A N D
Units
Leon
Ibiza
Ateca
Alhambra
Arona
Mii
Toledo
2017
2016
2017
2016
%
163,306
160,377
77,483
33,638
17,527
13,825
13,146
479,302
163,228
Deliveries (thousand units)
149,988
Vehicle sales
35,833
31,214
Production
Sales revenue (€ million)
–
Operating result
as % of sales revenue
18,720
18,029
417,012
468
595
479
9,892
191
1.9
409
548
417
8,894
153
1.7
+14.6
+8.5
+14.9
+11.2
+24.8
Arona
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
94.5 %
%
5.3 %
%
0.2 %
0.0 %
%
i
F U R T H E R I N F O R M A T I O N
www.seat.com
m
32
Bentley
Divisions
In 2017, Bentley celebrated the world premiere of the third generation of its
best-selling Continental GT Coupé, which sets new standards in the luxury
grand tourer segment.
B U S I N E S S D E V E L O P M E N T
The Bentley brand is defined by exclusivity, elegance and power. The third generation of the successful
Continental GT debuted at the IAA in Frankfurt am Main in the reporting year. The vehicle sets new standards
in the luxury grand tourer segment. Compared to its predecessor, it has a longer bonnet, a flatter front end and
an extra-wide radiator grille. The exclusive interior features a virtual cockpit and a 12.3-inch foldaway touch-
screen in the center console. The W12 engine puts an impressive 467 kW (635 PS) to the wheels. The Bentayga
Diesel, launched in 2017, is the luxury brand’s first model to be equipped with a diesel engine. A hybrid version
will follow in 2018, marking Bentley’s first step into the world of electric driving.
Bentley delivered 11,089 (11,023) vehicles to customers in the reporting period, exceeding the previous
year’s record figure. While deliveries declined by 6.8% in the USA, the brand’s largest single market, they rose by
15.7% in Asia-Pacific and 1.5% in Europe.
At 10,566 (11,298) vehicles worldwide in 2017, the Bentley brand’s unit sales were lower than in the previous
year; this was above all attributable to the new generation of the Continental GT Coupé. The highest demand
was recorded for the Bentayga.
Bentley produced 10,552 vehicles in 2017; the year-on-year decline of 10.7% was attributable to the produc-
tion cycle.
S A L E S R E V E N U E A N D E A R N I N G S
Bentley recorded sales revenue of €1.8 billion in the past fiscal year, a decline of 9.2% compared to 2016.
Operating profit declined to €55 (112) million; negative volume-, price- and mix-related effects were offset by
positive exchange rate effects and lower expenses from the development of the model portfolio. The operating
return on sales stood at 3.0 (5.5)%.
3rd generation
Continental GT Coupé
Divisions
Bentley
33
P R O D U C T I O N
B E N T L E Y B R A N D
Units
Bentayga
Flying Spur
Continental GT Convertible
Continental GT Coupé
Mulsanne
2017
2016
2017
2016
%
4,849
2,295
1,468
1,345
595
5,586
1,731
Deliveries (units)
Vehicle sales
1,600
Production
2,272
Sales revenue (€ million)
628
Operating result
10,552
11,817
as % of sales revenue
11,089
10,566
10,552
1,843
55
3.0
11,023
11,298
11,817
2,031
112
5.5
+0.6
–6.5
–10.7
–9.2
–50.8
Continental GT
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
48.5 %
%
23.6 %
%
0.1 %
27.9 %
%
i
F U R T H E R I N F O R M A T I O N
www.bentleymotors.com
m
34
Porsche
Divisions
The millionth Porsche 911 rolled off the production line in the past fiscal year.
The sports car manufacturer entered a new segment with the Panamera Sport Turismo.
The year brought new records in terms of unit sales, sales revenue and profit.
B U S I N E S S D E V E L O P M E N T
Exclusivity and social acceptance, innovation and tradition, performance and everyday usability, design and
functionality – these are the brand values of sports car manufacturer Porsche. In 2017, Porsche put these values
into practice in impressive form with the new generation of the Cayenne: the SUV has been completely
redeveloped and embodies the typical Porsche attributes better than ever. Even though it comes with more
standard features, the Cayenne is up to 65 kg lighter than its predecessor thanks to its lightweight construction.
The Cayenne Turbo, the top-of-the-range model in the series, raises the bar for sporty performance in its
segment even further. The car’s four-liter V8, twin-turbo engine puts out 404 kW (550 PS) of power, accelerating
it from 0 to 100 km/h in 4.1 seconds. Porsche’s launch of the Sport Turismo, a new bodywork variant of the
Panamera, has taken the brand into a new segment. The Sport Turismo uses all the technical and conceptual
innovations featured in the Panamera series, which gained a second hybrid version in the reporting year with
the 500 kW (680 PS) Panamera Turbo S E-Hybrid. In 2017, Porsche came first in the world’s toughest long-
distance event in Le Mans for the third time in succession and also won the third consecutive championship
title in the WEC world endurance championships.
The Porsche brand delivered 246 thousand sports cars in the past fiscal year; this was 3.6% more than in the
previous year. China remained the largest single market for Porsche with deliveries of 72 thousand vehicles
(+9.6%). In North America, sales rose by 3.7%.
At 248 thousand vehicles, Porsche’s unit sales exceeded the prior-year figure by 3.7% in 2017. Above all, the
new Panamera saw marked sales growth.
Porsche celebrated a special anniversary in 2017, when the millionth 911 rolled off the production line at
the main plant in Zuffenhausen. In total, Porsche produced 256 thousand vehicles in the reporting year. This
was 6.7% more than in 2016.
S A L E S R E V E N U E A N D E A R N I N G S
Starting January 1, 2017, Porsche’s financial services business is reported as part of Volkswagen Financial
Services. The 2017 fiscal year was once again very successful for Porsche: Porsche Automotive’s sales revenue
rose by 4.7% to €21.7 (20.7) billion. Operating profit improved by 7.2% to €4.0 billion; despite cost increases, the
increase resulted particularly from the higher volume. The operating return on sales amounted to 18.5 (18.0)%.
1 million
Porsche 911s produced
Divisions
Porsche
35
P R O D U C T I O N
P O R S C H E A U TO M OT I V E 1
Units
Macan
Cayenne
Panamera
911 Coupé/Cabriolet
718 Boxster/Cayman
2017
2016
98,763
59,068
37,605
33,820
26,427
97,177
Deliveries (thousand units)
71,693
Vehicle sales
14,218
Production
31,648
Sales revenue (€ million)
24,882
Operating result
255,683
239,618
as % of sales revenue
2017
246
248
256
21,674
4,003
18.5
20161
238
239
240
20,710
3,733
18.0
%
+3.6
+3.7
+6.7
+4.7
+7.2
1 Porsche (Automotive and Financial Services): sales revenue €23,491 (22,318) million,
operating profit €4,144 (3,877) million.
Cayenne
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
35.3 %
%
26.5 %
%
1.0 %
37.2 %
%
i
F U R T H E R I N F O R M A T I O N
www.porsche.com
e.com
36
Volkswagen Commercial Vehicles
Divisions
Volkswagen Commercial Vehicles continued to move towards emission-free urban
mobility and logistics in fiscal year 2017; the e-Crafter is currently in the final stage of
real-world testing. Deliveries and production hit new heights in the reporting year.
B U S I N E S S D E V E L O P M E N T
Volkswagen Commercial Vehicles stands for superior mobility with its three core values – reliability, profit-
ability and partnership. The new Crafter celebrated a successful market launch in 2017. The vehicle has been
completely redesigned based on customer requirements and offers customer-friendly functionality and
practical, everyday solutions for the most diverse of transport needs in all areas of use. The e-Crafter, currently
undergoing final real-world testing with major customers, is to be launched on the market in 2018, setting new
standards for trade vehicles, municipal vehicle fleets and courier services in terms of emission-free urban
logistics. The California XXL study also attracted attention in the reporting year. Based on the new Crafter and
featuring a fixed, high panoramic roof, an extended rear end and user-friendly interior space, the concept
demonstrates what a potential big brother for the California could look like in future. More than 15 thousand
units of the current California, Europe’s most popular campervan, were produced in 2017; this was approxi-
mately 20% more than in the previous record year 2016.
Volkswagen Commercial Vehicles delivered 498 thousand vehicles in the past fiscal year, an increase of 4.2%
compared with 2016. Sales in Europe rose 2.6%, while in South America they climbed by 28.1%.
Volkswagen Commercial Vehicles sold 498 thousand vehicles in the reporting year, a rise of 4.1%. The Multi-
van/Transporter and Caddy models were particularly popular.
Production by the Volkswagen Commercial Vehicles brand increased by 16.0% in 2017 to 490 thousand
vehicles. These figures include the Crafter, which is manufactured at the new plant in Wrzesnia, Poland. We also
manufacture the Caddy and the T6 in Poland. The main plant in Hanover produces the Amarok, Caravelle/
Multivan and Transporter models. The Amarok is also produced in Argentina.
S A L E S R E V E N U E A N D E A R N I N G S
Volkswagen Commercial Vehicles generated sales revenue of €11.9 (11.1) billion in fiscal year 2017. Despite higher
costs resulting from expansion of the production network, operating profit climbed 87.6% to €853 million due
to margin, volume and exchange rate effects as well as product cost optimization. The operating return on sales
improved considerably to 7.2 (4.1)%.
87.6%
Increase in profit in 2017
Divisions
Volkswagen Commercial Vehicles
37
P R O D U C T I O N
V O L K SWA G E N C O M M E R C I A L V E H I C L E S B R A N D
Units
2017
2016
2017
2016
%
Caravelle/Multivan, Kombi
115,553
117,554
Deliveries (thousand units)
Caddy Kombi
Transporter
Amarok
Caddy
Crafter
93,167
92,876
80,328
71,501
36,313
86,841
Vehicle sales
81,932
Production
63,367
Sales revenue (€ million)
11,909
11,120
71,757
Operating result
596
as % of sales revenue
853
7.2
455
4.1
498
498
490
478
478
422
+4.2
+4.1
+16.0
+7.1
+87.6
489,738
422,047
California
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
84.3 %
%
2.1 %
%
8.3 %
5.3 %
%
i
F U R T H E R I N F O R M A T I O N
www.volkswagen-commercial-vehicles.com
38
Volkswagen Truck & Bus
Divisions
VOLKSWAGEN
TRUCK & BUS
Volkswagen Truck & Bus made further steps in 2017 towards its strategic objective of
becoming a global industry champion. It was helped by innovative cooperation projects
between the Volkswagen Truck & Bus brands and the strategic alliance partner Navistar.
(cid:18) (cid:115) (cid:101) (cid:53) (cid:75) (cid:31) (cid:101) (cid:101) (cid:3) (cid:26) (cid:31) (cid:126) (cid:31) (cid:68) (cid:81) (cid:93) (cid:73) (cid:31) (cid:75) (cid:109) (cid:3)
Volkswagen Truck & Bus aims to become the industry’s global champion. Volkswagen Truck & Bus already leads
the truck market in Europe and in Brazil. In the coming decade, we want to lead the industry in terms of
profitability, innovation for our customers, employee satisfaction and global presence.
Volkswagen Truck & Bus operates under the motto “Driving transportation to the next level”. The key to
putting this into practice is to promote cooperation in research and development between the brands. An office
coordinates the joint development activities across brands and countries and helps the brands get new
technologies to market faster. An example is the joint e-Drivetrain platform being designed to revolutionize
electric driving in the Group. Parts of the platform are to be used in various Volkswagen Truck & Bus vehicles,
such as the electric-powered city buses from MAN and Scania. The first of these buses will be delivered to
selected European cities in 2018, including Hamburg and Paris. Our alliance partner Navistar is also planning to
use the joint e-Drivetrain platform.
With the launch of the RIO platform at the end of 2017, Volkswagen Truck & Bus cemented its role as a
digitalization pioneer. The cloud-based platform is also available to all other brands and new partners. Since
January 2018, the RIO box has been available for retrofitting in all vehicles with a fleet management interface.
RIO is thus also suited to mixed fleets containing vehicles of different brands. Since August 2017, every MAN
truck delivered in Europe has been fitted with the RIO box with access to the RIO platform as a standard feature.
Volkswagen Truck & Bus is already Europe’s market leader for networked trucks. Scania, Volkswagen Caminhões
e Ônibus, Volkswagen Commercial Vehicles and the strategic partner Navistar are also planning to use the RIO
platform in future.
211 thousand
Vehicles produced
Divisions
Volkswagen Truck & Bus
39
P R O D U C T I O N
D E L I V E R I E S
Units
Trucks
Buses
Light Commercial Vehicles
2017
2016
Units
2017
2016
188,234
19,217
3,891
211,342
167,354
Trucks
18,713
Buses
–
Light Commercial Vehicles
186,067
183,481
19,218
2,212
204,911
165,806
17,775
–
183,581
Strong brands
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
73.3 %
%
1.5 %
%
16.9 %
8.4 %
%
40
Scania
Divisions
Scania expanded its new generation of trucks with vehicles for the construction
industry in 2017. New solutions were also presented for sustainable transport in cities.
B U S I N E S S D E V E L O P M E N T
The Swedish brand Scania follows its values “Customer first”, “Respect for the individual”, “Elimination of
waste”, “Determination”, “Team Spirit” and “Integrity”. Scania continued to introduce its new generation of
trucks in the reporting year and presented a range of products and services with a special focus on the construc-
tion industry. The vehicles are characterized by a robust design and meet the highest standards in respect of
reliability and productivity. Scania also presented forward-looking solutions for low-emission transport in
cities: the lighter trucks, powered by the new 7-liter range of engines, offer fuel savings of up to 10% for urban
transport companies and take efficient transport to a new level. Further engine and cab options were also
introduced in 2017, such as the new 13-liter gas-powered engine for long-distance transport and the latest
generation of V8 engines. With the hybrid version of the Interlink Low Decker and the battery-powered
Citywide Low Floor, Scania boosted its range of buses with alternative drive systems. Scania One, the new digital
platform for connected services, enables fleet owners and drivers to access Scania’s connected services and
optimize the coordination of their transport assignments. The Scania R 450 was voted “Green Truck of the Year”
in a poll by industry magazines to crown the most environmentally friendly commercial vehicles.
The key figures presented in this chapter encompass Scania’s truck and bus, industrial and marine engines
and financial services businesses.
Orders at the Scania brand were up 27.9% year-on-year to 109 thousand vehicles in fiscal year 2017. Scania’s
leading position in Euro 6 engines, long experience with consumption-optimized vehicles and the wide range
of alternative drive systems contributed to growing order books in Western Europe. Globally, Scania delivered
91 (81) thousand vehicles to customers. Sales in Europe were up year-on-year, and impressive increases were
also recorded in Brazil. At 8 (8) thousand vehicles, deliveries of buses remained on a level with the previous year.
Demand for services and replacement parts as well as for Scania Financial Services was again higher in 2017
than in the previous year.
The Scania brand produced 96 (84) thousand commercial vehicles in the reporting period (+14.1%), including
8 (8) thousand buses.
S A L E S R E V E N U E A N D E A R N I N G S
Sales revenue at the Scania brand was up €1.5 billion year-on-year at €12.8 (11.3) billion. Operating profit
(previous year’s figure excludes special items) improved to €1.3 (1.1) billion. This was due to higher vehicle sales
and an expansion of the service business. In the reporting period, the operating return on sales (previous year’s
figure excludes special items) amounted to 10.1 (9.5)%.
€1.3 billion
Operating profit for 2017
Divisions
Scania
41
P R O D U C T I O N
S C A N I A B R A N D
Units
Trucks
Buses
2017
2016
2017
2016
%
87,454
8,327
95,781
75,452
8,488
83,940
Orders received
(thousand units)
Deliveries
Vehicle sales
Production
Sales revenue (€ million)
Operating result1
as % of sales revenue
1 In the previous year before special items.
109
91
92
96
12,789
1,289
10.1
86
81
83
84
11,303
1,072
9.5
+27.9
+11.6
+11.3
+14.1
+13.1
+20.3
R 650
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
75.2 %
%
0.9 %
%
12.3 %
11.6 %
%
i
F U R T H E R I N F O R M A T I O N
www.scania.com
om
42
MAN
Divisions
MAN successfully launched the MAN TGE van in the 2017 fiscal year and is now
a comprehensive provider for all transport needs. The future program continued to
have a positive impact.
B U S I N E S S D E V E L O P M E N T
Customer focus, enthusiasm for the product and efficiency are the core values at MAN. A new era began for MAN
in 2017 with the market launch of the MAN TGE, the first light commercial vehicle from the long-established
Munich-based brand. The MAN TGE is a response to high demand from logistics businesses, customer service
providers and tradespeople, as well as from couriers, express and parcel delivery services. The vehicle turns
MAN into a comprehensive solution provider for all transport needs. MAN also presented its e-Delivery: an
electric-powered distribution truck for urban logistics. The vehicle ought to be manufactured in Brazil. The new
Lion’s Coach also celebrated its premiere; optimized reinforcement enables it to meet the safety standards
introduced in November 2017. The NEOPLAN Tourliner received the renowned iF product design award in the
reporting period. In Power Engineering, MAN presented a new high-performance diesel engine for its 4x line.
The 45/60CR will initially be available in 12V and 14V versions boasting power outputs of 15,600 kW and 18,200
kW respectively.
In South America, MAN Commercial Vehicles recorded rising demand in fiscal year 2017 due to the improved
economic environment. MAN also continued to expand in the European commercial vehicle market. Orders
received increased by 13.9% in total to 120 thousand vehicles. Deliveries were up year-on-year at 114 (102) thou-
sand commercial vehicles, including 11 (10) thousand buses.
MAN produced 116 (102) thousand commercial vehicles in the reporting year, of which 11 (10) thousand
were buses.
Incoming orders in the Power Engineering Business Area increased by €3.7 (3.3) billion despite the con-
tinued difficult situation in the shipping industry, economic difficulties in emerging markets and the low price
of oil.
S A L E S R E V E N U E A N D E A R N I N G S
Sales revenue at MAN Commercial Vehicles rose by 10.8% year-on-year in 2017 to €11.1 billion. Operating profit
(previous year’s figure excludes special items) improved to €362 (230) million due to volume and margin
effects. The initiated future program had a further positive effect. The operating return on sales (previous year’s
figure excludes special items) was 3.3 (2.3)%.
Sales revenue in the power engineering segment fell to €3.3 (3.6) billion. In operating profit (previous year’s
figure excludes special items), which amounted to €193 (194) million, negative volume effects were offset by
improvements in the mix. The operating return on sales (previous year’s figure excludes special items) increased
to 5.9 (5.4)%.
116 thousand
Vehicles produced in 2017
Divisions
MAN
43
P R O D U C T I O N
M A N
Units
Trucks
Buses
Light Commercial Vehicles
2017
2016
2017
2016
%
100,780
10,890
3,891
115,561
91,902
Commercial Vehicles
10,225
–
102,127
Orders received
(thousand units)
Deliveries
Vehicle sales
Production
Sales revenue (€ million)
Operating result1
as % of sales revenue
Power Engineering
Sales revenue (€ million)
Operating result1
as % of sales revenue
1 In the previous year before special items.
120
114
114
116
105
102
102
102
11,087
10,005
362
3.3
3,283
193
5.9
230
2.3
3,593
194
5.4
+13.9
+11.6
+11.6
+13.2
+10.8
+57.6
–8.6
–0.9
Lion’s Coach
D E L I V E R I E S B Y M A R K E T
(cid:339)(cid:363)(cid:3)(cid:382)(cid:305)(cid:386)(cid:294)(cid:305)(cid:363)(cid:398)
Europe/Other markets
North America
South America
Asia-Pacific
%
71.7 %
%
1.9 %
%
20.5 %
5.8 %
%
i
F U R T H E R I N F O R M A T I O N
www.man.eu
eu
44
Volkswagen Group China
Divisions
Volkswagen Group China
Volkswagen systematically pushed ahead with its strategic realignment in China in
2017 and launched its SUV initiative. A new joint venture for e-mobility was initiated
together with the manufacturer JAC.
B U S I N E S S D E V E L O P M E N T
The Volkswagen Group is shaping the path to tomorrow’s world of mobility in China, a key sales market: in
presenting the concept vehicles Audi e-tron Sportback, ŠKODA VISION E and Volkswagen I.D. CROZZ at the
Shanghai Auto Show, we underscored our ambitious goals for e-mobility and pushed ahead with our strategic
realignment. The e-mobility strategy tailored to the Chinese market plans to gradually introduce approximately
40 new, locally produced plug-in hybrids and electric vehicles through our joint ventures in addition to existing
and new import models.
Our fully automated concept car, the Sedric, presented in China in the reporting year, gives an insight into
the mobility of the future, which is also a focus area at the Future Center Asia.
The Volkswagen Group also launched its SUV initiative in the 2017 fiscal year and introduced exciting
models to the market: the Teramont, Tiguan L, ŠKODA Kodiaq and Audi Q7 e-tron.
Volkswagen agreed on a new joint venture for e-mobility in China with the Chinese car manufacturer Anhui
Jianghuai Automobile (JAC) in 2017. The two partners each have a 50% interest in the new company, which
plans to develop, produce and sell electric vehicles. The agreement includes the construction of a further
factory and a research and development center for this purpose. The partnership also comprises the
development and production of components for New Energy Vehicles (NEV) as well as the enhancement of
vehicle connectivity and automotive services.
In future, we plan to export vehicles produced in China with our joint venture companies SAIC VOLKS-
WAGEN and FAW-Volkswagen. Under the agreement concluded, models that have already proven their popularity
and quality in China will also be offered in other markets. This will supplement our model range, initially for
customers in the Philippines and later in other countries of Southeast Asia.
We currently manufacture vehicles and components at 20 sites in China. Together with our joint venture
partner, FAW, we are starting the production of environmentally friendly models at two new vehicle plants in
Qingdao and Tianjin on the east coast of China in 2018.
On the Chinese market, the Volkswagen Group offers more than 170 imported and locally produced models
from the Volkswagen Passenger Cars, Audi, ŠKODA, Porsche, Bentley, Lamborghini, Volkswagen Commercial
Vehicles, MAN, Scania and Ducati brands. We delivered 4.2 (4.0) million vehicles (including imports) to Chinese
customers in the reporting period. The Tiguan, Teramont, Magotan, New Bora, Audi A4 L, Audi Q7, ŠKODA
Kodiaq and Superb models as well as Porsche Cayenne and Panamera saw a particularly strong increase in
demand compared with the previous year.
4.2 million
Vehicles delivered in 2017
Divisions
Volkswagen Group China
45
E A R N I N G S
Thousand units
2017
2016
%
€ million
2017
2016
Deliveries
Vehicle sales1
Production
1 Produced locally.
4,184
4,020
4,041
3,982
3,873
3,896
+5.1
+3.8
+3.7
Operating profit (100%)
Operating profit (proportionate)
11,191
4,746
11,094
4,956
Our two joint ventures SAIC VOLKSWAGEN and FAW-Volks-
wagen produced a total of 4.0 million vehicles in fiscal year
2017. This was 3.7% more than in the previous year. The joint
ventures produce both established Group models and those
specially modified for Chinese customers (e.g. with lengthened
wheelbases), as well as vehicles developed exclusively for the
Chinese market (such as the Volkswagen Lamando, Lavida,
New Bora, New Jetta, New Santana and Teramont). Among
other vehicles, the ŠKODA Kodiaq, Octavia Combi and Karoq
and the upgraded Golf and Audi A3 entered production in the
reporting year.
The proportionate operating profit of the joint ventures in
2017 was €4.7 billion. The negative impact of more intense
competition and adverse exchange rate effects was offset by
the improvements in the mix, higher volumes and product
cost optimization.
The figures of the Chinese joint venture companies are
not included in the operating profit of the Group as they are
accounted for using the equity method. Their profits are
included solely in the Group’s financial result on a propor-
tionate basis.
Audi Q3
L O C A L P R O D U C T I O N
Units
2017
2016
Volkswagen Passenger Cars
3,156,352
3,012,664
Audi
ŠKODA
552,744
332,168
555,777
327,858
4,041,264
3,896,299
46
Volkswagen Financial Services
Divisions
Volkswagen’s financial services were in global demand again in 2017 and made a major
contribution to the Group’s good results. Euro-denominated corporate bonds were
again issued in the primary market during the reporting period.
ST R U C T U R E O F V O L K SWA G E N F I N A N C I A L S E R V I C E S
Volkswagen Financial Services comprises dealer and customer financing, leasing, banking and insurance activi-
ties, fleet management and mobility services in 51 countries. Volkswagen Financial Services AG is responsible
for global coordination of the Group’s financial services activities, the only exceptions being the financial
services business of the Scania brand and of Porsche Holding Salzburg. In Europe, the principal companies are
Volkswagen Bank GmbH, Volkswagen Leasing GmbH and Volkswagen Versicherungsdienst GmbH. VW CREDIT, INC.
operates financial services activities in North America.
Volkswagen Financial Services initiated a corporate restructuring in 2016, with the aim of combining the
credit and deposit business within the European Economic Area (EEA) in Volkswagen Bank GmbH. Effective
September 1, 2017, 100% of the shares in Volkswagen Bank GmbH were therefore transferred from Volkswagen
Financial Services AG to Volkswagen AG.
B U S I N E S S D E V E L O P M E N T
Volkswagen Financial Services impressed customers again in the 2017 fiscal year with diverse products, attrac-
tive terms and an exceptional range of services. This led it to achieve a record result.
The used-vehicle market is a strategic focus for Volkswagen Financial Services, and 2017 saw the launch of
the new online used-vehicle platform HeyCar. Mobility Trader GmbH, a wholly owned subsidiary of Volkswagen
Financial Services AG established for this purpose, is a quality portal for all automotive brands, not only those
belonging to the Volkswagen Group. HeyCar puts vehicles and quality at its heart. The platform also enables
dealers to tap potential earnings from additional sales. HeyCar is completely free of advertising and purchased
listings.
Volkswagen Financial Services is driving the further digitalization of its business and will perform all
payment service activities for the Volkswagen Group in the future. To establish, expand and operate these
services (payment for parking tickets, car sharing, electric charging, fuel and road tolls) around the world, Volks-
wagen Financial Services has founded a new, independent company in Luxembourg. In addition, Volkswagen
Financial Services has acquired the Munich-based start-up ContoWorks GmbH, which provides an integrated
platform for payment services.
€2.5 billion
Operating profit in 2017
Divisions
Volkswagen Financial Services
47
The main refinancing sources for Volkswagen Financial Services are money and capital market instruments,
asset-backed securities (ABS) transactions and customer deposits from the direct banking business.
In the reporting period, Volkswagen Leasing GmbH successfully returned to the primary market for euro-
denominated corporate bonds. On the capital market, it placed two floating-rate bonds with terms of two and
four years, as well as a fixed-rate bond with a term of seven and a half years. The total volume was €3.5 billion,
making this the largest transaction by Volkswagen Financial Services to date. In addition, two bonds with a total
volume of €2.25 billion were placed over the remainder of the year. Volkswagen Bank GmbH conducted its third
euro benchmark issue with three bonds and a total volume of €2.0 billion.
Numerous transactions were also successfully placed internationally. The second bond issued by Volks-
wagen Finance (China) Co., Ltd. in China has an issue volume of CNY 4 billion (approximately €534 million). In
Brazil, the local company Banco Volkswagen S.A. issued a bond with a volume of BRL 500 million, which trans-
lates to approximately €134 million. Volkswagen Financial Services Australia Pty Limited placed a bond with a
volume of AUD 500 million (€339 million) and two bonds with a total volume of AUD 325 million (approximately
€217 million). In the United Kingdom, bonds for GBP 850 million (approximately €1 billion) and GBP 300 million
(approximately €340 million) were issued by Volkswagen Financial Services N.V. Other bonds were placed in
Sweden, Norway, India, Mexico and Turkey.
Volkswagen Financial Services AG successfully issued a borrower’s note loan in 2017 with a total volume of
approximately €900 million, of which more than 500 million was in US dollars and the remainder in euros. The
terms were three, five and seven years.
Volkswagen Leasing GmbH was active on the market again in fiscal year 2017 with its asset-backed securi-
ties (ABS) transactions. German leasing receivables with a volume of approximately €1.6 billion were securitized
in the “Volkswagen Car Lease 25” program.
Outside Germany, Volkswagen Financial Services issued various ABS transactions on the market, including
in Australia, the United Kingdom, France and China. A total of eight bonds were placed.
Other instruments used as part of the diversified funding strategy are customer deposits, commercial paper
and credit lines.
Hey Car
48
Volkswagen Financial Services
Divisions
Starting January 1, 2017, Porsche’s financial services business is reported as part of Volkswagen Financial
Services.
At 6.8 million contracts, the number of new financing, leasing, service and insurance contracts signed in
the reporting period was 3.4% higher than in the previous year. The total number of contracts as of December
31, 2017 stood at a new record high of 17.2 million (+6.8%). The customer financing/leasing area accounted for
9.6 million contracts, up 7.6% year-on-year. In the Service/Insurance area, the number of contracts increased by
5.9% to 7.6 million. With credit eligibility criteria remaining unchanged, the penetration rate, expressed as the
ratio of financed or leased vehicles to relevant Group delivery volumes – including the Chinese joint ventures –
was steady at 33.1 (33.1)%.
At the end of the reporting period, Volkswagen Bank managed 1.5 (1.6) million deposit accounts. Volks-
wagen Financial Services employed 13,955 people worldwide as of December 31, 2017, 6,809 of them in Germany.
S A L E S R E V E N U E A N D E A R N I N G S
In the 2017 fiscal year, Volkswagen Financial Services generated sales revenue €31.8 billion, 15.5% more than in
the previous year. At €2.5 billion, operating profit exceeded the previous year’s figure by 16.9%, hitting a new
record. In addition to Porsche Financial Services, the increase resulted, above all, from improved margins and
business growth.
V O L K SWA G E N F I N A N C I A L S E R V I C E S
Number of contracts
Customer financing1
Leasing1
Service/Insurance
Lease assets
Receivables from
Customer financing1
Dealer financing
Leasing agreements1
Direct banking deposits
Total assets
Equity
Liabilities2
Equity ratio
Return on equity before tax3
Leverage4
Operating result
Earnings before tax
Employees at Dec. 31
2017
2016
%
thousands
€ million
€ million
€ million
€ million
€ million
€ million
%
%
€ million
€ million
17,234
5,672
3,921
7,641
36,422
58,125
19,614
39,553
30,408
186,917
25,634
154,410
13.7
9.8
6.0
2,460
2,299
13,955
16,133
5,421
3,494
7,218
31,593
55,298
17,921
34,902
32,412
170,070
21,178
141,830
12.5
10.4
6.7
2,105
2,073
13,406
+6.8
+4.6
+12.2
+5.9
+15.3
+5.1
+9.4
+13.3
–6.2
+9.9
+21.0
+8.9
+16.9
+10.9
+4.1
1 Prior year adjusted, as some of the receivables from customers are now presented as lease receivables.
2 Excluding provisions and deferred tax liabilities.
3 Earnings before tax as a percentage of average equity (continuing operations).
4 Liabilities as a percentage of equity.
A D D I T I O N A L I N F O R M AT I O N
www.vwfsag.com
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3
Group Management
Report
(Combined Management Repo r t o f t h e Vo l kswa gen Gro u p a nd Vo l kswa ge n AG)
GROUP MANAGEMENT REPORT
51 Goals and Strategies
54
Internal Management System and
Key Performance Indicators
56 Structure and Business Activities
59 Corporate Governance Report
67 Remuneration Report
84 Executive Bodies
88
Disclosures Required Under Takeover Law
91 Diesel Issue
95 Business Development
108 Shares and Bonds
114 Results of Operations,
Financial Position and Net Assets
130 Volkswagen AG (condensed, in accordance
with the German Commercial Code)
134 Sustainable Value Enhancement
157 Report on Expected Developments
164 Report on Risks and Opportunities
190 Prospects for 2018
Group Management Report
Goals and Strategies
51
Goals and Strategies(cid:3)
We are striving for lasting success in tomorrow’s world of mobility and intend to be one of the
world’s leading providers of sustainable mobility. This is the reason we have anchored the future
program TOGETHER – Strategy 2025 in the Group.
The future program TOGETHER – Strategy 2025, the biggest
change process in the history of Volkswagen, was launched in
2016. With the future program, we are making the Volks-
F U T U R E P R O G R A M T O G E T H E R – S T R A T E G Y 2 0 2 5
Excited
customers
Excellent
employer
Sustainable
growth
Competitive
profitability
Role model for
environment, safety
and integrity
wagen Group more focused, efficient, innovative, customer-
oriented and sustainable, and more systematically geared to
generating profitable growth. The program creates the
framework and lays the cornerstones for us to achieve our
vision of being one of the world’s leading providers of sus-
tainable mobility.
The time horizon until 2025 shows that our thoughts
and actions are long-term and future-oriented. The term
TOGETHER describes the mindset that will be even more vital
to the Volkswagen Group’s long-term success going forward.
Our intention with the new Group strategy is for everyone in
the Volkswagen Group to join us in producing exciting vehi-
cles and forward-looking, tailor-made mobility solutions that
will continue to inspire our customers, meeting their diverse
needs with a portfolio of strong brands. Every day, we actively
assume and exercise responsibility in relation to the environ-
ment, society and safety, and we wish to be a role model in
these areas. Integrity, reliability, quality and passion thus
form the basis for our work. In this way, we will aim for
technological leadership in the industry, ensure our com-
petitive profitability and remain an excellent, reliable and
secure employer at the same time.
The Code of Collaboration formulated as part of the
future program is the foundation on which the Group
strategy rests. This Code describes how collaboration is to
take place within the Group and between individuals in their
day-to-day work. Its core values are encapsulated in the terms
“genuine”, “straightforward”, “open-minded”, “as equals” and
“united”.
52
Goals and Strategies
Group Management Report
F O U R B U I L D I N G B LO C K S O F T H E F U T U R E P R O G R A M
TO G E T H E R – ST R AT E GY 2 0 2 5
Our Group strategy comprises a raft of far-reaching strategic
decisions and specific initiatives essentially aimed at safe-
guarding the Group’s long-term future and generating profit-
able growth. It is composed of four building blocks which
cover a total of 16 strategic Group initiatives.
The first of these is the transformation of the core auto-
motive business. Developing, building and selling vehicles
will remain essential for the Volkswagen Group going for-
ward. However, there will be far-reaching and lasting changes
to this business in the future. That is the reason why we are
comprehensively restructuring our core business to face this
new era of mobility.
The second key building block in our Group strategy is
establishing a new mobility solutions business. In this busi-
ness, we are developing innovative and efficient, attractive
yet profitable mobility services that are tailored to customer
requirements with the goal of being one of the leading
providers in this growth market in the future.
With the third key building block, we are intensifying our
traditionally excellent innovative strength and placing it on
an even broader footing. This is necessary both for the
transformation of our core business and for the establish-
ment of the new mobility solutions business. To this end, we
are pushing ahead with the digital transformation in all parts
of the Company.
Becoming one of the world’s
leading providers of
sustainable mobility calls for substantial capital expenditure.
B U I L D I N G B L O C K S A N D S T R A T E G I C G R O U P I N I T I A T I V E S
This will be financed in particular through efficiency gains
along the entire value chain – from product development and
procurement through to production and distribution as well
as in the central supporting areas. Additional funds for future
investments can also be generated by optimizing the existing
portfolio of brands and equity investments. Through the
fourth key building block of the Group strategy we will
safeguard the financing of the Volkswagen Group and place it
on a solid basis.
G OA L S A N D K E Y P E R F O R M A N C E I N D I C ATO R S O F T H E G R O U P ’ S
ST RAT E GY
The strategic initiatives describe how we intend to achieve
our vision of being one of the world’s leading providers of
sustainable mobility. For this purpose, we have defined four
target dimensions – excited customers, excellent employer,
role model for the environment, safety and integrity, and
competitive profitability – which are designed to help us
grow sustainably.
Although these target dimensions apply throughout the
Group, the strategic KPIs that we will use in the future to
measure how well we have implemented our Group strategy,
depend on the business model. After all, the business model
for our passenger car-producing brands is different from that
for trucks and buses and also from that of our Power
Engineering Business Area and our services business.
T R A N S F O R M
C O R E B U S I N E S S
· Sharpen positioning of brands
· Develop successful vehicle and drivetrain portfolio
· Partner with regional players to win in economy segment
· Streamline modular toolkits
· Implement model line organization
· Realign “Components” business
· Develop battery technology as new core competency
· Develop self-driving system for autonomous vehicles and artificial intelligence
· Develop best-in-class user experience across brands and customer touchpoints
S T R E N G T H E N
I N N O V A T I O N P O W E R
· Drive digital transformation
· Create organization 4.0
B U I L D
M O B I L I T Y S O L U T I O N S
B U S I N E S S
· Establish mobility
solutions business
· Develop and expand
attractive and profitable
smart mobility offering
S E C U R E
F U N D I N G
· Improve
operational excellence
· Optimize
business portfolio
· Integrate strategy
and planning process
Group Management Report
Goals and Strategies
53
In the following, we describe the Group’s strategic goals
attached to these target dimensions.
The strategic KPIs of the competitive profitability target
dimension have been defined and anchored uniformly in the
Group. As the new Group strategy has yet to be specified in
detail, the content of some strategic KPIs in the other target
dimensions is still being determined. We report on the
already defined nonfinancial strategic KPIs in the “Corporate
Governance Report” and “Sustainable Value Enhancement”
sections.
Target dimension: excited customers
This target dimension focuses on the diverse needs of our
customers and on tailor-made mobility solutions. We aspire
to exceed our customers’ expectations, generating maximum
benefit for them. That calls not only for the best products, the
most efficient solutions and the best service, but also for
flawless quality and an outstanding image. We want to excite
our existing customers, win over new ones and retain their
loyalty in the long term – because only loyal and faithful
customers will recommend us to others.
our innovations and outstanding quality, we aim for maxi-
mum product safety. The most important principles in this
process include compliance with laws and regulations, the
establishment of secure processes, and dealing openly with
mistakes so that they can be avoided or rectified in the future.
In terms of integrity, Volkswagen aims to become a role model
for a modern, transparent and successful enterprise.
The strategic KPIs of this target dimension include the
decarbonization index and KPIs pertaining to emissions
figures, compliance, process reliability and a culture of
dealing openly with mistakes.
Target dimension: competitive profitability
Investors judge us by whether we are able to meet our obli-
gations as regards interest payments and debt repayments.
As equity holders, they expect appropriate dividends and a
long-term increase in the value of their shares.
We make investments with a view to achieving profitable
growth and strengthening our competitiveness, thus keeping
the Volkswagen Group on a firm footing and ensuring it
remains an attractive investment option.
The strategic KPIs consist of the net promoter score, the
conquest rate and KPIs pertaining to loyalty, customer satis-
faction and quality.
The goals we have set ourselves are operational excellence
in all business processes and becoming the benchmark for
the entire industry.
Target dimension: excellent employer
Skilled and dedicated employees are one of the keys to sus-
tainable success. We wish to promote their satisfaction and
motivation by means of equal opportunities, an attractive
and modern working environment, and a forward-looking
organization of work. Exemplary leadership and corporate
culture forms the foundation for this, enabling us to retain
our core workforce and attract new talent.
The strategic KPIs of this target dimension cover internal
employer attractiveness determined by means of the opinion
survey, external employer attractiveness, an external employer
ranking as well as a KPI pertaining to cross-brand exchange
and rotation and the diversity index.
Target dimension: role model for the environment, safety and
integrity
Every day, we at the Volkswagen Group assume and exercise
responsibility in relation to the environment, safety and soci-
ety. This is reflected in our thoughts and actions and in all
our decisions in equal measure.
We pay particular attention to the use of resources and the
emissions of our product portfolio as well as those of our sites
and plants, with the goal of continuously improving our
carbon footprint and lowering pollutant emissions. Through
The strategic KPIs are operationalized for internal manage-
ment purposes: target and actual data are derived from Volks-
wagen Group figures.
ST R AT E G I C K P I S : CO M P E T I T I V E P R O F I TA B I L I T Y
Operating return on sales1
Research and development ratio
(R&D ratio) in the Automotive
Division
Capex/sales revenue in the
Automotive Division
2015
6.0%
7.4%
6.9%
2025
7 to 8%
~6%
~6%
Net cash flow in the
Automotive Division
€8,887 million
Net liquidity in the Automotive
Division
€24,522 million,
11.5%
Positive, to allow
a distribution
ratio of 30%
~10% of
consolidated
sales revenue
Return on investment (ROI) in the
Automotive Division
– 0.2%
>15%
1 2015 before special items
54
Internal Management System and Key Performance Indicators
Group Management Report
Internal Management System and
Key Performance Indicators
This chapter describes, on the basis of the Group strategy, how the Volkswagen Group is managed
and the key performance indicators used for this purpose. In addition to financial measures, our
management system also contains nonfinancial key performance indicators.
The Volkswagen Group’s performance and success can be
measured by both financial and nonfinancial key perfor-
mance indicators. With the operational excellence Group
initiative, we aim to improve these indicators throughout all
areas and along the entire value chain.
In the following, we first describe the internal manage-
ment process and then explain the Volkswagen Group’s core
performance indicators.
I N T E R N A L M A N A G E M E N T P R O C E S S I N T H E
VO L K SWA G E N G R O U P
The “Integrate strategy and planning process” Group initia-
tive is focused on continuity and even closer dovetailing of
the Group and brand strategies with the operational planning
process. This enhances transparency when it comes to the
financial assessment and the evaluation of directional deci-
sions. The operational planning that is conducted once a year
and generally covers a period of five years is incorporated
into the strategic planning as a key management element of
the Group.
Medium-term planning forms the core of our operational
planning and is used to formulate and safeguard the require-
ments for realizing strategic projects designed to meet Group
targets in both technical and economic terms – and partic-
ularly in relation to earnings, cash flow and liquidity effects.
In addition, it is used to coordinate all business areas with
respect to the strategic action areas concerned: functions/
processes, products and markets.
When planning the Company’s future, the individual planning
components are determined on the basis of the timescale
involved:
> the long-term unit sales plan, which sets out market and
segment growth and then derives the Volkswagen Group’s
delivery volumes from them,
> the product program as the strategic, long-term factor
determining corporate policy,
> capacity and utilization planning for the individual sites.
The coordinated results of the upstream planning processes
are used as the basis for the medium-term financial planning:
the Group’s financial planning, including the brands and
business fields, comprises the income statement, cash flow
and balance sheet planning, profitability and liquidity, as well
as the upfront investments needed for alternative products
and the implementation of strategic options. The first year of
the medium-term planning period is fixed and a budget
drawn up for the individual months. This is planned in detail
down to the level of the operating cost centers.
The budget is reviewed each month throughout the year
to establish the degree to which the targets have been met.
Key internal management instruments comprise target/
actual comparisons, prior-year comparisons, variance analyses
and, where necessary, action plans to ensure targets are met.
For the current fiscal year, detailed revolving monthly fore-
casts are prepared for the coming three months and the full
year, taking into account the current risks and opportunities.
The focus of intrayear internal management is therefore on
adapting ongoing operations. At the same time, the current
forecast serves as a potential, ongoing corrective to the
medium-term and budget planning that follows on from it.
Group Management Report
Internal Management System and Key Performance Indicators
55
COR E P E R F O R M A N C E I N D I C ATOR S I N T H E VO L KSWAG E N G R O U P
The Volkswagen Group’s internal management system is
based on nine core performance indicators, which are derived
from our strategic goals. Two of these indicators were added
in fiscal year 2017 under the future program TOGETHER –
Strategy 2025:
> Deliveries to customers
> Sales revenue
> Operating result
> Operating return on sales
> Research and development ratio (R&D ratio) in the Auto-
motive Division (from 2017)
> Capex/sales revenue in the Automotive Division
> Net cash flow in the Automotive Division
> Net liquidity in the Automotive Division (from 2017)
> Return on investment (ROI) in the Automotive Division
Deliveries to customers are defined as handovers of new vehi-
cles to the end customer. This figure shows the popularity of
our products and is the measure we use to determine our
competitive position in various markets. Deliveries are
closely related to our targets of exciting our customers, being
a role model in terms of the environment, safety and
integrity, and being an excellent employer. One of the most
important prerequisites for the Company’s long-term success
is a strong brand portfolio that – on the basis of outstanding
quality – offers tailor-made mobility solutions with safe,
resource-efficient vehicles, thus meeting the diverse needs of
customers. Demand for our products guarantees not only
unit sales and production, but also full utilization of our sites
and the jobs of our employees. The goals we are striving for
cannot be achieved without a skilled, dedicated workforce
and a consensus on shared values.
Sales revenue, which does not include the figures for our
equity-accounted Chinese joint ventures, reflects our market
success in financial terms. Following adjustment for our use
of resources, the operating result reflects the Company’s
actual business activity and documents the economic success
of our core business. The operating return on sales is the ratio
of the operating result to sales revenue.
The research and development ratio (R&D ratio) in the
Automotive Division shows total research and development
costs in relation to sales revenue. Research and development
costs comprise a range of expenses, from futurology through
to the development of marketable products. Particular empha-
sis is placed on the environmentally friendly orientation of
our product portfolio. The R&D ratio underscores the efforts
made to ensure the Company’s future viability: the goal of
competitive profitability geared to sustainable growth.
investment property and
The ratio of capex (investments in property, plant and
equipment,
intangible assets,
excluding capitalized development costs) to sales revenue in
the Automotive Division reflects both our innovative power
and our future competitiveness. It shows our capital expen-
diture – largely for modernizing and expanding our product
range and for environmentally friendly drivetrains, as well as
for adjusting the production capacity and improving pro-
duction processes – in relation to the Automotive Division’s
sales revenue.
Net cash flow in the Automotive Division represents the
excess funds from operating activities available for dividend
payments, for example. It is calculated as cash flows from
operating activities less cash flows from investing activities
attributable to operating activities.
Net liquidity in the Automotive Division is the total of
cash, cash equivalents, securities, loans and time deposits not
financed by third-party borrowings. To safeguard our busi-
ness activities, we have formulated the strategic target that
net liquidity in the Automotive Division should amount to
approximately 10% of the consolidated sales revenue.
We use the return on investment (ROI) to calculate the
return on invested capital for a particular period in the Auto-
motive Division, including the Chinese joint ventures on a
proportionate basis, by calculating the ratio of the operating
result after tax to average invested capital. If the return on
investment (ROI) exceeds the market cost of capital, the value
of the Company has increased. This is how we measure the
financial success of our brands, locations and vehicle projects.
You can find information on and explanations of the sales
figures and the Volkswagen Group’s financial key perfor-
mance indicators on pages 101 to 107 and on pages 114 to
129, respectively.
Detailed descriptions of our activities and additional
nonfinancial key performance indicators in the areas of sus-
tainability, research and development, procurement, produc-
tion, sales and marketing, quality assurance, employees,
information technology and the environment can be found
in the chapter entitled “Sustainable Value Enhancement”
beginning on page 134 of this annual report. Nonfinancial
key performance
indicators related to compliance are
described in the “Corporate Governance Report” on page 65.
56
Structure and Business Activities
Group Management Report
Structure and Business Activities
This chapter describes the legal and organizational structure of the Volkswagen Group
and explains the material changes in 2017 with respect to equity investments.
O U T L I N E O F T H E L E G A L ST R U C T U R E O F T H E G R O U P
Volkswagen AG is the parent company of the Volkswagen
Group. It develops vehicles and components for the Group’s
brands, but also produces and sells vehicles, in particular
passenger cars and light commercial vehicles for the Volks-
wagen Passenger Cars and Volkswagen Commercial Vehicles
brands. In its capacity as parent company, Volkswagen AG
holds indirect or direct interests in AUDI AG, SEAT S.A., ŠKODA
AUTO a.s., Dr. Ing. h.c. F. Porsche AG, Scania AB, MAN SE, Volks-
wagen Financial Services AG, Volkswagen Bank GmbH and a
large number of other companies in Germany and abroad.
More detailed disclosures are contained in the list of share-
holdings in accordance with sections 285 and 313 of the
Handelsgesetzbuch (HGB – German Commercial Code), which
can be accessed at www.volkswagenag.com/ir and is part of
the annual financial statements.
Volkswagen AG is a vertically integrated energy supply
company as defined by section 3 no. 38 of the Energiewirt-
schaftsgesetz (EnWG – German Energy Industry Act) and is
therefore subject to the provisions of the EnWG. In the elec-
tricity sector, Volkswagen AG generates, sells and distributes
electricity together with a Group subsidiary.
Volkswagen AG’s Board of Management is the ultimate
body responsible for managing the Group. The Supervisory
Board appoints, monitors and advises the Board of Manage-
ment; it is consulted directly on decisions that are of funda-
mental significance for the Company.
O R G A N I Z AT I O N A L ST R U C T U R E O F T H E G R O U P
The Volkswagen Group is one of the leading multibrand groups
in the automotive industry. The Company’s business activi-
ties comprise the Automotive and Financial Services divi-
sions. All brands within the Automotive Division – with the
exception of the Volkswagen Passenger Cars and Volkswagen
Commercial Vehicles brands – are independent legal entities.
The Automotive Division comprises the Passenger Cars,
Commercial Vehicles and Power Engineering business areas.
The Passenger Cars Business Area essentially consolidates the
Volkswagen Group’s passenger car brands. Activities focus on
the development of vehicles and engines, the production and
sale of passenger cars, and the genuine parts business. The
product portfolio ranges from fuel-efficient compact cars to
luxury vehicles and also includes motorcycles, and will
gradually be supplemented by mobility solutions.
The Commercial Vehicles Business Area primarily com-
prises the development, production and sale of light com-
mercial vehicles, trucks and buses from the Volkswagen
Commercial Vehicles, Scania and MAN brands, the corre-
sponding genuine parts business and related services. The
collaboration between the MAN and Scania commercial vehi-
cle brands is managed and coordinated under the umbrella of
Volkswagen Truck & Bus GmbH. The commercial vehicles
portfolio ranges from pickups to heavy trucks and buses.
The Power Engineering Business Area combines the large-
bore diesel engines, turbomachinery, special gear units, pro-
pulsion components and testing systems businesses.
The activities of the Financial Services Division comprise
dealer and customer financing, vehicle leasing, banking and
insurance activities, as well as fleet management and mobil-
ity offerings.
With its brands, the Volkswagen Group is present in all
relevant markets around the world. The Group’s key sales
markets currently include Western Europe, China, the USA,
Brazil and Mexico.
Volkswagen AG and the Volkswagen Group are managed
by the Volkswagen AG’s Board of Management in accordance
with the Volkswagen AG Articles of Association and the rules
of procedure for Volkswagen AG’s Board of Management
issued by the Supervisory Board.
Group Management Report
Structure and Business Activities
57
Each brand in the Volkswagen Group is managed by a board
of management, which ensures its independent and self-
contained development and business operations. The Group
targets and requirements laid down by the Board of Manage-
ment of Volkswagen AG must be complied with to the extent
permitted by law. This allows Group-wide interests to be
pursued, while at the same time safeguarding and reinforcing
each brand’s specific characteristics. Matters that are of
importance to the Group as a whole are submitted to the
Group Board of Management in order to reach agreement
between the parties involved, to the extent permitted by law.
The rights and obligations of the statutory bodies of the
relevant brand company remain unaffected.
The companies of the Volkswagen Group are managed
separately by their respective managements. In addition to
the interests of their own companies, the management of
each individual company takes into account the interests of
the Group and of the individual brands in accordance with
the framework laid down by law.
At Group level, committees also address key strategic
issues, for example relating to product planning, investments
and management issues.
To continue to enhance the Group’s leadership and man-
agement model, we redesigned the portfolio of these com-
mittees and the regulation landscape at Group level in the
reporting period. Among other things, a Committee for
Digital Transformation was created and the Committee for
Liquidity and Foreign Currency was replaced by the Group
Board of Management Committee for Risk Management.
These changes have reduced complexity and reinforced
governance within the Group. In addition, the Group
functions have continued to focus on leveraging substantial
synergies across all brands and business fields, pooling com-
petencies and making these available to the brands.
Operational fine-tuning at Group level has also been
reduced further and, at the same time, greater entrepre-
neurial responsibility assigned to the brands and regions,
making the Group more agile and speeding up decision-
making processes. The Group Board of Management can
concentrate more on strategy and the management of major
areas in which synergies can be created, for example joint
creation of a digitalization architecture, brand positioning,
product strategy, development and use of platforms and
modules, procurement and plant capacity utilization.
With our future program TOGETHER – Strategy 2025, the
Organization 4.0 Group initiative also supports the Com-
pany’s transformation and is making the Group’s organi-
zation fit for the future. The aim of this initiative is to
connect activities across divisions, initiate new organizational
approaches and anchor these in the Group for the long term.
This will not only enable but will actively create holistic
stimulus for innovations, entrepreneurship and change,
ensuring that the Group remains agile and competitive in
future.
M AT E R I A L C H A N G E S I N E Q U I T Y I N V E STM E N T S
The control and profit and loss transfer agreement between
MAN SE, as the controlled company, and Volkswagen
Truck & Bus GmbH, a wholly owned subsidiary of Volks-
wagen AG, as the controlling company, came into force upon
its entry in the commercial register on July 16, 2013. The
conclusion of the control and profit and loss transfer agree-
ment replaced the group based on the de facto exercise of
management control by a contractual group, permitting
considerably more efficient and less bureaucratic cooper-
ation between the MAN Group and the rest of the Volkswagen
Group. Noncontrolling interest shareholders of MAN SE have
the right to tender MAN ordinary and preferred shares in
Volkswagen Truck & Bus GmbH during and two months after
the conclusion of the award proceedings instituted in July
2013 to review the appropriateness of the cash settlement set
out in the agreement in accordance with section 305 of the
Aktiengesetz (AktG – German Stock Corporation Act) and the
cash compensation in accordance with section 304 of the
AktG. The Munich Regional Court ruled in the first instance
at the end of July 2015 that the settlement payable to the
shareholders should be increased from €80.89 to €90.29 per
share. Both Volkswagen Truck & Bus GmbH and a number of
the noncontrolling interest shareholders have appealed to
the Higher Regional Court in Munich. At the end of December
2017, Volkswagen Truck & Bus GmbH held 75.73% of the ordi-
nary shares and 46.95% of the preferred shares of MAN SE.
At the beginning of September 2016, Volkswagen Truck &
Bus GmbH, a wholly owned subsidiary of Volkswagen AG, and
the US-based commercial vehicle manufacturer Navistar
International Corporation (Navistar), announced that they
had signed an agreement to forge a wide-ranging alliance.
The transaction was closed on February 28, 2017. Volkswagen
Truck & Bus acquired 16.6% of the shares in Navistar through
a capital increase. The interest held was increased to 16.9% by
the end of 2017. Navistar is a holding company whose sub-
sidiaries produce trucks, coaches, commercial and school
buses, diesel engines and service parts. The alliance includes
framework agreements for a strategic technology and supply
cooperation and for the joint venture Global Truck & Bus
Procurement LLC, based in Lisle (Illinois), which will pursue
joint global procurement opportunities. The partnership will
focus on developing common powertrain systems, but may
58
Structure and Business Activities
Group Management Report
also entail collaboration in other areas of commercial vehicle
development and procurement. Opportunities to cooperate
in the fields of autonomous driving, alternative fuel technol-
ogies and connectivity will also be examined. The aim is to
jointly create new synergies and to achieve greater indepen-
dence from the cycles in the industry.
Part of the PGA Group SAS, Paris, France, was sold by
POFIN Financial Services Verwaltungs GmbH, Freilassing, to
the Emil Frey Group on June 1, 2017. The sale is in connection
with the strategic development of Porsche Holding Salzburg’s
dealer network and the corresponding focus on dealerships
exclusively selling Volkswagen Group brand vehicles. The
transaction encompasses dealerships in Poland, the Nether-
lands, Belgium and in some cases also in France.
With the “Optimize business portfolio” Group initiative,
the Board of Management intends to ensure the Volkswagen
Group’s competitiveness and financial performance as a
forward-looking mobility provider by focusing on its core
business and using its capital to the best advantage. To this
end, we are continuously monitoring and analyzing our
portfolio and can respond in a timely manner by making any
necessary purchases or sales.
L E G A L F A C TO R S I N F L U E N C I N G B U S I N E S S
Like other international companies, Volkswagen companies
are affected by numerous laws in Germany and abroad. In
particular, there are legal requirements relating to develop-
ment, products, production and distribution, as well as,
among other things, to supervisory, data protection, finan-
cial, company, commercial, capital market, anti-trust and tax
regulations and regulations relating to labor, banking, state
aid, energy, environmental and insurance law.
VO L KSWAG E N A G S H A R E H O L D I N G S
www.volkswagenag.com/ir
Group Management Report
Corporate Governance Report
59
Corporate Governance Report
Corporate governance is defined as responsible, transparent corporate management and
supervision that aims to add long-term value. For us, good corporate governance not only
forms the basis for lasting success; it is also an important prerequisite for strengthening
the trust of our stakeholders in our work.
T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E – A B L U E P R I N T
F O R S U CC E S S F U L CO R P O R AT E G OV E R N A N C E
Corporate governance provides the regulatory framework for
corporate management and supervision. This includes a
company’s organization and values, and the principles and
guidelines for its business policy. The German Corporate
Governance Code (the Code) contains recommendations and
suggestions for sound, responsible corporate management
and supervision. It was prepared by a dedicated government
commission on the basis of the material provisions and
nationally and internationally accepted standards of corpo-
rate governance. The government commission regularly
reviews the Code in light of current developments and
updates it as necessary. The Board of Management and the
Supervisory Board of Volkswagen AG base their work on the
recommendations and suggestions of the German Corporate
Governance Code. We consider good corporate governance to
be a key prerequisite for achieving a lasting increase in the
Company’s value. It helps strengthen the trust of our share-
holders, customers, employees, business partners and
investors in our work and meet the steadily increasing
demand for information from national and international
stakeholders.
D E C L A R AT I O N S O F CO N F O R M I T Y
( VA L I D A S O F T H E DAT E O F T H E R E L E VA N T D E C L A R AT I O N )
On November 17, 2017, the Board of Management and the
Supervisory Board of Volkswagen AG issued the annual decla-
ration of conformity with the Code as required by section 161
of the Aktiengesetz (AktG – German Stock Corporation Act)
with the following wording:
“The Board of Management and the Supervisory Board
declare the following:
1. The recommendations of the Government Commission of
the German Corporate Governance Code in the version dated
5 May 2015 (the Code) that were published by the German
Ministry of Justice in the official section of the Federal
Gazette (Bundesanzeiger) on 12 June 2015 were complied
with in the period from the last Declaration of Conformity
dated 18 November 2016 until the amended version of the
Code dated 7 February 2017 came into effect on 24 April 2017,
with the exception of the following numbers listed below
with their stated reasons.
> a) 4.2.3(4) (severance cap)
A severance cap will be included in new contracts con-
cluded with members of the Board of Management, but not
in contracts concluded with Board of Management mem-
bers entering their third term of office or beyond, provided
a cap did not form part of the initial contract. Grandfather
rights have been applied accordingly.
> b) 5.3.2 sentence 3 (independence of the chair of the Audit
Committee)
It is unclear from the wording of this recommendation
whether the Chairman of the Audit Committee is "inde-
pendent" within the meaning of number 5.3.2 sentence 3
of the Code. Such independence could be considered
lacking in view of his seat on the Supervisory Board of
Porsche Automobil Holding SE, kinship with other mem-
bers of the Supervisory Board of the company and of
indirect minority
Porsche Automobil Holding SE, his
interest in Porsche Automobil Holding SE, and business
relations with other members of the Porsche and Piëch
families who also have an indirect interest in Porsche
Automobil Holding SE. However, in the opinion of the
Supervisory Board and the Board of Management, these
relationships do not constitute a conflict of interest nor do
they interfere with his duties as the Chairman of the Audit
Committee. This exception is therefore being declared
purely as a precautionary measure.
> c) 5.4.1(5 to 7) (disclosure regarding election recommen-
dations)
With regard to recommendation number 5.4.1(5) to (7) of
the Code stating that certain circumstances must be
disclosed by the Supervisory Board when making election
recommendations to the Annual General Meeting, the
stipulations of the Code are vague and the definitions
60
Corporate Governance Report
Group Management Report
unclear. Purely as a precautionary measure, the Board of
Management and the Supervisory Board therefore declare
a deviation from the Code in this respect. Notwithstanding
this, the Supervisory Board will make every effort to satisfy
the requirements of the recommendation.
> d) 5.4.6(2) sentence 2 (performance-related remuneration
of members of the Supervisory Board)
Until the amendment to article 17(1) of the Articles of
Association adopted by the Annual General Meeting on 10
May 2017 that came into effect on 1 June 2017, Supervisory
Board remuneration was linked in part to the dividends.
We therefore assumed that we had complied with the Code
and that the variable compensation component was
oriented toward the sustainable growth of the company as
defined in number 5.4.6(2) sentence 2 of the Code. How-
ever, as it could not be ruled out that other views would be
taken in this respect, a deviation from this recommen-
dation in the Code is being declared as a precautionary
measure.
2. The recommendations of the Government Commission of
the German Corporate Governance Code in the version dated
7 February 2017 (the 2017 Code) that were published by the
German Ministry of Justice on 24 April 2017 in the official
section of the Federal Gazette (Bundesanzeiger) were com-
plied with in the period from when this version came into
effect on 24 April 2017 and will continue to be complied with,
with the exception of the numbers listed below and their
stated reasons.
> a) 4.2.3(4) (severance cap)
> b) 5.3.2(3) sentence 2 (independence of the chair of the
Audit Committee)
> c) 5.4.1(6 to 8) (disclosure regarding election recommen-
dations)
The reasons for exceptions a) to c) are listed above in the
details under point 1.
> d) 5.4.6(2) sentence 2 (performance-related remuneration
of members of the Supervisory Board)
Until the amendment to article 17(1) of the Articles of
Association adopted by the Annual General Meeting on 10
May 2017 that came into effect on 1 June 2017, Supervisory
Board remuneration was linked in part to the dividends.
We therefore assumed that we had indeed complied with
the Code and that the variable compensation component
was oriented toward the sustainable growth of the com-
pany as defined in number 5.4.6(2) sentence 2 of the 2017
Code. However, as it could not be ruled out that other views
would be taken in this respect, a deviation from this recom-
mendation in the Code was declared as a precautionary
measure. The amendment to the Articles of Association
that came into effect on 1 June 2017 introduced fixed
remuneration retroactively as of 1 January 2017, so that the
recommendation has definitely been complied with since 1
June 2017.
> e) 4.2.3(2) sentence 3 (variable remuneration package in
principle future-oriented)
The recommendation that the variable remuneration com-
ponents based on a multi-year assessment should essen-
tially be forward-looking has been recently added to the
Code. The corresponding remuneration components for
the members of the Board of Management were in the
former system essentially based on the results of the past
fiscal year and would therefore not be suitable for this
recommendation. In February 2017, the Supervisory Board
adopted a new system for the Board of Management remu-
neration in which the multi-year variable remuneration
components were essentially future-oriented. The new
remuneration system was fully implemented with retro-
active effect to 1 January.
> f) 5.4.1(2) sentence 1 (objectives regarding the composition
of the Supervisory Board; profile of skills and expertise)
This recommendation concerning the specification of con-
crete objectives for the composition of the Supervisory
Board was supplemented when the 2017 Code came into
force to the effect that the Supervisory Board should also
prepare a profile of skills and expertise for the entire
committee in addition to specifying objectives for its com-
position. This recommendation, more specifically the
supplement, has not been complied with from when the
amended version of the recommendation took effect until
today due to the new addition. Following consultations and
specifications on the part of the Supervisory Board, this
recommendation will be complied with in full as of today.
> g) 5.4.1(5) sentence 2 (curriculum vitae of the members of
the Supervisory Board)
The recommendation to publish updated curriculum vitae
of all members of the Supervisory Board on the company
website every year, including an overview of the main
ancillary activities, has been newly added to the 2017 Code.
The curriculum vitae of members of the Supervisory Board
were published on 1 August 2017; this included an over-
view of their main ancillary activities beyond their Super-
visory Board mandates. The recommendation has been
complied with since that time.”
The current declaration of conformity is also published on
our website, www.volkswagenag.com/ir.
With the exception of number 4.2.3(2) sentence 9 (no
early disbursements of variable remuneration components)
and number 5.1.2(2) sentence 1 (duration of first-time
appointments to the Board of Management), the suggestions
in the current version of the Code have been complied with.
Provision is made to some extent for the early disbursement
of multiple-year, variable remuneration components in the
event that one member of the Board of Management retires
(early) from the Board; independently of this, such remu-
neration components could be disbursed early. The Super-
visory Board will decide the duration of each first-time
Group Management Report
Corporate Governance Report
61
appointment to the Board of Management on an individual
basis, taking the best interests of the Company into account.
The suggestion made in number 2.3.2 sentence 2 (acces-
sibility of the voting proxy during the Annual General
Meeting) was implemented at the 2017 Annual General
Meeting in such a manner that the shareholders were able to
reach the voting proxies named by the Company to exercise
their voting rights until 1:00 pm, also by electronic means.
The suggestion made in number 2.3.3 (broadcast of the
Annual General Meeting) was implemented at the 2017
Annual General Meeting so that the introductory remarks by
the Chairman of the Supervisory Board and the speech of the
Chairman of the Board of Management were broadcast.
Our listed subsidiaries AUDI AG, MAN SE and Renk AG
have also issued declarations of conformity with the German
Corporate Governance Code.
The declarations of conformity of our listed subsidiaries
can be accessed at the websites shown on this page.
CO O P E R AT I O N B E T W E E N T H E B OA R D O F M A N AG E M E N T A N D
T H E S U P E R V I S O RY B OA R D
The Supervisory Board advises and monitors the Board of
Management with regard to the management of the Com-
pany and is directly involved in decisions of fundamental
importance to the Company. The Board of Management and
the Supervisory Board of Volkswagen AG consult closely on
the strategic orientation of the Volkswagen Group. The two
bodies jointly assess, at regular intervals, the progress made
in implementing the corporate strategy. The Board of Man-
agement reports to the Supervisory Board regularly, promptly
and comprehensively in both written and oral form on all
issues of relevance for the Company with regard to strategy,
planning and the situation of the Company, the development
of the business, the risk situation, risk management and
compliance.
More information on cooperation between the Board of
Management and the Supervisory Board of Volkswagen AG
and on the work and structure of the committees of the
Supervisory Board can be found in the Report of the Super-
visory Board on pages 12 to 17 of this annual report.
D E C L A R AT I O N O F CO N F O R M I T Y O F VO L KSWA G E N AG
www.volkswagenag.com/ir
D E C L A R AT I O N O F CO N F O R M I T Y O F AU D I A G
www.audi.com/cgk-declaration
D E C L A R AT I O N O F CO N F O R M I T Y O F M A N S E
www.corporate.man.eu
D E C L A R AT I O N O F CO N F O R M I T Y O F R E N K A G
www.renk.biz/corporated-governance.html
Information on the members of the Board of Management
and Supervisory Board, as well as on the Supervisory Board
committees can be found on pages 84 to 87.
O B J E C T I V E S F O R T H E CO M P O S I T I O N O F T H E S U P E R V I S O RY
B OA R D A N D B OA R D O F M A N AG E M E N T A S W E L L A S S E N I O R
E X E C U T I V E P O S I T I O N S
In view of the Company’s specific situation, its purpose, its
size and the extent of its international activities, the Super-
visory Board of Volkswagen AG strives to achieve a com-
position that takes the Company's ownership structure and
the following aspects into account:
> At least three members of the Supervisory Board should be
persons who embody the criterion of internationality to a
particularly high degree.
> At least four shareholder representative members of the
Supervisory Board should be persons without potential
conflicts of interest, particularly conflicts of interest that
could arise from an advisory or board position at custo-
mers, suppliers, lenders, or other third parties.
> In addition, at least four of the shareholder representatives
must be persons who are independent as defined in
number 5.4.2 of the German Corporate Governance Code.
> At least three of the seats on the Supervisory Board should
be held by people who make a special contribution to the
diversity of the Board.
> Furthermore, proposals for elections should not normally
include persons who will have reached the age of 75 on the
date of the election or who will have been members of the
Supervisory Board for more than 15 years on the date of
the election.
The above criteria have been met.
In addition, the Supervisory Board has decided on the
following profile of skills and expertise for the full Board:
The Supervisory Board as a whole must collectively have
the knowledge, skills, and professional expertise required to
properly perform its supervisory function and assess and
monitor the business that the Company conducts. For this,
the members of the Supervisory Board must collectively be
familiar with the sector in which the Company operates. The
key skills and requirements of the Supervisory Board as a
whole include, in particular:
> Knowledge of or experience in the manufacture and sale of
all types of vehicles and engines or other technical pro-
ducts,
> Knowledge of the automotive industry, the business model
and the market, as well as product expertise,
> Knowledge in the field of research and development, par-
ticularly of technologies with relevance for the Company,
> Experience in corporate leadership positions or in the
supervisory bodies of large companies,
> Knowledge in the areas of governance, law or compliance,
62
Corporate Governance Report
Group Management Report
> Detailed knowledge in the areas of finance, accounting, or
auditing,
> Knowledge of the capital markets,
> Knowledge in the areas of controlling/risk management
and the internal control system,
> Human resources expertise (particularly the search for and
selection of members of the Board of Management, and the
succession process) and knowledge of incentive and remu-
neration systems for the Board of Management,
> Detailed knowledge or experience in the areas of codeter-
mination, employee matters and the working environment
in the Company.
The current composition of the Supervisory Board is also in
line with this profile of skills and expertise. The independent
members of the Supervisory Board within the meaning of
article 5.4.2 of the Code are or were Ms. Hessa Sultan Al-Jaber,
Ms. Marianne Heiß, Ms. Louise Kiesling, Mr. Hussain Ali Al-
Abdulla, Mr. Bernd Althusmann and Mr. Stephan Weil, as well
as Ms. Annika Falkengren and Mr. Olaf Lies, who have since
left the Supervisory Board. The curriculum vitae of the
members of the Supervisory Board are available online at
www.volkswagenag.com/ir.
The statutory quota of at least 30% women and at least
30% men has applied to new appointments to the Super-
visory Board of Volkswagen AG since January 1, 2016 as
required by the Gesetz für die gleichberechtigte Teilhabe von
Frauen und Männern an Führungspositionen in der Privat-
wirtschaft und im öffentlichen Dienst (FührposGleichberG –
Act on the Equal Participation of Women and Men in Leader-
ship Positions in the Private and Public Sectors). Shareholder
and employee representatives have resolved that each side
will meet this quota separately. The shareholder represen-
tatives have met the quota of at least 30% women and at least
30% men since the 56th Annual General Meeting on
June 22, 2016. In the election of employee representatives to
the Supervisory Board of Volkswagen AG on April 6, 2017,
Ms. Ulrike Jakob, Ms. Bertina Murkovic and Mr. Athanasios
Stimoniaris were elected to the Supervisory Board for the first
time. The remaining employee representatives on the Super-
visory Board were reappointed. The term of office began at
the end of the Annual General Meeting on May 10, 2017. This
means that the legally prescribed proportion of at least 30%
women and at least 30% men is also complied with on the
employee side of the board. Both the shareholder and the
employee representatives fulfilled the quota on December 31,
2017.
For the proportion of female members on the Board of
Management that the Supervisory Board was required to set
in accordance with the FührposGleichberG, the Supervisory
Board set a target quota of 11.1% for the period after
December 31, 2016. The new deadline set for achievement of
this target
is December 31, 2021. The appointment of
Ms. Hiltrud Dorothea Werner, the Group Board of Manage-
ment member responsible for Integrity and Legal Matters
since February 1, 2017, brings the percentage of female
members on the Group Board of Management to 11.1%. The
target quota was thus fulfilled on December 31, 2017.
For the proportion of women in management in accor-
dance with the FührposGleichberG, Volkswagen AG has set
itself the target of 13.0% women in the first level of manage-
ment and 16.9% women in the second level of management
for the period up to the end of 2021. As of December 31, 2017,
the proportion of women in the active workforce at the first
level of management was 10.4 (9.8)% and at the second level
of management it was 14.0 (13.5)%.
R E M U N E R AT I O N R E P O RT
Extensive explanations of the remuneration system and the
individual remuneration of the members of the Board of
Management and the Supervisory Board can be found in the
Remuneration Report on pages 67 to 83 of the management
report, in the notes to the consolidated financial statements
on page 313, and on page 63 of the notes to the annual
financial statements of Volkswagen AG.
G R O U P CO R P O R AT E G OV E R N A N C E D E C L A R AT I O N
The Group corporate governance declaration forms part of
the combined management report and is permanently avail-
able at www.volkswagenag.com/ir. It also contains the descrip-
tion of the diversity concepts for the Board of Management
and Supervisory Board of Volkswagen AG.
G R O U P CO R P O R AT E G OV E R N A N C E D E C L A R AT I O N
www.volkswagenag.com/ir
Group Management Report
Corporate Governance Report
63
CO M P L I A N C E
Acting with integrity and compliant and ethical behavior are
essential prerequisites for the success of the Volkswagen
Group. For this reason, compliance with national and inter-
national laws and regulations, internal rules and voluntary
commitments is among our Company’s guiding principles.
We are striving to strengthen the trust of our customers, our
business partners and stakeholders in our Group through fair
treatment. Compliant behavior is the basis for this and must
be a matter of course for all Group employees. One of our
Company’s main tasks at the present time is to further
enhance awareness of this.
Commitment to compliance at the highest level
At the Global Management Meeting in March 2017, Matthias
Müller, Chairman of the Board of Management of Volks-
wagen AG, underlined that integrity and compliant behavior
are the responsibility of each individual in the Group: “Com-
pliance and integrity are not something that can be delegated
to another department or a single person – everyone must
play their part.”
At the presentation of the new Code of Conduct for the
Volkswagen Group in September 2017, Hiltrud Dorothea
Werner, member of the Board of Management responsible for
Integrity and Legal Matters, said: “It is our shared respon-
sibility to bring the concept of integrity to life at Volkswagen.
In practice, this involves us all being familiar with the rules in
place, acting responsibly and making the right decisions. The
new Code of Conduct provides the basis for this.”
Strengthening the compliance organization
In light of the growing relevance of the topic of compliance,
the Group’s compliance organization was restructured in the
reporting period. Since April 2017, Group Compliance has
been a separate unit, with the Group Chief Compliance
Officer reporting directly to the Board Member for Integrity
and Legal Affairs; he also reports to the Audit Committee of
the Supervisory Board.
The structures, responsibilities and processes within this
unit have also been honed and reinforced. The Volkswagen
Group’s compliance organization has been set up with
divisional and regional compliance offices. This enables
central corporate functions to be supported to an even
greater extent and advised by their own compliance contacts.
Additional centers of competence develop and manage key
compliance issues for the entire Group. The heads of the
centers of competence and the divisional and regional
compliance offices report directly to the Group Chief Compli-
ance Officer. Communication between the Group and brand
compliance officers and networking were enhanced and
intensified in the reporting period through regular meetings
and team conferences.
In the reporting period, there was direct communication
on compliance issues at meetings of the Supervisory Board,
the Board of Management and the Works Council, partic-
ularly by the Board Member for Integrity and Legal Affairs
and the Group Chief Compliance Officer.
The Group Compliance Committee chaired by the Board
Member for Integrity and Legal Affairs was formed at top
management level in 2017. This committee ensures that
compliance and integrity standards are uniformly applied
and communicated on a cross-divisional and cross-brand
basis. The core compliance team, which concentrates exper-
tise on compliance issues from different departments,
remained unchanged.
Compliance management system
Our compliance management system is based on national
and international standards. Its objective is to encourage and
reinforce compliant behavior in the Group. The new Code of
Conduct is the key element for strengthening awareness
among staff of correct behavior and finding the right contact
person in cases of doubt.
Where laws and regulations have been seriously violated,
our restructured whistleblower system is a suitable tool for
taking appropriate action.
We place value on communication and training seminars
to permanently anchor compliance-related content among
the workforce.
The basis of compliance work in the Volkswagen Group is
a systematic process of risk identification and reporting in
accordance with the IDW standard AsS 980. We used 2017 to
review the content of and the process for the existing
compliance risk analysis. The objective is to obtain trans-
parency at Group level of the risk exposure of all Group com-
panies included in the compliance scope.
However, we are also aware that even the best compliance
management system can never entirely prevent the criminal
actions of individuals.
Code of Conduct and guidelines
The Volkswagen Group Code of Conduct was completely over-
hauled in the reporting period and approved by the Group
Board of Management. All Group companies are required to
introduce the new Code of Conduct. This was completed at
the brand level by December 31, 2017.
Based on the 2010 Code of Conduct (for instance on the
topic of environmental protection) the content was updated
and new content added (such as product conformity). Read-
ability and practical relevance were enhanced through a clear
64
Corporate Governance Report
Group Management Report
structure, simpler
It
emphasizes each individual employee’s responsibility as
regards compliant behavior.
language and specific examples.
The introduction of the new Code of Conduct was accom-
panied by an intensive internal communication drive in
digital and print media.
The Code of Conduct is a key component of compliance
training and is also integrated into operating processes. For
example, all new employment contracts for employees of
Volkswagen AG include a reference to the Code of Conduct
and the obligation to comply with it. In addition, compliance
with the Code of Conduct remained a component of our
employees’ annual reviews in the reporting period and was
thus taken into account when calculating their variable, per-
formance-related remuneration.
In addition to the Code of Conduct, the Volkswagen
Group’s compliance framework incorporates the anti-corrup-
tion guidelines among others, including checklists and the
express prohibition of facilitation payments, as well as
guidelines on competition, antitrust law and anti-money
laundering. Organizational instructions on dealing with gifts
and invitations as well as on making donations also apply
across the Group.
Employees have access to the compliance rules and regu-
lations in particular via the compliance pages on the Com-
pany intranet.
Whistleblower system
In the Volkswagen Group, the whistleblower system refers to
the internal and external contact points, where employees
and third parties can report potentially serious violations of
laws and internal regulations by employees of the Volks-
wagen Group, in addition to the committees that support and
monitor the work of these contact points.
The Company has had a system for reporting any breaches
of the law or regulations already since 2006. In 2017, the
whistleblower system was improved and partially reorga-
nized. The processes were optimized further as of Novem-
ber 1, 2017 to be able to follow up on reports even faster and
in a fairer and more transparent manner. Among other
things, a central Investigation Office was set up in the Com-
pliance department at the beginning of the year, which is
responsible for coordinating the whistleblower system in the
Volkswagen Group and for processing information received
concerning Volkswagen AG and its subsidiaries – with the
exception of AUDI AG, Dr. Ing. h.c. F. Porsche AG and Volks-
wagen Truck & Bus GmbH. These companies have separate
investigative offices for themselves and their subsidiaries.
The whistleblower system uses defined processes to
investigate reports on breaches and to penalize misconduct
where appropriate. Protection of both the whistleblower and
in the applicable
the party affected has top priority
procedural principles and guarantees. In addition, a Group
Guideline sets out the responsibilities in the Group and the
specific procedure for the processing of reports.
Information on misconduct can be submitted in any of
the major languages used by the Group and are treated con-
fidentially. The people providing the information need not
fear any sanctions from the Company for their actions. They
can decide for themselves whether they wish to give their
names. For this reason, a specially protected online reporting
channel was additionally set up in 2017 through which
anonymized reports from whistleblowers can be sent to the
Investigation Office. We also continue to rely on existing
tried-and-tested channels such as ombudspersons (counsels
of trust).
As the whistleblower system was enhanced, reporting was
reorganized, for example to ensure standard Group-wide
handling. A total of 1,489 reports were registered throughout
the Group in 2017. All substantiated reports have been, or
will be, investigated, and any misconduct penalized.
Communication, training and advice
Providing information to employees at all levels on com-
pliance and offering them advice is a core component of our
compliance activities.
The compliance organization regularly briefs the work-
force on compliance-related issues using the internal Group-
wide communication platform called “Group Connect”. Con-
tent on compliant behavior is also made public through the
internal communication channels of the Group and its
brands. Focal points of compliance communication in the
reporting period were the introduction of the revised Code of
Conduct and the further development of the whistleblower
system.
CO D E O F CO N D U C T O F T H E VO L KSWAG E N G R O U P
W H I ST L E B LOW E R SY ST E M
www.volkswagenag.com/presence/konzern/documents/Code_of_Conduct_2017_
VW_Konzern_deutsch.pdf
www.volkswagenag.com/de/group/compliance-and-risk-
management/whistleblowersystem.html
e-mail: io@volkswagen.de
Group Management Report
Corporate Governance Report
65
Furthermore, the topic of compliant behavior was intensely
discussed at employee events and works meetings.
In 2017, approximately 219,000 employees across the
Group participated in various forms of training courses on
compliance-related topics. Following a risk-based approach,
mandatory compliance training is conducted for specific
target groups. In addition to traditional lectures and online
tutorials, case studies, role-playing games and other inter-
active formats form a part of the training provided to
employees and managers. Another event held in 2017 was
the Volkswagen Convention – Integrity, Culture and Compli-
ance, which was attended by more than 7,300 executives and
works council members from Volkswagen AG, Volkswagen
Sachsen and Volkswagen Osnabrück. The Convention was
aimed at driving the change process forward at Volkswagen.
Employees can use special e-mail addresses to solicit
advice on compliance issues.
Compliance key performance indicators
To measure the level of target achievement, we defined a
strategic indicator for the major brands that manufacture
passenger cars:
> Compliance, process reliability and a zero-defect culture.
This indicator is based on an evaluation of the answers to
three questions in the opinion survey relating to compli-
ance with regulations and processes, transparency and
monitoring, and dealing with risks and errors. In the case
of adverse deviations, the departments will develop and
implement measures. The indicator improved to 79.53
(79.03)% during the reporting year.
We have also defined a strategic indicator for the Financial
Services Division – the compliance and governance indicator.
In addition to achieving our economic objectives, we are also
striving to ensure compliance with legislation and legal
requirements and are working towards a culture shaped by
compliance and integrity. To this end, we have established a
compliance function within the individual companies to
accompany the implementation of suitable and effective
compliance standards for fields of law that have been
identified as significant. To evaluate the effectiveness thereof,
we will consult examination and inspection findings from
both the internal and external auditing, risk management
and compliance, as well as the timely processing of the
measures defined by these control units.
Strengthening compliance in company processes
The act to transpose the Fourth EU Money Laundering Di-
rective into German law presented new challenges for Volks-
wagen AG as a company that is bound by the Gesetz über das
Aufspüren von Gewinnen aus schweren Straftaten (GWG –
Law on Tracing Profits from Serious Criminal Offences). A
Group Directive, which already exists in draft form, will
define the minimum standard to be implemented by all
Group companies.
A concept for a new sales-related business partner check
was drawn up in the reporting period. A key objective of this
new process is the creation of transparency within the Volks-
wagen Group to prevent Group companies from entering into
business relationships with business partners which other
Group companies have classified as not acting with integrity.
The sales-related business partner check will be gradually
introduced in the Group from 2019.
New business models are constantly being considered in
the Volkswagen Group as part of the TOGETHER – Strategy
2025 program. Areas on which these focus in particular are
digitalization, automation and electrification, but also the
development of and involvement in mobility concepts. Group
Compliance helps the strategic business units to implement
their forward-looking projects through individual risk assess-
ments and recommendations based on these.
In addition, compliance will become anchored in mergers
and acquisitions and real estate transactions to a greater
extent.
Effectiveness review
Independent reviews by the Group Internal Audit function at
the corporate units and the regular exchange of information
with external bodies help ensure continuous improvement of
the compliance management system. There are no indica-
tions that our current compliance management system was
ineffective in 2017.
I N T E G R I T Y
Volkswagen AG is undergoing the most far-reaching process
of change in the Company’s history. Particularly the loss of
trust as a result of the diesel issue clearly showed that, in
terms of integrity, Volkswagen must become a role model for
a modern, transparent and successful enterprise. This plan is
one of the strategic goals of TOGETHER – Strategy 2025.
By setting up the new Board of Management position for
Integrity and Legal Affairs on January 1, 2016, we created the
organizational framework for a centralized integrity manage-
ment function. This Group function is responsible for
planning, preparing and implementing programs and pro-
jects aimed at raising awareness, providing explanation and
intensifying a collective awareness of integrity as well as
reinforcing a shared culture of integrity in the Company. A
continuous exchange of ideas and discussion of issues
relating to integrity are key components of the integrity
management function.
66
Corporate Governance Report
Group Management Report
Behaving with integrity is a prerequisite for commercial
success and for a positive future for the Company. Only with
lasting, dependable integrity will our Company gain and
strengthen the trust of its staff, customers, shareholders,
business partners and the general public. Volkswagen will
enhance the culture of integrity in the Company, thus
creating a collective Group awareness for integrity. To this
end, we launched an integrity program in 2016 that addresses
all of the Company's employees.
I N D E P E N D E N T M O N I TO R
In June 2017, Larry D. Thompson was appointed as the
Independent Compliance Monitor at Volkswagen under the
terms of the Plea Agreement with the United States Depart-
ment of Justice announced on January 11, 2017 and con-
firmed by a US federal court on April 21, 2017. He will also
work as Independent Compliance Auditor under the Third
Partial Consent Decree concluded separately with the US
Environmental Protection Agency (EPA) and the Third
California Partial Consent Decree agreed with the State of
California and the environmental authority California Air
Resources Board, CARB (for more information on these agree-
ments, please see the Litigation section starting on page 178).
Mr. Thompson will assess and oversee Volkswagen’s compli-
ance with the terms of the Plea Agreement and Consent
Decrees for a period of three years, which includes taking
measures to further strengthen the Company’s compliance,
reporting and monitoring mechanisms and the implemen-
tation of an enhanced compliance and ethics program.
R I S K M A N A G E M E N T, AU D I T
Carefully managing potential risks to the Company is a key
component of our daily work. Volkswagen Group’s risk man-
agement system is oriented toward identifying, assessing,
communicating and managing risks at an early stage. This
system is reviewed on an ongoing basis and adjusted if and
when conditions change. A detailed description of the risk
management system and our accounting-related internal
control system can be found in the Risk Report on pages 164
to 167 of this annual report.
The Supervisory Board has established an Audit Commit-
tee that in particular monitors the financial accounting, the
financial accounting process, the effectiveness of the internal
control system, the risk management system and the internal
audit system, the audit of the financial statements and com-
pliance. Furthermore, the Audit Committee makes a well-
founded recommendation for the election of auditor to the
Supervisory Board, obtains a declaration of independence
from the auditor, supervises the additional services provided
by the auditor and prepares the audit engagement resolution,
thereby giving consideration to the annual audit planning,
the areas of emphasis for the audit, the agreed fee and the
auditor’s obligation to provide information.
CO M M U N I C AT I O N A N D T R A N S PA R E N C Y
The Volkswagen Group publishes a financial calendar listing
all the relevant dates for its shareholders in its annual
report and interim reports as well as on its website at
www.volkswagenag.com/ir. Among other things, invitations
to the shareholders’ meetings as well as agendas for these
meetings and any motions to be added to the agenda or
countermotions received are also available on this website. At
the shareholders’ meetings, shareholders may exercise their
voting rights themselves, have this right exercised on their
behalf by a third-party proxy whom they have appointed, or
use a proxy designated by the Company who votes on their
behalf in accordance with their voting instructions. We also
give our shareholders the opportunity to watch the intro-
ductory remarks of the Chairman of the Supervisory Board
and the speech of the Chairman of the Board of Management
on the internet. In addition, news and information on the
Volkswagen Group are available on our website. The press
releases and other information are published in both English
and German.
Immediately after their publication in accordance with
legal requirements, the Company’s ad-hoc releases are also
published on the same website under the heading “IR News,
Ad-hoc Releases & Publications”.
We publish managers’ transactions pursuant to Article 19
of the Market Abuse Regulation or section 15a of the Wert-
papierhandelsgesetz (WpHG – German Securities Trading Act)
under the heading “Corporate Governance”, menu item
“Directors’ Dealings”.
On the same web page – under the heading “IR News, Ad-
hoc Releases & Publications”, menu item “Notifications of
changes in voting rights” – you can also access details of the
notifications filed in the reporting period in compliance with
sections 21 ff. of the WpHG as well as notifications relating to
other legal issues.
The supervisory body appointments held by Board of
Management members and Supervisory Board members can
be found on pages 84 to 87 of this annual report. The share-
holder structure is presented on page 110.
M A N DATO RY P U B L I C AT I O N S O F VO L KSWAG E N A G
www.volkswagenag.com/ir
Group Management Report
Remuneration Report
67
Remuneration Report
The Remuneration Report details the individualized remuneration of the Board of Management
and the Supervisory Board of Volkswagen AG, broken down into components, as well as
individualized pension provision disclosures for the members of the Board of Management.
In addition, we explain in this chapter the main elements of the new remuneration system for
the Board of Management.
P R I N C I P L E S O F B OA R D O F M A N A G E M E N T R E M U N E R AT I O N
The full Supervisory Board resolves on the remuneration
system and the total remuneration for each individual mem-
ber of Volkswagen AG’s Board of Management on the basis of
the Executive Committee’s recommendations. The remuner-
ation system implements the requirements of the Aktien-
gesetz (AktG – German Stock Corporation Act) and the recom-
mendations of the German Corporate Governance Code (the
Code). In particular, the remuneration structure is focused on
ensuring sustainable business development in accordance
with the Gesetz zur Angemessenheit der Vorstandsvergütung
(VorstAG – German Act on the Appropriateness of Executive
Board Remuneration) and section 87(1) of the AktG.
At the beginning of 2017, the Supervisory Board of Volks-
wagen AG resolved to adjust the remuneration system of the
Board of Management with effect from January 1, 2017. The
new system for remuneration of the Board of Management
was approved by the Annual General Meeting on May 10,
2017 with 80.96% of the votes cast. The adjustment, in which
the Supervisory Board was assisted by renowned, inde-
pendent external remuneration and
legal consultants,
resulted in an alignment with the new Group strategy
TOGETHER – Strategy 2025.
The level of the Board of Management remuneration
should be appropriate and attractive in the context of the
Company’s national and international peer group. Criteria
include the tasks of the individual Board of Management
member, their personal performance, the economic situation,
the performance of and outlook for the Company, as well as
how customary the remuneration is when measured against
the peer group and the remuneration structure that applies
to other areas of Volkswagen. In this context, comparative
studies on remuneration are conducted on a regular basis.
CO M P O N E N T S O F B OA R D O F M A N A G E M E N T R E M U N E R AT I O N
In this section, we provide an overview of the new remu-
neration system before going into the components of the
remuneration for the reporting period.
Overview of the new remuneration system
The new remuneration system of the Board of Management
comprises non-performance-related and performance-related
components. The performance-related remuneration consists
of an annual bonus with a one-year assessment period and a
long-term incentive (LTI) in the form of a performance share
plan with a forward-looking three-year term. The perfor-
mance share plan is linked to business development in the
next three years and is thus based on a multiyear, forward-
looking assessment that reflects both positive and negative
developments. The non-performance-related component
creates an incentive for individual members of the Board of
Management to perform their duties in the interests of the
Company and to fulfill their obligation to act with proper
business prudence without needing to focus on merely short-
term performance targets. The performance-related com-
ponents, dependent among other criteria on the financial
performance of the Company, serve to ensure the long-term
impact of behavioral incentives.
If 100% of the respectively agreed targets are achieved, the
annual target remuneration for each member of the Board of
Management will amount to a total of €4,500,000 (corre-
sponding to a basic remuneration of €1,350,000, a target
amount from the annual bonus of €1,350,000 and a target
amount from the performance share plan of €1,800,000). The
annual target remuneration for the Chairman of the Board of
Management amounts to a total of €9,000,000 (basic remu-
neration of €2,125,000, a target amount from the annual
68
Remuneration Report
Group Management Report
bonus of €3,045,000, and a target amount from the perfor-
mance share plan of €3,830,000).
variable remuneration therefore reflect both positive and
negative developments.
Annual minimum remuneration of €3.5 million (sum of
basic and variable remuneration) was contractually agreed
with Mr. Blessing.
The Supervisory Board may cap the performance-related/
variable remuneration components in the event of extra-
ordinary developments.
Non-performance-related remuneration
The non-performance-related remuneration comprises fixed
remuneration and fringe benefits. In addition to the basic
level of remuneration, the fixed remuneration also includes
differing levels of remuneration for appointments assumed
at Group companies. The fringe benefits result from noncash
benefits and include in particular the use of operating assets
such as company cars and the payment of insurance pre-
miums. Taxes due on these noncash benefits are mainly
borne by Volkswagen AG.
The basic level of remuneration is reviewed regularly and
adjusted if necessary.
Performance-related remuneration
The performance-related/variable remuneration consists of
an annual performance-related bonus with a one-year assess-
ment period and a long-term incentive (LTI) in the form of a
performance share plan with a forward-looking three-year
term
incentive components) and phantom
preferred shares. The components of performance-related/
(long-term
Annual bonus
The annual bonus is based upon the result for the respective
fiscal year. Operating profit achieved by the Volkswagen
Group plus the proportionate operating profit of the Chinese
joint ventures form half of the basis for the annual bonus,
with operating return on sales achieved by the Volkswagen
Group making up the second half. Each of the two com-
ponents of the annual bonus will only be payable if certain
thresholds are exceeded or reached.
The calculated payment amount may be individually
reduced (multiplier of 0.8) or increased (multiplier of 1.2) by
up to 20% by the Supervisory Board, taking into account the
degree of achievement of individual targets agreed between
the Supervisory Board and the respective member of the
Board of Management, as well as the success of the full Board
of Management in achieving the transformation of the Volks-
wagen Group’s employees into new areas of activity.
The payment amount for the annual bonus is capped at
180% of the target amount for the annual bonus. The cap
arises from 150% of the maximum financial target achieve-
ment and a performance factor of a maximum of 1.2.
Group Management Report
Remuneration Report
69
C A L C U L A T I O N O F T H E P A Y M E N T A M O U N T F O R T H E A N N U A L B O N U S
T A R G E T
×
T A R G E T A C H I E V E M E N T
=
A N N U A L B O N U S
Company bonus
Performance factor
Operational KPIs
(0 – 150% target achievement)
×
Multiplier
(0.8 – 1.2)
Payment amount
5 0 P E R C E N T C O M P O N E N T 1
Target achievement in percent
5 0 P E R C E N T C O M P O N E N T 2
Target achievement in percent
150
100
50
150
100
50
0
5
10
15
20
25
30
35
0
1
2
3
4
5
6
7
8
9
10
Operating result including Chinese joint
ventures (proportionate) in € billion
Operating return on sales in percent
CO M P O N E N T 1 : O P E R AT I N G R E S U LT I N C L U D I N G
C H I N E S E J O I N T V E N T U R E S ( P R O P O RT I O N AT E )
CO M P O N E N T 2 : O P E R AT I N G R E T U R N O N S A L E S
€ billion
2017
%
Maximum threshold
100% level of target
Minimum threshold
Actual
Target achievement (in %)
25.0
17.0
Maximum threshold
100% level of target
9.0
Minimum threshold
18.6
110
Actual
Target achievement (in %)
2017
8.0
6.0
4.0
6.0
100
70
Remuneration Report
Group Management Report
Performance share plan – long-term incentive (LTI)
The LTI is granted to the Board of Management in the form of
a performance share plan. Each performance period of the
performance share plan has a term of three years. At the time
the LTI is granted, the annual target amount under the LTI is
converted on the basis of the initial reference price of Volks-
wagen’s preferred shares into performance shares of Volks-
wagen AG, which are allocated to the respective member of
the Board of Management purely for calculation purposes.
The conversion is performed based on the unweighted
average of the closing prices of Volkswagen’s preferred shares
for the last 30 trading days preceding January 1 of a given
fiscal year. At the end of each year, the number of perfor-
mance shares is determined definitively for one-third of the
three-year performance period based on the degree of target
achievement for the annual earnings per Volkswagen pre-
ferred share (EPS – earnings per share per preferred share
in €). A prerequisite for this is that a threshold is reached.
A cash settlement is made at the end of the three-year term of
the performance share plan. The payment amount
corresponds to the final number of determined performance
shares, multiplied by the closing reference price at the end of
the three-year period plus a dividend equivalent for the
relevant term. The closing reference price is the unweighted
average of the closing prices for Volkswagen’s preferred
shares for the 30 trading days preceding the last day of the
three-year performance period.
€
Initial reference price
Closing reference price
Dividend equivalent
1 Determined at the end of the performance period.
2017
127.84
–1
2.06
E P S P E R F O R M A N C E M E A S U R E M E N T
Target achievement in percent
150
100
50
0
5
10
15
20
25
30
35
40
EPS per preferred share in euros
P E R F O R M A N C E P E R I O D 2 0 1 7 – 2 0 1 9
€
Maximum threshold
100% level of target
Minimum threshold
Actual
Target achievement (in %)
2017
30.00
20.00
10.00
22.69
113
The payment amount under the performance share plan is
limited to 200% of the target amount. An advance of 20% on
the payment amount is paid if the average ratio of capex to
sales revenue in the Automotive Division or the R&D ratio of
the last three years is smaller than 5%.
Should a member of the Board of Management leave the
Company of their own volition without good cause before the
performance shares are paid out or should that member start
working for a competitor, the unpaid performance shares will
expire. For members of the Board of Management who held
their seat as of December 31, 2016, this rule only applies in the
event of a future reappointment. Ms. Werner was appointed
as a member of the Board of Management with effect from
February 1, 2017.
In the introductory phase of the performance share plan
(2017 – 2018), the members of the Board of Management who
were Board members as of December 31, 2016 will receive
advances of 80% of their target amount. The Chairman of the
Board of Management will receive 100% of his target amount
in advance. The two advances will each be paid after the first
year of the performance period. After the last day of the
relevant three-year performance period, settlement will be
made based on actual achievement of targets. The Chairman
of the Board of Management has been granted the option of
immediate settlement of the performance shares at the end
of his contract of service.
Group Management Report
Remuneration Report
71
C A L C U L A T I O N O F T H E P A Y M E N T A M O U N T F R O M T H E P E R F O R M A N C E S H A R E P L A N
T A R G E T
÷
Initial
reference price
P E R F O R M A N C E M E A S U R E M E N T
P R I C E P E R F O R M A N C E
A N D D I V I D E N D S
L T I
Provisional
performance shares
(number)
Final number determined for ⅓
of provisional performance shares
multiplied by annual target achievement EPS
per preferred share
Final
performance shares
(number)
×
Closing reference price
plus dividend
over term
=
Payment
amount
⅓
×
⅓
×
Target achievement EPS per preferred share
Fiscal year 2
⅓
×
Fiscal year 3
Fiscal year 1
I N F O R M AT I O N O N T H E P E R F O R M A N C E S H A R E S
€
Matthias Müller
Karlheinz Blessing
Herbert Diess
Francisco Javier Garcia Sanz
Jochem Heizmann
Andreas Renschler
Rupert Stadler
Hiltrud Dorothea Werner
Frank Witter
Total
P E R F O R M A N C E P E R I O D 2 0 1 7 – 2 0 1 9
Number of performance
shares allocated
at the grant date
Fair value
at the grant date
29,959
14,080
14,080
14,080
14,080
14,080
14,080
12,907
14,080
4,309,602
2,025,408
2,048,640
1,890,944
2,031,040
1,891,648
2,025,408
1,856,672
2,025,408
141,426
20,104,770
€
Provision as of Dec. 31, 2017
Intrinsic value as of
Dec. 31, 2017
Comprehensive income 2017
arising from
performance shares
Matthias Müller
Karlheinz Blessing
Herbert Diess
Francisco Javier Garcia Sanz
Jochem Heizmann
Andreas Renschler
Rupert Stadler
Hiltrud Dorothea Werner
Frank Witter
Total
10,201,381
5,202,356
3,673,623
5,405,211
4,102,990
4,747,249
4,698,709
623,526
5,128,707
43,783,751
4,728,427
2,222,245
2,222,245
2,222,245
2,222,245
2,222,245
2,222,245
–
2,222,245
20,284,141
10,201,381
5,202,356
3,673,623
5,405,211
4,102,990
4,747,249
4,698,709
623,526
5,128,707
43,783,751
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Remuneration Report
Group Management Report
The number of performance shares includes the provisional
performance shares allocated at the grant date of the per-
formance share plan. The fair value as at the grant date was
determined using a recognized valuation technique.
The provision recognized as of December 31, 2017 reflects
the obligation to the members of the Board of Management.
To determine its amount, the performance shares expected
for future performance periods were taken into account in
addition to the provisional performance shares determined
or allocated for the performance period 2017 – 2019. The
intrinsic value was calculated in accordance with IFRS 2 and
corresponds to the amount that the members of the Board of
Management would have received if they had stepped down
on December 31, 2017. Only the nonforfeitable (vested) per-
formance shares at the reporting date are included in the
calculation. The intrinsic value was calculated based on the
unweighted average share price for the 30 trading days (Xetra
closing prices of Volkswagen’s preferred shares) preceding
December 31, 2017, taking the dividends paid per preferred
share during the performance period into account. The net
value of all amounts recognized in income for the perfor-
mance shares in fiscal year 2017 is recorded in comprehen-
sive income 2017 arising from performance shares according
to IFRS.
Phantom preferred shares
The phantom preferred shares for the remuneration withheld
for 2015 will form part of the Board of Management remu-
neration until they are paid out in 2019.
Total remuneration cap
In addition to the cap on the individual variable components
of the remuneration for the members of the Board of Man-
agement, the annual benefits received according to the Code,
consisting of basic remuneration and the variable remuner-
ation components (i.e. annual bonus and performance share
plan) for one fiscal year, may not exceed an amount of
€10,000,000 for the Chairman of the Board of Management
and of €5,500,000 for each member of the Board of Manage-
ment. If the total amount is exceeded, the variable compo-
nents will be reduced proportionately.
Regular review and adjustment
The Supervisory Board regularly reviews and, if necessary,
adjusts the level of the total remuneration cap and the
individual targets.
Other agreements
Members of the Board of Management with contracts entered
into on or after January 1, 2010 are entitled to payment of
their normal remuneration for six to twelve months in the
event of illness. Contracts entered into before that date grant
remuneration for six months. In the event of disability, they
are entitled to the retirement pension.
Surviving dependents receive a widow’s pension of 66 (cid:1022)%
and orphans’ benefits of 20% of the former member of the
Board of Management’s pension. Contracts with members of
the Board of Management whose first term of office began
after April 1, 2015, provide for an entitlement – in line with
the principles of the works agreement that also applies to
employees of Volkswagen AG covered by collective agree-
ments – to a widow’s pension of 60%, an orphan’s benefit of
10% for half-orphans and an orphan’s benefit of 20% for full
orphans, based in each case on the former member of the
Board of Management’s pension.
Group Management Report
Remuneration Report
73
B E N E F I T S B A S E D O N P H A N TO M P R E F E R R E D S H A R E S F R O M
T H E R E M U N E R AT I O N W I T H H E L D F O R F I S C A L Y E A R 2 0 1 5
At its meeting on April 22, 2016, Volkswagen AG’s Super-
visory Board accepted the offer made by the members of the
Board of Management to withhold 30% of the variable remu-
neration for fiscal year 2015 for the Board of Management
members active on the date of the resolution and to make its
disposal subject to future share price performance.
This is being effected by first converting the amount
withheld based on the average share price for the 30 trading
days preceding April 22, 2016 (initial reference price) into
phantom preferred shares of Volkswagen AG with a three-
year holding period and, at the same time, defining a target
reference price corresponding to 125% of the initial reference
price. During the holding period, the phantom preferred
shares are entitled to a dividend equivalent in the amount of
the dividends paid on real preferred shares. The shares will be
reconverted and paid out either when the three-year holding
period has expired or – in the event that members retire early
from office – at the time that they do so.
To determine the payment amount, the average share
price for the 30 trading days preceding the last day of the
holding period, i.e. April 22, 2019, or preceding the leaving
date will be calculated (closing reference price). The difference
between the target reference price and the initial reference
price will be deducted from the closing reference price, and
the dividends distributed on one real Volkswagen preferred
share during the holding period (dividend equivalent) will be
added to the closing reference price. The figure thus
calculated will be multiplied by the number of phantom
preferred shares so as to calculate the amount to be paid to
each Board of Management member. This will ensure that –
excludingany dividend equivalents accrued – the amount
withheld is only paid out in full if the initial reference price of
the preferred share has increased by at least 25%. Otherwise,
the amount will be reduced accordingly to a minimum of €0.
The amount disbursed may not be more than twice the
amount originally withheld. If members of the Board of
Management retire from office before the expiry of the
holding period, the disbursement amount will be calculated
and paid out proportionately based on the date that their
contract of service ends.
The number of phantom preferred shares granted on
April 22, 2016 to the members of the Board of Management
who were in office at that time did not change in fiscal year
2017. The fair value as of December 31, 2017 was determined
using a recognized valuation technique. The intrinsic value
was calculated in accordance with IFRS 2 and corresponds to
the amount that the members of the Board of Management
would have received if they had stepped down on Decem-
ber 31, 2017. The intrinsic value was calculated based on the
average share price for the 30 trading days (Xetra closing
prices of Volkswagen’s preferred shares) preceding Decem-
ber 31, 2017, taking the initial reference price and the divi-
dends for the relevant fiscal years into account. “Comprehen-
sive income 2017 arising from phantom preferred shares”
according to with IFRSs records the net amount arising from
the fair value as of December 31, 2017 and December 31,
2016. “Comprehensive income 2016 arising from phantom
preferred shares” in accordance with IFRSs records the net
amount withheld (nominal) on the basis of acceptance by the
Supervisory Board on April 22, 2016 of the statement made
by the members of the Board of Management, and the corre-
sponding fair value as of December 31, 2016.
I N F O R M AT I O N O N T H E P H A N TO M P R E F E R R E D S H A R E S H E L D I N 2 0 1 7
€
Number of
phantom shares
Provision
Dec. 31, 2017
Provision
Dec. 31, 2016
Intrinsic value
Dec. 31, 2017
Intrinsic value
Dec. 31, 2016
Comprehensive
income 2017
arising from
phantom
preferred shares
Comprehensive
income 2016
arising from
phantom
preferred shares1
Matthias Müller
Herbert Diess
Francisco Javier Garcia Sanz
Jochem Heizmann
Andreas Renschler
Rupert Stadler
Frank Witter
Total
1 Income in 2016.
10,583
1,462,126
1,046,032
1,520,036
1,058,194
4,317
8,633
8,633
7,914
8,633
1,990
596,428
1,192,718
1,192,718
1,093,382
1,192,718
274,934
426,696
853,293
853,293
782,226
853,293
196,693
620,051
1,239,958
1,239,958
1,136,688
1,239,958
285,824
431,657
863,214
863,214
791,321
863,214
198,980
416,094
169,732
339,425
339,425
311,156
339,425
78,241
50,703
7,005,022
5,011,525
7,282,472
5,069,793
1,993,496
– 139,880
– 57,024
– 114,147
– 114,147
– 104,594
– 114,147
– 26,356
– 670,296
74
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Group Management Report
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T I N A CCO R DA N C E W I T H T H E G E R M A N CO M M E R C I A L CO D E
€
Matthias Müller1
Karlheinz Blessing
Herbert Diess
Francisco Javier Garcia Sanz
Jochem Heizmann
Christine Hohmann-Dennhardt
(Jan. 1, 2016 – Jan. 31, 2017)2,3
Andreas Renschler
Rupert Stadler
Hiltrud Dorothea Werner (since Feb. 1, 2017)
Frank Witter
Total
2 0 1 7
2 0 1 6
Non-performance-
related
components
Performance-
related
component
2,317,735
1,610,515
1,428,104
1,560,686
1,551,145
109,361
1,576,037
1,419,734
1,341,819
1,421,980
3,513,207
1,557,579
1,557,579
1,557,579
1,557,579
–
1,557,579
1,557,579
1,427,781
1,557,579
Long-term
incentive
component
4,309,602
2,025,408
2,048,640
1,890,944
2,031,040
Total
remuneration
Total
remuneration
10,140,544
5,193,502
5,034,323
5,009,209
5,139,764
7,251,929
3,334,940
3,226,587
3,215,679
3,155,508
–
109,361
10,051,621
1,891,648
2,025,408
1,856,672
2,025,408
5,025,264
5,002,721
4,626,272
5,004,967
3,223,705
3,050,317
–
3,037,327
14,337,116
15,844,041
20,104,770
50,285,927
39,547,612
1 The 2016 single-entity financial statements of Volkswagen AG reported total remuneration of €6,420,151.
2 To compensate for lost entitlements resulting from the change in employer, Ms. Hohmann-Dennhardt received €6.3 million in 2016.
3 Includes top-up amount on minimum remuneration of €3.5 million in 2016; variable remuneration determined by termination agreement.
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F
M A N AG E M E N T I N ACCO R DA N C E W I T H T H E G E R M A N
CO R P O R AT E G OV E R N A N C E CO D E
The amounts shown as benefits received in the Board of
Management remuneration tables in accordance with the
Code correspond, in principle, to the amounts paid out for
the fiscal year in question.
In the introductory phase of the performance share plan
(2017 to 2018), the members of the Board of Management
who were Board members as of December 31, 2016 receive
advances on the target amount, which in accordance with the
Code are reported as benefits for the fiscal year in which the
performance shares under the plan were allocated.
The amounts shown as benefits granted in the Board of
Management remuneration tables in accordance with the
Code are based on 100% of the targets for the annual bonus
and on the fair value at the grant date for the performance
share plan. Since the members of the Board of Management
agreed to the new remuneration on different dates, there is
an individual grant date for each Board member and,
consequently, a different fair value.
The Board of Management remuneration tables in accor-
dance with the Code, that show the benefits received, do not
include any entries for the phantom preferred shares from
the amount withheld for fiscal year 2015 because no pay-
ments were made to the Board of Management members in
fiscal year 2017. The three-year holding period did not expire,
nor did any Board members participating in the amount
withheld step down in fiscal year 2017. Since the benefits
based on phantom preferred shares were first agreed upon
after the end of fiscal year 2015, consideration of the impact
of these agreements is incorporated into the Board of Man-
agement remuneration (benefits granted) tables in accor-
dance with the Code in the column for fiscal year 2016. The
revised amount listed there is the difference between the fair
value of the phantom preferred shares and the amount with-
held on the date they were granted (April 22, 2016).
Group Management Report
Remuneration Report
75
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T ( B E N E F I T S R E C E I V E D A N D B E N E F I T S G RA N T E D ) I N
A CCO R DA N C E W I T H T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E
M A T T H I A S M Ü L L E R
Chairman of the Board of Management
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
2,125,000
1,584,000
1,584,000
2,125,000
2,125,000
2,125,000
192,735
2,317,735
3,513,207
3,830,000
3,830,000
–
–
–
178,651
1,762,651
1,499,278
3,990,000
–
1,335,000
2,655,000
–
9,660,942
7,251,929
612,807
526,589
178,651
1,762,651
1,313,200
6,352,610
–
3,283,000
3,375,000
– 305,390
9,428,461
526,589
192,735
2,317,735
3,045,000
4,309,602
4,309,602
–
–
–
192,735
2,317,735
0
0
0
–
–
–
192,735
2,317,735
5,481,000
7,660,000
7,660,000
–
–
–
9,672,337
2,317,735
15,458,735
612,807
612,807
612,807
10,273,749
7,778,518
9,955,050
10,285,144
2,930,542
16,071,542
K A R L H E I N Z B L E S S I N G
Human Resources and Organization
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Total1
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,350,000
1,056,000
1,056,000
1,350,000
1,350,000
1,350,000
260,515
1,610,515
1,557,579
1,440,000
1,440,000
–
–
4,608,094
686,413
347,440
347,440
1,403,440
1,403,440
250,500
492,800
1,681,000
2,732,000
–
–
501,000
1,180,000
3,334,940
742,542
1,232,000
1,500,000
4,628,240
742,542
260,515
1,610,515
1,350,000
2,025,408
2,025,408
–
–
260,515
1,610,515
0
0
0
–
–
260,515
1,610,515
2,430,000
3,600,000
3,600,000
–
–
4,985,923
3,760,515
7,640,515
686,413
686,413
686,413
5,294,507
4,077,482
5,370,782
5,672,336
4,446,928
8,326,928
1 Minimum for 2017 includes a top-up amount on minimum remuneration of €3.5 million.
76
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R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T ( B E N E F I T S R E C E I V E D A N D B E N E F I T S G RA N T E D ) I N
A CCO R DA N C E W I T H T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E
H E R B E R T D I E S S
Chairman of the Brand Board of Management of Volkswagen Passenger Cars
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,350,000
1,260,000
1,260,000
1,350,000
1,350,000
1,350,000
78,104
1,428,104
1,557,579
1,440,000
1,440,000
35,087
35,087
1,295,087
1,295,087
250,500
492,800
1,681,000
2,607,461
–
–
–
–
–
501,000
1,180,000
–
4,425,683
3,226,587
814,654
699,856
1,232,000
1,500,000
– 124,539
4,395,348
699,856
78,104
1,428,104
1,350,000
2,048,640
2,048,640
–
–
–
78,104
1,428,104
0
0
0
–
–
–
78,104
1,428,104
2,430,000
3,600,000
3,600,000
–
–
–
4,826,744
1,428,104
7,458,104
814,654
814,654
814,654
5,240,337
3,926,443
5,095,204
5,641,398
2,242,758
8,272,758
F R A N C I S C O J A V I E R G A R C I A S A N Z
Procurement
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,350,000
1,079,009
1,079,009
1,350,000
1,350,000
1,350,000
210,686
1,560,686
1,557,579
1,440,000
1,440,000
205,170
205,170
1,284,179
1,284,179
250,500
492,800
1,681,000
2,482,839
–
–
–
–
–
501,000
1,180,000
–
4,558,265
3,215,679
889,410
760,864
1,232,000
1,500,000
– 249,161
4,259,818
760,864
210,686
1,560,686
1,350,000
1,890,944
1,890,944
–
–
–
210,686
1,560,686
0
0
0
–
–
–
210,686
1,560,686
2,430,000
3,600,000
3,600,000
–
–
–
4,801,630
1,560,686
7,590,686
889,410
889,410
889,410
5,447,675
3,976,543
5,020,682
5,691,040
2,450,096
8,480,096
Group Management Report
Remuneration Report
77
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T ( B E N E F I T S R E C E I V E D A N D B E N E F I T S G RA N T E D ) I N
A CCO R DA N C E W I T H T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E
J O C H E M H E I Z M A N N
China
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,351,278
1,102,017
1,102,017
1,351,278
1,351,278
1,351,278
199,867
1,551,145
1,557,579
1,440,000
1,440,000
121,991
121,991
1,224,008
1,224,008
250,500
492,800
1,681,000
2,482,839
–
–
–
–
–
501,000
1,180,000
–
4,548,724
3,155,508
–
–
1,232,000
1,500,000
– 249,161
4,199,647
–
199,867
1,551,145
1,350,000
2,031,040
2,031,040
–
–
–
199,867
1,551,145
0
0
0
–
–
–
199,867
1,551,145
2,430,000
3,600,000
3,600,000
–
–
–
4,932,185
1,551,145
7,581,145
–
–
–
4,548,724
3,155,508
4,199,647
4,932,185
1,551,145
7,581,145
€
Fixed remuneration1
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Other2
Total
Pension expense
Total remuneration
C H R I S T I N E H O H M A N N - D E N N H A R D T
Integrity and Legal Affairs
Joined: January 1, 2016, left: January 31, 2017
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
88,000
21,361
7,346,000
7,346,000
261,621
261,621
109,361
7,607,621
7,607,621
88,000
21,361
109,361
88,000
21,361
109,361
88,000
21,361
109,361
–
–
–
–
–
0
0
0
0
2,444,000
492,800
2,732,000
1,232,000
1,500,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
109,361
54,091
163,452
10,051,621
10,832,421
704,657
704,657
10,756,278
11,537,078
109,361
54,091
163,452
109,361
54,091
163,452
109,361
54,091
163,452
1 The previous year includes compensation of lost entitlements resulting from the change in employer in the amount of €6.3 million.
2 Includes top-up amount on minimum remuneration of €3.5 million in the previous year; variable remuneration determined by termination agreement.
78
Remuneration Report
Group Management Report
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T ( B E N E F I T S R E C E I V E D A N D B E N E F I T S G RA N T E D ) I N
A CCO R DA N C E W I T H T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E
A N D R E A S R E N S C H L E R
Commercial Vehicles
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,350,000
1,056,000
1,056,000
1,350,000
1,350,000
1,350,000
226,037
1,576,037
1,557,579
1,440,000
1,440,000
–
–
–
4,573,616
5,361,551
9,935,167
236,205
236,205
1,292,205
1,292,205
250,500
492,800
1,681,000
2,503,637
–
–
501,000
1,180,000
–
3,223,705
4,660,006
7,883,711
1,232,000
1,500,000
– 228,363
4,288,642
4,660,006
8,948,648
226,037
1,576,037
1,350,000
1,891,648
1,891,648
–
–
–
226,037
1,576,037
0
0
0
–
–
–
226,037
1,576,037
2,430,000
3,600,000
3,600,000
–
–
–
4,817,685
5,361,551
10,179,236
1,576,037
5,361,551
6,937,588
7,606,037
5,361,551
12,967,588
R U P E R T S T A D L E R
Chairman of the Board of Management of AUDI AG
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,350,000
1,056,000
1,056,000
1,350,000
1,350,000
1,350,000
69,734
1,419,734
1,557,579
1,440,000
1,440,000
62,817
62,817
1,118,817
1,118,817
250,500
492,800
1,681,000
2,482,839
–
–
–
–
–
501,000
1,180,000
–
4,417,313
3,050,317
829,730
665,679
1,232,000
1,500,000
– 249,161
4,094,456
665,679
69,734
1,419,734
1,350,000
2,025,408
2,025,408
–
–
–
69,734
1,419,734
0
0
0
–
–
–
69,734
1,419,734
2,430,000
3,600,000
3,600,000
–
–
–
4,795,142
1,419,734
7,449,734
829,730
829,730
829,730
5,247,043
3,715,996
4,760,135
5,624,872
2,249,464
8,279,464
Group Management Report
Remuneration Report
79
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T ( B E N E F I T S R E C E I V E D A N D B E N E F I T S G RA N T E D ) I N
A CCO R DA N C E W I T H T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E
H I L T R U D D O R O T H E A W E R N E R
Integrity and Legal Affairs
Joined: February 1, 2017
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,237,500
104,319
1,341,819
1,427,781
–
–
2,769,600
930,689
3,700,289
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,237,500
1,237,500
1,237,500
104,319
1,341,819
1,237,500
1,856,672
1,856,672
4,435,991
930,689
104,319
1,341,819
0
0
0
1,341,819
930,689
104,319
1,341,819
2,227,500
3,300,000
3,300,000
6,869,319
930,689
5,366,680
2,272,508
7,800,008
F R A N K W I T T E R
Finance and Controlling
€
Fixed remuneration
Fringe benefits
Total
One-year performance-related remuneration
Multiyear performance-related remuneration
LTI (performance share plan 2017 – 2019)
Business performance bonus
(two-year assessment period)
LTI (four-year assessment period)
Phantom shares
Total
Pension expense
Total remuneration
Benefits received
Benefits granted
2017
2016
2016
2017
2017 (minimum)
2017 (maximum)
1,350,000
1,056,000
1,056,000
1,350,000
1,350,000
1,350,000
71,980
1,421,980
1,557,579
1,440,000
1,440,000
49,827
49,827
1,105,827
1,105,827
250,500
492,800
1,681,000
2,674,522
–
–
–
–
–
501,000
1,180,000
–
1,232,000
1,500,000
– 57,478
71,980
1,421,980
1,350,000
2,025,408
2,025,408
–
–
–
71,980
1,421,980
0
0
0
–
–
–
71,980
1,421,980
2,430,000
3,600,000
3,600,000
–
–
–
4,419,559
3,037,327
4,273,149
4,797,388
1,421,980
7,451,980
692,743
587,216
587,216
692,743
692,743
692,743
5,112,302
3,624,543
4,860,365
5,490,131
2,114,723
8,144,723
80
Remuneration Report
Group Management Report
P O ST - E M P LOYM E N T B E N E F I T S
In the event of regular termination of their service on the
Board of Management, the members of the Board of Man-
agement are entitled to a pension, including a surviving
dependents’ pension, as well as the use of company cars for
the period in which they receive their pension. The agreed
benefits are paid or made available when the Board of
Management member reaches the age of 63. As a departure
from this principle, Mr. Renschler is able to start drawing his
pension when he reaches the age of 62.
The retirement pension is calculated as a percentage of
the basic level of remuneration. Starting at 50%, the indi-
vidual percentage increases by two percentage points for
each year of service. In the case of the Chairman of the Board
of Management, increases of 4.5 percentage points as of
March 1, 2017, 4.5 percentage points as of March 1, 2018 and
5.0 percentage points as of March 1, 2019 are provided for. In
specific cases, credit is given for previous employment
periods and retirement pensions earned. In a departure from
this rule, a retirement pension entitlement of 62% of the
basic level of remuneration was set for Mr. Renschler on his
appointment. The Supervisory Board has capped the percent-
age at 70%. These benefits are not broken down any further
into performance-related components and long-term incen-
tive components. Mr. Garcia Sanz and Mr. Heizmann reached
a retirement pension entitlement of 70% of their basic level
of remuneration at the end of 2017 the entitlement for Mr.
Renschler and Mr. Stadler is 66%. Mr. Müller had a retirement
pension entitlement of 57.5% of the basic level of remuner-
ation as of the end of 2017. The increase in the basic remu-
neration as a consequence of the new remuneration system
in place from fiscal year 2017 is therefore not taken into
account for the incumbent members of the Board of Man-
agement of Volkswagen AG with an existing occupational
pension based on final remuneration.
With regard to the existing defined contribution pension
schemes for the current members of the Board of Manage-
ment of Volkswagen Aktiengesellschaft, the basis used to
determine the pension contributions shall in each case be
increased by the difference between the previous basic remu-
neration and the newly determined basic remuneration (at an
unchanged contribution rate of 50% of the basic remuner-
ation).
For future members of the Board of Management with a
defined contribution pension scheme, a contribution rate of
40% of the basic remuneration will be credited to the pension
account.
tribution in the amount of 50% of the basic level of remu-
neration is paid to Volkswagen Pension Trust e.V. at the end of
the calendar year for each year they are appointed to the
Board of Management. The annual pension contributions
result in modules of what is, in principle, a lifelong pension in
line with the arrangements that also apply to employees
covered by collective agreements. The individual pension
modules vest immediately upon payment to Volkswagen
Pension Trust e.V. Instead of a lifelong pension, benefits can
optionally be paid out as a lump sum or in installments when
the beneficiary reaches retirement age – currently 63 at the
earliest. Volkswagen AG has assumed responsibility for
pension entitlements due to Mr. Witter from the time before
his service with the Company, although these cannot be
claimed before he reaches the age of 60.
On December 31, 2017, the pension obligations for mem-
bers of the Board of Management in accordance with IAS 19
amounted to €125.4 (113.5) million. €12.9 (11.7) million was
added to the provision in the reporting period in accordance
with IAS 19. Other benefits such as surviving dependents’
pensions and the use of company cars are also factored into
the measurement of pension provisions. The pension
obligations measured in accordance with German GAAP
amounted to €92.4 (77.2) million. Measured in accordance
with German GAAP, €15.8 (7.0) million was added to the
provision in the reporting period. Current pensions are
index-linked in accordance with the index-linking of the
highest collectively agreed salary insofar as the application of
section 16 of the Gesetz zur Verbesserung der betrieblichen
Altersversorgung (BetrAVG – German Company Pension Act)
does not lead to a larger increase.
Retired members of the Board of Management and their
surviving dependents received €19.9 (11.1) million, or €19.9
(11.1) million measured in accordance with German GAAP, in
the past year. Obligations for pensions for this group of
persons measured in accordance with IAS 19 amounted to
€269.0 (270.0) million, or €214.9 (205.6) million measured in
accordance with German GAAP.
The following rule applies to Board of Management
contracts entered into for the first term of office before
August 5, 2009: the retirement pension to be granted after a
member of the Board of Management leaves the Company is
payable immediately if the member’s contract is not renewed
by the Company, and in other cases when the member
reaches the age of 63. Any remuneration received from other
sources until the age of 63 is deductible from the benefit
entitlement up to a certain fixed amount.
Ms. Hohmann-Dennhardt and Ms. Werner as well as
Mr. Blessing, Mr. Diess and Mr. Witter received a defined con-
tribution plan, which is based in principle on a works agree-
ment that also applies to the employees of Volkswagen AG
covered by collective agreements and includes retirement,
invalidity and surviving dependents’ benefits. A pension con-
The following general rule applies to contracts for the first
term of office of members of the Board of Management
entered into after August 5, 2009: the retirement pension to
be granted after a member of the Board of Management
leaves the Company is payable when the member reaches the
age of 63.
Group Management Report
Remuneration Report
81
E A R LY T E R M I N AT I O N B E N E F I T S
If the appointment to the Board of Management is termi-
nated for cause through no fault of the Board of Management
member, the claims under Board of Management contracts
entered into since November 20, 2009 are limited to a maxi-
mum of two years’ remuneration, in accordance with the
recommendation in section 4.2.3(4) of the Code (severance
payment cap). For Board of Management members who are
commencing their third or later term of office, existing rights
under contracts entered into before November 20, 2009 are
grandfathered.
No severance payment is made if the appointment to the
Board of Management is terminated for good reason for
which the Board of Management member is responsible.
The members of the Board of Management are also entitled
to a pension and to a surviving dependents’ pension as well
as the use of company cars for the period in which they
receive their pension in the event of early termination of
their service on the Board of Management.
Please refer to notes 43 and 46 to the consolidated finan-
cial statements and the notes to the annual financial
statements of Volkswagen AG for more detailed individual
disclosures relating to members of the Board of Management
who left the Company in fiscal year 2017.
P E N S I O N S O F T H E M E M B E R S O F T H E B OA R D O F M A N A G E M E N T I N 2 0 1 7 ( P R I O R - Y E A R F I G U R E S I N B R A C K E T S )
€
Matthias Müller
Karlheinz Blessing
Herbert Diess
Francisco Javier Garcia Sanz
Jochem Heizmann
Christine Hohmann-Dennhardt (Jan. 1, 2016 – Jan. 31, 2017)
Andreas Renschler
Rupert Stadler
Hiltrud Dorothea Werner (since Feb. 1, 2017)
Frank Witter
Total
Pension expense
Present value as of
December 311
612,807
(526,589)
686,413
(742,542)
814,654
(699,856)
889,410
(760,864)
–
–
54,091
(704,657)
5,361,551
(4,660,006)
829,730
(665,679)
930,689
–
692,743
(587,216)
10,872,088
(9,347,409)
30,065,068
(27,254,749)
1,623,275
(742,542)
2,169,255
(1,298,635)
22,544,823
(21,752,138)
19,254,055
(19,836,613)
–
(704,657)
16,278,653
(11,231,016)
22,262,176
(21,530,818)
975,823
–
10,214,190
(9,100,545)
125,387,318
(113,451,713)
1 The amount is reported in the total amount for defined benefit plans reported in the balance sheet (see note 29 to the consolidated financial statements).
82
Remuneration Report
Group Management Report
S U P E R V I S O RY B OA R D R E M U N E R AT I O N
Following its regular review of Supervisory Board remu-
neration, the Supervisory Board proposed a reorganization of
the system of Supervisory Board remuneration to the 2017
Annual General Meeting, which was approved on May 10,
2017 with 99.98% of the votes cast. The remuneration of the
members of the Supervisory Board of Volkswagen AG no
longer contains any performance-related remuneration com-
ponents but consists entirely of non-performance-related
remuneration components. This is in line with the trend in
supervisory board remuneration at DAX-listed companies,
most of whose supervisory board remuneration now com-
prises fixed remuneration only. Compared with other large
listed companies in Germany, the amount of the proposed
remuneration components is also standard for the market
and is appropriate. This was confirmed by a renowned,
external remuneration consultant who assisted the Super-
visory Board in reorganizing the remuneration system for
members of the Supervisory Board. Remuneration for super-
visory board work at subsidiaries continues in part to com-
prise a mix of non-performance-related and performance-
related components.
The following applies to members of the Supervisory Board
of Volkswagen AG with retroactive effect from January 1, 2017:
> Members of the Supervisory Board receive fixed remu-
neration of €100,000 per fiscal year.
> The Chairman of the Supervisory Board receives fixed
remuneration of €300,000, while the Deputy Chairman
receives remuneration of €200,000.
> For their work in the Supervisory Board committees, the
members of the Supervisory Board also receive additional
fixed remuneration of €50,000 per committee per fiscal
year provided the committee met at least once per year for
the performance of its duties. Memberships of the Nomi-
nation and Mediation Committees established in accor-
dance with section 27(3) of the Mitbestimmungsgesetz
(German Codetermination Act) are not taken into account.
> Committee chairpersons receive double this amount, while
deputy chairpersons receive one-and-a-half times the
committee remuneration listed above.
> Membership of no more than two committees is taken into
account, whereby the two functions with the highest
remuneration are counted if this maximum number is
exceeded.
> Supervisory Board members who belonged to the Super-
visory Board or one of its committees for only part of the
fiscal year receive proportionate remuneration.
> Supervisory Board members receive an attendance fee of
€1,000 for attending a meeting of the Supervisory Board or
one of its committees; if several meetings are held on one
day, the attendance fee is paid only once.
> The remuneration and attendance fees are each payable
after the end of the fiscal year.
In fiscal year 2017, the members of the Supervisory Board
received €3,786,839 (5,396,565). Of this figure, €2,000,000
related to the work of the Supervisory Board and €836,389
related to the work in the committees.
Group Management Report
Remuneration Report
83
R E M U N E R AT I O N O F T H E M E M B E R S O F T H E S U P E R V I S O RY B OA R D
Hans Dieter Pötsch
Jörg Hofmann2
Hussain Ali Al-Abdulla
Hessa Sultan Al-Jaber
Bernd Althusmann3 (since Dec. 14, 2017)
Birgit Dietze2
Annika Falkengren
Hans-Peter Fischer2
Uwe Fritsch2 (until May 10, 2017)
Uwe Hück2
Johan Järvklo2
Ulrike Jakob2 (since May 10, 2017)
Louise Kiesling
Olaf Lies3 (until Dec. 14, 2017)
Peter Mosch2
Bertina Murkovic2 (since May 10, 2017)
Bernd Osterloh2
Hans Michel Piëch
Ferdinand Oliver Porsche
Wolfgang Porsche
Athanasios Stimoniaris2 (since May 10, 2017)
Stephan Weil3
Stephan Wolf2 (until May 10, 2017)
Thomas Zwiebler2 (until May 10, 2017)
Members of the Supervisory Board who retired in the
previous year
F I X E D
R E M U N E R A -
W O R K I N T H E
T I O N
C O M M I T T E E S
O T H E R 1
T O T A L
–
200,000
100,000
100,000
4,583
100,000
100,000
100,000
35,972
100,000
100,000
64,028
100,000
95,417
100,000
64,028
100,000
100,000
100,000
100,000
64,028
100,000
35,972
35,972
–
75,000
–
–
–
50,000
38,750
–
17,986
–
–
–
–
47,639
91,007
32,014
98,021
–
150,000
150,000
–
50,000
17,986
17,986
–
20,000
7,000
11,000
–
13,000
12,000
9,000
9,000
80,500
10,000
4,000
11,000
20,000
102,100
6,000
28,000
150,600
147,100
161,400
106,750
24,000
11,000
7,000
2017
–
295,000
107,000
111,000
4,583
163,000
150,750
109,000
62,958
180,500
110,000
68,028
111,000
163,056
293,107
102,042
226,021
250,600
397,100
411,400
170,778
174,000
64,958
60,958
W A I V E R
F O R 2 0 1 6
T O T A L
2016
65,500
31,333
60,167
31,504
–
47,807
84,250
60,167
70,629
60,167
60,167
–
60,167
80,250
61,250
–
19,250
60,167
54,333
49,333
–
75,250
75,250
81,250
585,800
330,333
170,167
89,865
–
143,252
249,250
171,167
214,990
234,667
170,167
–
171,167
250,250
301,850
–
251,250
266,736
417,933
441,233
–
250,250
251,250
251,250
–
–
–
–
–
183,739
Total
2,000,000
836,389
950,450
3,786,839
1,188,190
5,396,566
1 Attendance fees, membership of other Group bodies (non-performance-related: €257,000; performance-related: €270,450).
2 These employee representatives have stated that they will transfer their Supervisory Board remuneration to the Hans Böckler Foundation in accordance with the guidelines issued by
the German Confederation of Trade Unions (DGB).
3 Under section 5(3) of the Niedersächsisches Ministergesetz (Act Governing Ministers of the State of Lower Saxony), these members of the Supervisory Board are obliged to transfer
their Supervisory Board remuneration to the State of Lower Saxony as soon as and to the extent that it exceeds €6,200 per annum. Remuneration is defined for this purpose as
Supervisory Board remuneration and attendance fees exceeding the amount of €200.
The remuneration disclosed for members of the Supervisory
Board for 2016 shows the amounts determined on the basis
of the old system of Supervisory Board remuneration. The
members of the Supervisory Board declared to the Manage-
ment Board that they waive the portion of their remu-
neration for fiscal year 2016 that exceeds the amount that
would have resulted for fiscal year 2016 from implementing
the system of Supervisory Board remuneration resolved by
the Annual General Meeting on May 10, 2017 with retroactive
effect from January 1, 2017. The total amount waived for 2016
by the members of the Supervisory Board is €1,188,190.
Mr. Pötsch additionally waived an amount of €115,700.00 of
his variable remuneration for fiscal year 2016 and waived his
remuneration for fiscal year 2017 in full. The reason for this
waiver is the agreement made in connection with Mr. Pötsch’s
transfer from the Board of Management to the Supervisory
Board as of October 8, 2015, it had been agreed to deduct the
amount of Supervisory Board remuneration received up to
December 31, 2017 from the compensation payment for his
Board of Management remuneration to which he would have
been entitled for the period from October 8, 2015 to Decem-
ber 31, 2017.
84
Executive Bodies
Group Management Report
Executive Bodies
Members of the Board of Management and their appointments
Appointments: as of December 31, 2017 or the leaving date from the Board of Management of Volkswagen AG
MATTHIAS MÜLLER (64)
DR. RER. POL. H.C.
ANDREAS RENSCHLER (59)
Chairman (since September 26, 2015)
FRANCISCO JAVIER GARCIA SANZ (60)
Commercial Vehicles
March 1, 20151
Member of the Executive Board of
Porsche Automobil Holding SE
October 13, 20101
Procurement
July 1, 20011
Appointments:
(cid:123) Hochtief AG, Essen
February 1, 20151
Appointments:
(cid:123) Deutsche Messe AG, Hanover
DR. RER. SOC. KARLHEINZ BLESSING (60)
Chairman of the Board of Management of AUDI AG
(cid:126) Criteria CaixaHolding S.A., Barcelona
PROF. RUPERT STADLER (54)
Human Resources and Organization
PROF. DR. RER. POL. DR.-ING. E.H.
January 1, 20161
Appointments:
(cid:123) Wolfsburg AG, Wolfsburg
JOCHEM HEIZMANN (65)
China
January 11, 20071
Appointments:
DR.-ING. HERBERT DIESS (59)
(cid:123) Lufthansa Technik AG, Hamburg
Chairman of the Brand Board of Management
of Volkswagen Passenger Cars
July 1, 20151
Appointments:
DR. JUR. CHRISTINE HOHMANN-DENNHARDT (67)
Integrity and Legal Affairs
January 1, 2016 – January 31, 20171
(cid:123) Infineon Technologies AG, Neubiberg
Appointments (as of January 31, 2017):
(cid:126) Messe Frankfurt GmbH, Frankfurt am Main
January 1, 20101
Appointments:
(cid:123) FC Bayern München AG, Munich
HILTRUD DOROTHEA WERNER (51)
Integrity and Legal Affairs
February 1, 20171
FRANK WITTER (58)
Finance and Controlling
October 7, 20151
As part of their duty to manage and supervise the
Group’s business, the members of the Board of
Management hold other offices on the supervisory
boards of consolidated Group companies and other
significant investees.
(cid:123) Membership of statutory supervisory boards in
1 Beginning or period of membership of the Board of
Germany.
Management.
(cid:126) Comparable appointments in Germany and abroad.
Group Management Report
Executive Bodies
85
Executive Bodies
Members of the Supervisory Board and their appointments
Appointments: as of December 31, 2017 or the leaving date from the Supervisory Board of Volkswagen AG
HANS DIETER PÖTSCH (66)
DR. HUSSAIN ALI AL-ABDULLA (60)
BIRGIT DIETZE (44)
Chairman (since October 7, 2015)
Chairman of the Executive Board and
Chief Financial Officer of Porsche Automobil Holding SE
October 7, 20151
Minister of State
April 22, 20101
Appointments:
Secretary to the Board of IG Metall
June 1, 20161
(cid:126) Gulf Investment Corporation, Safat/Kuwait
ANNIKA FALKENGREN (55)
Appointments:
(cid:123) AUDI AG, Ingolstadt
(cid:126) Kirnaf Finance, Riyadh (Chairman)
(cid:126) Masraf Al Rayan, Doha (Chairman)
(cid:123) Autostadt GmbH, Wolfsburg (Chairman)
(cid:126) Qatar Holding, Doha
Managing Partner of
Compagnie Lombard Odier SCmA
May 3, 2011 – February 5, 20181
(cid:123) Bertelsmann Management SE, Gütersloh
(cid:126) Qatar Investment Authority, Doha
Appointments (as of February 5, 2018):
(cid:123) Bertelsmann SE & Co. KGaA, Gütersloh
(cid:126) FAM AB, Stockholm
(cid:123) Dr. Ing. h.c. F. Porsche AG, Stuttgart
DR. HESSA SULTAN AL-JABER (58)
(cid:123) Wolfsburg AG, Wolfsburg
(cid:126) Porsche Austria Gesellschaft m.b.H., Salzburg
(Chairman)
Minister of State
June 22, 20161
Appointments:
DR. JUR. HANS-PETER FISCHER (58)
Chairman of the Board of Management of
Volkswagen Management Association
(cid:126) Porsche Holding Gesellschaft m.b.H., Salzburg
(cid:126) Droobi Health Technology, Doha
(Chairman)
(cid:126) Malomatia, Doha
January 1, 20131
Appointments:
(cid:126) Porsche Retail GmbH, Salzburg (Chairman)
(cid:126) Qatar Satellite Company, Doha
(cid:126) Volkswagen Pension Trust e.V., Wolfsburg
(cid:126) VfL Wolfsburg-Fußball GmbH, Wolfsburg
(cid:126) Trio Investment, Doha
(Deputy Chairman)
UWE FRITSCH (61)
(cid:126) Volkswagen Truck & Bus GmbH, Braunschweig
DR. BERND ALTHUSMANN (51)
Chairman of the Works Council of the Volkswagen AG
Minister of Economic Affairs, Labor, Transport and
Braunschweig plant
JÖRG HOFMANN (62)
Deputy Chairman (since November 20, 2015)
Digitalization for the Federal State of Lower Saxony
December 14, 20171
April 19, 2012 – May 10, 20171
Appointments (as of May 10, 2017):
First Chairman of IG Metall
Appointments:
(cid:126) Eintracht Braunschweig GmbH & Co KGaA,
November 20, 20151
Appointments:
(cid:123) Deutsche Messe AG, Hanover
Braunschweig
(cid:126) Container Terminal Wilhelmshaven JadeWeserPort-
(cid:126) Basketball Löwen Braunschweig GmbH,
(cid:123) Robert Bosch GmbH, Stuttgart
Marketing GmbH & Co. KG, Wilhelmshaven
Braunschweig
(cid:126) JadeWeserPort Realisierungs GmbH & Co. KG,
Wilhelmshaven
MARIANNE HEISS (45)
(cid:126) JadeWeserPort Realisierungs-Beteiligungs GmbH,
Chief Financial Officer of BBDO Group
DR. JUR. KLAUS LIESEN (86)
July 2, 1987 – May 3, 20061
Wilhelmshaven
Germany GmbH, Düsseldorf
(cid:126) Niedersachsen Ports GmbH & Co. KG, Oldenburg
February 14, 20181
Honorary Chairman of the Supervisory Board of
(Chairman)
Volkswagen AG (May 3, 2006 – March 30, 2017)
Dr. Liesen died on March 30, 2017.
(cid:123) Membership of statutory supervisory boards in
1 Beginning or period of membership of the
Germany.
Supervisory Board.
(cid:126) Comparable appointments in Germany and abroad.
86
Executive Bodies
Group Management Report
UWE HÜCK (55)
BERTINA MURKOVIC (60)
DR. JUR. FERDINAND OLIVER PORSCHE (56)
Chairman of the General and Group Works Councils of
Chairwoman of the Works Council of
Member of the Board of Management of Familie
Dr. Ing. h.c. F. Porsche AG
Volkswagen Commercial Vehicles
Porsche AG Beteiligungsgesellschaft
July 1, 20151
Appointments:
May 10, 20171
(cid:123) Dr. Ing. h.c. F. Porsche AG, Stuttgart
BERND OSTERLOH (61)
August 7, 20091
Appointments:
(cid:123) AUDI AG, Ingolstadt
(Deputy Chairman)
Chairman of the General and Group Works Councils of
(cid:123) Dr. Ing. h.c. F. Porsche AG, Stuttgart
JOHAN JÄRVKLO (44)
Chairman of IF Metall at Scania AB
November 22, 20151
Appointments:
Volkswagen AG
January 1, 20051
Appointments:
(cid:123) Autostadt GmbH, Wolfsburg
(cid:123) Wolfsburg AG, Wolfsburg
(cid:123) Porsche Automobil Holding SE, Stuttgart
(cid:126) Porsche Holding Gesellschaft m.b.H., Salzburg
(cid:126) Porsche Lizenz- und
Handelsgesellschaft mbH & Co. KG, Ludwigsburg
(cid:126) Volkswagen Truck & Bus GmbH, Braunschweig
(cid:126) Scania CV AB, Södertälje
(cid:126) Allianz für die Region GmbH, Braunschweig
(cid:126) Volkswagen Truck & Bus GmbH, Braunschweig
(cid:126) Porsche Holding Gesellschaft m.b.H., Salzburg
DR. RER. COMM. WOLFGANG PORSCHE (74)
ULRIKE JAKOB (57)
(cid:126) ŠKODA Auto a.s., Mladá Boleslav
Porsche Automobil Holding SE;
Deputy Chairwoman of the Works Council of
(cid:126) VfL Wolfsburg-Fußball GmbH, Wolfsburg
Chairman of the Supervisory Board of
(cid:126) SEAT, S.A., Martorell
Chairman of the Supervisory Board of
Volkswagen AG, Kassel plant
May 10, 20171
DR. LOUISE KIESLING (60)
Designer and entrepreneur
April 30, 20151
OLAF LIES (50)
(cid:126) Volkswagen Immobilien GmbH, Wolfsburg
Dr. Ing. h.c. F. Porsche AG
(cid:126) Volkswagen Truck & Bus GmbH, Braunschweig
April 24, 20081
DR. JUR. HANS MICHEL PIËCH (75)
Lawyer in private practice
August 7, 20091
Appointments:
(cid:123) AUDI AG, Ingolstadt
Appointments:
(cid:123) AUDI AG, Ingolstadt
(cid:123) Dr. Ing. h.c. F. Porsche AG, Stuttgart (Chairman)
(cid:123) Porsche Automobil Holding SE, Stuttgart
(Chairman)
(cid:126) Familie Porsche AG Beteiligungsgesellschaft,
February 19, 2013 – December 14, 20171
(cid:123) Dr. Ing. h.c. F. Porsche AG, Stuttgart
Salzburg (Chairman)
Appointments (as of December 14, 2017):
(cid:123) Porsche Automobil Holding SE, Stuttgart
(cid:126) Porsche Cars Great Britain Ltd., Reading
(cid:123) Deutsche Messe AG, Hanover
(Deputy Chairman)
(cid:126) Porsche Cars North America Inc., Atlanta
(cid:126) Container Terminal Wilhelmshaven JadeWeserPort-
(cid:126) Porsche Cars Great Britain Ltd., Reading
(cid:126) Porsche Holding Gesellschaft m.b.H., Salzburg
Marketing GmbH & Co. KG, Wilhelmshaven
(cid:126) Porsche Cars North America Inc., Atlanta
(cid:126) Porsche Ibérica S.A., Madrid
(cid:126) Demografieagentur für die niedersächsische
(cid:126) Porsche Holding Gesellschaft m.b.H., Salzburg
(cid:126) Porsche Italia S.p.A., Padua
Wirtschaft GmbH, Hanover (Chairman)
(cid:126) Porsche Ibérica S.A., Madrid
(cid:126) Schmittenhöhebahn AG, Zell am See
(cid:126) JadeWeserPort Realisierungs GmbH & Co. KG,
(cid:126) Porsche Italia S.p.A., Padua
Wilhelmshaven
(cid:126) Schmittenhöhebahn AG, Zell am See
(cid:126) JadeWeserPort Realisierungs-Beteiligungs GmbH,
(cid:126) Volksoper Wien GmbH, Vienna
Wilhelmshaven
PETER MOSCH (45)
Chairman of the General Works Council of AUDI AG
January 18, 20061
Appointments:
(cid:123) AUDI AG, Ingolstadt
(cid:123) Audi Pensionskasse – Altersversorgung der
AUTO UNION GmbH, VVaG, Ingolstadt
(cid:123) Membership of statutory supervisory boards in
1 Beginning or period of membership of the
Germany.
Supervisory Board.
(cid:126) Comparable appointments in Germany and abroad.
Group Management Report
Executive Bodies
87
ATHANASIOS STIMONIARIS (46)
COMMITTEES OF THE SUPERVISORY BOARD
Chairman of the Works Council and of the
AS OF DECEMBER 31, 2017
General Works Council of MAN Truck & Bus AG and
Chairman of the Group Works Council of MAN SE
Members of the Executive Committee
and of the SE Works Council
May 10, 20171
Appointments:
(cid:123) MAN SE, Munich
Hans Dieter Pötsch (Chairman)
Jörg Hofmann (Deputy Chairman)
Peter Mosch
Bernd Osterloh
(cid:123) MAN Truck & Bus AG, Munich (Deputy Chairman)
Dr. Wolfgang Porsche
(cid:123) Rheinmetall MAN Military Vehicles GmbH, Munich
Stephan Weil
(cid:126) Volkswagen Truck & Bus GmbH, Braunschweig
STEPHAN WEIL (59)
Minister-President of the Federal State of
Lower Saxony
February 19, 20131
STEPHAN WOLF (51)
January 1, 2013 – May 10, 20171
Appointments (as of May 10, 2017):
(cid:123) Volkswagen Financial Services AG, Braunschweig
(cid:123) Wolfsburg AG, Wolfsburg
(cid:126) Volkswagen Pension Trust e.V., Wolfsburg
THOMAS ZWIEBLER (52)
May 15, 2010 – May 10, 20171
Members of the Mediation Committee
established in accordance with section 27(3) of
the Mitbestimmungsgesetz (German
Codetermination Act)
Hans Dieter Pötsch (Chairman)
Jörg Hofmann (Deputy Chairman)
Bernd Osterloh
Stephan Weil
Members of the Audit Committee
Dr. Ferdinand Oliver Porsche (Chairman)
Bernd Osterloh (Deputy Chairman)
Birgit Dietze
n.n.
Members of the Nomination Committee
Hans Dieter Pötsch (Chairman)
Dr. Wolfgang Porsche
Stephan Weil
Special Committee on Diesel Engines
Dr. Wolfgang Porsche (Chairman)
Peter Mosch
Bertina Murkovic
Bernd Osterloh
Dr. Ferdinand Oliver Porsche
n.n.
(cid:123) Membership of statutory supervisory boards in
1 Beginning or period of membership of the
Germany.
Supervisory Board.
(cid:126) Comparable appointments in Germany and abroad.
88
Disclosures Required Under Takeover Law
Group Management Report
Disclosures Required Under
Takeover Law
This section contains the Volkswagen Group’s disclosures relating to takeover law
required by sections 289(4) and 315(4) of the HGB.
C A P I TA L ST R U C T U R E
Volkswagen AG’s share capital amounted to €1,283,315,873.28
(€1,283,315,873.28) on 31 December, 2017. It was composed
of 295,089,818 ordinary shares and 206,205,445 preferred
shares. Each share conveys a notional interest of €2.56 in the
share capital.
S H A R E H O L D E R R I G H T S A N D O B L I G AT I O N S
The shares convey pecuniary and administrative rights. The
pecuniary rights include in particular the shareholders’ right
to participate in profits (section 58(4) of the Aktiengesetz
(AktG – German Stock Corporation Act)), the right to partic-
ipate in liquidation proceeds (section 271 of the AktG) and
preemptive rights to shares in the event of capital increases
(section 186 of the AktG) that can be disapplied by the Annual
General Meeting with the approval of the Special Meeting of
Preferred Shareholders, where appropriate. Administrative
rights include the right to attend the Annual General Meeting
and the right to speak there, to ask questions, to propose
motions and to exercise voting rights. Shareholders can
enforce these rights in particular through actions seeking
disclosure and actions for avoidance.
Each ordinary share grants the holder one vote at the
Annual General Meeting. The Annual General Meeting elects
shareholder representatives to the Supervisory Board and
elects the auditors; in particular, it resolves on the appro-
priation of net profit, formally approves the actions of the
Board of Management and the Supervisory Board, and
resolves on amendments to the Articles of Association of
Volkswagen AG, capitalization measures and authorizations
to purchase treasury shares; if required, it also resolves on the
performance of a special audit, the removal before the end of
their term of office of Supervisory Board members elected at
the Annual General Meeting and the winding-up of the
Company.
Preferred shareholders generally have no voting rights.
However, in the exceptional case that they are granted voting
rights by law (for example, when preferred share dividends
were not paid in one year and not compensated for in full in
the following year), each preferred share also grants the
holder one vote at the Annual General Meeting. Furthermore,
preferred shares entitle the holder to a €0.06 higher dividend
than ordinary shares (further details on this right to preferred
and additional dividends are specified in Article 27(2) of the
Articles of Association of Volkswagen AG).
The Gesetz über die Überführung der Anteilsrechte an der
Volkswagenwerk Gesellschaft mit beschränkter Haftung in
private Hand (VW-Gesetz – Act on the Privatization of Shares
of Volkswagenwerk Gesellschaft mit beschränkter Haftung) of
July 21, 1960, as amended on July 30, 2009, includes various
provisions in derogation of the German Stock Corporation
Act, for example on the exercise of voting rights by proxy
(section 3 of the VW-Gesetz) and on majority voting require-
ments at the Annual General Meeting (section 4(3) of the VW-
Gesetz).
In accordance with the Volkswagen AG Articles of Asso-
ciation (Article 11(1)), the State of Lower Saxony is entitled to
appoint two members of the Supervisory Board of Volks-
wagen AG for as long as it directly or indirectly holds at least
15% of Volkswagen AG’s ordinary shares. In addition, reso-
lutions by the Annual General Meeting that are required by
law to be adopted by a qualified majority require a majority
of more than four-fifths of the share capital of the Company
represented when the resolution is adopted (Article 25(2)),
regardless of the provisions of the VW-Gesetz.
Group Management Report
Disclosures Required Under Takeover Law
89
S H A R E H O L D I N G S E XC E E D I N G 1 0 % O F VOT I N G R I G H T S
Shareholdings in Volkswagen AG that exceed 10% of voting
rights are shown in the notes to the annual financial state-
ments of Volkswagen AG, which are available online at
www.volkswagenag.com/ir. The current notifications of
changes in voting rights in accordance with the Wertpapier-
handelsgesetz (WpHG – German Securities Trading Act) are
also published on this website.
CO M P O S I T I O N O F T H E S U P E R V I S O RY B OA R D
The Supervisory Board consists of 20 members, half of whom
are shareholder representatives. In accordance with Article
11(1) of the Articles of Association of Volkswagen AG, the
State of Lower Saxony is entitled to appoint two of these
shareholder representatives for as long as it directly or indi-
rectly holds at least 15% of the Company’s ordinary shares.
The remaining shareholder representatives on the Super-
visory Board are elected by the Annual General Meeting.
The other half of the Supervisory Board consists of
employee representatives elected by the employees in accor-
dance with the Mitbestimmungsgesetz (MitbestG – German
Codetermination Act). A total of seven of these employee
representatives are Company employees elected by the work-
force; the other three employee representatives are trade
union representatives elected by the workforce.
The Chairman of the Supervisory Board is generally a
shareholder representative elected by the other members of
the Supervisory Board. In the event that a Supervisory Board
vote is tied, the Chairman of the Supervisory Board has a
casting vote in accordance with the MitbestG.
The goals for the composition of the Supervisory Board
are described on page 61 of the Corporate Governance Report.
Information about the composition of the Supervisory Board
at the end of the reporting period can be found on pages 85
to 87 of this annual report.
STAT U TO RY R E Q U I R E M E N T S A N D R E Q U I R E M E N T S O F T H E
A RT I C L E S O F A S S O C I AT I O N W I T H R E G A R D TO T H E
A P P O I N TM E N T A N D R E M OVA L O F B OA R D O F M A N A G E M E N T
M E M B E R S A N D TO A M E N D M E N T S TO T H E A RT I C L E S O F
A S S O C I AT I O N
The appointment and removal of members of the Board of
Management are governed by sections 84 and 85 of the AktG,
which specify that members of the Board of Management are
appointed by the Supervisory Board for a maximum of five
years. Board of Management members may be reappointed
or have their term of office extended for a maximum of five
years in each case. In addition, Article 6 of the Articles of
Association of Volkswagen AG states that the number of
Board of Management members is stipulated by the Super-
visory Board and that the Board of Management must consist
of at least three persons.
The Annual General Meeting resolves amendments to the
Articles of Association (section 119(1) of the AktG). In accor-
dance with section 4(3) of the VW-Gesetz as amended on
July 30, 2009 and Article 25(2) of the Articles of Association of
Volkswagen AG, Annual General Meeting resolutions to
amend the Articles of Association require a majority of more
than four-fifths of the share capital represented.
P OW E R S O F T H E B OA R D O F M A N A G E M E N T, I N PA RT I C U L A R
CO N C E R N I N G T H E I S S U E O F N E W S H A R E S A N D T H E
R E P U R C H A S E O F T R E A S U RY S H A R E S
According to German stock corporation law, the Annual
General Meeting can authorize the Board of Management, for
a maximum period of five years, to issue new shares. It can
also authorize the Board of Management, for a maximum
period of five years, to issue bonds on the basis of which new
shares are to be issued. The Annual General Meeting also
decides the extent to which shareholders have preemptive
rights to the new shares or bonds. The maximum amount of
authorized share capital or contingent capital available for
these purposes is determined by Article 4 of the Articles of
Association of Volkswagen AG, as amended.
90
Disclosures Required Under Takeover Law
Group Management Report
The Annual General Meeting on April 19, 2012 resolved to
authorize the Board of Management, with the consent of the
Supervisory Board, to increase the Company’s share capital
by a total of up to €110.0 million (corresponding to approxi-
mately 43 million shares) on one or more occasions up to
April 18, 2017 by issuing new ordinary and/or nonvoting
preferred bearer shares – including with shareholders’
preemptive rights disapplied – against cash and/or noncash
contributions. This authorization was partially exercised in
June 2014 by way of a capital increase through the issuance of
10,471,204 new preferred shares from authorized capital
against cash contributions, while disapplying shareholders’
preemptive rights. This increased the share capital by
€26.8 million and generated gross proceeds of €2.0 billion.
At the Annual General Meeting on May 5, 2015, a reso-
lution was passed authorizing the Board of Management,
with the consent of the Supervisory Board, to increase the
Company’s share capital by a total of up to €179.2 million
(corresponding to 70 million shares) on one or more occa-
sions up to May 4, 2020 by issuing new nonvoting preferred
shares against cash contributions.
Further details of the authorization to issue new shares
and their permitted uses may be found in the notes to the
consolidated financial statements on page 256.
Opportunities to acquire treasury shares are governed by
section 71 of the AktG. The Board of Management was most
recently authorized to acquire treasury shares up to a maxi-
mum of 10% of the share capital at the Annual General
Meeting on April 19, 2012. This authorization applied until
April 18, 2017 and has not been exercised.
M AT E R I A L A G R E E M E N T S O F T H E PA R E N T CO M PA N Y I N
T H E E V E N T O F A C H A N G E O F CO N T R O L F O L LO W I N G A
TA K E OV E R B I D
A banking syndicate granted Volkswagen AG a syndicated line
of credit amounting to €5.0 billion that runs until April 2020.
The syndicate members were granted the right to call their
portion of the syndicated line of credit if Volkswagen AG is
merged with a third party or becomes a subsidiary of another
company. However, this call right does not apply in the event
of a merger by absorption of Porsche Holding SE, one of its
subsidiaries, or one of its holding companies and Volks-
wagen AG in which Volkswagen AG is the acquiring legal
entity.
In addition, Volkswagen AG agreed a supplementary syn-
dicated line of credit of up to €20.0 billion with a banking
syndicate, initially running until December 2016 and since
extended until June 2017. The syndicate members were
granted the right to call their portion of the syndicated line of
credit if Volkswagen AG is merged with a third party or group
of third parties, or becomes a subsidiary of another company
or group of other companies. Exceptions to this call right
were agreed with regard to various combinations involving
the current majority shareholders. This line of credit was
terminated in June 2017 as per the contractual agreement.
Group Management Report
Diesel Issue
91
Diesel Issue
During the fiscal year, we reached extensive settlement agreements in the USA. The technical
measures for all affected vehicles with type EA 189 engines in the European Union were approved
without exception, and implemented in most cases. We also continued to work on resolving the
diesel issue. Further special items amounting to €3.2 billion had to be accounted for in the fiscal year.
I R R E G U L A R I T I E S CO N C E R N I N G N O X E M I S S I O N S
On September 18, 2015, the US Environmental Protection
Agency (EPA) publicly announced in a “Notice of Violation”
that irregularities in relation to nitrogen oxide (NOx) emis-
sions had been discovered in emissions tests on certain
vehicles of Volkswagen Group with type 2.0 l diesel engines in
the USA. In this context, Volkswagen AG announced that
noticeable discrepancies between the figures achieved in
testing and in actual road use had been identified in around
eleven million vehicles worldwide with type EA 189 diesel
engines. On November 2, 2015, the EPA issued a “Notice of
Violation” alleging that irregularities had also been dis-
covered in the software installed in US vehicles with type V6
3.0 l diesel engines.
Numerous court and governmental proceedings were
subsequently initiated in the USA and the rest of the world.
During the reporting period, we succeeded in ending most
significant court and governmental proceedings in the USA
by concluding settlement agreements. This includes, in par-
ticular, settlements with the US Department of Justice (DOJ).
Outside the USA, we also reached agreements with regard to
the implementation of technical measures with numerous
authorities. Detailed information on the individual settle-
ment agreements as well as on the pending court and
governmental proceedings can be found in the Report on
Risks and Opportunities, starting on page 178.
E XT E N S I V E I N V E ST I G AT I O N S I N I T I AT E D B Y VO L K SWA G E N A G
After the first “Notice of Violation” was issued, Volkswagen AG
immediately initiated its own internal inquiries and an
external investigation.
The Supervisory Board of Volkswagen AG formed a special
committee that coordinates the activities relating to the
diesel issue for the Supervisory Board.
The global law firm Jones Day was instructed by Volks-
wagen AG to carry out an extensive investigation of the diesel
issue in light of the DOJ’s and the Braunschweig public
prosecutor’s criminal investigation as well as other investi-
gations and proceedings which were expected at that time.
Jones Day was instructed by Volkswagen AG to present
factual evidence to the DOJ . To resolve US-criminal law
charges, Volkswagen AG and the DOJ entered into a Plea
Agreement, which includes a Statement of Facts containing a
summary of the factual allegations which the DOJ considered
relevant to the settlement with Volkswagen AG. The
Statement of Facts is based in part on Jones Day’s factual
findings as well as the evidence identified by the DOJ itself.
Jones Day has completed the work required to assist
Volkswagen AG in assessing the criminal charges against the
company in the USA with respect to the diesel issue. However,
work in respect of the legal proceedings which are still
pending in the USA and the rest of the world is ongoing and
will require considerable efforts and a considerable period of
time. In connection with this further work, Volkswagen AG is
being advised by a number of external law firms.
Furthermore, in September 2015, Volkswagen AG filed a
criminal complaint in Germany against unknown individuals
as did AUDI AG. Volkswagen AG and AUDI AG are cooperating
with all responsible authorities in the scope of reviewing the
incidents.
92
Diesel Issue
Group Management Report
The diesel issue is rooted in a modification of parts of the
software of the relevant engine’s control unit – which,
according to Volkswagen AG’s legal position, is only unlawful
in the USA – for the type EA 189 diesel engines that Volks-
wagen AG was developing at that time. The decision to
develop and install this software function was taken in late
2006, below Board of Management level. None of the
members of the Board of Management had, at that time and
for many years to follow, knowledge of the development and
implementation of this software function in the relevant
engine control unit of the type EA 189 diesel engines.
In the months after the International Council on Clean
Transportation (ICCT) study was published in May 2014, the
test set-ups on which the ICCT study was based were repeated
in-house at Volkswagen AG and confirmed the unusually
high NOx emissions from certain type EA 189 2.0 l diesel
engines in the USA. The California Air Resources Board (CARB)
– a part of the environmental authority of California – was
informed of this result, and, at the same time, an offer was
made to recalibrate the type EA 189 diesel engines in the USA
as part of a service measure that was already planned in the
USA. This measure was evaluated and adopted by the
Ausschuss für Produktsicherheit (APS – Product Safety Com-
mittee), which initiates necessary and appropriate measures
to ensure the safety and conformity of Volkswagen AG’s
products that are placed in the market. There are no findings
that an unlawful “defeat device” under US law was disclosed
to the APS as the cause of the discrepancies or to the persons
responsible for preparing the 2014 annual and consolidated
financial statements. Instead, at the time the 2014 annual and
consolidated financial statements were being prepared, the
persons responsible for preparing the 2014 annual and
consolidated financial statements remained under the
impression that the issue could be solved with comparatively
little effort as part of a service measure.
In the course of the summer of 2015, however, it became
successively apparent to individual members of Volks-
wagen AG’s Board of Management that the cause of the dis-
crepancies in the USA was a modification of parts of the
software of the engine control unit, which was later identified
as an unlawful “defeat device” as defined by US law. This
culminated in the disclosure of a “defeat device” to EPA and
CARB on September 3, 2015. According to the assessment at
that time of the responsible persons dealing with the matter,
the scope of the costs expected by the Volkswagen Group
(recall costs, retrofitting costs and financial penalties) was not
fundamentally dissimilar to that of previous cases involving
other vehicle manufacturers, and, therefore, appeared to be
controllable overall with a view to the business activities of
the Volkswagen Group.
This assessment by the Volkswagen Group was based, among
other things, on the advice of a law firm engaged in the USA
for approval issues, according to which similar cases in the
past were resolved amicably with the US authorities. The
publication of the “Notice of Violation” by the EPA on
September 18, 2015, which, especially at that time came
unexpectedly to the Board of Management, then presented
the situation in an entirely different light.
Extensive inquiries were also conducted at AUDI AG in
relation to the potential use of unlawful “defeat devices”
under US law in type V6 3.0 l diesel engines. The investigation
conducted by Jones Day for Volkswagen AG also compre-
hensively covered this issue.
The AUDI AG Board of Management members in office
back at the relevant time have stated that they had no
knowledge of the use of unlawful “defeat device” software
under US law in V6 3.0 l TDI engines until they were informed
by the EPA in November 2015.
Within the Volkswagen Group, Volkswagen AG has develop-
ment responsibility for the four-cylinder diesel engines such
as the type EA 189, and AUDI AG has development respon-
sibility for the six-cylinder diesel engines such as the type V6
3.0 l diesel engines.
Nothing from the publications made up to the time this
report was prepared or from the ongoing investigations and
interviews on the diesel issue has presented the Volkswagen
AG Board of Management with any conclusive findings or
assessments of fact that would result in a different assess-
ment of the associated risks (e.g. investor lawsuits).
E A 1 8 9 V E H I C L E S I N T H E E U/ R E ST O F T H E WO R L D
Outside the USA and Canada, around 10 million vehicles with
type EA 189 diesel engines were affected.
During the first quarter of 2017, the Kraftfahrt-Bundes-
amt (KBA – German Federal Motor Transport Authority) issued
the final outstanding official approvals needed for technical
measures of 14 thousand Volkswagen Group vehicles fitted
with type EA 189 diesel engines falling within its remit.
The KBA ascertained for all clusters (groups of vehicles)
that implementation of the technical measures would not
bring about any adverse changes in fuel consumption figures,
CO2 emissions figures, engine power, maximum torque and
noise emissions. Once the updates have been made, the
vehicles will continue to comply with the legal requirements
and the emission standards applicable in each case.
Group Management Report
Diesel Issue
93
During the second quarter of 2017, the Vehicle Certification
Agency in the United Kingdom issued the outstanding
official approvals needed for technical measures to modify
the ŠKODA and SEAT models with type EA 189 diesel engines
falling within its remit.
The technical measures for all affected vehicles with type
EA 189 engines in the European Union were approved
without exception, and implemented in most cases.
In some countries outside the EU the technical measures
have to be approved by the national authorities. With the
exception of South Korea and Chile, we were able to complete
the approval process in all countries. There, the majority of
approvals were likewise granted; in relation to the pending
approvals Volkswagen is in close contact with the authorities.
Based on current planning, implementation of the tech-
nical measures, which are free of charge for our customers,
will run into 2018.
F U RT H E R R E T R O F I T P R O G R A M S F O R T Y P E V 6 / V 8 E N G I N E S
For many months, AUDI AG has been intensively checking all
diesel concepts for possible discrepancies and retrofit poten-
tials. A systematic review process for all engine and gear
variants has been underway since 2016. This was done in
close cooperation with the authorities, which were provided
with detailed reports, especially the German Federal Ministry
of Transport and the KBA. In this context, AUDI AG
announced on July 21, 2017 that it was going to improve the
emissions performance of up to 850 thousand vehicles across
Europe via service measures. The retrofit package comprises
voluntary measures and to a small extent measures directed
by the authorities; these are measures taken within the scope
of a recall, which were proposed by AUDI AG itself, reported to
the KBA and taken up and ordered by the latter.
A F F E C T E D V E H I C L E S I N T H E U S A / C A N A DA
In the USA and Canada three generations of certain vehicles
with 2.0 l TDI engines and two generations of certain vehicles
with V6 3.0 l TDI engines are affected, which come to a total of
approximately 700 thousand vehicles. Due to NOx limits that
are considerably stricter than in the EU and the rest of the
world, it is a greater technical challenge here to refit the
vehicles so that the emission standards defined in the
settlement agreements for these vehicles can be achieved.
The EPA and CARB have approved emissions modifications
and issued resale approvals for the majority of the affected
vehicles with 2.0 l TDI engines. The approved modifications
relate to certain Generation 1 and Generation 2 vehicles, and
the first part of a two-step modification for Generation 3
vehicles. The second part of this modification has been
submitted for approval. We are working in close cooperation
with the EPA and CARB to obtain the outstanding approval.
We have withdrawn the emissions modification proposal for
Generation 2 vehicles with manual transmissions.
The EPA and CARB have approved the modification
measures for the Generation 2 vehicles with type V6 3.0 l TDI
engines. We have submitted proposals for emissions modi-
fications for Generation 1 vehicles with type V6 3.0 l TDI
engines. These proposals are under review by the EPA and
CARB.
The relevant US and Canadian companies of the Volks-
wagen Group have withdrawn the affected new and certified
used vehicles from sale until the outstanding approvals are
issued. The technical solutions that have been approved by
the authorities have already been implemented.
L E G A L R I S K S
Various legal risks are associated with the diesel issue. The
provisions recognized for the diesel issue and the contingent
liabilities disclosed as well as the other latent legal risks are
partially subject to substantial estimation risks given the
complexity of the individual factors, the ongoing approval
process with the authorities and the fact that the facts have
not yet been definitively clarified. Should these legal risks
materialize, this could result
in considerable financial
charges.
A detailed description of these and other risks arising
from the diesel issue as stated above can be found in the
Report on Risks and Opportunities starting on page 178.
O P E R AT I N G R E S U LT
Special items recognized in operating profit relating to the
diesel issue amounted to €–3.2 (–6.4) billion in fiscal year
2017, mainly due to higher provisions relating to the buy-
back/retrofit programs.
The diesel issue led to total special items of €–25.8 billion
in the years 2015 to 2017.
94
Diesel Issue
Group Management Report
I N D E P E N D E N T M O N I TO R
In June 2017, Larry D. Thompson was appointed as the
Independent Compliance Monitor at Volkswagen under the
terms of the Plea Agreement with the DOJ announced on
January 11, 2017 and confirmed by a US federal court on
April 21, 2017. He will also work as Independent Compliance
Auditor under the Third Partial Consent Decree concluded
separately with the EPA and the Third California Partial
Consent Decree agreed with the State of California and CARB
(for more information on these agreements, please see the
Litigation section starting on page 178). Mr. Thompson will
assess and oversee Volkswagen’s compliance with the terms
of the Plea Agreement and Consent Decrees for a period of
three years, which includes taking measures to further
strengthen the Company’s compliance, reporting and moni-
toring mechanisms and the implementation of an enhanced
compliance and ethics program.
TO O U R STA K E H O L D E R S
The diesel issue prompted a process by which we strength-
ened our corporate culture, particularly in the areas of com-
pliance and internal control mechanisms. This development
led to the initiation of programs and projects designed to
intensify Volkswagen’s collective awareness of integrity.
We honed our internal control systems for the product
development process and vehicle testing, overhauled our
Code of Conduct and the whistleblower system, and increased
the frequency of the training courses provided to staff on
these topics.
The combination of integrity, compliance and culture is
an important and indispensable part of the transformation
process we are undergoing. We are renewing ourselves from
the inside out and are evolving on a daily basis to merit our
most important asset – the trust of our customers and stake-
holders.
Group Management Report
Business Development
95
Business Development
The global economy grew more strongly in fiscal year 2017 than in the previous year. However,
global demand for vehicles did not rise as sharply as in the year before. Amid challenging market
conditions, the Volkswagen Group delivered 10.7 million vehicles to customers for the first time.
D E V E LO P M E N T S I N T H E G LO B A L E CO N O MY
Global gross domestic product (GDP) rose by 3.2 (2.5)% in
2017. Economic momentum accelerated in both advanced
economies and emerging markets year-on-year. Consumer
prices increased at a slower pace worldwide than in the pre-
vious year, with persistently low interest rates and rising
energy and commodity prices.
Europe/Other Markets
GDP growth in Western Europe edged up slightly during the
year to 2.3 (1.8)%, with the majority of the countries in this
region seeing higher growth rates. The start of the Brexit
negotiations between the United Kingdom and the European
Union generated uncertainty, as did the question of what
form this relationship would take in the future. The unem-
ployment rate in the eurozone continued to decrease, falling
to an average of 9.6 (10.6)%, though rates remained consid-
erably higher in Greece and Spain.
The Central and Eastern Europe region recorded a
relatively strong increase in GDP in the reporting period with
an increase of 3.8 (1.8)%. In Central Europe, the general
uptrend gained traction, and in Eastern Europe the economy
also grew at a considerably stronger pace than in the previous
year. Higher energy prices led to a stabilization of the
economic situation in the countries from this region that
export raw materials. A growth rate of 1.6 (– 0.4)% marked the
end of the recessionary period in Russia.
South Africa’s GDP rose by just 0.9 (0.3)%, only slightly
higher than the low figure for the previous year. Ongoing
structural deficits, social unrest and political challenges
weighed on the economy.
Germany
The German economy continued to profit from optimistic
consumer sentiment and a good labor market, which led to a
sharper year-on-year increase in GDP to 2.5 (1.9)% in 2017.
North America
Economic growth in the USA was faster than in the previous
year, at 2.2 (1.5)%. The economy was supported mainly by
private consumption and the expansionary monetary policy.
Private gross investments also developed positively. The
average unemployment rate was 4.4 (4.9)%. The US dollar was
somewhat weaker than in the previous year. At 3.0 (1.4)%,
GDP growth in Canada accelerated significantly. The growth
rate of Mexico’s economic output fell somewhat to 2.2 (2.7)%.
South America
In the reporting period, Brazil left behind the economic
downswing, with economic output increasing by 1.0 (– 3.5)%.
The situation in South America’s largest economy never-
theless remained tense, due to political uncertainty, among
other things. Argentina’s GDP rose by 2.8 (– 2.2)% in spite of
structural deficits and persistently high inflation.
Asia-Pacific
The Chinese economy expanded at the previous year’s high
level with a growth rate of 6.9 (6.7)%. The Indian economy
continued its positive trend but, with a gain of 6.5 (7.1)%,
grew somewhat less strongly than in the previous year. The
Introduction of reform measures had a temporary damp-
ening effect here. Japan registered solid GDP growth of
1.8 (0.9)%.
96
Business Development
Group Management Report
E C O N O M I C G R O W T H
Percentage change in GDP
9
9
8
8
7
7
6
6
5
5
3
3
2
2
1
1
0
0
–1
–1
Global economy
Western Europe
Global economy
Germany
Western Europe
USA
Germany
China
USA
China
2013
2014
2015
2016
2017
T R E N D S I N T H E PA S S E N G E R C A R M A R K E T S
In fiscal year 2017, the global market volume of passenger
cars rose by 2.9% to 83.5 million vehicles, achieving a record
figure for the seventh time in a row. While demand rose in
the Asia-Pacific, South America, Western Europe and Central
and Eastern Europe regions, the market volume in North
America, the Middle East and Africa fell short of the prior-
year figures.
Sector-specific environment
The sector-specific environment was influenced significantly
by fiscal policy measures, which contributed substantially to
the mixed trends in sales volumes in the markets last year.
The instruments used were tax cuts or increases, incentive
programs and sales incentives, as well as import duties.
In addition, non-tariff trade barriers to protect the respec-
tive domestic automotive industry made the movement of
vehicles, parts and components more difficult.
Europe/Other Markets
In Western Europe, new passenger car registrations rose by
2.5% to 14.3 million vehicles, the highest level in the past ten
years. The positive performance was underpinned in partic-
ular by the strong macroeconomic environment, consumer
confidence and low interest rates. In Italy (+8.1%) and Spain
(+7.7%), the level of demand benefited from demand for
replacement vehicles and particularly from significant
growth in sales to commercial customers. The rate of growth
in the French passenger car market was lower, at 4.8%. In the
United Kingdom, the volume of demand fell 5.7% short of the
record level seen in the previous year – due among other
things to the change in vehicle taxation as of April 1, 2017.
The number of diesel vehicles (passenger cars) in Western
Europe slipped to 44.4 (49.5)% in the reporting year.
The passenger car market volume in the Central and
Eastern European region in fiscal year 2017 was up con-
siderably on the prior-year figure, with an increase of 12.6% to
3.0 million vehicles. New passenger car registrations in the EU
member states of Central Europe increased by 12.5% to
1.3 million units. Passenger car sales in Eastern Europe also
achieved a double-digit growth rate (+12.6%), starting from a
very low level. The main growth driver in the region was the
Russian market, which, with an increase of 12.3% to 1.5 mil-
lion vehicles, saw demand increase again for the first time
after four years of decline.
At a rate of change of 2.4%, the number of new passenger
cars registered in South Africa in the reporting period
(370 thousand vehicles) was slightly higher than the com-
paratively low level seen the previous year. Despite the weak
overall economic environment, incentive programs and
lower interest rates were the principal causes of this increase.
Group Management Report
Business Development
97
E X C H A N G E R A T E M O V E M E N T S F R O M D E C E M B E R 2 0 1 6 T O D E C E M B E R 2 0 1 7
Index based on month-end prices: as of December 31, 2016 = 100
EUR to GBP
EUR to USD
EUR to CNY
EUR to JPY
115
115
110
110
105
105
100
100
95
95
90
90
D
J
F
M
A
M
J
J
A
S
O
N
D
Germany
In fiscal year 2017, demand for passenger cars in Germany
exceeded the prior-year figure by 2.7% at 3.4 million units.
The fact that this was the highest level since 2009 was attri-
butable not only to the buoyant macroeconomic environ-
ment but also to manufacturer discounts in the form of a
trade-in bonus for older diesel models as well as to an environ-
mental bonus for electric-powered vehicles (all-electric and
plug-in hybrid drives). New registrations for both retail cus-
tomers (+4.4%) and business customers (+1.7%) increased as a
result.
However, domestic production and exports fell short of
the comparable prior-year figures in 2017. Passenger car
production declined by 1.7% to 5.6 million vehicles. Passen-
ger car exports fell by 0.9% to 4.4 million vehicles; this was
mainly due to the fact that the volume of exports to North
America was significantly lower because of shifts in produc-
tion accompanied by a weakening of the North American
market.
North America
At 20.8 million vehicles (– 1.4%) in fiscal year 2017, sales
of passenger cars and light commercial vehicles (up to
6.35 tonnes) in the North America region were just under the
record level seen in the previous year. In the US market,
demand diminished compared with the high level in 2016 by
1.8% to 17.2 million units. A favorable labor market, high
consumer confidence and generous manufacturer incentive
programs were unable to stop the downward tendency. The
trend in demand towards SUV and pickup models (+5.7%)
continued, accompanied by a simultaneous decline in sales
of traditional passenger cars (– 10.9%).
The Canadian automotive market again recorded growth
(+4.6% to 2.0 million vehicles), exceeding the record figure of
the previous year. By contrast, sales of passenger cars and
light commercial vehicles in Mexico were down on the record
volumes achieved in the prior-year period (– 4.6% to 1.5 mil-
lion units).
South America
In South America, demand for passenger cars and light com-
mercial vehicles rose from the previously low level by a sig-
nificant 12.6% to 4.2 million units in the reporting period.
After four years of declining new vehicle registrations, growth
of 9.4% to 2.2 million vehicles was recorded again for the first
time in the Brazilian automotive market. However, the mar-
ket volume was still around a quarter lower than the average
for the last ten years. Brazil’s vehicle exports saw a marked
increase in 2017, climbing 46.5% to 762 thousand units to
exceed the all-time high recorded in 2005. Exports benefited
in particular from the dynamic development of the market in
Argentina, where demand increased by 26.2% year-on-year to
855 thousand passenger cars and light commercial vehicles.
The second-highest number of new registrations in the
region's history was primarily driven by price reductions and
attractive financing models offered by the manufacturers.
98
Business Development
Group Management Report
Asia-Pacific
The market volume in the Asia-Pacific region rose by 4.7% in
the past fiscal year to 37.0 million units; this was the highest
absolute increase in new vehicle registrations worldwide.
Once again, the main growth driver was the Chinese
passenger car market, although the growth rate was low
compared with previous years, with an increase of 4.5% to
23.9 million vehicles. This was mainly because customers
brought forward purchases at the end of 2016 in anticipation
of a rise in the tax rate on vehicles of up to 1.6 l at the
beginning of 2017.
The number of passenger cars sold in India grew 9.3%
year-on-year to 3.1 million units, topping the 3 million mark
for the first time ever. This was due not only to high con-
sumer confidence, a wealth of new models and attractive
financing products, but especially to the goods and services
tax introduced on July 1, 2017, which resulted in part in
improved purchasing conditions for the consumer.
The Japanese passenger car market showed a substantial
improvement over the low prior-year level with sales of
4.4 million vehicles in the reporting period (+6.1%). The main
reasons for the positive trend were the market success of new
models and the continued government support for fuel-
efficient, low-emission vehicles.
T R E N D S I N T H E M A R K E T S F O R CO M M E R C I A L V E H I C L E S
Overall demand for light commercial vehicles in fiscal year
2017 was slightly lower than in the previous year. A total of
9.1 (9.3) million vehicles were registered worldwide.
In Western Europe, the number of new vehicle registra-
tions rose by 4.7% during the year to 1.9 million units, driven
by the region’s continued positive economic performance.
The markets in Italy, France and Spain recorded moderate to
high growth rates, while the United Kingdom registered a
decline. In Germany, the comparative figure for 2016 was
exceeded by 3.6%.
Central and Eastern European markets recorded percepti-
ble growth on the whole with 326 (306) thousand vehicle
registrations. In Russia alone, 123 (116) thousand light com-
mercial vehicles were registered. There, market performance
benefited from the ruble’s recovery and the drop in inflation.
Most of the markets in this region succeeded in maintaining
or exceeding their prior-year results.
In North and South America, the light vehicle market is
reported as part of the passenger car market, which includes
both passenger cars and light commercial vehicles.
Registration volumes of light commercial vehicles in
the Asia-Pacific region decreased to 6.0 million units in the
reporting period (– 3.1%). In China, the region’s dominant
market, demand for light commercial vehicles of 3.4 million
units was down a substantial 8.2% on the prior-year figure.
This decline is mainly due to the shift in demand for micro
vans towards more cost-effective MPVs and SUVs. As a conse-
quence of the sustained economic growth in India, consid-
erably more vehicles were registered than in 2016; here,
560 (510) thousand new units were registered. The market
volume fell in Japan as a result of the persistently weak eco-
nomic trend (– 5.0%).
Global demand for mid-sized and heavy trucks with a gross
weight of more than six tonnes in the markets that are
relevant for the Volkswagen Group was higher in fiscal year
2017 than in the previous year, with 547 thousand new
vehicle registrations (+7.4%).
In Western Europe, the number of new truck registrations
remained level with the previous year at a total of 289 thou-
sand vehicles. While the market in Spain remained at the
previous year’s level, in Italy it expanded. Demand in the
United Kingdom and the Netherlands declined. New registra-
tions in Germany, Western Europe’s largest market, were on a
level with the previous year.
Central and Eastern Europe saw demand rise by 17.7% to
153 thousand units on the back of the positive economic
performance. This growth was attributable to the Russian
market; here, registrations moved up 47.7% from a low prior-
year level to 72 thousand vehicles. Reasons for this were the
incipient recovery of the economy, declining inflation rates
and demand for replacement vehicles.
South America saw a significant increase in market
volume compared with the previous year. Here, the number
of new vehicle registrations rose by 11.8% to 105 thousand
units. In Brazil, the region’s largest market, demand for trucks
was up 2.9% on the low prior-year figure. This reflected a
recovery of the market once the difficult economic climate
improved. There was a very sharp increase in new vehicle
registrations in Argentina (+78,7%), buoyed by the political
reforms and stimulus from the agricultural sector.
Demand for buses in the markets that are relevant for the
Volkswagen Group was considerably higher than in the
previous year. The markets in Central and Eastern Europe as
well as South America contributed in particular to this
growth.
T R E N D S I N T H E M A R K E T S F O R P OW E R E N G I N E E R I N G
The markets for power engineering are subject to differing
regional and economic factors. Consequently, their business
growth trends are generally independent of each other.
The number of orders for merchant vessels remained
very low in the first half of 2017. Construction of new bulk
carriers and container ships in particular fell short of expec-
tations on account of overall low freight rates. In the second
Group Management Report
Business Development
99
half of 2017, however, the market volume in merchant ship-
ping stood at a higher level overall and a slightly positive
trend in new orders for ships became apparent. Yet, despite
the ongoing recovery in oil prices, existing overcapacity in
the offshore sector continued to curb investment in oil pro-
duction. As a result, new ship construction came to a virtual
standstill here. By contrast, a stable uptrend was again
recorded in demand for cruise ships, ferries, fishing vessels
and dredgers. The special market for government vessels also
continued on a positive trajectory. In spite of the still low
liquid fuel prices, the somewhat positive trend towards gas-
powered ships stabilized in expectation of stricter emission
standards. As a whole, the marine market showed slight
growth at a low level in 2017 compared with the previous
year. China, South Korea and Japan remained the dominant
shipbuilding countries, accounting for a global market share
of more than 75% measured in terms of the number of ships.
On account of low market volumes, all market segments are
seeing considerable competition and a sharp drop in prices as
a result.
Demand for energy solutions in emerging economies
increased slightly once again in 2017. The Middle East, South-
east Asia, Africa and South America regions continue to be
relevant markets for energy solutions. Particularly on larger
projects, order placement is being delayed due to ongoing
muted growth in key emerging markets and persistently
difficult financing conditions for customers. Overall, there
was a slight year-on-year increase in demand for decentral-
ized diesel and gas engine power plants in 2017. The shift
away from oil-fired power plants towards dual-fuel and gas-
fired power plants intensified further. Nevertheless, nearly all
projects continue to be subject to intense competition and
pressure on prices, which has a negative impact on the
earnings quality of orders.
The market for the construction of turbomachinery is
mainly dominated by investment projects in oil and gas, the
processing industry and power generation. In spite of a
modest recovery, oil prices remained low on the whole in
2017. As a result, leading oil and gas companies kept capital
expenditure at a low level. Planned projects were postponed
again or canceled. Demand for products from the processing
industry and power generation remained generally weak in
2017. Failure to reduce overcapacity in some industries, such
as steel-making, prevented any recovery in the corresponding
markets. Insufficient capacity utilization at many manufac-
turers intensified the level of competition. Overall, the mar-
ket volume for turbomachinery in the reporting period was
marginally higher than in the prior-year period. Competition
and pressure on prices remain fierce.
The marine and power plant after-sales business for diesel
engines generally performed positively and benefited from a
continued increase in interest in long-term maintenance
contracts and retrofit solutions. The after-sales market for
turbomachinery showed a slight uptrend.
T R E N D S I N T H E M A R K E T F O R F I N A N C I A L S E R V I C E S
Demand for automotive financial services was high once
again in 2017, due above all to the expansion of the overall
market for passenger cars and low key interest rates in the
main currency areas. Particularly insurance and service pro-
ducts such as maintenance and servicing agreements were
especially popular, as customers in more advanced automo-
tive financial services markets are putting greater focus on
optimizing overall running costs. In the fleet segment, some
customers consulted automotive financial service providers
in order to optimise their entire mobility management
beyond mere fleet operation. There was also increased demand
from both private and business customers for mobility
services centered on vehicle usage rather than ownership.
In Europe, sales of financial services climbed further in
the reporting period, strengthened by higher vehicle sales
and demand for after-sales products such as servicing, main-
tenance and spare parts agreements as well as automotive-
related insurance. Demand developed positively in most
countries; in the United Kingdom, France, Spain and Italy in
particular, automotive financial services products continued
to enjoy rising popularity. The UK’s decision to leave the EU
has not yet had a negative impact on local demand for finan-
cial services.
In Germany, the share of loan-financed or leased vehicles
remained stable at a high level in 2017. Alongside traditional
products, mobility services and after-sales products were
particularly popular.
In South Africa, structural deficits and political uncer-
tainty curbed economic growth, which also impacted on the
automotive industry. Demand for automotive financial
services products remained stable.
Sales of automotive financial services in North America
remained at a high level in the fiscal year now ended. In the
USA, the overall market for financial services products once
again performed positively. In particular, demand for leasing
through captive financial service providers was consistently
high. In Mexico, demand for automotive financial services
products continued at a high level.
100
Business Development
Group Management Report
The macroeconomic and political situation in Brazil remained
tense in 2017 and had a negative impact on the consumer
credit business for new vehicles as well as on sales of the
country-specific financial services product Consorcio, a
lottery-style savings plan. The negative trend tapered off
slightly in the second half of the year, however. Argentina’s
automotive industry was helped in 2017 by price reductions
and attractive financing models from manufacturers. The
above-average demand for vehicles was the basis for a good
year for automotive financial services.
The performance of markets in the Asia-Pacific region
during the reporting period was mixed. In China, the pro-
portion of loan-financed vehicle purchases rose. Despite
increasing restrictions on registrations in metropolitan areas,
there is still considerable potential to acquire new customers
for automotive-related financial services, particularly in the
interior of the country. Demand for automotive financial
services in Japan and Korea was stable on the whole. In
Australia, the central bank’s continued policy of low interest
rates stimulated demand for automotive-related financial
services and service contracts.
In the commercial vehicles segment, the European mar-
ket for financial services again performed positively; demand
also rose in China. The tense economic situation in Brazil
once again put pressure on the truck and bus business and
the related financial services market, though this negative
trend weakened somewhat in the second half of the year.
N E W G R O U P M O D E L S I N 2 0 1 7
The Volkswagen Group launched a large number of attractive
new models on the market in fiscal year 2017. The current
product portfolio comprises 355 models. It covers almost all
key segments and body types, with offerings from small cars
to super sports cars in the passenger car segment, and from
pickups to heavy trucks and buses in the commercial vehicles
segment, as well as motorcycles.
The Volkswagen Passenger Cars brand kicked off its global
product initiative in 2017, starting with the new Golf. The
updated bestseller not only features improved design and
new engines, but also a large number of new digital driver
assistance systems and an innovative infotainment system.
The range of the all-electric e-Golf was extended to 300 km.
The Arteon, the brand’s new top-of-the-range saloon, cele-
brated its world premiere. The elegant and dynamic five-door
vehicle with the proportions of a Gran Turismo and coupé
lines is impressively spacious and comfortable. The new Polo,
which is now based on the Modular Transverse Toolkit (MQB)
too, brings technological innovations to the small car
segment that were previously available only in higher vehicle
classes. The Polo is ushering in a new era in Brazil, where it is
setting new standards in terms of quality, driving dynamics
and digital innovations. In 2017, Volkswagen Passenger Cars
substantially expanded its range of vehicles in the SUV seg-
ment. The new T-Roc is a young, sporty crossover model with
which the brand hopes to kindle enthusiasm among new
groups of customers. A long version of the Tiguan, the suc-
cessful compact SUV, was also launched on the market. This
version is available in Europe as the Tiguan Allspace as well as
in China and the USA. Of the large SUVs, the Teramont came
on the market in China and the Atlas in the USA. This means
that the brand is now represented in four of the five largest
vehicle segments in the USA.
The Audi brand launched the new Q5 in 2017. The sporty,
progressive A5 family was also supplemented by the revamped
A5 Sportback and A5 Cabriolet. At the same time, Audi
expanded its range of environmentally friendly models with
the A4 Avant g-tron and A5 Sportback g-tron. The brand’s
flagship, the new Audi A8, was developed as the world’s first
production model designed for highly automated driving.
With a new design language, an innovative touch control
interface and systematic electrification of the drive, the A8
is once again a reflection of the slogan “Vorsprung durch
Technik”. Audi also launched its fastest open-top production
model, the R8 Spyder V10 plus, on the market. In China, the
locally built Audi A3 was revamped.
ŠKODA began its SUV drive in 2017: the self-confident,
powerful Kodiaq, which is based on the MQB platform, has
carved out a new segment for the brand. It features all of the
brand’s strengths: sophisticated functionality, effortless spa-
ciousness, cutting-edge technology and outstanding value for
money. The compact SUV Karoq followed during the year. The
completely redeveloped model stands out from the crowd
thanks to its emotional and dynamic design as well as a
wealth of innovations. The popular Octavia received an
upgrade. The Citigo, the Rapid and the Rapid Spaceback were
also given a face-lift.
The SEAT brand continued its major product initiative in
the reporting period with the revitalized Leon. The fifth
generation of the Ibiza also came onto the market. SEAT made
its debut in the crossover segment with the Arona. The
Ateca’s younger brother combines the special merits of a
compact city car with the robust features of an SUV.
In 2017, Porsche supplemented the second generation of
the Panamera by adding several model variants, including
the Panamera 4 E-Hybrid and Panamera Turbo S E-Hybrid, the
Executive models and the Sport Turismo. In the 911 model
series, Porsche launched the GTS models, the new 911 GT3
and the 911 GT2 RS – the sporty vanguard of the model series.
Porsche also celebrated the world premiere of the new
Cayenne. The successful model, which has been redeveloped
from the ground up, combines more than ever before the per-
formance typical of a Porsche with utmost everyday practi-
cality.
In 2017, Bentley rolled out the Bentayga Diesel, the first of
the brand’s models with a diesel engine and also the world’s
Group Management Report
Business Development
101
fastest diesel SUV. The Continental GT Supersports also
celebrated its market debut.
Lamborghini launched the new Huracán RWD Spyder on
the market and the Huracán Performante, along with the
upgraded Aventador in the versions S Coupé and S Roadster.
Bugatti began 2017 with deliveries of the 1,500 PS super
PA S S E N G E R C A R D E L I V E R I E S WO R L D W I D E
With its passenger car brands, the Volkswagen Group is
present in all relevant automotive markets around the world.
The Group’s key sales markets currently include Western
Europe, China, the USA, Brazil and Mexico. The Group recorded
encouraging growth in many key markets.
sports car Chiron, which is limited to 500 vehicles.
In the reporting period, the Volkswagen Commercial
Vehicles brand launched the fully re-engineered Crafter on
the market, which has been designed systematically with a
strong focus on customer needs.
Scania presented a new generation of trucks for the con-
struction and forestry industries, new engines and cabs as
well as new services. With the latest generation of Euro 6 V8
engines, Scania is setting new standards in terms of fuel
efficiency.
MAN entered the world of vans for the first time in 2017
with the TGE. In the bus segment, the new Lion’s Coach
celebrated its premiere. This marks the beginning of a new
design language for buses. In the high-performance diesel
engine segment, MAN Power Engineering presented the
successor to the 48/60CR, the latest addition to its 4x line.
Ducati rolled out a total of seven new models in 2017:
the Ducati SuperSport, the Monster 797 and 1200, the
Multistrada 950, two new Scrambler models and the limited
1299 Superleggera.
During the reporting period, deliveries of passenger
cars to Volkswagen Group customers worldwide rose to
10,038,650 units amid partly difficult conditions in some
relevant markets such as the United Kingdom and the USA.
This was an increase of 403,164 vehicles or 4.2% on the pre-
vious year. Since the passenger car market as a whole
expanded by 2.9% in the same period, the Volkswagen
Group’s share of the global market rose slightly to
12.1 (11.9)%. The Group recorded the highest absolute growth
in China. Sales figures in Germany and Mexico, among
others, were down on the previous year. All Volkswagen
Group brands lifted delivery volumes year-on-year. The
Volkswagen Passenger Cars brand recorded the strongest
growth in absolute terms, setting new records, as did Audi,
ŠKODA, Porsche, Bentley and Lamborghini.
The table on page 104 gives an overview of passenger car
deliveries to customers of the Volkswagen Group in the
regions and the key individual markets. The demand trends
for Group models in these markets and regions are described
in the following sections.
VO L K SWA G E N G R O U P D E L I V E R I E S
In fiscal year 2017, the Volkswagen Group increased its
deliveries to customers worldwide by 4.3% year-on-year and
once again achieved a new record of 10,741,455 vehicles. The
chart on the next page shows how deliveries changed from
month to month and compares each monthly figure to the
same month of the previous year. Deliveries of passenger cars
and commercial vehicles are reported separately in the
following.
VO L K SWA G E N G R O U P D E L I V E R I E S 1
2017
2016
Passenger Cars
10,038,650
9,635,486
Commercial Vehicles
702,805
661,555
Total
10,741,455
10,297,041
%
+4.2
+6.2
+4.3
1 Deliveries for 2016 have been updated to reflect subsequent statistical trends. The
figures include the Chinese joint ventures.
Deliveries in Europe/Other markets
In 2017, the passenger car market as a whole expanded by
2.5% in Western Europe. Deliveries to customers of the Volks-
wagen Group there rose less pronouncedly, by 1.4% to
3,157,107 vehicles. Among other factors, this trend was due to
the Golf and Polo model change, the fact that customer
confidence has not yet been fully restored following the
diesel issue and to customer uncertainty generated by the
public discussion on driving bans for diesel vehicles. How-
ever, demand for Group models was up year-on-year in
virtually all major markets in this region, with the Tiguan,
Audi Q2 and SEAT Ateca models seeing the highest increases.
The Audi A5 Sportback and Porsche Macan models were also
very popular. The new Polo, T-Roc, Tiguan Allspace and
Arteon models from the Volkswagen Passenger Cars brand,
the ŠKODA Karoq and Kodiaq, and the SEAT Arona and Ibiza
were very well received by the market. The Group’s share of
the passenger car market in Western Europe was 22.0 (22.3)%.
102
Business Development
Group Management Report
V O L K S W A G E N G R O U P D E L I V E R I E S B Y M O N T H
Vehicles in thousands
2017
2017
2016
2016
1,
1,100
1,
1,000
900
900
800
800
700
700
600
600
J
F
M
A
M
J
J
A
S
O
N
D
In the Central and Eastern Europe regions, where passenger
car markets have grown considerably, the Volkswagen Group
delivered 12.9% more vehicles to customers in the reporting
period than in the previous year. The Czech Republic and
Poland continued to see strong growth in demand for Group
models, and in Russia we also registered a marked upsurge in
unit sales. Demand for the Golf, Tiguan, Audi Q2, ŠKODA
Fabia, ŠKODA Rapid and ŠKODA Octavia models was very
encouraging. In addition, the new ŠKODA Karoq and Kodiaq
models and the SEAT Ateca models were exceedingly popular.
The Volkswagen Group’s share of the passenger car market in
Central and Eastern Europe improved slightly to 22.1 (22.0)%.
In South Africa, demand for Volkswagen Group vehicles
in 2017 increased by 1.4% compared with the previous year.
The passenger car market as a whole grew by 2.4% in the same
period. The best-selling Group model in South Africa was the
Polo.
In the markets of the Middle East region, which are seeing
a modest decline, we sold 6.6% fewer vehicles in the past fis-
cal year than in the year before. The Polo, Golf, Passat and
ŠKODA Octavia models saw the highest demand.
Deliveries in Germany
The German passenger car market continued its growth in
fiscal year 2017, expanding by 2.7%. The Volkswagen Group
delivered 1,131,414 passenger cars to customers in its home
market, a slight decrease on the prior-year level (– 0.5%). This
was due in particular to the fact that customer confidence has
not yet been fully restored following the diesel issue as well as
to customer uncertainty generated by the public discussion
on driving bans for diesel vehicles. The Tiguan, Audi Q2, Audi
A4 Avant, Audi A5 Sportback and SEAT Ateca models saw the
strongest growth in demand. The new T-Roc, Tiguan Allspace
and Arteon models from the Volkswagen Passenger Cars
brand, the new ŠKODA Karoq and Kodiaq models, the new
SEAT Arona and Ibiza models and the Porsche Macan were
also very popular. In the registration statistics of the Kraft-
fahrt-Bundesamt (KBA – German Federal Motor Transport
Authority), seven Group models led their respective segments
at the end of 2017: the up!, Polo, Golf, Tiguan, Touran, Passat,
and Porsche 911. The Golf continued to top the list of the
most popular passenger cars in Germany in terms of regis-
trations.
Deliveries in North America
The Volkswagen Group handed over 962,980 vehicles to
customers in North America during the reporting period in a
slightly declining overall market for passenger cars and light
commercial vehicles. This was 3.8% more than in the pre-
vious year. The Group’s market share was 4.7 (4.4)%. The Jetta
remained the Group’s best-selling model in North America.
In the US market, demand for Volkswagen Group models
rose by 5.8% compared with the previous year. The market as
a whole declined by 1.8% in this period. Models in the SUV
and pickup segments remained particularly popular. The Golf
Estate, Audi A5, Audi Q5, Audi Q7 and Porsche Macan models
enjoyed an encouraging rise in demand. The new SUV Atlas,
the Tiguan Allspace from the Volkswagen Passenger Cars
brand and the Audi A5 Sportback were well received by the
market.
Group Management Report
Business Development
103
W O R L D W I D E D E L I V E R I E S O F T H E G R O U P ’ S M O S T S U C C E S S F U L G R O U P M O D E L R A N G E I N 2 0 1 7
Vehicles in thousands
Golf
Jetta
Tiguan
Polo
Passat
Lavida
ŠKODA Octavia
Audi A4
974
879
724
716
701
505
419
341
In Canada, we delivered 16.6% more vehicles to customers in
the reporting period than in the previous year in a growing
overall market. Demand for the Golf Estate, Audi A4, Audi Q5
and Porsche Macan models developed particularly encour-
agingly. The new SUV Atlas and Tiguan with extended wheel-
base were also very popular.
In the Mexican market, which is declining on the whole,
the Group’s sales fell by 6.4% compared with the previous
year. The Vento, Jetta, Gol and SEAT Ibiza models were partic-
ularly popular.
Deliveries in South America
The markets for passenger cars and light commercial vehicles
in South America witnessed a clear surge in demand in 2017
(+12.6%). In this region, the Volkswagen Group handed over
445,636 vehicles to customers, an increase of 23.0% on the
weak previous year. The Volkswagen Group’s share of the pas-
senger car market in this region rose to 11.5 (10.5)%.
The Brazilian market also recovered in the reporting
period. We delivered 17.7% more vehicles to customers there
than in the previous year. The Gol, Voyage and Saveiro models
saw the highest increases. Demand was also strong for the
new Polo.
Group sales were up 35.7% year-on-year in Argentina. The
market as a whole grew at a somewhat weaker pace at 26.2%.
The Gol was the best-selling vehicle in Argentina. The Suran
and Amarok models were also very popular.
Deliveries in the Asia-Pacific region
The passenger car markets in the Asia-Pacific region experi-
enced the largest growth in absolute terms of any world
region again in 2017. Demand for Volkswagen Group
models rose in this region by 4.2% year-on-year to 4,462,387
units. The market share in this region was unchanged at 12.1
(12.1)%.
China, the world’s largest single market, was again the
main growth driver of the Asia-Pacific region in the reporting
year, recording the highest absolute increase. Above all, there
was continued strong demand for attractively priced entry-
level models in the SUV segment. Deliveries to customers of
the Volkswagen Group in China exceeded the prior-year
figure by 5.0%. The successfully concluded negotiations by
the Audi brand for the strategic further development of its
business in China contributed to this positive result in the
second half of the year. The Bora, Magotan and Passat models
recorded encouraging growth rates. Demand was likewise
high for the new Phideon, the Audi A4 and the Porsche
Cayenne. The new C-Trek, the new version of the Tiguan with
extended wheelbase, and the new ŠKODA Octavia Combi were
successfully launched on the market, as were new SUV
Teramont and the ŠKODA Kodiaq.
The Indian passenger car market grew further during the
reporting year. The Volkswagen Group delivered 9.7% more
vehicles to customers there in this period than in the
previous year. The most popular Group model in India was
the Polo; the new Ameo from the Volkswagen Passenger Cars
brand and the ŠKODA Rapid were also very popular.
Passenger car deliveries to the Group’s customers in Japan
in the past fiscal year exceeded the prior-year figure by 2.1%.
The total market volume grew at a somewhat stronger pace in
the same period. The Polo, Golf and Audi A3 were the most
sought-after Group models.
104
Business Development
Group Management Report
PA S S E N G E R C A R D E L I V E R I E S TO C U STO M E R S B Y M A R K E T 1
Europe/Other markets
Western Europe
of which: Germany
United Kingdom
Spain
Italy
France
Central and Eastern Europe
of which: Russia
Poland
Czech Republic
Other markets
of which: Turkey
South Africa
North America
of which: USA
Mexico
Canada
South America
of which: Brazil
Argentina
Asia-Pacific
of which: China
Japan
India
Worldwide
Volkswagen Passenger Cars
Audi
ŠKODA
SEAT
Bentley
Lamborghini
Porsche
Bugatti
1 Deliveries for 2016 have been updated to reflect subsequent statistical trends. The figures include the Chinese joint ventures.
D E L I V E R I E S ( U N I T S )
C H A N G E
2017
2016
(%)
4,167,647
3,157,107
1,131,414
4,062,454
3,114,032
1,136,971
531,592
270,645
259,920
256,712
668,522
173,384
145,024
142,842
342,018
158,523
79,968
962,980
625,128
223,548
114,304
445,636
272,231
125,153
4,462,387
4,173,834
84,827
72,467
10,038,650
6,230,229
1,878,105
1,200,535
468,431
11,089
3,815
246,375
71
523,111
244,990
238,537
249,146
592,275
155,672
122,622
134,926
356,147
173,965
78,897
928,033
591,063
238,946
98,024
362,343
231,196
92,257
4,282,656
3,975,071
83,109
66,046
9,635,486
5,980,309
1,867,738
1,126,477
408,703
11,023
3,457
237,778
1
+2.6
+1.4
– 0.5
+1.6
+10.5
+9.0
+3.0
+12.9
+11.4
+18.3
+5.9
– 4.0
– 8.9
+1.4
+3.8
+5.8
– 6.4
+16.6
+23.0
+17.7
+35.7
+4.2
+5.0
+2.1
+9.7
+4.2
+4.2
+0.6
+6.6
+14.6
+0.6
+10.4
+3.6
x
Group Management Report
Business Development
105
CO M M E R C I A L V E H I C L E D E L I V E R I E S
The Volkswagen Group delivered a total of 702,805 commer-
cial vehicles to customers worldwide in 2017 (+6.2%). Trucks
accounted for 183,481 units (+10.7%) and buses for 19,218
units (+8.1%). Sales of light commercial vehicles increased by
4.6% year-on-year to 500,106 units.
In Western Europe, deliveries were up by 1.9% on the pre-
vious year at 426,774 vehicles as a result of the sustained
economic recovery; of this total, 334,087 were light commer-
cial vehicles, 87,258 were trucks and 5,429 were buses. The
Transporter and Caddy were the most sought-after Group
models in the Western European markets.
We handed over 76,054 vehicles to customers in the
markets in Central and Eastern Europe in the period from
January to December 2017 (+16.3%); of this figure, 41,291
were light commercial vehicles, 33,613 were trucks and 1,150
were buses. The Transporter and the Caddy were the Group
models experiencing the highest demand. In Russia, the
region’s largest market, sales climbed 61.9% year-on-year to
18,291 units on the back of the incipient economic recovery,
demand for replacement vehicles and falling inflation rates.
In the Other markets, deliveries of Volkswagen Group
commercial vehicles fell by 5.3% to a total of 67,155 units:
46,678 light commercial vehicles, 17,050 trucks and 3,427
buses.
Deliveries in North America amounted to 13,416 vehicles
(+20.4%), which were handed over almost exclusively to
customers in Mexico. In this region, we handed over 10,432
light commercial vehicles, 1,042 trucks and 1,942 buses to
customers.
The Volkswagen Group sold a total of 75,949 units (+28.3%)
in South America. Of the units delivered, 41,331 were light
commercial vehicles, 29,589 were trucks and 5,029 were
buses. The Transporter and the Amarok were particularly
popular. In Brazil, deliveries rose by 34.9% once the difficult
economic climate improved; here, 12,633 light commercial
vehicles, 20,363 trucks and 2,785 buses were handed over to
customers.
In the Asia-Pacific region, the Volkswagen Group delivered
43,457 vehicles to customers in the reporting period; 26,287
light commercial vehicles, 14,929 trucks and 2,241 buses. This
was 20.8% more than in the previous year. The Transporter
and the Amarok were the most popular Group models. In
China, sales were up 47.2% on the previous year at 10,408
vehicles. Of this total, 5,566 were light commercial vehicles,
4,532 were trucks and 310 were buses.
CO M M E R C I A L V E H I C L E D E L I V E R I E S TO C U STO M E R S B Y M A R K E T 1
Europe/Other markets
Western Europe
Central and Eastern Europe
Other markets
North America
South America
of which: Brazil
Asia-Pacific
of which: China
Worldwide
Volkswagen Commercial Vehicles
Scania
MAN
1 Deliveries for 2016 have been updated to reflect subsequent statistical trends.
(cid:3)
D E L I V E R I E S ( U N I T S )
C H A N G E
2017
2016
(%)
569,983
426,774
76,054
67,155
13,416
75,949
35,781
43,457
10,408
702,805
497,894
90,777
114,134
555,255
418,931
65,396
70,928
11,140
59,196
26,532
35,964
7,071
661,555
477,974
81,346
102,235
+2.7
+1.9
+16.3
– 5.3
+20.4
+28.3
+34.9
+20.8
+47.2
+6.2
+4.2
+11.6
+11.6
106
Business Development
Group Management Report
D E L I V E R I E S I N T H E P OW E R E N G I N E E R I N G S E G M E N T
Orders in the Power Engineering segment are usually part of
major investment projects. Lead times typically range from
just under one year to several years, and partial deliveries as
construction progresses are common. Accordingly, there is a
time lag between incoming orders and sales revenue from the
new construction business.
Sales revenue in the Power Engineering segment was
largely driven by Engines & Marine Systems and Turboma-
chinery, which together generated well over two-thirds of
overall sales revenue.
O R D E R S R E C E I V E D I N T H E PA S S E N G E R C A R S S E G M E N T I N
W E ST E R N E U R O P E
Due to the positive development of the Western European
markets, demand for passenger cars increased in fiscal year
2017 compared with the previous year. Incoming orders in
the reporting period were 6.0% higher than in 2016. At the
same time, incoming orders rose in Germany (+6.7%), just as
in other significant markets throughout the region.
O R D E R S R E C E I V E D F O R CO M M E R C I A L V E H I C L E S
Orders received for light commercial vehicles of the Volks-
wagen Group in Western Europe were 2.7% higher than in the
previous year at 347,964 units.
New orders for mid-sized and heavy trucks and buses
witnessed a positive trend in 2017, with orders received for
225,813 vehicles (+18.5%). In Western Europe, our main sales
market, ongoing positive economic stimulus gave a boost to
incoming orders. The order intake in South America rose
after the difficult economic climate improved, especially in
Brazil.(cid:3)
O R D E R S R E C E I V E D I N T H E P OW E R E N G I N E E R I N G S E G M E N T
The long-term performance of the Power Engineering busi-
ness is determined by the macroeconomic environment.
Individual major orders lead to fluctuations in incoming
orders during the year that do not correlate with these long-
term trends.
Orders received in the Power Engineering segment in
2017 amounted to €3.7 (3.3) billion. Engines & Marine Systems
and Turbomachinery generated around two-thirds of the
order volume in a persistently difficult market environment.
The power plant business performed positively. For example,
a Turkish energy company ordered 38 engines with a
combined output of 754 MW for its floating power plants,
which provide a flexible solution to pressing energy short-
ages. The Company was also successful in the Indonesian
market, securing orders for 25 engines with an aggregate
output of 314 MW.
VO L K SWA G E N G R O U P F I N A N C I A L S E R V I C E S
The Financial Services Division combines the Volkswagen
Group’s dealer and customer financing, leasing, banking and
insurance activities, fleet management and mobility offerings.
The division comprises Volkswagen Financial Services and
the financial services activities of Scania, Porsche and
Porsche Holding Salzburg.
Demand for the Financial Services Division’s products
and services remained strong in fiscal year 2017. At 7.3 (7.1)
million, the number of new financing, leasing, service and
insurance contracts signed worldwide was above the previous
year’s level. The ratio of leased or financed vehicles to Group
deliveries (penetration rate) in the Financial Services Divi-
sion’s markets rose to 33.4 (33.3)% in the reporting period. As
of December 31, 2017, the total number of contracts was
18.4 million, up 5.7% as against the end of 2016. The number
of contracts in the Customer financing/Leasing area rose by
6.3% to 10.1 million, while it increased by 5.0% to 8.4 million
in the Service/Insurance area.
In the Europe/Other markets region, the number of
new contracts signed in the past fiscal year climbed 3.7% to
5.4 million. At the end of the reporting period, the total num-
ber of contracts was 13.4 million, up 8.0% year-on-year. Of
this figure, 6.4 million contracts were attributable to the
Customer financing/Leasing area (+8.6%). The penetration
rate improved to 47.6 (46.8)%.
The number of contracts in North America as of Decem-
ber 31, 2017 declined to 2.7 million, 4.7% fewer than in the
previous year. The Customer financing/Leasing area accounted
for 1.8 million contracts (– 3.4%). The number of new con-
tracts signed amounted to 874 thousand, a decrease of 11.6%
versus the previous year. The ratio of leased or financed vehi-
cles to Group deliveries in North America fell to 60.5 (63.3)%.
Group Management Report
Business Development
107
In South America, 205 (197) thousand new contracts were
signed in 2017. The total number of contracts at the end of the
reporting period was 538 thousand, down 16.9% compared to
the end of the previous year. The contracts mainly related to
the Customer financing/Leasing area. At 26.6 (30.4)%, the
penetration rate was lower than in 2016.
In the Asia-Pacific region, the number of new contracts
signed rose by 12.7% to 834 thousand units. At the end of
2017, the total number of contracts was 1.8 million, up 15.9%
year-on-year. The Customer financing/Leasing area accounted
for 1.5 million contracts (+20.8%). The ratio of leased or
financed vehicles to Group deliveries in this region was
16.1 (15.1)%.
S A L E S TO T H E D E A L E R O R G A N I Z AT I O N
The Volkswagen Group’s sales to the dealer organization
increased by 3.7% to 10,777,048 units (including the Chinese
joint ventures) in the reporting year. This was due to higher
demand in Asia-Pacific, especially China, in South America
and North America, and in Europe. Outside Germany, the
unit sales volume rose by 4.1%. In Germany, we increased
unit sales by 0.6%. At 11.7%, the proportion of the Group’s
sales accounted for by Germany was lower than in 2016
(–12.1%).
The Golf, Polo, Jetta, Lavida and Tiguan were our biggest
sellers last year. The largest increases in demand were
recorded by the Tiguan, Gol and Atlas/Teramont models
from the Volkswagen Passenger Cars brand, the Audi Q2 and
the A5 family, and the ŠKODA Kodiaq and SEAT Ateca. The
Porsche Panamera achieved a strong growth rate.
P R O D U C T I O N
The Volkswagen Group produced 10,875,000 vehicles world-
wide in fiscal year 2017, 4.5% more than in the previous year.
In total, our Chinese joint ventures manufactured 3.7% more
units than in the year before. The percentage of the Group’s
total production accounted for by Germany was lower than in
2016, at 23.7 (25.8)%. Our plants worldwide produced an
average of 44,170 vehicles per working day, an increase of
2.3% on the prior-year level. Starting in 2017, the Crafter is
included in the Volkswagen Group’s production figures.
I N V E N TO R I E S
Global inventories at Group companies and in the dealer
organization were higher at the end of the reporting period
than at year-end 2016, mainly due to demand-induced stock
building.
E M P LOY E E S
Including the Chinese joint ventures, the Volkswagen Group
employed an average of 634,396 people (excluding trainees)
in fiscal year 2017, an increase of 2.4% year-on-year. Our
companies in Germany employed 284,734 people on average
in 2017; at 44.9 (45.2)%, their share of the headcount was
slightly below the level of the previous year.
The Volkswagen Group had 615,081 active employees
(+2.3%) as of December 31, 2017. In addition, 8,004 employ-
ees were in the passive phase of their partial retirement and
19,207 young people were in vocational traineeships. The
Volkswagen Group’s headcount was 642,292 employees
(+2.5%) at the end of the reporting period. The production-
related expansion, the recruitment of specialists within and
outside Germany and the expansion of the workforce in the
new plants in Mexico, China and Poland were offset by the
reduction of around 9,800 employees as a result of the
disposal of part of the PGA Group SAS. A total of 287,480
people were employed in Germany (+2.1%), while 354,812
were employed abroad (+2.8%).
E M P L O Y E E S B Y D I V I S I O N / B U S I N E S S A R E A
as of December 31, 2017
Passenger Cars
Commercial Vehicles
Power Engineering
Financial Services
917
507,917
673
101,673
53
16,553
16,149
49
108
Shares and Bonds
Group Management Report
Shares and Bonds
Volkswagen AG’s ordinary and preferred shares outperformed the market as a whole in 2017 in a
volatile environment. The Volkswagen Group successfully returned to the European bond market.
E Q U I T Y M A R K E T S A N D P E R F O R M A N C E O F T H E P R I C E O F
VO L K SWA G E N ’ S S H A R E S
In the period from January to December 2017, prices on the
international equity markets rose amid volatile trading.
The DAX also recorded an increase compared with the end
of 2016. The promising economic performance of important
industrialized nations, the improved situation in the US labor
market, and the outcome of the elections in some EU
member states had a positive impact, as did the adopted US
tax reform, which among other factors contributed to
financial relief for companies. Uncertainty as regards to the
economic policy of the new US government, the election
results in Europe, the monetary policy of the US Federal
Reserve as well as the European Central Bank, the strong euro
and international crises also had a negative impact on share
listings at times.
In 2017, Volkswagen AG’s preferred and ordinary shares
surpassed the rising market trend amid high volatility.
Positive stimulus was generated by settlement agreements in
the USA in connection with the diesel issue, strong corporate
earnings, sizeable cash flow and the successful performance
of the Volkswagen Passenger Cars brand. Share prices were
negatively impacted by the provisions required in connection
with the diesel issue as well as uncertainty about further legal
risks arising from the diesel issue, suspected antitrust
behavior by German automotive companies and the future
regulatory framework for diesel and electric vehicles.
VO L K SWA G E N K E Y S H A R E F I G U R E S A N D M A R K E T I N D I C E S
F R O M J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 7
High
Low
Closing
Ordinary share
Price (€)
Date
Preferred share
Price (€)
DAX
Date
Price
Date
ESTX Auto & Parts
Price
Date
173.95
Nov. 30
178.10
Nov. 30
13,479
Nov. 3
610
Nov. 3
128.70
Aug. 10
125.35
Aug. 31
11,510
Feb. 6
508
July 31
168.70
Dec. 29
166.45
Dec. 29
12,918
Dec. 29
593
Dec. 29
Group Management Report
Shares and Bonds
109
P R I C E D E V E L O P M E N T F R O M D E C E M B E R 2 0 1 6 T O D E C E M B E R 2 0 1 7
Index based on month-end prices: December 31, 2016 = 100
Volkswagen ordinary shares +23.4%
Volkswagen preferred shares +24.8%
DAX +12.5%
EURO STOXX Automobiles & Parts +13.8%
140
140
130
130
120
120
110
110
100
100
90
90
D
J
F
M
A
M
J
J
A
S
O
N
D
D I V I D E N D P O L I C Y
Our dividend policy matches our financial strategy. In the
interests of all stakeholders, we aim for continuous dividend
growth so that our shareholders can participate appropri-
ately in our business success. The proposed dividend amount
therefore reflects our financial management objectives – in
particular, ensuring a solid financial foundation as part of
the implementation of our strategy.
The Board of Management and Supervisory Board of
Volkswagen AG are proposing a dividend of €3.90 per ordi-
nary share and €3.96 per preferred share. On this basis, the
total dividend for fiscal year 2017 amounts to €2.0 (1.0) bil-
lion. The payout ratio is based on the Group’s earnings after
tax attributable to Volkswagen AG shareholders. This
amounts to 17.3% for the reporting period and stood at
19.7% in the previous year. In our new Group strategy, we aim
to achieve a payout ratio of 30%.
F U RT H E R I N F O R M AT I O N O N VO L KSWA G E N S H A R E S
www.volkswagenag.com/ir
D I V I D E N D Y I E L D
Based on the dividend proposal for the reporting period, the
dividend yield on Volkswagen ordinary shares is 2.3 (1.5)%,
measured by the closing price on the last trading day in 2017.
The dividend yield on preferred shares is 2.4 (1.5)%.
The current dividend proposal can be found in the
chapter entitled “Volkswagen AG (condensed, according to
the German Commercial Code)”, on page 131 of this annual
report.
E A R N I N G S P E R S H A R E
Basic earnings per ordinary share were €22.63 (10.24) in fis-
cal year 2017. Basic earnings per preferred share were €22.69
(10.30). In accordance with IAS 33, the calculation is based on
the weighted average number of ordinary and preferred
shares outstanding in the reporting period. Since the num-
ber of basic and diluted shares is identical, basic earnings per
share correspond to diluted earnings per share.
See also note 11 to the Volkswagen consolidated financial
statements for the calculation of earnings per share.
110
Shares and Bonds
Group Management Report
S H A R E H O L D E R S T R U C T U R E A T D E C E M B E R 3 1 , 2 0 1 7
as a percentage of subscribed capital
VO L K SWA G E N S H A R E DATA
Porsche Automobil Holding SE
Foreign institutional investors
Qatar Holding LLC
State of Lower Saxony
Private shareholders/Others
German institutional investors
30.8
30.8
24.5
24.5
14.6
14.6
11.8
11.8
15.7
15.7
2.7
2.7
S H A R E H O L D E R ST R U C T U R E AT D E C E M B E R 3 1 , 2 0 1 7
Volkswagen AG’s
to
€1,283,315,873.28 at the end of the reporting period. The
shareholder structure of Volkswagen AG as of December 31,
2017 is shown in the chart on this page.
subscribed
amounted
capital
The distribution of voting rights for the 295,089,818
ordinary shares was as follows at the reporting date: Porsche
Automobil Holding SE, Stuttgart, held 52.2% of the voting
rights. The second-largest shareholder was the State of Lower
Saxony, which held 20.0% of the voting rights. Qatar Holding
LLC was the third-largest shareholder, with 17.0%. The
remaining 10.8% of ordinary shares were attributable to
other shareholders.
the Wertpapierhandelsgesetz
Notifications of changes in voting rights in accordance
with
(WpHG – German
Securities Trading Act) are published on our website at
www.volkswagenag.com/ir.
O U R I N V E STO R R E L AT I O N S T E A M I S AVA I L A B L E F O R Q U E R I E S A N D
CO M M E N T S AT A L L T I M E S :
W O L F S B U R G O F F I C E ( VO L KSWAG E N A G )
Phone
Fax
E-mail
Internet
+49 (0) 5361 9-00
+49 (0) 5361 9-30411
investor.relations@volkswagen.de
www.volkswagenag.com/ir
LO N D O N O F F I C E
Phone
+44 20 3705 2045
B E I J I N G O F F I C E
Phone
+86 106 531 4132
Ordinary shares
Preferred shares
ISIN
WKN
Deutsche Börse/Bloomberg
DE0007664005
DE0007664039
766400
VOW
766403
VOW3
Reuters
VOWG.DE
VOWG_p.DE
DAX, CDAX,
EURO STOXX,
EURO STOXX 50,
EURO STOXX
Automobiles & Parts,
Prime All Share,
MSCI Euro
CDAX, Prime All
Share, MSCI Euro,
S&P Global 100 Index
Berlin, Düsseldorf, Frankfurt, Hamburg,
Hanover, Munich, Stuttgart, Xetra,
Luxembourg, New York1, SIX Swiss Exchange
Primary market indices
Exchanges
1 Traded in the form of “sponsored unlisted American Depositary Receipts” (ADRs).
Five ADRs correspond to one underlying Volkswagen ordinary or preferred share.
I N V E STO R R E L AT I O N S A C T I V I T I E S
Investor relations activities
in fiscal year 2017 were
dominated mainly by communications related to the Volks-
wagen Group’s future program TOGETHER – Strategy 2025 as
well as the relevant initiatives and programs launched by the
Group brands and regions. One of the central activities was a
Capital Markets Day held as part of the annual press and
investor conference on March 14, 2017 at which detailed
information on Volkswagen’s strategy and financial targets
was provided. The targets were firmed up at the annual
planning session and communicated in November at a
conference call.
In fiscal year 2017, the Investor Relations team once
again provided extensive information to investors and
analysts in all key financial markets worldwide about the
strategic focus, current business performance and future
prospects of the Volkswagen Group. At roughly 700 one-on-
one discussions, road shows and conferences, we maintained
close contact with capital market participants. Many of these
discussions involved an exchange of ideas between investors
and analysts and members of the Board of Management and
Group senior executives, in addition to some discussions
with the Chairman of the Supervisory Board.
Additional Volkswagen share data, as well as corporate
news, reports and presentations can be downloaded from
our website at www.volkswagenag.com/ir.
Group Management Report
Shares and Bonds
111
VO L K SWA G E N S H A R E K E Y F I G U R E S
DIVIDEN D DEVELOPMENT
2017
2016
2015
2014
2013
thousands
thousands
295,090
206,205
295,090
206,205
295,090
206,205
295,090
180,641
295,090
170,148
Number of no-par value shares at Dec. 31
Ordinary shares
Preferred shares
Dividend1
per ordinary share
per preferred share
Dividend paid1
on ordinary shares
on preferred shares
€
€
€ million
€ million
€ million
3.90
3.96
1,967
1,151
817
2.00
2.06
1,015
590
425
SHARE PRICE DEVELOPMENT 2
2017
2016
Ordinary share
Closing
Price performance
Annual high
Annual low
Preferred share
Closing
Price performance
Annual high
Annual low
Beta factor3
Market capitalization at Dec. 31
Equity attributable to Volkswagen AG share-
holders and hybrid capital investors at Dec. 31
Ratio of market capitalization to equity
KEY FIGURES PER SHARE
Earnings per ordinary share4
basic
diluted
Equity5
Price/earnings ratio6
Ordinary share
Preferred share
Dividend yield7
Ordinary share
Preferred share
€
%
€
€
€
%
€
€
factor
€ billion
€ billion
factor
€
€
€
factor
factor
%
%
STOCK EXCHANGE TURNOVER 8
Turnover of Volkswagen ordinary shares
Turnover of Volkswagen preferred shares
Volkswagen share of total DAX turnover
€ billion
million shares
€ billion
million shares
%
168.70
+23.4
173.95
128.70
166.45
+24.8
178.10
125.35
1.12
84.1
108.8
0.77
2017
22.63
22.63
217.13
7.5
7.3
2.3
2.4
2017
3.5
23.6
45.1
312.3
5.4
136.75
– 3.9
144.20
108.95
133.35
– 0.3
138.80
94.00
1.22
67.9
92.7
0.73
2016
10.24
10.24
184.90
13.4
13.0
1.5
1.5
2016
3.3
25.4
41.1
347.0
5.0
0.11
0.17
68
32
35
2015
142.30
– 21.0
247.55
101.15
133.75
– 27.6
255.20
92.36
1.28
69.6
88.1
0.79
2015
– 3.20
– 3.20
175.67
x
x
0.1
0.1
2015
6.9
45.4
72.4
444.4
7.1
4.80
4.86
2,294
1,416
878
4.00
4.06
1,871
1,180
691
2014
2013
180.10
– 8.5
197.35
150.70
184.65
– 9.6
203.35
150.25
1.38
86.5
90.0
0.96
2014
21.82
21.82
189.16
8.2
8.4
2.7
2.6
2014
3.2
17.8
45.1
248.3
5.4
196.90
+21.0
196.90
132.60
204.15
+18.6
204.15
138.50
1.32
92.8
87.7
1.06
2013
18.61
18.61
188.58
10.6
10.9
2.0
2.0
2013
3.5
21.4
43.0
252.8
5.7
1 Figures for the years 2013 to 2016 relate to dividends paid in the following year. For
5 Based on the total number of ordinary and preferred shares on December 31 (excluding
2017, the figures relate to the proposed dividend.
potential shares from the mandatory convertible note).
2 Xetra prices.
3 See page 127 for the calculation.
4 See note 11 to the consolidated financial statements (Earnings per share) for the
6 Ratio of year-end-closing price to earnings per share.
7 Dividend per share based on the year-end-closing price.
8 Order book turnover on the Xetra electronic trading platform (Deutsche Börse).
calculation.
112
Shares and Bonds
Group Management Report
R E F I N A N C I N G S T R U C T U R E O F T H E V O L K S W A G E N G R O U P
as of December 31, 2017
Commercial paper
Commercial paper
14%
14%
Bonds
Bonds
52%
52%
Asset-backed securities
Asset-backed securities
34%
34%
Money and capital
market instruments
Maturities
Currencies
(cid:1051) 1 year
(cid:1051) 1 year
30%
30%
> 1 to < 5 years
> 1 to < 5 years
45%
45%
EUR
EUR
68%
68%
USD
USD
12%
12%
(cid:1052) 5 years
(cid:1052) 5 years
25%
25%
Others
Others
20%
20%
0
10
20
30
40
50
60
70
80
90
100
R E F I N A N C I N G
In the course of 2017, the Volkswagen Group was able to
increase the number of bonds issued on various money and
capital markets compared with the prior year. In particular,
senior and unsecured bonds were issued again in Europe,
where we successfully placed a benchmark bond for the
Automotive Division for the first time since 2015. This had a
volume of €8.0 billion. We were also active for the Financial
Services Division in this market, issuing three benchmark
bonds totaling €7.75 billion. In addition to this, we issued
private placements.
In June 2017, we boosted net liquidity by placing unse-
cured, subordinated hybrid notes with an aggregate principal
amount of €3.5 billion. The perpetual notes were issued in
two tranches and can only be called by the issuer. One
tranche with a volume of €1.5 billion can only be called after
five and a half years, while the other tranche of €2.0 billion
can only be called after ten years.
A further focus of refinancing was the issue of commer-
cial paper, especially in Europe and in euros.
Asset-backed security (ABS) transactions were another
important element of our refinancing activities, amounting
to over €4.1 billion in Europe.
Bonds and ABS transactions were also issued in local
capital markets, including Australia, Brazil, China, India and
Mexico.
In addition, the Financial Services Division issued a public
promissory note with a value of €0.9 billion.
The proportion of fixed-rate instruments in the past year
was roughly twice as high as the proportion of variable-rate
instruments.
In all refinancing arrangements, we pursue the goal of
excluding risks related to interest rates and currency by
entering into derivatives contracts at the same time.
The table below shows how our money and capital
market programs were utilized as of December 31, 2017, and
illustrates the financial flexibility of the Volkswagen Group:
PROGRAMS
Commercial Paper
Bonds
of which hybrid issues
Asset-backed securities
Authorized
volume
€ billion
Amount utilized
on Dec. 31, 2017
€ billion
36.3
127.6
–
71.2
15.0
58.1
11.0
34.9
Group Management Report
Shares and Bonds
113
R AT I N G S
Standard & Poor’s
short-term
long-term
outlook
Moody’s Investors Service
short-term
long-term
outlook
V O L K S W A G E N A G
V O L K S W A G E N F I N A N C I A L S E R V I C E S A G
V O L K S W A G E N B A N K G M B H
2017
2016
2015
2017
2016
2015
2017
2016
2015
A – 2
BBB+
A – 2
BBB+
A – 2
BBB+
A – 2
BBB+
A – 2
BBB+
A – 2
BBB+
A – 2
A –
A – 2
A –
A – 2
A –
stable
negative
negative
stable
negative
negative
negative
negative
negative
P – 2
A3
P – 2
A3
P – 2
A3
P – 2
A3
P – 1
A2
P – 1
A1
P – 1
A3
P – 1
Aa3
P – 1
A1
negative
negative
negative
negative
negative
negative
negative
negative
negative
The €20.0 billion syndicated credit line for Volkswagen AG
that was agreed with a banking syndicate in December 2015
was terminated in June 2017 as contractually agreed. After
exercising an extension option in 2015, the syndicated credit
line of €5.0 billion agreed in July 2011 was extended to April
2020. This credit facility remained unused as of the end of
2017.
Syndicated credit lines worth a total of €6.4 billion at
other Group companies have also not been drawn down. In
addition, Group companies had arranged bilateral, confirmed
credit lines with national and international banks in various
other countries for a total of €8.5 billion, of which €3.4 billion
was drawn down.
respectively. In September 2017, the long-term rating for
Volkswagen Financial Services AG was lowered by one notch
from A2 to A3. The rating for Volkswagen Bank GmbH was
downgraded by three notches from Aa3 to A3. The short-term
rating of Volkswagen Financial Services AG was lowered by
one notch from P–1 to P–2, while that of Volkswagen Bank
GmbH remained unchanged at P–1. These changes were due
to the completion of the reorganization at Financial Services
AG: Volkswagen Bank GmbH is now a subsidiary of Volks-
wagen AG. This means that the financing structures of Volks-
wagen Bank GmbH and Volkswagen Financial Services AG are
examined separately. The outlook for all three companies is
still classed as negative.
R AT I N G S
In 2017, the rating agencies Standard & Poor’s and Moody’s
Investors Service conducted the regular update of their credit
ratings for Volkswagen AG, Volkswagen Financial Services AG
and Volkswagen Bank GmbH.
In November 2017, Standard & Poor’s confirmed its
short-term and long-term ratings of A–2 and BBB+ for Volks-
wagen AG and Volkswagen Financial Services AG, and of A–2
and A– for Volkswagen Bank GmbH. The outlook for Volks-
wagen AG and Volkswagen Financial Services AG improved
from “negative” to “stable” due to the better than expected
operating performance. The outlook for Volkswagen Bank
GmbH was left unchanged at “negative”.
Moody’s Investors Service left the short-term and long-
term ratings of Volkswagen AG unchanged at P–2 and A3
VO L K SWA G E N I N S U STA I N A B I L I T Y R A N K I N G S A N D I N D I C E S
Analysts and investors are basing their recommendations
and decisions increasingly on companies’ sustainability
profiles. They draw primarily on sustainability ratings to
evaluate a company’s environmental, social and governance
performance.
In sustainability rankings and indices such as the Dow
Jones Sustainability Indices, FTSE4 Good Indices, Sustain-
alytics and oekom research, where we held top positions
before the emissions issue, Volkswagen’s ratings have been
downgraded or removed. Volkswagen had a score of A– in the
CDP (formerly Carbon Disclosure Project) and an A rating in
the Water Disclosure Project (WDP).
114
Results of Operations, Financial Position and Net Assets
Group Management Report
Results of Operations, Financial
Position and Net Assets
The Volkswagen Group generated significantly higher sales revenue in fiscal year 2017 than
in 2016. Despite further charges and high cash outflows in connection with the diesel issue,
operating profit exceeded the prior-year figure and net liquidity in the Automotive Division
continued at a robust level.
The Volkswagen Group’s segment reporting comprises the
four reportable segments Passenger Cars, Commercial Vehi-
cles, Power Engineering and Financial Services, in compliance
with IFRS 8 and in line with the Group’s internal manage-
ment and reporting.
segment and the reconciliation are combined to form the
Passenger Cars Business Area; for commercial vehicles and
power engineering, the segment is the same as the business
area. The Financial Services Division corresponds to the
financial services segment.
At Volkswagen, segment result is measured on the basis
of the operating result.
The reconciliation column contains activities and other
operations that do not by definition constitute segments.
These include the unallocated Group financing activities. The
reconciliation also contains consolidation adjustments
between the segments (including the holding company func-
tions). Purchase price allocation for Porsche Holding Salzburg
and Porsche, Scania and MAN reflects their accounting treat-
ment in the segments.
The Automotive Division comprises the passenger cars,
commercial vehicles and power engineering segments, as
well as the figures from the reconciliation. The passenger cars
S A L E O F T H I R D - PA RT Y - B R A N D D E A L E R S H I P S O F
P O R S C H E H O L D I N G S A L Z B U R G
The sale of part of the PGA Group SAS to the Emil Frey Group
was executed on June 1, 2017. The sale was made in connec-
tion with the strategic development of Porsche Holding
Salzburg’s dealer network and the corresponding focus on
dealerships exclusively selling Volkswagen Group brand
vehicles. This had a positive effect of €0.8 billion on the
Group’s net liquidity and, taking into account the disposal of
the assets and liabilities, resulted in immaterial income for
the Group, which was reported in other operating income.
K E Y F I G U R E S F O R 2 0 1 7 B Y S E G M E N T
€ million
Passenger Cars
Vehicles Power Engineering
Financial Services
Total segments
Reconciliation
Commercial
Volkswagen
Group
Sales revenue
Segment result
(operating result)
as a percentage of
sales revenue
Capex, including capitalized
development costs
188,405
35,200
3,283
33,733
260,621
– 29,939
230,682
12,644
1,892
6.7
5.4
15,713
1,915
– 55
– 1.7
159
2,673
17,153
– 3,335
13,818
7.9
421
6.0
18,208
104
18,313
Group Management Report
Results of Operations, Financial Position and Net Assets
115
S P E C I A L I T E M S
Special items consist of certain items in the financial state-
ments whose separate disclosure the Board of Management
believes can enable a better assessment of our economic
performance.
In fiscal year 2017, negative special items recognized in
the operating profit amounted to €– 3.2 (– 7.5) billion. In the
reporting period, these related exclusively to charges in the
Passenger Cars Business Area in connection with the diesel
issue, primarily due to higher expenses attributable to the
buyback/retrofit programs for 2.0 l and 3.0 l TDI vehicles in
North America and to higher legal risks. In fiscal year 2016,
these items amounted to €– 6.4 billion.
The prior-year period also contained additional special
items in the Passenger Cars Business Area for potentially
faulty airbags manufactured and supplied by Takata (€–0.3 bil-
lion), as well as for restructuring measures in the Passenger
Cars (€– 0.2 billion), Commercial Vehicles (€– 0.1 billion) and
Power Engineering (€– 0.2 billion) business areas. In 2016,
provisions recognized in connection with the commercial
vehicles antitrust proceedings launched by the European
Commission also led to special items (€–0.4 billion) in the
Commercial Vehicles Business Area.
R E S U LT S O F O P E R AT I O N S
Results of operations of the Group
In 2017, the Volkswagen Group’s sales revenue increased by
6.2% year-on-year to €230.7 billion. In particular, higher
volumes and the healthy business performance in the Finan-
cial Services Division had a positive effect, while exchange
rates had a negative impact. At 80.8 (79.9)% the major share of
sales revenue was recorded outside Germany.
Gross profit improved by €1.5 billion to €42.5 billion.
Adjusted for special items recorded under this item in both
periods, gross profit increased to €44.8 (42.5) billion. The
gross margin amounted to 18.4 (18.9)%; excluding special
items it was 19.4 (19.6)%.
In the reporting period, the Volkswagen Group generated
an operating profit before special items of €17.0 (14.6) billion;
the operating return on sales before special items rose to
7.4 (6.7)%. The increase was mainly the result of positive
volume-, mix- and margin-related factors, as well as improve-
ments in product costs, while higher fixed costs as a result of
expansion and higher depreciation and amortization charges
due to the large volume of capital expenditure had an off-
setting effect. Negative special items weighed on operating
I N CO M E STAT E M E N T B Y D I V I S I O N
€ million
Sales revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Net other operating result
Operating result
Operating return on sales (%)
Share of the result of equity-accounted
investments
Interest result and Other financial result
Financial result
Earnings before tax
Income tax expense
Earnings after tax
Noncontrolling interests
Earnings attributable to Volkswagen AG hybrid
capital investors
Earnings attributable to Volkswagen AG
shareholders
V O L K S W A G E N G R O U P
A U T O M O T I V E 1
F I N A N C I A L S E R V I C E S
2017
2016
2017
2016
2017
2016
230,682
– 188,140
42,542
– 22,710
217,267
– 176,270
40,997
– 22,700
196,949
– 160,614
36,335
– 21,353
186,016
– 150,860
35,156
– 21,453
– 8,254
2,240
13,818
6.0
3,482
– 3,388
94
13,913
– 2,275
11,638
10
274
– 7,336
– 3,858
7,103
3.3
3,497
– 3,308
189
7,292
– 1,912
5,379
10
225
– 6,554
2,717
11,146
5.7
3,473
– 3,209
265
11,411
– 3,295
8,116
– 257
– 5,730
– 3,306
4,668
2.5
3,433
– 3,217
216
4,884
– 1,149
3,735
– 81
274
225
33,733
– 27,526
6,207
– 1,357
– 1,700
– 477
2,673
7.9
9
– 180
– 171
2,502
1,020
3,522
267
–
31,251
– 25,410
5,841
– 1,248
– 1,606
– 552
2,435
7.8
64
– 91
– 27
2,408
– 763
1,645
91
–
11,354
5,144
8,099
3,591
3,255
1,553
1 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.
116
Results of Operations, Financial Position and Net Assets
Group Management Report
S H A R E O F S A L E S R E V E N U E B Y M A R K E T 2 0 1 7
in percent
S H A R E O F S A L E S R E V E N U E B Y D I V I S I O N / B U S I N E S S A R E A 2 0 1 7
in percent
Europe (excluding Germany)/
Other markets
Germany
North America
South America
Asia-Pacific
43%
%
19%
%
%
17%
4 %
4 %
17%
%
Passenger Cars
Commercial Vehicles
Power Engineering
Financial Services
%
69%
%
15%
1 %
1 %
%
15%
profit, reducing this item by a total of €– 3.2 (– 7.5) billion. At
€13.8 billion, the Volkswagen Group’s operating profit was up
€6.7 billion on the previous year. The operating return on
sales rose to 6.0 (3.3)%.
The financial result declined to €0.1 (0.2) billion. Lower
interest expenses and lower expenses from the measurement
of derivative financial instruments at the reporting date had
a positive effect, while foreign currency measurement had a
negative impact. The share of the result of equity-accounted
investments was at the prior-year level. This includes the gain
on the remeasurement of the investment in HERE following
the acquisition of shares by additional investors. In the prior-
year period, the income from the sale of the LeasePlan shares
had a positive effect.
The Volkswagen Group’s profit before tax rose to
€13.9 billion in the reporting period, up €6.6 billion on the
prior-year figure. The return on sales before tax improved
from 3.4% to 6.0%. Profit after tax amounted to €11.6 (5.4) bil-
lion. Although income taxes increased, the tax rate of
16.3 (26.2)% was considerably lower in the reporting period.
This decline was due to the tax reform in the USA passed at
the end of the year, which led to a non-recurring positive
non-cash measurement effect on deferred taxes of €1.0 bil-
lion.
Results of operations in the Automotive Division
The Automotive Division’s sales revenue amounted to
€196.9 billion in fiscal year 2017, thus exceeding the prior-
year figure by €10.9 billion. The improvement resulted
primarily from higher vehicles sales, which were offset by
negative exchange rate effects. As our Chinese joint ventures
are accounted for using the equity method, the Group’s
business performance in the Chinese passenger car market is
reflected in consolidated sales revenue primarily by deliveries
of vehicles and vehicle parts.
Cost of sales increased due to larger volumes; in addition,
a rise in special items and higher depreciation and amorti-
zation charges had a negative impact, while improvements in
product costs had a positive effect. Total research and
development costs as a percentage of the Automotive Divi-
sion’s sales revenue (research and development ratio or R&D
ratio) declined to 6.7 (7.3)% in the reporting period as a result
of higher sales revenues and lower expenses. In addition to
new models, our activities focused above all on the electri-
fication of our vehicle portfolio, a more efficient range of
engines, and digitalization. Expressed as a percentage of sales
revenue, cost of sales rose slightly year-on-year.
The gross profit of the Automotive Division improved to
€36.3 (35.2) billion.
Distribution expenses were on a level with the previous
year, which had been impacted by negative special items.
Exchange rate effects weighed on the 2017 figure. The ratio of
distribution expenses to sales revenue declined. Administra-
tive expenses as well as their ratio to sales revenue increased
compared with the previous year. At €2.7 billion in fiscal year
2017, the net other operating result exceeded the prior year
by €6.0 billion, driven in particular by much lower negative
special items in connection with the diesel issue and by
exchange rate effects.
The operating profit of the Automotive Division improved
by €6.5 billion to €11.1 billion. The operating return on sales
stood at 5.7 (2.5)%. Negative special items contained in
operating profit totaled €– 3.2 (– 7.5) billion. These items were
exclusively attributable to the Passenger Cars Business Area
in the reporting period, reflecting charges in connection with
the diesel issue. Excluding the special items, the Automotive
Group Management Report
Results of Operations, Financial Position and Net Assets
117
Division’s operating profit rose to €14.4 (12.2) billion. The
operating return on sales before special items increased to
7.3 (6.6)%. The main contributors were improvements in
volumes, the mix and margins, as well as product cost
optimization; these factors were offset by higher fixed costs
as a result of expansion and higher depreciation and amorti-
zation charges. Operating profit benefited from the business
performance of our Chinese joint ventures primarily in the
form of deliveries of vehicles and vehicle parts and of license
income, as the joint ventures are accounted for using the
equity method and therefore included in the financial result.
mercial Vehicles Business Area improved by €1.2 billion to
€1.9 billion; the operating return on sales climbed to
5.4 (2.2)%. The increase versus the previous year, which had
been negatively impacted by special items, was mainly the
result of positiv volume- and margin-related factors and the
expansion of the service business.
R E S U LT S O F O P E R AT I O N S I N T H E P OW E R E N G I N E E R I N G
B U S I N E S S A R E A
R E S U LT S O F O P E R AT I O N S I N T H E PA S S E N G E R C A R S
B U S I N E S S A R E A
€ million
Sales revenue
Operating result
Operating return on sales (%)
2017
2016
3,283
– 55
– 1.7
3,593
– 217
– 6.0
€ million
Sales revenue
Operating result
Operating return on sales (%)
2017
2016
158,466
150,343
9,309
5.9
4,167
2.8
The Power Engineering Business Area’s sales revenue of
€3.3 billion in fiscal year 2017 was 8.6% lower than in the
previous year. The operating loss declined by €0.2 billion to
€–0.1 billion. Lower volumes were offset by positive mix
effects. Special items had a negative impact in the previous
year. The operating return on sales
from
– 6.0% to – 1.7%.
improved
Results of operations in the Financial Services Division
In the Financial Services Division, sales revenue increased by
7.9% year-on-year to €33.7 billion in fiscal year 2017, due
mainly to the growth in business volumes.
As a result, gross profit went up by €0.4 billion to €6.2 bil-
lion.
Both distribution and administrative expenses increased
year-on-year; in addition to higher volumes, the rise in
expenses was attributable in particular to digitalization. The
ratio of distribution and administrative expenses to sales
revenue was unchanged. The net other operating result
amounted to €– 0.5 (– 0.6) billion.
The 9.8% year-on-year increase in operating profit to
€2.7 billion reflects the Financial Services Division’s sustained
contribution to the Group’s success. The operating return on
sales improved to 7.9 (7.8)%. The return on equity before tax
was 9.8%, compared with 10.8% in the previous year.
The Passenger Cars Business Area generated sales revenue of
€158.5 billion in fiscal year 2017, thus exceeding the prior-
year figure by 5.4%, mainly because of volume-related factors.
Exchange rates had a negative effect. The operating profit of
€9.3 billion generated in the Passenger Cars Business Area
was up €5.1 billion on the previous year. Special items
included in this item decreased significantly year-on-year to
€– 3.2 (– 6.9) billion. Improvements in volumes, the mix and
margins, and product cost optimization had a positive
influence, while a rise in fixed costs and higher depreciation
and amortization charges had a negative impact. The
operating return on sales rose to 5.9 (2.8)%.
R E S U LT S O F O P E R AT I O N S I N T H E CO M M E R C I A L V E H I C L E S
B U S I N E S S A R E A
€ million
Sales revenue
Operating result
Operating return on sales (%)
2017
2016
35,200
1,892
5.4
32,080
718
2.2
The Commercial Vehicles Business Area recorded sales
revenue of €35.2 billion in the reporting period, €3.1 billion
more than in the previous year; this increase was driven
mainly by larger volumes. The operating profit of the Com-
118
Results of Operations, Financial Position and Net Assets
Group Management Report
P R I N C I P L E S A N D G OA L S O F F I N A N C I A L M A N A G E M E N T
Financial management at the Volkswagen Group covers liq-
uidity management, currency, interest rate and commodity
risk management, as well as credit and country risk manage-
ment. It is performed centrally for all Group companies by
Group Treasury, based on internal directives and risk param-
eters. The main areas of the MAN and Porsche Holding
Salzburg subgroups are integrated into the financial manage-
ment of the Group, while Scania is covered to a limited
extent. Additionally, these subgroups have their own finan-
cial management structures.
The goal of liquidity management is to ensure that the
Volkswagen Group remains solvent at all times and at the
same time to generate an adequate return from the invest-
ment of surplus funds. We use cash pooling to optimize the
use of existing liquidity between the significant companies in
Europe. To do this, the balances, either positive or negative,
accumulating in the cash pooling accounts are swept daily
into a target account at Group Treasury and thus pooled.
Currency, interest rate and commodity risk management is
designed to hedge the prices on which investment, produc-
tion and sales plans are based using derivative financial
instruments. Credit and country risk management aims to
limit the Volkswagen Group’s exposure to the risk of loss or
default by means of diversification. To achieve this, internal
limits are defined on the basis of various credit risks for the
volume of business per counterparty when entering into
financial transactions. These primarily focus on the capital
resources of potential counterparties, as well as the ratings
awarded by independent agencies. The relevant risk limits
and the authorized financial instruments, hedging methods
and hedging horizons are approved by the Group Board of
Management Committee for Risk Management, which
replaced the Group Board of Management Committee for
Liquidity and Foreign Currency in the reporting period.
For additional information on the principles and goals of
financial management, please refer to page 187 and to the
notes to the 2017 consolidated financial statements on pages
282 to 291.
F I N A N C I A L P O S I T I O N
Financial position of the Group
The Volkswagen Group’s gross cash flow amounted to
€32.7 billion in fiscal year 2017, 25.5% more than in the
previous year. At €– 33.8 (– 16.6) billion, the change in working
capital was significantly negative. As expected, there were
high cash outflows in connection with the diesel issue in the
reporting period, primarily resulting from vehicle recalls and
legal risks. As a result, cash flows from operating activities
decreased by €10.6 billion to €– 1.2 billion. The new special
items recognized in the reporting period had a negative
impact on gross cash flow and a positive effect on the change
in working capital.
The Volkswagen Group’s investing activities attributable
to operating activities rose to €18.2 billion, 8.5% more than in
the previous year. In the reporting period, the “Acquisition
and disposal of equity investments” item particularly includes
the acquisition of shares in Navistar as well as the sale of part
of the PGA Group. The figure for the previous year had mainly
been influenced by the cash inflow from the sale of the shares
in LeasePlan.
Cash inflows from financing activities amounted to
€17.6 (9.7) billion. These primarily include the issuance and
redemption of bonds and other financial liabilities. The dual-
tranche hybrid notes (€3.5 billion), successfully placed in June
2017, increased net liquidity; this was offset by the dividend
paid to the shareholders of Volkswagen AG (€1.0 billion).
At the end of the reporting period, the Volkswagen Group’s
cash and cash equivalents as reported in the cash flow state-
ment amounted to €18.0 (18.8) billion and were thus down
on the prior-year reporting date.
The Volkswagen Group's net liquidity as of December 31,
2017 was €– 119.1 (– 107.9) billion.
Group Management Report
Results of Operations, Financial Position and Net Assets
119
C A S H F LOW STAT E M E N T BY D I V I S I O N
€ million
2017
2016
2017
2016
2017
2016
V O L K S W A G E N G R O U P
A U T O M O T I V E 1
F I N A N C I A L S E R V I C E S
Cash and cash equivalents at beginning of
period
Earnings before tax
Income taxes paid
Depreciation and amortization expense2
Change in pension provisions
Other noncash income/expense and
reclassifications3
Gross cash flow
Change in working capital
Change in inventories
Change in receivables
Change in liabilities
Change in other provisions
Change in lease assets (excluding
depreciation)
Change in financial services receivables
Cash flows from operating activities
Cash flows from investing activities
attributable to operating activities
of which: investments in property, plant and
equipment, investment property
and intangible assets, excluding
capitalized development costs
capitalized development costs
acquisition and disposal of equity
investments
Net cash flow4
Change in investments in securities, loans and
time deposits
Cash flows from investing activities
Cash flows from financing activities
of which: capital transactions with
noncontrolling interests
Capital contributions/capital
redemptions
Effect of exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at Dec. 315
Securities, loans and time deposits
Gross liquidity
Total third-party borrowings
Net liquidity6
18,833
13,913
– 3,664
22,165
468
– 231
32,651
– 33,836
– 4,198
– 1,660
5,302
– 9,910
– 11,478
– 11,891
– 1,185
20,462
7,292
– 3,315
20,924
235
871
26,007
– 16,576
– 3,637
– 2,155
5,048
5,732
– 12,074
– 9,490
9,430
14,125
11,411
– 3,514
14,948
452
121
23,418
– 11,732
– 3,784
– 937
4,168
– 10,079
– 1,115
15
11,686
15,294
4,884
– 3,526
14,331
224
556
16,468
3,803
– 3,313
– 1,876
4,474
5,616
– 1,157
58
20,271
4,709
2,502
– 149
7,218
15
– 352
9,233
5,168
2,408
211
6,593
11
316
9,539
– 22,104
– 20,379
– 414
– 724
1,134
169
– 10,363
– 11,906
– 12,871
– 324
– 280
574
116
– 10,917
– 9,547
– 10,840
– 18,218
– 16,797
– 17,636
– 15,941
– 583
– 856
– 13,052
– 5,260
– 317
– 19,404
1,710
– 16,508
17,625
–
3,473
– 727
– 796
18,038
26,291
44,329
– 163,472
– 119,143
– 13,152
– 5,750
1,754
– 7,367
– 3,882
– 20,679
9,712
– 3
–
– 91
– 1,628
18,833
28,036
46,869
– 154,819
– 107,950
– 12,631
– 5,260
– 124
– 5,950
2,333
– 15,303
3,562
– 12,795
– 5,750
2,283
4,330
– 3,125
– 19,066
– 2,298
– 421
–
– 193
– 357
–
– 528
– 13,454
– 11,696
– 622
– 1,205
14,063
–
– 3
–
2,400
– 1,454
1,073
– 641
– 696
13,428
15,201
28,630
– 6,251
22,378
– 76
– 1,169
14,125
17,911
32,036
– 4,856
27,180
– 86
– 99
4,609
11,090
15,699
– 157,221
– 141,522
– 757
– 1,613
12,009
–
1,454
– 15
– 460
4,709
10,125
14,833
– 149,963
– 135,130
1 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.
2 Net of impairment reversals.
3 These relate mainly to the fair value measurement of financial instruments, application of the equity method and the reclassification of gains/losses on disposal of noncurrent assets
and equity investments to investing activities.
4 Net cash flow: cash flows from operating activities, net of cash flows from investing activities attributable to operating activities (investing activities excluding change in investments
in securities, loans and time deposits).
5 Cash and cash equivalents comprise cash at banks, checks, cash-in-hand and call deposits.
6 The total of cash, cash equivalents, securities, loan receivables from related parties and time deposits net of third-party borrowings (noncurrent and current financial liabilities).
120
Results of Operations, Financial Position and Net Assets
Group Management Report
A U T O M O T I V E D I V I S I O N N E T C A S H F L O W 2 0 1 7
in € billion
25
20
15
10
5
0
-5
-10
23.4
-11.7
-12.6
Gross cash flow
Change in
working capital
Capex
Capitalized
development costs
Other
Net cash flow
-5.3
-6.0
0.2
Financial position of the Automotive Division
The Automotive Division's gross cash flow was €23.4 billion
in fiscal year 2017, thus exceeding the prior-year figure by
€6.9 billion. The increase in operating profit before special
items and the year-on-year decline in special items had a
positive effect. At €– 11.7 (3.8) billion, the change in working
capital was significantly negative. As expected, there were
high cash outflows in the reporting period related to the
diesel issue, primarily for vehicle recalls and legal risks. As a
result, cash flows from operating activities amounted to
€11.7 billion, €8.6 billion less than in 2016. The new special
items recognized in fiscal year 2017 had a negative impact on
gross cash flow and a positive effect on the change in working
capital.
Investing activities attributable to operating activities
increased by €1.7 billion to €17.6 billion. At €12.6 (12.8) bil-
lion, investments in property, plant and equipment, invest-
ment property and intangible assets, excluding capitalized
development costs (capex) were on a level with the previous
year. The ratio of capex to sales revenue declined to 6.4 (6.9)%
due primarily to the rise in sales revenue. We invested mainly
in our production facilities and in models that we launched
in the reporting period or are planning to launch next year.
These are primarily vehicles in the Polo, Tiguan, Audi A6,
Audi A8 and Audi e-tron series, as well as the Audi A4, Porsche
Cayenne, Porsche 911 and the Bentley Continental family.
Other investment priorities included the ecological focus of
our model range, drivetrain electrification and our modular
toolkits. At €5.3 (5.8) billion, capitalized development costs
were lower than in the previous year. In the reporting period,
the “Acquisition and disposal of equity investments” item
mainly includes the acquisition of shares in Navistar and the
sale of part of the PGA Group. In the prior-year period, the
sale of the shares in LeasePlan had a significantly positive
effect on this item.
The Automotive Division’s net cash flow reflects the
division's strong operating performance, although it declined
by €10.3 billion to €– 6.0 billion driven, as expected, by high
cash outflows attributable to the diesel issue.
A capital increase carried out by Volkswagen AG at Volks-
wagen Financial Services AG at the beginning of 2017 in order
to finance the growth in business volumes and comply with
regulatory capital requirements resulted in outflows of
€1.0 billion in the Automotive Division’s financing activities.
In May 2017, a dividend totaling €1.0 billion was distributed
to the shareholders of Volkswagen AG, €0.9 billion more than
in the previous year. The successful placement of dual-
tranche hybrid notes with an aggregate principal amount of
€3.5 billion via Volkswagen International Finance N.V. in
June 2017 resulted in a cash inflow. The notes consist of a
€1.5 billion note that carries a coupon of 2.7% and has a first
call date after five and a half years, and a €2.0 billion note that
carries a coupon of 3.875% and has a first call date after ten
years. Both tranches are perpetual and increase equity, net of
transaction costs, among other factors. The cash inflows from
the hybrid notes were classified as a capital contribution,
Group Management Report
Results of Operations, Financial Position and Net Assets
121
which increased net liquidity. In addition, financing activities
include the issuance and redemption of bonds and other
financial liabilities. They amounted to €3.6 billion in 2017,
€5.9 billion more than in the prior-year period.
On December 31, 2017, the Automotive Division’s net liq-
uidity was again at a robust level of €22.4 billion, compared
with €27.2 billion at the end of 2016. The Automotive Divi-
sion’s net liquidity represents 9.7 (12.5)% of consolidated
sales revenue in the reporting period.
F I N A N C I A L P O S I T I O N I N T H E PA S S E N G E R C A R S
B U S I N E S S A R E A
€ million
2017
2016
Gross cash flow
Change in working capital
Cash flows from operating activities
Cash flows from investing activities
attributable to operating activities
Net cash flow
19,410
– 10,122
9,289
– 15,337
– 6,048
13,920
3,454
17,374
– 13,353
4,021
In the reporting period, the Passenger Cars Business Area
recorded gross cash flow of €19.4 billion, up €5.5 billion on
the prior-year figure, mainly due to earnings-related factors; a
significant year-on-year decline in negative special items also
had a positive effect. The change in working capital was sig-
nificantly negative, decreasing by €13.6 billion year-on-year
to €– 10.1 billion. As expected, there were high cash outflows
related to the diesel issue in fiscal year 2017, primarily for
vehicle recalls and legal risks. Consequently, cash flows from
operating activities decreased by 46.5% to €9.3 billion. The
new special items recognized in the reporting period had a
negative impact on gross cash flow and a positive effect on
the change in working capital. Investing activities attrib-
utable to operating activities resulted in cash outflows of
€15.3 (13.4) billion in the reporting period. The year-on-year
increase in capex of €0.3 billion to €11.2 billion was more
than offset by the €0.4 billion decline in capitalized develop-
ment costs to €4.6 billion. The item included the sale of part
of the PGA Group in the reporting period; in the prior-year
period, the sale of the LeasePlan shares had a significantly
positive impact. Net cash flow amounted to €– 6.0 (4.0) bil-
lion.
F I N A N C I A L P O S I T I O N I N T H E CO M M E R C I A L V E H I C L E S
B U S I N E S S A R E A
€ million
2017
2016
Gross cash flow
Change in working capital
Cash flows from operating activities
Cash flows from investing activities
attributable to operating activities
Net cash flow
3,739
– 1,320
2,419
– 2,122
297
2,496
238
2,734
– 2,407
327
The Commercial Vehicles Business Area generated gross cash
flow of €3.7 billion in the reporting period, €1.2 billion above
the prior-year figure due to earnings-related factors. At
€– 1.3 (0.2) billion, the change in working capital was signifi-
cantly negative. In the prior-year period, the special items
recognized had a negative impact on gross cash flow and a
positive effect on the change in working capital. Cash flows
from operating activities were slightly down on the 2016
figure, declining to €2.4 (2.7) billion. Despite the acquisition
of shares in Navistar and investments in a new cab generation
at Scania, investing activities attributable to operating activ-
ities were down year-on-year, amounting to €2.1 (2.4) billion;
the previous year had been affected by investments in the
new plant for light commercial vehicles in Wrzesnia in
Poland. At €0.3 (0.3) billion, net cash flow was on a level with
the previous year.
F I N A N C I A L P O S I T I O N I N T H E P OW E R E N G I N E E R I N G
B U S I N E S S A R E A
€ million
Gross cash flow
Change in working capital
Cash flows from operating activities
Cash flows from investing activities
attributable to operating activities
Net cash flow
2017
268
– 290
– 22
– 177
– 199
2016
52
111
163
– 182
– 19
In fiscal year 2017, the Power Engineering Business Area’s
gross cash flow improved to €0.3 (0.1) billion. Funds tied up
in working capital increased by €0.4 billion to €– 0.3 billion.
The comparison with the prior-year period has to take special
items into account. Cash flows from operating activities were
down on the previous year, breaking even in the reporting
period. At €0.2 (0.2) billion, investing activities attributable to
operating activities were on a level with the previous year.
Net cash flow declined to €– 0.2 (0.0) billion.
122
Results of Operations, Financial Position and Net Assets
Group Management Report
CO N S O L I DAT E D B A L A N C E S H E E T B Y D I V I S I O N A S O F D E C E M B E R 3 1
€ million
Assets
Noncurrent assets
Intangible assets
Property, plant and equipment
Lease assets
Financial services receivables
Investments, equity-accounted investments and
other equity investments, other receivables and
financial assets
Current assets
Inventories
Financial services receivables
Other receivables and financial assets
Marketable securities
Cash, cash equivalents and time deposits
Assets held for sale
Total assets
Equity and liabilities
Equity
Equity attributable to Volkswagen AG
shareholders
Equity attributable to Volkswagen AG hybrid
capital investors
Equity attributable to Volkswagen AG
shareholders and hybrid capital investors
Noncontrolling interests
Noncurrent liabilities
Financial liabilities
Provisions for pensions
Other liabilities
Current liabilities
Put options and compensation rights granted to
noncontrolling interest shareholders
Financial liabilities
Trade payables
Other liabilities
V O L K S W A G E N G R O U P
A U T O M O T I V E 1
F I N A N C I A L S E R V I C E S
2017
2016
2017
2016
2017
2016
262,081
254,010
140,912
139,003
121,169
115,007
63,419
55,243
39,254
73,249
30,916
160,112
40,415
53,145
32,040
15,939
18,457
115
62,599
54,033
38,439
68,402
30,537
155,722
38,978
49,673
30,286
17,520
19,265
–
63,211
52,503
3,140
– 7
22,065
80,210
36,113
– 686
17,354
13,512
13,826
90
62,372
51,415
3,385
9
21,822
81,083
34,947
– 660
17,561
14,703
14,532
–
208
2,739
36,114
73,256
8,851
79,902
4,302
53,832
14,686
2,427
4,632
24
227
2,619
35,054
68,393
8,715
74,640
4,031
50,333
12,726
2,817
4,733
–
422,193
409,732
221,121
220,085
201,071
189,647
109,077
92,910
81,605
69,130
27,472
23,780
97,761
85,122
70,857
61,714
26,904
23,408
11,088
7,567
11,088
7,567
–
–
108,849
229
152,726
81,628
32,730
38,368
92,689
221
139,306
66,358
33,012
39,936
160,389
177,515
3,795
81,844
23,046
51,705
3,849
88,461
22,794
62,411
81,945
– 339
69,805
6,709
32,189
30,906
69,711
3,795
– 458
20,497
45,877
69,281
– 151
69,982
5,876
32,464
31,643
80,973
3,849
– 1,019
20,753
57,391
26,904
568
82,921
74,919
540
7,462
90,678
–
82,302
2,548
5,828
23,408
373
69,324
60,483
549
8,293
96,542
–
89,481
2,041
5,021
Total equity and liabilities
422,193
409,732
221,121
220,085
201,071
189,647
1 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions, primarily intragroup loans.
Group Management Report
Results of Operations, Financial Position and Net Assets
123
C O N S O L I D A T E D B A L A N C E S H E E T S T R U C T U R E 2 0 1 7
in percent
Noncurrent assets
Noncurrent assets
62.1 (62.0)
62.1 (62.0)
Current assets
Current assets
37.9 (38.0)
37.9 (38.0)
Equity
Equity
25.8 (22.7)
25.8 (22.7)
Noncurrent liabilities
Noncurrent liabilities
36.2 (34.0)
36.2 (34.0)
Current liabilites
Current liabilites
38.0 (43.3)
38.0 (43.3)
Total assets
Total equity
and liabilities
0
10
20
30
40
50
60
70
80
90
100
Financial position in the Financial Services Division
The Financial Services Division’s gross cash flow declined
to €9.2 billion in the reporting period, €0.3 billion lower than
in the previous year. Due to larger volumes, funds tied up in
working capital increased by €1.7 billion to €22.1 billion.
Cash flows from operating activities amounted to €– 12.9
(– 10.8) billion.
At €0.6 (0.9) billion, investing activities attributable to
operating activities were down on the previous year, which
had included the acquisition of shares in the ride-hailing
service Gett.
The Financial Services Division’s financing activities
resulted in cash inflows of €14.1 (12.0) billion in 2017. This
included a capital increase of €1.0 billion implemented by
Volkswagen AG to finance expected business growth and to
comply with stricter regulatory requirements.
At the end of 2017, the Financial Services Division’s nega-
tive net liquidity, which is common in the industry, stood at
€– 141.5 billion, compared with €– 135.1 billion at the end of
December 2016.
N E T A S S E T S
Holding, which are expected to be disposed of (€0.1 billion).
The negotiations are still ongoing, and the disposals are
expected to be finalized in the first half of 2018.
As of the end of fiscal year 2017, the Group had off-
balance-sheet commitments in the form of contingent lia-
bilities in the amount of €8.4 (6.8) billion, financial guaran-
tees in the amount of €0.3 (0.2) billion and other financial
obligations in the amount of €24.5 (25.9) billion. Contingent
liabilities relate primarily to legal risks in connection with the
diesel issue as well as potential liabilities from tax risks in the
Commercial Vehicles Business Area in Brazil. The other finan-
cial obligations primarily result from purchase commitments
for property, plant and equipment, obligations under long-
term leasing and rental contracts and irrevocable credit
commitments to customers. In addition, they include invest-
ments to which the Group has committed itself, in the infra-
structure for zero-emission vehicles and in initiatives to pro-
mote access to and awareness of this technology. These
commitments were made as part of the settlement agree-
ments in the USA in connection with the diesel issue. Other
financial obligations include an amount of €1.3 billion for
this purpose.
Consolidated balance sheet structure
At the end of the reporting period, the Volkswagen Group’s
total assets amounted to €422.2 billion, 3.0% more than as of
December 31, 2016. The increase, which was partially offset
by exchange rate effects, was primarily due to a rise in busi-
ness volumes in the Financial Services Division. The structure
of the consolidated balance sheet as of the reporting date is
shown in the chart on this page. The Volkswagen Group’s
equity increased to €109.1 billion, €16.2 billion more than at
the end of the previous reporting period. The equity ratio
rose to 25.8 (22.7)%.
The “assets held for sale” item contains primarily the
anticipated carrying amount of some of the shares in There
Automotive Division balance sheet structure
At the end of the reporting period, the Automotive Division’s
intangible assets and property, plant and equipment both
increased slightly year-on-year. Lease assets were down
compared with the end of December 2016 as a result of the
sale of part of the PGA Group. Equity-accounted investments
declined slightly. The positive business results of the Chinese
joint ventures, the purchase of the shares in Navistar and the
remeasurement of the interest in HERE were offset by
dividend payments resolved by the Chinese joint ventures,
the remeasurement of investments, as well as the reclas-
sification of some of the shares in There Holding, which are
124
Results of Operations, Financial Position and Net Assets
Group Management Report
now held for sale. At €140.9 (139.0) billion, total noncurrent
assets were on a level with the previous year.
Current assets amounted to €80.2 (81.1) billion and were
virtually unchanged year-on-year; the inventories included in
this figure increased by 3.3% for production-related reasons.
Total securities stood at €13.5 (14.7) billion and total cash and
cash equivalents at €13.8 (14.5) billion, both showing a
decline compared with December 31, 2016.
At the end of 2017, the Automotive Division’s equity rose
by 18.0% year-on-year to €81.6 billion. It was positively
impacted by healthy earnings growth despite special items, as
well as by effects from the measurement of derivatives
recognized outside profit or loss, the hybrid notes issued in
June 2017 and lower actuarial losses from the measurement
of pension provisions. Currency translation effects and the
dividend paid to the shareholders of Volkswagen AG led to a
decline in the Automotive Division’s equity. The capital
increase implemented in the Financial Services Division also
reduced equity in the Automotive Division, where the
deduction was recognized. The noncontrolling interests are
mainly attributable to RENK AG and AUDI AG. As these were
lower overall than the noncontrolling interests attributable
to the Financial Services Division, the figure for the Auto-
motive Division, where the deduction was recognized, was
negative. The equity ratio increased to 36.9 (31.4)%.
Noncurrent liabilities of €69.8 (70.0) billion were on a
level with December 31, 2016. Noncurrent other liabilities
were down, primarily as a result of the positive effects from
the measurement of derivatives. The tax reform in the USA
passed at the end of the year led to a decline in deferred tax
liabilities of €1.0 billion.
As of December 31, 2017, current liabilities amounted to
€69.7 billion, a decline of 13.9% compared with the end of
2016. Among other things, reclassifications from noncurrent
to current liabilities due to shorter remaining maturities led
to an increase in current financial liabilities to €– 0.5 (– 1.0) bil-
lion. The figures for the Automotive Division also contain the
elimination of intragroup transactions between the Auto-
motive and Financial Services divisions. As the current finan-
cial liabilities for the primary Automotive Division were
lower than the loans granted to the Financial Services Divi-
sion, a negative amount was disclosed. The item “Put options
and compensation rights granted to noncontrolling interest
shareholders” primarily comprises the liability for the obli-
gation to acquire the shares held by the remaining free float
shareholders of MAN. Current other liabilities were down as a
result of the positive effects from the measurement of
derivatives. Current other provisions declined significantly
due to their use in connection with the diesel issue.
At the end of 2017, the Automotive Division’s total assets
amounted to €221.1 (220.1) billion and were thus on a level
with the previous year.
PA S S E N G E R C A R S B U S I N E S S A R E A
B A L A N C E S H E E T ST R U C T U R E
€ million
Dec. 31, 2017
Dec. 31, 2016
Noncurrent assets
Current assets
Total assets
Equity
Noncurrent liabilities
Current liabilities
111,277
60,052
171,329
66,449
55,118
49,762
109,918
61,600
171,518
54,789
56,703
60,026
As of December 31, 2017, noncurrent assets in the Passenger
Cars Business Area increased by €1.4 billion to €111.3 billion.
While intangible assets and property, plant and equipment
were higher, equity-accounted investments declined. Lease
assets decreased, primarily due to the partial sale of the PGA
Group. Current assets were at the prior-year level, amounting
to €60.1 (61.6) billion; the inventories included in this figure
increased for production-related reasons. Total securities and
cash and cash equivalents were down in the reporting period.
On December 31, 2017, total assets were virtually unchanged
compared with the previous year, at €171.3 (171.5) billion.
At €66.4 billion, the Passenger Cars Business Area’s equity
was 21.3% higher than the prior-year figure, mainly due to
earnings-related factors and the hybrid note issued in the
reporting period.
Noncurrent liabilities decreased by 2.8%. The financial lia-
bilities and other liabilities included in this item were down
significantly. Deferred tax liabilities include the positive
effect of the tax reform in the USA.
Current liabilities were down 17.1% year-on-year. Current
other provisions declined significantly due to their use in
connection with the diesel issue.
Group Management Report
Results of Operations, Financial Position and Net Assets
125
reported total assets of €5.9 billion, down 4.6% on the pre-
vious year.
At the end of fiscal year 2017, equity amounted to €3.0 bil-
lion, an earnings-related decline of 6.1% compared with the
end of the previous year. Both noncurrent and current lia-
bilities were slightly down year-on-year at the end of the
reporting period.
Financial Services Division balance sheet structure
On December 31, 2017, total assets in the Financial Services
Division of €201.1 billion exceeded the prior-year figure by
6.0%.
Noncurrent assets increased by a total of 5.4% compared
with the end of 2016. Within this item, lease assets and non-
current financial services receivables rose in line with the
growth in business.
Higher volumes led to a 7.1% rise in current assets. Cur-
rent financial services receivables were up €3.5 billion, at
€53.8 billion. As of the balance sheet date, the Financial Ser-
vices Division accounted for around 47.6 (46.3)% of the Volks-
wagen Group’s assets.
Equity in the Financial Services Division amounted to
€27.5 billion at the end of 2017, 15.5% more than on the
previous year’s balance sheet date. Equity was pushed up by
earnings growth and by the capital increase implemented by
Volkswagen AG at the beginning of the year to finance the
growth in business and to meet regulatory capital require-
ments. The equity ratio rose to 13.7 (12.5)%.
Higher noncurrent financial liabilities to fund business
growth led to an overall increase of 19.6% in noncurrent lia-
bilities compared with December 31, 2016.
Current liabilities declined by 6.1%; the current financial
liabilities contained in this item fell significantly. At €31.4
(33.3) billion, deposits from direct banking business were
lower than at the end of the previous year.
CO M M E R C I A L V E H I C L E S B U S I N E S S A R E A
B A L A N C E S H E E T ST R U C T U R E
€ million
Dec. 31, 2017
Dec. 31, 2016
Noncurrent assets
Current assets
Total assets
Equity
Noncurrent liabilities
Current liabilities
27,005
16,908
43,913
12,194
13,975
17,744
26,206
16,197
42,403
11,185
12,531
18,687
In the Commercial Vehicles Business Area, intangible assets
were lower and property, plant and equipment higher at the
end of December 2017 than at the end of the previous
reporting period. Equity-accounted investments increased
because of the acquisition of the shares in Navistar. Overall,
noncurrent assets grew by €0.8 billion to €27.0 billion. Higher
inventories and receivables led to a 4.4% rise in current assets
to €16.9 billion. At €43.9 billion, total assets exceeded the
prior-year figure by 3.6%.
The 9.0% rise in equity to €12.2 billion in the reporting
period was mainly attributable to improved earnings. Non-
current liabilities increased by 11.5%; the noncurrent finan-
cial liabilities contained in this item were up significantly.
Driven mainly by a marked decrease in current financial lia-
bilities, current liabilities declined by 5.0%.
P OW E R E N G I N E E R I N G B U S I N E S S A R E A
B A L A N C E S H E E T ST R U C T U R E
€ million
Dec. 31, 2017
Dec. 31, 2016
Noncurrent assets
Current assets
Total assets
Equity
Noncurrent liabilities
Current liabilities
2,629
3,250
5,879
2,963
711
2,205
2,879
3,285
6,165
3,157
748
2,260
At the end of the reporting period, noncurrent assets in the
Power Engineering Business Area were lower than the year-
end 2016 figure, driven primarily by a decrease in intangible
assets. Current assets were on a level with the previous year.
On December 31, 2017, the Power Engineering Business Area
126
Results of Operations, Financial Position and Net Assets
Group Management Report
VA L U E A D D E D STAT E M E N T
The value added statement indicates the added value
generated by a company in the past fiscal year as its contri-
bution to the gross domestic product of its home country,
and how it is appropriated. Due to the improved operating
profit before special items and lower negative special items,
the value added generated by the Volkswagen Group in the
reporting period was up 16.8% year-on-year. Added value per
employee increased to €107.7 thousand (+13.9%) in 2017.
Employees in the passive phase of their partial retirement as
well as vocational trainees are not included in the calculation.
VA L U E A D D E D G E N E R AT E D B Y T H E VO L K SWA G E N G R O U P
Source of funds in € million
Sales revenue
Other income
Cost of materials
Depreciation and amortization
Other upfront expenditures
Value added
Appropriation of funds in € million
to Volkswagen AG shareholders (dividend, 2017 dividend proposal)
to employees (wages, salaries, benefits)
to the state (taxes, duties)
to creditors (interest expense)
to the Company (reserves)
Value added
2017
230,682
18,912
– 151,449
– 22,165
– 17,615
58,364
2017
1,967
38,950
3,433
4,344
9,671
58,364
2016
217,267
17,907
– 140,307
– 20,924
– 23,990
49,953
2016
1,015
37,017
3,486
4,070
4,365
49,953
%
3.4
66.7
5.9
7.4
16.6
100.0
%
2.0
74.1
7.0
8.1
8.7
100.0
Group Management Report
Results of Operations, Financial Position and Net Assets
127
R E T U R N O N I N V E STM E N T ( R O I ) A N D VA L U E CO N T R I B U T I O N
The Volkswagen Group’s financial target system centers on
continuously and sustainably increasing the value of the
Company. In order to ensure the efficient use of resources in
the Automotive Division and to measure the success of this,
we have been using a value-based management system for a
number of years, with return on investment (ROI) as a relative
indicator and value contribution1, a key performance indi-
cator linked to the cost of capital, as an absolute performance
measure.
The return on investment serves as a consistent target in
strategic and operational management. If the return on invest-
ment exceeds the market cost of capital, there is an increase
in the value of the invested capital and a positive value con-
tribution. The concept of value-based management allows
the success of the Automotive Division and individual busi-
ness units to be evaluated. It also enables the earnings power
of our products, product lines and projects – such as new
plants – to be measured.
Components of value contribution
Value contribution is calculated on the basis of the operating
result after tax and the opportunity cost of invested capital.
The operating result shows the economic performance of the
Automotive Division and is initially a pre-tax figure.
Using the various international income tax rates of the
relevant companies, we assume an overall average tax rate of
30% when calculating the operating result after tax.
The cost of capital is multiplied by the average invested
capital to give the opportunity cost of capital. Invested capital
is calculated as total operating assets reported in the balance
sheet (property, plant and equipment, intangible assets, lease
assets, inventories and receivables) less non-interest-bearing
liabilities (trade payables and payments on account received).
Average invested capital is derived from the balance at the
beginning and the end of the reporting period.
As the concept of value-based management only com-
prises our operating activities, assets relating to investments
in subsidiaries and associates and the investment of cash
funds are not included when calculating invested capital.
Interest charged on these assets is reported in the financial
result.
1 The value contribution corresponds to the Economic Value Added (EVA®). EVA® is a
registered trademark of Stern Stewart & Co.
Determining the current cost of capital
The cost of capital is the weighted average of the required
rates of return on equity and debt. The cost of equity is deter-
mined using the Capital Asset Pricing Model (CAPM).
This model uses the yield on long-term risk-free Bunds,
increased by the risk premium attaching to investments in
the equity market. The risk premium comprises a general
market risk and a specific business risk.
The general risk premium of 6.5% reflects the general risk
of a capital investment in the equity market and is oriented on
the Morgan Stanley Capital International (MSCI) World Index.
The specific business risk – price fluctuations in Volks-
wagen preferred shares – has been modeled in comparison to
the MSCI World Index when calculating the beta factor. The
MSCI World Index is a global capital market benchmark for
investors.
The analysis period for the beta factor calculation spans
five years with annual beta figures on a daily basis and
an average subsequently being calculated. A beta factor of
1.12 (1.22) was determined for 2017.
CO ST O F C A P I TA L A F T E R TA X AU TO M OT I V E D I V I S I O N
%
Risk-free rate
MSCI World Index market risk premium
Volkswagen-specific risk premium
(Volkswagen beta factor)
Cost of equity after tax
Cost of debt
Tax
Cost of debt after tax
Proportion of equity
Proportion of debt
Cost of capital after tax
2017
2016
1.0
6.5
0.8
0.7
6.5
1.5
(1.12)
(1.22)
8.3
1.8
– 0.6
1.3
66.7
33.3
6.0
8.7
1.7
– 0.5
1.2
66.7
33.3
6.2
The cost of debt is based on the average yield for long-term
debt. As borrowing costs are tax-deductible, the cost of debt is
adjusted to account for the tax rate of 30%.
A weighting on the basis of a fixed ratio for the fair values
of equity and debt gives an effective cost of capital for the
Automotive Division of 6.0 (6.2)% for 2017.
128
Results of Operations, Financial Position and Net Assets
Group Management Report
R E T U R N O N I N V E STM E N T ( R O I ) A N D VA L U E CO N T R I B U T I O N I N
T H E R E P O RT I N G P E R I O D
The operating result after tax of the Automotive Division,
including the proportionate operating result of the Chinese
joint ventures, was €11,756 (7,419) million in fiscal year 2017.
The increase was due primarily to the year-on-year decline in
special items, as well as to improvements in volumes and in
the mix and to optimized product costs. Profit was negatively
impacted by higher fixed costs as a result of expansion and
by higher depreciation and amortization charges due to the
large volume of capital expenditure. Effects on earnings and
assets from purchase price allocation are not taken into
account as they cannot be influenced operationally by man-
agement.
Invested capital rose to €97,021 (91,020) million, pri-
marily due to higher inventories as well as to additions to
investments in property, plant and equipment and capital-
ized development costs.
The return on investment (ROI) is the return on invested
capital for a particular period based on the operating result
after tax. The ROI improved year-on-year on the back of the
higher operating profit and, at 12.1 (8.2)%, exceeded our
minimum rate of return on invested capital of 9% in spite of
the adverse effects of the special items on earnings.
At €5,821 (5,643) million, the opportunity cost of capital
(invested capital multiplied by cost of capital) was up on the
prior-year level due to the increase in the invested capital.
Operating result after tax was negatively impacted by
special items and led to a positive value contribution of
€5,935 (1,775) million after the opportunity cost of invested
capital.
More information on value-based management is con-
tained in our publication entitled “Financial Control System
of the Volkswagen Group”, which can be downloaded from
our Investor Relations website: www.volkswagenag.com/ir.
R E T U R N O N I N V E STM E N T ( R O I ) A N D VA L U E CO N T R I B U T I O N I N T H E AU TO M OT I V E D I V I S I O N 1
€ million
Operating result after tax
Invested capital (average)
Return on investment (ROI) in %
Cost of capital in %
Cost of invested capital
Value contribution
2017
2016
11,756
97,021
12.1
6.0
5,821
5,935
7,419
91,020
8.2
6.2
5,643
1,775
1 Including proportionate inclusion of the Chinese joint ventures (including the relevant sales and component companies) and allocation of consolidation adjustments between the
Automotive and Financial Services divisions.
Group Management Report
Results of Operations, Financial Position and Net Assets
129
S U M M A RY O F B U S I N E S S D E V E LO P M E N T A N D E CO N O M I C
P O S I T I O N
The Board of Management of Volkswagen AG considers busi-
ness development and the economic position to have been
positive overall. In spite of the diesel issue, which continues
to keep us very busy, and the persistently challenging market
conditions, we increased our deliveries to customers in 2017
as forecast. At 10.7 million vehicles we lifted deliveries to
customers by 4.3% , achieving a new record. We saw growth in
Europe, North and South America and the Asia-Pacific region.
The higher volume was a significant factor in the 6.2%
increase in the Group’s sales revenue and thus confirmed the
current forecast. As a consequence, operating profit before
special items rose to €17.0 billion and the operating return
on sales before special items, at 7.4%, was moderately higher
than the range forecast at the beginning of the year of
6.0–7.0%. After deducting special items resulting exclusively
from the diesel issue, the operating return on sales of 6.0%
was at the lower end of this scale, as recently projected.
Research and development costs underscore the efforts
made to ensure the Company’s future viability; at 6.7%, the
R&D ratio in the Automotive Division was inside the expected
range.
The Automotive Division’s ratio of capex to sales revenue
was reduced to 6.4%, which put it within the forecast range as
well. Owing to high cash outflows attributable to the diesel
issue, the Automotive Division’s net cash flow was negative,
as anticipated. The Automotive Division’s net liquidity fell as
a result, but was still a robust €22.4 billion at the end of the
reporting period.
On the back of the increase in earnings, the return
on investment (ROI) in the Automotive Division improved
markedly to 12.1%, thus exceeding the minimum required
rate of return on invested capital.
F O R E C A ST V E R S U S A C T UA L F I G U R E S
Deliveries to customers
Volkswagen Group
Sales revenue
Actual 2016
Original forecast
for 2017
Adjusted forecast
for 2017
Actual 2017
10.3 million
moderate increase
moderate increase
10.7 million
€217.3 billion
increase of up to 4%
> 4%
€230.7 billion
Operating return on sales before special items
Operating return on sales
6.7%
3.3%
6.0–7.0%
6.0–7.0%
moderately above 7.0%
~6.0%
Operating result before special items
€14.6 billion
within the forecast range
within the forecast range
€7.1 billion
within the forecast range
within the forecast range
Operating return on sales before special items
Operating return on sales
7.4%
2.8%
6.5–7.5%
6.5–7.5%
moderately above 7.5%
slightly below 6.5%
Operating result before special items
€11.1 billion
within the forecast range
within the forecast range
€4.2 billion
within the forecast range
within the forecast range
€150.3 billion
increase of up to 4%
> 4%
€158.5 billion
€32.1 billion
increase of up to 4%
> 4%
€35.2 billion
2.2%
3.0–5.0%
moderately above 5.0%
5.4%
€0.7 billion
within the forecast range
within the forecast range
€1.9 billion
€3.6 billion
€–0.2 billion
€31.3 billion
€2.4 billion
7.3%
6.9%
significant decline
significant decline
lower loss
lower loss
€3.3 billion
€–0.1 billion
at prior-year level
at prior-year level
noticeable increase
noticeable increase
€33.7 billion
€2.7 billion
6.0–7.0%
6.0–7.0%
6.0–7.0%
6.0–7.0%
Net cash flow in the Automotive Division
€4.3 billion
significant decline, negative significant decline, negative
Net liquidity in the Automotive Division
€27.2 billion
significant decline
significant decline
Return on investment (ROI) in the Automotive
Division
8.2%
noticeable increase,
> 9%
noticeable increase,
> 9%
Operating result
Passenger Cars Business Area
Sales revenue
Operating result
Commercial Vehicles Business Area
Sales revenue
Operating return on sales
Operating result
Power Engineering Business Area
Sales revenue
Operating result
Financial Services Division
Sales revenue
Operating result
R&D ratio in the Automotive Division
Capex/sales revenue in the Automotive Division
7.4%
6.0%
€17.0 billion
€13.8 billion
7.9%
5.9%
€12.5 billion
€9.3 billion
6.7%
6.4%
€–6.0 billion
€22.4 billion
12.1%
130
Volkswagen AG
Group Management Report
Volkswagen AG
(Condensed, in accordance with the German Commercial Code)
Production and unit sales stable at 2016 level,
sales revenue and earnings up on prior-year figures.
A N N UA L R E S U LT
Special items recognized in fiscal year 2017 were exclusively
attributable to the diesel issue, mainly due to higher expenses
for the buyback/retrofit programs for 2.0 l TDI vehicles in
North America and higher legal risks. These special items
had an impact of €–2.0 (–0.8) billion on cost of sales and of
€–0.9 (–4.5) billion on other operating income. Moreover,
special items of €–0.4 billion had affected distribution
expenses in the previous year.
In fiscal year 2017, sales were 1.9% higher than in the pre-
vious year, at €76.7 billion. Sales generated abroad accounted
for a share of 62.5 (61.2)%. The cost of sales increased by 4.5%
to €73.4 billion.
Gross profit fell to €3.4 (5.1) billion.
At €7.1 billion, selling, general and administrative expenses
were down €1.2 billion on the prior-year figure.
The net other operating result improved by €1.9 billion to
€–0.2 (–2.0) billion.
At €8.6 (8.7) billion, the financial result stood at the prior-
year level.
Including the income tax expense of €–0.4 (–0.7) billion,
net income for the year amounted to €4.4 billion in the year
under review, compared with €2.8 billion in the previous year.
I N CO M E STAT E M E N T O F VO L K SWA G E N AG
B A L A N C E S H E E T O F VO L K SWA G E N A G A S O F D E C E M B E R 3 1
€ million
Sales
Cost of sales
Gross profit on sales
Selling, general and administrative
expenses
Net other operating result
Financial result1
Taxes on income
Earnings after tax
Net income for the fiscal year
Retained profits brought forward
Appropriations to revenue reserves
Net retained profits
1 Including write-downs of financial assets.
2017
2016
€ million
2017
2016
76,729
– 73,355
3,375
– 7,104
– 154
8,644
– 409
4,353
4,353
2
– 2,174
2,181
75,310
Fixed assets
– 70,180
5,131
Inventories
Receivables1
Cash-in-hand and bank balances
– 8,352
– 2,035
Total assets
Equity
8,725
– 670
2,799
2,799
2
– 1,399
1,402
Special tax-allowable reserves
Long-term debt
Medium-term debt
Short-term debt
1 Including prepaid expenses.
113,703
101,973
4,889
32,303
5,798
156,693
30,438
21
33,060
33,415
59,759
4,387
26,386
9,117
141,863
27,100
23
26,457
30,082
58,200
Group Management Report
Volkswagen AG
131
N E T A S S E T S A N D F I N A N C I A L P O S I T I O N
Total assets amounted to €156.7 billion at December 31, 2017,
up €14.8 billion on the prior-year figure. Investments in tan-
gible and intangible fixed assets declined to €1.7 (2.0) billion.
Additions to financial assets rose by €11.4 billion to €33.8 bil-
lion. This was offset by depreciation and amortization
charges and write-downs as well as by asset disposals totaling
to €23.8 (17.3) billion. Fixed assets accounted for a share of
72.6 (71.9)% of total assets.
Current assets (including prepaid expenses) amounted to
€43.0 (39.9) billion in 2017.
At €30.4 billion, equity increased due in particular to the
improved net income for the year at the end of the reporting
period. The equity ratio was 19.4 (19.1)%.
Other provisions decreased by €8.7 billion to €22.1
(30.8) billion, due primarily to the utilization of provisions in
connection with the diesel issue. Provisions for pensions and
similar obligations rose by €0.7 billion to €14.4 billion, pri-
marily as a result of a change in the interest rate, while pro-
visions for taxes decreased by €0.5 billion to €3.5 billion.
The €20.0 billion rise in total liabilities (including deferred
income) to €86.3 billion is, above all, attributable to higher
liabilities to affiliated companies.
Volkswagen AG’s cash funds, comprising cash instruments
with a maturity of less than three months, less bank and cash
pooling liabilities repayable on demand, declined year-on-
year from €–6.2 billion to €–8.5 billion. The interest-bearing
portion of debt amounted to €74.0 (55.1) billion. In our
assessment, the economic position of Volkswagen AG is just
as positive overall as that of the Volkswagen Group.
D I V I D E N D P R O P O S A L
In fiscal year 2017, net retained profits amounted to €2.2 bil-
lion. The Board of Management and Supervisory Board are
proposing to pay a total dividend of €2.0 billion, i.e. €3.90 per
ordinary share and €3.96 per preferred share.
P R O P O S A L O N T H E A P P R O P R I AT I O N O F N E T P R O F I T
€
2017
Dividend distribution on subscribed capital
(€1,283 million)
of which on: ordinary shares
preferred shares
Appropriation to other revenue reserves
Balance (carried forward to new account)
Net retained profits
1,967,423,852.40
1,150,850,290.20
816,573,562.20
210,000,000.00
3,299,970.81
2,180,723,823.21
E M P LOY E E PAY A N D B E N E F I T S AT VO L K SWA G E N A G
€ million
Direct pay including cash benefits
Social security contributions
Compensated absence
Retirement benefits
Total expense
2017
7,637
1,361
1,161
640
%
70.7
12.6
10.7
5.9
2016
7,138
1,337
1,099
456
%
71.2
13.3
11.0
4.6
10,799
100.0
10,030
100.0
132
Volkswagen AG
Group Management Report
E X P E N D I T U R E O N E N V I R O N M E N TA L P R OT E C T I O N
When measuring expenditure on environmental protection,
a distinction is made between investments and operating
costs for production-related environmental protection mea-
sures. Of our total investments, only those that are spent
exclusively or primarily on environmental protection are
included in environmental protection investments. We dis-
tinguish here between additive and integrated investments.
Additive environmental protection measures are separate
and independent of other measures relating to the pro-
duction process. They can be upstream or downstream of the
production process. In contrast to additive environmental
protection measures, integrated measures reduce the environ-
mental impact already during the production process. In
2017 we invested primarily in soil and water pollution control.
The operating costs recognized for environmental pro-
tection relate exclusively to production-related measures that
protect the environment against harmful factors by avoiding,
reducing, or eliminating emissions by the Company. Resources
are also conserved. For example, these include expenditures
incurred to operate equipment that protects the environment
as well as expenditures for measures not relating to such
equipment. As in the previous year, the emphasis in 2017 was
on sewage and waste management.
V E H I C L E S A L E S
Volkswagen AG sold a total of 2,584,375 (2,632,144) vehicles
in fiscal year 2017. Vehicles sold abroad accounted for a share
of 70.0 (69.7)%.
P R O D U C T I O N
Volkswagen AG produced a total of 1,224,609 vehicles at its
vehicle production plants in Wolfsburg, Hanover and Emden
in the reporting period (–1.3%). Volkswagen AG’s average
daily production was 5,370 (5,423) units.
E M P LOY E E S
As of December 31, 2017, a total of 117,420 (113,928) people
were employed at the sites of Volkswagen AG, excluding staff
employed at subsidiaries. Of this figure, 4,953 (4,999) were
vocational trainees. 4,380 (2,936) employees were in the passive
phase of their partial retirement.
Female employees accounted for 17.1 (17.0)% of the
workforce. Volkswagen AG employed 5,069 (4,721) part-time
workers. The percentage of foreign employees was 6.1 (6.1)%.
83.4 (83.5)% of the employees in Volkswagen AG’s production
area had completed vocational or additional training in the
reporting period. The proportion of graduates was 18.9 (18.8)%
in the same period. The average age of employees in fiscal
year 2017 was 43.6 (43.2) years.
R E S E A R C H A N D D E V E LO P M E N T
Research and development costs for Volkswagen AG under
the German Commercial Code increased to €4.8 (4.7) billion
in the reporting period. 12,332 (12,380) people were employed
in this area at the end of the reporting period.
VO L K SWA G E N AG E X P E N D I T U R E O N E N V I R O N M E N TA L P R OT E C T I O N
€ million
Investments
Operating costs
2017
17
227
2016
11
223
2015
21
244
2014
19
226
2013
14
224
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O P E R A T I N G C O S T S F O R E N V I R O N M E N T A L P R O T E C T I O N A T V O L K S W A G E N A G 2 0 1 7
Share of environmental protection areas in percent
Sewage management
Waste management
Air pollution control
Soil and water
pollution control
Climate protection
Species and
landscape conservation
Protection against
noise and vibration
31.8
30.6
17.5
9.5
5.5
2.7
2.4
0
10
20
30
40
50
60
70
80
90
100
B U S I N E S S D E V E LO P M E N T R I S K S A N D O P P O RT U N I T I E S AT
VO L K SWA G E N A G
The business development of Volkswagen AG is exposed to
essentially the same risks and opportunities as the Volks-
wagen Group. These risks and opportunities are explained
in the Report on Risks and Opportunities on pages 164 to
189 of this annual report.
R I S K S A R I S I N G F R O M F I N A N C I A L I N ST R U M E N T S
Risks for Volkswagen AG arising from the use of financial
instruments are the same as those to which the Volkswagen
Group is exposed. An explanation of these risks can be found
on pages 187 to 188 of this annual report.
D E P E N D E N T CO M PA N Y R E P O RT
The Board of Management of Volkswagen AG has submitted
to the Supervisory Board the report required by section 312
of the AktG and issued the following concluding declaration:
“We declare that, based on the circumstances known to us at
the time when the transactions with affiliated companies
within the meaning of section 312 of the German Stock
Corporation Act (AktG) were entered into, our Company
received appropriate consideration for each transaction. No
transactions with third parties or measures were either
undertaken or omitted on the instructions of or in the
interests of Porsche or other affiliated companies in the
reporting period.”
The Annual Financial Statements of Volkswagen AG (in accordance with the HGB) can be
accessed from the electronic companies register at www.unternehmensregister.de.
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Sustainable Value Enhancement
Our goal is to run our business responsibly along the entire value chain. Everyone should benefit
from this – our customers, our employees, the environment and society. Our future program
TOGETHER – Strategy 2025 represents the biggest change process in the Company’s history. The
starting point is our vision of being one of the world’s leading providers of sustainable mobility.
The main financial key performance indicators for the Volks-
wagen Group are described in the “Results of Operations,
Financial Position and Net Assets” chapter. Nonfinancial key
performance indicators also attest to the efficiency of our
Company’s value drivers. These include the processes in the
areas of research and development, procurement, produc-
tion, marketing and sales, information technology and
quality assurance. In all of these processes, we are aware of
our responsibility towards our customers, our employees, the
environment and society. In this chapter we provide exam-
ples of how we are increasing the value of our Company in a
sustainable way.
S U STA I N A B I L I T Y
The Volkswagen Group is committed to sustainable, trans-
parent and responsible corporate governance. The biggest
challenge we face in implementing this at all levels and at
every step in the value chain is the complexity of our Com-
pany, with its twelve brands, more than 642 thousand
employees and 120 production locations. In order to tackle
this challenge in the best way possible, we follow the
Sustainable Development Goals (SDGs) formulated by the
United Nations and the recommendations of the German
Corporate Governance Code. In addition, we coordinate our
sustainability activities across the entire Group. We have also
put in place a forward-looking system of risk management
and a clear framework for dealing with environmental issues
in a future-oriented manner, for employee responsibility and
for social commitment across our brands and in the regions
in which we operate.
For us, sustainability means simultaneously striving for
economic, social and environmental goals in a way that gives
them equal priority. The future program TOGETHER – Strategy
2025 places sustainable growth at the heart of our strategic
target dimensions: we want to be an excellent employer and
a role model for the environment, safety and integrity, to
excite customers and to ensure that we achieve competitive
profitability. By 2025, we aim to make the Volkswagen Group
the world’s number one in e-mobility. We will therefore set
new priorities with Roadmap E. We also want to ensure that
we recognize opportunities and risks in the areas of environ-
ment, society and governance at an early stage at every step
along the value chain. Our corporate social responsibility
(CSR) activities will contribute toward enhancing our Com-
pany’s reputation and value in the long term.
Management and Coordination
The Volkswagen Group has created a clear management
structure to coordinate the Group’s activities as regards
sustainability and CSR. Its highest committee is the Group
Board of Management, which acts as the Sustainability Board
at the same time. It is regularly briefed by the Group Sus-
tainability steering group on issues related to the topics of
sustainability and corporate responsibility. The members of
the Group Sustainability steering group include executives
from central Board of Management business areas and
representatives of the Group Works Council and the brands.
The steering group’s tasks include identifying the key action
areas, making decisions on the strategic sustainability goals,
monitoring by means of indicators the extent to which these
goals are being met and approving the sustainability report.
The sustainability office supports the steering group. Its
duties include coordinating all sustainability activities within
the Group and the brands. It is also responsible for stake-
holder dialog at Group level, for example with sustainability-
driven analysts and investors. In addition, CSR project teams
work across business areas on topics such as reporting,
stakeholder management and sustainability in supplier
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135
V O L K S W A G E N G R O U P ’ S K E Y A C T I O N A R E A S
Compliance,
risk management,
governance
Supplier
management
Product and
transport safety
Stability and
profitability
Customer satisfaction
Integrity
Diversity and
equality
Corporate
responsibility
Health and
occupational safety
O N E O F T H E
W O R L D ’ S L E A D I N G
P R O V I D E R S O F
S U S T A I N A B L E
M O B I L I T Y
Climate protection
and decarbonization
Nature conservation
and biodiversity
Training
Attractiveness
as an employer
Human rights
Zero impact
mobility
Resource conservation
throughout life cycle
Participation and
codetermination
Environmentally
friendly products
relationships. This coordination and working structure is also
largely established across the brands and is constantly
expanding. Since 2009, the Sustainability & CSR coordinators
for all brands and regions have come together once a year to
promote communication across the Group, create uniform
structures and learn from one another. This Group CSR
meeting has proven its worth as an integral part of the
Group-wide coordination structure.
Sustainability Council
As part of its efforts to continuously improve and expand its
sustainability management, the Volkswagen Group appointed
an international Sustainability Council in 2016 made up of
renowned experts from the academic world, politics and
society. The members of the council establish their own
working methods and areas of focus independently and
consult with the Board of Management, senior managers and
the employee representatives regularly for the purposes of
consultation, exchanging information and initiating action.
The key issues in 2017 were the challenges created by
global CO2 emissions and the regulatory requirements to be
met post-2025, as well as the Company’s transformation pro-
cess. The Volkswagen Group is initially providing €20 million
in funding for projects proposed and promoted by the Sus-
tainability Council for the years 2017 and 2018. The first proj-
ects relate to innovation and cultural change in the area of
sustainable mobility, an international crisis prevention initia-
tive as a result of climate change and an academic study on the
future shape of the transport and climate policy framework.
Materiality analysis
Two developments in 2017 continued to influence the detailed
analysis as to which issues are material to the Volkswagen
Group: the realignment of the Group via the future program
TOGETHER – Strategy 2025, and dealing with the conse-
quences of the diesel issue.
After analyzing and identifying topics that are material to
the Company, we derived 18 key action areas that we will use
to achieve our goal of being one of the world’s leading pro-
viders of sustainable mobility. The analysis was based on
external studies, industry analyses and stakeholder surveys
carried out by our brands, internal guidelines such as our
corporate strategy and Group environmental strategy, and
key factors identified by the Volkswagen Group’s strategy
committee.
As the details of the new Group strategy have not yet been
finalized, we are still in the process of specifying the content
of the key action areas and defining corresponding values,
targets and indicators. As an enterprise with global opera-
tions, we also take account of the options available to us for
influencing and implementing the SDGs formulated by the
United Nations.
Principles and guidelines
Voluntary commitments and principles that apply through-
out the Group form the basis and backbone of our strategic
sustainability goals. In addition, our sustainability model
provides the framework for sustainable and responsible
action. The Volkswagen Group’s revised Code of Conduct
published in 2017 applies to the entire Group and helps
managers and employees alike to deal with legal and ethical
challenges in their day-to-day work.
We expressly support the United Nations Global Compact,
an agreement between the UN and the business world aimed
at enhancing the social and ecological aspects of globali-
zation. As long ago as 2002, the Volkswagen Group made a
commitment to promoting human rights, labor standards,
environmental protection and combating corruption. In
2013, this commitment was extended to include the so-called
CEO Water Mandate, the aim of which is to ensure the careful
management of water resources. Since the emergence of the
diesel issue, we have agreed on a temporary suspension of
our membership. Our objective is to ensure that our actions
are in line with the declarations of the International Labor
Organization (ILO), the principles and conventions of the
Organisation for Economic Co-operation and Development
(OECD) and the international covenants of the United Nations
on basic rights and freedom.
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S T A K E H O L D E R S O F T H E V O L K S W A G E N G R O U P
B U S I N E S S
Investors and analysts
Business partners
Competitors
P O L I C Y M A K E R S
Agencies and authorities
Unions
Associations
NGOs / nonprofit
organizations
C U S T O M E R S
V O L K S W A G E N
G R O U P
E M P L O Y E E S
A C A D E M I A
Scientists
and experts
M E D I A
Media
organizations
S O C I E T Y
Religious institutions
Residents and communities
Cultural, educational and daycare facilities
We have also established our own internal guidelines in the
shape of the Volkswagen Social Charter, the Charter on Labor
Relations, the Charter on Vocational Education and Training,
and the Charter on Temporary Work, all of which apply to the
Group as a whole. Environmental protection activities are
shaped both by the environmental policy and by the prin-
ciples for products and production, which apply throughout
the Group.
Strategic stakeholder management
Our stakeholders are individuals, groups, or organizations
who materially influence or are influenced by the way in
which the Group reaches its corporate decisions and the
implications of those decisions. The role of stakeholder man-
agement is to manage the many demands placed upon us
such that the Group can integrate them into its decision-
making processes. This includes sharing knowledge, jointly
developing solutions for the problems we face and using
transparent criteria to make decisions.
Our customers and our employees are our key stake-
holders. Around this core, we have defined twelve types of
stakeholders in five clusters. This classification is the product
of a stakeholder assessment in which we regularly identify
the Group’s key stakeholder groups.
The aim is to open up decision-making processes and
systematically enhance the Group’s sustainability manage-
ment through constructive criticism. In this context, we take
a holistic approach to stakeholder management.
R E S E A R C H A N D D E V E LO P M E N T
Forward-looking mobility solutions with brand-defining
products and services would be unthinkable without techno-
logical innovations. This makes our research and develop-
ment work essential for sustainably increasing the value of
the Company.
Together with our Group brands, we have formulated a
strategy for networking development activities across the
Group and launched numerous initiatives based on our
future program TOGETHER – Strategy 2025. At the heart of
this is an efficient, cross-brand development alliance charac-
terized by a close network of experts, collaboration on an
equal footing, an innovative working environment and the
pooling of development activities. With this alliance, we aim
to make use of synergy effects across the Group and act as a
role model for the environment, safety and integrity. The
alliance is playing a major part in the Volkswagen Group’s
transformation into a leading provider of sustainable mobil-
ity and helping to make the Group fit for the future.
Based on this strategic focus, we concentrated in the
reporting year on continuing to develop promising mobility
solutions, establishing technological expertise to strengthen
our competitiveness, expanding our range of products and
services and improving the functionality, quality, safety and
environmental compatibility of our products and services.
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137
C O 2 E M I S S I O N S O F T H E V O L K S W A G E N G R O U P ’ S E U R O P E A N ( E U 2 8 ) N E W P A S S E N G E R C A R F L E E T
in grams per kilometer
2017
2016
2015
2014
2013
122
¹
¹
120
121
126
129
0
20
40
60
80
100
120
140
160
1 Subject to official publication by the European Commission in the annual CO2 fleet monitoring report.
Fuel and drivetrain strategy
The Volkswagen Group’s new passenger car fleet in the EU
(excluding Lamborghini and Bentley) emitted an average of
122 g CO2/km1 in the reporting period and was thus well
below the 2017 European limit of 130 g CO2/km. The small
year-on-year increase is mainly attributable to the new
measurement techniques to be applied and the decline in the
proportion of diesel vehicles included in deliveries. As small-
volume manufacturers, the Lamborghini and Bentley brands
each have an independent fleet for the purposes of the
European CO2 legislation; Bentley complied with its individual
target, Lamborghini was slightly above its target.
As part of a Group-wide initiative – and with a view to the
legal regulations on emissions – we are currently developing
a forward-looking vehicle and drivetrain portfolio: to achieve
our goal of sustainable mobility, we have set ourselves the
objective of increasing drive system efficiency with each new
model generation – irrespective of whether the means of
propulsion is a combustion engine, a hybrid, a plug-in hybrid,
a purely electric drive, or a fuel cell drive system.
We anticipate that by as early as 2025, one in four new
Volkswagen Group vehicles worldwide will have a purely
electric drive; depending on the market development, this
could be up to three million electric vehicles a year. The
Volkswagen Group has launched a comprehensive electrifi-
cation offensive in the form of Roadmap E. By 2025, we plan
to offer our customers around the world more than 80 new
electric models, including some 50 purely battery-driven
vehicles and 30 plug-in hybrids. By 2030, the Volkswagen
Group aims to electrify its entire model portfolio – from
high-volume models to premium vehicles. This will mean
offering at least one electric version of each of our approxi-
mately 300 models across all Group brands. We are therefore
planning to invest more than €20 billion in industrializing
e-mobility by 2030, involving, amongst other things, the
development of two new electric platforms for vehicles with a
range of up to 600 km. Examples include the Volkswagen I.D.
family of concept vehicles, the Audi e-tron and Porsche’s
Mission E.
To enable sustainable, affordable mobility for as many
people as possible, we will continue to offer the full range of
drivetrains – from conventional combustion engines to pure
electric drive. From today’s perspective, the combustion
engine looks set to serve as the broad basis for drive techno-
logy in the coming years. In the interest of using resources
responsibly, it is therefore essential for combustion engines
to be further optimized. We use clean technologies to purify
exhaust gases. All our new diesel vehicles are now fitted with
an SCR catalyst as standard. From 2018, all our petrol engine
cars will have particulate filters.
In addition to electric drives and more efficient combus-
tion engines, renewable, reduced-CO2 fuels (in gas or liquid
form) will also play an ever-greater role. We are committed to
expanding the natural gas (CNG) infrastructure and are
extending our model range accordingly. We are also inten-
sively researching options for producing fuels from renew-
able electricity, enabling carbon-neutral operation of com-
bustion engines. Projects such as Audi e-gas (power-to-gas)
and SEAT’s SMART Green Gas (waste-to-gas) are examples of
our commitment in this area.
Last but not least, we are working under Audi’s leadership
to make fuel cell technology ready for market.
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It is more important to us than ever to rigorously pursue our
modular approach. We are reducing the number of individual
modules so that we can make a large product portfolio
economically viable. Over the long term, we will reduce the
number of versions of conventional combustion engines in
the Group by more than a third, for example.
This will create capacity for developing and producing
new hybrid and electric drives.
Life cycle engineering and recycling
Innovations and new technologies for reducing fuel con-
sumption are not enough on their own to minimize the effect
of vehicles on the environment. That is why we examine the
entire product life cycle of our vehicles – from the extraction
of raw materials to the production of components and the
provision of fuel and energy during vehicle use to their final
disposal. We identify the stages of the life cycle at which
improvements will have the greatest effect and develop appro-
priate solutions. We call this life cycle engineering. Recycling,
for example, is an important means of reducing environ-
mental impact and conserving resources. When developing
new vehicles, we therefore pay attention to the recyclability
of the required materials, use high-quality recycled material
and avoid pollutants. At the end of their lives, our vehicles are
85% recyclable and 95% recoverable. In implementing the
Aluminum Closed Loop project in 2017, we created a closed
circuit for aluminum beyond our Company boundaries for
the first time. Aluminum scrap was returned directly from
our press shops to the supplier for reuse in vehicles.
Leveraging synergies increases efficiency
When developing vehicles, we cooperate closely with our
brands to leverage synergies. The strategy formulated by our
development alliance aims, for example, to make the Group
more competitive in the long term by deploying resources
more effectively and efficiently in the research and develop-
ment of new mobility-related technologies, products and
services. In our Group-wide development alliance, the brands
not only work with each other, but also for each other on key
technologies, forming broad networks of expertise to address
the topics of the future. In the reporting year, we consolidated
the Group’s activities and responsibility for the development,
procurement and quality assurance of all battery cells in the
Center of Excellence under the umbrella of the Volkswagen
Passenger Cars brand. Pilot production will also start here, with
the aim of building up manufacturing expertise for our Group.
Our modules are also managed centrally to reduce costs,
capital expenditure and complexity. With the aid of a Group
initiative, we are seeking to reduce expenditure in the toolkits
while at the same time implementing a wide-reaching elec-
trification offensive and focusing on autonomous systems.
We will achieve this through a considerable reduction in com-
plexity using streamlined, non-overlapping yet synergistic
platforms. The individual Group brands are using the modular
toolkits, thus creating synergies between the various models
of a model line and across model lines. The streamlined
toolkits are creating the financial leeway for development
work on the future trends of digitalization and autonomous
driving. As part of the TOGETHER – Strategy 2025 program,
the high-volume passenger car brands have introduced
model line organization through a Group initiative, conse-
quently strengthening the brands’ responsibility for the
success of vehicle projects, improving project work across
different business areas, accelerating decision-making and
improving the result-orientation of projects.
Under the umbrella of Volkswagen Truck & Bus, MAN and
Scania are continuing to work together on core drivetrain
components based on the lead engineering principle. They
have expanded their development work in the fields of elec-
trification and autonomous driving.
We are also creating synergy effects by continuing to
closely share best practices, for instance in virtual develop-
ment and testing. Finally, the centralized development and
consolidation of IT systems is helping to promote cooper-
ation across brands, make development activities more com-
parable and reduce the Group’s IT costs.
Sustainable mobility, connectivity and automated driving
Mobility is a prerequisite for economic growth. But while the
need for constant mobility is rising, natural resources are
dwindling. This calls for holistic mobility concepts to mini-
mize environmental impact. Such solutions need to be effi-
cient, sustainable, customer-oriented and accessible anytime
and anywhere.
We are researching and developing such pioneering con-
cepts and solutions in our Group-wide alliance. In shaping
the future of mobility, we are looking not only at the auto-
mobile but at all modes of transport and transport infrastruc-
tures, at people’s mobility habits and at other relevant
factors. Innovative technologies such as connectivity and
automated driving are enabling us to take completely new
problem-solving approaches. We want to take advantage of
these to contribute to a comprehensive mobility system of
the future and to help shape our industry’s digital transfor-
mation.
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139
Another initiative of our future program TOGETHER –
Strategy 2025 is the establishment of a cross-brand mobility
solutions business. Our mobility business MOIA, which we
founded in 2016, is to become one of the leading providers of
innovative transport services and will develop profitable,
globally applicable business models over the next few years.
Strategic investments and partnerships are also being sought.
In the reporting year, MOIA conducted service tests for its
ride-pooling concept – an organized ride-sharing system with
a driver – among other products in Hanover over several
months with selected participants, gathering valuable experi-
ence. These and other activities will help to make Volkswagen
one of the world’s leading providers of efficient and conve-
nient smart mobility services by 2025, with a portfolio
encompassing all brands and both “mobility-on-demand”
and “vehicle-on-demand” services.
In December 2017, Volkswagen Truck & Bus launched the
digital brand RIO. This cloud-based, multi-vendor platform
serves the entire transport and logistics ecosystem. For the
first time, everyone in the supply chain – shippers, for-
warders, carriers, loaders, dispatchers, drivers and recipients –
will be connected. RIO will offer digital solutions for all the
players involved in the transport system. It will work closely
with customers to tailor solutions to the needs and demands
of the market and continuously enhance them.
On the road to autonomous driving, the Volkswagen
Group has further improved its assistance systems and auto-
mated driving functions in 2017 and fitted them in vehicles.
The strategic objective is to market highly automated driving
functions for private vehicles, shared mobility systems and
commercial mobility providers as a core competency of the
Group from 2021. With the presentation of the Sedric concept
vehicle and a look ahead at the Sedric family – from fully
autonomous city vehicles to luxurious long-distance mobi-
lity, spectacular sports cars, self-driving urban delivery vehi-
cles and heavy trucks – the Volkswagen Group has introduced
its vision of an autonomous mobility system. Particularly in
cities, these vehicles will enable completely new forms of
individual mobility – even for user groups that have so far
been excluded. A balanced combination of different vehicle
sizes will also reduce the space required for parking and
optimize urban transport as a whole.
Autonomous driving in the complex urban environment
places heavy demands on technology. We are dedicated to
meeting these challenges. Led by Audi, the Volkswagen Group
founded Autonomous Intelligent Driving GmbH in 2017. This
new company will develop a Group-wide system for self-
driving vehicles. The reporting year also saw the presentation
of the Audi A8 – an innovation highlight with up to 41 driver
assistance systems. The AI Traffic Jam Pilot – the first auto-
mated driving function in a production vehicle – deserves
special mention. In traffic jam situations on multi-lane high-
ways it enables Level 3 automated driving as defined by inter-
national standards at speeds of up to 60 km/h. This means
that drivers no longer need to continuously monitor the
system. Depending on national legislation, the driver may
also perform other permitted tasks while the vehicle is in
motion. This results in a high degree of convenience and
safety. Audi will gradually introduce the AI Traffic Jam Pilot
into series production in various countries: its introduction
requires clarification of the respective national legal frame-
work and adjustment and testing of the system accordingly;
different national approval processes and deadlines must
also be complied with.
Using the new AI functions, Porsche is working on
improving active driving safety as well as the acceptance of
assistance systems and automated driving functions among
car drivers. Its current focus is on Grip Prediction, a technical
solution to predict how much grip the road surface will offer
and adjust driving speed for longitudinal and lateral move-
ment. Vehicle data from prototypes, combined with local
weather data, is the basis for this.
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Pooling strengths with strategic alliances
The future program TOGETHER – Strategy 2025 plans to
transform our core business and to establish a new mobility
solutions business area at the same time. It is decisive to the
success of this plan that we place our great innovative
strength on even broader foundations.
Growth in the mobility sector is currently a global phe-
nomenon, above all in the economy segment. As part of a
Group initiative, Volkswagen is therefore increasingly entering
local partnerships to develop and offer economy products in
line with the market. This is helping us to identify regional
customer needs more precisely, to adjust our product range
accordingly and to establish competitive cost structures. In
future, we will therefore concentrate to a greater extent on
partnerships, acquisitions and venture capital investments,
and will manage investment selection centrally so as to
generate maximum value for the Group and its brands.
Developing battery technology as a core competency has
also been defined as a strategic initiative of the Volkswagen
Group. The battery accounts for 20 to 30% of the cost of
materials in electric vehicles; in future, it will be one of the
most important components for differentiating between
products. We have already pooled our in-house expertise in
battery cells in a Center of Excellence and also plan to accel-
erate the development of expertise and technological change
through intelligent partnerships. We anticipate that our own
electric fleet with lithium-ion batteries will require a battery
capacity of more than 150 GWh a year in the period to 2025.
To cover this enormous demand, we are inviting tenders for
long-term strategic partnerships in China, Europe and the
USA with a global order volume of more than €50 billion in
the period to 2025. Looking ahead, we are already preparing
for the next generation: together with partners, we aim to
develop solid-state batteries to market maturity with ranges
of more than 1,000 km.
In 2017, MAN and the Austrian Council for Sustainable
Logistics consortium signed an agreement to jointly develop
and test fully electric-powered trucks. The results will feed
into the series development of electric trucks for urban
delivery traffic.
Our mobility business MOIA is currently working with
Hamburger Hochbahn AG to develop a new, environmentally
friendly mobility service for Hamburg: a shuttle-on-demand
service with environmentally friendly electric vehicles is due
to launch in 2018 to complement public transport and as an
alternative to the private car.
We are actively involved in public projects to help shape
the framework conditions for the approval and introduction
of our own self-driving system. The experience we are gath-
ering here will benefit the Group brands and thus also our
customers.
As part of the joint involvement of our Group brands
Volkswagen Passenger Cars, Audi and Porsche in the pan-
European High-Power Charging (HPC) joint venture IONITY, a
comprehensive charging infrastructure is being built to safe-
guard long-distance mobility: by 2020, it is planned to jointly
build and operate fast-charging stations at 400 locations
along major transport arteries in Europe.
Volkswagen Commercial Vehicles launched the Urban
Logistics project initiative in the reporting year together with
universities and businesses. The project partners are bringing
together a wealth of promising ideas – such as intelligent
connectivity, smart mobility solutions, digital communi-
cation and control technologies and the use of electric-
powered delivery vehicles – to create practical solutions for
districts or whole cities.
Our Material Research team plays a major role in the
Open Hybrid LabFactory, a public-private partnership in which
various industry and research partners work together to
develop lightweight construction solutions for mass produc-
tion. Given the growing importance of e-mobility, auto-
motive lightweight construction is a key technology for
future competitiveness. Less vehicle weight increases the
range of electric vehicles.
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Key R&D figures
In fiscal year 2017, we filed 6,566 (6,465) patent applications
worldwide for employee inventions, around half of them in
Germany. The fact that an increasing share of these patents is
for cutting-edge fields impressively underscores our Com-
pany’s
include driver
assistance systems and automation, connectivity, alternative
drive systems and lightweight construction.
innovative power. These
fields
The Automotive Division's total research and develop-
ment costs in the reporting year were 3.9% lower than in the
previous year; their percentage of the Automotive Division’s
sales revenue – the R&D ratio – came to 6.7 (7.3)%. Along with
new models, the main focus was on the electrification of our
vehicle portfolio, a more efficient range of engines and digita-
lization. The capitalization ratio was 40.0 (42.1)%. Research
and development expenditure recognized in profit or loss in
accordance with IFRSs increased to €11.6 (11.5) billion.
As of December 31, 2017, our Research and Development
departments – including the equity-accounted Chinese joint
ventures – employed 49,316 people (+2.6%) Group-wide or
7.7% of the total headcount.
R E S E A R C H A N D D E V E LO P M E N T CO ST S I N T H E AU TO M OT I V E D I V I S I O N
€ million
Total research and development costs
of which capitalized development costs
Capitalization ratio in %
Amortization of capitalized development costs
Research and development costs recognized in profit or loss
Sales revenue
Total research and development costs
R&D ratio
2017
13,135
5,260
40.0
3,734
11,609
196,949
13,135
6.7
2016
13,672
5,750
42.1
3,587
11,509
186,016
13,672
7.3
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P R O C U R E M E N T
In fiscal year 2017, the main task for Procurement was once
again to safeguard the necessary supplies and to help create
competitive, innovative products and optimize cost struc-
tures. We also continued to digitalize procurement processes
and expand cooperation with suppliers under the Volks-
wagen FAST (Future Automotive Supply Tracks) initiative.
Procurement strategy
The Group-wide procurement strategy with the vision,
TOGETHER – best in customer value and cost, was put into
operation in 2017. Six goals were agreed in consultation with
the brands and regions:
> Access to supplier innovations
> Active cost structures
> Forward-looking structures
> People, expertise and attractiveness
> Supply chain excellence
> Group-wide synergies
To achieve these goals, more than 100 measures had already
been drawn up by the end of 2017 as part of the following
initiatives and are now being implemented:
> “Value sourcing” aims to systematically integrate suppliers
into the development process from an early stage.
> “Greenfield costs” refers to commercial and technical activ-
ities to optimize component costs.
> “Innovation & partnerships” ensures that procurement is
an integral part of the processes and decisions related to
both topics.
> “Software” is driving the necessary changes to processes,
structures and competencies resulting from the purchase
of software and its increasing importance to the Group’s
added value.
> “Digital supply chain” encompasses an IT system inte-
grating all core procurement processes into a single solu-
tion and forming the basis for a digital network including
all procurement partners.
> “Sustainability” supports the Group’s objective of leading
the automotive industry in this area, including the supply
chain.
> “Employees, strong team, organization” directs attention
inward and lays the foundation for the strategy’s success
with flat hierarchies, freedom for employees and a culture
of respect and trust.
several suppliers to enable customers to take advantage of
them at an early stage. In addition, it was decided to separate
hardware and software in the procurement processes and
establish a new organizational division, Connectivity Pro-
curement. The first pilot projects with new IT solutions were
launched in 2017 as part of the “Digital supply chain” ini-
tiative. These are gradually being rolled out throughout the
Group. Pilot projects to factor sustainability aspects into the
contract award process have also already been initiated.
Volkswagen FAST – Supplier network as the basis for success
FAST is the central initiative of Group procurement, intro-
duced in 2015 with the aim of making the Volkswagen Group
and its supply network future-proof. The goal of FAST is to
successfully implement the key topics of innovation and
globalization by involving suppliers at an earlier stage and
more intensively. The FAST initiative enhances the quality
and speed of collaboration with our key partners, and thus
enables us to coordinate global strategies and points of tech-
nological focus even more closely. The common goal is to
make impressive technologies available to our customers
more quickly and to implement worldwide vehicle projects
more effectively and efficiently.
From 55 FAST suppliers in 2016, the network grew to 64
suppliers over the past fiscal year. We presented the Group’s
key topics and projects at the FAST Summit, which took place
in the reporting year for the third time. In addition, at the
FAST Forum, relevant decision makers discussed how FAST can
be made even more effective for Volkswagen and suppliers.
Digitalization of supply
We are working systematically to implement a completely
digitalized supply chain. This will help us to ensure supply,
leverage synergies throughout the Group and become a
leader in cost and innovation. We are therefore creating a
shared database and using innovative technologies to enable
efficient, networked collaboration in real time – both within
the Group and with our partners. Since the successful launch
of our new Group business platform ONE KBP in April 2017,
we have been working together with our suppliers on one
platform. A cloud-based, Group-wide data strategy was also
agreed in 2017. This will enable us to identify supply risks in
the supply chain even faster in future.
The first successes of these initiatives are already apparent.
Integrating suppliers into several vehicle projects at an early
stage, for example, has enabled faster achievement of mate-
rial cost targets whilst also improving quality from the mar-
ket and customer perspective. We have also ordered imple-
mentation of specific innovations for our products from
Structure of key procurement markets
Our procurement is organized at global level, with a presence
in the key markets around the world. This ensures that
production materials, investments in property, plant and
equipment, and services can be procured worldwide to the
quality required on the best possible terms. Networking of
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143
the brands’ procurement organizations enables us to leverage
synergies across the Group in the various procurement
markets.
In addition to the brands’ procurement units, the Volks-
wagen Group operates eight regional offices. In emerging
markets, we identify and train local suppliers to generate cost
advantages for all the Group’s production sites. In familiar
and established markets, the regional offices support access
to the latest technologies and innovations.
Supply situation for purchase parts and upstream materials
Systematic avoidance of bottlenecks was a constant focus of
procurement. Natural disasters such as earthquakes and
tornadoes impacted the availability of upstream materials.
We were able to avoid adverse impacts on the Group’s pro-
duction thanks to Group-wide management of capacity and
demand.
Management of purchase parts and suppliers
Purchase parts management is a core component of the
global procurement organization. With our experts in tools
and industrialization, along with standardized processes and
approaches, purchase parts management makes a substantial
contribution to ensuring successful production start-ups for
vehicles and powertrains all around the world. Against the
backdrop of increased complexity in the automotive indus-
try, we also help to safeguard supplies for series production.
As part of the pre-production process, we simulate series
production at suppliers to identify any gaps in production or
quality at an early stage and take countermeasures. Purchase
Parts Management works closely with Quality Assurance at
the production sites and conducts multi-stage performance
testing.
Sustainability in supplier relationships
Global compliance with sustainability standards in human
rights, occupational safety, health and environmental pro-
tection and combating corruption is our basic requirement
for successful collaboration with our suppliers. It is also a
contractual stipulation of the underlying business relation-
ship. We continuously enhanced the concept of sustainability
in our supplier relationships in 2017. We have added detail to
our Volkswagen Group requirements for sustainability in
relations with business partners (Code of Conduct for Busi-
ness Partners) concerning human rights and occupational
safety and extended the reporting options for infringements
by suppliers.
Another focus in 2017 was to raise awareness of sus-
tainability risks among Procurement staff and our suppliers
and to inform them on options for averting risk. By the end
of the reporting period, around 29,000 supplier locations had
completed our online training program. In the Asia-Pacific,
South America and European regions, among others, we also
trained more than 700 employees at 356 suppliers in face-to-
face events on the topic of sustainability and informed them
about region-specific challenges. In addition, we raised
awareness of sustainability risks in the supply chain with
face-to-face events for over 2,000 Procurement employees.
We also substantially intensified our supplier checks in
the reporting year with regard to sustainability. We commis-
sioned sustainability audits from an external service provider
at 321 suppliers. In 60 cases, the findings resulted in an action
plan to improve the suppliers’ sustainability performance. In
addition to these local audits, more than 25,000 supplier loca-
tions submitted a self-declaration on the topic of sustain-
ability. In around 1,500 cases, their sustainability perfor-
mance was improved through specific measures.
Setting the course for the future
In 2017, procurement was defined by vehicle connectivity
and e-mobility, which have led to new groups of materials.
The amount of software in our purchase parts is constantly
increasing. Procurement is taking on an important role here
with cost-effective structuring of licensing agreements and
the standardization of software modules. We reacted early by
pooling competencies to make our structure even more
effective.
P R O D U C T I O N
Our global, cross-brand production network safeguards the
processes from the supplier to the factory and assembly line,
and from the factory to dealers and customers. Enduring
efficiency is a prerequisite for our competitiveness. We meet
challenges of the future with holistic optimizations, pio-
neering innovations, flexible supply streams and structures,
and an agile team. In fiscal year 2017, the global vehicle
production volume surpassed the previous year’s level and
reached 10.9 million units. Productivity increased by around
5.9% year-on-year, despite the continuing difficult conditions
in many markets.
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“Intelligently networked” production strategy
Production is supporting the future program TOGETHER
– Strategy 2025 with their “intelligently networked” func-
tional area strategy. By intelligently connecting people,
brands and machines, we aim to pool the strengths and
potential of our global production and logistics and take
advantage of the resulting synergy effects. We are guided in
this by four goals:
> Versatile production network
> Efficient production
> Intelligent production processes
> Future-ready production
We have used nine initiatives to create content clusters in
which expert teams work on the strategic topics relevant for
production in the Group. Examples include the competitive
design of our global production network, the reduction and
offsetting of environmental impact throughout the produc-
tion process, and digitalization with its implications for
production and working processes and for collaboration. The
overarching aim is to increase productivity and profitability.
With the production strategy, we have laid the founda-
tions for the successful and sustainable enhancement of our
production. We use regular reviews to ensure that we
constantly adapt our activities to the current challenges.
Global production network
With twelve brands and 120 production locations, aspects
such as consistent standards for product concepts, plants,
operational equipment and production processes are key to
forward-looking production. These standards enable us to
achieve synergy effects, respond flexibly to market chal-
lenges, make optimal use of a flexible production network
and realize multi-brand locations. Currently, almost half of
the 40 passenger car locations are already multibrand loca-
tions. One example is the Bratislava site, which produces
vehicles for the Volkswagen Passenger Cars, Audi, Porsche,
SEAT and ŠKODA brands. We will add other multi-brand
locations in future, for example, in Tianjin, China.
The Volkswagen Group has set itself the goal of becoming
one of the world’s leading providers of battery-powered
vehicles (BEV) by 2025. The basis for this is the introduction
of the Modular Electric Toolkit (MEB), which we will use to
expand our range with a new BEV family.
In order to design multibrand projects and for e-mobility to
be cost-effective in conjunction with existing concepts, it is
important to make production highly flexible and efficient.
Making maximum use of potential synergy effects is also a
decisive factor for the success of future vehicle projects. Using
common parts and concepts as well as identical production
processes will enable reduced capital expenditure and
provide the opportunity to better utilize existing capacities.
The future will also see electric vehicle projects at multi-
brand locations such as Anting, China.
We are constantly enhancing our production concepts
and aligning them with new technologies. The targeting pro-
cess anchored in our strategy serves to realize ambitious
targets in individual projects as part of a cross-divisional
approach.
The “components” business is also helping to safeguard
the Group’s future with its own initiatives. With around
80,000 employees worldwide, it is an integral part of the
Group and plays a central role particularly in the core compe-
tency of engines and transmissions. The “components”
business has been reorganized within the Group as part of a
Group initiative. The aim is to boost our competitiveness,
optimize investment, raise our efficiency, make a major
contribution to the trends of the future, enable a coordinated
entry into e-mobility and develop new business areas.
Production locations
The Volkswagen Group’s production network is comprised of
120 locations in which passenger cars, commercial vehicles
and motorcycles, as well as powertrains and components are
manufactured.
With 71 locations, Europe remains our most important
production region for vehicles and components. There are 28
sites in Germany alone. The Asia-Pacific region has 31 loca-
tions. We have five locations in North America and nine in
South America. The Group operates four locations in Africa.
2017 saw 62 production start-ups: 26 for new products
and 36 for product upgrades and derivatives.
Capacity utilization of the locations in the Volkswagen
Group’s production network is further enhanced by sup-
plying them with complete knock-down (CKD) kits for local
assembly.
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145
V E H I C L E P R O D U C T I O N L O C A T I O N S O F T H E V O L K S W A G E N G R O U P
Share of total production 2017 in percent
N O R T H A M E R I C A
4 locations (7%)
E U R O P E
36 locations (49%)
A S I A
18 locations (39%)
S O U T H A M E R I C A
6 locations (4%)
A F R I C A
4 locations (1%)
The Group’s production system
With our global Group production system, we aim to contin-
uously and sustainably improve our production workflow at
all the brands’ and regions’ locations. Our goal is to ensure
the excellence of processes in production and production-
related environments.
We are increasing the amount of attention we give to
further strengthening the Group’s production system and
increasing its presence. Leadership and individual responsi-
bility are the foremost topics, embedded in a culture of
appreciation and collaboration.
A factory must work at optimal capacity so as to continue
manufacturing high-quality products that give customers
maximum benefits at competitive prices. This is made possi-
ble by the standardization of production processes and oper-
ating equipment at an early stage, based on the principle of so-
called “concept consistency”. This ensures that common design
principles, joining techniques and joining sequences, but also
installation and connection concepts are applied in the
brands’ development and production areas. The principle of
“concept consistency” is fundamental for creating efficient
logistics and manufacturing processes.
New technologies and product innovations
With our manufacturing technologies, we create Group
products that fulfill the highest standards of functionality,
quality and design. In recent years, for example, vehicles with
multicolored paintwork have become popular, particularly
those with color-contrasting roofs. Until now, this two-tone
paintwork has required the vehicles to pass through the paint
shop twice during production. Volkswagen is working with
process partners in a joint project to develop a new tech-
nology that can significantly reduce the workload for
multicolored designs. This technology was implemented for
the first time in 2017 at the Pamplona site, initially for the
new Polo. Other vehicles and locations are set to follow.
In the foreseeable future, the Volkswagen Group will also
be able to offer more individually customized paintwork than
previously possible thanks to the availability of digital
printing.
Where the design and introduction of new production
technologies are concerned, affected staff are involved in the
redesign of workplaces and processes from the outset. This is
an important prerequisite if new technologies and solutions
are to find the necessary acceptance.
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K E Y E N V I R O N M E N T A L I N D I C A T O R S F O R P R O D U C T I O N I N T H E V O L K S W A G E N G R O U P ¹
E N E R G Y C O N S U M P T I O N
in kilowatt hours per vehicle
C O 2 E M I S S I O N S
in kilograms per vehicle
C O 2
2017
2016
2010
2,069
2,089
2,519
–17.9%
²
2017
2016
2010
810
883
– 26.1%
²
1,096
V O C E M I S S I O N S ³
in kilograms per vehicle
V O C
D I S P O S A B L E W A S T E
in kilograms per vehicle
2017
2016
2010
2.09
2.47
– 49.4% ²
4.13
2017
2016
2010
13.2
15.2
– 43.3%
²
23.3
F R E S H W A T E R C O N S U M P T I O N
in cubic meters per vehicle
2017
2016
2010
3.76
3.89
4.54
– 17.1% ²
1 Production of passenger cars and light commercial vehicles. Prior-year figures adjusted.
2 Change 2017 as against 2010.
3 Volatile organic compounds (VOCs).
Environmentally efficient production
One element of the production strategy is the environ-
mentally exemplary production initiative. This involves us
working on four key issues in the period leading up to 2025:
>(cid:3) Setting and achieving ambitious environmental targets for
We are encouraging networking and communication between
the brands worldwide in order to leverage synergies. Our
environmental experts meet regularly in working groups; in
addition, we train our employees on the topic of environ-
mental protection.
production
>(cid:3) Developing a long-term vision for environmental targets in
production and rolling it out across the Group
>(cid:3) Strengthening employees’ environmental awareness and
integrating relevant environmental aspects into processes
>(cid:3) Achieving top positions in renowned environmental rank-
ings
In this context, the Volkswagen Group has set itself the goal
of reducing the five key environmental indicators of energy
and water consumption, waste for disposal, and CO2 and VOC
emissions in production by 45% for each vehicle produced by
2025 – starting from 2010 levels. This objective applies to all
of the Group’s production locations and is derived from our
environmental requirements for production processes, which
are anchored in the Group’s environmental principles. The
charts above show the development of these indicators.
To identify and implement savings at the locations, the
Environmental Task Force – a team from Group Research
Environment – analyzes manufacturing processes, site infra-
structure and resource and energy flows in production and
evaluates their impact on the environment. With experience
from more than 30 analyses, the team can systematically
reinforce and spur on the transfer of measures.
We record and catalog environmental measures in an IT
system and make these available for a Group-wide exchange
of best practices. In the reporting period, around 1,600
implemented measures in the area of environment and
energy were documented in this system. They serve to
improve infrastructure and production processes for passen-
ger cars and light commercial vehicles. These activities are
beneficial from an environmental and economic perspective.
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147
With a series of effective, innovative measures, we once again
promoted the reduction of environmental indicators in the
reporting period while at the same time improving pro-
duction processes. The following examples show the extent
to which the measures have contributed to strengthening
production processes and achieving targets:
One important lever for reducing energy consumption is
tailoring the operation of all facilities according to demand.
Improving ventilation in the halls at the Bratislava site has
resulted in savings of 15,000 MWh and 200 tonnes of CO2.
Measures have also been implemented in energy gener-
ation and consumption. For example, five German locations
switched to 100% CO2-free power in the reporting period.
This is saving 165,000 tonnes of CO2 per year at the Volks-
wagen Passenger Cars and Porsche brands.
As part of an upgrade to the paint shop at Volkswagen de
México, new electrostatic painting robots were installed.
These have reduced paint consumption on the production
lines by up to 19%, resulting in a VOC reduction of up to
152 tonnes per year.
Green logistics
Logistics is contributing to the Volkswagen Group’s focus on
the environment by analyzing the emissions of the entire
transport chain. The Green Logistics initiative promotes
alternative means of transport and sustainable, energy-
efficient transport systems, thereby reducing greenhouse gas
emissions.
Universal environmental principles were defined during
the reporting period and used to create strategic guidelines
and rules. These are designed to ensure that our environ-
mental standards in logistics processes are implemented
globally.
In logistics, this means, for instance, avoiding transports,
shifting goods to more environmentally friendly means of
transport, or improving the implementation and use of
modern technology and alternative drive systems.
An important starting point for reducing CO2 emissions
is the selection of the mode of transport. One of the most
efficient options in terms of transport capacity is maritime
transport. To further improve the environmental sustain-
ability of ship transport, Volkswagen Group logistics will put
two charter ships powered by liquefied natural gas (LNG) into
service in 2019.
warders, gas providers and representatives from the German
Federal Ministry of Transport and Digital Infrastructure and
the Federal Ministry for Economic Affairs and Energy took
part.
In mid-2017, Volkswagen Sachsen GmbH’s Zwickau plant
and the Porsche factory in Leipzig presented fully electric, 40-
tonne trucks suitable for highway driving. With automated
driving functions, the vehicles are intended for short-cycle,
on-time transport. Two trucks were fitted with electric drive
systems and batteries in the eJIT (electric-powered just-in-
time mobility) research project. The e-trucks reach a speed of
85 km/h and have a range of 70 km.
S A L E S A N D M A R K E T I N G
As part of our future program, we have developed a sales and
marketing strategy aimed at exciting customers on a whole
new level under the slogan “customer delight”. We regard
ourselves as an innovative and sustainable mobility provider
for all commercial and private customers worldwide – with a
unique product portfolio encompassing twelve successful
brands and innovative financial services.
We will implement the TOGETHER sales strategy step by
step over the coming years. In the focus area of new sales, for
example, we are realizing innovative sales and service
concepts together with our sales partners. In the focus area of
the customer ecosystem, we are implementing platforms for
a seamless and safe digital brand experience at all customer
touchpoints – this is enabling us to meet ever-growing
customer expectations as well as increased data protection
standards. In the focus area of steering, we are optimizing
how our brands capitalize profitably on market opportu-
nities.
Optimal coverage of markets, customer segments and
customer budgets are at the heart of a strategic Group
initiative. To this end, we are establishing automobile-specific
customer segmentation to steer the positioning of our
brands. At the same time, we are examining global markets
for potential revenue sources. In 2017, we rolled out this
methodology in Europe and China and agreed on the region-
specific, customer-oriented brand territories for product
positioning. Starting in 2018, the new methodology will be
applied in the Volkswagen Group’s product processes; other
markets will also be included.
In September 2017, we held an LNG Truck Day to dispel
doubts and reservations regarding the new technology and
actively support the expansion of the LNG fuel station
network in Germany. Among others, regional freight for-
Customer satisfaction and customer loyalty
The Volkswagen Group aims its sales activities at exciting its
customers. This is our top priority, as excited customers
remain loyal to our brands and recommend our products and
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services to others. In addition to satisfaction with our
products and services, we value our customers’ emotional
connection to our brands. It is important for us to retain
customers and win new ones. To measure our success in this
area, we collect data on and analyze three strategic indicators
for the major passenger car-producing brands:
> Net promoter score. Proportion of customers who would
recommend us to others minus the proportion of custom-
ers who would not recommend us. In terms of customers’
willingness to recommend them, the Porsche and ŠKODA
brands lead the core European markets when compared to
other Group brands and competitors.
> Loyalty rate. Proportion of customers of our car brands
who have bought another Group model. The loyalty of
Volkswagen Passenger Cars, Audi, Porsche and ŠKODA cus-
tomers has kept these brands in the upper loyalty rankings
in comparison with competitors for a number of years.
Compared to other manufacturer groups, the Volkswagen
Group therefore holds the top spot in terms of loyalty, with
a considerable margin over the competition.
> Conquest rate. Newly acquired passenger car customers as
a proportion of all potential new customers. Here, too, we
have a top ranking, primarily thanks to the good scores
achieved by the Volkswagen Passenger Cars brand.
In the core European markets, the downward trend in brand
image and brand trust at the Volkswagen Passenger Cars
brand following the diesel issue did not continue in 2017.
Instead, the first signs of recovery were evident. Porsche
remains in top position in the image ranking.
We also use a strategic indicator to measure the satisfac-
tion of customers with our products and services in the truck
and bus business:
> Customer satisfaction. In the markets relevant for the
Volkswagen Group, we aim to be one of the industry
leaders in terms of the satisfaction rate for our commercial
vehicle brands. To evaluate these criteria, we use customer
satisfaction studies, which delivered positive satisfaction
figures in line with our targets in the reporting period.
In the financial services business, we use two strategic
indicators:
> Customer satisfaction. In addition to looking at customer
satisfaction with our products, we measure this by
examining reviews of our service staff; both aspects are an
indicator for our customer and service focus. The results
continued their positive trend in 2017. To achieve our goal
of very high customer satisfaction throughout the financial
services business by 2025, we regularly evaluate what
action is needed and how ideas can be shared and imple-
mented across different countries.
> Customer loyalty. Trust in and loyalty to our services rely
on customer satisfaction with our product range and ser-
vice. The loyalty scores that are regularly calculated based
on product sales to our customers are currently impressive
proof of customers’ trust in our financial services. Ambi-
tious targets underscore the focus on customers and on
fulfilling their needs at Volkswagen Financial Services.
E-mobility and digitalization in Group Sales
By 2025, as part of our Roadmap E, we aim to offer our cus-
tomers around the world more than 80 new electric models,
including around 50 pure battery-driven vehicles and 30
plug-in hybrids. This campaign will be complemented by
vehicle-related, customer-focused offers, such as customized
charging infrastructure solutions and mobile online services.
This is turning the Volkswagen Group from an automotive
manufacturer into a mobility service provider, posing com-
pletely new sales challenges.
We are making highly targeted use of the opportunities of
digitalization in sales. Our actions are guided by a clearly
defined strategy that requires extensive cooperation between
the brands to achieve the greatest possible synergies. Our aim
here is to create a completely new product experience for our
customers – one which impresses with its seamless customer
communications, from the initial interest in purchasing a
vehicle, to servicing and ultimately to the sale of the used car.
In the process, we are opening up new business models and
opportunities in every aspect of the connected vehicle – in
particular with regard to mobility and other services. Vehicles
are becoming an integral part of the customer’s digital world
of experience. We take great care to make all processes
transparent so that customers always retain control of their
own data.
We also gear our internal processes and structures to the
pace of digital innovation. The result is project teams oper-
ating across different business areas, new forms of coop-
eration, a more intensive relationship with the international
start-up scene, a consolidation of venture capital expertise
– as a form of supporting innovative ideas and business
models – as well as new lean systems and cloud-based IT
solutions.
Fleet customer business
Our business relationships with fleet customers are often
long-term partnerships. In a volatile environment, this cus-
tomer group guarantees more stable vehicle sales than the
private customer segment.
The Volkswagen Group has an established base of busi-
ness fleet customers in Germany and the rest of Europe in
Group Management Report
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149
particular. Our extensive product range enables us to satisfy
their individual mobility needs from a single source.
In fiscal year 2017, the share of fleet customers in total
registrations in Germany remained stable at 14.1 (14.1)%
amid a 2.7% growth in the market. The Volkswagen Group’s
share of this customer segment decreased to 44.7 (47.1)%.
Outside Germany, we recorded growth in the Group’s share of
registrations by fleet customers in Europe to 25.2 (24.5)%.
Overall, the Volkswagen Group’s share in Europe remained
constant at 28.9 (28.9)%. This shows that fleet customers still
have considerable confidence in the Group.
After Sales and Service
In addition to individual service, the timely provision of
genuine parts is essential in ensuring passenger car customer
satisfaction in After Sales. The genuine parts supplied by our
passenger cars brands and the expertise of the service centers
represent the highest level of quality and ensure the safety
and value retention of our customers’ vehicles. With our
global after-sales network including more than 120 of our
own warehouses, we ensure that almost all our authorized
service facilities around the world can be supplied within 24
hours. We regard ourselves as a complete provider of all
products and services relevant to customers in the after-sales
business. Together with our partners, we ensure the world-
wide mobility of our customers. The partner businesses offer
the entire portfolio of services in all vehicle classes. We are
continuously expanding our range of tailored services in
order to improve convenience for our customers and increase
customer satisfaction.
Around the world, our commercial vehicles business also
prides itself on products of the highest quality and on
customer focus. Our range of trucks, buses and engines is
complemented by services that guarantee fuel efficiency,
reliability and good vehicle availability. The workshop service
and service contracts offer customers a high degree of
certainty, in addition to a high level of quality. We are reducing
servicing times and costs with a view to reducing vehicles’
total operating costs and helping them retain their value.
In the Power Engineering segment, we help our custom-
ers ensure the availability of machinery with MAN PrimeServ.
The global network of more than 100 PrimeServ locations
guarantees excellent customer focus and offers, among other
things, replacement parts of genuine parts quality, qualified
technical service and long-term maintenance contracts.
G R O U P Q UA L I T Y M A N AG E M E N T
The quality of our products and services plays a key role in
maintaining customer satisfaction. Customers are partic-
ularly satisfied and remain loyal when their expectations of a
product or service are met or even exceeded. Appeal, relia-
bility and service determine quality as it is perceived by the
customer throughout the entire product experience. Our
objective is to positively surprise and excite our customers in
all areas and thus win them over with our outstanding
quality.
Strategy of Group Quality Management
We embody outstanding quality and ensure dependable
mobility for our customers worldwide – this is the strategic
goal that guides the work of Group Quality Management.
Along with the brands’ quality organizations, Group Quality
Management plays an active role at all stages of product
creation and testing. Through this work, we make an
important contribution to successful product start-ups, high
customer satisfaction and low warranty and goodwill costs.
We have further enhanced the Group Quality Manage-
ment strategy as part of our future program TOGETHER –
Strategy 2025. Focal areas include digitalization, new technol-
ogies and business areas as well as uniform processes,
methods and standards at all brands.
Increasing progress in digitalization is also a major chal-
lenge for the Volkswagen Group: an increasing number of
digital products and services are being developed and
brought to market. To continue to ensure the familiar level of
quality and safety amid this diversity, we must adapt our
quality measures accordingly. The increase in functional
diversity and complexity of driver assistance systems,
extending all the way to autonomous vehicles, means that
software is growing in scope. Here we need to enhance the
methods we use to support selected critical features of
software development and safeguard quality requirements.
We are also taking advantage of the progress in digital tech-
nology to further optimize our own processes and structures.
For example, we use virtual measurement technologies or big
data analyses when vehicles on the market encounter quality
problems.
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Group Management Report
In this context, Group Quality Management has further
developed its strategy in consultation with the Group brands.
This comprises the following four goals:
> We will excite our customers with outstanding quality by
understanding the features of the quality that resonates
with them and implementing these in our products.
> We will contribute to competitive products with optimal
quality costs by ensuring robust processes, thereby reducing
the expense involved in testing each vehicle.
> In critical business processes, we will reinforce the princi-
ple of multiple-party verification and monitor achieve-
ment of milestones even more closely.
> We will become an excellent employer by promoting every
single employee’s personal development even more inten-
sively.
To achieve our goals, we have been working on a total of 15
quality initiatives since mid-2016. All are focused on the
topics that will be decisive to the future success of the quality
organizations at the Volkswagen Group.
Contributing to the Group’s strategic indicators
We use a strategic indicator to measure the contribution of
Quality Management at the major passenger car-producing
brands.
> Tow-in 12 MIS. This figure shows the number of vehicles
that need to be towed to a dealer per 1,000 vehicles after 12
months in service. It includes all Group vehicles catego-
rized as tow-in by dealers in the German market. In the
2016 production year, the Volkswagen Group’s tow-in sta-
tistics in the German market improved slightly compared
with 2014 and 2015. Of the six brands featured, Volkswagen
Passenger Cars, Audi and ŠKODA saw their performance
improve, while the SEAT, Porsche and Volkswagen Com-
mercial Vehicles brands recorded a slight downward trend.
We also use a strategic indicator to measure our success for
trucks and buses:
> Claims per vehicle 12 MIS Truck. This figure incorporates
the number of claims related to liability for material
defects per 1,000 vehicles after 12 months in service. MAN
and Scania each collect this data for their products from
across the globe. Through systematic quality management,
both brands continued to exhibit a downward trend in the
reporting period.
between the divisions – and introduced important additional
processes, including in software security. At the Volkswagen
Passenger Cars brand, for example, the development of
software will be accompanied by quality milestones from
2017: The principle of multiple-party verification safeguards
the systems and components or parts that directly influence
a vehicle’s safety, type approval and functioning and there-
fore require increased vigilance. At the series production
stage, we are working even harder to carry out conformity
checks on our products with the participation of all business
units involved and to perform assessments on this basis. This
applies particularly to emissions and fuel consumption.
We are also placing greater emphasis on our quality
management system than before, reinforcing the process-
driven approach Group-wide across all business areas.
Quality management in the Volkswagen Group is based on
the ISO 9001 standard: the requirements of this standard
must be met to obtain the type approval for producing and
selling our vehicles. We conducted numerous system audits
in the reporting period to verify that our locations and
brands comply with the requirements of the standard, which
was revised in 2015. The major focus was on the risk assess-
ment for non-compliance with agreed processes. To ensure
that these and other new requirements as well as official
regulations are implemented and complied with, Group
Quality Management is available to support the quality man-
agement consultants.
With these and other measures, Group Quality Manage-
ment is helping to ensure that we not only meet all legal
requirements imposed on us as a manufacturer, but that our
products do as well.
Observing regional requirements
Our customers in the different regions of the world have very
diverse needs as far as new vehicle models are concerned.
Another important task of Group Quality Management is to
identify and prioritize these regional factors so that they can
be reflected in the development of new products and the
production of established vehicle models – together with
other important criteria such as the quality of locally avail-
able fuel, road conditions, traffic density, country-specific
usage patterns and, last but not least, local legislation. We
mainly use market studies and customer surveys to deter-
mine region-specific customer requirements.
Legal and regulatory compliance
The diesel issue showed that we must check the compliance
intensively. We have therefore
of our products more
reinforced application of the principle of multiple-party
verification – which involves mutual support and control
The perceived quality of our vehicles must be at a level
commensurate with that of our competitors. We therefore
redesigned the vehicle audit during the reporting period and
tailored it more closely to regional customer needs. Every
brand works together with the individual regions to decide
Group Management Report
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151
the responsibility of the brands and enables us to invest less
in features that do not resonate with customers. To make the
results comparable, consistent quality benchmarks apply
across all markets and regions. For more than 40 years now,
auditors have therefore been deployed around the world to
ensure compliance with these benchmarks by carrying out an
assessment from the customer’s perspective of the vehicles
that are ready for delivery. We continually revise the quality
benchmarks on which such audits are based to adapt them to
the changing requirements.
E M P LOY E E S
The Volkswagen Group is one of the world’s largest employers
in the private sector. As of December 31, 2017, the Group,
including the Chinese joint ventures, employed 642,292
people, 2.5% more than at the end of 2016. The ratio of Group
employees in Germany to those abroad remained largely
stable over the past year. At the end of 2017, 44.8 (44.9)% of
employees worked in Germany.
Human resources strategy and principles of the
human resources policy
With the new human resources strategy “Empower to trans-
form”, the Group is continuing with key and successful
approaches of its human resource management. These
include the pronounced stakeholder focus in corporate
governance, comprehensive participation rights for employ-
ees, outstanding training opportunities, the principle of long-
term service through systematic employee retention and the
aspiration to appropriately balance performance and remu-
neration. At the same time, the new human resources
strategy is setting innovative trends. Hierarchies are being
dismantled and modern forms of working such as agile
working – whereby most responsibility for the work organi-
zation is transferred to the teams – are set to be expanded. In
the future, cooperating robots will ease heavy physical work
in factories and digital processes will simplify adminis-
tration. The Company’s human resources strategy is based on
five overarching objectives:
> The Volkswagen Group aims to be an excellent employer
E M P L O Y E E S B Y C O N T I N E N T
in percent, as of December 31, 2017
Germany
Rest of Europe
America
Africa
Asia/Australia
%
45%
%
29%
9 %
9 %
1 %
1 %
16%
%
To implement its human resources strategy, the Volkswagen
Group will roll out a Group-wide diversity management
system, among other programs, in the course of 2018.
Varying cultural conditions in the global markets and growing
economic momentum demand from Volkswagen an ever-
broader range of experience, world views, problem solutions
and product ideas. The diversity of our staff offers great
potential for innovation in this area, which we aim to make
better use of in future. Mandatory rules on the percentage of
women in management, combined with targets for the
internationalization of senior management, are at the heart
of diversity management at Volkswagen.
In line with its corporate strategy, the Volkswagen Group
is also driving the transformation in other fields. For
example, various cultural change initiatives are concerned
with reinforcing flatter hierarchies, a more open form of
collaboration and a greater focus on the big picture within
the Company’s divisions.
The human resources development system was com-
pletely revised in 2017 and now offers more transparent
paths into management based on greater individual respon-
sibility. The Company’s management principles were also
revised and new criteria for appointments defined.
with all of its brands and companies worldwide.
TOGETHER – Strategy 2025 is also accompanied by new
> Highly competent and dedicated employees strive for
excellence in terms of innovation, added value and cus-
tomer focus.
> A sustainable work organization ensures optimal working
conditions in factories and offices.
> An exemplary corporate culture creates an open work
climate that is characterized by mutual trust and collabo-
ration.
> The Company’s human resources work is highly employee-
oriented while also aiming for operational excellence and
providing strategic value-added contributions.
strategic indicators.
For the passenger car-producing brands, we compile and
analyze the following information:
> Internal employer attractiveness. The indicator is deter-
mined by asking respondents, as part of the Group-wide
opinion survey, whether they perceive the respective
company as an attractive employer. The target for 2025 is
89.1 out of a possible total of 100 index points. A score of
85.2 index points was achieved throughout the Group in
the reporting period.
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> External employer attractiveness. The ability to recruit top
talent is of decisive importance, particularly in view of the
Company’s transformation into a world-leading provider of
sustainable mobility solutions and the associated develop-
ment of new business units. Once a year, we check the
positioning of the major passenger car-producing brands
on the labor markets for graduates and young professionals
using of this strategic indicator. Rankings in surveys by
renowned institutions, in which we aim to achieve top
scores for all Group brands, serve as the basis for this.
> Diversity index. As we establish diversity management
across the Group, this strategic indicator for the active
workforce is used worldwide to report the development of
the proportion of women in management and the inter-
nationalization of senior management. In particular, it
underpins the objective of the human resources strategy,
which is aimed at contributing to an exemplary leadership
and corporate culture. In 2017, the Group-wide percentage
of women in management was 13.8%. We aim to achieve a
target of 20.2% by 2025. We aim to increase the level of
internationalization in senior management, the upper-
most of our three management tiers, from 18.7% in the
past fiscal year to 25.0% in 2025.
In the truck and bus business, we look at the opinion survey
and cross-brand exchange of employees to identify how well
strategic targets are being achieved:
> Opinion survey. The sentiment rating is used to determine
the level of employee satisfaction and identification with
the company. The sentiment rating is calculated as the
average score from of all responses regularly submitted as
part of the opinion survey. The result in 2017 was in line
with the previous year’s level.
> Cross-brand exchange and rotation. The aim is to con-
tinuously intensify collaboration between the commercial
vehicle brands. It is also designed to enable the creation of
specialist and international networks. We use this indicator
to analyze how many employees have worked at another
brand through such rotation. An increasing number of
staff took advantage of this personnel development oppor-
tunity in 2017.
One strategic indicator has been defined for the financial
services business:
> External employer ranking. This involves taking part in an
external benchmarking exercised every two to three years.
The aim is to enhance working conditions and identify
measures to become a top-20 employer by 2025, not just in
Europe, but globally. Volkswagen Financial Services AG was
most recently represented in various national and intern-
ational best-employer rankings in 2016. In 12th place, it was
among the top European employers in the “Great Place to
Work” employer competition.
Training and professional development
At Volkswagen, our capacity for innovation and competi-
tiveness depends to a large extent on the commitment and
knowledge of our staff. Training at Volkswagen is organized
very systematically on the basis of the so-called vocational
groups. A vocational group includes all employees whose
tasks are based on similar technical skills and who require
related expertise in order to perform their jobs. The skills
profiles lay down the functional and interdisciplinary skills for
each job and serve as an orientation for training measures.
Volkswagen Group employees have access to a wide range
of training measures – from advanced training on general
Company-related issues, to specific training within the
individual vocational groups, to personal development pro-
grams. The educational opportunities and development pro-
grams at the Volkswagen Group enable staff to continue to
develop throughout their working lives and constantly
deepen their knowledge. In this process, they also learn from
more experienced colleagues, who act as experts in the
vocational group academies – the learning centers of the
vocational groups – and pass on their knowledge to others.
All training is based on the dual training principle, which
combines
theoretical content with practical
experience on the job and by means of specific tasks.
learning
New technologies can usefully complement learning and
the transfer of expertise. As the central training organization
in the Group, the Volkswagen Group Academy incorporates
this idea into different projects. One example of this is the
Group Management Report
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153
Education Lab, where the Volkswagen Group Academy con-
ducts training research and analyzes training trends, tests
technologies at Volkswagen together with start-ups, thereby
introducing new forms of skills development at the Company.
Within the Volkswagen Group Academy, the AutoUni
provides the Group with knowledge that is relevant for the
future by integrating internal senior experts and collab-
orating with universities. Its events are offered as programs
and as cooperative study modules in a blended learning
format, which combines classroom training with online
content, and are supplemented by lectures and conferences.
Vocational training and cooperative education
The core component of training at Volkswagen is vocational
training or for young people eligible to enter university,
cooperative education (dual study programs combining uni-
versity studies with on-the-job training). As of the end of
2017, the Volkswagen Group had trained 19,207 young people
in approximately 50 trades. Volkswagen has introduced the
principle of dual vocational training at many of the Group’s
international locations over the past few years and is
continuously working on improvements. Over three-quarters
of all the Group’s vocational trainees now learn their trade
through dual vocational training. Once a year, Volkswagen
honors its highest-achieving vocational trainees in the Group
with the Best Apprentice Award.
Volkswagen continues to assist in the professional develop-
ment of young people at the start of their careers even after
their vocational training has been completed. Talent groups,
for example, are used to promote particularly talented young
specialists. These two-year development and training pro-
grams accept the highest-achieving 10% of fully qualified
vocational trainees at Volkswagen AG and the Zwickau site
each year. Fully qualified vocational trainees also have the
option to move to a Group company outside Germany for
twelve months as part of the “Wanderjahre” (Year Abroad)
program. In the reporting period, 31 Volkswagen Group
locations in 17 countries took part in this development
program. The AGEBI+ program was designed to promote fully
qualified vocational trainees who are eligible for university,
thus offering students the opportunity to combine practical
experience with a degree program in subjects that are critical
for Volkswagen’s future.
By joining the European Alliance for Apprenticeships in
2017, Volkswagen is also working to promote vocational
training outside the Group. The European Alliance for Appren-
ticeships is a platform that brings together government
departments from various countries with other key stake-
holders such as businesses, social partners, professional
bodies, vocational training providers and youth organiza-
tions. The common goal is to strengthen the quality, supply,
image and mobility of apprenticeships in Europe.
Development of university graduates
Volkswagen offers two structured entry and development
programs for university graduates and young professionals.
In the StartUp Direct trainee program, graduate trainees gain
an overview of the Company over a two-year period while
working in their own department, and take part in supple-
mentary training measures. University graduates interested
in working internationally can participate in the 18-month
StartUp Cross program. The aim of the program is to get to
know the Company in all of its diversity and to build up a
broad network. During the term of this program, young pro-
fessionals become familiarized with several Volkswagen
Passenger Cars locations in Germany and other countries by
working in various functional areas. Both programs are sup-
plemented by several weeks’ experience working in produc-
tion. In 2017, Volkswagen AG hired a total of 89 graduate train-
ees as part of these programs, 30.3% of whom were women.
Graduate trainee programs are also available at the
Group’s international locations such as ŠKODA in the Czech
Republic or Scania in Sweden. In addition, the Volkswagen
Group has been offering young engineers from Southern
Europe, where unemployment especially among young
academics remains a major problem, the opportunity to gain
international work experience through the StartUp Europe
trainee program since 2012. Volkswagen has designed this
program for university graduates, who work for three months
at a Group company in their home country followed by 21
months at a German Group company.
P R O P O RT I O N O F WO M E N
as of December 31
%
Female employees
Female vocational trainees1
Female graduate recruits2
Total management1
Management1
Senior management1
Top-Management1
1 Germany, excluding Scania, MAN and Porsche.
2 Volkswagen AG
2017
16.3
28.8
30.3
11.4
13.2
9.2
6.5
2016
16.0
29.5
26.0
11.0
12.8
8.7
4.7
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Increasing attractiveness as an employer and target-group-
A G E S T R U C T U R E I N Y E A R S O F V O L K S W A G E N G R O U P E M P L O Y E E S
specific development programs
A family-friendly human resources policy is a major com-
ponent of Volkswagen’s appeal as an employer and makes an
important contribution to achieving greater gender equality.
We are therefore working continuously to develop family-
friendly working-hour models and to further increase the
proportion of women in management positions. In line with
German law on the equal participation of women and men in
leadership positions, Volkswagen AG is aiming to have a
13.0% proportion of women at the first management level and
16.9% at the second management level by the end of 2021. As
of December 31, 2017, the proportion of women in the active
workforce at the first level of management was 10.4 (9.8)%
and at the second level of management it was 14.0 (13.5)%.
Targets have been set for every board-level division in the
company to encourage women with high potential in their
decision to aim for a career in management in the Company.
This approach is supported by many different measures
including the cross-brand mentoring programs “Mentoring
Program Management”, “Compass” and the “Career with
Children” project.
A large number of company regulations have come into
effect at the Volkswagen Group in recent years to improve
balancing the demands of work and home life and to allow
for individual arrangements. These include flexible working
hours, variable part-time work and shift models, leave of
absence programs enabling employees to care for close
family members, as well as childcare facilities that are close
by and/or company-owned, and mobile working.
At Volkswagen AG, which had entered into its works
agreement for mobile working in 2016, more than 11,800
employees made use of this flexible working arrangement as
of the end of the reporting period.
Preventive healthcare and occupational safety
Volkswagen’s holistic healthcare management system extends
beyond traditional preventive healthcare and occupational
safety. It also covers work organization, workstation design,
behavioral ergonomics, psychosocial aspects, rehabilitation
and reintegration into working life as well as programs for
preventing widespread diseases.
To maintain and improve employees’ health, performance
and fitness levels, a free and comprehensive voluntary
screening, the Check-up, is provided for all employees at
almost all production sites.
Another important area for action at the Volkswagen
Group is the ergonomic quality of the workstations. The Com-
pany is thus highly committed to continuously improving
ergonomics along the entire production chain and in all work
as of December 31, 2017; in percent
< 20
20–29
30–39
40–49
50–59
60 +
2 %
2 %
%
22%
28%
%
%
25%
%
19%
4 %
4 %
processes. To this end, we collaborate with scientific partners
to combine state-of-the-art ergonomic workstations with
innovative work processes.
Employee participation
Codetermination and employee participation are important
pillars of our human resources strategy. Volkswagen aims to
promote high levels of expertise and a strong sense of team
spirit. This includes employees’ opinions, assessments and
constructive criticism being heard.
With the opinion survey, a uniform, Group-wide poll, the
Company regularly gathers information regarding employee
satisfaction. Based on the results, we then implement follow-
up processes in which proposals for improvement are
developed and monitored until implementation is complete.
Over 570,000 employees from 156 locations and companies
in 48 countries were invited to take part in the survey. The
participation rate was 79%. The average result based on all
responses that are regularly received through the opinion
survey – the sentiment rating – is an important parameter in
the opinion survey; in 2017 it stood at 78.3 out of a possible
total of 100 index points. The score achieved was thus on a
par with the previous year.
Idea management is another important means of boosting
employee engagement. Using their creativity, knowledge and
initiative, our employees contribute their ideas for improve-
ments to streamline workflows, further enhance ergonomics
in the workplace, reduce costs and continuously increase
efficiency. Idea management enables employees to partici-
pate actively in the planning and organizing of their work
and is also underpinned by prizes with monetary incentives.
(cid:3)
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155
I N F O R M AT I O N T E C H N O L O GY ( I T )
With digitalization and networking on the rise, all of our
business processes must also be comprehensively provided
with digital support. At the same time, the establishment of
new locations is placing high demands on networking and
coordination. A modern, tailor-made infrastructure and an
efficient application landscape are needed to meet these
requirements.
Our Group-wide Production, Information and Control
System (FIS) enables us to produce vehicles efficiently all
around the world – at the right time and with the right equip-
ment. FIS is a key success factor for flexible, cross-brand
manufacturing in the global production network.
The growing convergence of different business areas and
IT is opening up new opportunities. In production, for
example, big data processes help us to analyze faulty machin-
ery and take action at an early stage. Virtual concept vehicles
make the product development process even faster and more
efficient. Applied research in the field of intelligent human-
robot collaboration, and IT systems to control mobile
assistive robotics and networked infrastructure (Internet of
Things) are also important elements of the digitalization of
production at the Volkswagen Group.
The Company’s internal network Group Connect helps to
network all employees. The platform encourages the transfer
of expertise and puts experts in touch with one another.
The newly established IT City serves as the central loca-
tion for the Group’s own IT and digitalization expertise in
Wolfsburg. The campus-style office complex has been system-
atically designed for agile working. In software development
centers, we develop applications for a wealth of different uses,
thereby maintaining comprehensive in-house expertise in
the rapid, demand-oriented development of IT solutions.
Safeguarding data and systems at the Volkswagen Group
is another focus of our IT. Over the past fiscal year, we have
continued to set up the Information Security Management
Systems (ISMS). The Group offers documents, templates and
tools to all Group companies and brands in the form of an
ISMS toolbox to help them implement their own ISMS. The
ISO 27001 standard is one component of this. The key infor-
mation security processes have been audited and successfully
certified within the ISO 27001 framework. This is the most
important standard for information security and extends
beyond IT to cover issues such as personal security, com-
pliance, physical security and legal requirements.
In 2015, Volkswagen AG co-founded the Deutsche Cyber-
Sicherheitsorganisation GmbH – (DCSO). DCSO aims to accu-
mulate specialist knowledge on cybersecurity and become
the preferred service provider to German businesses in this
field. It conducts security audits and certifies key suppliers
and technologies in order to help German companies
(especially small and medium-sized enterprises) detect and
defend themselves against cyber-attacks and predict them in
future. This work also makes our supply chain more secure.
Volkswagen is also capitalizing on digitalization at its in-
house IT labs in Wolfsburg, Munich, Berlin, San Francisco and
Barcelona. Specialist departments of Group IT, research insti-
tutions and technology partners are working closely together
at these innovation centers on future trends in information
technology, such as artificial intelligence and machine learn-
ing, quantum computing, digital ecosystems, intelligent
human-robot collaboration and smart mobility. These labs
act as test laboratories for the Group, as centers of expertise
for these future trends and as liaison offices for start-ups.
They enable Volkswagen to experiment with new techno-
logies outside the line organization. Here, the experience and
strategic expertise of a large company like Volkswagen is com-
bined with the pragmatism and speed of young start-ups.
E N V I R O N M E N TA L ST R AT E GY
Protecting the environment is one of four goals firmly
anchored in our future program TOGETHER – Strategy 2025.
As a world-leading provider of sustainable mobility, we want
to be a role model on environmental issues. We are working
towards this goal, taking responsibility for the environment
every single day. To this end, we have defined the following
target areas:
> To continuously improve our carbon footprint
> To continuously reduce harmful emissions
> To continuously reduce resource consumption
We use the decarbonization index (DCI) as a strategic indi-
cator to document our progress. This measures the products’
CO2 emissions along the entire value chain. The DCI is
calculated from the ratio of the carbon footprint to the
number of vehicles produced. It encompasses both direct and
indirect CO2 emissions at the individual production sites
(Scope 1 and 2) as well as all further CO2 emissions over the
life cycle of the vehicles sold – from the extraction of raw
materials, to vehicle use and final disposal (Scope 3). The DCI
tracking of
transparent, comprehensive
thus enables
progress toward climate-friendly mobility. We are currently
defining the DCI target figures for 2025 together with the
Volkswagen Group brands. These targets should then con-
tribute to the achievement of the two-degree target in the
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Sustainable Value Enhancement
Group Management Report
Paris Agreement adopted at the United Nations Climate
Change Conference in late 2015.
We are also calculating the environmental impact reduc-
tion production indicator. We have set a target for the Group
and brands to reduce the environmental impact of produc-
tion by 45% per vehicle compared with 2010 levels. This key
figure includes energy and water consumption, CO2 and VOC
emissions and the volume of waste; the charts on page 146
show the development of these indicators.
In striving to achieve our goal of becoming a role model,
we consider the environmental impact throughout the entire
product life cycle: from manufacturing (including the supply
chain) to use and disposal. In addition to the global challenges
of climate change, our approach looks at other important
environmental resources, particularly water, soil, air, energy
and raw materials. We use major sustainability ratings as our
benchmark and aim to achieve top rankings in these.
Organization of Environmental Protection
The Group Board of Management is the highest internal
decision-making authority on environmental matters. Since
2012, it has simultaneously functioned as the Group’s Sus-
tainability Board. The Group-wide management of environ-
mental protection is the responsibility of the Group Steering
Committee for the Environment and Energy, which is sup-
ported by numerous specialist bodies.
The brands and companies are responsible for their own
environmental organization. They base their own environ-
mental policies on the targets, guidelines and principles that
apply throughout the Group. The Group Steering Committee
for the Environment and Energy coordinates the brands and
companies. It reports on progress to the Board of Manage-
ment.
Environmental officers from throughout the Group meet
regularly for the Group Environmental Conference in order to
optimize the environmental focus along the entire value
chain.
Our production sites, including the central development
areas, are certified in accordance with ISO 14001 or EMAS
(100 of 120 production sites in 2017). Many production
locations have also certified their energy management sys-
tems in accordance with ISO 50001. Since 2009, the “integra-
tion of environmental aspects into the product development
at the Volkswagen brand” has also been certified in accor-
dance with ISO TR 14062 in Development at the Volkswagen
Passenger Cars brand.
Biodiversity
Biodiversity means the variety of life on our planet, and
covers the variety of species, the genetic differences within
species and the diversity of ecosystems. We rely on it as the
basis for our continued existence: healthy food, clean water,
fertile soils and a balanced climate. Due to the global decline
in biodiversity, the United Nations has declared the current
decade to be the “UN Decade on Biodiversity”.
Volkswagen has been committed to protecting biodiver-
sity since 2007 and is a founding member of the Biodiversity
in Good Company e.V. initiative. In our mission statement, we
have committed to supporting the protection of species at all
of our locations. For this, we are collaborating with local sup-
pliers. Our membership in Biodiversity in Good Company e.V.
has been temporarily suspended as a result of the diesel
issue.
Protecting biodiversity is an integral part of our environ-
mental management. We contribute to achieving the targets
of the UN Convention on Biological Diversity (CBD) by
reducing greenhouse gas emissions and utilizing resources as
efficiently as possible. Volkswagen supports networking
between the various players in the fields of business, politics,
society and academia with a view to increasing public aware-
ness of biodiversity conservation and to increase knowledge
of the issue.
S E PA R AT E N O N F I N A N C I A L G R O U P R E P O RT
The combined separate nonfinancial report of Volks-
wagen AG and the Volkswagen Group in accordance with
sections 289b and 315b Handelsgesetzbuch (HGB – German
Commercial Code) for fiscal year 2017 will be available on the
website https://www.volkswagenag.com/presence/nachhaltig-
keit/documents/sustainability-report/2017/Nichtfinanzieller_
Bericht_2017_d.pdf in German and at https://www.volks-
wagenag.com/presence/nachhaltigkeit/documents/sustain-
ability-report/2017/Nonfinancial_Report_2017_e.pdf in English
by no later than April 30, 2018.
R E P O RT O N P O ST - B A L A N C E S H E E T DAT E E V E N T S
There were no significant events after the end of fiscal year
2017.
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Report on Expected Developments
The global economy is expected to grow somewhat less strongly in 2018 than in the previous year.
We assume that trends in global demand for vehicles will be mixed and that demand will increase
at a slightly slower rate than in the reporting period. With its brand diversity, broad product range
and pioneering technologies and services, the Volkswagen Group is well prepared for the future
challenges in the mobility business and the mixed conditions in regional markets.
In the following, we describe the expected development of
the Volkswagen Group and the general framework for its
business activities. Risks and opportunities that could
represent a departure from the forecast trends are presented
in the Report on Risks and Opportunities.
Our assumptions are based on current estimates by third-
party institutions. These include economic research insti-
tutes, banks, multinational organizations and consulting
firms.
D E V E LO P M E N T O F T H E G LO B A L E CO N O MY
In our forecasts, we assume that global economic growth will
weaken slightly in 2018. We believe risks will arise from pro-
tectionist tendencies, turbulence in the financial markets and
structural deficits in individual countries. In addition, growth
prospects will continue to be hurt by geopolitical tensions
and conflicts. We therefore expect somewhat weaker momen-
tum than in 2017 in both the advanced economies and the
emerging markets. We expect the strongest rates of expan-
sion in Asia’s emerging economies.
Furthermore, we anticipate that the global economy will
also continue to grow in the period from 2019 to 2022.
Europe/Other Markets
In Western Europe, economic growth is expected to slow
down in 2018 compared with the reporting period. Resolving
structural problems poses a major challenge, as do the
uncertain results and impacts of the Brexit negotiations
between the EU and the United Kingdom.
For Central Europe, we estimate that growth rates in 2018 will
be lower than those of the past fiscal year. In Eastern Europe,
the economic situation should stabilize further, providing
that the smoldering conflict between Russia and Ukraine
does not worsen. Following the increase in the past fiscal
year, Russia’s economic output is likely to grow further.
Political uncertainty and social tensions resulting primar-
ily from high unemployment levels will probably weigh on
the South African economy in 2018 and are expected to keep
growth down.
Germany
In Germany, gross domestic product (GDP) is likely to increase
less strongly in 2018 than in the reporting period. However,
the situation in the labor market is expected to remain stable
and bolster consumer spending.
North America
We expect the economic situation in the USA to further
improve in 2018. The US Federal Reserve is likely to imple-
ment additional interest rate hikes throughout the course of
the year. At the same time, fiscal policy measures are
intended to provide support. Growth in Canada is likely to
weaken, while remaining nearly unchanged in Mexico.
South America
The economy in Brazil is very likely to stabilize further in
2018 and record somewhat higher growth than in the
reporting period. Despite sustained high inflation, Argentina
should achieve a similar increase in GDP to that recorded in
the reporting period.
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Asia-Pacific
In 2018, the Chinese economy is expected to continue
growing at a relatively high level, but year-on-year this growth
will lose momentum. For India, we anticipate an expansion
rate at around the 2017 level. The economic situation in Japan
is likely to deteriorate compared with the reporting period.
T R E N D S I N T H E PA S S E N G E R C A R M A R K E T S
We expect trends in the passenger car markets in the indi-
vidual regions to be mixed in 2018. Overall, growth in global
demand for new vehicles will probably be slower than in the
reporting period.
The Volkswagen Group is well prepared for the future
challenges in the mobility business and the mixed develop-
ments in regional automotive markets. Our unique brand
portfolio, our presence in all major world markets, broad and
selectively expanded product range, and pioneering technol-
ogies and services place us in a good competitive position
worldwide. Our goal is to offer all customers mobility and
innovations suited to their needs and thus ensuring long-
term success.
We expect that the growth in demand for passenger cars
worldwide will continue in the years 2019 to 2022.
Europe/Other Markets
For 2018, we anticipate that unit sales volumes in Western
Europe will fall slightly short of those seen in the reporting
period. The level recorded before the financial and debt crisis
is unlikely to be achieved again in the medium term. The
uncertain outcome of the exit negotiations between the EU
and United Kingdom is likely to further exacerbate the
continuing uncertainty among consumers precipitated by
the financial and debt crisis, putting a damper on demand. In
Italy and Spain, the recovery will probably continue in 2018
but at a considerably slower pace; in the French market, we
expect growth to be only slightly positive. In the United
Kingdom, we expect the market volume to fall moderately
short of the previous year’s high level.
Passenger car demand in 2018 is expected to significantly
exceed the prior-year figures in markets in Central and
Eastern Europe. In Russia, the volume of demand will
probably rise somewhat more strongly after the considerable
recovery over the past fiscal year. We also expect to see
further growth in demand in the other markets in this region.
We are projecting that the volume of demand in the
South African passenger car market in 2018 will be up slightly
year-on-year.
Germany
Following the positive trend of recent years, we forecast that
the market volume of the German passenger car market will
remain on a level with the previous year in 2018.
North America
The volume of demand in the markets for passenger cars and
light commercial vehicles (up to 6.35 tonnes) in North America
as a whole and in the USA is likely to be slightly lower in 2018
than in the prior year. Demand will probably remain highest
for models in the SUV and pickup segments. In Canada, the
number of new registrations is projected to be slightly below
the previous year’s high level as well. In Mexico, we anticipate
that demand will be unchanged year-on-year.
South America
Owing to their dependence on demand for raw materials, the
South American markets for passenger cars and light
commercial vehicles are heavily influenced by developments
in the global economy. In addition, protectionist tendencies
are adversely affecting the performance of the region’s
vehicle markets, especially in Brazil and Argentina, which
have imposed restrictions on vehicle imports. Nevertheless,
we expect demand in the South American markets as a whole
to distinctly increase in 2018 compared with the previous
year. In Brazil, South America’s largest market, volume is
likely to rise markedly again in 2018 after the strong increase
in the past fiscal year. We anticipate that demand in the
Argentinian market in 2018 will be perceptibly higher year-
on-year.
Asia-Pacific
We believe that the passenger car markets in the Asia-Pacific
region will continue their growth in 2018, albeit at a slower
pace. In China, the increase in individual mobility require-
ments will push up demand, though the rate of growth is
likely to be slightly slower than in the previous year. Strong
demand is still forecast for attractively priced entry-level
models in the SUV segment in particular. In India, we expect
demand for passenger cars to moderately exceed the previous
year’s level. We anticipate that demand in the Japanese
passenger car market will fall slightly in 2018.
T R E N D S I N T H E M A R K E T S F O R CO M M E R C I A L V E H I C L E S
We expect trends in the markets for light commercial vehicles
in the individual regions to be mixed again in 2018. Overall,
we expect a slight fall in demand in 2018, and a return to the
growth trajectory for the years 2019 to 2022.
Due to the uncertainty caused by the United Kingdom’s
European Union membership referendum in June 2016, we
estimate that demand for light commercial vehicles in
Western Europe in 2018 will be slightly below the previous
year’s level. The United Kingdom and Italy are expected to
record a decline. We anticipate that registrations in Germany
will be around the previous year’s level.
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159
In the Central and Eastern European markets, registrations of
light commercial vehicles in 2018 will probably be percep-
tibly higher than in the previous year. In Russia, too, we
expect the market volume to rise compared with 2017.
In North and South America, the light vehicle market is
reported as part of the passenger car market, which includes
both passenger cars and light commercial vehicles.
The market volume in the Asia-Pacific region in 2018 will
probably record a slight year-on-year decline. We are also
expecting demand in the Chinese market to fall short of the
prior-year level. For India, we are forecasting a considerably
higher volume in 2018 than in the reporting period. In the
Japanese market, the downward trend is likely to continue at
a slower pace.
In the markets for mid-sized and heavy trucks that are
relevant for the Volkswagen Group, new registrations in 2018
are set to be slightly up on the level seen in 2017. We antici-
pate a slightly positive trend for the period from 2019 to 2022.
We assume that demand in Western Europe will taper off
slightly year-on-year in 2018. In Germany, we expect the
market to remain on a level with the previous year.
Central and Eastern European markets should record a
moderate increase in demand. In Russia, we anticipate a
further recovery in demand in 2018, though the growth rate
seen in 2017 will not be repeated.
We believe that demand in the Brazilian market in 2018
will grow perceptibly from the low level of the previous year.
This is due to the continuing economic recovery.
In the bus markets that are relevant for the Volkswagen
Group, we expect to see a slight increase in demand in 2018.
We anticipate that demand in Western Europe over the same
period will be on a level with that seen in 2017. For Central
and Eastern Europe, we are forecasting higher demand than
in the previous year. In Brazil, new registrations will probably
be slighty higher than the prior-year level.
For the period 2019 to 2022, we expect slight growth
overall in the demand for buses in the markets that are
relevant for the Volkswagen Group.
T R E N D S I N T H E M A R K E T S F O R P OW E R E N G I N E E R I N G
In 2018, we expect the market environment in power engi-
neering to remain difficult, with undiminished competitive
and price pressures.
In 2018, the market volume for two-stroke engines used
in merchant shipping is likely to slightly exceed the level seen
in the reporting period. Calls for greater energy efficiency and
low pollutant emissions will continue to have a significant
influence on ship designs in the future. We also expect
sustained high demand in the market for four-stroke engines
used in cruise ships, ferries, dredgers and government
vessels. In the offshore segment, new order volumes look set
to be very low due to existing overcapacity, despite the recent
slight rise in the oil price. Overall, we expect the marine
market to be slightly up on the reporting period. The com-
petitive pressure will continue unabated.
Demand for energy correlates strongly with macroeco-
nomic and demographic trends, especially in emerging mar-
kets. The global trend toward decentralized power stations
and gas-based applications shows no sign of losing momen-
tum. For 2018, we expect demand to be virtually steady but
remain at a low level overall.
In turbomachinery, we anticipate undiminished high
price and competitive pressures in 2018 due to the con-
tinuing difficult market environment. This is due to expec-
tations that unfavorable economic and political conditions
will persist in some relevant markets. We believe that the
trend has already bottomed out, however, and therefore
expect the market for turbomachinery to return to slight
growth in 2018.
We anticipate a positive trend in the marine and power
plant after-sales business for diesel engines in 2018. In turbo-
machinery, we expect a slight upward trend.
For the period 2019 to 2022, we expect to see growing
demand in the power engineering markets. The extent and
timing of this growth will vary in the individual business
fields, however.
T R E N D S I N T H E M A R K E T S F O R F I N A N C I A L S E R V I C E S
We believe that automotive financial services will be very
important for vehicle sales worldwide in 2018. We expect
demand to continue rising in emerging markets where mar-
ket penetration has so far been low, such as China. Regions
with already developed automotive financial services markets
will see a continuation of the trend towards enabling
mobility at the lowest possible total costs. Integrated end-to-
end solutions, comprising mobility-related service modules
such as insurance and innovative packages of services, will
become increasingly important to this. Additionally, we
expect demand to increase for new forms of mobility, such as
carsharing, and for integrated mobility services including
parking, refueling and charging. We anticipate that this trend
will also continue in the period from 2019 to 2022.
In the mid-sized and heavy commercial vehicles category,
we expect rising demand for financial services products in
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emerging markets. There in particular, financing solutions
support vehicle sales and are thus an essential component of
the sales process. In the mature markets, we foresee increased
demand for telematics services and services aimed at
reducing total operating costs in 2018. This trend is also
expected to continue in the period 2019 to 2022.
commodity prices. We anticipate continued volatility in the
commodity markets for the period from 2019 to 2022.
Forward-looking, system-based and individual procurement
methods enable us to limit risks arising from this volatility in
commodity prices. Long-term supply agreements ensure that
the Group’s needs are satisfied and thus ensure a high degree
of supply reliability.
E XC H A N G E R AT E T R E N D S
The global economy grew at an increased pace in 2017.
Average energy and commodity prices were up year-on-year
but remained at a relatively low level. The euro appreciated
against the US dollar over the course of the year. Sterling lost
further value against the European single currency due to
uncertainty surrounding
the exit negotiations began
between the United Kingdom and the EU and the shape of
future relations. The currencies of major emerging markets
lost some further ground against the euro from the start of
the reporting period. For 2018, we are forecasting that the
euro will remain stable against the US dollar, sterling, Chinese
renminbi and other key currencies. The expectation is that
the Russian ruble, Brazilian real and Indian rupee will remain
relatively weak. We currently assume that these trends will
continue in the period 2019 to 2022. There is still a general
event risk – defined as the risk arising from unforeseen
market developments.
I N T E R E ST R AT E T R E N D S
Interest rates remained extremely low in fiscal year 2017 due
to the continuation of expansionary monetary policy and the
challenging overall economic environment. In the major
Western industrialized nations, key interest rates persisted at
a historic low level. While it became apparent in the USA that
the extremely loose monetary policy was gradually drawing
to an end, the European Central Bank continued to pursue
this course. In light of further expansionary monetary policy
measures in the eurozone, we therefore expect no more than
a slight rise in interest rates in 2018. In the USA, however, we
can expect to see a moderate increase in interest rates. For the
period 2019 to 2022, we anticipate a gradual rise in interest
rates, though the pace will vary from region to region.
CO M M O D I T Y P R I C E T R E N D S
Political and economic uncertainty in different forms caused
the prices for many raw and input materials, such as crude
oil, steel, cobalt and rare earths, to move sideways or upwards
in 2017, amid high volatility in some cases. In light of these
individual factors, we expect mixed developments in the
commodity markets in 2018 with an increase in most
N E W M O D E L S I N 2 0 1 8
In the course of transforming our core business, we will
define the positioning of our Group brands more clearly and
optimize the vehicle and drive portfolio with a view to the
most attractive and fastest-growing market segments. We will
unveil additional SUV models, integrate digitalization into
our products even more systematically and provide impor-
tant stimuli for the future with e-mobility offerings.
The Volkswagen Passenger Cars brand will continue its
global product initiative in 2018. The SUV range will be
expanded further with the third generation of the Touareg
among other models. The GTI family is also growing: with the
new Polo GTI and the up! GTI, two models are coming on the
market which will set new standards in their segment in terms
of driving dynamics and sportiness. One of the focal points of
the product offensive in 2018 will be China, where four new
SUV models will be launched, including the compact, sporty
T-Roc. With the Lavida and the Bora, important high-volume
models will be revamped. These will stand alongside a series
of new plug-in hybrid models and all-electric vehicles to meet
the growing demand for new energy vehicles in China. In the
USA, the new Jetta will come on the market. The latest
generation of the US bestseller, which is now also based on
the Modular Transverse Toolkit, is quite different from its
predecessor, both visually and from a technological per-
spective. The Arteon, a saloon, will also follow in the course of
the year. South America will see the rollout of the Virtus, a
notchback saloon based on the Polo; the further rejuvenation
and expansion of the product range is an important element
of the brand’s realignment in the region.
Audi will set standards in the premium segment in 2018
with the new, progressive A7 Sportback. The four-door coupé
reinvents the Gran Turismo with dynamic lines, systematic
digitalization, a sporty driving experience and flexible use of
space. The A4 family will gain a sporty spearhead: the new
Audi RS 4 Avant combines high performance with enormous
everyday practicality. The versatile Audi A6 featuring a sporty
design will also come on the market. Boasting the same
qualities as the A7, it has a much bigger interior than its
predecessor. A new segment in the premium class will be
Group Management Report
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161
carved out with the latest member of the Q family, the Q8.
The Audi e-tron will be Audi’s first SUV with an all-electric
drive to go into series production.
ŠKODA will bring its updated compact car, the Fabia, to
market.
The SEAT brand will continue its product offensive with a
large, seven-seater SUV. The model fits perfectly into SEAT’s
SUV model range alongside the smaller Arona and Ateca. In
addition, SEAT is establishing the new sporty line CUPRA and
will launch the dynamic CUPRA Ateca at the end of the year.
Porsche is enhancing its 911 product range with the 911
Carrera T and will unveil the new 911 GT3 RS.
Bentley will begin delivery in 2018 of the third generation
of the Continental GT, which sets new standards for luxury
grand touring. Bentley will also present two new derivatives
of the successful Bentayga: the Bentayga V8 and Bentayga
Hybrid.
Lamborghini will launch a third series on the market with
the Urus, a super-SUV. The Huracán Performante Spyder will
also be gradually made available. The Aventador S Roadster
will receive an upgrade.
Bugatti will provide additional options for its super
sports car, the Chiron.
Volkswagen Commercial Vehicles will debut the Amarok
V6 TDI with the new top-of-the-range engine and the battery-
powered e-Crafter in 2018.
In 2018, Scania will unveil further products from its new
generation of trucks along with new services.
MAN will present a new version of its Adaptive Cruise
Control (ACC) for its range of trucks, featuring a stop-and-go
function.
Ducati will launch five new models on the market in 2018,
including the Ducati Panigale V4 and the Multistrada 1260.
ST R AT E G I C S A L E S F O C U S
The multibrand structure, comprising largely independent,
differentiated brands that nevertheless achieve maximum
synergies, is one of the defining features of the Volkswagen
Group.
To enable Group brands to enter into new markets, we
will further refine our brand positioning, particularly in the
growth regions. We will also significantly enhance our cus-
tomer focus. We will improve collaboration with our autho-
rized dealers, train our staff – including with respect to the
digital transformation – and invest in innovative processes
and systems for seamless customer interaction in an increas-
ingly digital environment.
Our sales strategy is especially focussed on further
developing the new and used vehicle businesses, on financial
services and on business with original parts and accessories.
We are also adding to our range of mobility services.
T E C H N I C A L E X P E RT I S E A N D M OT I VAT I O N I N T H E
T R A N S F O R M AT I O N P R O C E S S
Our staff’s dedication and high level of expertise provide
important prerequisites to successfully shape the trans-
formation process to becoming one of the world’s leading
providers of sustainable mobility, while ensuring our pro-
fessional excellence in the field of traditional automobile
manufacturing.
The dual vocational training and dual study programs
form the basis for professional development in the vocational
groups at Volkswagen. Employees then obtain further qualifi-
cations throughout their working lives. To always meet
current requirements, the broad range of training courses is
continuously being enhanced. For example, employees are
prepared for the changes associated with the advancing
digitalization and the use of new technologies under
Industry 4.0. An important principle in these efforts is the
transfer of knowledge and experience from internal experts
to other staff. Training is provided in the form of dual
vocational training that closely integrates theoretical and
practical forms of learning.
I N V E STM E N T A N D F I N A N C I A L P L A N N I N G
To continue to build on our pronounced strengths in inno-
vation and technology, we will vigorously invest in e-mobil-
ity, autonomous driving, new mobility services and digitali-
zation in the coming years. The largest share of the invest-
ments will be in the development of vehicles with hybrid or
all-electric drives.
In our current planning for 2018, the majority of capex
(investments in property, plant and equipment, investment
property and intangible assets, excluding capitalized develop-
ment costs) will be spent on new products and the continued
rollout and further development of the modular toolkit. The
focus is on the electrification and digitalization of our vehi-
cles, in particular through the development of the Modular
Electric Toolkit (MEB). At the same time, primarily the SUV
range will be further expanded. We expect the Automotive
Division’s ratio of capex to sales revenue to be in the range of
6.5–7.0%.
Besides capex, investing activities will include additions
to capitalized development costs. Among other things, these
reflect upfront expenditures in connection with the fulfill-
ment of environmental standards and the electrification and
updating of our model range.
The investments in our facilities and models, as well as in
the development of alternative drives and modular toolkits,
are laying the foundations for profitable, sustainable growth
at Volkswagen. These investments also include commitments
arising from decisions taken in previous fiscal years.
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We aim to finance the investments in our Automotive
Division from our own capital resources and expect cash
flows from operating activities to exceed the Automotive
Division’s investment requirements. Cash outflows resulting
from the diesel issue will impact on the cash flow again in
2018, but will be substantially lower than in the reporting
period. Consequently, we anticipate a positive net cash flow
for 2018 that will be up significantly on the prior-year figure.
These plans are based on the Volkswagen Group’s current
structures. They do not take into account the possible settle-
ment payable to other shareholders associated with the
control and profit and loss transfer agreement with MAN SE.
Our joint ventures in China are included using the equity
method and are therefore not included in the above figures.
In 2018, these joint ventures plan higher investments in
capex than in 2017, which will be financed from the com-
panies’ own funds.
In the Financial Services Division, we are planning
slightly higher investments in 2018 than in the previous year.
We expect the growth in lease assets and in receivables from
leasing, customer and dealer financing to lead to funds tied
up in working capital, of which around 45% will be financed
from the gross cash flow. As is common in the sector, the
remaining funds needed will be met primarily through
unsecured bonds on the money and capital markets, asset-
backed securities, customer deposits from direct banking
business, as well as through the use of international credit
lines.
TA R G E T S F O R VA L U E - B A S E D M A N A G E M E N T
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
for the Automotive Division remains
capital defined
unchanged at 9%.
In spite of the adverse effects of the special items on
earnings, we exceeded the minimum rate of return on invested
capital in the reporting period, with a return on investment
(ROI) of 12.1 (8.2)% (see also page 128). Invested capital will
increase in 2018 as a result of investments in new models, in
the development of alternative drives and modular toolkits
and in future technologies. The return on investment will
probably exceed our minimum required rate of return on
invested capital and be up slightly year-on-year.
fields of digitalization, e-mobility, networked vehicle con-
cepts and autonomous driving, which are being driven for-
ward by our brands independently or in partnership with
others. Starting in fiscal year 2018, we will report the mobility
solutions business in the Automotive Division.(cid:3)(cid:3)
S U M M A RY O F E X P E C T E D D E V E LO P M E N T S
The Volkswagen Group’s Board of Management expects the
global economy to record slightly weaker growth in 2018. We
believe risks will arise
from protectionist tendencies,
turbulence in the financial markets and structural deficits in
individual countries. In addition, growth prospects will
continue to be hurt by geopolitical tensions and conflicts. We
therefore expect somewhat weaker momentum than in 2017
in both the advanced economies and the emerging markets.
We expect the strongest rates of expansion in Asia’s emerging
economies.
The trend in the automotive industry closely follows
global economic developments. We assume that competition
in the international automotive markets will intensify further.
We expect trends in the passenger car markets in the
individual regions to be mixed in 2018. Overall, growth in
global demand for new vehicles will probably be slower than
in the reporting period. We anticipate that unit sales volumes
in Western Europe will fall slightly short of those seen in the
reporting period. In the German passenger car market, we
estimate that the market volume will be on a level with the
previous year. Passenger car demand is expected to substan-
tially exceed the prior-year figures in markets in Central and
Eastern Europe. The volume of demand in the markets
for passenger cars and light commercial vehicles (up to
6.35 tonnes) in North America is likely to be slightly lower
than in the prior year. We expect demand in the South
American markets for passenger cars and light commercial
vehicles to grow perceptibly as a whole compared with the
previous year. The passenger car markets in the Asia-Pacific
region look set to continue their growth trajectory in 2018,
albeit at a weaker pace.
We expect trends in the markets for light commercial
vehicles in the individual regions to be mixed again in 2018.
Overall, we envisage a slight dip in demand.
In the markets for mid-sized and heavy trucks that are
relevant for the Volkswagen Group and in the relevant
markets for buses, new registrations in 2018 are set to rise
slightly above the prior-year level.
F U T U R E O R G A N I Z AT I O N A L ST R U C T U R E O F T H E G R O U P
As part of our future program TOGETHER – Strategy 2025, we
are establishing a new mobility solutions business with
which we will drive our transformation into one of the
world’s leading providers of sustainable mobility. Develop-
ment of mobility services is closely tied to the cutting-edge
We believe that automotive financial services will con-
tinue to be very important for vehicle sales worldwide in 2018.
The Volkswagen Group is well prepared for the future
challenges in the mobility business and the mixed develop-
ments in regional automotive markets. Our unique brand
portfolio, our presence in all major world markets, our broad,
Group Management Report
Report on Expected Developments
163
selectively expanded product range and pioneering tech-
nologies and services place us in a good competitive position
worldwide. In the course of transforming our core business,
we will define the positioning of our Group brands more
clearly and optimize the vehicle and drive portfolio with a
view to the most attractive and fastest-growing market seg-
ments. In addition, we are working to make even more
focused use of the advantages of our multibrand group by
continuously developing new technologies and our toolkits.
The Group’s new structure with more decentralized respon-
sibility will strengthen our brands and regions and increase
our proximity to customers. Our goal is to offer all customers
mobility and innovations that are suited to their needs,
ensuring long-term success. We will unveil additional SUV
models, integrate digitalization into our products even more
systematically and provide important stimuli for the future
with e-mobility offerings.
We expect that deliveries to customers of the Volkswagen
Group in 2018 will moderately exceed the prior-year figure
amid continuously challenging market conditions.
Challenges will arise particularly from the economic
situation, the increasing intensity of competition, exchange
rate volatility and the diesel issue. In the EU, there is also a
new, more time-consuming test procedure for determining
pollutant and CO2 emissions as well as fuel consumption in
passenger cars and light commercial vehicles known as the
Worldwide Harmonized Light-Duty Vehicles Test Procedure
(WLTP).
We expect the sales revenues of the Volkswagen Group and its
business areas to grow by as much as 5% year-on-year. In
terms of the operating profit for the Group and the Passenger
Cars Business Area, we forecast an operating return on sales
in the range of 6.5–7.5% in 2018. For the Commercial Vehicles
Business Area, we anticipate an operating return on sales of
between 5.0 and 6.0%. In the Power Engineering Business
Area, we expect a lower operating loss than in the previous
year. For the Financial Services Division, we are forecasting an
operating profit at the prior-year level.
In the Automotive Division, the R&D ratio and the ratio of
capex to sales revenue will fluctuate in the range of 6.5–7.0%
in 2018. Cash outflows resulting from the diesel issue will
negatively impact the cash flow again in 2018, but will be
substantially lower than in the reporting period. Conse-
quently, we anticipate a positive net cash flow for 2018 that
will be up significantly on the prior-year figure. Net liquidity
will also increase moderately as a result. The return on invest-
ment (ROI) will be slightly higher than in the previous year.
Our unchanged stated goal is to continue our solid liquidity
policy.
The commitment and considerable technical expertise of
our staff are key prerequisites to successfully shaping the
transformation into the world's leading provider of sustain-
able mobility. With our future program, TOGETHER – Strategy
2025, we are attaching even greater importance to our respon-
sibility in relation to the environment, safety and society. We
are also aiming for operational excellence in all business
processes and intensifying our focus on profitable growth.
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Report on Risks and Opportunities
( C O N TA I N S T H E R E P O R T I N A C C O R D A N C E W I T H S E C T I O N 2 8 9 ( 5 ) O F T H E H G B )
Promptly identifying the risks and opportunities arising from our operating activities and taking a
forward-looking approach to managing them is crucial to our Company’s long-term success. A
comprehensive risk management and internal control system help the Volkswagen Group deal with
risks in a responsible manner.
In this section, we first explain the objective and structure of
the Volkswagen Group’s risk management system (RMS) and
internal control system (ICS) and describe these systems with
regard to the financial reporting process. We then outline the
main risks and opportunities arising in our business activi-
ties.
O B J E C T I V E O F T H E R I S K M A N A G E M E N T SY ST E M A N D
I N T E R N A L CO N T R O L SY ST E M AT VO L K SWA G E N
Only by promptly identifying, accurately assessing and
effectively and efficiently managing the risks and oppor-
tunities arising from our business activities can we ensure
the Volkswagen Group’s sustainable success. The aim of the
RMS/ICS is to identify potential risks at an early stage so that
suitable countermeasures can be taken to avert the threat of
loss to the Company, and any risks that might jeopardize its
continued existence can be ruled out.
Assessing the probability and extent of future events and
developments is, by its nature, subject to uncertainty. We are
therefore aware that even the best RMS cannot foresee all
potential risks and even the best ICS can never completely
prevent irregular acts.
ST R U C T U R E O F T H E R I S K M A N A G E M E N T SY ST E M A N D
I N T E R N A L CO N T R O L SY ST E M AT VO L K SWA G E N
The organizational design of the Volkswagen Group’s RMS/
ICS is based on the internationally recognized COSO frame-
work for enterprise risk management (COSO: Committee of
Sponsoring Organizations of the Treadway Commission).
Structuring the RMS/ICS in accordance with the COSO frame-
work for enterprise risk management ensures that potential
risk areas are covered in full. In the reporting period, Volks-
wagen again took an approach to risk management that
combines aspects of the ICS and the compliance manage-
ment system (CMS). Uniform Group principles are used as the
basis for managing risks in a standardised manner. Oppor-
tunities are not recorded.
With this approach, we not only fulfil legal requirements,
particularly with regard to the financial reporting process,
but are also able to manage significant risks to the Group
holistically, i.e. by incorporating both tangible and intangible
criteria.
The open approach to dealing with risks in the Company
and the quarterly reporting on the current risk situation were
focal points in the reporting period in addition to the ad hoc
and annual risk assessment. We continued to reinforce the
internal control system in the area of product compliance in
2017. This includes the implementation of what are known as
the Golden Rules in the areas of control unit software
development, emission classification and escalation manage-
ment. These rules represent minimum requirements in the
organization, processes and tools & systems categories. They
serve to shore up governance and compliance.
Another key element of the RMS/ICS at Volkswagen is the
three lines of defense model, a basic element required,
among other bodies, by the European Confederation of Insti-
tutes of Internal Auditing (ECIIA). In line with this model, the
Volkswagen Group’s RMS/ICS has three lines of defense that
are designed to protect the Company from significant risks
occurring.
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165
T H E T H R E E L I N E S O F D E F E N S E M O D E L
S U P E R V I S O R Y B O A R D
B O A R D O F M A N A G E M E N T
1st
2nd
3rd
line of defense
line of defense
line of defense
Companies
and business units
Group
Risk Management
Group
Internal Audit
First line of defense: operational risk management
The primary line of defense comprises the operational risk
management and internal control systems at the individual
Group companies and business units. The RMS/ICS is an
integral part of the Volkswagen Group’s structure and work-
flows. Events that may give rise to risk are identified and
assessed locally in the divisions and at the investees. Counter-
measures are introduced immediately, their effects are
assessed and the information is incorporated into the plan-
ning in a timely manner. The results of the operational risk
management process are incorporated into budget planning
and financial control on an ongoing basis. The targets agreed
in the budget planning rounds are continually reviewed in
revolving planning updates.
At the same time, the results of risk mitigation measures
that have already been taken are incorporated into the
monthly forecasts on further business development without
delay. This means that the Board of Management also has
access to an overall picture of the current risk situation via
the documented reporting channels during the year.
The minimum requirements for the operational risk
management and internal control system are set out for the
entire Group in uniform guidelines. These also include a pro-
cess for the timely reporting of material risks.
Second line of defense: identifying and reporting systemic and
current risks using Group-wide processes
In addition to the ongoing operational risk management, the
Group Risk Management department each year sends stan-
dardized surveys on the risk situation and the effectiveness of
the RMS/ICS to the significant Group companies and units
worldwide (regular Governance, Risk & Compliance (GRC)
process). The feedback is used to update the overall picture of
the potential risk situation and assess the effectiveness of the
system.
Each systemic risk reported is assessed using the expected
likelihood of occurrence and various risk criteria (financial
and nonfinancial). In addition, the measures taken to manage
and control risk are documented at management level. This
means that risks are assessed in the context of any risk
management measures initiated, i.e. in a net analysis. In addi-
tion to strategic, operational and reporting risks, risks arising
from potential compliance violations are also integrated into
this process. Moreover, the effectiveness of key risk manage-
ment and control measures is tested and any weaknesses
identified in the process are reported and rectified.
All Group companies and units selected from among the
entities in the consolidated Group on the basis of materiality
and risk criteria were subject to the regular GRC process in
fiscal year 2017.
In addition to the ad hoc and annual risk assessment, the
Board of Management also receives quarterly risk reports.
Similar to the annual standard GRC process, the assessment
takes risk-minimizing control measures into account (net
assessment). All Group brands are included in this process
along with Volkswagen Financial Services AG and Volkswagen
Bank GmbH.
Information on relevant systemic and current risks is
regularly reported to the Group Board of Management and
the Audit Committee of the Supervisory Board of Volks-
wagen AG.
The Group Board of Management Committee for Risk
Management was set up in the reporting period. The new
committee has the following tasks, among others:
>(cid:3) to further increase transparency in relation to significant
risks to the Group and their management,
>(cid:3) to explain specific issues where these constitute a signif-
icant risk to the Group,
>(cid:3) to make recommendations on the further development of
the RMS/ICS,
>(cid:3) to support the open approach to dealing with risks and
promote an open risk culture.
In the past, the Scania brand was not yet included in the
Volkswagen Group’s risk management system due to various
provisions of Swedish company law. Scania has been inte-
grated into quarterly risk reporting since 2016. From 2018, it
will also be gradually included in the standard GRC process.
Risk management and risk assessment are integral parts of
Scania’s corporate management. Risk areas at Scania are
evaluated by the brand’s Controlling department and
reflected in the financial reporting.
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A N N U A L S T A N D A R D G O V E R N A N C E , R I S K A N D C O M P L I A N C E P R O C E S S
Selection
of companies
and units
Follow-up activities
targeting weaknesses
Data identified/
assessed in the units
Reporting
Documentation
of effectiveness
in the units
Third line of defense: checks by Group Internal Audit
Group Internal Audit helps the Board of Management to
monitor the various divisions and corporate units within the
Group. It regularly checks the risk early warning system and
the structure and implementation of the RMS/ICS and the
CMS as part of its independent audit procedures.
R I S K E A R LY WA R N I N G SY ST E M I N L I N E W I T H T H E KO N T R A G
The Company’s risk situation is ascertained, assessed and
documented in accordance with the requirements of the
Gesetz zur Kontrolle und Transparenz im Unternehmens-
bereich (KonTraG – German Act on Control and Transparency
in Business). The requirements for a risk early warning system
are met through the elements of the RMS/ICS described
above (first and second lines of defense). Independently of
this, the external auditors check both the processes and
procedures implemented in this respect and the adequacy of
the documentation on an annual basis. The plausibility and
adequacy of the risk reports are examined on a random basis
in detailed interviews with the divisions and companies
concerned that also involve the external auditors. The latter
assessed our risk early warning system based on this volume
of data and ascertained that the risks identified were pres-
ented and communicated accurately. The risk early warning
system meets the requirements of the KonTraG.
In addition, scheduled examinations as part of the audit
of the annual financial statements are conducted at com-
panies in the Financial Services Division. As a credit institu-
tion, Volkswagen Bank GmbH, including its subsidiaries, is
subject to supervision by the European Central Bank, while
Volkswagen Leasing GmbH as a financial services institution
and Volkswagen Versicherung AG as an insurance company are
subject to supervision by the relevant division of the Bundes-
anstalt für Finanzdienstleistungsaufsicht (BaFin – the German
Federal Financial Supervisory Authority). As part of the sched-
uled supervisory process and unscheduled audits, the compe-
tent supervisory authority assesses whether the require-
ments, strategies, processes and mechanisms ensure solid risk
management and solid risk cover. Furthermore, the Prüfungs-
verband deutscher Banken (Auditing Association of German
Banks) audits Volkswagen Bank GmbH from time to time.
Monitoring the effectiveness of the risk management system and
the internal control system
To ensure its effectiveness, the RMS/ICS is regularly opti-
mized as part of our continuous monitoring and improve-
ment processes. In the process, equal consideration is given
to both internal and external requirements. External experts
assist in the continuous enhancement of our RMS/ICS on a
case-by-case basis. The results culminate in both regular and
event-driven reporting to the Board of Management and
Supervisory Board of Volkswagen AG.
T H E R I S K M A N A G E M E N T A N D I N T E G R AT E D I N T E R N A L
CO N T R O L SY ST E M I N T H E CO N T E XT O F T H E F I N A N C I A L
R E P O RT I N G P R O C E S S
The accounting-related part of the RMS/ICS that is relevant
for the financial statements of Volkswagen AG and the Volks-
wagen Group as well as its subsidiaries comprises measures
that are intended to ensure the complete, accurate and timely
transmission of the information required for the preparation
of the financial statements of Volkswagen AG, the consoli-
dated financial statements and the combined Group manage-
ment report. These measures are designed to minimize the
risk of material misstatement in the accounts and in the
external reporting.
Main features of the risk management and integrated internal
control system relevant for the financial reporting process
The Volkswagen Group’s accounting is essentially organized
along decentralized lines. For the most part, accounting
duties are performed by the consolidated companies them-
selves or entrusted to the Group’s shared service centers. In
principle, the audited financial statements of Volkswagen AG
and its subsidiaries prepared in accordance with IFRSs and
the Volkswagen IFRS accounting manual are transmitted to
the Group in encrypted form. A standard market product is
used for encryption.
The Volkswagen IFRS accounting manual, which has been
prepared using external expert opinions in certain cases,
ensures the application of uniform accounting policies based
on the requirements applicable to the parent. In particular, it
Group Management Report
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167
includes more detailed guidance on the application of legal
requirements and industry-specific issues. Components of
the reporting packages required to be prepared by the Group
companies are also set out in detail there and requirements
established for the presentation and settlement of intragroup
transactions and the balance reconciliation process that
builds on this.
Control activities at Group level include analyzing and, if
necessary, adjusting the data reported in the financial
statements presented by the subsidiaries, taking into account
the reports submitted by the auditors and the outcome of the
meetings on the financial statements with representatives of
the individual companies. These discussions address both the
reasonableness of the single-entity financial statements and
specific significant issues at the subsidiaries. Alongside rea-
sonableness reviews, other control mechanisms applied
during the preparation of the single-entity and consolidated
financial statements of Volkswagen AG include the clear
delineation of areas of responsibility and the application of
the dual control principle.
The Group management report is prepared – in accor-
dance with the applicable requirements and regulations –
centrally but with the involvement of and in consultation
with the Group units and companies.
In addition, the accounting-related
internal control
system is independently reviewed by Group Internal Audit in
Germany and abroad.
Integrated consolidation and planning system
The Volkswagen consolidation and corporate management
system (VoKUs) enables the Volkswagen Group to consolidate
and analyze both Financial Reporting’s backward-looking
data and Controlling’s budget data. VoKUs offers centralized
master data management, uniform reporting, an authori-
zation concept and maximum flexibility with regard to
changes to the legal environment, providing a future-proof
technical platform that benefits Group Financial Reporting
and Group Controlling in equal measure. To verify data
consistency, VoKUs has a multi-level validation system that
primarily checks content plausibility between the balance
sheet, the income statement and the notes.
R I S K S A N D O P P O RT U N I T I E S
In this section, we outline the significant risks and oppor-
tunities that arise in the course of our business activities. We
have grouped them
into categories. Unless explicitly
mentioned, there were no material changes to the specific
risks and opportunities compared with the previous year.
The increasing number of partnerships generates both
opportunities as well as risks.
The diesel issue gives rise to its own risks for the Volks-
wagen Group and also has an impact on existing risks. These
are described under the respective risk category.
We use competitive and environmental analyses and
market studies to identify not only risks but also opportu-
nities with a positive impact on the design of our products,
the efficiency with which they are produced, their success in
the market and our cost structure. Where they can be
assessed, risks and opportunities that we expect to occur are
already reflected in our medium-term planning and our
forecast. The following therefore reports on internal and
external developments as risks and opportunities that may
result in a negative or positive deviation from our forecast.
Risks from the diesel issue
The Volkswagen Group has recognized provisions arising
from the diesel issue, in particular for the service measures,
recalls and customer-related measures as well as for legal
risks, but also for residual value risks.
Further significant financial liabilities may emerge due to
existing estimation risks particularly from legal risks, such as
criminal, administrative and civil proceedings, technical solu-
tions, lower market prices, repurchase obligations and cus-
tomer-related measures.
Demand may decrease – possibly exacerbated by a loss of
reputation or insufficient communication. Other potential
consequences include lower margins in the new and used car
businesses and a temporary increase in funds tied up in
working capital.
The funding needed to cover the risks may lead to assets
having to be sold due to the situation and equivalent pro-
ceeds for them not being achieved as a result.
As a result of the diesel issue, the ability to use refi-
nancing instruments may possibly be restricted or precluded
for the Volkswagen Group. A downgrade of the Company’s
rating could adversely affect the terms associated with the
Volkswagen Group’s borrowings.
We are cooperating with all the responsible authorities to
clarify these matters completely and transparently.
Additional information about the litigation can be found
on pages 93 and 178 to 185 of this annual report.
Macroeconomic risks and opportunities
We believe that the risks to continued global economic
growth arise primarily from turbulence in the financial mar-
kets, protectionist tendencies and structural deficits, which
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pose a threat to the performance of individual advanced
economies and emerging markets. The worldwide transition
from an expansionary monetary policy into a more restric-
tive one also presents risks for the macroeconomic environ-
ment. Moreover, uncertainty is associated with the effects of
the UK’s planned withdrawal from the EU. Persistently high
private- and public-sector debt in many places is also
clouding the outlook for growth and may cause markets to
respond negatively. Declines in growth in key countries and
regions often have an immediate impact on the state of the
global economy and therefore pose a central risk.
The economic development of some emerging economies
is being hampered primarily by dependence on energy and
commodity prices, capital inflows and socio-political tensions.
Corruption, inadequate government structures and a lack of
legal certainty also pose risks.
Geopolitical tensions and conflicts are a further major
risk to the performance of individual economies and regions.
As the global economy becomes increasingly interconnected,
it is also vulnerable to local developments. Any escalation of
the conflicts in Eastern Europe, the Middle East, or Africa, for
example, could cause upheaval on the global energy and
commodity markets and exacerbate migration trends. An
aggravation of the situation in East Asia could put further
strain on the global economy. The same applies to armed
conflicts, terrorist activities and the spread of infectious
diseases, which may prompt unexpected, short-term
responses from the markets.
On the whole, we do not anticipate a global recession next
year. Due to the risk factors mentioned, however, a decline in
global economic growth or a period of below-average growth
rates is possible.
The macroeconomic environment may also give rise to
opportunities for the Volkswagen Group if actual develop-
ments differ in a positive way from expected developments.
Sector-specific risks and market opportunities
The growth markets of Asia, South America, and Central and
Eastern Europe are particularly important to the Volkswagen
Group in terms of the global trend in demand for passenger
cars and commercial vehicles. These markets harbor con-
siderable potential; however, the underlying conditions in
some countries in these regions make it difficult to increase
unit sales figures there. Some have high customs barriers or
minimum local content requirements for production, for
example. The political crisis and its economic consequences
again inhibited market development in Russia in fiscal year
2017. In South America, structural deficits continued to have
a negative impact. Restrictions on vehicle registrations could
enter into force in further Chinese metropolitan areas in the
future. In Europe, there is a risk that some municipalities and
cities will impose a driving ban on diesel vehicles in order to
comply with emission limits. Also, a global economic slow-
down could negatively impact consumer confidence. Further-
more, we cannot entirely rule out the possibility of freight
deliveries being shifted from trucks to other means of trans-
port, and of demand for the Group’s commercial vehicles
falling as a result.
At the same time, wherever the economic and regulatory
situation permits, there are opportunities above and beyond
current projections. These arise from faster growth in the
emerging markets where vehicle densities are currently still
low. The demand that built up in individual established mar-
kets during the crisis could also bring a more marked
recovery in these markets if the economic environment eases
more quickly than expected. Price pressure in established
automotive markets due to high market saturation is a
particular challenge for the Volkswagen Group as a supplier
of volume and premium models. Competitive pressures are
likely to remain high in the future. Individual manufacturers
may respond by offering incentives in order to meet their
sales targets, putting the entire sector under additional
pressure, particularly in Western Europe, the USA and China.
Western Europe is one of our main sales markets. A drop
in prices due to the economic climate triggered by falling
demand in this region would have a particularly strong
impact on the Company’s earnings. We counter this risk with
a clear, customer-oriented and innovative product and pricing
policy. Outside Western Europe, delivery volumes are spread
widely around the world, with the Chinese market accounting
for a large share. In numerous existing and developing mar-
kets, we either already have a strong presence or are working
hard to build one. Moreover, strategic partnerships are
helping us to increase our presence in these countries and
regions and cater to requirements there.
Economic performance varied from region to region in
fiscal year 2017. The resulting challenges for our trading and
sales companies, such as efficient inventory management
and a profitable dealer network, are considerable and are
being met by appropriate measures on their part. However,
financing business activities through bank loans remains
difficult. Our financial services companies offer dealers
financing on attractive terms with the aim of strengthening
their business models and reducing operational risk. We have
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169
installed a comprehensive liquidity risk management system
so that we can promptly counteract any liquidity bottlenecks
at the dealers’ end that could hinder smooth business opera-
tions.
We continue to approve loans for vehicle finance on the
basis of the same cautious principles applied in the past,
taking into account the regulatory requirements of section
25a(1) of the Kreditwesengesetz (KWG – German Banking Act).
Volkswagen may be exposed to increased competition in
aftermarkets for two reasons in particular: firstly, because of
the provisions of the block exemption regulations, which
have applied to after-sales services since June 2010, and,
secondly, because of the amendments included in EU Regu-
lation 566/2011 of June 8, 2011 regarding access by indepen-
dent market participants to technical information.
In addition, the European Commission is currently evalu-
ating the market with regard to existing design protection. If
the proposed abolition of design protection for visible
replacement parts were to be approved, this could adversely
affect the Volkswagen Group’s genuine parts business.
The automotive industry faces a process of transfor-
mation with far-reaching changes. Electric drives, connected
vehicles and autonomous driving are associated with both
opportunities and risks for our sales. In particular, more
rapidly evolving customer requirements, swift implemen-
tation of legislative initiatives and the market entry of new
competitors from outside the industry will require changed
products, a faster pace of innovation and adjustments to
business models.
Below, we outline the greatest potential for growth and
market opportunities for the Volkswagen Group.
China
China, the largest market in the Asia-Pacific region, con-
tinued to grow in the reporting period. The Chinese demand
for vehicles will continue to rise in the coming years due to
the need for individual mobility, albeit at a slower pace than
in the past. Demand will also shift from the large coastal
cities to the interior of the country. In order to leverage the
considerable opportunities offered by the Chinese market –
also with regard to e-mobility – and to defend our strong
market position in China over the long term, we are
continuously expanding our product range to include
models that have been specially developed for this market.
We are further extending our production capacity in this
growing market through additional production facilities.
backdrop, the Group is currently consolidating its activities,
as India remains an important strategic future market for the
Group.
USA
The volume of the US vehicle market in 2017 fell short of the
strong previous year. In 2018, the market volume will
probably again be lower than in the reporting period. In the
USA, Volkswagen Group of America is systematically pursuing
our strategy of becoming a full-fledged volume supplier. An
engine plant and the further development of production
capacity will allow the Group to better serve the market in the
North America region. We are also pressing forward with
additional products tailored specifically to the US market.
Brazil
The economic environment eased in the reporting period
and the volume of demand in the vehicle market recovered
perceptibly compared with the weak previous year. We anti-
cipate a continued upturn in demand in 2018. The growing
number of automobile manufacturers with local production
has resulted in a sharp increase in price pressure and com-
petition. The Brazilian market plays a key role for the Volks-
wagen Group. To strengthen our competitive position here,
we offer vehicles that have been specially developed for this
market and are locally produced, such as the Gol and the
Virtus.
Russia
Russia has the potential to grow into one of the largest
automotive markets in the world. Volumes in the Russian
vehicle market in 2017 were up on the previous year and we
are forecasting a further recovery in 2018. However, the
heavy reliance on the currently low oil and gas income, a
substantial fall in real incomes, high vehicle prices as a result
of the weak currency, the political crisis and the related
sanctions imposed by the EU and the USA continue to impact
remains
the development of demand. The market
strategically important to the Volkswagen Group, which is
why we are working intensively there.
The Middle East
Despite economic and political instability, the Middle East
region offers growth opportunities. We are leveraging the
potential for growth with a range of vehicles that has been
specifically tailored to this market, but do not have our own
production facilities.
India
The political and economic situation in India further
stabilized in 2017. The vehicle markets continued their
recovery. We expect this trend to continue. Against this
Power Engineering
The underlying trends in the global economy, such as sus-
tained growth and a greater international division of labor,
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Group Management Report
are set to continue, as are the resulting increase in global
transport routes and volumes, the higher demand for
touristic offers such as cruises, and the growing energy needs
and the required forces for innovation in relation to global
climate policy.
We are working systematically to leverage these market
opportunities across the world. In the medium term,
significant potential can be leveraged by enhancing the after-
sales business through the introduction of new products and
the expansion of our service network. Going forward, stricter
requirements with respect to reliability, the availability of the
plants that are already in operation, the increase in environ-
mental compatibility and efficient operation, together with
the large number of engines and plants, will provide the basis
for growth.
As part of the capital goods industry, the Power Engineer-
ing Business Area is affected by fluctuations in the invest-
ment climate. Even minor changes in growth rates or growth
forecasts, resulting from geopolitical uncertainties or volatile
commodities and foreign exchange markets, for example, can
lead to significant changes in demand or the cancellation of
already existing orders. The measures we use to counter the
considerable economic risks include flexible production
concepts and cost flexibility by means of temporary employ-
ment, working time accounts and short-time work, and – if
necessary – structural adjustments. In the Turbomachinery
Business Area, for example, as a consequence of weak
demand, industry-wide overcapacity and price pressure in
2017, we implemented sweeping structural adjustments at all
major production facilities in Europe to make the business
area more competitive.
Research and development risk
The automotive industry is undergoing a radical transfor-
mation process. Multinational corporations like Volkswagen
are facing major challenges in the areas of customer/market,
technological advances and legislation. Key aspects are the
implementation of increasingly stringent emission and con-
sumption regulations, taking new test procedures and test
cycles (e.g. WLTP) into account, as well as compliance with
approval processes (homologation), which are becoming
increasingly more complex and time-consuming and may
vary by country.
The economic success and competitiveness of the Volks-
wagen Group depend on how successful we are in promptly
tailoring our portfolio of products and services to the
changing conditions in time. Due to the intensity of the
competition and the speed of technological development,
identifying relevant trends at an early stage and reacting
accordingly is crucial.
We therefore conduct trend analyses, customer surveys and
scouting activities among other things and examine the
relevance of the results for our customers. We counter the
risk that it may not be possible to develop modules, vehicles
or services within the specified timeframe, to the required
quality standards, or in line with cost specifications by con-
tinuously and systematically monitoring the progress of all
projects and analyzing third-party industrial property rights,
increasingly including in relation to communication technol-
ogies. We regularly compare this progress with the project’s
original targets; in the event of variances, we introduce
appropriate countermeasures in good time. Our end-to-end
project organization supports effective cooperation among
all areas involved in the process, ensuring that specific
requirements are incorporated into the development process
as early as possible and that their implementation is planned
in good time.
Modular toolkit strategy
We are continuously expanding our successful modular tool-
kits, focusing on future customer requirements, legal require-
ments and infrastructural requirements.
The Modular Transverse Toolkit (MQB) has created an
extremely flexible vehicle architecture that permits dimen-
sions determined by the concept – such as the wheelbase,
track width, wheel size and seat position – to be harmonized
throughout the Group and utilized flexibly. Other dimen-
sions, for example the distance between the pedals and the
middle of the front wheels, are always the same, ensuring a
uniform system in the front of the car. Based on the synergies
achieved, we are able to cut both development costs and the
necessary one-time expenses and manufacturing times. The
toolkits also allow us to produce different models from
different brands in various quantities, using the same system
in a single plant. This means that our capacities can be used
with greater flexibility throughout the entire Group, enabling
us to achieve efficiency gains.
We are currently transferring this principle of standardi-
zation with maximum flexibility to the Modular Electrifi-
cation Toolkit (MEB), a concept developed for all-electric
drives. The synergy effects and efficiency gains achieved from
the modular toolkit strategy will give us the opportunity to
into mass production manufacturing
bring e-mobility
worldwide from 2020 with the use of the first MEB-based
vehicle.
Opportunities and risks from partnerships
As part of our future program TOGETHER – Strategy 2025, we
are stepping up our efforts to forge collaborations, both for
the transformation of our core business and for the establish-
Group Management Report
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171
ment of the new mobility solutions business. By entering
into partnerships at a local level, we aim to identify regional
customer needs more precisely, establish competitive cost
structures and develop and offer market-driven products.
Going forward, we will concentrate to a greater extent than
previously on partnerships, acquisitions and venture capital
investments. This will enable us to generate maximum value
for the Group and its brands and to expand our expertise,
particularly in new areas of business.
Volkswagen owns a large number of patents and other
industrial property rights and copyrights. Partnerships can
lead to patent and licensing infringements and thus to the
unauthorized disclosure of company-specific expertise.
Volkswagen monitors the sales markets and will also protect
its expertise with legal action if necessary.
Procurement risks and opportunities
Current trends in the automotive industry such as e-mobility
and automated driving are resulting in an increased need for
financing among suppliers. The Volkswagen Group’s pro-
curement risk management system assesses suppliers before
they are commissioned to perform projects. Among other
things, the procurement function considers the risk of insuf-
ficient competition if it concentrates on a few financially
strong suppliers when awarding contracts.
The procurement risk management system continuously
and globally monitors the financial situation of our suppliers
and takes targeted measures to avoid supply bottlenecks.
The ongoing positive economic trend in Europe, North
America and China strengthened our supplier base at an
overall good level of capacity utilization and good margin
situation. Consistently good financing opportunities and the
attractive interest rates provided suppliers with favorable
conditions. In the Russian and South American markets,
demand grew for the first time in years, providing the possi-
bility of stabilization after several years of consolidation of
the supplier base.
In spite of this, the number of crises and insolvencies
among suppliers worldwide increased in 2017. Specialists in
restructuring and supply reliability are coordinating the
measures to be taken on a Group-wide basis to safeguard
production in a timely and sustainable manner.
The current trends in the automotive industry will also
affect the availability of special raw materials, which are
principally used in electrified vehicles. The raw material and
demand trend was assessed last year to enable steps to be
taken in a timely manner whenever bottlenecks arise.
Rising material prices, especially for steel, and shifts in the
product mix towards petrol engines present challenges that
must be overcome in conjunction with suppliers.
Quality problems may necessitate technical intervention
involving a considerable financial outlay where costs cannot
be passed on to the supplier or can only be passed on to a
limited extent. It is not possible at the present time to rule
out a potential further increase in recalls of a range of models
produced by various manufacturers in which certain airbags
manufactured by Takata were installed. This could also affect
Volkswagen Group models.
In addition to financial difficulties, supply risks may, for
example, arise as a result of fires or accidents at suppliers.
Supply risks are identified without delay in the procurement
function through early warning systems and mitigated imme-
diately by applying appropriate measures.
Additional measures were taken to safeguard supply and
avert future assembly line stoppages caused by suspensions
of deliveries.
Monitoring of the antitrust investigations into suppliers
by Risk Management on grounds of price-fixing agreements
was expanded further in 2017. The effects on Volkswagen are
being systematically reviewed.
Production risk
Volatile developments in the global automotive markets,
accidents at suppliers, storms and earthquakes caused pro-
duction volumes of some vehicle models to fluctuate at some
plants. In specific markets, we also recorded a change in
incoming orders: the number of orders for diesel vehicles fell,
while orders for petrol engines rose. We address such fluc-
tuations using tried-and-tested tools, such as flexible working
time models. The design of the production network enables
us to respond dynamically to varying changes in demand at
the sites. “Turntable concepts” even out capacity utilization
between production facilities. At multibrand sites, volatile
demand can also be smoothed across brands.
Short-term changes in customer demand for specific
equipment features in our products, and the decreasing
predictability of demand, may lead to supply bottlenecks. We
minimize this risk by, among other measures, continuously
comparing our available resources against future demand
scenarios. If we identify bottlenecks in the supply of materials,
we can introduce countermeasures far enough in advance.
Production capacity is planned several years in advance
for each vehicle project on the basis of expected sales trends.
These are subject to market changes and generally entail a
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degree of uncertainty. If forecasts are too optimistic, there is a
risk that capacity will not be fully utilized. However, forecasts
that are too pessimistic pose a risk of undercapacity, as a result
of which it may not be possible to meet customer demand.
Particular events beyond our control such as natural
disasters or other events such as fires, explosions or the
leakage of substances hazardous to health and/or the environ-
ment, may adversely affect production to a significant extent.
As a consequence, bottlenecks or even outages may occur,
thus preventing the planned volume of production from
being achieved. We address such risks with, among other
things, fire protection measures and hazardous goods man-
agement, and, where financially viable, ensure that they are
covered by insurance policies.
The range of our models is growing, while at the same
time product life cycles are becoming shorter; the number of
new vehicle start-ups at our sites worldwide is therefore
increasing. The processes and technical systems we use for
this are complex and there is thus a risk that vehicle
deliveries may be delayed. We address this risk by drawing on
experience of past start-ups and identifying weaknesses at an
early stage so as to ensure that production volumes and
quality standards are met during our new vehicle start-ups
throughout the Group.
In order to prevent downtime in general, lost output,
rejects and reworking, we use the TPM (Total Productive
Maintenance) method at our production facilities. TPM is a
continuous process, that involves the entire workforce.
Round-the-clock maintenance of the technical facilities
means that they are always operational and guaranteed to
function reliably.
Risks arising from long-term production
In the case of large projects, risks may arise that are often
only identified in the course of the project. They may result in
particular from contract drafting errors, miscosting, post-
contract changes in economic and technical conditions,
weaknesses in project management, or poor performance by
subcontractors. In particular, omissions or errors made at the
start of a project are usually difficult to compensate for or
correct, and often entail substantial additional expenses.
We endeavor to identify these risks at an even earlier
stage and to take appropriate measures to eliminate or
minimize them before they occur by constantly optimizing
the project control process across all project phases and by
using a lessons-learned process and regular project reviews.
We can thus further reduce risk, particularly during the
bidding and planning phase for large upcoming projects.
Risks arising from changes in demand
As a result of the diesel issue, the Volkswagen Group may
experience decreases in demand, possibly exacerbated by
media reports. When dealing with the issue, our highest
priority is to provide customers with technical solutions. In
addition, we are pressing ahead with the systematic clari-
fication of misconduct in the Company.
Consumer demand is shaped not only by real factors such
as disposable income, but also by psychological factors that
cannot be planned for. Unexpected buyer reluctance, possibly
further exacerbated by press reports, could stem from house-
holds’ worries about the future economic situation, for
example. This is particularly the case in saturated automotive
markets such as Western Europe, where demand could drop
as a result of owners holding on to their vehicles for longer.
In the reporting period, it became evident that the effects of
the eurozone debt crisis have not yet been overcome. Some
automotive markets, particularly in Southern Europe, were
able to further recover from their historical lows, however,
and exhibited positive growth rates. We are countering the
buyer reluctance with our attractive range of models and
systematic customer orientation.
A combination of buyer reluctance as a result of the crisis
and increases in some vehicle taxes based on CO2 emissions
– as already exist in some European countries – is driving a
shift in demand towards smaller segments and engines in
individual markets. We counter the risk that such a shift will
negatively impact the Volkswagen Group’s earnings by con-
stantly developing new, fuel-efficient vehicles and alternative
drive technologies, based on our drivetrain and fuel strategy.
Automotive markets around the world are exposed to
risks from government intervention such as tax increases,
which curb private consumption, or from protectionist ten-
dencies.
Commercial vehicles are capital goods: even minor
changes in growth rates or growth forecasts can significantly
affect transport requirements and thus demand. The pro-
duction fluctuations arising as a result require a high degree
of flexibility from manufacturers. Although production vol-
umes are significantly lower, the complexity of the trucks and
buses range in fact significantly exceeds the already very high
complexity of the passenger cars range. Key factors for com-
mercial vehicle customers are total cost of ownership, vehicle
reliability and the service provided. In addition, customers
are increasingly interested in additional services such as
freight optimization and fleet utilization, which we offer in
the commercial vehicle segment through the newly estab-
lished digital brand RIO, for example.
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173
MAN Power Engineering’s two-stroke engines are produced
exclusively by licensees, particularly in South Korea, China
and Japan. On account of volatile demand in new ship
construction, there is excess capacity in the market for
marine engines, which may result in a decline in license
revenues and bad debt losses. Due to changes in the com-
petitive environment, especially in China, there is also the
risk of losing market share. We address these risks by con-
stantly monitoring the markets, working closely with all
licensees and introducing new technologies.
Dependence on fleet customer business
The fleet customer business is generally more stable than the
business with retail customers; in 2017, it continued to be
characterized by increasing concentration and internationali-
zation.
The Volkswagen Group is well positioned with its broad
portfolio of products and drive systems, as well as its target-
group-focused customer care. There is no concentration of
default risks at individual fleet customers or markets. The fact
that the market share in Europe remained constant shows
that fleet customers still have confidence in the Group.
Quality risk
Right from the product development stage, we aim to identify
and rectify quality problems at the earliest possible point, so
as to avoid delays to the start of production. As we are using
an increasing number of modular components as part of our
modular toolkit strategy, it is particularly important when
malfunctions do occur to identify the cause and eliminate the
malfunctions as quickly as possible. We further optimized the
processes with which we can prevent these defects at our
brands and improved our organizational processes during
the reporting period so that we are able to counter the
associated risks more effectively.
Increasing technical complexity and the use of the toolkit
system in the Group mean that the need for high-grade sup-
plier components of impeccable quality is rising. To ensure
the continuity of production, it is also extremely important
that our own plants and our suppliers deliver components on
time. We ensure long-term quality and supply capability from
the very start of the supply chain using a risk management
system that we first tested internally and then introduced
among suppliers. In this way, Group Quality Management
contributes to fulfilling customer expectations and conse-
quently to boosting our Company’s reputation, sales figures
and earnings.
Assuring quality is of fundamental importance especially
in the Brazilian, Russian, Indian and Chinese markets, for
which we develop dedicated vehicles and where local manu-
facturers and suppliers have been established, particularly as
it may be very difficult to predict the impact of regulations or
official measures. We continuously analyze the conditions
specific to each market and adapt quality requirements to
them. We counter the local risks we identify by continuously
developing measures and
locally,
thereby effectively preventing quality defects from arising.
implementing them
Vehicle registration and operation criteria are defined and
monitored by national and, in some cases, international
authorities. Some countries also have special – and in some
cases new – rules aimed at protecting customers in their
dealings with vehicle manufacturers. With our established
and revised quality assurance processes, we ensure that the
Volkswagen Group brands and their products fulfill all
applicable requirements and that local authorities receive
timely notification of all issues requiring reporting. By doing
so, we reduce the risk of customer complaints or other
negative consequences.
Personnel risk
We counter economic risks as well as changes in the market
and competitive situation with a range of instruments that
help the Volkswagen Group to remain flexible, even with a
fluctuating order situation – whether orders decline or
demand for our products increases. These include time
accounts which are filled when overtime is necessary and
reduced through time off in quiet periods, enabling our
factories to adjust their capacity to the production volume
with measures such as extra shifts, closure days and flexible
shift models. The use of temporary workers also allows us to
plan more flexibly. All of these measures help the Volkswagen
Group to generally maintain a stable permanent workforce
even when orders fluctuate.
The technical expertise and individual commitment of
employees are indispensable prerequisites for the success of
the Volkswagen Group. Our end-to-end human resources
development strategy gives all employees attractive training
and development opportunities, with particular emphasis
being placed on strengthening professional skills in the
Company’s different vocational groups. By boosting our
training programs, particularly at our international locations,
we are able to adequately address the challenges of tech-
nological change.
We are continuously expanding our recruitment tools.
Our systematic talent relationship management, for example,
enables us to make contact with talented candidates from
strategically relevant target groups at an early stage and to
build a long-term relationship between them and the Group.
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In addition to the standard dual vocational training, pro-
grams such as our StIP integrated degree and traineeship
scheme ensure a pipeline of highly qualified and motivated
employees. We counter the risk that knowledge will be lost as
a result of employee fluctuation and retirement with inten-
sive, department-specific training. By systematically increasing
our attractiveness as an employer, we gain talented people in
the future-critical areas of IT, design and social media. We
have also established a base of senior experts in the Group.
With this instrument, we use the valuable knowledge of our
experienced specialists who have retired from Volkswagen.
Organizing efficient knowledge hubs – for example the acade-
mies dedicated to the various vocational groups under the
umbrella of the Volkswagen Group Academy – is becoming
increasingly important, particularly where departing staff are
not directly replaced by specialists. Volkswagen is working on
knowledge relays to ensure experience is passed on even
when the chain of succession is broken.
IT Risk
At Volkswagen, a global company geared towards further
growth, the information technology (IT) used in all divisions
Group-wide is assuming an increasingly important role. IT
risks exist in relation to the three protection goals of con-
fidentiality, integrity and availability, and comprise in par-
ticular unauthorized access to, modification of and extrac-
tion of sensitive electronic corporate data as well as limited
systems availability as a consequence of downtime and
disasters.
We address the risk of unauthorized access to, modifi-
cation of, or extraction of corporate data with IT security
technologies (e.g. firewall and intrusion prevention systems)
and a multiple-authentication procedure. Additionally, we
increase protection by restricting the allocation of access
rights to systems and information and by keeping backup
copies of critical data resources. We use technical resources
that have been tried and tested in the market, adhering to
standards applicable throughout the Company. Redundant IT
infrastructures protect us against risks that occur in the event
of a systems failure or natural or other disaster.
One of our focuses is on continuously enhancing our
security measures. The current IT security program, for
example, is built on structured rights management, optimi-
zation of IT infrastructure, application security and the IT
security command center. The role of the latter is to detect
cyber-attacks at an early stage and thus help to successfully
defeat them using the latest tools. The command center is
staffed around the clock in three regions (Europe, America,
Asia). Volkswagen complements these technical measures with
consistent awareness raising and training for all employees.
The high standards we set for the quality of our products also
apply to the way in which we handle our customers’ and
employees’ data. In particular, the digital services for mobility
services must be secured. Our guiding principles are data
security, transparency and informational self-determination.
Environmental protection regulations
The specific emission limits for all new passenger car and
light commercial vehicle fleets for brands and groups in the
EU for the period up to 2019 are set out in Regulation (EC)
No 443/2009 on CO2 emissions from passenger cars and
Regulation (EU) No 510/2011 on light commercial vehicles of
up to 3.5 tonnes, which came into effect in April 2009 and
June 2011, respectively. These regulations are important
components of the European climate protection policy and
therefore form the key regulatory framework for product
design and marketing by all vehicle manufacturers selling in
the European market.
The average CO2 emissions of manufacturers’ new Euro-
pean passenger car fleets have not been allowed to exceed
130 g CO2/km since 2012. Compliance with this requirement
was introduced in phases; since 2015 the entire fleet has to
meet this limit. Regulation (EU) No 333/2014, which was
adopted in 2014, states that the average emissions of Euro-
pean passenger car fleets may be no higher than just
95 g CO2/km from 2021 onwards; in 2020, this emissions
limit will already apply to 95% of the fleet.
The EU’s CO2 regulation for light commercial vehicles
requires limits to be met from 2014 onwards, with targets
being phased in over the period to 2017. Under this regu-
lation, the average CO2 emissions of new vehicle registrations
in Europe may not exceed 175 g CO2/km. From 2020 onwards,
the limit under Regulation (EU) No 253/2014, which was
adopted in 2014, is 147 g CO2/km.
In the fourth quarter of 2017, the European Commission
published a regulatory proposal for the CO2 regime after
2020. A reduction for the European passenger car and light
commercial vehicle fleets of 15% from 2025 and 30% from
2030 are the targets currently proposed. The starting point is
the fleet value in 2021. The bill is expected to be voted on
conclusively at the end of 2018. Policymakers are already
discussing reduction targets for the transport sector for the
period to 2050, such as the 60% reduction in greenhouse gas
emissions compared to 1990 levels cited in the EU White
Paper on transport published in March 2011. These long-term
targets can only be achieved through a high proportion of
electric vehicles.
At the same time, regulations governing fleet fuel con-
sumption are also being developed or introduced outside the
EU28, for example in Brazil, Canada, China, India, Japan,
Group Management Report
Report on Risks and Opportunities
175
Mexico, Saudi Arabia, South Korea, Switzerland, Taiwan and
the USA. Brazil has introduced a fleet efficiency target as part
of a voluntary program for granting a tax advantage. To
achieve a 30% tax advantage in this country, vehicle manufac-
turers are required to achieve, among other things, average
fleet efficiency of around 1.82 megajoules/km by 2017. The
fuel consumption regulations in China, which set an average
fleet target of 6.9 liters/100 km for the period 2012–2015
(Phase III), were continued into Phase IV for the period
2016–2020, with a target of 5.0 liters/100 km at the end of
this period. Preparations for legislation up to 2025 (Phase V)
have begun. In addition to this legislation on fleet con-
sumption, China will impose a so called “new energy vehicle
quota” in the future. This means that from 2019 onwards,
battery-powered vehicles, plug-in hybrids and fuel cell vehi-
cles will have to account for a certain proportion of a manu-
facturer’s new passenger car fleet. Due to the extension of
greenhouse gas legislation in the USA (the law was signed in
2012), uniform fuel consumption and greenhouse gas
standards will continue to apply in all federal states in the
period from 2017 to 2025.
The increased regulation of fleet-based CO2 emissions and
fuel consumption makes it necessary to use the latest mobil-
ity technologies in all key markets worldwide. At the same
time, electrified and purely electric drives will also become
increasingly common. The Volkswagen Group closely coor-
dinates technology and product planning with its brands so
as to avoid breaches of fleet fuel consumption limits, since
these would entail severe financial penalties. Volkswagen
continues to regard diesel technology as an important ele-
ment in the fulfillment of CO2 emissions targets.
EU legislation allows excess emissions and emission
shortfalls to be offset between vehicle models within a fleet
of new vehicles. Furthermore, the EU permits some flexibility
in fulfilling the emissions targets, for example:
> Emission pools may be formed
> Relief opportunities may be provided for additional inno-
vative technologies contained in the vehicle that apply
outside the test cycle (eco-innovations)
> Special rules are in place for small-series producers and
niche manufacturers
> Particularly efficient vehicles qualify for super-credits
Whether the Group meets its fleet targets depends crucially
on its technological and financial capabilities, which are
reflected in, among other things, our drivetrain and fuel
strategy (see page 137).
In the EU, a new, more time-consuming test procedure –
the Worldwide Harmonized Light-Duty Vehicles Test Proce-
dure (WLTP) – for determining pollutant and CO2 emissions
as well as fuel consumption in passenger cars and light
commercial vehicles has applied to new vehicle types since
September 2017 and will apply to all new vehicles from
September 2018.
The Real Driving Emissions (RDE) regulation for passen-
ger cars and light commercial vehicles is also one of the main
European regulations. The fourth package of legislation is
currently being elaborated. New, uniform limits for nitrogen
oxide and particulate emissions in real road traffic have
applied to new vehicle types across the EU since September
2017. This makes the RDE test procedure fundamentally
different from the Euro 6 standard still in force, which
stipulates that the limits on the chassis dynamometer are
authoritative. The RDE regulation is intended primarily to
improve air quality in urban areas and areas close to traffic. It
leads to stricter requirements for exhaust gas aftertreatment
in passenger cars and light commercial vehicles.
The other main EU regulations affecting the automotive
industry include:
> EU Directive 2007/46/EC establishing a framework for the
approval of motor vehicles
> EU Directive 2009/33/EC on the promotion of clean and
energy-efficient road transport vehicles (Green Procure-
ment Directive)
> EU Directive 2006/40/EC relating to emissions from air-
conditioning systems in motor vehicles
> The Car Labeling Directive 1999/94/EC
> The Fuel Quality Directive (FQD) 2009/30/EC updating the
fuel quality specifications and introducing energy effi-
ciency specifications for fuel production
> The Renewable Energy Directive (RED) 2009/28/EC intro-
ducing sustainability criteria; the proposal for follow-up
regulation (REDII) contains higher quotas for advanced
biofuels and is currently being discussed in the competent
EU bodies
> The
revised Energy Taxation Directive 2003/96/EC
updating the minimum tax rates for all energy products
and power
The implementation of the above-mentioned directives by
the EU member states serves to support the CO2 regulations
in Europe. These are aimed not only at vehicle manufactur-
ers, but also at other sectors such as the mineral oil industry.
Vehicle taxes based on CO2 emissions are having a similar
steering effect; many EU member states have already incorpo-
rated CO2 elements into their rules on vehicle taxation.
There is particular momentum in the debate on the
introduction of driving bans for diesel vehicles in Germany.
This was triggered by the failure of some municipalities and
cities to comply with the limits for nitrogen dioxide (NO2)
emissions. In many places, lawsuits have been filed arguing
that only driving bans for diesel vehicles will bring about the
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necessary short-term reduction in NO2 emissions. The
debates mentioned above have already caused sales of diesel
vehicles to decline.
Local driving bans are already in place in a number of
countries, though these mainly affect older vehicles. One
such example are regulations in Belgium that successively
bar older vehicles from larger cities. With a view to the future,
large urban areas such as Paris and London are discussing
banning vehicles with combustion engines.
Heavy commercial vehicles first put into operation from
2014 onwards are already subject to the stricter emission
requirements of the Euro 6 standard in accordance with
Regulation (EU) No 582/2011. Alongside the CO2 legislation
for passenger cars and light commercial vehicles, the EU is
preparing more comprehensive regulation of CO2 emissions
in heavy commercial vehicles. Simply setting an overarching
limit for these vehicles – such as that in place for passenger
cars and light commercial vehicles – would require an
extremely complex set of rules because of the wide range of
variants. For this reason, the European Commission has
worked with independent scientific institutions and the
European Automobile Manufacturers’ Association (ACEA) to
prepare a simulation-based method called the Vehicle Energy
Consumption Calculation Tool (VECTO). This can be used to
determine the CO2 emissions of heavy commercial vehicles of
over 7.5 tonnes based on their typical use (short-haul,
regional, distribution and long-haul trips, service on con-
struction sites and as municipal vehicles, city buses, intercity
buses and coaches). A legislative proposal for the CO2 certific-
ation of heavy commercial vehicles and regulations on the
reporting and monitoring of CO2 figures was presented in
May 2017; the legislation for the declaration of CO2 figures
for heavy commercial vehicles came into effect in January
2018. A CO2 declaration will be compulsory for selected
vehicle categories from 2019 (initially long-haul and regional
distribution vehicles, later also buses and other segments),
with the captured data first being used to enable the
customer to compare information and for certification and
monitoring purposes. Further vehicle categories are likely to
be included as time progresses. As part of its strategy to
decarbonize transport, the European Commission has also
announced that it will be presenting a proposal regarding the
introduction of CO2 standards for heavy commercial vehicles
by the end of its term of office in 2019. The European Com-
mission is currently working on the specific embodiment of
such standards and has collected data from manufacturers to
define a starting point and mandatory reduction targets for
the future. An initial legislative proposal on CO2 standards for
heavy commercial vehicles is expected in May 2018.
Manufacturers of heavy commercial vehicles are urging
the adoption of a system for quantifying CO2 figures that
looks at the vehicle as a whole and not simply at the engine or
the tractor, and thus also includes the trailers and bodywork.
This transparency should increase competition for more fuel-
efficient and thus more CO2-efficient commercial vehicles
and as a result decrease CO2 emissions.
As part of its efforts to reduce the CO2 emissions of heavy
commercial vehicles, the European Commission has also
amended the provisions regarding the maximum per-
missible dimensions and weights of trucks
(Directive
1996/53/EC, the Weights and Dimensions Directive) and
revised them through EU Directive 2015/719. According to
these, cabs with a rounded shape and air conduction devices
at the rear of the vehicle will make it possible to improve
aerodynamics in future. At the same time, the driver’s field of
vision is to be extended by increasing the length of the cab in
order to improve safety. In addition, the legislators increased
the overall weight permitted for vehicles with alternative
drive technologies by up to one tonne. The specific technical
requirements for the development of aerodynamic and safe
cabs are currently being examined.
The European commercial vehicles industry supports the
goals of reducing CO2 emissions and improving transport
safety. However, it is not just the vehicles themselves that
affect future CO2 emissions; individual components also play
an important role, such as reduced rolling resistance tires or
the aerodynamic trim of the trailer, as do driving behavior,
alternative fuels including the required filling stations,
transport infrastructure and transport conditions. As part of
a field trial that took place up to the end of 2016, longer and
heavier vehicles that can decrease fuel consumption and thus
CO2 emissions by up to 25% according to scientific studies by
the Federal Highway Research Institute, were also driving on
German roads. Since the beginning of 2017, these longer
vehicles have been used in regular operations on a certified
road network.
Networking and digitalizing the transport system will
also eliminate existing inefficiencies such as inadequate uti-
lization of available load capacities, empty trips or unnet-
worked route planning: vehicles that move in networked,
intermodal transport systems in which flows of traffic are
optimized through the use of artificial intelligence save fuel
and hence reduce CO2 emissions. Automated driving also
presents considerable potential for more sustainable organi-
zation of goods transport in road traffic, for example through
platooning, in which the driver of the first truck in a convoy
of networked, partially self-driving trucks specifies the
direction and speed. Driving in the slipstream of other trucks
on motorways allows fuel consumption to be reduced con-
siderably. However, platooning requires changes in the legal
framework and establishment of the necessary infrastruc-
ture.
In the Power Engineering segment, the International
Maritime Organization (IMO) has introduced the Inter-
national Convention for the Prevention of Pollution from
Ships (MARine POLlution – MARPOL), with which limits on
emissions from marine engines will be lowered in phases. A
reduction of the sulfur content in marine fuel has been
Group Management Report
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177
confirmed with effect from January 1, 2020. In addition, the
IMO has decided on a number of emission control areas in
Europe and in the USA/Canada that will be subject to special
environmental regulations. Expansion to further regions
such as the Mediterranean or Japan is already being planned;
other regions such as the Black Sea, Alaska, Australia or South
Korea are also in discussion. In addition, emission limits also
apply, for example, under Regulation (EU) 2016/1628 and in
accordance with the regulations of the US Environmental
Protection Agency (EPA). As regards stationary equipment,
there are a number of national rules in place worldwide that
limit permitted emissions. On December 18, 2008, the World
Bank Group set limits for gas and diesel engines in its
“Environmental, Health, and Safety Guidelines for Thermal
Power Plants”, which are required to be applied if individual
countries have adopted no national requirements of their
own, or ones that are less strict than those of the World Bank
Group. These are currently being revised. In addition, the
United Nations adopted the Convention on Long-range
Transboundary Air Pollution back in 1979, setting limits on
total emissions as well as nitrogen oxide for the signatory
states (including all EU states, other countries in Eastern
Europe, the USA and Canada). Enhancements to the product
portfolio in the Power Engineering segment focus on
improving the efficiency of the equipment and systems.
The allocation method for emissions certificates changed
fundamentally when the third emissions trading period
(2013–2020) began. As a general rule, all emission allowances
for power generators have been sold at auction since 2013.
For the manufacturing industry and certain power genera-
tion installations (e.g. combined heat and power installa-
tions), a portion of the certificates are allocated free of charge
on the basis of benchmarks applicable throughout the EU.
The portion of certificates allocated free of charge will gradu-
ally decrease as the trading period progresses: the remaining
quantities required will have to be bought at auction. Further-
more, installation operators can partly fulfill their obligation
to hold emission allowances using certificates from climate
change projects (Joint Implementation and Clean Develop-
ment Mechanism projects).
In certain (sub-)sectors of industry, there is a risk that pro-
duction will be transferred to countries outside Europe due to
the amended provisions governing emissions trading, a
phenomenon referred to as “carbon leakage”. A consistent
quantity of certificates will be allocated to these sectors free
of charge for the period from 2013 to 2020 on the basis of the
pan-EU benchmarks. The automotive industry was included
in the new carbon leakage list that came into effect in 2015.
As a result, individual plants at European locations of the
Volkswagen Group will receive additional certificates free of
charge by the end of the third trading period.
Already back in 2013, the European Commission decided to
initially withhold a portion of the certificates to be auctioned
and not to release them for auction until a later date during
the third trading period (backloading). The certificates will be
directed into a market stability reserve, to be established in
2018.
The reserve will serve to correct any imbalance between
the supply of and demand for certificates in emissions
trading in the fourth trading period. Furthermore, the Euro-
pean Commission is planning further modifications in
emissions trading when the fourth trading period begins
(from 2021) that may lead to a tightening of the system and
thus to price increases in the certificates.
In addition to the EU member states, other countries in
which the Volkswagen Group has production sites are also
considering introducing an emissions trading system. Seven
corresponding pilot projects are running in China, for
example, although they have not so far affected the
Volkswagen Group. The Chinese government officially
implemented a national emissions trading system at the end
of 2017. Initially, the impact will only be on the energy
generation sector; a gradual expansion is being planned.
Litigation
In the course of their operating activities, Volkswagen AG and
the companies in which it is directly or indirectly invested
become involved in a great number of legal disputes and
governmental proceedings in Germany and abroad. In par-
ticular, such legal disputes and other proceedings may occur
in relation to suppliers, dealers, customers, employees, or
investors. For the companies involved, these may result in
payment or other obligations. Above all, in cases where US
customers assert claims for vehicle defects individually or by
way of a class action, highly cost-intensive measures may
have to be taken and substantial compensation or punitive
damages paid. Corresponding risks also result from US patent
infringement proceedings.
Risks may also emerge in connection with the adherence
to regulatory requirements. This particularly applies in the
case of regulatory vagueness that may be interpreted differ-
ently by Volkswagen and the authorities responsible for the
respective regulations. In addition, legal risks can arise from
the criminal activities of individual persons, which even the
best compliance management system can never completely
prevent.
Where transparent and economically viable, adequate
insurance coverage was taken out for these risks. For the iden-
tifiable and measurable risks, provisions considered appro-
priate were recognized and information about contingent
liabilities disclosed. As some risks cannot be assessed or can
only be assessed to a limited extent, the possibility of loss
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or damage not being covered by the insured amounts and
provisions cannot be ruled out. This particularly applies to
legal risk assessment regarding the diesel issue.
Diesel issue
On September 18, 2015, the US Environmental Protection
Agency (EPA) publicly announced in a “Notice of Violation”
that irregularities in relation to nitrogen oxide (NOx) emis-
sions had been discovered in emissions tests on certain
vehicles of Volkswagen Group with type 2.0 l diesel engines in
the USA. It was alleged that Volkswagen had installed undis-
closed engine management software installed in 2009 to
2015 model year 2.0 l diesel engines to circumvent NOx
emissions testing regulations in the USA in order to comply
with certification requirements. The California Air Resources
Board (CARB), a unit of the US environmental authority of
California, announced its own enforcement investigation
into this matter.
In this context, Volkswagen AG announced that notice-
able discrepancies between the figures achieved in testing
and in actual road use had been identified in around eleven
million vehicles worldwide with type EA 189 diesel engines.
The vast majority of these engines were type EA 189 Euro 5
engines.
On November 2, 2015, the EPA issued a “Notice of Viola-
tion” alleging that irregularities had also been discovered in
the software installed in US vehicles with type V6 3.0 l diesel
engines. CARB also issued a letter announcing its own
enforcement investigation into this matter. AUDI AG has
confirmed that at least three auxiliary emission control
devices were inadequately disclosed in the course of the US
approval documentation. Around 113 thousand vehicles
from the 2009 to 2016 model years with certain six-cylinder
diesel engines were affected in the USA and Canada, where
regulations governing NOx emissions limits for vehicles are
stricter than those in other parts of the world.
Numerous court and governmental proceedings were
subsequently initiated in the USA and the rest of the world.
During the reporting period, we succeeded in ending most
significant court and governmental proceedings in the USA
by concluding settlement agreements. This includes, in
particular, settlements with the US Department of Justice (DOJ).
Outside the USA, we also reached agreements with regard to
the
technical measures with
the
numerous authorities.
implementation of
The Supervisory Board of Volkswagen AG formed a special
committee that coordinates the activities relating to the
diesel issue for the Supervisory Board.
The global law firm Jones Day was instructed by Volkswagen
AG to carry out an extensive investigation of the diesel issue
in light of the DOJ’s and the Braunschweig public prosecutor’s
criminal investigations as well as other investigations and
proceedings which were expected. Jones Day was instructed
by Volkswagen AG to present factual evidence to the DOJ. To
resolve US criminal law charges, Volkswagen AG and the DOJ
entered into a Plea Agreement, which includes a Statement of
Facts containing a summary of the factual allegations which
the DOJ considered relevant to the settlement with Volks-
wagen AG. The Statement of Facts is based in part on Jones
Day’s factual findings as well as the evidence identified by the
DOJ itself.
Jones Day has completed the work required to assist
Volkswagen AG in assessing the criminal charges in the USA
with respect to the diesel issue. However, work in respect of
the legal proceedings which are still pending in the USA and
the rest of the world is ongoing and will require considerable
efforts and a considerable period of time. In connection with
this work, Volkswagen AG is being advised by a number of
external law firms.
Furthermore, in September 2015, Volkswagen AG filed a
criminal complaint in Germany against unknown persons as
did AUDI AG. Volkswagen AG and AUDI AG are cooperating
with all responsible authorities in the scope of reviewing the
incidents.
Potential consequences for Volkswagen’s results of oper-
ations, financial position and net assets could emerge
primarily in the following legal areas:
1. Coordination with the authorities on technical measures
Based on decisions dated October 15, 2015, the Kraftfahrt-
Bundesamt (KBA – German Federal Motor Transport Author-
ity) ordered the Volkswagen Passenger Cars, Volkswagen
Commercial Vehicles and SEAT brands to recall all the diesel
vehicles that had been issued with vehicle type approval by
the KBA from among the eleven million vehicles affected with
type EA 189 engines. The recall concerns the member states
of the European Union (EU28). On December 10, 2015 a
similar decision was issued regarding Audi vehicles with the
EA 189 engine. The timetable and action plan forming the
basis for the recall order corresponded to the proposals
presented in advance by Volkswagen. Depending on the
technical complexity of the concerned remedial actions, this
means that the Volkswagen Group has been recalling the
affected vehicles, of which there are around 8.5 million in
total in the EU28 countries, to the service workshops since
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179
January 2016. The remedial actions differ in scope depending
on the engine variant. The technical measures cover software
and in some cases hardware modifications, depending on the
series and model year. The technical measures for all vehicles
in the European Union have since been approved without
exception. The KBA ascertained for all clusters (groups of
vehicles) that implementation of the technical measures
would not bring about any adverse changes
in fuel
consumption figures, CO2 emissions figures, engine power,
maximum torque and noise emissions. Once the modi-
fications have been made, the vehicles will thus also continue
to comply with the legal requirements and the emission
standards applicable in each case. The technical measures for
all affected vehicles with type EA 189 engines in the European
Union were approved without exception, and implemented
in most cases.
In some countries outside the EU – among others South
Korea, Taiwan and Turkey – national type approval is based
on prior recognition of the EC/ECE type approval; the techni-
cal measures must therefore be approved by the national
authorities. With the exception of South Korea and Chile, we
were able to conclude this approval process in all countries.
There, the majority of approvals were likewise granted; in
relation to the pending approvals, Volkswagen is in close
contact with the authorities.
In addition, there is an intensive exchange of information
with the authorities in the USA and Canada, where Volks-
wagen’s proposed modifications in relation to the four-
cylinder and the six-cylinder diesel engines also have to be
approved. Due to NOx limits that are considerably stricter
than in the EU and the rest of the world, it is a greater techni-
cal challenge here to refit the vehicles so that the emission
standards defined in the settlement agreements for these
vehicles can be achieved.
For many months, AUDI AG has been intensively checking
all diesel concepts for possible discrepancies and retrofit
potentials. A systematic review process for all engine and gear
variants has been underway since 2016.
On June 14, 2017, based on a technical error in the param-
eterization of the transmission software for a limited number
of specific Audi A7/A8 models that AUDI AG itself discovered
and reported to the KBA, the KBA issued an order under
which a correction proposed by AUDI AG will be submitted.
The technical error lies in the fact that, in the cases
concerned, by way of exception a specific function that is
standard in all other vehicle concepts is not implemented in
actual road use. In Europe, this affects around 24,800 units of
certain Audi A7/A8 models. The KBA has not categorized this
error as an unlawful defeat device.
On July 21, 2017, AUDI AG offered a software-based retrofit
program for up to 850,000 vehicles with V6 and V8 TDI
engines meeting the Euro 5 and Euro 6 emission standards in
Europe and other markets except the USA and Canada. The
measure will mainly serve to further improve the vehicles’
emissions in real driving conditions in inner city areas
beyond the legal requirements. This was done in close
cooperation with the authorities, which were provided with
detailed reports, especially the German Federal Ministry of
Transport and the KBA. The retrofit package comprises
voluntary measures and, to a small extent, measures directed
by the authorities; these are measures taken within the scope
of a recall, which were proposed by AUDI AG itself, reported to
the KBA and taken up and ordered by the latter. The
voluntary tests have already reached an advanced stage, but
have not yet been completed. The measures adopted and
mandated by the KBA involved the recall of different diesel
vehicles with a V6 or V8 engine meeting the Euro 6 emission
standard, for which the KBA categorized certain emission
strategies as an unlawful defeat device. From July 2017 to
January 2018, the measures proposed by AUDI AG were
adopted and mandated in various decisions by the KBA on
vehicle models with V6 and V8 TDI engines.
Currently, AUDI AG assumes that the total costs of the
software-based retrofit program including the amount based
on recalls will be manageable and has recognized corre-
sponding balance-sheet risk provisions. Should additional
measures become necessary as a result of the investigations
by AUDI AG and the consultations with the KBA, AUDI AG will
quickly implement these as part of the retrofit program in
the interest of customers.
2. Criminal and administrative proceedings worldwide
(excluding the USA/Canada)
In addition to the described approval processes with the
responsible registration authorities, in some countries crimi-
nal investigations/misdemeanor proceedings (for example,
by the public prosecutor’s office in Braunschweig and
Munich, Germany) and/or administrative proceedings (for
example, by the Bundesanstalt für Finanzdienstleistungs-
aufsicht, BaFin – the German Federal Financial Supervisory
Authority) have been opened. The public prosecutor’s offices
in Braunschweig and Munich are investigating the core issue
of the criminal investigations. Whether this will result in
fines for the Company, and if so what their amount might be,
is currently subject to estimation risks. According to Volks-
wagen’s estimates so far, the likelihood of a sanction in the
majority of these proceedings is less than 50%. Contingent
liabilities have therefore been disclosed in cases where they
can be assessed and for which the likelihood of a sanction
was deemed not lower than 10%.
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3. Product-related lawsuits worldwide (excluding the USA/
Canada)
In principle, it is possible that customers in the affected
markets will file civil lawsuits against Volkswagen AG and
other Volkswagen Group companies. In addition, it is possible
that importers and dealers could assert claims against Volks-
wagen AG and other Volkswagen Group companies, e.g.
through recourse claims. As well as individual lawsuits, class
action lawsuits are possible in various jurisdictions (albeit
not in Germany). Furthermore, in a number of markets it is
possible that consumer and/or environmental organizations
will apply for an injunction or assert claims for a declaratory
judgment or for damages.
In the context of the diesel issue, various lawsuits are
currently pending against Volkswagen AG and other Volks-
wagen Group companies at present.
There are pending class action proceedings and lawsuits
brought by consumer and/or environmental associations
against Volkswagen AG and other companies of the Volks-
wagen Group in various countries such as Argentina, Austra-
lia, Belgium, Brazil, China, the Czech Republic, Israel, Italy,
Mexico, the Netherlands, Poland, Portugal, Switzerland,
Taiwan and
the United Kingdom. The class action
proceedings are lawsuits aimed among other things at
asserting damages or, as is the case in the Netherlands, at a
to
declaratory
damages. With the exception of Brazil, where there has
already been a non-binding judgment in the first instance,
the amount of these damages cannot yet be quantified more
precisely due to the early stage of the proceedings.
Volkswagen does not estimate the litigants’ prospect of success
to be more than 50% in any of the class action proceedings.
that customers are entitled
judgment
In South Korea, various mass proceedings are pending (in
some of these individual lawsuits several hundred litigants
have been aggregated). These lawsuits have been filed to
assert damages and to rescind the purchase contract
including repayment of the purchase price. Due to special
circumstances in the market and specific characteristics of
the South Korean legal system, Volkswagen estimates the
litigants’ prospects of success in the South Korean mass
proceedings mentioned above to be inherently higher than in
other jurisdictions outside the USA and Canada. On May 12,
2017, one first-instance judgment was delivered in these pro-
ceedings in South Korea during the fiscal year, in which the
court completely dismissed an action filed to assert criminal
damages over pollution. The judgment has since become
binding.
Contingent liabilities have been disclosed for pending
class action and mass proceedings that can be assessed and
for which the chance of success was deemed not implausible.
Provisions were recognized to a small extent.
Furthermore, individual lawsuits and similar proceedings
are pending against Volkswagen AG and other Volkswagen
Group companies in numerous countries. In Germany, there
are around 9,500 individual lawsuits. In Italy, Austria and
Spain, lawsuits numbering in the low three-digit range and in
France and Ireland individual lawsuits in the two-digit range
are pending against Volkswagen AG and other companies of
the Volkswagen Group, most of which are aimed at asserting
damages or rescinding the purchase contract.
In addition, on November 29, 2017, Volkswagen AG was
served with an action brought by financialright GmbH
asserting the rights assigned to it by a total of approximately
15,000 customers in Germany. This action seeks the payment
of around €350 million in return for restitution of the vehi-
cles.
In Switzerland, a claim for damages was brought against
Volkswagen AG in December 2017 from the assigned rights of
some 6,000 customers; the stated amount in dispute is
approximately 30 million Swiss francs.
According to Volkswagen’s estimates so far, the litigants’
prospect of success is below 50% in the vast majority of the
individual lawsuits. Contingent liabilities have therefore been
disclosed for those lawsuits that can be assessed and for
which the chance of success was deemed not implausible.
It is too early to estimate how many customers will take
advantage of the option to file lawsuits in the future, beyond
the existing lawsuits, or what their prospects of success will
be.
4. Lawsuits filed by investors worldwide (excluding the USA/
Canada)
Investors from Germany and abroad have filed claims for
damages against Volkswagen AG – in some cases along with
Porsche Automobil Holding SE (Porsche SE) as joint and
several debtors – based on purported losses due to alleged
misconduct in capital market communications in connection
with the diesel issue.
The vast majority of these investor lawsuits are currently
pending at the District Court (Landgericht) in Braunschweig.
On August 5, 2016, the District Court in Braunschweig ordered
that common questions of law and fact relevant to the law-
suits pending at the District Court in Braunschweig be
referred to the Higher Regional Court (Oberlandesgericht) in
Braunschweig for a binding declaratory decision pursuant to
the German Act on Model Case Proceedings in Disputes
Regarding Capital Market Information (Kapitalanleger-Muster-
verfahrensgesetz – KapMuG). In this proceeding, common
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181
questions of law and fact relevant to these actions shall be
adjudicated in a consolidated manner by the Higher Regional
Court in Braunschweig (model case proceedings). All lawsuits
at the District Court in Braunschweig will be stayed pending
up until resolution of the common issues, unless they can be
dismissed for reasons independent of the common issues
that are adjudicated in the model case proceedings. The reso-
lution of the common questions of law and fact in the model
case proceedings will be binding for all pending cases in the
stayed lawsuits.
At the District Court in Stuttgart, further investor lawsuits
have been filed against Volkswagen AG, in some cases along
with Porsche SE as joint and several debtors. On December 6,
2017, the District Court in Stuttgart issued an order for
reference to the Higher Regional Court in Stuttgart in relation
to procedural issues, particularly for clarification of juris-
diction. On account of the diesel issue, model case proceed-
ings against Porsche SE are also pending before the Higher
Regional Court in Stuttgart.
Further investor lawsuits have been filed at various courts
in Germany as well as in Austria and the Netherlands. In
Austria, the Supreme Court ruled on July 7, 2017 that the
investor lawsuits against Volkswagen AG do not fall within
the jurisdiction of the Austrian courts. Consequently, all but
one of the investor lawsuits that were formerly pending in
Austria have been dismissed or withdrawn. The last pending
lawsuit has been dismissed at first instance.
Worldwide (excluding USA and Canada), investor lawsuits,
judicial applications for dunning procedures and conciliation
proceedings, and claims under the KapMuG are currently
pending against Volkswagen in connection with the diesel
issue, with the claims totaling approximately €9 billion.
Volkswagen remains of the opinion that it duly complied
with its capital market obligations. Therefore, no provisions
have been recognized for these investor lawsuits. Insofar as
the chance of success was estimated at not lower than 10%,
contingent liabilities have been disclosed.
5. Proceedings in the USA/Canada
Following the publication of the EPA’s “Notices of Violation”,
Volkswagen AG and other Volkswagen Group companies have
been the subject of intense scrutiny, ongoing investigations
(civil and criminal) and civil litigation. Volkswagen AG and
other Volkswagen Group companies have received subpoenas
and inquiries from state attorneys general and other govern-
mental authorities and are responding to such investigations
and inquiries.
In addition, Volkswagen AG and other Volkswagen Group
companies in the USA/Canada are facing litigation on a num-
ber of different fronts relating to the matters described in the
EPA’s “Notices of Violation”.
A large number of putative class action lawsuits by cus-
tomers and dealers have been filed in US federal courts and
consolidated for pretrial coordination purposes in the federal
multidistrict litigation proceeding in the State of California.
On January 4, 2016, the DOJ, Civil Division, on behalf of
the EPA, initiated a civil complaint against Volkswagen AG,
AUDI AG and certain other Volkswagen Group companies.
The action sought statutory penalties under the US Clean Air
Act, as well as certain injunctive relief, and was consolidated
for pretrial coordination purposes in the California multi-
district litigation.
On January 12, 2016, CARB announced that it intended to
seek civil fines for alleged violations of the California Health
& Safety Code and various CARB regulations.
In June 2016, Volkswagen AG, Volkswagen Group of
America, Inc. and certain affiliates reached settlement agree-
ments with the DOJ on behalf of the EPA, CARB and the
California Attorney General, private plaintiffs represented by
a Plaintiffs’ Steering Committee (PSC) in the multidistrict
litigation pending in California, and the U.S. Federal Trade
Commission (FTC). These settlement agreements resolved
certain civil claims made in relation to affected diesel vehicles
with 2.0 l TDI engines from the Volkswagen Passenger Cars
and Audi brands in the USA. Volkswagen AG and certain
affiliates also entered into a First Partial Consent Decree with
the DOJ, EPA, CARB and the California Attorney General,
which was lodged with the court on June 28, 2016. On Octo-
ber 18, 2016, a fairness hearing on whether final approval
should be granted was held, and on October 25, 2016, the
court granted final approval of the settlement agreements
and the partial consent order. A number of class members
have filed appeals to an US appellate court from the order
approving the settlements.
The settlements include buyback or, for leased vehicles,
early lease termination, or a free emissions modification of
the vehicles, provided that the EPA and CARB approve the
modification. Volkswagen will also make additional cash pay-
ments to affected current owners or lessees as well as certain
former owners or lessees.
Volkswagen also agreed to support environmental pro-
grams. The company will pay USD 2.7 billion over three years
into an environmental trust, managed by a trustee appointed
by the court, to offset excess nitrogen oxide (NOx) emissions.
Volkswagen will also invest a total of USD 2.0 billion over ten
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years in zero emissions vehicle infrastructure as well as corre-
sponding access and awareness initiatives.
Volkswagen AG and certain affiliates also entered into a
separate Partial Consent Decree with CARB and the California
Attorney General resolving certain claims under California
unfair competition, false advertising, and consumer pro-
tection laws related to both the 2.0 l and 3.0 l TDI vehicles,
which was lodged with the court on July 7, 2016. Under the
terms of the agreement, Volkswagen agreed to pay California
USD 86 million. The court entered judgment on the Partial
Consent Decree on September 1, 2016 and the USD 86 million
payment was made on September 28, 2016.
On December 20, 2016, Volkswagen entered into a Second
Partial Consent Decree, subject to court approval, with the
DOJ, EPA, CARB and the California Attorney General that
resolved claims for injunctive relief under the Clean Air Act
and California environmental, consumer protection and false
advertising laws related to the 3.0 l TDI vehicles. Under the
terms of this Consent Decree, Volkswagen agreed to imple-
ment a buyback and lease termination program for Genera-
tion 1 3.0 l TDI vehicles and a free emissions recall and modi-
fication program for Generation 2 3.0 l TDI vehicles, and to
pay USD 225 million into the environmental mitigation trust
that has been established pursuant to the First Partial Consent
Decree. The Second Partial Consent Decree was lodged with
the court on December 20, 2016 and approved on May 17,
2017.
In addition, on December 20, 2016, Volkswagen entered
into an additional, concurrent California Second Partial
Consent Decree, subject to court approval, with CARB and the
California Attorney General that resolved claims for injunc-
tive relief under California environmental, consumer protec-
tion and false advertising laws related to the 3.0 l TDI vehicles.
Under the terms of this Consent Decree, Volkswagen agreed
to provide additional injunctive relief to California, including
the implementation of a “Green City” initiative and the intro-
duction of three new Battery Electric Vehicle (BEV) models in
California by 2020, as well as a USD 25 million payment to
CARB to support the availability of BEVs in California.
On January 11, 2017, Volkswagen entered into a Third Par-
tial Consent Decree with the DOJ and EPA that resolved claims
for civil penalties and injunctive relief under the Clean Air Act
related to the 2.0 l and 3.0 l TDI vehicles. Volkswagen agreed
to pay USD 1.45 billion (plus any accrued interest) to resolve
the civil penalty and injunctive relief claims under the Clean
Air Act, as well as the customs claims of the US Customs and
Border Protection. Under the Third Partial Consent Decree,
the injunctive relief includes monitoring, auditing and
compliance obligations. This Consent Decree, which was
subject to public comment, was lodged with the court on
January 11, 2017 and approved on April 13, 2017. Also on
January 11, 2017, Volkswagen entered into a settlement
agreement with the DOJ to resolve any claims under the
Financial Institutions Reform, Recovery and Enforcement Act
of 1989 and agreed to pay USD 50 million (plus any accrued
interest), specifically denying any liability and expressly
disputing any claims.
On July 21, 2017, the federal court in the multidistrict
litigation in California approved the Third California Partial
Consent Decree, in which Volkswagen AG and certain affil-
iates agreed with the California Attorney General and CARB to
in civil penalties and cost
pay USD 153.8 million
reimbursements. These penalties
covered California
environmental penalties for both the 2.0 l and 3.0 l TDI
vehicles. An agreement in principle had been reached on
January 11, 2017.
The DOJ also opened a criminal investigation focusing on
allegations that various federal law criminal offenses were
committed. On January 11, 2017, Volkswagen AG agreed to
plead guilty to three federal criminal felony counts, and to
pay a USD 2.8 billion criminal penalty. Pursuant to the terms
of this agreement, Volkswagen will be on probation for three
years and will work with an independent monitor for three
years. The independent monitor will assess and oversee the
company’s compliance with the terms of the resolution. This
includes overseeing the implementation of measures to
further strengthen compliance, reporting and monitoring
systems, and an enhanced ethics program. Volkswagen will
also continue to cooperate with the DOJ’s ongoing investi-
gation of individual employees or former employees who
may be responsible for criminal violations.
Moreover, investigations by various US regulatory and
government authorities are ongoing, including in areas
relating to securities, financing and tax.
On January 31, 2017, Volkswagen AG, Volkswagen Group
of America, Inc. and certain affiliates entered into a settle-
ment agreement with private plaintiffs represented by the
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183
PSC in the multidistrict litigation pending in California, and a
consent order with the FTC. These agreements resolved
certain civil claims made in relation to affected diesel vehicles
with 3.0 l TDI engines from the Volkswagen, Audi and Porsche
brands in the USA. On February 14, 2017, the court prelimi-
narily approved the settlement agreement with private
plaintiffs. On May 11, 2017, the court held a fairness hearing
on whether approval should be granted and on May 17, 2017,
the court granted final approval of the settlement agreement
and the partial stipulated consent order.
Under the settlements, consumers’ options and compen-
sation will depend on whether their vehicles are classified as
Generation 1 or Generation 2. Generation 1 (model years
2009-2012) consumers will have the option of a buyback,
early lease termination, trade-in, or a free emissions modi-
fication, provided that EPA and CARB approve the modifi-
cation. Additionally, Generation 1 owners and lessees, as well
as certain former owners and lessees, will be eligible to
receive cash payments.
Generation 2 (model years 2013-2016) consumers will
receive a free emissions-compliant repair to bring the
vehicles into compliance with the emissions standards to
which they were originally certified, as well as cash payments.
Volkswagen has received approval from the EPA and CARB for
emissions-compliant repairs within the time limits set out in
the settlement agreement. Volkswagen will also make cash
payments to certain former Generation 2 owners or lessees.
In September 2016, Volkswagen announced that it had
finalized an agreement to resolve the claims of Volkswagen
branded franchise dealers in the USA relating to TDI vehicles
and other matters asserted concerning the value of the
franchise. The settlement agreement includes a cash payment
of up to USD 1.208 billion, and additional benefits to resolve
alleged past, current, and future claims of losses in franchise
value. On January 18, 2017, a fairness hearing on whether
final approval should be granted was held, and on January 23,
2017, the court granted final approval of the settlement
agreement.
Additionally, in the USA, some putative class actions,
some individual customers’ lawsuits and some state or
municipal claims have been filed in state courts.
Volkswagen reached separate agreements with the attorneys
general of 45 US states, the District of Columbia and Puerto
Rico, to resolve their existing or potential consumer protec-
tion and unfair trade practices claims – in connection with
both 2.0 l TDI and 3.0 l TDI vehicles in the USA – for a settle-
ment amount of USD 622 million. Five states did not join
these settlements and still have consumer claims outstand-
ing: Arizona, New Mexico, Oklahoma, Vermont and West
Virginia. Volkswagen has also reached separate agreements
with the attorneys general of eleven US states (Connecticut,
Delaware, Maine, Massachusetts, New Jersey, New York, Oregon,
Pennsylvania, Rhode Island, Vermont, and Washington) to
resolve their existing or potential future claims for civil
penalties and injunctive relief for alleged violations of environ-
mental laws for a settlement amount of 207 million. The
attorneys general of ten other US states (Illinois, Maryland,
Minnesota, Missouri, Montana, New Hampshire, New Mexico,
Ohio, Tennessee and Texas) and some municipalities have
also filed suits in state and federal courts against Volkswagen
AG, Volkswagen Group of America, Inc. and certain affiliates,
seeking civil penalties and injunctive relief for alleged viola-
tions of environmental laws. Illinois, Maryland, Minnesota,
Missouri, Montana, New Hampshire, Ohio, Tennessee and
Texas participated in the state settlements described above
with respect to consumer protection and unfair trade prac-
tices claims, but those settlements did not include claims for
environmental penalties. The environmental claims of two
other states – Alabama and Wyoming – have been dismissed
as preempted by federal law. Alabama has appealed this
dismissal.
In addition to the lawsuits described above, for which pro-
visions have been recognized, a putative class action has been
filed on behalf of purchasers of Volkswagen AG American
Depositary Receipts, alleging a drop in price purportedly
resulting from the matters described in the EPA’s “Notices of
Violation”. A putative class action has also been filed on
behalf of purchasers of certain USD-denominated Volks-
wagen bonds, alleging that these bonds were trading at
artificially inflated prices due to Volkswagen’s alleged mis-
statements and that the value of these bonds declined after
the EPA issued its “Notices of Violation”.
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These lawsuits have also been consolidated in the federal
multidistrict litigation proceeding in the State of California
described above. Volkswagen is of the opinion that it duly
complied with its capital market obligations. Therefore, no
provisions have been recognized. In addition, contingent
liabilities have not been disclosed as they currently cannot be
measured.
In Canada, civil consumer claims and regulatory investi-
gations have been initiated for vehicles with 2.0 l and 3.0 l TDI
engines. On December 19, 2016, Volkswagen AG and other
Canadian and US Volkswagen Group companies reached a
class action settlement in Canada with consumers relating to
2.0 l diesel vehicles. Also on December 19, 2016, Volkswagen
Group Canada agreed with the Commissioner of Competition
in Canada to a civil resolution regarding its regulatory
inquiry into consumer protection issues as to those vehicles.
On December 21, 2017, Volkswagen announced an agreement
in principle on a proposed consumer settlement in Canada
involving 3.0 l diesel vehicles. The court preliminarily approved
the settlement agreement on January 12, 2018, and the notice
and opt out period began on January 17, 2018. Final approval
hearings are scheduled in Quebec and Ontario for April 3 and 5,
2018, respectively. On January 12, 2018, Volkswagen and the
Canadian Commissioner of Competition reached a resolution
related to civil consumer protection issues relating to 3.0 l
diesel vehicles. Also, criminal enforcement-related inves-
tigations by the federal environmental regulator and quasi-
criminal enforcement-related investigations by a provincial
environmental regulator are ongoing in Canada related to
2.0 l and 3.0 l diesel vehicles. On September 15, 2017, a
provincial regulator in Canada, the Ontario Ministry of the
Environment and Climate Change, charged Volkswagen AG
under the province’s environmental statute with one count
alleging that it caused or permitted the operation of model
year 2010–2014 Volkswagen and Audi brand 2.0 l diesel
vehicles that did not comply with prescribed emission
standards. Following initial court appearances on November
15, 2017 and February 7, 2018, the matter was put over to
April 4, 2018 pending ongoing evidence disclosure. No trial
date has been set. Provisions have been recognized for
possible obligations stemming from pending lawsuits in
Canada.
Moreover, in Canada, two securities class actions by
investors in Volkswagen AG American Depositary Receipts
and shares are pending against Volkswagen AG in the Quebec
and Ontario provincial courts. These actions allege misrep-
resentations and omissions in financial reporting issued
from 2009–2015 stemming from the diesel issue. The pro-
posed class periods are for residents in the provinces who
purchased the relevant securities between March 12, 2009
and September 18, 2015, and held all or some of the acquired
securities until after the alleged first corrective disclosures.
Discovery has not begun. In both actions, motions for
certification were filed. In the Quebec matter, the motion was
heard on February 5 and 6, 2018 and the court’s decision is on
reserve. In the Ontario matter, the motion is scheduled for
hearing on July 10 and 11, 2018.
In addition, putative class action and joinder lawsuits by
customers, and a certified environmental class action on
behalf of residents, remain pending in certain provincial
courts in Canada.
An assessment of the underlying situation is not possible
at this early stage of those proceedings.
6. Additional proceedings
With its ruling from November 8, 2017, the Higher Regional
Court of Celle ordered, upon the request of three US funds,
the appointment of a special auditor for Volkswagen AG. The
special auditor should examine whether there was a breach of
duties on behalf of the members of the Board of Manage-
ment and Supervisory Board of Volkswagen AG in connection
with the diesel issue starting from June 22, 2006 and if this
resulted in damages for Volkswagen AG. The ruling from the
Higher Regional Court of Celle is formally legally binding.
However, Volkswagen AG lodged a constitutional complaint
toward the German Federal Constitutional Court regarding
the infringement of its constitutionally guaranteed rights. It
is currently unclear when the Federal Constitutional Court
will reach a decision on this matter.
In addition, the District Court of Hanover has filed a
second motion for the appointment of a special auditor for
Volkswagen AG, which is also aimed at the examination of
transactions in connection with the diesel issue. This
proceeding will be suspended until the ruling has been
announced by the Federal Constitutional Court.
7. Risk assessment regarding the diesel issue
To protect against the currently known legal risks related to
the diesel issue, provisions of approximately €2.0 billion exist
as of December 31, 2017 on the basis of existing information
and current assessments. Beyond this, appropriate provisions
have been recognized for defense and legal advice expenses.
Group Management Report
Report on Risks and Opportunities
185
Insofar as these can be adequately measured at this stage,
total contingent liabilities in relation to the diesel issue to the
aggregate amount of €4.3 billion (previous year: €3.2 billion),
of which lawsuits filed by investors account for €3.4 billion
(previous year: €3.1 billion), were disclosed in the notes. The
provisions recognized for this matter and the contingent
liabilities disclosed as well as the other latent legal risks are
partially subject to substantial estimation risks given the
complexity of the individual factors, the ongoing approval
process with the authorities and the fact that the inde-
pendent, comprehensive investigations have not yet been
completed.
In line with IAS 37.92, no further statements have been
made concerning estimates of financial impact or about
uncertainty regarding the amount or maturity of provisions
and contingent liabilities in relation to the diesel issue. This is
so as to not compromise the results of the proceedings or the
interests of the Company.
Additional important legal cases
In 2011, ARFB Anlegerschutz UG (haftungsbeschränkt) brought
an action against Volkswagen AG and Porsche Automobil
Holding SE for claims for damages for allegedly violating
disclosure requirements under capital market law in connec-
tion with the acquisition of ordinary shares in Volkswagen AG
by Porsche in 2008. The damages currently being sought
based on allegedly assigned rights amounted to approxi-
mately €2.26 billion plus interest. In April 2016, the District
Court in Hanover had formulated numerous objects of
declaratory judgment that the cartel senate of the Higher
Regional Court in Celle will decide on in model case pro-
ceedings under the KapMuG. In the first hearing on
October 12, 2017, the senate indicated that it currently does
not see claims against Volkswagen AG as justified, both in
view of a lack of substantiated evidence and for legal reasons.
Some of the desired objects of declaratory judgment on the
litigants’ side may also be inadmissible, it said. Volkswagen
AG sees the statements of the court’s senate as confirmation
that the claims made against the company have absolutely no
basis.
At the time (2010/2011), other investors had also asserted
claims – including claims against Volkswagen AG – arising out
of the same circumstances in an approximate total amount
of €4.6 billion and initiated conciliation proceedings. Volks-
wagen AG always refused to participate in these conciliation
proceedings; since then, these claims have not been pursued
further.
In 2011, the European Commission conducted searches at
European truck manufacturers on suspicion of an unlawful
exchange of information during the period 1997–2011 and
issued a statement of objections to MAN, Scania and the
other truck manufacturers concerned in November 2014.
With its settlement decision in July 2016, the European
Commission fined five European truck manufacturers. MAN’s
fine was waived in full as the company had informed the
European Commission about the irregularities as a key
witness.
In September 2017, the European Commission then fined
Scania €0.88 billion. Scania has appealed to the European
Court in Luxembourg and will use all means at its disposal to
defend itself. Scania had already recognized a provision of
€0.4 billion in 2016.
Furthermore, antitrust lawsuits for damages from cus-
tomers were received. As is the case in any antitrust pro-
ceedings, this may result in further lawsuits for damages.
Neither provisions nor contingent liabilities were stated
because the early stage of proceedings makes an assessment
currently impossible.
The Annual General Meeting of MAN SE approved the con-
clusion of a control and profit and loss transfer agreement
between MAN SE and Volkswagen Truck & Bus GmbH (for-
merly Truck & Bus GmbH), a subsidiary of Volkswagen AG, in
June 2013. In July 2013, award proceedings were instituted to
review the appropriateness of the cash settlement set out in
the agreement in accordance with section 305 of the Aktien-
gesetz (AktG – German Stock Corporation Act) and the cash
compensation in accordance with section 304 of the AktG. It
is not uncommon for noncontrolling interest shareholders to
institute such proceedings. In July 2015, the Munich Regional
Court ruled in the first instance that the amount of the cash
settlement payable to the noncontrolling interest sharehold-
ers of MAN should be increased from €80.89 to €90.29 per
share; at the same time, the amount of the cash compen-
sation was confirmed. The assessment of liability for put
options and compensation rights granted to noncontrolling
interest shareholders was adjusted in 2015. Both applicants
and Volkswagen Truck & Bus GmbH have appealed to the
Higher Regional Court in Munich. Volkswagen continues to
maintain that the results of the valuation are correct. The
appropriateness of the valuation was confirmed by the audit
firms engaged by the parties and by the court-appointed
auditor of the agreement.
Within the scope of the European Commission's ongoing
investigations regarding German automakers,
antitrust
authorities examined documents in the offices of Volks-
wagen AG in Wolfsburg and AUDI AG in Ingolstadt as part of
an announced review. The Volkswagen Group and the Group
186
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Group Management Report
brands concerned have been cooperating fully and for a long
time with the European Commission and have submitted a
corresponding application. It is currently unclear whether the
European Commission will instigate formal proceedings.
In addition, a few national and international authorities
have initiated antitrust investigations. Volkswagen is coop-
erating closely with the responsible authorities in these
investigations. An assessment of the underlying situation is
not possible at this early stage.
Since November 2016, Volkswagen has been responding to
information requests from the EPA and CARB related to
automatic transmissions in certain vehicles with petrol
engines.
Additionally, fourteen putative class actions have been
filed against Audi and certain affiliates alleging that defen-
dants concealed the existence of “defeat devices” in Audi
brand vehicles with automatic transmissions. All of these
putative class actions have been transferred to the federal
multidistrict litigation proceeding in the State of California,
and plaintiffs filed a consolidated class action complaint on
October 12, 2017, which Volkswagen AG and certain of its
affiliates moved to dismiss on December 11, 2017. On
January 16, 2018, plaintiffs filed an opposition to the motion
to dismiss and the court has set a deadline of February 16,
2018 for defendants to file a reply. A hearing is scheduled for
May 11, 2018. On December 22, 2017, a mass action on behalf
of approximately 75 individual plaintiffs alleging similar
claims was filed in a California state court, which was
removed to the Northern District of California on January 25,
2018.
In Canada, two similar putative class actions, including a
national class, have been filed in Ontario and Quebec
provincial courts against AUDI AG, Volkswagen AG and US
and Canadian affiliates regarding alleged CO2 “defeat devices”
in certain petrol Audi models with automatic transmissions.
Both of the Canadian actions are in the pre-certification
stage. Contingent liabilities have therefore been disclosed in
cases where they can be assessed and for which the likelihood
of a sanction was deemed not lower than 10%.
under the US Sherman Antitrust Act, the Racketeer
Influenced and Corrupt Organizations Act, state unfair
competition and consumer protection statutes, and common
law unjust enrichment. The complaints allege that since the
1990s, defendants engaged in a conspiracy to unlawfully
increase the prices of German luxury vehicles by agreeing to
share commercially sensitive information and to reach
unlawful agreements regarding technology, costs, and sup-
pliers. Moreover, the plaintiffs allege that the defendants
agreed to limit the size of AdBlue tanks to ensure that US
emissions regulators did not scrutinize the emissions control
systems in defendants’ vehicles, and that such an agreement
for Volkswagen was the impetus for the creation of the defeat
device. On September 28, 2017, a hearing before the Judicial
Panel on Multidistrict Litigation (JPML) was held, and on
October 4, 2017 the JPML issued its decision consolidating
and transferring these cases to Judge Breyer in the Northern
District of California. On December 14, 2017, co-lead counsel
were appointed representing the interests of a putative class
of indirect purchasers and a putative class of direct pur-
chasers, as well as Plaintiffs’ Steering Committee. On Decem-
ber 20, 2017, deadlines were set for the filing of initial and
responsive pleadings and an initial case status conference
scheduled for April 5, 2018, and co-lead counsel were directed
to file consolidated class action complaints on behalf of the
two putative classes by March 15, 2018. Neither provisions
nor contingent liabilities were stated because the early stage
of proceedings makes an assessment currently impossible.
From July through October 2017, plaintiffs filed claims in
Ontario, Quebec and British Columbia on behalf of putative
classes of purchasers of German luxury vehicles against
several automobile manufacturers, including Volkswagen
Canada Inc., Audi Canada Inc., and other Group companies.
The claims assert causes of action under the Competition Act,
common law, and Quebec’s civil law and contain similar
allegations to the US complaints described in the paragraph
above. Neither provisions nor contingent liabilities were
stated because the early stage of proceedings makes an
assessment currently impossible.
From July through November 2017, plaintiffs filed numerous
complaints in various US jurisdictions on behalf of putative
classes of purchasers of German luxury vehicles against
several automobile manufacturers, including Volkswagen AG
and other Group companies. These complaints assert claims
In the tax proceedings between MAN Latin America and the
Brazilian tax authorities, the Brazilian tax authorities took a
different view of the tax implications of the acquisition
structure chosen for MAN Latin America in 2009. In Decem-
ber 2017, a second instance judgment was rendered in
Group Management Report
Report on Risks and Opportunities
187
administrative court proceedings, which was negative for
MAN Latin America. MAN Latin America will initiate pro-
ceedings against this judgment before the regular court in
2018. Due to the difference in the penalties plus interest
which could potentially apply under Brazilian law, the
estimated size of the risk in the event that the tax authorities
are able to prevail overall with their view is laden with
uncertainty. However, a positive outcome continues to be
expected for MAN Latin America. Should the opposite occur,
this could result in a risk of about €0.7 billion for the
contested period from 2009 onwards, which has been stated
within the contingent liabilities in the notes.
In line with IAS 37.92, no further statements have been made
concerning estimates of financial impact or about uncer-
tainty regarding the amount or maturity of provisions and
contingent liabilities in relation to additional important legal
cases. This is so as to not compromise the results of the
proceedings or the interests of the Company.
Strategies for hedging financial risks
In the course of our business activities, financial risks may
arise from changes in interest rates, exchange rates, raw
material prices, or share and fund prices. Management of
financial and liquidity risks is the responsibility of the central
Group Treasury department, which minimizes these risks
using nonderivative and derivative financial instruments.
The Board of Management is informed of the current risk
situation at regular intervals.
We hedge interest rate risk – where appropriate in combi-
nation with currency risk – and risks arising from fluctu-
ations in the value of financial instruments by means of
interest rate swaps, cross-currency interest rate swaps and
interest rate contracts with generally matching
other
amounts and maturities. This also applies to financing
arrangements within the Volkswagen Group.
Foreign currency risk is reduced in particular through
natural hedging, i.e. by flexibly adapting our production
capacity at our locations around the world, establishing new
production facilities in the most important currency regions
and also procuring a large percentage of components locally.
We hedge the residual foreign currency risk using hedging
instruments. These include currency forwards, currency
options and cross-currency interest rate swaps. We use these
transactions to limit the currency risk associated with
forecasted cash flows from operating activities, intragroup
financing and liquidity positions in currencies other than the
respective functional currency, for example as a result of
restrictions on capital movements. The currency forwards
and currency options can have a term of up to six years. We
thus hedge our principal foreign currency risks, mostly
against the euro and primarily in Argentine pesos, Australian
dollars, Brazilian real, Canadian dollars, Chinese renminbi,
Czech koruna, Hong Kong dollars, Hungarian forints, Indian
rupees, Japanese yen, Mexican pesos, Norwegian krones,
Polish zloty, Russian rubles, Singapore dollars, South African
rand, South Korean won, sterling, Swedish kronor, Swiss
francs, Taiwan dollars and US dollars.
Raw materials purchasing entails risks relating to the
availability of raw materials and price trends. Potential risks
arising from changes in commodity and energy prices in the
market are continuously analyzed so that immediate action
can be taken whenever these arise. We limit these risks
mainly by entering into forward transactions and swaps. We
have used appropriate contracts to hedge some of our
requirements for commodities such as aluminum, lead, coal,
copper, platinum, palladium and rhodium over a period of up
to seven years. Similar transactions have been entered into
for the purpose of supplementing and improving allocations
of CO2 emission certificates.
Pages 282 to 291 of the notes to the consolidated financial
statements explain our hedging policy, the hedging rules and
the default and liquidity risks, and quantify the hedging
transactions mentioned. Additionally, we disclose informa-
tion on market risk within the meaning of IFRS 7.
Risks arising from financial instruments
Channeling excess liquidity into investments and entering
into derivatives contracts gives rise to counterparty risk.
Partial or complete failure by a counterparty to perform its
obligation to pay interest and repay principal, for example,
would have a negative impact on the Volkswagen Group’s
earnings and liquidity. We counter this risk through our
counterparty risk management, which we describe in more
detail in the section entitled “Principles and Goals of
Financial Management” starting on page 118. In addition to
counterparty risk, the financial instruments held for hedging
purposes hedge balance sheet risks, which we limit by
applying hedge accounting.
By diversifying when selecting business partners, we
ensure that the impact of a default is limited and the Volks-
wagen Group remains solvent at all times, even in the event
of a default by individual counterparties.
Risks arising from trade receivables and from financial
services are explained in more detail in the notes to the
consolidated financial statements, starting on page 282.
188
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Group Management Report
Liquidity risk
We ensure that the Company remains solvent at all times by
holding liquidity reserves, through confirmed credit lines
and through our money market and capital market pro-
grams. We cover the capital requirements of the financial
services business mainly by raising funds at matching matu-
rities in the national and international financial markets as
well as through customer deposits from the direct banking
business.
Projects are financed by, among other things, loans pro-
vided by supranational or international development banks
such as the European Investment Bank (EIB), the Inter-
national Finance Corporation (IFC) and the European Bank
for Reconstruction and Development (EBRD), or by national
development banks such as Kreditanstalt für Wiederaufbau
(KfW) and Banco Nacional de Desenvolvimento Econômico e
Social (BNDES). Confirmed and unconfirmed lines of credit
from banks supplement our broadly diversified refinancing
structure.
As a result of the diesel issue, the ability to use refinancing
instruments may possibly be restricted or precluded for the
Volkswagen Group. A downgrade of the Company’s rating
could adversely affect the terms associated with the Volks-
wagen Group’s borrowings.
Information on the ratings of Volkswagen AG, Volks-
wagen Financial Services AG and Volkswagen Bank GmbH can
be found on page 113 of this report.
Residual value risk in the financial services business
In the financial services business, we agree to buy back
selected vehicles at a residual value that is fixed at inception
of the contract. Residual values are set at a realistic amount
so that we are able to leverage market opportunities. We
evaluate the underlying lease and financing contracts at
regular intervals and recognize any necessary provisions if
we identify any potential risks.
Management of the residual value risk is based on a
defined feedback loop ensuring the full assessment, moni-
toring, management and communication of risks. This
process design ensures not only professional management of
residual risks but also that we systematically improve and
enhance our handling of residual value risks.
As part of our risk management, we use residual value
forecasts to regularly assess the appropriateness of the pro-
visions for risks and the potential for residual value risk – also
with a view to the diesel issue and the current debate on the
possible introduction of driving bans for diesel vehicles in
major European cities at a future date. In the process, we
compare the contractually agreed residual values with the
fair values obtainable. These are determined utilizing data
from external service providers and our own marketing data.
We do not take account of the upside in residual market
values when making provisions for risks.
More information on residual value risk and other risks
in the financial services business, such as counterparty,
market and liquidity risk, can be found in the 2017 Annual
Report of Volkswagen Financial Services AG and Volkswagen
Bank GmbH.
Group Management Report
Report on Risks and Opportunities
189
Reputational risks
The reputation of the Volkswagen Group and its brands is one
of the most important assets and forms the basis for long-
term business success. Our policy on issues such as integrity,
ethics and sustainability is in the public focus. One of the
basic principles of running our business is therefore to pay
particular attention to compliance with legal requirements
and ethical principles. However, we are aware that miscon-
duct or criminal acts of individuals and the resulting reputa-
tional damage can never be fully prevented. In addition,
media reactions can have a negative effect on the reputation
of the Volkswagen Group and its brands. This impact could be
amplified through insufficient crisis communication.
Moreover, the above-described individual risks that may
arise in the course of our operating activities may turn into a
threat to the Volkswagen Group’s reputation.
OV E R A L L A S S E S S M E N T O F T H E R I S K A N D O P P O RT U N I T Y
P O S I T I O N
The Volkswagen Group’s overall risk and opportunity
position results from the specific risks and opportunities
shown above. We have put in place a comprehensive risk
management system to ensure that these risks are controlled.
The most significant risks to the Group may result from a
negative trend in unit sales of, and markets for, vehicles and
genuine parts, from the failure to develop and produce
products in line with demand and from quality problems.
Risks relating to the diesel issue still remain for the Volks-
wagen Group which, when aggregated, are among the most
significant risks. Taking into account all the information
known to us at present, no risks exist which could pose a
threat to the continued existence of significant Group com-
panies or the Volkswagen Group.
Other factors
Going beyond the risks already outlined, there are other
factors that cannot be predicted and whose repercussions are
therefore difficult to control. Should these transpire, they
could have an adverse effect on the further development of
the Volkswagen Group. In particular, these factors include
natural disasters, epidemics and terrorist attacks.
This annual report contains forward-looking statements on the business development of
markets, or any significant shifts in exchange rates relevant to the Volkswagen Group, will
the Volkswagen Group. These statements are based on assumptions relating to the
have a corresponding effect on the development of our business. In addition, there may be
development of the economic and legal environment in individual countries and economic
departures from our expected business development if the assessments of the factors
regions, and in particular for the automotive industry, which we have made on the basis of
influencing sustainable value enhancement, as well as risks and opportunities, presented
the information available to us and which we consider to be realistic at the time of going
in this annual report develop in a way other than we are currently expecting, or if
to press. The estimates given entail a degree of risk, and actual developments may differ
additional risks and opportunities or other factors emerge that affect the development of
from those forecast. Any changes in significant parameters relating to our key sales
our business.
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Prospects for 2018
Group Management Report
Prospects for 2018
The Volkswagen Group is well prepared for the future chal-
lenges in the mobility business and the mixed developments
in regional automotive markets. Our unique brand portfolio,
our presence in all major world markets, our broad,
selectively expanded product range and pioneering tech-
nologies and services place us in a good competitive position
worldwide. In the course of transforming our core business,
we will define the positioning of our Group brands more
clearly and optimize the vehicle and drive portfolio with a
view to the most attractive and fastest-growing market seg-
ments. In addition, we are working to make even more
focused use of the advantages of our multibrand group by
continuously developing new technologies and our toolkits.
We expect that deliveries to customers of the Volkswagen
Group in 2018 will moderately exceed the prior-year figure
amid continuously challenging market conditions.
Challenges will arise particularly from the economic
situation, the increasing intensity of competition, exchange
rate volatility and the diesel issue. In the EU, there is also a
new, more time-consuming test procedure for determining
pollutant and CO2 emissions as well as fuel consumption in
passenger cars and light commercial vehicles known as the
Worldwide Harmonized Light-Duty Vehicles Test Procedure
(WLTP).
We expect the sales revenues of the Volkswagen Group
and its business areas to grow by as much as 5% year-on-year.
In terms of the operating profit for the Group and the
Passenger Cars Business Area, we forecast an operating return
on sales in the range of 6.5–7.5% in 2018. For the Commercial
Vehicles Business Area, we anticipate an operating return on
sales of between 5.0–6.0%. In the Power Engineering Business
Area, we expect a lower operating loss than in the previous
year. For the Financial Services Division, we are forecasting an
operating profit at the prior-year level.
The Volkswagen Group’s Board of Management expects the
global economy to record slightly weaker growth in 2018. We
believe risks will arise
from protectionist tendencies,
turbulence in the financial markets and structural deficits in
individual countries. In addition, growth prospects will
continue to be hurt by geopolitical tensions and conflicts. We
therefore expect somewhat weaker momentum than in 2017
in both the advanced economies and the emerging markets.
We expect the strongest rates of expansion in Asia’s emerging
economies.
We expect trends in the passenger car markets in the
individual regions to be mixed in 2018. Overall, growth in
global demand for new vehicles will probably be slower than
in the reporting period. We anticipate that unit sales volumes
in Western Europe will fall slightly short of those seen in the
reporting period. In the German passenger car market, we
estimate that the market volume will be on a level with the
previous year. Passenger car demand is expected to sub-
stantially exceed the prior-year figures in markets in Central
and Eastern Europe. The volume of demand in the markets
for passenger cars and light commercial vehicles (up to
6.35 tonnes) in North America is likely to be slightly lower
than in the prior year. We expect demand in the South
American markets for passenger cars and light commercial
vehicles to grow perceptibly as a whole compared with the
previous year. The passenger car markets in the Asia-Pacific
region look set to continue their growth trajectory in 2018,
albeit at a weaker pace.
We expect trends in the markets for light commercial
vehicles in the individual regions to be mixed again in 2018.
Overall, we envisage a slight dip in demand.
In the markets for mid-sized and heavy trucks that are
relevant for the Volkswagen Group and in the relevant
markets for buses, new registrations in 2018 are set to rise
slightly above the prior-year level.
We believe that automotive financial services will
continue to be very important for vehicle sales worldwide in
2018.
Wolfsburg, February 23, 2018
The Board of Management
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Consolidated Financial
Statements
CONSOLIDATED FINANCIAL STATEMENTS
195 Income Statement
196 Statement of Comprehensive Income
198 Balance Sheet
200 Statement of Changes in Equity
202 Cash Flow Statement
203 NOTES
203 Basis of presentation
204 Effects of new and amended IFRSs
205 New and amended IFRSs not applied
207 Key events
208 Basis of consolidation
218 Consolidation methods
219 Currency translation
220 Accounting policies
230 Segment reporting
254 18. Noncurrent and current other receivables
255 19. Tax assets
255 20. Inventories
255 21. Trade receivables
256 22. Marketable securities
256 23. Cash, cash equivalents and time deposits
256 24. Equity
258 25. Noncurrent and current financial liabilities
258 26. Noncurrent and current other financial liabilities
259 27. Noncurrent and current other liabilities
260 28. Tax liabilities
260 29. Provisions for pensions and other
post-employment benefits
268 30. Noncurrent and current other provisions
269 31. Put options and compensation rights granted to
noncontrolling interest shareholders
233 Income statement disclosures
269 32. Trade payables
233 1. Sales revenue
233 2. Cost of sales
234 3. Distribution expenses
234 4. Administrative expenses
234 5. Other operating income
235 6. Other operating expenses
235 7. Share of the result of
equity-accounted investments
236 8. Interest result
236 9. Other financial result
237 10. Income tax income/expense
240 11. Earnings per share
270 Disclosures in accordance with IFRS 7 – Financial
Instruments (balance sheet)
281 Other disclosures
281 33. Cash flow statement
282 34. Financial risk management and
financial instruments
292 35. Capital management
293 36. Contingent liabilities
294 37. Litigation
305 38. Other financial obligations
306 39. Total audit fees of the Group auditor
307 40. Total expense for the period
241 Disclosures in accordance with IAS 23 – Borrowing Costs
307 41. Average number of employees during the year
241 Disclosures in accordance with IFRS 7 – Financial
307 42. Events after the balance sheet date
Instruments (income statement)
308
43. Remuneration based on performance shares and
243 Balance sheet disclosures
243 12. Intangible assets
246 13. Property, plant and equipment
248 14. Lease assets and investment property
250 15. Equity-accounted investments and other
equity investments
phantom shares (share-based payment)
308 44. Related party disclosures in accordance with IAS 24
312 45. German Corporate Governance Code
313 46. Remuneration of the Board of Management
and the Supervisory Board
315 Responsibility Statement
252 16. Noncurrent and current financial services receivables
316 Independent Auditor’s Report
253 17. Noncurrent and current other financial assets
Consolidated Financial Statements
Income Statement
195
Income Statement
of the Volkswagen Group for the period January 1 to December 31, 2017
€ million
Sales revenue
Cost of sales
Gross result
Distribution expenses
Administrative expenses
Other operating income
Other operating expenses
Operating result
Share of the result of equity-accounted investments
Interest income¹
Interest expenses¹
Other financial result¹
Financial result
Earnings before tax
Income tax income/expense
Current
Deferred
Earnings after tax
of which attributable to
Noncontrolling interests
Volkswagen AG hybrid capital investors
Volkswagen AG shareholders
Basic earnings per ordinary share in €
Diluted earnings per ordinary share in €
Basic earnings per preferred share in €
Diluted earnings per preferred share in €
Note
2017
2016
1
2
3
4
5
6
7
8
8
9
10
11
11
11
11
230,682
–188,140
42,542
–22,710
–8,254
14,500
–12,259
13,818
3,482
951
–2,317
–2,022
94
13,913
–2,275
–3,205
930
11,638
10
274
11,354
22.63
22.63
22.69
22.69
217,267
–176,270
40,997
–22,700
–7,336
13,049
–16,907
7,103
3,497
1,285
–2,955
–1,638
189
7,292
–1,912
–3,273
1,361
5,379
10
225
5,144
10.24
10.24
10.30
10.30
1 The structure within the financial result has been changed. The presentation of finance costs has been replaced with interest income and interest expenses. Prior year figures have been
adjusted accordingly. Further disclosures can be found in the “Interest result” section.
196
Statement of Comprehensive Income
Consolidated Financial Statements
Statement of Comprehensive
Income
Changes in comprehensive income for the period January 1 to December 31, 2016
Equity
attributable to
Volkswagen AG
shareholders
Total
Equity
attributable to
Volkswagen AG
hybrid capital
investors
Equity
attributable to
noncontrolling
interests
5,379
5,144
225
€ million
Earnings after tax
Pension plan remeasurements recognized in other comprehensive income
Pension plan remeasurements recognized in other comprehensive income, before tax
–5,249
–5,248
Deferred taxes relating to pension plan remeasurements recognized in other
comprehensive income
Pension plan remeasurements recognized in other comprehensive income, net of tax
Share of other comprehensive income of equity-accounted investments
that will not be reclassified to profit or loss, net of tax
Items that will not be reclassified to profit or loss
Exchange differences on translating foreign operations
Unrealized currency translation gains/losses
Transferred to profit or loss
Exchange differences on translating foreign operations, before tax
Deferred taxes relating to exchange differences on translating foreign operations
Exchange differences on translating foreign operations, net of tax
Cash flow hedges
Fair value changes recognized in other comprehensive income
Transferred to profit or loss
Cash flow hedges, before tax
Deferred taxes relating to cash flow hedges
Cash flow hedges, net of tax
Available-for-sale financial assets
Fair value changes recognized in other comprehensive income
Transferred to profit or loss
Available-for-sale financial assets, before tax
Deferred taxes relating to available-for-sale financial assets
Available-for-sale financial assets, net of tax
Share of other comprehensive income of equity-accounted investments that
may be reclassified subsequently to profit or loss, net of tax
Items that may be reclassified subsequently to profit or loss
Other comprehensive income, before tax
Deferred taxes relating to other comprehensive income
Other comprehensive income, net of tax
Total comprehensive income
1,591
–3,658
–1
–3,658
–136
3
–133
3
–130
3,555
1,322
4,877
–1,422
3,455
155
–135
20
–6
14
–130
3,209
–616
167
–449
4,930
1,591
–3,657
–1
–3,658
–135
3
–133
3
–129
3,555
1,322
4,877
–1,422
3,455
155
–135
20
–6
14
–130
3,210
–614
166
–448
4,696
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
225
10
–1
1
0
–
0
–1
–
–1
–
–1
0
0
0
0
0
–
–
–
–
–
–
–1
–2
1
–1
9
Consolidated Financial Statements
197
Changes in comprehensive income for the period January 1 to December 31, 2017
€ million
Earnings after tax
Pension plan remeasurements recognized in other comprehensive income
Pension plan remeasurements recognized in other comprehensive income, before tax
Deferred taxes relating to pension plan remeasurements recognized in other
comprehensive income
Pension plan remeasurements recognized in other comprehensive income, net of tax
Share of other comprehensive income of equity-accounted investments that will not be
reclassified to profit or loss, net of tax
Items that will not be reclassified to profit or loss
Exchange differences on translating foreign operations
Unrealized currency translation gains/losses
Transferred to profit or loss
Exchange differences on translating foreign operations, before tax
Deferred taxes relating to exchange differences on translating foreign operations
Exchange differences on translating foreign operations, net of tax
Cash flow hedges
Fair value changes recognized in other comprehensive income
Transferred to profit or loss
Cash flow hedges, before tax
Deferred taxes relating to cash flow hedges
Cash flow hedges, net of tax
Available-for-sale financial assets
Fair value changes recognized in other comprehensive income
Transferred to profit or loss
Available-for-sale financial assets, before tax
Deferred taxes relating to available-for-sale financial assets
Available-for-sale financial assets, net of tax
Share of other comprehensive income of equity-accounted investments that may be
reclassified subsequently to profit or loss, net of tax
Items that may be reclassified subsequently to profit or loss
Other comprehensive income, before tax
Deferred taxes relating to other comprehensive income
Other comprehensive income, net of tax
Total comprehensive income
Equity
attributable to
Volkswagen AG
shareholders
Total
Equity
attributable to
Volkswagen AG
hybrid capital
investors
Equity
attributable to
noncontrolling
interests
11,638
11,354
274
10
785
–198
588
96
683
–2,095
–4
–2,099
–8
–2,107
6,137
–558
5,579
–1,597
3,982
56
62
118
–25
93
–346
1,622
4,133
–1,828
2,305
13,943
784
–198
586
96
682
–2,094
–4
–2,098
–8
–2,106
6,137
–558
5,579
–1,597
3,982
56
62
118
–25
93
–346
1,622
4,132
–1,828
2,304
13,658
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
274
1
0
1
–
1
–1
–
–1
–
–1
0
0
0
0
0
–
–
–
–
–
–
–1
1
0
1
11
198
Balance Sheet
Consolidated Financial Statements
Balance Sheet
of the Volkswagen Group as of December 31, 2017
€ million
Assets
Noncurrent assets
Intangible assets
Property, plant and equipment
Lease assets
Investment property
Equity-accounted investments
Other equity investments
Financial services receivables
Other financial assets
Other receivables
Tax receivables
Deferred tax assets
Current assets
Inventories
Trade receivables
Financial services receivables
Other financial assets
Other receivables
Tax receivables
Marketable securities
Cash, cash equivalents and time deposits
Assets held for sale
Total assets
Note
Dec. 31, 2017
Dec. 31, 2016
12
13
14
14
15
15
16
17
18
19
19
20
21
16
17
18
19
22
23
63,419
55,243
39,254
468
8,205
1,318
73,249
8,455
2,252
407
9,810
62,599
54,033
38,439
512
8,616
996
68,402
8,256
2,009
392
9,756
262,081
254,010
40,415
13,357
53,145
11,998
5,346
1,339
15,939
18,457
115
160,112
422,193
38,978
12,187
49,673
11,844
5,130
1,126
17,520
19,265
–
155,722
409,732
Consolidated Financial Statements
Balance Sheet
199
€ million
Equity and Liabilities
Equity
Subscribed capital
Capital reserves
Retained earnings
Other reserves
Equity attributable to Volkswagen AG hybrid capital investors
Equity attributable to Volkswagen AG shareholders and hybrid capital investors
Noncontrolling interests
Noncurrent liabilities
Financial liabilities
Other financial liabilities
Other liabilities
Deferred tax liabilities
Provisions for pensions
Provisions for taxes
Other provisions
Current liabilities
Put options and compensation rights granted to noncontrolling interest shareholders
Financial liabilities
Trade payables
Tax payables
Other financial liabilities
Other liabilities
Provisions for taxes
Other provisions
Total equity and liabilities
Note
Dec. 31, 2017
Dec. 31, 2016
24
25
26
27
28
29
28
30
31
25
32
28
26
27
28
30
1,283
14,551
81,367
560
11,088
108,849
229
109,077
81,628
2,665
6,199
5,636
32,730
3,030
20,839
1,283
14,551
70,446
–1,158
7,567
92,689
221
92,910
66,358
4,488
5,664
4,745
33,012
3,556
21,482
152,726
139,306
3,795
81,844
23,046
430
8,570
15,961
1,397
25,347
160,389
422,193
3,849
88,461
22,794
500
9,438
15,461
1,301
35,711
177,515
409,732
200
Statement of Changes in Equity
Consolidated Financial Statements
Statement of Changes in Equity
of the Volkswagen Group for the period January 1 to December 31, 2017
€ million
Balance at Jan. 1, 2016
Earnings after tax
Other comprehensive income, net of tax
Total comprehensive income
Capital increases
Dividends payment
Capital transactions involving a change in ownership interest
Other changes
Balance at Dec. 31, 2016
Balance at Jan. 1, 2017
Earnings after tax
Other comprehensive income, net of tax
Total comprehensive income
Capital increases¹
Dividends payment
Capital transactions involving a change in ownership interest
Other changes
Balance at Dec. 31, 2017
Subscribed capital
Capital reserves
Retained earnings
O T H E R R E S E R V E S
Currency translation
reserve
1,283
14,551
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69,039
5,144
–3,657
1,487
–
–68
–
–13
–987
–
–129
–129
–
–
–
–
1,283
14,551
70,446
–1,117
1,283
14,551
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70,446
11,354
586
11,940
–
–1,015
–
–4
–1,117
–
–2,106
–2,106
–
–
–
–
1,283
14,551
81,367
–3,223
1 Volkswagen AG recorded an inflow of cash funds amounting to €3,500 million, less a discount of €4 million and transaction costs of €23 million, from the hybrid capital issued in June 2017.
Additionally, there were noncash effects from the deferral of taxes amounting to €8 million. The hybrid capital is required to be classified as equity instruments granted.
Explanatory notes on equity are presented in the note relating to equity.
Consolidated Financial Statements
Statement of Changes in Equity
201
Cash flow
hedge reserve
Available-for-sale
financial assets
Equity-accounted
investments
Equity attributable to
Volkswagen AG
hybrid capital investors
Equity attributable to
Volkswagen AG
shareholders and
hybrid capital investors
–3,912
–
3,455
3,455
–
–
–
–
–457
–457
–
3,982
3,982
–
–
–
–
3,525
–16
–
14
14
–
–
–
–
–2
–2
–
93
93
–
–
–
–
91
542
–
–131
–131
–
–
–
6
417
417
–
–251
–251
–
–
–
–
7,560
225
–
225
–
–291
–
73
7,567
7,567
274
–
274
3,481
–311
–
78
88,060
5,369
–448
4,921
–
–359
–
66
92,689
92,689
11,628
2,304
13,932
3,481
–1,326
–
73
Noncontrolling
interests
Total equity
210
88,270
10
–1
9
–
–6
–
8
221
221
10
1
11
–
–5
–
1
5,379
–449
4,930
–
–364
–
74
92,910
92,910
11,638
2,305
13,943
3,481
–1,332
–
75
166
11,088
108,849
229
109,077
202
Cash flow statement
Consolidated Financial Statements
Cash flow statement
of the Volkswagen Group for the period January 1 to December 31, 2017
€ million
2017
2016
Cash and cash equivalents at beginning of period
Earnings before tax
Income taxes paid
Depreciation and amortization of, and impairment losses on, intangible assets, property, plant and equipment,
and investment property¹
Amortization of and impairment losses on capitalized development costs¹
Impairment losses on equity investments¹
Depreciation of and impairment losses on lease assets¹
Gain/loss on disposal of noncurrent assets and equity investments
Share of the result of equity-accounted investments
Other noncash expense/income
Change in inventories
Change in receivables (excluding financial services)
Change in liabilities (excluding financial liabilities)
Change in provisions
Change in lease assets
Change in financial services receivables
Cash flows from operating activities
Investments in intangible assets (excluding development costs), property, plant and equipment, and investment property
Additions to capitalized development costs
Acquisition of subsidiaries
Acquisition of other equity investments
Disposal of subsidiaries
Disposal of other equity investments
Proceeds from disposal of intangible assets, property, plant and equipment, and investment property
Change in investments in securities
Change in loans and time deposits
Cash flows from investing activities
Capital contributions
Dividends paid
Capital transactions with noncontrolling interest shareholders
Proceeds from issuance of bonds
Repayments of bonds
Changes in other financial liabilities
Lease payments
Cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at end of period
Cash and cash equivalents at end of period
Securities, loans and time deposits
Gross liquidity
Total third-party borrowings
Net liquidity
1 Net of impairment reversals.
18,833
13,913
–3,664
10,562
3,734
136
7,734
–25
274
–480
–4,198
–1,660
5,302
–9,443
–11,478
–11,891
–1,185
–13,052
–5,260
–277
–561
496
24
411
1,376
335
–16,508
3,473
–1,332
–
30,279
–17,877
3,109
–28
17,625
–727
–796
18,038
20,462
7,292
–3,315
10,100
3,586
130
7,107
–222
377
716
–3,637
–2,155
5,048
5,966
–12,074
–9,490
9,430
–13,152
–5,750
–119
–309
–7
2,190
351
–1,245
–2,638
–20,679
–
–364
–3
14,262
–23,601
19,455
–36
9,712
–91
–1,628
18,833
18,038
26,291
44,329
–163,472
–119,143
18,833
28,036
46,869
–154,819
–107,950
Explanatory notes on the cash flow statement are presented in the section relating to the cash flow statement.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
203
Notes to the Consolidated
Financial Statements
of the Volkswagen Group as of December 31, 2017
Basis of presentation
Volkswagen AG is domiciled in Wolfsburg, Germany, and entered in the commercial register at the
Braunschweig Local Court under No. HRB100484. The fiscal year corresponds to the calendar year.
In accordance with Regulation No. 1606/2002 of the European Parliament and of the Council, Volks-
wagen AG prepared its consolidated financial statements for 2017 in compliance with the International
Financial Reporting Standards (IFRSs), as adopted by the European Union. We have complied with all the IFRSs
adopted by the EU and required to be applied.
The accounting policies applied in the previous year were retained, with the exception of the changes due to
the new or amended standards.
In addition, we have complied with all the provisions of German commercial law that we are also required
to apply, as well as with the German Corporate Governance Code. For information on notices and disclosures of
changes regarding the ownership of voting rights in Volkswagen AG in accordance with the Wertpapierhandels-
gesetz (WpHG – German Securities Trading Act), please refer to the annual financial statements of
Volkswagen AG.
The consolidated financial statements were prepared in euros. Unless otherwise stated, all amounts are
given in millions of euros (€ million).
All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.
The income statement was prepared using the internationally accepted cost of sales method.
Preparation of the consolidated financial statements in accordance with the above-mentioned standards
requires management to make estimates that affect the reported amounts of certain items in the consolidated
balance sheet and in the consolidated income statement, as well as the related disclosure of contingent assets
and liabilities. The consolidated financial statements present fairly the net assets, financial position and results
of operations as well as the cash flows of the Volkswagen Group.
The Board of Management completed preparation of the consolidated financial statements on Feb-
ruary 23, 2018. On that date, the period ended in which adjusting events after the reporting period are
recognized.
204
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Effects of new and amended IFRSs
Volkswagen AG has applied all accounting pronouncements adopted by the EU and effective for periods
beginning in fiscal year 2017.
From January 1, 2017, IAS 7 (Statement of Cash Flows) requires entities to make additional disclosures on
changes arising from cash flows and noncash changes in financial liabilities arising from financing activities as
reported in the statement of cash flows.
Since January 1, 2017, the amendments to IAS 12 (Income Taxes) have clarified the recognition of
deferred tax assets for unrealized losses in the case of assets carried at fair value.
The IASB amended IFRS 12 (Disclosures of Interests in Other Entities) as part of its 2016 annual
improvements project, with effect from January 1, 2017. This clarifies that, as a matter of principle, disclosures
in accordance with IFRS 12 must also be made for the entity’s interests in subsidiaries, joint arrangements,
associates and unconsolidated structured entities even if these are classified as held for sale, held for
distribution to owners or as discontinued operations.
The amendments presented and other amendments do not materially affect the Volkswagen Group’s net
assets, financial position and results of operations.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
205
New and amended IFRSs not applied
In its 2017 consolidated financial statements, Volkswagen AG did not apply the following accounting
pronouncements that have already been adopted by the IASB, but were not yet required to be applied for the
fiscal year.
Standard/Interpretation
Published by
the IASB
Application
mandatory1
Adopted by
the EU
Expected impact
IFRS 2
IFRS 4
Classification and Measurement of
Share-based Payment Transactions
June 20, 2016
January 1,
2018
Insurance Contracts: Application of
IFRS 9 for Insurers
September 12,
2016
January 1,
2018
IFRS 9
Financial Instruments
IFRS 9
Prepayment Features with
Negative Compensation
Consolidated Financial Statements
and Investments in Associates and
Joint Ventures: Sales or
Contributions of Assets between
an Investor and its Associate/Joint
Venture
Revenue from Contracts with
Customers
Clarifications to IFRS 15 – Revenue
from Contracts with Customers
IFRS 10 and
IAS 28
IFRS 15
IFRS 15
IFRS 16
Leases
July 24, 2014
October 12,
2017
January 1,
2018
January 1,
2019
September 11,
2014
May 28, 2014
April 12, 2016
January 13,
2016
Deferred2
January 1,
20183
January 1,
2018
January 1,
2019
January 1,
2021
IFRS 17
Insurance Contracts
May 18, 2017
Investments in Associates:
Long-term Interests in Associates
and Joint Ventures
IAS 28
IAS 40
Transfers of Investment Property
Annual Improvements to
International Financial Reporting
Standards 20164
Annual Improvements to
International Financial Reporting
Standards 20176
October 12,
2017
December 8,
2016
January 1,
2019
January 1,
2018
December 8,
2016
January 1,
20185
December 12,
2017
January 1,
2019
No
Yes
Yes
No
–
Yes
Yes
Yes
No
No
No
None
None
Detailed descriptions after the tabular
overview
None
None
Detailed descriptions after the tabular
overview
Additional transitional expedients,
otherwise no material impact
Detailed descriptions after the tabular
overview
No material impact
None
No material impact
Yes
No material impact
No
No material impact
IFRIC 22
IFRIC 23
Foreign Currency Transactions and
Advance Consideration
December 8,
2016
Uncertainty over Income Tax
Treatments
June 7, 2017
January 1,
2018
January 1,
2019
No
No
1 Effective date from Volkswagen AG’s perspective.
2 The IASB decided on December 15, 2015 to defer the effective date indefinitely.
3 Deferred until January 1, 2018 (IASB decision of September 11, 2015).
4 Minor amendments to a number of IFRSs (IFRS 1 and IAS 28).
5 This relates to the effective date of the amendments to IFRS 1 and IAS 28.
6 Minor amendments to a number of IFRSs (IFRS 3, IFRS 11, IAS 12 and IAS 23).
Translation of advance payments
denominated in foreign currency into
the functional currency at the spot
rate on the day of payment
No material impact
206
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
I F R S 9 – F I N A N C I A L I N ST R U M E N T S
IFRS 9 changes the accounting requirements for classifying and measuring financial assets, for impairment of
financial assets, and for hedge accounting.
Financial assets are classified and measured on the basis of the entity’s business model and the
characteristics of the financial asset’s cash flows. A financial asset is initially measured either “at amortized
cost”, “at fair value through other comprehensive income”, or “at fair value through profit or loss”. The change
in method for classifying and measuring financial assets is expected to have a transition effect of €0.3 billion.
The effect, net of deferred taxes, of the first-time application increases the retained earnings directly in equity.
The classification and measurement of financial liabilities under IFRS 9 are largely unchanged compared with
the current accounting requirements of IAS 39.
The basis for measuring impairment losses and recognizing loss allowances will switch from an incurred
credit loss model to an expected credit loss model. The change in measurement method will lead to a €0.3 billion
to €0.5 billion increase in the loss allowance on initial application. These amounts, net of deferred taxes, reduce
the retained earnings directly in equity. The increase in the loss allowance results firstly from the requirement
to recognize a loss allowance even for financial assets not classified as non-performing and whose credit risk
has not increased significantly since initial recognition. Secondly, the increase results from the requirement to
recognize loss allowances on the basis of the entire expected remaining life of the contractual asset for financial
assets for which there has been a significant increase in credit risk since initial recognition.
In the case of hedge accounting, IFRS 9 contains both extended designation options and the need to
implement more complex recognition and measurement methods. In addition, IFRS 9 also eliminates the
quantitative limits for effectiveness testing.
IFRS 9 will have a particularly significant impact on the entity’s reclassification practice. Depending on
market trends, there is an expectation that operating profit or loss will be affected by hedging transactions to a
greater extent. Due to the retrospective application of the guidance on designating option transactions, a
transition effect of €0.1 billion is expected. The effect, net of deferred taxes, of the first-time application
increases the retained earnings directly in equity. Since the new guidance for hedging with currency forwards
will be applied prospectively, these hedges will not result in any initial application effect.
This will also result in far more extensive disclosures in the notes.
I F R S 1 5 – R E V E N U E F R O M CO N T R A C T S W I T H C U STO M E R S
IFRS 15 specifies new accounting rules for revenue recognition. In the MAN subgroup, sales revenue is expected
to be recognized at a later point in time than under the current accounting treatment for certain types of contract.
Other provisions and other liabilities will be adjusted accordingly. The recognition of prepayments due but not
yet transferred by the customer in the form of cash will additionally inflate the balance sheet by an amount in
the three-digit million range.
In addition, from next year onward, the Volkswagen Group will no longer present the reversal of sales
allowances under other operating income, but under sales revenue.
The Volkswagen Group will apply the modified retrospective transition method. This is not expected to
result in material transition effects for the Volkswagen Group, because the existing approach used by the
Volkswagen Group is already largely in line with the new guidance.
This will also result in far more extensive disclosures in the notes.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
207
I F R S 1 6 – L E A S E S
IFRS 16 changes the accounting treatment for leases. The main objective of IFRS 16 is to recognize all leases. It
establishes that lessees are no longer required to classify their leases as either finance leases or operating leases.
In the future, they will instead be required to recognize a right-of-use asset and a lease liability for all leases in
the statement of financial position. Exceptions will only be made for short-term leases and leases of low-value
assets. During the lease term, the right-of-use asset must be depreciated and the lease liability adjusted using an
effective interest method and taking the lease payments into account. The new lessee accounting model will
therefore tend to increase noncurrent assets and noncurrent liabilities. In the income statement this change is
expected to improve the operating result and reduce the financial result. Lessor accounting essentially follows
the current guidance of IAS 17. In the future, lessors will continue to classify their leases as finance leases or
operating leases on the basis of the risks and rewards incidental to ownership of the leased asset.
This will also result in far more extensive disclosures in the notes.
Key events
On September 18, 2015, the US Environmental Protection Agency (EPA) publicly announced in a “Notice of
Violation” that irregularities in relation to nitrogen oxide (NOx) emissions had been discovered in emissions
tests on certain vehicles of Volkswagen Group with type 2.0 l diesel engines in the USA. In this context,
Volkswagen AG announced that noticeable discrepancies between the figures achieved in testing and in actual
road use had been identified in around eleven million vehicles worldwide with type EA 189 diesel engines. On
November 2, 2015, the EPA issued a “Notice of Violation” alleging that irregularities had also been discovered in
the software installed in US vehicles with type V6 3.0 l diesel engines.
In the months after the International Council on Clean Transportation (ICCT) study was published in
May 2014, the test set-ups on which the ICCT study was based were repeated in-house at Volkswagen AG and
confirmed the unusually high NOx emissions from certain type EA 189 2.0 l diesel engines in the USA. The
California Air Resources Board (CARB) – a part of the environmental authority of California – was informed of
this result, and, at the same time, an offer was made to recalibrate the type EA 189 diesel engines in the USA as
part of a service measure that was already planned in the USA. This measure was evaluated and adopted by the
Ausschuss für Produktsicherheit (APS – Product Safety Committee), which initiates necessary and appropriate
measures to ensure the safety and conformity of Volkswagen AG’s products that are placed in the market. There
are no findings that an unlawful “defeat device” under US law was disclosed to the APS as the cause of the
discrepancies or to the persons responsible for preparing the 2014 annual and consolidated financial state-
ments. Instead, at the time the 2014 annual and consolidated financial statements were being prepared, the
persons responsible for preparing the 2014 annual and consolidated financial statements remained under the
impression that the issue could be solved with comparatively little effort as part of a service measure.
In the course of the summer of 2015, however, it became successively apparent to individual members of
Volkswagen AG’s Board of Management that the cause of the discrepancies in the USA was a modification of
parts of the software of the engine control unit, which was later identified as an unlawful “defeat device” as
defined by US law. This culminated in the disclosure of a “defeat device” to EPA and CARB on September 3, 2015.
According to the assessment at that time of the responsible persons dealing with the matter, the scope of the
costs expected by the Volkswagen Group (recall costs, retrofitting costs and financial penalties) was not
fundamentally dissimilar to that of previous cases involving other vehicle manufacturers, and, therefore,
appeared to be controllable overall with a view to the business activities of the Volkswagen Group.
This assessment by the Volkswagen Group was based, among other things, on the advice of a law firm
engaged in the USA for approval issues, according to which similar cases in the past were resolved amicably
with the US authorities. The publication of the “Notice of Violation” by the EPA on September 18, 2015, which,
especially at that time came unexpectedly to the Board of Management, then presented the situation in an
entirely different light.
208
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Extensive inquiries were also conducted at AUDI AG in relation to the potential use of unlawful “defeat devices”
under US law in type V6 3.0 l diesel engines. The investigation conducted by Jones Day for Volkswagen AG also
comprehensively covered this issue.
The AUDI AG Board of Management members in office back at the relevant time have stated that they had
no knowledge of the use of unlawful “defeat device” software under US law in V6 3.0 l TDI engines until they
were informed by the EPA in November 2015.
Within the Volkswagen Group, Volkswagen AG has development responsibility for the four-cylinder diesel
engines such as the type EA 189, and AUDI AG has development responsibility for the six-cylinder diesel
engines such as the type V6 3.0 l diesel engines.
Nothing from the publications made up to the time this report was prepared or from the ongoing investi-
gations and interviews on the diesel issue has presented the Volkswagen AG Board of Management with any
conclusive findings or assessments of fact that would result in a different assessment of the associated risks
(e.g. investor lawsuits).
Additional expenses of €3.2 billion were recognized in fiscal year 2017. This is due to an increase of
€2.2 billion in expenses for warranties and of €1.0 billion in expenses for legal risks. The main reason for this
rise in provisions is that the buyback/retrofit programs for 2.0 l TDI vehicles in North America, which have to be
implemented under the settlement deal, are more complex. Continuous monitoring of the program has shown
that the scheme is more comprehensive and technically more challenging than expected; this also entails an
extension to the program period.
Further information on the litigation in connection with the diesel issue can be found in the “Litigation”
section.
Further details can be found in the “Diesel Issue” section of the management report.
Basis of consolidation
In addition to Volkswagen AG, the consolidated financial statements comprise all significant German and
non-German subsidiaries, including structured entities that are controlled directly or indirectly by
Volkswagen AG. This is the case if Volkswagen AG obtains power over the potential subsidiaries directly or
indirectly from voting rights or similar rights, is exposed, or has rights to, positive or negative variable returns
from its involvement with the subsidiaries, and is able to influence those returns. In the case of the structured
entities consolidated in the Volkswagen Group, Volkswagen is able to direct the material relevant activities
remaining after the change in the structure even if it is not invested in the structured entity concerned and is
thus able to influence the variable returns from its involvement. The structured entities are used primarily to
enter into asset-backed securities transactions to refinance the financial services business and to invest surplus
liquidity in special securities funds. Consolidation of subsidiaries begins at the first date on which control
exists, and ends when such control no longer exists.
Subsidiaries whose business is dormant or insignificant, both individually and in the aggregate, for the fair
presentation of the net assets, financial position and results of operations as well as the cash flows of the
Volkswagen Group are not consolidated. They were carried in the consolidated financial statements at cost net
of any impairment losses and reversals of impairment losses required to be recognized.
Significant companies where Volkswagen AG is able, directly or indirectly, to significantly influence
financial and operating policy decisions (associates), or that are directly or indirectly jointly controlled (joint
ventures), are accounted for using the equity method. Joint ventures also include companies in which the
Volkswagen Group holds the majority of voting rights, but whose articles of association or partnership
agreements stipulate that important decisions may only be resolved unanimously. Insignificant associates and
joint ventures are carried at cost net of any impairment losses and reversals of impairment losses required to
be recognized.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
209
The composition of the Volkswagen Group is shown in the following table:
Volkswagen AG and consolidated subsidiaries
Germany
Abroad
Subsidiaries carried at cost
Germany
Abroad
Associates, joint ventures and other equity investments
Germany
Abroad
2017
2016
156
717
69
238
61
88
1,329
149
919
74
251
47
70
1,510
The list of all shareholdings that forms part of the annual financial statements of Volkswagen AG can
be downloaded from the electronic companies register at www.unternehmensregister.de and from
www.volkswagenag.com/ir.
The following consolidated German subsidiaries with the legal form of a corporation or partnership meet
the criteria set out in section 264(3) or section 264b of the Handelsgesetzbuch (HGB – German Commercial
Code) due to their inclusion in the consolidated financial statements and have as far as possible exercised the
option not to publish annual financial statements:
> Audi Berlin GmbH, Berlin
> Audi Frankfurt GmbH, Frankfurt am Main
> Audi Hamburg GmbH, Hamburg
> Audi Hannover GmbH, Hanover
> Audi Leipzig GmbH, Leipzig
> Audi Stuttgart GmbH, Stuttgart
> Autostadt GmbH, Wolfsburg
> Bugatti Engineering GmbH, Wolfsburg
> Dr. Ing. h.c. F. Porsche AG, Stuttgart
> Haberl Beteiligungs-GmbH, Munich
> Karosseriewerk Porsche GmbH & Co. KG, Stuttgart
> MAHAG GmbH, Munich
> MOIA GmbH, Berlin
> Porsche Connect GmbH, Stuttgart
> Porsche Consulting GmbH, Bietigheim-Bissingen
> Porsche Deutschland GmbH, Bietigheim-Bissingen
> Porsche Dienstleistungs GmbH, Stuttgart
> Porsche Engineering Group GmbH, Weissach
> Porsche Engineering Services GmbH, Bietigheim-Bissingen
> Porsche Erste Beteiligungsgesellschaft mbH, Stuttgart
> Porsche Financial Services GmbH & Co. KG, Bietigheim-Bissingen
> Porsche Financial Services GmbH, Bietigheim-Bissingen
> Porsche Holding Stuttgart GmbH, Stuttgart
> Porsche Leipzig GmbH, Leipzig
> Porsche Lizenz- und Handelsgesellschaft mbH & Co. KG, Ludwigsburg
> Porsche Logistik GmbH, Stuttgart
> Porsche Niederlassung Berlin GmbH, Berlin
> Porsche Niederlassung Berlin-Potsdam GmbH, Kleinmachnow
> Porsche Niederlassung Hamburg GmbH, Hamburg
210
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
> Porsche Niederlassung Leipzig GmbH, Leipzig
> Porsche Niederlassung Stuttgart GmbH, Stuttgart
> Porsche Nordamerika Holding GmbH, Ludwigsburg
> Porsche Siebte Vermögensverwaltung GmbH, Wolfsburg
> Porsche Zentrum Hoppegarten GmbH, Stuttgart
> Raffay Versicherungsdienst GmbH, Hamburg
> SKODA AUTO Deutschland GmbH, Weiterstadt
> VFL Wolfsburg-Fußball GmbH, Wolfsburg
> VGRD GmbH, Wolfsburg
> Volkswagen AirService GmbH, Braunschweig(cid:3)
> Volkswagen Automobile Berlin GmbH, Berlin
> Volkswagen Automobile Chemnitz GmbH, Chemnitz
> Volkswagen Automobile Frankfurt GmbH, Frankfurt am Main
> Volkswagen Automobile Hamburg GmbH, Hamburg
> Volkswagen Automobile Hannover GmbH, Hanover
> VOLKSWAGEN Automobile Leipzig GmbH, Leipzig
> Volkswagen Automobile Region Hannover GmbH, Hanover
> Volkswagen Automobile Rhein-Neckar GmbH, Mannheim
> Volkswagen Automobile Stuttgart GmbH, Stuttgart
> Volkswagen Beteiligungsverwaltung GmbH, Wolfsburg
> Volkswagen Dritte Leasingobjekt GmbH, Braunschweig
> Volkswagen Erste Leasingobjekt GmbH, Braunschweig
> Volkswagen Fünfte Leasingobjekt GmbH, Braunschweig
> Volkswagen Gebrauchtfahrzeughandels und Service GmbH, Langenhagen
> Volkswagen Group IT Services GmbH, Wolfsburg
> Volkswagen Group Real Estate GmbH & Co. KG, Wolfsburg
> Volkswagen Group Services GmbH, Wolfsburg
> Volkswagen Immobilien GmbH, Wolfsburg
> Volkswagen Konzernlogistik GmbH & Co. OHG, Wolfsburg
> Volkswagen Original Teile Logistik GmbH & Co. KG, Baunatal
> Volkswagen Osnabrück GmbH, Osnabrück
> Volkswagen R GmbH, Wolfsburg
> Volkswagen Sachsen GmbH, Zwickau
> Volkswagen Sechste Leasingobjekt GmbH, Braunschweig
> Volkswagen Siebte Leasingobjekt GmbH, Braunschweig
> Volkswagen Truck & Bus GmbH, Braunschweig
> Volkswagen Vertriebsbetreuungsgesellschaft mbH, Chemnitz
> Volkswagen Vierte Leasingobjekt GmbH, Braunschweig
> Volkswagen Zubehör GmbH, Dreieich
> Volkswagen Zweite Leasingobjekt GmbH, Braunschweig
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
211
CO N S O L I DAT E D S U B S I D I A R I E S
Part of the PGA Group SAS, Paris, France, was sold by POFIN Financial Services Verwaltungs GmbH, Freilassing,
to the Emil Frey Group on June 1, 2017. The sale is in connection with the strategic development of Porsche
Holding Salzburg’s dealer network and the corresponding focus on dealerships exclusively selling Volkswagen
Group brand vehicles.(cid:3)
The transaction encompasses dealerships in Poland, the Netherlands, Belgium and in some cases also in
France. This had a positive effect of €0.8 billion on net liquidity and, taking into account the disposal of the
assets and liabilities, resulted in an insignificant income amount for the Volkswagen Group, which is reported
in other operating income.
Overall, the transaction led to the disposal of assets in the amount of €2.5 billion and liabilities in the
amount of €2.1 billion. The assets mainly consist of noncurrent leased assets (€0.6 billion) and inventories
(€1.0 billion). The liabilities principally comprise noncurrent and current other liabilities (€0.9 billion) and
trade payables (€0.7 billion).
The other changes in the consolidated Group are shown in the following table:
Number
Germany
Abroad
Initially consolidated
Subsidiaries previously carried at cost
Newly acquired subsidiaries
Newly formed subsidiaries
Deconsolidated
Mergers
Liquidations
Sales/other
10
1
1
12
1
4
0
5
10
1
15
26
6
11
211
228
The initial inclusion of these subsidiaries, either individually or collectively, did not have a significant effect on
the presentation of the net assets, financial position and results of operations. The unconsolidated structured
entities are immaterial from a Group perspective. In particular, they do not give rise to any significant risks to
the Group.
I N V E STM E N T S I N A S S O C I AT E S
From a Group perspective, the associates Sinotruk (Hong Kong) Ltd., Hongkong, China (Sinotruk), Bertrandt AG,
Ehningen (Bertrandt), There Holding B.V., Rijswijk, the Netherlands (There Holding), and Navistar International
Corporation, Lisle, USA (Navistar), were material at the reporting date.
Sinotruk
Sinotruk is one of the largest truck manufacturers in the Chinese market. There is an agreement in place
between Group companies and Sinotruk regarding a long-term strategic partnership, under which the Group
participates in the local market. In addition to the partnership with Sinotruk in the volume segment, exports of
MAN vehicles to China are also helping to expand access to the small, but fast-growing premium truck market.
Sinotruk’s principal place of business is in Hongkong, China.
As of December 31, 2017, the quoted market price of the shares in Sinotruk amounted to €648 million
(previous year: €466 million).
212
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Bertrandt
Bertrandt is an engineering partner to companies in the automotive and aviation industry. Its portfolio of
services ranges from developing individual components through complex modules to end-to-end solutions.
Bertrandt’s principal place of business is in Ehningen.
As of December 31, 2017, the quoted market price of the shares in Bertrandt amounted to €299 million
(previous year: €284 million).
There Holding
The Audi Subgroup, the BMW Group and Daimler AG each hold a 33.3% interest in There Holding B.V., Rijswijk,
the Netherlands, which was established in 2015. In December 2016, There Holding B.V. signed a contract with
Intel Holdings B.V., Schiphol-Rijk, the Netherlands, for the sale of 15% of the shares in HERE International B.V.,
Rijswijk, the Netherlands. The transaction with Intel Holdings B.V. was completed on January 31, 2017. This
resulted in a loss of control within the meaning of IFRS 10 at the There Holding B.V. level. The deconsolidation
gave rise to a proportionate effect for the Volkswagen Group of €183 million, which is shown in the share of the
result of equity-accounted investments. Since a significant influence continues to exist, HERE International B.V.
is included in the financial statement of There Holding B.V. as an associate using the equity method. There is no
change in the Volkswagen Group’s participating interest in There Holding B.V. as a result of the sale.
Moreover, in December 2016, an agreement for the sale of 10% of the shares in HERE International B.V. was
signed with a consortium consisting of NavInfo Co. Ltd., Beijing, China, Tencent Holdings Ltd., Shenzhen, China,
and GIC Private Ltd., Singapore, Singapore. The completion of the transaction with the consortium was
dependent on the approval of the relevant authorities. In the third quarter of 2017, a decision was taken not to
pursue the transaction any further, because it could no longer be envisaged during the official review process
that the necessary approvals would be obtained.
In December 2017, agreements for the sale of shares in There Holding B.V. were signed with Robert Bosch
Investment Nederland B.V., Boxtel, the Netherlands, and Continental Automotive Holding Netherlands B.V.,
Maastricht, the Netherlands. In this process, Robert Bosch Investment Nederland B.V. and Continental
Automotive Holding Netherlands B.V. are acquiring an interest of 5.9% each in There Holding B.V. Audi, BMW
and Daimler are selling their shareholdings in the same amount. The transactions are expected to be completed
in the first quarter of 2018, subject to approvals by the authorities. The share attributable to Volkswagen is
reported under assets held for sale. The transactions are not expected to have a material effect on the financial
position and results of operations.
Navistar
At the beginning of September 2016, Volkswagen Truck & Bus GmbH, a wholly owned subsidiary of Volks-
wagen AG, and the US-based commercial vehicle manufacturer Navistar International Corporation, Lisle, USA
(Navistar), announced that they had signed an agreement to forge a wide-ranging alliance. The cooperation
primarily involves working together on technical components and in procurement. The transaction closed on
February 28, 2017. Within the framework of a capital increase, Volkswagen Truck & Bus acquired 16.6% of the
shares in Navistar, paying USD 15.76 per share. The purchase price came to €0.3 billion. Due to Volkswagen’s
representation on the Board of Directors of Navistar and the agreed cooperation, the investment in Navistar is
reported as an equity-accounted investment in the consolidated financial statements. The interest held in
Navistar was increased to 16.9% by the balance sheet date.
As of December 31, 2017, the quoted market price of the shares in Navistar amounted to €595 million. (cid:3)
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
213
S U M M A R I Z E D F I N A N C I A L I N F O R M AT I O N O N M AT E R I A L A S S O C I AT E S O N A 1 0 0 % B A S I S :
€ million
2017
Equity interest (%)
Noncurrent assets
Current assets
Noncurrent liabilities
Current liabilities
Net assets
Sales revenue
Earnings after tax from continuing operations
Earnings after tax from discontinued operations
Other comprehensive income
Total comprehensive income
Dividends received
2016
Equity interest (%)
Noncurrent assets
Current assets
Noncurrent liabilities
Current liabilities
Net assets
Sales revenue
Earnings after tax from continuing operations
Earnings after tax from discontinued operations
Other comprehensive income
Total comprehensive income
Dividends received
Sinotruk1
Bertrandt2
There Holding
Navistar3
17
1,648
3,470
5,893
3,041
–3,816
5,507
95
1
341
437
–
25
2,086
5,449
55
4,420
3,060
5,961
260
–
13
272
6
25
2,075
4,034
123
3,029
2,956
4,116
46
–
11
57
2
29
600
478
338
157
583
992
21
–
0
21
7
29
603
492
340
168
587
992
28
–
–1
27
7
33
1,906
289
–
0
2,195
71
–151
513
2
364
–
33
2,802
592
1,044
518
1,832
1,240
–167
–
–4
–171
–
1 Balance sheet amounts refer to the June 30 reporting date and income statement amounts refer to the period from July 1 to June 30.
2 Balance sheet amounts refer to the September 30 reporting date and income statement amounts refer to the period from October 1 to September 30.
3 Due to the first-time inclusion of Navistar and the fact that it has a different fiscal year, the income statement disclosures for the current fiscal year relate to the
period from March 1, 2017 to October 31, 2017. Balance sheet disclosures relate to the balance sheet date as of October 31.
214
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
R E CO N C I L I AT I O N O F T H E F I N A N C I A L I N F O R M AT I O N TO T H E C A R RY I N G A M O U N T O F T H E E Q U I T Y - A CCO U N T E D
I N V E STM E N T S :
€ million
2017
Net assets at January 1
Profit or loss
Other comprehensive income
Changes in reserves
Foreign exchange differences
Dividends
Net assets at December 31
Proportionate equity
Consolidation/Goodwill/Others
Carrying amount of equity-
accounted investments
2016
Net assets at January 1
Profit or loss
Other comprehensive income
Changes in reserves
Foreign exchange differences
Dividends
Net assets at December 31
Proportionate equity
Consolidation/Goodwill/Others
Carrying amount of equity-
accounted investments
Sinotruk
Bertrandt
There Holding
Navistar1
–4,270
96
341
11
7
–
–3,816
–644
946
301
2,956
260
13
1
–135
–34
3,060
765
–387
378
3,083
46
11
30
–198
–17
2,956
739
–411
328
587
21
0
–
–
–25
583
168
163
331
585
28
–1
–
–
–25
587
170
163
333
1,832
362
2
–
–
–
2,195
646
–
646
2,003
–167
–4
–
–
–
1,832
611
–
611
1 Due to the first-time inclusion of Navistar, the reconciliation of the net carrying amount relates to the period from March 1, 2017 to December 31, 2017.
S U M M A R I Z E D F I N A N C I A L I N F O R M AT I O N O N I N D I V I D UA L LY I M M AT E R I A L A S S O C I AT E S O N T H E B A S I S O F T H E
VO L K SWA G E N G R O U P ’ S P R O P O RT I O N AT E I N T E R E ST:
€ million
2017
2016
Earnings after tax from continuing operations
Earnings after tax from discontinued operations
Other comprehensive income
Total comprehensive income
Carrying amount of equity-accounted investments
–29
–
0
–29
90
2
–
–1
0
277
Unrecognized losses relating to investments in associates totaled €– million (previous year: €5 million). There
were no contingent liabilities or financial guarantees relating to associates.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
215
I N T E R E ST S I N J O I N T V E N T U R E S
From a Group perspective, the joint ventures FAW-Volkswagen Automotive Company Ltd., Changchun, China,
SAIC-Volkswagen Automotive Company Ltd., Shanghai, China, SAIC-Volkswagen Sales Company Ltd., Shanghai,
China (SAIC-Volkswagen Sales Company), and Global Mobility Holding B.V., Amsterdam, the Netherlands (Global
Mobility Holding), were material at the reporting date or the prior-year reporting date due to their size.
FAW-Volkswagen Automotive Company
FAW-Volkswagen Automotive Company develops, produces and sells passenger cars. There is an agreement in
place between Group companies and the joint venture partner China FAW Corporation Limited regarding a
long-term strategic partnership. The principal place of business is in Changchun, China.
SAIC-Volkswagen Automotive Company
SAIC-Volkswagen Automotive Company develops and produces passenger cars. There is an agreement in place
between Group companies and the joint venture partner Shanghai Automotive Industry Corporation regarding
a long-term strategic partnership. The principal place of business is in Shanghai, China.
SAIC-Volkswagen Sales Company
SAIC-Volkswagen Sales Company sells passenger cars for SAIC-Volkswagen Automotive Company. There is an
agreement in place between Group companies and the joint venture partner Shanghai Automotive Industry
Corporation regarding a long-term strategic partnership. The principal place of business is in Shanghai, China.
Global Mobility Holding
Through its 50% interest in the joint venture Global Mobility Holding B.V., Amsterdam, the Netherlands (GMH),
the Volkswagen Group held a 50% indirect stake in the joint venture’s subsidiary, LeasePlan Corporation N.V.,
Amsterdam, the Netherlands (LeasePlan). GMH’s business activity consisted of holding the interest in
LeasePlan. LeasePlan is a Dutch financial services group whose core business is leasing and fleet management.
On July 23, 2015, GMH sold its 100% interest in LeasePlan to a consortium of international investors. The
final approvals for the sale of LeasePlan to the consortium of investors were issued by the competent
authorities in January 2016. Legal transfer of the LeasePlan shares was completed on March 21, 2016.
The total value of the transaction was approximately €3.7 billion plus interest in the amount of €31.5 million.
In 2016, this had a positive effect of €2.2 billion on investing activities attributable to operating activities and
net liquidity and, taking into account the disposal of equity-accounted investment in GMH, resulted in an
income amount of €0.2 billion for the Volkswagen Group, which is reported in the financial result. On
completion of the transaction, the existing credit line of €1.3 billion provided by the Volkswagen Group was
canceled.
216
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
S U M M A R I Z E D F I N A N C I A L I N F O R M AT I O N O N T H E M AT E R I A L J O I N T V E N T U R E S O N A 1 0 0 % B A S I S :
€ million
2017
Equity interest (%)
Noncurrent assets
Current assets
of which: cash, cash equivalents and time deposits
Noncurrent liabilities
of which: financial liabilities
Current liabilities
of which: financial liabilities
Net assets
Sales revenue
Depreciation and amortization
Interest income
Interest expenses
Earnings before tax from continuing operations
Income tax expense
Earnings after tax from continuing operations
Earnings after tax from discontinued operations
Other comprehensive income
Total comprehensive income
Dividends received
2016
Equity interest (%)
Noncurrent assets
Current assets
of which: cash, cash equivalents and time deposits
Noncurrent liabilities
of which: financial liabilities
Current liabilities
of which: financial liabilities
Net assets
Sales revenue
Depreciation and amortization
Interest income
Interest expenses
Earnings before tax from continuing operations
Income tax expense
Earnings after tax from continuing operations
Earnings after tax from discontinued operations
Other comprehensive income
Total comprehensive income
Dividends received
FAW-Volkswagen
Automotive
Company
SAIC-Volkswagen
Automotive
Company1
Global Mobility
Holding2
SAIC-Volkswagen
Sales Company
40
50
10,071
13,018
7,385
1,470
–
14,768
–
6,851
40,828
1,212
72
–
4,907
1,369
3,538
–
–49
3,489
1,502
40
9,341
12,962
7,073
1,774
–
13,063
1
7,466
40,875
1,120
82
–
5,546
1,576
3,970
–
37
4,007
1,634
8,266
9,304
6,198
0
–
12,157
6
5,414
28,767
1,279
36
35
4,555
1,086
3,469
10
–5
3,473
1,702
50
7,254
8,521
5,265
1,437
–
8,759
0
5,579
26,064
1,091
40
4
4,589
1,127
3,462
–
21
3,483
1,661
30
626
4,383
214
61
–
4,402
–
546
33,398
6
–
–
669
168
501
–
–
501
137
30
517
3,739
212
22
–
3,713
–
520
1,879
30,707
12
168
70
142
38
105
–
–20
85
–
4
–
–
614
154
460
–
–
460
127
1 SAIC-Volkswagen Sales Company sells passenger cars for SAIC-Volkswagen Automotive Company. Therefore, the sales revenue reported for SAIC-Volkswagen
Automotive Company was mostly generated from its business with SAIC-Volkswagen Sales Company.
2 GMH transferred the LeasePlan shares to third parties on March 21, 2016 (see further disclosures in this section).
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
217
R E CO N C I L I AT I O N O F T H E F I N A N C I A L I N F O R M AT I O N TO T H E C A R RY I N G A M O U N T O F T H E E Q U I T Y - A CCO U N T E D
I N V E STM E N T S :
€ million
2017
Net assets at January 1
Profit or loss
Other comprehensive income
Changes in share capital
Changes in reserves
Foreign exchange differences
Dividends
Net assets at December 31
Proportionate equity
Consolidation/Goodwill/Others
Carrying amount of equity-accounted investments
2016
Net assets at January 1
Profit or loss
Other comprehensive income
Changes in share capital
Changes in reserves
Foreign exchange differences
Dividends
Net assets at December 31
Proportionate equity
Consolidation/Goodwill/Others
Carrying amount of equity-accounted investments
1 As of March 21, 2016.
FAW-Volkswagen
Automotive
Company
SAIC-Volkswagen
Automotive
Company
Global Mobility
Holding
SAIC-Volkswagen
Sales Company
7,466
3,538
–49
–
–
–350
–3,755
6,851
2,740
–456
2,284
7,825
3,970
37
–
–
–281
–4,085
7,466
2,987
–339
2,647
5,579
3,479
–5
–
–
–236
–3,403
5,414
2,707
–576
2,131
5,618
3,462
21
–
–
–200
–3,321
5,579
2,790
–415
2,375
3,927
105
–20
–
–
–20
–
3,9911
1,996
–1,996
–
520
501
–
–
–
–18
–458
546
164
–
164
506
460
–
–
–
–21
–425
520
156
–
156
S U M M A R I Z E D F I N A N C I A L I N F O R M AT I O N O N I N D I V I D UA L LY I M M AT E R I A L J O I N T V E N T U R E S O N T H E B A S I S O F T H E
VO L K SWA G E N G R O U P ’ S P R O P O RT I O N AT E I N T E R E ST:
€ million
Earnings after tax from continuing operations
Earnings after tax from discontinued operations
Other comprehensive income
Total comprehensive income
Carrying amount of equity-accounted investments
2017
290
10
0
299
1,881
2016
304
–
3
307
1,890
There were no unrecognized losses relating to interests in joint ventures. Contingent liabilities to joint ventures
amounted to €186 million (previous year: €183 million) and financial guarantees to joint ventures amounted
to €82 million (previous year: €– million). Cash funds of €260 million (previous year: €173 million) are
deposited as collateral for asset-backed securities transactions and are therefore not available to the Volkswagen
Group.
218
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
I F R S 5 – N O N - C U R R E N T A S S E T S H E L D F O R S A L E
As of December 31, 2017, assets in a total amount of €115 million were classified as assets “held for sale” and
reported in a separate line item of the balance sheet in accordance with IFRS 5. The assets “held for sale” were
measured at the lower of carrying amount and fair value, less expected costs to sell. These assets are no longer
depreciated. The amount reported is mainly attributable to the planned sale of property, plant and equipment
(€24 million) and the planned sale of shares in There Holding B.V. (€86 million). The sales will not have any
material impact on the Volkswagen Group’s results of operations or net liquidity. The sales are expected to be
completed in the first half of fiscal year 2018.
Consolidation methods
The assets and liabilities of the German and foreign companies included in the consolidated financial state-
ments are recognized in accordance with the uniform accounting policies used within the Volkswagen Group.
In the case of companies accounted for using the equity method, the same accounting policies are applied to
determine the proportionate equity, based on the most recent audited annual financial statements of each
company.
In the case of subsidiaries consolidated for the first time, assets and liabilities are measured at their fair
value at the date of acquisition. Their carrying amounts are adjusted in subsequent years. Goodwill arises when
the purchase price of the investment exceeds the fair value of identifiable net assets. Goodwill is tested for
impairment once a year to determine whether its carrying amount is recoverable. If the carrying amount of
goodwill is higher than the recoverable amount, an impairment loss must be recognized. If this is not the case,
there is no change in the carrying amount of goodwill compared with the previous year. If the purchase price of
the investment is less than the identifiable net assets, the difference is recognized in the income statement in
the year of acquisition. Goodwill is accounted for at the subsidiaries in the functional currency of those
subsidiaries. Any difference that arises from the acquisition of additional shares of an already consolidated sub-
sidiary is taken directly to equity. Unless otherwise stated, the proportionate equity directly attributable to
noncontrolling interests is determined at the acquisition date as the share of the fair value of the assets
(excluding goodwill) and liabilities attributable to them. Contingent consideration is measured at fair value at
the acquisition date. Subsequent changes in the fair value of contingent consideration do not generally result
in the adjustment of the acquisition-date measurement. Acquisition-related costs that are not equity
transaction costs are not added to the purchase price, but instead recognized as expenses in the period in which
they are incurred.
The consolidation process involves adjusting the items in the separate financial statements of the parent
and its subsidiaries and presenting them as if they were those of a single economic entity. Intragroup assets,
liabilities, equity, income, expenses and cash flows are eliminated in full. Intercompany profits or losses are
eliminated in Group inventories and noncurrent assets. Deferred taxes are recognized for consolidation
adjustments, and deferred tax assets and liabilities are offset where taxes are levied by the same tax authority
and relate to the same tax period.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
219
Currency translation
Transactions in foreign currencies are translated in the single-entity financial statements of Volkswagen AG and
its consolidated subsidiaries at the rates prevailing at the transaction date. Foreign currency monetary items
are recorded in the balance sheet using the middle rate at the closing date. Foreign exchange gains and losses
are recognized in the income statement. This does not apply to foreign exchange differences from loans
receivable that represent part of a net investment in a foreign operation. The financial statements of foreign
companies are translated into euros using the functional currency concept, under which asset and liability
items are translated at the closing rate. With the exception of income and expenses recognized directly in
equity, equity is translated at historical rates. The resulting foreign exchange differences are recognized in other
comprehensive income until disposal of the subsidiary concerned, and are presented as a separate item in
equity.
Income statement items are translated into euros at weighted average rates.
The rates applied are presented in the following table:
Argentina
Australia
Brazil
Canada
Czech Republic
India
Japan
Mexico
People’s Republic of China
Poland
Republic of Korea
Russia
South Africa
Sweden
United Kingdom
USA
B A L A N C E S H E E T M I D D L E R A T E
I N C O M E S T A T E M E N T
O N D E C E M B E R 3 1
A V E R A G E R A T E
2017
2016
2017
2016
22.99203
16.80096
18.72636
16.33207
1.53285
3.97065
1.50260
25.57900
76.56700
1.46150
3.43720
1.42280
27.02400
71.65500
1.47300
3.60471
1.46444
26.32920
73.50146
1.48880
3.86217
1.46659
27.03433
74.37058
134.87000
123.50000
126.66763
120.31663
23.61420
21.84800
21.33175
20.66535
7.80085
4.17490
7.33320
4.41530
7.62688
4.25727
7.35067
4.36416
1,278.22000
1,269.11000
1,275.94974
1,284.79543
69.33520
14.75715
9.83140
0.88730
1.19875
64.67550
14.48480
9.56720
0.85850
1.05600
65.88875
15.04543
9.63700
0.87626
1.12933
74.23443
16.28336
9.46712
0.81897
1.10675
€1 =
ARS
AUD
BRL
CAD
CZK
INR
JPY
MXN
CNY
PLN
KRW
RUB
ZAR
SEK
GBP
USD
220
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Accounting policies
M E A S U R E M E N T P R I N C I P L E S
With certain exceptions such as financial instruments at fair value through profit or loss, available-for-sale
financial assets and provisions for pensions and other post-employment benefits, items in the Volkswagen
Group are accounted for under the historical cost convention. The methods used to measure the individual
items are explained in more detail below.
I N TA N G I B L E A S S E T S
Purchased intangible assets are recognized at cost and amortized over their useful life using the straight-line
method. This relates in particular to software, which is amortized over three years.
In accordance with IAS 38, research costs are recognized as expenses when incurred.
Development costs for future series products and other internally generated intangible assets are
capitalized at cost, provided manufacture of the products is likely to bring the Volkswagen Group an economic
benefit. If the criteria for recognition as assets are not met, the expenses are recognized in the income
statement in the year in which they are incurred.
Capitalized development costs include all direct and indirect costs that are directly attributable to the
development process. The costs are amortized using the straight-line method from the start of production over
the expected life cycle of the models or powertrains developed – generally between two and ten years.
Amortization recognized during the year is allocated to the relevant functions in the income statement.
Brand names from business combinations usually have an indefinite useful life and are therefore not
amortized. An indefinite useful life is usually the result of a brand’s further use and maintenance.
Goodwill, intangible assets with indefinite useful lives and intangible assets that are not yet available for
use are tested for impairment at least once a year. Assets in use and other intangible assets with finite useful
lives are tested for impairment only if there are specific indications that they may be impaired. The Volkswagen
Group generally applies the higher of value in use and fair value less costs to sell of the relevant cash-generating
unit (brands or products) to determine the recoverable amount of goodwill and indefinite-lived intangible
assets. Measurement of value in use is based on management’s current planning. This planning is based on
expectations regarding future global economic trends and on assumptions derived from those trends about the
markets for passenger cars and commercial vehicles, market shares and the profitability of the products. The
planning for the Financial Services segment is likewise prepared on the basis of these expectations, and also
reflects the relevant market penetration rates and regulatory requirements. The planning for the Power
Engineering segment reflects expectations about trends in the various individual markets. The planning
includes reasonable assumptions about macroeconomic trends (exchange rate, interest rate and commodity
price trends) and historical developments. The planning period generally covers five years. For information on
the assumptions applied to the detailed planning period, please refer to the Report on Expected Developments,
which is part of the Management Report. For subsequent years, plausible assumptions are made regarding
future trends. The planning assumptions are adapted to reflect the current state of knowledge.
Estimation of cash flows is generally based on the expected growth trends for the markets concerned. The
estimates for the cash flows following the end of the planning period are generally based on a growth rate of up
to 1% p.a. (previous year: up to 1% p.a.) in the Passenger Cars segment, and on a growth rate of up to 1% p.a.
(previous year: up to 1% p.a.) in the Power Engineering and Commercial Vehicles segments.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
221
Value in use is determined for the purpose of impairment testing of goodwill, indefinite-lived intangible assets
and finite-lived intangible assets – mainly capitalized development costs – using the following pretax weighted
average cost of capital (WACC) rates, which are adjusted if necessary for country-specific discount factors:
WACC
Passenger Cars segment
Commercial Vehicles segment
Power Engineering segment
2017
5.8%
6.8%
8.0%
2016
5.4%
6.5%
7.7%
The WACC rates are calculated based on the risk-free rate of interest, a market risk premium and the cost of debt.
Additionally, specific peer group information on beta factors and leverage are taken into account. The
composition of the peer groups used to determine beta factors is continuously reviewed and adjusted if
necessary.
P R O P E RT Y, P L A N T A N D E Q U I PM E N T
Property, plant and equipment is carried at cost less depreciation and – where necessary – write-downs for
impairment. Investment grants are generally deducted from cost. Cost is determined on the basis of the direct
and indirect costs that are directly attributable. Special tools are reported under other equipment, operating
and office equipment. Property, plant and equipment is depreciated using the straight-line method over its
estimated useful life. The useful lives of items of property, plant and equipment are reviewed on a regular basis
and adjusted if required.
Depreciation is based mainly on the following useful lives:
Buildings
Site improvements
Technical equipment and machinery
Other equipment, operating and office equipment, including special tools
Useful life
20 to 50 years
10 to 20 years
6 to 12 years
3 to 15 years
Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 where the
recoverable amount of the asset concerned has fallen below the carrying amount. Recoverable amount is the
higher of value in use and fair value less costs to sell. Value in use is determined using the principles described
for intangible assets. The discount rates for product-specific tools and investments are the same as the discount
rates for capitalized development costs given above for each segment. If the reasons for impairments recog-
nized in previous years no longer apply, the impairment losses are reversed up to a maximum of the amount
that would have been determined if no impairment loss had been recognized.
In accordance with the principle of substance over form, assets that have been formally transferred to third
parties under a sale and leaseback transaction including a repurchase option also continue to be accounted for
as separate assets.
222
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Where leased items of property, plant and equipment are used, the criteria for classification as a finance lease as
set out in IAS 17 are met if all material risks and rewards incidental to ownership have been transferred to the
Group company concerned. In such cases, the assets concerned are recognized at fair value or at the present
value of the minimum lease payments (if lower) and depreciated using the straight-line method over the asset’s
useful life, or over the term of the lease if this is shorter. The payment obligations arising from the future lease
payments are discounted and recorded as a liability in the balance sheet.
Where Group companies are the lessees of assets under operating leases, i.e. if not all material risks and
rewards are transferred, lease and rental payments are recorded directly as expenses in profit or loss.
L E A S E A S S E T S
Vehicles leased out under operating leases are recognized at cost and depreciated to their estimated residual
value using the straight-line method over the term of the lease. Impairment losses identified as a result of an
impairment test in accordance with IAS 36 are recognized and the future depreciation rate is adjusted. The
forecast residual values are adjusted to include constantly updated internal and external information on
residual values, depending on specific local factors and the experiences gained in the marketing of used cars.
This requires management to make assumptions in particular about vehicle supply and demand in the future,
as well as about vehicle price trends. Such assumptions are based either on qualified estimates or on data
published by external experts. Qualified estimates are based on external data – if available – that reflects
additional information that is available internally, such as historical experience and current sales data.
I N V E STM E N T P R O P E RT Y
Real estate and buildings held in order to obtain rental income (investment property) are carried at amortized
cost; the useful lives applied to depreciation generally correspond to those of the property, plant and equip-
ment used by the Company itself. The fair value of investment property must be disclosed in the notes if it is
carried at amortized cost. Fair value is generally estimated using an investment method based on internal
calculations. This involves determining the income value for a specific building on the basis of gross income,
taking into account additional factors such as land value, remaining useful life and a multiplier specific to
property.
C A P I TA L I Z AT I O N O F B O R R OW I N G CO ST S
Borrowing costs that are directly attributable to the acquisition of qualifying assets on or after January 1, 2009 are
capitalized as part of the cost of these assets. A qualifying asset is an asset that necessarily takes at least a year
to get ready for its intended use or sale.
E Q U I T Y - A CCO U N T E D I N V E STM E N T S
The cost of equity-accounted investments is adjusted to reflect the share of increases or reductions in equity at
the associates and joint ventures after the acquisition that is attributable to the Volkswagen Group, as well as
any effects from purchase price allocation. Additionally, the investment is tested for impairment if there are
indications of impairment and written down to the lower recoverable amount if necessary. The recoverable
amount is determined using the principles described for indefinite-lived intangible assets. If the reason for
impairment ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would
have been determined had no impairment loss been recognized.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
223
F I N A N C I A L I N ST R U M E N T S
Financial instruments are contracts that give rise to a financial asset of one company and a financial liability
or an equity instrument of another. Regular way purchases or sales of financial instruments are accounted
for at the settlement date – that is, at the date on which the asset is delivered.
IAS 39 classifies financial assets into the following categories:
> financial assets at fair value through profit or loss;
> held-to-maturity financial assets;
> loans and receivables; and
> available-for-sale financial assets.
Financial liabilities are classified into the following categories:
> financial liabilities at fair value through profit or loss; and
> financial liabilities measured at amortized cost.
We recognize financial instruments at amortized cost or at fair value.
The amortized cost of a financial asset or liability is the amount:
> at which a financial asset or liability is measured at initial recognition;
> minus any principal repayments;
> minus any write-down for impairment or uncollectibility;
> plus or minus the cumulative amortization of any difference between the original amount and the amount
repayable at maturity (premium, discount), amortized using the effective interest method over the term of
the financial asset or liability.
In the case of current receivables and liabilities, amortized cost generally corresponds to the principal or
repayment amount.
Fair value generally corresponds to the market or quoted market price. If no active market exists, fair value
is determined using other observable inputs as far as possible. If no observable inputs are available, fair value is
determined using valuation techniques, such as by discounting the future cash flows at the market interest
rate, or by using recognized option pricing models, and, as far as possible, verified by confirmations from the
banks that handle the transactions.
The fair value option for financial assets and financial liabilities is not used in the Volkswagen Group.
Financial assets and financial liabilities are generally presented at their gross amounts and only offset if the
Volkswagen Group currently has a legally enforceable right to set off the amounts and intends to settle on a net
basis.
Subsidiaries, associates and joint ventures that are not consolidated for reasons of materiality do not fall
within the scope of IAS 39 and IFRS 7. Other equity investments that are required by IAS 39.46(c) to be measured
at cost, net of any impairment losses to be recognized, are presented as “measured at fair value”.
LOA N S A N D R E C E I VA B L E S , F I N A N C I A L L I A B I L I T I E S A N D H E L D - TO - M AT U R I T Y F I N A N C I A L A S S E T S
Loans, receivables and financial liabilities, as well as held-to-maturity financial assets, are measured at
amortized cost, unless hedged. Specifically, these relate to:
> receivables from financing business;
> trade receivables and payables;
> other receivables and financial assets and liabilities;
> financial liabilities; and
> cash, cash equivalents and time deposits.
224
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
AVA I L A B L E - F O R - S A L E F I N A N C I A L A S S E T S
Available-for-sale financial assets are either allocated specifically to this category or are financial assets that
cannot be assigned to any other category.
Available-for-sale financial assets (debt instruments) are carried at fair value. Changes in fair value are
recognized directly in equity, net of deferred taxes. Prolonged changes in the fair value of debt instruments
(impairment losses, foreign exchange gains and losses, interest calculated using the effective interest method)
are recognized in profit or loss.
Other equity investments (shares representing an ownership interest of less than 20% as a rule) are also
classified as available-for-sale financial assets. They are recognized at cost in the consolidated financial
statements if there is no active market for those shares and fair values cannot be reliably ascertained without
undue cost or effort. The lower present value of the estimated future cash flows is recognized if there are
indications of impairment. There is currently no intention to sell these financial assets. Foreign exchange gains
and losses attributable to equity instruments are recognized in other comprehensive income.
D E R I VAT I V E S A N D H E D G E A CCO U N T I N G
Volkswagen Group companies use derivatives to hedge balance sheet items and future cash flows (hedged
items). Appropriate derivatives such as swaps, forward transactions and options are used as hedging instru-
ments. The criteria for the application of hedge accounting are that the hedging relationship between the
hedged item and the hedging instrument is clearly documented and that the hedge is highly effective.
The accounting treatment of changes in the fair value of hedging instruments depends on the nature of the
hedging relationship. In the case of hedges against the risk of change in the carrying amount of balance sheet
items (fair value hedges), both the hedging instrument and the hedged risk portion of the hedged item are
measured at fair value. Several risk portions of hedged items are grouped into a portfolio if appropriate. In the
case of a fair value portfolio hedge, the changes in fair value are accounted for in the same way as for a fair value
hedge of an individual underlying. Gains or losses from the remeasurement of hedging instruments and
hedged items are recognized in profit or loss. In the case of hedges of future cash flows (cash flow hedges), the
hedging instruments are also measured at fair value. Gains or losses from remeasurement of the effective
portion of the derivative are initially recognized in the reserve for cash flow hedges directly in equity, and are
only recognized in the income statement when the hedged item is recognized in profit or loss; the ineffective
portion of a cash flow hedge is recognized immediately in profit or loss.
Derivatives used by the Volkswagen Group for financial management purposes to hedge against interest
rate, foreign currency, commodity, or price risks, but that do not meet the strict hedge accounting criteria of
IAS 39, are classified as financial assets or liabilities at fair value through profit or loss (also referred to below as
derivatives not included in hedging relationships). This also applies to options on shares. External hedging
instruments of intragroup hedged items that are subsequently eliminated in the consolidated financial state-
ments are also assigned to this category as a general rule. Assets and liabilities measured at fair value through
profit or loss consist of derivatives or components of derivatives that are not included in hedge accounting.
These relate primarily to the interest component of currency forwards used to hedge sales revenue,
commodity futures and currency forwards relating to commodity futures. Gains and losses from the
remeasurement and settlement of financial instruments at fair value through profit or loss are reported in the
financial result.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
225
R E C E I VA B L E S F RO M F I N A N C E L E A S E S
Where a Group company is the lessor – generally of vehicles – a receivable in the amount of the net investment
in the lease is recognized in the case of finance leases, in other words where substantially all the risks and
rewards are transferred to the lessee.
OT H E R R E C E I VA B L E S A N D F I N A N C I A L A S S E T S
Other receivables and financial assets (except for derivatives) are recognized at amortized cost.
I M PA I R M E N T LO S S E S O N F I N A N C I A L I N ST R U M E N T S
Default risk on loans and receivables in the financial services business is accounted for by recognizing specific
valuation allowances and portfolio-based valuation allowances.
More specifically, in the case of significant individual receivables (e.g. dealer finance receivables and fleet
customer business receivables) specific valuation allowances are recognized in accordance with Group-wide
standards in the amount of the incurred loss. A potential impairment is assumed in the case of a number of
situations such as delayed payment over a certain period, the institution of enforcement measures, the threat
of insolvency or overindebtedness, application for or the opening of bankruptcy proceedings, or the failure of
reorganization measures.
Portfolio-based valuation allowances are recognized by grouping together insignificant receivables and
significant individual receivables for which there is no indication of impairment into homogeneous portfolios
on the basis of comparable credit risk features and allocating them by risk class. As long as no definite infor-
mation is available as to which receivables are in default, average historical default probabilities for the
portfolio concerned are used to calculate the amount of the valuation allowances.
As a matter of principle, specific valuation allowances are recognized on receivables outside the Financial
Services segment.
Valuation allowances on receivables are regularly recognized in separate allowance accounts.
An impairment loss is recognized on available-for-sale financial assets if there is objective evidence of
permanent impairment. In the case of equity instruments, evidence of impairment is taken to exist, among
other things, if the fair value decreases below cost significantly (by more than 20%) or the decrease is prolonged
(by more than 10% of the average market prices over one year). If impairment is identified, the cumulative loss
is recognized in the reserve and charged to profit and loss. In the case of equity instruments, reversals of
impairment losses are taken directly to equity. Impairment losses are recognized on debt instruments if a
decrease in the future cash flows of the financial asset is expected. An increase in the risk-free interest rate or an
increase in credit risk premiums is not in itself evidence of impairment.
D E F E R R E D TA X E S
Deferred tax assets are generally recognized for tax-deductible temporary differences between the tax base of
assets and liabilities and their carrying amounts in the consolidated balance sheet, as well as on tax loss
carryforwards and tax credits provided it is probable that they can be used in future periods. Deferred tax
liabilities are generally recognized for all taxable temporary differences between the tax base of assets and
liabilities and their carrying amounts in the consolidated balance sheet.
Deferred tax liabilities and assets are recognized in the amount of the expected tax liability or tax benefit,
as appropriate, in subsequent fiscal years, based on the expected enacted tax rate at the time of realization. The
tax consequences of dividend payments are generally not taken into account until the resolution on
appropriation of earnings available for distribution has been adopted.
Deferred tax assets that are unlikely to be realized within a clearly predictable period are reduced by
valuation allowances.
Deferred tax assets for tax loss carryforwards are usually measured on the basis of future taxable income
over a planning period of five fiscal years.
Deferred tax assets and deferred tax liabilities are offset where taxes are levied by the same taxation
authority and relate to the same tax period.
226
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
I N V E N TO R I E S
Raw materials, consumables and supplies, merchandise, work in progress and self-produced finished goods
reported in inventories are carried at the lower of cost or net realizable value. Cost is determined on the basis of
the direct and indirect costs that are directly attributable. Borrowing costs are not capitalized. The
measurement of same or similar inventories is generally based on the weighted average cost method.
N O N C U R R E N T A S S E T S H E L D F O R S A L E A N D D I S CO N T I N U E D O P E R AT I O N S
Under IFRS 5, noncurrent assets or groups of assets and liabilities (disposal groups) are classified as held for sale
if their carrying amounts will be recovered principally through a sale transaction rather than through
continuing use. Such assets are carried at the lower of their carrying amount and fair value less costs to sell, and
are presented separately in current assets and liabilities in the balance sheet.
Discontinued operations are components of an entity that have either been disposed of or are classified as
held for sale. The assets and liabilities of operations that are held for sale represent disposal groups that must
be measured and reported using the same principles as noncurrent assets held for sale. The income and
expenses from discontinued operations are presented in the income statement as profit or loss from
discontinued operations below the profit or loss from continuing operations. Corresponding disposal gains or
losses are contained in the profit or loss from discontinued operations. The prior-year figures in the income
statement are adjusted accordingly.
P E N S I O N P R OV I S I O N S
The actuarial valuation of pension provisions is based on the projected unit credit method stipulated by IAS 19
for defined benefit plans. The valuation is not only based on pension payments and vested entitlements known
at the balance sheet date, but also reflects future salary and pension trends, as well as experience-based staff
turnover rates. Remeasurements are recognized in retained earnings in other comprehensive income, net of
deferred taxes.
P R OV I S I O N S F O R I N CO M E TA X E S
Tax provisions contain obligations resulting from current income taxes. Deferred taxes are presented in
separate items of the balance sheet and income statement. Provisions are recognized for potential tax risks on
the basis of the best estimate of the liability.
S H A R E - B A S E D PAYM E N T
The share-based payment consists of phantom shares and performance shares. The obligations arising from the
share-based payment are accounted for as cash-settled plans in accordance with IFRS 2. The cash-settled share-
based payments are measured at fair value until maturity. Fair value is determined using a recognized valuation
technique. The compensation cost is allocated over the vesting period.
OT H E R P R OV I S I O N S
In accordance with IAS 37, provisions are recognized where a present obligation exists to third parties as a
result of a past event, where a future outflow of resources is probable and where a reliable estimate of that
outflow can be made.
Provisions not resulting in an outflow of resources in the year immediately following are recognized at their
settlement value discounted to the balance sheet date. Discounting is based on market interest rates. An
average discount rate of 0.08% (previous year: 0.04%) was used in the Eurozone. The settlement value also
reflects cost increases expected at the balance sheet date.
Provisions are not offset against claims for reimbursement.
We recognize insurance contracts that form part of the insurance business in accordance with IFRS 4.
Reinsurance acceptances are accounted for without any time delay in the year in which they arise. Provisions
are generally recognized based on the cedant’s contractual duties. Estimation techniques based on assumptions
about future changes in claims are used to calculate the claims provision. Other technical provisions relate to
the provision for cancellations.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
227
The share of the provisions attributable to reinsurers is calculated in accordance with the contractual
agreements with the retrocessionaries and reported under other assets.
CO N T I N G E N T L I A B I L I T I E S
If the criteria for recognizing a provision are not met, but the outflow of financial resources is not improbable,
such obligations are disclosed in the notes to the consolidated financial statements (see the “Contingent
liabilities” section). Contingent liabilities are only recognized if the obligations are more certain, i.e. the outflow
of financial resources has become probable and their amount can be reliably estimated.
L I A B I L I T I E S
Noncurrent liabilities are recorded at amortized cost in the balance sheet. Differences between historical cost
and the repayment amount are amortized using the effective interest method.
Liabilities to members of partnerships from puttable shares are recognized in the income statement at the
present value of the redemption amount at the balance sheet date.
Liabilities under finance leases are carried at the present value of the lease payments.
Current liabilities are recognized at their repayment or settlement value.
R E V E N U E A N D E X P E N S E R E CO G N I T I O N
Sales revenue, interest and commission income from financial services and other operating income are
recognized only when the relevant service has been rendered or the goods have been delivered, that is, when
the risk has passed to the customer, the amount of sales revenue can be reliably determined and settlement
of the amount can be assumed. Revenue is reported net of sales allowances (discounts, rebates, or customer
bonuses). Sales revenue from financing and lease agreements is recognized using the effective interest
method. If non-interest-bearing or low-interest vehicle financing arrangements are agreed, sales revenue is
reduced by the interest benefits granted. Customer financing and finance lease income is determined using
the effective interest method and recognized under sales revenue. Sales revenue from extended warranties
or maintenance agreements is recognized when deliveries take place or services are rendered. In the case of
prepayments, deferred income is recognized proportionately by reference to the costs expected to be
incurred, based on experience. Revenue is recognized on a straight-line basis if there is insufficient
experience. If the expected costs exceed the accrued sales revenue, a loss is recognized from these
agreements.
If a contract comprises several separately identifiable components (multiple-element arrangements),
these components are recognized separately in accordance with the principles outlined above.
Income from assets for which a Group company has a buy-back obligation is recognized only when the
assets have definitively left the Group. If a fixed repurchase price was agreed when the contract was entered
into, the difference between the selling price and the present value of the repurchase price is recognized as
income ratably over the term of the contract. Prior to that time, the assets are carried as inventories in the
case of short contract terms and as lease assets in the case of long contract terms.
Cost of sales includes the costs incurred to generate the sales revenue and the cost of goods purchased
for resale. This item also includes the costs of additions to warranty provisions. Research and development
costs not eligible for capitalization in the period and amortization of development costs are likewise carried
under cost of sales. Reflecting the presentation of interest and commission income in sales revenue, the
interest and commission expenses attributable to the financial services business are presented in cost of
sales.
Construction contracts are recognized using the percentage of completion (PoC) method, under which
revenue and cost of sales are recognized by reference to the stage of completion at the end of the reporting
period, based on the contract revenue agreed with the customer and the expected contract costs. As a rule,
the stage of completion is determined as the proportion that contract costs incurred by the end of the
reporting period bear to the estimated total contract costs (cost-to-cost method). In certain cases, in
particular those involving innovative, complex contracts, the stage of completion is measured using
contractually agreed milestones (milestone method). If the outcome of a construction contract cannot yet be
estimated reliably, contract revenue is recognized only in the amount of the contract costs incurred to date
(zero profit method). In the balance sheet, contract components whose revenue is recognized using the
percentage of completion method are reported as trade receivables, net of prepayments received. Expected
228
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
losses from construction contracts are recognized immediately in full as expenses by recognizing
impairment losses on recognized contract assets, and additionally by recognizing provisions for amounts in
excess of the impairment losses.
Dividend income is recognized on the date when the dividend is legally approved.
G OV E R N M E N T G R A N T S
Government grants related to assets are deducted when arriving at the carrying amount of the asset and are
recognized in profit or loss over the life of the depreciable asset as a reduced depreciation expense. If the Group
becomes entitled to a grant subsequently, the amount of the grant attributable to prior periods is recognized in
profit or loss.
Government grants related to income, i.e. that compensate the Group for expenses incurred, are recognized
in profit or loss for the period in those items in which the expenses to be compensated by the grants are also
recognized. Grants in the form of nonmonetary assets (e.g. the use of land free of charge or the transfer of
resources free of charge) are disclosed as a memo item.
E ST I M AT E S A N D A S S U M P T I O N S B Y M A N A G E M E N T
Preparation of the consolidated financial statements requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and income and expenses, as well as the
related disclosure of contingent assets and liabilities of the reporting period. The estimates and assumptions
relate largely to the following matters:
The impairment testing of nonfinancial assets (especially goodwill, brand names, capitalized development
costs and special tools) and equity-accounted investments, or investments accounted at cost, and the measure-
ment of options on shares in companies that are not traded in an active market require assumptions about the
future cash flows during the planning period, and possibly beyond it, as well as about the discount rate to be
applied. The estimates made in order to separate cash flows mainly relate to future market shares, the trend in
the respective markets and the profitability of the Volkswagen Group’s products. In addition, the recoverability
of the Group’s lease assets depends in particular on the residual value of the leased vehicles after expiration of
the lease term, because this represents a significant portion of the expected cash flows. More detailed
information on impairment tests and the measurement parameters used for those tests can be found in the
explanations on the accounting policies for intangible assets.
If there are no observable market inputs, the fair values of assets acquired and liabilities assumed in a
business combination are measured using recognized valuation techniques, such as the relief-from-royalty
method or the residual method.
Impairment testing of financial assets requires estimates about the extent and probability of occurrence of
future events. As far as possible, estimates are derived from past experience taking into account current market
data as well as rating categories and scoring information. In the case of financial services receivables, both
specific and portfolio-based valuation allowances are recognized. The more detailed balance sheet disclosures
on IFRS 7 (Financial Instruments) contain an overview of these specific and portfolio-based valuation allow-
ances.
Accounting for provisions is also based on estimates of the extent and probability of occurrence of future
events, as well as estimates of the discount rate. As far as possible, these are also based on past experience or
external opinions. The assumptions applied in the measurement of pension provisions are described in the
“Provisions for pensions and other post-employment benefits” section. Remeasurements are recognized in
other comprehensive income and do not affect profit or loss reported in the income statement. Any change in
the estimates of the amount of other provisions is always recognized in profit or loss. The provisions are
regularly adjusted to reflect new information obtained. The use of expected values means that additional
amounts must frequently be recognized for provisions, or that unused provisions are reversed. Reversals of
provisions are recognized as other operating income, whereas expenses relating to the recognition of
provisions are allocated directly to the functions. Warranty claims from sales transactions are calculated on the
basis of losses to date, estimated future losses and the policy on ex gratia arrangements. This requires
assumptions to be made about the nature and extent of future guarantee and ex gratia claims. Assumptions
were made in respect of the provisions recognized in connection with the diesel issues. These depend on the
series, model year and country concerned and relate in particular to the effort, material costs and hourly wage
rates involved, or to vehicle values in the case of repurchases. In addition, assumptions are made about future
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
229
resale prices of repurchased vehicles. They are based on qualified estimates, which are based in turn on external
data, and also reflect additional information available internally, such as values derived from past experience.
An overview of other provisions can be found in the “Noncurrent and current other provisions” section.
Further information on the legal proceedings and on the legal risks associated with the diesel issue can be
found in the “Litigation” section. The put options and compensation rights of free float shareholders
recognized within liabilities depend in particular on the outcome of the MAN award proceedings. The liability
was based on estimates of the length of the award proceedings and the amount of the put options and
compensation rights. The length was estimated based on the fact that proceedings take seven years on average.
The amount of the put options and compensation rights of MAN’s free float shareholders is derived from the
cash settlement in accordance with section 305 of the Aktiengesetz (AktG – German Stock Corporation Act).
Government grants are recognized based on an assessment as to whether there is reasonable assurance that
the Group companies will fulfill the attached conditions and the grants will be awarded. This assessment is
based on the nature of the legal entitlement and past experience.
Estimates of the useful life of finite-lived assets are based on past experience and are reviewed regularly.
Where estimates are modified the residual useful life is adjusted and an impairment loss is recognized, if
necessary.
Measuring deferred tax assets requires assumptions regarding future taxable income and the timing of the
realization of deferred tax assets.
The estimates and assumptions are based on underlying assumptions that reflect the current state of
available knowledge. Specifically, the expected future development of business was based on the circumstances
known at the date of preparation of these consolidated financial statements and a realistic assessment of the
future development of the global and sector-specific environment. Our estimates and assumptions remain
subject to a high degree of uncertainty because future business developments are subject to uncertainties that
in part cannot be influenced by the Group. This applies in particular to short- and medium-term cash flow
forecasts and to the discount rates used.
Developments in this environment that differ from the assumptions and that cannot be influenced by
management could result in amounts that differ from the original estimates. If actual developments differ from
the expected developments, the underlying assumptions and, if necessary, the carrying amounts of the assets
and liabilities affected are adjusted.
Global gross domestic product (GDP) rose by 3.2% (previous year: 2.5%) in 2017. In our forecasts, we assume
that global economic growth will weaken slightly in 2018. As a result, from today’s perspective, we are not
expecting material adjustments in the following fiscal year in the carrying amounts of the assets and liabilities
reported in the consolidated balance sheet.
Estimates and assumptions by management were based in particular on assumptions relating to the
development of the general economic environment, the automotive markets and the legal environment. These
and further assumptions are explained in detail in the Report on Expected Developments, which is part of the
Group Management Report.
230
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Segment reporting
Segments are identified on the basis of the Volkswagen Group’s internal management and reporting. In line
with the Group’s multibrand strategy, each of its brands (operating segments) is managed by its own board of
management. The Group targets and requirements laid down by the Board of Management of Volkswagen AG
must be complied with. Segment reporting comprises four reportable segments: Passenger Cars, Commercial
Vehicles, Power Engineering and Financial Services.
The activities of the Passenger Cars segment cover the development of vehicles and engines, the production
and sale of passenger cars, and the corresponding genuine parts business. Given the high degree of techno-
logical and economic interlinking in the production network of the individual brands, the Passenger Cars
reporting segment combines the Volkswagen Group’s individual car brands to a single reportable segment.
Furthermore, there is collaboration within key areas such as procurement, research and development or
treasury.
The Commercial Vehicles segment primarily comprises the development, production and sale of light
commercial vehicles, trucks and buses, the corresponding genuine parts business and related services. Just as in
the case of the car brands, there is collaboration within the areas procurement, development and sale. The aim
is to achieve further forms of interlinking.
The activities of the Power Engineering segment consist of the development and production of large-bore
diesel engines, turbo compressors, industrial turbines and chemical reactor systems, as well as the production
of gear units, propulsion components and testing systems.
The activities of the Financial Services segment comprise dealer and customer financing, leasing, banking
and insurance activities, fleet management and mobility services. In this segment, combinations occur
especially while taking into account the comparability of the type of services as well as the regulatory situation
permits.
Purchase price allocation for companies acquired is allocated directly to the corresponding segments.
At Volkswagen, segment profit or loss is measured on the basis of the operating result.
In the segment reporting, the share of the result of joint ventures is contained in the share of the result of
equity-accounted investments in the corresponding segments.
The reconciliation contains activities and other operations that by definition do not constitute segments. It
also includes the unallocated Group financing activities. Consolidation adjustments between the segments are
also contained in the reconciliation.
Investments in intangible assets, property, plant and equipment, and investment property are reported net
of investments under finance leases.
As a matter of principle, business relationships between the companies within the segments of the
Volkswagen Group are transacted at arm’s length prices.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
231
R E P O RT I N G S E G M E N T S 2 0 1 6
€ million
Sales revenue from
external customers
Intersegment sales revenue
Total sales revenue
Depreciation and amortization
Impairment losses
Reversal of impairment losses
Segment result (operating result)
Share of the result of
equity-accounted investments
Net interest result and
other financial result
Equity-accounted investments
Investments in intangible assets,
property, plant and equipment, and
investment property
R E P O RT I N G S E G M E N T S 2 0 1 7
Passenger Cars
Commercial
Vehicles
Power
Engineering
Financial
Services
Total
segments
Reconciliation
Volkswagen
Group
160,461
17,354
177,815
10,846
886
152
5,235
3,147
–1,674
7,349
25,385
6,695
32,080
2,293
126
0
718
25
–379
418
3,590
3
3,593
368
3
–
–217
–
–8
–
27,884
3,367
31,251
6,224
491
92
2,435
64
–91
849
217,320
27,418
244,739
19,731
1,506
245
8,171
3,236
–54
217,267
–27,418
–27,472
–159
–137
–139
–1,068
–
217,267
19,572
1,368
106
7,103
261
3,497
–2,152
8,616
–1,157
–
–3,308
8,616
15,891
2,433
194
357
18,875
27
18,902
€ million
Passenger Cars
Commercial
Vehicles
Power
Engineering
Financial
Services
Total
segments
Reconciliation
Volkswagen
Group
Sales revenue from
external customers
Intersegment sales revenue
Total sales revenue
Depreciation and amortization
Impairment losses
Reversal of impairment losses
169,513
18,892
188,405
11,363
704
14
27,632
7,568
35,200
2,557
2
1
Segment result (operating result)
12,644
1,892
Share of the result of
equity-accounted investments
Net interest result and
other financial result
Equity-accounted investments
Investments in intangible assets,
property, plant and equipment, and
investment property
3,390
–1,920
6,724
83
–220
753
3,280
3
3,283
371
0
–
–55
1
–2
18
30,191
3,541
33,733
6,797
574
41
230,618
30,004
260,621
21,089
1,280
56
64
230,682
–30,004
–29,939
–147
0
–
–
230,682
20,941
1,280
56
2,673
17,153
–3,335
13,818
9
3,482
–
3,482
–180
710
–2,321
8,205
–1,067
–
–3,388
8,205
15,713
1,915
159
421
18,208
104
18,313
232
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
R E CO N C I L I AT I O N
€ million
Segment sales revenue
Unallocated activities
Group financing
Consolidation
Group sales revenue
Segment result (operating result)
Unallocated activities
Group financing
Consolidation
Operating result
Financial result
Consolidated result before tax
B Y R E G I O N 2 0 1 6
2017
2016
260,621
244,739
948
25
–30,912
230,682
17,153
10
–16
–3,328
13,818
94
13,913
749
42
–28,263
217,267
8,171
86
22
–1,176
7,103
189
7,292
€ million
Germany
Europe/Other
markets¹
North
America
South
America
Asia-
Pacific
Total
Sales revenue from external customers
43,634
94,445
35,454
7,973
35,761
217,267
Intangible assets, property, plant and equipment,
lease assets and investment property
84,525
40,717
23,958
3,320
3,064
155,583
1 Excluding Germany.
B Y R E G I O N 2 0 1 7
€ million
Germany
Europe/Other
markets¹
North
America
South
America
Asia-
Pacific
Total
Sales revenue from external customers
44,333
98,420
38,818
9,988
39,123
230,682
Intangible assets, property, plant and equipment,
lease assets and investment property
1 Excluding Germany.
89,594
37,050
26,076
2,851
2,812
158,384
Allocation of sales revenue to the regions follows the destination principle.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
233
Income statement disclosures
1. Sales revenue
ST R U C T U R E O F G R O U P S A L E S R E V E N U E
€ million
Vehicles
Genuine parts
Used vehicles and third-party products
Engines, powertrains and parts deliveries
Power Engineering
Motorcycles
Leasing business
Interest and similar income
Other sales revenue
2017
2016
145,958
15,628
13,355
11,318
3,280
601
24,570
7,119
8,853
137,293
15,220
13,324
9,770
3,590
589
22,306
6,695
8,481
230,682
217,267
For segment reporting purposes, the sales revenue of the Group is presented by segment and market.
Other sales revenue comprises revenue from workshop services and license revenue, among other things.
Sales revenue from construction contracts amounted to €965 million (previous year: €1,069 million) and
mainly related to the Power Engineering segment.
2. Cost of sales
Cost of sales includes interest expenses of €1,961 million (previous year: €1,930 million) attributable to the
financial services business. This item also includes impairment losses on intangible assets (primarily
development costs), property, plant and equipment (primarily other equipment, operating and office
equipment), and lease assets in the amount of €1,185 million (previous year: €1,369 million). The impairment
losses amounting to a total of €700 million recognized during the reporting period on intangible assets and
items of property, plant and equipment result in particular from lower values in use of various products in the
Passenger Cars segment, from market and exchange rate risks, and in particular from expected declines in
volumes. The impairment losses on lease assets in the amount of €485 million (including €37 million reported
in current lease assets), which are attributable predominantly to the Financial Services segment, are based on
constantly updated internal and external information that is factored into the forecast residual values of the
vehicles.
Government grants related to income amounted to €424 million in the fiscal year (previous year:
€435 million) and were generally allocated to the functions.
234
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
3. Distribution expenses
Distribution expenses amounting to €22.7 billion (previous year: €22.7 billion) include nonstaff overheads and
personnel costs, and depreciation and amortization applicable to the distribution function, as well as the costs
of shipping, advertising and sales promotions.
4. Administrative expenses
The administrative expenses of €8.3 billion (previous year: €7.3 billion) mainly include nonstaff overheads and
personnel costs, as well as depreciation and amortization applicable to the administrative function.
5. Other operating income
€ million
2017
2016
Income from reversal of valuation allowances on receivables and other assets
Income from reversal of provisions and accruals
Income from foreign currency hedging derivatives
Income from foreign exchange gains
Income from sale of promotional material
Income from cost allocations
Income from investment property
Gains on asset disposals and the reversal of impairment losses
Miscellaneous other operating income
1,043
4,384
2,259
2,656
502
1,386
16
212
2,041
14,500
847
3,738
1,739
2,842
440
1,222
14
363
1,843
13,049
Income from the reversal of provisions and accrued liabilities is mainly attributable to a reduction in
provisions. A further breakdown can be found in the “Noncurrent and current other provisions” section.
Foreign exchange gains mainly comprise gains from changes in exchange rates between the dates of
recognition and payment of receivables and liabilities denominated in foreign currencies, as well as exchange
rate gains resulting from measurement at the closing rate. Foreign exchange losses from these items are
included in other operating expenses.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
235
6. Other operating expenses
€ million
2017
2016
Valuation allowances on receivables and other assets
Losses from foreign currency hedging derivatives
Foreign exchange losses
Expenses from cost allocations
Expenses for termination agreements
Losses on disposal of noncurrent assets
Miscellaneous other operating expenses
1,650
1,753
2,839
609
35
175
5,197
12,259
1,787
2,964
3,077
542
424
144
7,970
16,907
Miscellaneous other operating expenses consist of litigation expenses of €1.0 billion (previous year:
€5.1 billion) in connection with the diesel issue. In the previous year, they had also included provisions of €0.4 bil-
lion for the antitrust proceedings that the European Commission opened against European truck
manufacturers including MAN and Scania. The prior-year expenses for termination agreements result primarily
from the restructuring expenses for the South American market and at MAN. In addition, the changes in the
currency hedging derivatives are due to the exchange rate changes between the trade price and the price on
realization; this applies in particular to the US dollar, the Chinese renminbi and sterling.
7. Share of the result of equity-accounted investments
€ million
2017
2016
Share of profits of equity-accounted investments
of which: from joint ventures
of which: from associates
Share of losses of equity-accounted investments
of which: from joint ventures
of which: from associates
3,519
(3,327)
(191)
36
(2)
(34)
3,482
3,563
(3,534)
(29)
66
–
(66)
3,497
236
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
8. Interest result
€ million
Interest income
Other interest and similar income
Income from valuation of interest derivatives
Interest expenses
Other interest and similar expenses
Expenses from valuation of interest derivatives
Interest cost included in lease payments
Interest result on other liabilities
Net interest on the net defined benefit liability
Interest result
1 Prior-year figures adjusted.
2017
2016¹
951
839
113
–2,317
–1,305
–368
–29
–13
–602
1,285
915
370
–2,955
–1,400
–448
–29
–347
–731
–1,366
–1,670
To enhance comparability, the structure within the financial result has been changed. The presentation of
finance costs has been replaced with the interest result. The new structure has led to changes in various items
in the financial result. Specifically, the realized expenses from loan receivables and liabilities in foreign
currency reported in the finance cost item in previous years have been reclassified to other financial result. In
addition, income and expenses from the measurement and realization of interest rate risk, which were
previously reported in income and expenses from fair value changes relating to hedging transactions within
hedge accounting are now presented in the interest result. The prior-year figures for other financial result have
been adjusted accordingly by an amount of €1.6 billion.
9. Other financial result
€ million
Income from profit and loss transfer agreements
Cost of loss absorption
Other income from equity investments
Other expenses from equity investments
Income from marketable securities and loans1, 2
Realized income of loan receivables and payables in foreign currency
Realized expenses of loan receivables and payables in foreign currency
Gains and losses from remeasurement and impairment of financial instruments1
Gains and losses from fair value changes of derivatives not included in hedge accounting
Gains and losses from fair value changes of derivatives included in hedge accounting1
Other financial result¹
1 Prior-year figures adjusted.
2 Including disposal gains/losses.
2017
35
–76
71
–289
–222
734
–1,107
–475
–810
117
–2,022
2016
33
–24
110
–155
–58
882
–810
–303
–1,148
–166
–1,638
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
237
10. Income tax income/expense
CO M P O N E N T S O F TA X I N CO M E A N D E X P E N S E
€ million
Current tax expense, Germany
Current tax expense, abroad
Current income tax expense
of which prior-period income (–)/expense (+)
Deferred tax income (–)/expense (+), Germany
Deferred tax income (–)/expense (+), abroad
Deferred tax income (–)/expense (+)
Income tax income/expense
2017
2016
614
2,590
3,205
(216)
385
–1,315
–930
2,275
885
2,388
3,273
(188)
–736
–625
–1,361
1,912
The statutory corporation
the 2017 assessment period was 15%.
Including trade tax and the solidarity surcharge, this resulted in an aggregate tax rate of 29.9% (previous year:
29.9%).
in Germany
rate
tax
for
A tax rate of 29.9% (previous year: 29.9%) was used to measure deferred taxes in the German consolidated
tax group.
The local income tax rates applied for companies outside Germany vary between 0% and 45%. In the case of
split tax rates, the tax rate applicable to undistributed profits is applied.
The realization of tax benefits from tax loss carryforwards from previous years resulted in a reduction in
current income taxes in 2017 of €422 million (previous year: €146 million).
Previously unused tax loss carryforwards amounted to €14,931 million (previous year: €17,686 million).
Tax loss carryforwards amounting to €9,660 million (previous year: €11,494 million) can be used indefinitely,
while €3,834 million (previous year: €4,237 million) must be used within the next ten years. There are
additional tax loss carryforwards amounting to €1,437 million (previous year: €1,956 million) that can be used
within a period of 15 or 20 years. Tax loss carryforwards of €7,222 million (previous year: €6,380 million) were
estimated not to be usable overall. Of these, €343 million (previous year: €276 million) will expire within five
years, €2,152 million (previous year: €2,341 million) within 6 to 20 years and €93 million (previous year:
€38 million) after 20 years. Tax loss carryforwards of €4,634 million (previous year: €3,725 million) that are
estimated not to be usable will not expire.
The benefit arising from previously unrecognized tax losses or tax credits of a prior period that is used to
reduce current tax expense in the current fiscal year amounts to €114 million (previous year: €135 million).
Deferred tax expense was reduced by €75 million (previous year: €211 million) because of a benefit arising
from previously unrecognized tax losses and tax credits of a prior period. Deferred tax expense resulting from
the write-down of a deferred tax asset amounts to €130 million (previous year: €297 million). Deferred tax
income resulting from the reversal of a write-down of deferred tax assets amounts to €40 million (previous
year: €304 million).
Tax credits granted by various countries amounted to €500 million (previous year: €756 million).
No deferred tax assets were recognized for deductible temporary differences of €1,028 million (previous
year: €1,533 million) and for tax credits of €228 million (previous year: €353 million) that would expire in the
next 20 years, or for tax credits of €0 million (previous year: €65 million) that will not expire.
In accordance with IAS 12.39, deferred tax liabilities of €266 million (previous year: €326 million) for
temporary differences and undistributed profits of Volkswagen AG subsidiaries were not recognized because
control exists.
Due to the change in the statutory provisions in Germany, a refund claim for corporation tax was
recognized as a current tax asset for the first time in fiscal year 2006. As of the balance sheet date, the previous
year’s refund claim (€134 million) had been amortized in full.
238
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Deferred tax income resulting from changes in tax rates amounted to €1,044 million at Group level (previous
year: expense of €120 million). This is primarily attributable to the effects of the tax reform in the United
States.
Deferred taxes in respect of temporary differences and tax loss carryforwards of €8,344 million (previous
year: €9,890 million) were recognized without being offset by deferred tax liabilities in the same amount. The
deferred tax assets of companies within the German tax group were recognized due to positive results in the
past and are included in this analysis. The companies concerned are expecting positive tax income in the
future, following losses in the reporting period or the previous year.
€3,655 million (previous year: €5,486 million) of the deferred taxes recognized in the balance sheet was
credited to equity and relates to other comprehensive income. €2 million (previous year: €3 million) of this
figure is attributable to noncontrolling interests. In the fiscal year under review, changes of €–3 million arising
from items that will not be reclassified to profit or loss were recognized directly in equity. Changes in deferred
taxes classified by balance sheet item are presented in the statement of comprehensive income.
In fiscal year 2017, tax effects of €8 million resulting from equity transaction costs were recognized in equity.
D E F E R R E D TA X E S C L A S S I F I E D BY B A L A N C E S H E E T I T E M
The following recognized deferred tax assets and liabilities were attributable to recognition and measurement
differences in the individual balance sheet items and to tax loss carryforwards:
€ million
Intangible assets
Property, plant and equipment, and lease assets
Noncurrent financial assets
Inventories
Receivables and other assets
(including Financial Services Division)
Other current assets
Pension provisions
Liabilities and other provisions
Valuation allowances on deferred tax assets from temporary
differences
Temporary differences, net of valuation allowances
Tax loss carryforwards, net of valuation allowances
Tax credits, net of valuation allowances
Value before consolidation and offset
of which noncurrent
Offset
Consolidation
Amount recognized
D E F E R R E D T A X A S S E T S
D E F E R R E D T A X L I A B I L I T I E S
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
363
4,567
35
2,653
1,879
3,884
6,652
9,603
–327
29,307
2,090
273
31,670
(18,858)
24,816
2,956
9,810
302
4,387
26
2,223
2,107
2,768
6,776
10,746
–368
28,967
3,365
337
32,670
(21,736)
25,198
2,284
9,756
10,055
6,017
43
784
8,889
42
24
4,109
–
29,963
–
–
29,963
(22,863)
24,816
489
5,636
9,884
8,315
24
792
7,273
92
22
2,750
–
29,152
–
–
29,152
(23,681)
25,198
791
4,745
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
239
In accordance with IAS 12, deferred tax assets and liabilities are offset if, and only if, they relate to income taxes
levied by the same taxation authority and relate to the same tax period.
The tax expense reported for 2017 of €2,275 million (previous year: €1,912 million) was €1,885 million lower
(previous year: €268 million lower) than the expected tax expense of €4,160 million that would have resulted
from application of a tax rate for the Group of 29.9% (previous year: 29.9%) to the earnings before tax of the
Group.
R E CO N C I L I AT I O N O F E X P E C T E D TO E F F E C T I V E I N CO M E TA X
€ million
Profit before tax
Expected income tax income (–) / expense (+)
(tax rate 29.9%; previous year: 29.9%)
Reconciliation:
Effect of different tax rates outside Germany
Proportion of taxation relating to:
tax-exempt income
expenses not deductible for tax purposes
effects of loss carryforwards and tax credits
permanent differences
Tax credits
Prior-period tax expense
Effect of tax rate changes
Nondeductible withholding tax
Other taxation changes
Effective income tax expense
2017
2016
13,913
4,160
7,292
2,180
–541
–446
–1,237
–1,226
407
476
5
–50
–212
–1,044
383
–73
2,275
409
35
12
–137
234
139
437
275
1,912
The tax expense recognized in the fiscal year was reduced by €1,007 million on the basis of the tax reform
passed in the United States, which envisages a reduction in the corporate income tax rate from 35% to 21%,
among other things. The reduction resulted mainly from the remeasurement of deferred taxes of subsidiaries
in the United States.
240
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
11. Earnings per share
Basic earnings per share are calculated by dividing earnings attributable to Volkswagen AG shareholders by the
weighted average number of ordinary and preferred shares outstanding during the reporting period. Since the
basic and diluted number of shares is identical, basic earnings per share also correspond to diluted earnings per
share. Article 27(2) No. 1 of the Articles of Association of Volkswagen AG sets out that, even in the event of a
deficit, a preferred dividend of €0.11 per preferred share must be paid out in the subsequent fiscal years based
on the cumulative arrangement if no dividend is paid for the year under review; consequently, this must be
factored into the calculation of earnings per share for the current fiscal year. The dividend proposal that is
based on Volkswagen AG’s net income for the year under the German Commercial Code is not relevant for the
calculation of earnings per share in accordance with IAS 33. The distribution of further dividends in accordance
with Article 27(2) Nos. 2 and 3 of the Articles of Association of Volkswagen AG, whereby, in the case of a full
distribution, the dividend paid for each preferred share is €0.06 higher than that paid for each ordinary share, is
only included in the calculation of earnings per share if there is a profit after tax attributable to the shareholders
of Volkswagen AG.
Quantity
O R D I N A R Y
P R E F E R R E D
2017
2016
2017
2016
Weighted average number of shares outstanding – basic
295,089,818
295,089,818
206,205,445
206,205,445
Weighted average number of shares outstanding – diluted
295,089,818
295,089,818
206,205,445
206,205,445
€ million
Earnings after tax
Noncontrolling interests
Earnings attributable to Volkswagen AG hybrid capital investors
Earnings attributable to Volkswagen AG shareholders
Basic earnings attributable to ordinary shares
Diluted earnings attributable to ordinary shares
Basic earnings attributable to preferred shares
Diluted earnings attributable to preferred shares
€
Basic earnings per ordinary share
Diluted earnings per ordinary share
Basic earnings per preferred share
Diluted earnings per preferred share
2017
2016
11,638
10
274
11,354
6,676
6,676
4,678
4,678
5,379
10
225
5,144
3,021
3,021
2,123
2,123
2017
2016
22.63
22.63
22.69
22.69
10.24
10.24
10.30
10.30
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
241
Additional Income Statement Disclosures in accordance
with IAS 23 (Borrowing Costs)
Capitalized borrowing costs amounted to €83 million (previous year: €83 million) and related mainly to
capitalized development costs. An average cost of debt of 1.5% (previous year: 1.5%) was used as a basis for
capitalization in the Volkswagen Group.
Additional Income Statement Disclosures in accordance
with IFRS 7 (Financial Instruments)
C L A S S E S O F F I N A N C I A L I N ST R U M E N T S
Financial instruments are divided into the following classes at the Volkswagen Group:
> financial instruments measured at fair value,
> financial instruments measured at amortized cost and
> financial instruments not falling within the scope of IFRS 7.
Financial instruments not falling within the scope of IFRS 7 include in particular investments in associates and
joint ventures accounted for using the equity method.
N E T G A I N S O R LO S S E S F R O M F I N A N C I A L I N ST R U M E N T S B Y I A S 3 9 M E A S U R E M E N T C AT E G O RY
€ million
Financial instruments at fair value through profit or loss
Loans and receivables¹
Available-for-sale financial assets
Financial liabilities measured at amortized cost
2017
2016
–840
2,105
–206
1,689
2,748
–1,203
3,434
–39
–3,480
–1,288
1 Prior-year figures adjusted. Further details can be found in the disclosures in the section entitled “Noncurrent and current financial services receivables”.
Net gains and losses from financial assets and liabilities at fair value through profit or loss are composed of the
fair value measurement gains and losses on derivatives, including interest and gains and losses on currency
translation.
Net gains and losses from available-for-sale financial assets primarily comprise income and expenses from
marketable securities including disposal gains/losses, impairment losses on investments and currency
translation effects.
Net gains and losses from loans and receivables and from financial liabilities carried at amortized cost
comprise interest income and expenses in accordance with the effective interest method under IAS 39, including
currency translation effects. Interest also includes interest income and expenses from the lending business of
the financial services operations.
242
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
TOTA L I N T E R E ST I N CO M E A N D E X P E N S E S AT T R I B U TA B L E TO F I N A N C I A L I N ST R U M E N T S N OT
M E A S U R E D AT F A I R VA L U E T H R O U G H P R O F I T O R LO S S
€ million
Interest income¹
Interest expenses
2017
2016
4,794
3,509
1,285
4,670
3,534
1,136
1 Prior-year figures adjusted. Further details can be found in the disclosures in the section entitled “Noncurrent and current financial services receivables”.
I M PA I R M E N T LO S S E S O N F I N A N C I A L A S S E T S B Y C L A S S
€ million
Measured at fair value
Measured at amortized cost
2017
2016
3
1,628
1,631
18
1,707
1,725
Impairment losses relate to write-downs of financial assets, such as valuation allowances on receivables and
marketable securities. Interest income on impaired financial assets amounted to €56 million in the fiscal year
(previous year: €48 million).
In fiscal year 2017, €3 million (previous year: €3 million) was recognized as an expense and €58 million
(previous year: €67 million) as income from fees and commissions for trust activities and from financial assets
and liabilities not measured at fair value that are not accounted for using the effective interest method.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
243
Balance sheet disclosures
12. Intangible assets
C H A N G E S I N I N TA N G I B L E A S S E T S I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 6
Capitalized
development costs
for products under
development
Capitalized
development
costs for products
currently in use
Other
intangible assets
€ million
Brand names
Goodwill
Cost
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in
consolidated Group
Additions
Transfers
Disposals
17,062
–37
23,646
–86
–
–
–
–
9
–
–
10
Balance at Dec. 31, 2016
17,024
23,559
Amortization and impairment
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in
consolidated Group
Additions to cumulative
amortization
Additions to cumulative
impairment losses
Transfers
Disposals
Reversal of impairment
losses
Balance at Dec. 31, 2016
Carrying amount at
Dec. 31, 2016
76
5
–
3
–
–
–
–
84
–
0
–
–
10
–
10
–
0
6,781
–12
–
4,857
–4,324
17
7,285
37
0
–
–
16
0
14
–
39
23,681
–90
–
893
4,324
1,442
27,366
12,968
–80
–
3,278
293
–
1,419
1
15,040
16,941
23,558
7,246
12,326
Total
79,699
–89
37
6,135
12
1,925
83,870
18,553
9
7
4,187
375
–3
1,855
1
21,271
62,599
8,529
137
29
385
12
456
8,637
5,472
84
7
906
55
–3
412
0
6,109
2,527
244
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
C H A N G E S I N I N TA N G I B L E A S S E T S I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 7
Capitalized
development costs
for products under
development
Capitalized
development
costs for products
currently in use
Other
intangible assets
€ million
Brand names
Goodwill
Cost
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in
consolidated Group
Additions
Transfers
Disposals
17,024
–30
–
–
–
–
23,559
–91
–18
–
–
7
Balance at Dec. 31, 2017
16,995
23,443
Amortization and impairment
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in
consolidated Group
Additions to cumulative
amortization
Additions to cumulative
impairment losses
Transfers
Disposals
Reversal of impairment
losses
Balance at Dec. 31, 2017
Carrying amount at
Dec. 31, 2017
84
–3
–
3
–
–
–
–
83
0
0
0
–
7
–
7
–
0
7,285
–44
–
4,080
–4,197
10
7,115
39
0
–
–
57
–
–
–
95
27,366
–183
–
1,180
4,197
3,607
28,952
15,040
–122
–
3,345
332
–
3,595
–
14,999
16,911
23,442
7,020
13,953
Total
83,870
–539
–130
5,788
–7
3,890
85,093
21,271
–263
–84
4,178
397
2
3,827
–
21,674
63,419
8,637
–192
–112
528
–7
266
8,588
6,109
–138
–84
831
1
2
226
–
6,496
2,093
Other intangible assets comprise in particular concessions, purchased customer lists and dealer relationships,
industrial and similar rights, and licenses in such rights and assets.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
245
The allocation of the brand names and goodwill to the operating segments is shown in the following table:
€ million
Brand names by operating segment
Porsche
Scania Vehicles and Services
MAN Truck & Bus
MAN Diesel & Turbo
Ducati
Other
Goodwill by operating segment
Porsche
Scania Vehicles and Services
MAN Truck & Bus
MAN Diesel & Turbo
Ducati
ŠKODA
Porsche Holding Salzburg
Other
2017
2016
13,823
990
1,127
415
404
153
13,823
1,017
1,127
415
404
155
16,911
16,941
18,825
2,866
18,825
2,947
595
268
290
159
151
289
608
249
290
150
197
293
23,442
23,558
The impairment test for recognized goodwill is based on value in use. Recoverability is not affected by
a variation in the growth forecast with respect to the perpetual annuity or in the discount rate of
+/– 0.5 percentage points.
Research and development costs developed as follows:
€ million
2017
2016
Total research and development costs
of which: capitalized development costs
Capitalization ratio in %
Amortization of capitalized development costs
Research and development costs recognized in profit or loss
13,141
5,260
40.0
3,734
11,614
13,672
5,750
42.1
3,587
11,509
%
–3.9
–8.5
–
4.1
0.9
246
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
13. Property, plant and equipment
C H A N G E S I N P R O P E RT Y, P L A N T A N D E Q U I P M E N T I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 6
€ million
Cost
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Balance at Dec. 31, 2016
Depreciation and impairment
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Additions to cumulative depreciation
Additions to cumulative impairment losses
Transfers
Disposals
Reversal of impairment losses
Balance at Dec. 31, 2016
Carrying amount at Dec. 31, 2016
of which assets leased under finance leases
Carrying amount at Dec. 31, 2016
Land, land rights
and buildings,
including
buildings on
third-party land
Technical
equipment and
machinery
Other
equipment,
operating and
office equipment
Payments on
account and
assets under
construction
Total
31,036
39,836
58,243
7,717
136,832
228
42
742
1,639
154
33,534
429
26
1,843
2,296
1,076
498
30
5,150
1,879
1,203
43,353
64,595
12,789
28,148
45,645
305
14
2,918
143
21
1,011
7
30,531
12,822
397
16
4,707
291
15
1,071
0
49,999
14,596
90
6
1,000
67
17
81
–
13,887
19,647
318
51
1
5,025
–5,758
28
7,008
79
5
–
–
8
–46
0
7
39
6,969
1,206
98
12,760
55
2,461
148,490
86,661
796
36
8,625
508
7
2,164
13
94,456
54,033
9
45
–
372
Future finance lease payments due, and their present values, are shown in the following table:
€ million
2017
2018 – 2021
from 2022
Finance lease payments
Interest component of finance lease payments
Carrying amount of liabilities
79
26
53
306
100
206
480
200
279
Total
865
326
539
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
247
C H A N G E S I N P R O P E RT Y, P L A N T A N D E Q U I P M E N T I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 7
€ million
Cost
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Balance at Dec. 31, 2017
Depreciation and impairment
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Additions to cumulative depreciation
Additions to cumulative impairment losses
Transfers
Disposals
Reversal of impairment losses
Balance at Dec. 31, 2017
Carrying amount at Dec. 31, 2017
of which assets leased under finance leases
Carrying amount at Dec. 31, 2017
Land, land rights
and buildings,
including
buildings on
third-party land
Technical
equipment and
machinery
Other
equipment,
operating and
office equipment
Payments on
account and
assets under
construction
33,534
43,353
–440
–303
630
1,063
149
–824
–71
1,355
2,509
873
64,595
–1,056
–117
5,056
1,829
1,399
34,335
45,450
68,909
30,531
–560
–62
3,211
–9
–16
807
2
32,286
13,164
49,999
–790
–80
5,152
254
–1
1,183
0
53,352
15,557
13,887
–153
–117
1,058
3
14
71
0
14,621
19,714
286
Total
148,490
–2,473
–501
12,516
–11
2,452
155,569
94,456
–1,508
–259
9,421
303
–3
2,068
15
100,327
55,243
7,008
–152
–11
5,474
–5,411
31
6,876
39
–5
–
–
55
0
7
13
69
6,807
6
46
–
339
Options to purchase buildings and plant leased under the terms of finance leases exist in most cases, and are
also expected to be exercised.
Future finance lease payments due, and their present values, are shown in the following table:
€ million
2018
2019 – 2022
from 2023
Finance lease payments
Interest component of finance lease payments
Carrying amount of liabilities
67
16
51
263
87
176
390
139
252
Total
721
242
479
For assets leased under operating leases, payments recognized in the income statement amounted to
€1,449 million (previous year: €1,498 million). With respect to internally used assets, €1,302 million (previous
year: €1,320 million) of this figure is attributable to minimum lease payments and €55 million (previous year:
€60 million) to contingent lease payments. The payments of €92 million (previous year: €118 million) under
subleases primarily relate to minimum lease payments.
248
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Government grants of €135 million (previous year: €218 million) were deducted from the cost of property,
plant and equipment and noncash benefits received amounting to €12 million (previous year: €12 million)
were not capitalized as the cost of assets.
Real property liens of €916 million (previous year: €762 million) are pledged as collateral for financial
liabilities related to land and buildings.
14. Lease assets and investment property
C H A N G E S I N L E A S E A S S E T S A N D I N V E STM E N T P R O P E RT Y I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 6
€ million
Leasing assets
Investment property
Total
Cost
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Balance at Dec. 31, 2016
Depreciation and impairment
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Additions to cumulative depreciation
Additions to cumulative impairment losses
Transfers
Disposals
Reversal of impairment losses
Balance at Dec. 31, 2016
Carrying amount at Dec. 31, 2016
45,118
321
64
20,628
3
14,652
51,483
11,945
74
15
6,743
455
0
6,097
92
13,044
38,439
761
12
66
33
–70
21
780
257
2
1
17
0
–4
4
–
268
512
45,879
333
130
20,661
–67
14,673
52,262
12,202
76
16
6,760
455
–4
6,101
92
13,312
38,950
The following payments from noncancelable leases and rental agreements were expected to be received over
the coming years:
€ million
Lease payments
2017
2018 – 2021
from 2022
Total
3,649
4,759
56
8,464
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
249
C H A N G E S I N L E A S E A S S E T S A N D I N V E STM E N T P R O P E RT Y I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 7
€ million
Leasing assets
Investment property
Total
Cost
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Balance at Dec. 31, 2017
Depreciation and impairment
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Additions to cumulative depreciation
Additions to cumulative impairment losses
Transfers
Disposals
Reversal of impairment losses
Balance at Dec. 31, 2017
Carrying amount at Dec. 31, 2017
51,483
–3,093
–873
21,319
6
16,616
52,226
13,044
–803
–228
7,327
448
0
6,775
41
12,972
39,254
780
–36
–
18
12
26
748
268
–5
0
15
3
1
4
–
279
468
52,262
–3,129
–873
21,336
18
16,641
52,973
13,312
–808
–228
7,343
451
1
6,779
41
13,251
39,722
Lease assets include assets leased out under the terms of operating leases and assets covered by long-term buy-
back agreements.
Investment property includes apartments rented out and leased dealerships with a fair value of
€993 million (previous year: €1,150 million). Fair value is estimated using an investment method based on
internal calculations (Level 3 of the fair value hierarchy). Operating expenses of €52 million (previous year:
€46 million) were incurred for the maintenance of investment property in use. Expenses of €3 million
(previous year: €1 million) were incurred for unused investment property.
The following payments from noncancelable leases and rental agreements are expected to be received over
the coming years:
€ million
Lease payments
2018
2019 – 2022
from 2023
Total
3,392
4,675
46
8,112
250
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
15. Equity-accounted investments and other equity investments
C H A N G E S I N E Q U I T Y - A CCO U N T E D I N V E STM E N T S A N D OT H E R E Q U I T Y I N V E STM E N T S
I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 6
€ million
Gross carrying amount at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Changes recognized in profit or loss
Dividends
Other changes recognized in other comprehensive income
Balance at Dec. 31, 2016
Impairment losses
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Reversal of impairment losses
Balance at Dec. 31, 2016
Carrying amount at Dec. 31, 2016
Equity-accounted
investments
Other equity investments
10,985
–100
–11
525
–
2,193
3,250
–3,598
–131
8,727
81
–1
–
30
–
–
–
110
8,616
1,333
–1
–103
191
–
3
–
–
–
1,417
358
1
–57
120
–
1
0
420
996
Total
12,318
–101
–114
716
–
2,197
3,250
–3,598
–131
10,143
439
0
–57
150
–
1
0
531
9,613
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
251
C H A N G E S I N E Q U I T Y - A CCO U N T E D I N V E STM E N T S A N D OT H E R E Q U I T Y I N V E STM E N T S
I N T H E P E R I O D J A N UA RY 1 TO D E C E M B E R 3 1 , 2 0 1 7
€ million
Gross carrying amount at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Held for sale
Disposals
Changes recognized in profit or loss
Dividends
Other changes recognized in other comprehensive income
Balance at Dec. 31, 2017
Impairment losses
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Additions
Transfers
Disposals
Reversal of impairment losses
Balance at Dec. 31, 2017
Carrying amount at Dec. 31, 2017
Equity-accounted
investments
Other equity investments
8,727
–129
–13
348
–
–86
7
3,495
–3,640
–251
8,443
110
–1
–
129
–
–
–
238
8,205
1,417
–17
–90
519
0
–
34
–
–
30
1,825
420
–3
–15
129
–
24
1
507
1,318
Total
10,143
–146
–104
867
0
–86
40
3,495
–3,640
–221
10,268
531
–4
–15
258
–
24
1
745
9,523
Equity-accounted investments include joint ventures in the amount of €6,459 million (previous year:
€7,068 million) and associates in the amount of €1,746 million (previous year: €1,548 million).
The additions of equity-accounted investments are mainly attributable to the acquisition of the investment
in Navistar in the amount of €0.3 billion (previous year: acquisition of investment in Gett and measurement of
shares in GMH at the selling price). In the previous year, the disposals resulted from the divestment of
LeasePlan by GMH. Further details can be found in the disclosures in the section entitled “Basis of
consolidation”.
Of the other changes recognized
(previous year:
in other comprehensive
€–132 million) is attributable to joint ventures and €–2 million (previous year: €1 million) to associates. They
are mainly the result of foreign exchange differences in the amount of €–327 million (previous year:
€–156 million), pension plan remeasurements in the amount of €112 million (previous year: €–1 million) and
losses on the fair value measurement of cash flow hedges in the amount of €–30 million (previous year: €33 mil-
lion).
income, €–249 million
252
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
16. Noncurrent and current financial services receivables
€ million
Current
Noncurrent Dec. 31, 2017 Dec. 31, 2017
Current
Noncurrent Dec. 31, 2016 Dec. 31, 2016
C A R R Y I N G A M O U N T
F A I R
V A L U E
C A R R Y I N G A M O U N T
F A I R
V A L U E
Receivables from
financing business
Customer financing¹
Dealer financing
Direct banking
Receivables from
operating leases
Receivables from
finance leases¹
1 Prior-year figures adjusted.
19,841
17,033
269
40,899
2,194
4
60,739
19,227
272
61,763
19,200
272
19,630
15,531
254
38,907
2,108
2
58,537
17,639
256
60,119
17,626
256
37,142
43,096
80,239
81,236
35,415
41,018
76,433
78,002
193
–
193
193
197
–
197
197
15,810
53,145
30,153
73,249
45,963
46,766
126,395
128,195
14,060
49,673
27,384
68,402
41,445
42,240
118,075
120,438
The receivables from customer financing and finance leases contained in financial services receivables of
€126.4 billion (previous year: €118.1 billion) decreased by €31 million (previous year: €7 million) as a result of a
fair value adjustment from portfolio hedging.
The receivables from customer and dealer financing are secured by vehicles or real property liens. Of the
receivables, €287 million (previous year: €251 million) was furnished as collateral for financial liabilities and
contingent liabilities.
The receivables from dealer financing include €51 million (previous year: €51 million) receivable from
unconsolidated affiliated companies.
In the consolidated financial statements, some of the receivables previously reported as customer financing
in individual markets are now presented as receivables from finance leases. The prior-year figures have been
restated, resulting in a €12.2 billion reduction in receivables from customer financing and a corresponding
€12.2 billion increase in receivables from finance leases as of December 31, 2016. The adjustments as of Janu-
ary 1, 2016 amounted to €11.9 billion. In addition, the expected cash flows from finance leases have been
adjusted accordingly.
The receivables from finance leases – almost entirely in respect of vehicles – were or are expected to
generate the following cash flows as of December 31, 2016 and December 31, 2017:
€ million
2017
2018 – 2021
from 2022
Total
Future payments from finance lease receivables
Unearned finance income from finance leases (discounting)
Present value of minimum lease payments outstanding
at the reporting date
15,117
–1,058
29,352
–2,094
14,059
27,258
137
–11
126
44,605
–3,162
41,443
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
253
€ million
2018
2019 – 2022
from 2023
Total
Future payments from finance lease receivables
Unearned finance income from finance leases (discounting)
Present value of minimum lease payments outstanding
at the reporting date
16,952
–1,142
32,280
–2,261
15,810
30,018
145
–11
135
49,377
–3,414
45,963
Accumulated valuation allowances for uncollectible minimum lease payments receivable amount to
€116 million (previous year: €94 million).
17. Noncurrent and current other financial assets
€ million
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Positive fair value
of derivatives
Marketable securities
Receivables from loans,
bonds, profit participation
rights (excluding interest)
Miscellaneous financial assets
2,845
–
5,367
3,786
11,998
4,091
3
2,531
1,829
8,455
6,936
3
7,898
5,615
20,453
2,317
–
5,352
4,175
11,844
3,274
46
2,338
2,598
8,256
5,591
46
7,690
6,773
20,099
Other financial assets include receivables from related parties of €7.7 billion (previous year: €6.9 billion). Other
financial assets and noncurrent marketable securities amounting to €1,819 million (previous year: €1,870 mil-
lion) were furnished as collateral for financial liabilities and contingent liabilities. There is no original right of
disposal or pledge for the furnished collateral on the part of the collateral taker.
In addition, the miscellaneous financial assets include cash and cash equivalents that serve as collateral
(mainly under asset-backed securities transactions).
254
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The positive fair values of derivatives relate to the following items:
€ million
Transactions for hedging
foreign currency risk from assets using fair value hedges
foreign currency risk from liabilities using fair value hedges
interest rate risk using fair value hedges
interest rate risk using cash flow hedges
foreign currency and price risk from future cash flows (cash flow hedges)
Hedging transactions
Assets related to derivatives not included in hedging relationships
Dec. 31, 2017
Dec. 31, 2016
228
108
400
86
4,401
5,224
1,712
6,936
239
186
592
65
3,032
4,114
1,477
5,591
The positive fair value of transactions for hedging price risk from future cash flows (cash flow hedges)
amounted to €– million (previous year: €36 million).
Positive fair values of €17 million (previous year: €1 million) were recognized from transactions for
hedging interest rate risk (fair value hedges) used in portfolio hedges.
Further details on derivative financial instruments as a whole are given in the section entitled “Financial
risk management and financial instruments".
18. Noncurrent and current other receivables
€ million
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Other recoverable income
taxes
Miscellaneous receivables
3,881
1,465
5,346
896
1,356
2,252
4,777
2,821
7,598
4,037
1,093
5,130
841
1,169
2,009
4,878
2,261
7,139
Miscellaneous receivables include assets to fund post-employment benefits in the amount of €64 million
(previous year: €46 million). This item also includes the share of the technical provisions attributable to
reinsurers amounting to €73 million (previous year: €73 million).
Current other receivables are predominantly non-interest-bearing.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
255
19. Tax assets
€ million
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Deferred tax assets
Tax receivables
(cid:1042)
1,339
1,339
9,810
407
10,217
9,810
1,746
11,557
(cid:1042)
1,126
1,126
9,756
392
10,148
9,756
1,518
11,274
€7,456 million (previous year: €6,294 million) of the deferred tax assets are due within one year.
20. Inventories
€ million
Dec. 31, 2017
Dec. 31, 2016
Raw materials, consumables and supplies
Work in progress
Finished goods and purchased merchandise
Current lease assets
Prepayments
4,858
4,143
26,514
4,774
127
40,415
4,396
4,408
25,719
4,276
178
38,978
At the same time as the relevant revenue was recognized, inventories in the amount of €173 billion (previous
year: €166 billion) were included in cost of sales. Valuation allowances (excluding lease assets) recognized as
expenses in the reporting period amounted to €878 million (previous year: €1,310 million). Vehicles
amounting to €271 million (previous year: €263 million) were assigned as collateral for partial retirement
obligations.
21. Trade receivables
€ million
Trade receivables from
third parties
unconsolidated subsidiaries
joint ventures
associates
other investees and investors
The fair values of the trade receivables correspond to the carrying amounts.
Dec. 31, 2017
Dec. 31, 2016
9,667
220
3,341
44
86
9,110
179
2,847
47
4
13,357
12,187
256
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The trade receivables include receivables from construction contracts accounted for using the percentage of
completion (PoC) method. These are calculated as follows:
€ million
Dec. 31, 2017
Dec. 31, 2016
Contract costs and proportionate contract profit/loss of construction contracts
Progress billings
Exchange rate effects
PoC receivables, gross
Prepayments received
PoC receivables, net
1,122
–38
–3
1,081
–739
342
955
–91
2
865
–652
213
Other payments received on account of construction contracts in the amount of €270 million (previous year:
€225 million), for which no construction costs have yet been incurred, are recognized under other liabilities.
22. Marketable securities
The marketable securities serve to safeguard liquidity. Marketable securities are quoted, mainly short-term
fixed-income securities and shares allocated to the available-for-sale financial assets category.
23. Cash, cash equivalents and time deposits
€ million
Bank balances
Checks, cash-in-hand, bills and call deposits
Dec. 31, 2017
Dec. 31, 2016
18,343
114
18,457
19,093
171
19,265
Bank balances are held at various banks in different currencies and include time deposits, for example.
24. Equity
The subscribed capital of Volkswagen AG is composed of no-par value bearer shares with a notional value of
€2.56. As well as ordinary shares, there are preferred shares that entitle the bearer to a €0.06 higher dividend
than ordinary shares, but do not carry voting rights.
Authorized capital of up to €110 million created by a resolution of the Annual General Meeting on
April 19, 2012 for the issue of new ordinary bearer shares or preferred shares expired on April 18, 2017. Apart
from an amount of €83 million, the authorized capital was utilized.
The Annual General Meeting on May 5, 2015 resolved to create authorized capital of up to €179 million,
expiring on May 4, 2020, to issue new preferred bearer shares.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
257
In June 2017, Volkswagen AG placed unsecured subordinated hybrid notes with an aggregate principal amount
of €3.5 billion via a subsidiary, Volkswagen International Finance N.V. Amsterdam, the Netherlands (VIF). The
perpetual hybrid notes were issued in two tranches and can be called by VIF. The first call date for the first
tranche (€1.5 billion and a coupon of 2.700%) is after 5.5 years, and the first call date for the second tranche
(€2.0 billion and a coupon of 3.875%) is after ten years. Interest may be accumulated depending on whether a
dividend is paid to Volkswagen AG shareholders. Under IAS 32, the hybrid notes must be classified in their
entirety as equity. The capital raised was recognized in equity, less a discount and transaction costs and net of
deferred taxes. The interest payments payable to the noteholders will be recognized directly in equity, net of
income taxes.
C H A N G E I N O R D I N A RY A N D P R E F E R R E D S H A R E S A N D S U B S C R I B E D C A P I TA L
Balance at January 1
Capital increase
Balance at December 31
S H A R E S
2017
2016
€
2017
2016
501,295,263
501,295,263
1,283,315,873
1,283,315,873
–
–
–
–
501,295,263
501,295,263
1,283,315,873
1,283,315,873
The capital reserves comprise the share premium totaling €14,225 million (previous year: €14,225 million)
from capital increases, the share premium of €219 million from the issuance of bonds with warrants and an
amount of €107 million appropriated on the basis of the capital reduction implemented in 2006. No amounts
were withdrawn from the capital reserves.
D I V I D E N D P R O P O S A L
In accordance with section 58(2) of the Aktiengesetz (AktG – German Stock Corporation Act), the dividend
payment by Volkswagen AG is based on the net retained profits reported in the annual financial statements of
Volkswagen AG prepared in accordance with the German Commercial Code. Based on these annual financial
statements of Volkswagen AG, net retained profits of €2,181 million are eligible for distribution following the
transfer of €2,174 million to the revenue reserves. The Board of Management and Supervisory Board will
propose to the Annual General Meeting that a total dividend of €1,967 million, i.e. €3.90 per ordinary share and
€3.96 per preferred share, be paid from the net retained profits. Shareholders are not entitled to a dividend
payment until it has been resolved by the Annual General Meeting.
A dividend of €2.00 per ordinary share and €2.06 per preferred share was distributed in fiscal year 2017.
N O N CO N T R O L L I N G I N T E R E ST S
As of December 31, 2017, total noncontrolling interests amounted to €229 million (previous year:
€221 million). The noncontrolling interests in equity are attributable primarily to shareholders of RENK AG and
AUDI AG and are immaterial individually and in the aggregate.
258
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
25. Noncurrent and current financial liabilities
The details of noncurrent and current financial liabilities are presented in the following table:
€ million
Bonds
Commercial paper and notes
Liabilities to banks
Deposits business
Loans and miscellaneous
liabilities
Bills of exchange
Finance lease liabilities
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
14,146
22,506
14,487
29,291
1,363
–
51
48,971
13,399
15,357
2,114
1,358
–
428
63,118
35,905
29,844
31,405
2,721
–
479
18,831
23,173
14,180
31,019
1,204
–
53
33,191
18,004
10,816
2,759
1,102
–
486
52,022
41,178
24,996
33,779
2,306
–
539
81,844
81,628
163,472
88,461
66,358
154,819
26. Noncurrent and current other financial liabilities
€ million
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Negative fair values of
derivative financial
instruments
Interest payable
Miscellaneous financial
liabilities
1,212
570
6,788
8,570
1,034
44
1,586
2,665
2,246
614
8,374
11,234
3,428
581
5,428
9,438
2,630
48
1,810
4,488
6,058
630
7,239
13,926
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
259
The negative fair values of derivatives relate to the following items:
€ million
Transactions for hedging
foreign currency risk from assets using fair value hedges
foreign currency risk from liabilities using fair value hedges
interest rate risk using fair value hedges
interest rate risk using cash flow hedges
foreign currency and price risk from future cash flows (cash flow hedges)
Hedging transactions
Liabilities related to derivatives not included in hedging relationships
Dec. 31, 2017
Dec. 31, 2016
58
19
64
24
542
706
1,540
2,246
74
286
147
11
4,135
4,652
1,406
6,058
The negative fair value of transactions for hedging price risk from future cash flows (cash flow hedges)
amounted to €– million (previous year: €21 million).
Negative fair values of €22 million (previous year: €85 million) were recognized from transactions for
hedging interest rate risk (fair value hedges) used in portfolio hedges.
Further details on derivative financial instruments as a whole are given in the section entitled “Financial
risk management and financial instruments".
27. Noncurrent and current other liabilities
€ million
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Payments received on account
of orders
Liabilities relating to
other taxes
social security
wages and salaries
Miscellaneous liabilities
4,084
2,301
564
4,941
4,071
15,961
694
249
38
844
4,375
6,199
4,779
4,042
2,550
601
5,785
8,446
2,611
536
4,495
3,777
22,160
15,461
572
204
35
750
4,103
5,664
4,614
2,815
571
5,245
7,880
21,125
260
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
28. Tax liabilities
€ million
Current
Noncurrent
Dec. 31, 2017
Current
Noncurrent
Dec. 31, 2016
C A R R Y I N G A M O U N T
C A R R Y I N G A M O U N T
Deferred tax liabilities
Provisions for taxes
Tax payables
(cid:1042)
1,397
430
1,827
5,636
3,030
–
8,666
5,636
4,427
430
10,492
(cid:1042)
1,301
500
1,801
4,745
3,556
–
8,301
4,745
4,857
500
10,102
€320 million (previous year: €328 million) of the deferred tax liabilities are due within one year.
29. Provisions for pensions and other post-employment benefits
Provisions for pensions are recognized for commitments in the form of retirement, invalidity and dependents’
benefits payable under pension plans. The benefits provided by the Group vary according to the legal, tax and
economic circumstances of the country concerned, and usually depend on the length of service and
remuneration of the employees.
Volkswagen Group companies provide occupational pensions under both defined contribution and defined
benefit plans. In the case of defined contribution plans, the Company makes contributions to state or private
pension schemes based on legal or contractual requirements, or on a voluntary basis. Once the contributions
have been paid, there are no further obligations for the Volkswagen Group. Current contributions are
recognized as pension expenses of the period concerned. In 2017, they amounted to a total of €2,214 million
(previous year: €2,084 million) in the Volkswagen Group. Of this figure, contributions to the compulsory state
pension system in Germany amounted to €1,634 million (previous year: €1,552 million).
In the case of defined benefit plans, a distinction is made between pensions funded by provisions and
externally funded plans.
The pension provisions for defined benefits are measured by independent actuaries using the
internationally accepted projected unit credit method in accordance with IAS 19, under which the future
obligations are measured on the basis of the ratable benefit entitlements earned as of the balance sheet date.
Measurement reflects actuarial assumptions as to discount rates, salary and pension trends, employee turnover
rates, longevity and increases in healthcare costs, which were determined for each Group company depending
on the economic environment. Remeasurements arise from differences between what has actually occurred
and the prior-year assumptions as well as from changes in assumptions. They are recognized in other
comprehensive income, net of deferred taxes, in the period in which they arise.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
261
Multi-employer pension plans exist in the Volkswagen Group in the United Kingdom, Switzerland, Sweden and
the Netherlands. These plans are defined benefit plans. A small proportion of them are accounted for as defined
contribution plans, as the Volkswagen Group is not authorized to receive the information required in order to
account for them as defined benefit plans. Under the terms of the multi-employer plans, the Volkswagen Group
is not liable for the obligations of the other employers. In the event of its withdrawal from the plans or their
winding-up, the proportionate share of the surplus of assets attributable to the Volkswagen Group will be
credited or the proportionate share of the deficit attributable to the Volkswagen Group will have to be funded.
In the case of the defined benefit plans accounted for as defined contribution plans, the Volkswagen Group’s
share of the obligations represents a small proportion of the total obligations. No probable significant risks
arising from multi-employer defined benefit pension plans that are accounted for as defined contribution
plans have been identified. The expected contributions to those plans will amount to €25 million for fiscal year
2018.
Owing to their benefit character, the obligations of the US Group companies in respect of post-employment
medical care in particular are also carried under provisions for pensions and other post-employment benefits.
These post-employment benefit provisions take into account the expected long-term rise in the cost of health-
care. In fiscal year 2017, €17 million (previous year: €19 million) was recognized as an expense for health care
costs. The related carrying amount as of December 31, 2017 was €210 million (previous year: €232 million).
The following amounts were recognized in the balance sheet for defined benefit plans:
€ million
Dec. 31, 2017
Dec. 31, 2016
Present value of funded obligations
Fair value of plan assets
Funded status (net)
Present value of unfunded obligations
Amount not recognized as an asset because of the ceiling in IAS 19
Net liability recognized in the balance sheet
of which provisions for pensions
of which other assets
15,605
11,192
4,413
28,224
29
32,666
32,730
64
15,104
10,749
4,355
28,585
26
32,967
33,012
46
S I G N I F I C A N T P E N S I O N A R R A N G E M E N T S I N T H E VO L K SWA G E N G R O U P
For the period after their active working life, the Volkswagen Group offers its employees benefits under
attractive, modern occupational pension arrangements. Most of the arrangements in the Volkswagen Group are
pension plans for employees in Germany classified as defined benefit plans under IAS 19. The majority of these
obligations are funded solely by recognized provisions. These plans are now largely closed to new members. To
reduce the risks associated with defined benefit plans, in particular longevity, salary increases and inflation, the
Volkswagen Group has introduced new defined benefit plans in recent years whose benefits are funded by
appropriate external plan assets. The above-mentioned risks have been largely reduced in these pension plans.
The proportion of the total defined benefit obligation attributable to pension obligations funded by plan assets
will continue to rise in the future. The significant pension plans are described in the following.
German pension plans funded solely by recognized provisions
The pension plans funded solely by recognized provisions comprise both contribution-based plans with
guarantees and final salary plans. For contribution-based plans, an annual pension expense dependent on
income and status is converted into a lifelong pension entitlement using annuity factors (guaranteed modular
pension entitlements). The annuity factors include a guaranteed rate of interest. At retirement, the modular
pension entitlements earned annually are added together. For final salary plans, the underlying salary is
multiplied at retirement by a percentage that depends on the years of service up until the retirement date.
262
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The present value of the guaranteed obligation rises as interest rates fall and is therefore exposed to interest
rate risk.
The pension system provides for lifelong pension payments. The companies bear the longevity risk in this
respect. This is accounted for by calculating the annuity factors and the present value of the guaranteed obli-
gation using the latest generational mortality tables – the “Heubeck 2005 G” mortality tables – which already
reflect future increases in life expectancy.
To reduce the inflation risk from adjusting the regular pension payments by the rate of inflation, a pension
adjustment that is not indexed to inflation was introduced for pension plans where this is permitted by law.
German pension plans funded by external plan assets
The pension plans funded by external plan assets are contribution-based plans with guarantees. In this case, an
annual pension expense dependent on income and status is either converted into a lifelong pension
entitlement using annuity factors (guaranteed modular pension entitlement) or paid out in a single lump sum
or in installments. In some cases, employees also have the opportunity to provide for their own retirement
through deferred compensation. The annuity factors include a guaranteed rate of interest. At retirement, the
modular pension entitlements earned annually are added together. The pension expense is contributed on an
ongoing basis to a separate pool of assets that is administered independently of the Company in trust and
invested in the capital markets. If the plan assets exceed the present value of the obligations calculated using
the guaranteed rate of interest, surpluses are allocated (modular pension bonuses).
Since the assets administered in trust meet the IAS 19 criteria for classification as plan assets, they are
deducted from the obligations.
The amount of the pension assets is exposed to general market risk. The investment strategy and its
implementation are therefore continuously monitored by the trusts’ governing bodies, on which the
companies are also represented. For example, investment policies are stipulated in investment guidelines with
the aim of limiting market risk and its impact on plan assets. In addition, asset-liability management studies
are conducted if required so as to ensure that investments are in line with the obligations that need to be
covered. The pension assets are currently invested primarily in fixed-income or equity funds. The main risks
are therefore interest rate and equity price risk. To mitigate market risk, the pension system also provides for
cash funds to be set aside in an equalization reserve before any surplus is allocated.
The present value of the obligation is the present value of the guaranteed obligation after deducting the
plan assets. If the plan assets fall below the present value of the guaranteed obligation, a provision must be
recognized in that amount. The present value of the guaranteed obligation rises as interest rates fall and is
therefore exposed to interest rate risk.
In the case of lifelong pension payments, the Volkswagen Group bears the longevity risk. This is accounted
for by calculating the annuity factors and the present value of the guaranteed obligation using the latest
generational mortality tables – the “Heubeck 2005 G” mortality tables – which already reflect future increases
in life expectancy. In addition, the independent actuaries carry out annual risk monitoring as part of the review
of the assets administered by the trusts.
To reduce the inflation risk from adjusting the regular pension payments by the rate of inflation, a pension
adjustment that is not indexed to inflation was introduced for pension plans where this is permitted by law.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
263
Calculation of the pension provisions was based on the following actuarial assumptions:
%
Discount rate at December 31
Payroll trend
Pension trend
Employee turnover rate
Annual increase in healthcare costs
G E R M A N Y
A B R O A D
2017
1.88
3.56
1.50
1.15
–
2016
1.79
3.46
1.50
1.13
–
2017
3.52
3.00
2.48
3.25
4.98
2016
3.82
3.32
2.44
3.63
4.88
These assumptions are averages that were weighted using the present value of the defined benefit obligation.
With regard to life expectancy, consideration is given to the latest mortality tables in each country.
The discount rates are generally defined to reflect the yields on prime-rated corporate bonds with matching
maturities and currencies. The iBoxx AA 10+ Corporates index was taken as the basis for the obligations of
German Group companies. Similar indices were used for foreign pension obligations.
The payroll trends cover expected wage and salary trends, which also include increases attributable to
career development.
The pension trends either reflect the contractually guaranteed pension adjustments or are based on the
rules on pension adjustments in force in each country.
The employee turnover rates are based on past experience and future expectations.
The following table shows changes in the net defined benefit liability recognized in the balance sheet:
€ million
2017
2016
Net liability recognized in the balance sheet at January 1
Current service cost
Net interest expense
Actuarial gains (–)/losses (+) arising from changes in demographic assumptions
Actuarial gains (–)/losses (+) arising from changes in financial assumptions
Actuarial gains (–)/losses (+) arising from experience adjustments
Income/expenses from plan assets not included in interest income
Change in amount not recognized as an asset because of the ceiling in IAS 19
Employer contributions to plan assets
Employee contributions to plan assets
Pension payments from company assets
Past service cost (including plan curtailments)
Gains (–) or losses (+) arising from plan settlements
Changes in consolidated Group
Other changes
Foreign exchange differences from foreign plans
Net liability recognized in the balance sheet at December 31
32,967
1,372
600
33
–616
–88
117
–6
582
–8
841
7
–1
0
–44
–37
27,464
1,066
729
17
5,862
–283
349
–4
680
–7
833
–24
4
0
–42
25
32,666
32,967
264
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The change in the amount not recognized as an asset because of the ceiling in IAS 19 contains an interest
component, part of which was recognized in the financial result in profit or loss, and part of which was
recognized outside profit or loss directly in equity.
The change in the present value of the defined benefit obligation is attributable to the following factors:
€ million
2017
2016
Present value of obligations at January 1
Current service cost
Interest cost
Actuarial gains(–)/losses (+) arising from changes in demographic assumptions
Actuarial gains(–)/losses (+) arising from changes in financial assumptions
Actuarial gains(–)/losses (+) arising from experience adjustments
Employee contributions to plan assets
Pension payments from company assets
Pension payments from plan assets
Past service cost (including plan curtailments)
Gains (–) or losses (+) arising from plan settlements
Changes in consolidated Group
Other changes
Foreign exchange differences from foreign plans
Present value of obligations at December 31
43,689
1,372
883
33
–616
–88
33
841
307
7
–3
0
–41
–290
43,829
37,215
1,066
1,075
17
5,862
–283
31
833
308
–24
–64
0
–4
–62
43,689
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
265
Changes in the relevant actuarial assumptions would have had the following effects on the defined benefit
obligation:
Present value of defined benefit obligation if
€ million
Change in percent
€ million
Change in percent
D E C . 3 1 , 2 0 1 7
D E C . 3 1 , 2 0 1 6
Discount rate
Pension trend
Payroll trend
Longevity
is 0.5
percentage
points higher
is 0.5
percentage
points lower
is 0.5
percentage
points higher
is 0.5
percentage
points lower
is 0.5
percentage
points higher
is 0.5
percentage
points lower
increases by
one year
39,979
–8.79
39,761
–8.99
48,290
10.18
48,249
10.44
46,055
5.08
45,985
5.25
41,801
–4.63
41,601
–4.78
44,398
1.30
44,297
1.39
43,304
–1.20
43,145
45,106
2.91
44,986
–1.25
2.97
The sensitivity analysis shown above considers the change in one assumption at a time, leaving the other
assumptions unchanged versus the original calculation, i.e. any correlation effects between the individual
assumptions are ignored.
To examine the sensitivity of the defined benefit obligation to a change in assumed longevity, the estimates
of mortality were reduced as part of a comparative calculation to the extent that doing so increases life
expectancy by approximately one year.
The average duration of the defined benefit obligation weighted by the present value of the defined benefit
obligation (Macaulay duration) is 19 years (previous year: 20 years).
The present value of the defined benefit obligation is attributable as follows to the members of the plan:
€ million
Active members with pension entitlements
Members with vested entitlements who have left the Company
Pensioners
2017
2016
26,067
2,233
15,530
43,829
25,622
2,222
15,846
43,689
266
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The maturity profile of payments attributable to the defined benefit obligation is presented in the following
table, which classifies the present value of the obligation by the maturity of the underlying payments:
€ million
Payments due within the next fiscal year
Payments due between two and five years
Payments due in more than five years
Changes in plan assets are shown in the following table:
€ million
Fair value of plan assets at January 1
Interest income on plan assets determined using the discount rate
Income/expenses from plan assets not included in interest income
Employer contributions to plan assets
Employee contributions to plan assets
Pension payments from plan assets
Gains (+) or losses (–) arising from plan settlements
Changes in consolidated Group
Other changes
Foreign exchange differences from foreign plans
Fair value of plan assets at December 31
2017
2016
1,151
4,994
37,685
43,829
1,126
4,801
37,762
43,689
2017
2016
10,749
9,769
283
117
582
25
307
2
–1
3
346
349
680
25
308
68
–
38
–258
11,192
–82
10,749
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
267
The investment of the plan assets to cover future pension obligations resulted in income in the amount of
€400 million (previous year: €695 million).
Employer contributions to plan assets are expected to amount to €617 million (previous year: €594 million)
in the next fiscal year.
Plan assets are invested in the following asset classes:
D E C . 3 1 , 2 0 1 7
D E C . 3 1 , 2 0 1 6
€ million
Quoted prices
in active markets
No quoted prices
in active markets
Cash and cash equivalents
Equity instruments
Debt instruments
Direct investments in
real estate
Derivatives
Equity funds
Bond funds
Real estate funds
Other funds
Other instruments
585
337
1,578
2
38
1,532
5,233
207
864
40
5
–
0
101
–60
34
114
–
4
577
Total
590
337
1,578
104
–23
1,567
5,348
207
868
617
Quoted prices in
active markets
No quoted prices
in active markets
269
360
1,658
2
–15
1,531
5,310
192
591
32
–
–
0
107
–
43
108
–
2
559
Total
269
360
1,659
109
–15
1,574
5,418
192
593
591
49.1% (previous year: 48.1%) of the plan assets are invested in German assets, 27.6% (previous year: 26.7%) in
other European assets and 23.4 % (previous year: 25.2%) in assets in other regions.
Plan assets include €15 million (previous year: €19 million) invested in Volkswagen Group assets and
€18 million (previous year: €9 million) in Volkswagen Group debt instruments.
The following amounts were recognized in the income statement:
€ million
Current service cost
Net interest on the net defined benefit liability
Past service cost (including plan curtailments)
Gains (–) or losses (+) arising from plan settlements
Net income (–) and expenses (+) recognized in profit or loss
2017
2016
1,372
602
7
–1
1,981
1,066
731
–24
4
1,777
The above amounts are generally included in the personnel costs of the functions in the income statement. Net
interest on the net defined benefit liability is reported in interest expenses.
268
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
30. Noncurrent and current other provisions
€ million
Balance at Jan. 1, 2016
Foreign exchange differences
Changes in consolidated Group
Utilized
Additions/New provisions
Unwinding of discount/effect of change in
discount rate
Reversals
Balance at Dec. 31, 2016
of which current
of which noncurrent
Balance at Jan. 1, 2017
Foreign exchange differences
Changes in consolidated Group
Utilized
Additions/New provisions
Unwinding of discount/effect of change in
discount rate
Reversals
Balance at Dec. 31, 2017
of which current
of which noncurrent
Obligations arising
from sales
Employee
expenses
Litigation and
legal risks
Miscellaneous
provisions
31,326
174
23
9,265
12,180
123
1,533
33,027
19,521
13,506
33,027
–689
13
17,546
14,990
–50
1,881
27,865
14,821
13,044
4,148
35
1
1,344
1,736
196
227
4,546
1,900
2,646
4,546
–61
3
1,450
2,030
11
193
4,886
2,069
2,817
8,409
93
3
1,583
5,605
–84
726
11,717
8,624
3,092
11,717
–119
–13
7,444
2,190
–25
504
5,802
2,999
2,802
7,075
100
124
2,103
3,419
3
713
7,904
5,666
2,238
7,904
–169
–27
2,334
3,217
6
962
7,634
5,458
2,176
Total
50,958
402
151
14,295
22,939
238
3,199
57,193
35,711
21,482
57,193
–1,038
–24
28,774
22,426
–57
3,540
46,186
25,347
20,839
The obligations arising from sales contain provisions covering all risks relating to the sale of vehicles,
components and genuine parts through to the disposal of end-of-life vehicles. They primarily comprise
warranty obligations, calculated on the basis of losses to date and estimated future losses. They also include
provisions for discounts, bonuses and similar allowances which are incurred after the balance sheet date, but
for which there is a legal or constructive obligation attributable to sales revenue before the balance sheet date.
Provisions for employee expenses are recognized for long-service awards, time credits, partial retirement
arrangements, severance payments and similar obligations, among other things.
The decline in provisions for obligations arising from sales and for litigation and legal risks result primarily
from the utilization of the provisions recognized in connection with the diesel issue. In addition to residual
provisions relating to the diesel issue, the provisions for litigation and legal risks contain amounts related to a
large number of legal disputes and official proceedings in which Volkswagen Group companies become
involved in Germany and internationally in the course of their operating activities. In particular, such legal
disputes and other proceedings may occur in relation to suppliers, dealers, customers, employees, or investors.
Please refer to the “Litigation” section for a discussion of the legal risks.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
269
Miscellaneous provisions relate to a wide range of identifiable specific risks, price risks and uncertain
obligations, which are measured in the amount of the expected settlement value.
Miscellaneous provisions additionally include provisions amounting to €534 million (previous year:
€490 million) relating to the insurance business.
31. Put options and compensation rights granted to
noncontrolling interest share-holders
This balance sheet item consists primarily of the present value of the cash settlement in accordance with
section 305 of the Aktiengesetz (AktG – German Stock Corporation Act) offered to MAN shareholders in
connection with the control and profit and loss transfer agreement, including the basic interest rate in
accordance with section 247 of the Bürgerliches Gesetzbuch (BGB – German Civil Code) assumed until the end
of the award proceedings. The Annual General Meeting of MAN SE approved the conclusion of a control and
profit and loss transfer agreement between MAN SE and Volkswagen Truck & Bus GmbH, a subsidiary of
Volkswagen AG, in June 2013. The agreement sets out that the noncontrolling interest shareholders of MAN SE
are entitled to either a cash settlement in accordance with section 305 of the AktG amounting to €80.89 per
tendered ordinary or preferred share, or cash compensation in accordance with section 304 of the AktG in the
amount of €3.07 per ordinary or preferred share (after corporate taxes, before the shareholder’s individual tax
liability) for each full fiscal year. In July 2013, award proceedings were instituted to review the appropriateness
of the cash settlement set out in the agreement in accordance with section 305 of the Aktiengesetz (AktG –
German Stock Corporation Act) and the cash compensation in accordance with section 304 of the AktG. In July
2015, the Munich Regional Court ruled in the first instance that the amount of the cash settlement payable to
the noncontrolling interest shareholders of MAN should be increased from €80.89 to €90.29; at the same time,
the amount of the cash compensation was confirmed. The ruling is not yet legally effective, and both parties to
the proceedings have since appealed. Volkswagen continues to maintain that the results of the valuation are
correct. The appropriateness of the valuation was confirmed by the audit firms and by the court-appointed
auditor of the agreement. As a precaution, the measurement was adjusted in 2015 to the higher settlement
payable.
32. Trade payables
€ million
Trade payables to
third parties
unconsolidated subsidiaries
joint ventures
associates
other investees and investors
Dec. 31, 2017
Dec. 31, 2016
22,661
22,311
187
64
127
7
182
157
141
3
23,046
22,794
270
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Additional balance sheet disclosures in accordance with IFRS 7
(Financial Instruments)
C A R RY I N G A M O U N T O F F I N A N C I A L I N ST R U M E N T S BY I A S 3 9 M E A S U R E M E N T C AT E G O RY
€ million
Financial assets at fair value through profit or loss
Loans and receivables¹
Available-for-sale financial assets
Financial liabilities at fair value through profit or loss
Financial liabilities measured at amortized cost
Dec. 31, 2017
Dec. 31, 2016
1,712
125,550
16,182
1,540
198,821
990
122,376
17,707
2,358
188,791
1 Prior-year figures adjusted. Further details can be found in the disclosures in the section entitled “Noncurrent and current financial services receivables”.
R E CO N C I L I AT I O N O F B A L A N C E S H E E T I T E M S TO C L A S S E S O F F I N A N C I A L I N ST R U M E N T S
The following table shows the reconciliation of the balance sheet items to the relevant classes of financial
instruments, broken down by the carrying amount and fair value of the financial instruments.
The fair value of financial instruments measured at amortized cost, such as receivables and liabilities, is
calculated by discounting using a market rate of interest for a similar risk and matching maturity. For reasons
of materiality, the fair value of current balance sheet items is generally deemed to be their carrying amount.
Financial instruments measured at fair value also include shares in partnerships and corporations. There is
no active market for these instruments. Since the future cash flows cannot be reliably determined, fair value
cannot be determined using measurement models. The shares in these companies are carried at cost.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
271
R E CO N C I L I AT I O N O F B A L A N C E S H E E T I T E M S TO C L A S S E S O F F I N A N C I A L I N ST R U M E N T S
A S O F D E C E M B E R 3 1 , 2 0 1 6
M E A S U R E D
A T F A I R
V A L U E
M E A S U R E D A T
W I T H I N H E D G E
S C O P E O F
A T
A M O R T I Z E D C O S T
A C C O U N T I N G
I F R S 7
D E C . 3 1 , 2 0 1 6
I N S T R U M E N T S
N O T W I T H I N
S H E E T I T E M
D E R I V A T I V E
F I N A N C I A L
B A L A N C E
€ million
Carrying amount
Carrying amount
Fair value
Carrying amount
Carrying amount
Noncurrent assets
Equity-accounted
investments
Other equity investments
Financial services receivables
Other financial assets
Current assets
Trade receivables
Financial services receivables
Other financial assets
Marketable securities
Cash, cash equivalents and
time deposits
Noncurrent liabilities
Noncurrent financial
liabilities
Other noncurrent
financial liabilities
Current liabilities
Put options and
compensation rights granted
to noncontrolling
interest shareholders
Current financial liabilities
Trade payables
Other current
financial liabilities
–
187
–
251
–
–
740
17,520
–
–
–
–
68,402
4,982
12,187
49,673
9,527
–
–
–
70,766
5,008
12,187
49,673
9,527
–
19,265
19,265
66,358
66,932
–
–
–
3,023
–
–
1,577
–
–
–
885
1,859
1,863
1,745
–
–
–
3,849
88,461
22,794
3,861
88,461
22,794
–
–
–
1,473
6,010
6,010
1,956
8,616
809
–
–
–
–
–
–
–
–
–
–
–
–
–
8,616
996
68,402
8,256
12,187
49,673
11,844
17,520
19,265
66,358
4,488
3,849
88,461
22,794
9,438
272
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
R E CO N C I L I AT I O N O F B A L A N C E S H E E T I T E M S TO C L A S S E S O F F I N A N C I A L I N ST R U M E N T S
A S O F D E C E M B E R 3 1 , 2 0 1 7
M E A S U R E D
A T F A I R
V A L U E
M E A S U R E D A T
W I T H I N H E D G E
S C O P E O F
A T
A M O R T I Z E D C O S T
A C C O U N T I N G
I F R S 7
D E C . 3 1 , 2 0 1 7
I N S T R U M E N T S
N O T W I T H I N
S H E E T I T E M
D E R I V A T I V E
F I N A N C I A L
B A L A N C E
€ million
Carrying amount
Carrying amount
Fair value
Carrying amount
Carrying amount
Noncurrent assets
Equity-accounted
investments
Other equity investments
Financial services receivables
Other financial assets
Current assets
Trade receivables
Financial services receivables
Other financial assets
Marketable securities
Cash, cash equivalents and
time deposits
Assets held for sale
Noncurrent liabilities
Noncurrent financial
liabilities
Other noncurrent
financial liabilities
Current liabilities
Put options and
compensation rights granted
to noncontrolling
interest shareholders
Current financial liabilities
Trade payables
Other current
financial liabilities
–
243
–
776
–
–
936
15,939
–
–
–
–
–
73,249
4,364
13,357
53,145
9,153
–
18,457
–
–
–
75,049
4,391
13,357
53,145
9,153
–
18,457
–
81,628
82,567
–
–
–
3,315
–
–
1,909
–
–
–
–
774
1,630
1,633
261
–
–
–
3,795
81,844
23,046
3,811
81,844
23,046
–
–
–
766
7,358
7,358
446
8,205
1,075
–
–
–
–
–
–
–
90
–
–
–
–
–
–
8,205
1,318
73,249
8,455
13,357
53,145
11,998
15,939
18,457
90
81,628
2,665
3,795
81,844
23,046
8,570
Uniform valuation techniques and inputs are used to measure fair value. The fair value of Level 2 and 3
financial instruments is measured in the individual divisions on the basis of Group-wide specifications. The
measurement techniques used are explained in the section on “Accounting policies”. The fair value of put
options and compensation rights granted to noncontrolling interest shareholders is calculated using a present
value model based on the cash settlement determined by the Munich Regional Court in the award proceedings,
including cash compensation, as well as the minimum statutory interest rate and a risk-adjusted discount rate
for a matching maturity. For further information, please see section entitled "Put options and compensation
rights granted to noncontrolling interest shareholders”. The fair value of Level 3 receivables was measured by
reference to individual expectations of losses; these are based to a significant extent on the Company’s
assumptions about counterparty credit quality. Financial services receivables are allocated to Level 3 because
their fair value was measured using inputs that are not observable in an active market.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
273
The following table contains an overview of the financial assets and liabilities measured at fair value by level:
F I N A N C I A L A S S E T S A N D L I A B I L I T I E S M E A S U R E D AT F A I R VA L U E B Y L E V E L
€ million
Dec. 31, 2016
Level 1
Level 2
Level 3
Noncurrent assets
Other equity investments
Other financial assets
Current assets
Other financial assets
Marketable securities
Noncurrent liabilities
Other noncurrent financial liabilities
Current liabilities
Other current financial liabilities
187
251
740
17,520
885
1,473
76
–
–
17,520
–
–
–
216
734
–
722
1,406
111
34
6
–
163
67
€ million
Dec. 31, 2017
Level 1
Level 2
Level 3
Noncurrent assets
Other equity investments
Other financial assets
Current assets
Other financial assets
Marketable securities
Noncurrent liabilities
Other noncurrent financial liabilities
Current liabilities
Other current financial liabilities
243
776
936
15,939
774
766
103
–
–
15,939
–
–
–
705
933
–
242
533
140
71
3
–
532
233
274
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
F A I R VA L U E O F F I N A N C I A L A S S E T S A N D L I A B I L I T I E S M E A S U R E D AT A M O RT I Z E D CO ST B Y L E V E L
€ million
Dec. 31, 2016
Level 1
Level 2
Level 3
Fair value of financial assets measured at amortized cost
Financial services receivables
Trade receivables
Other financial assets
Cash, cash equivalents and time deposits
Fair value of financial assets measured at amortized cost
Fair value of financial liabilities measured at amortized cost
Put options and compensation rights granted to
noncontrolling interest shareholders
Trade payables
Financial liabilities
Other financial liabilities
Fair value of financial liabilities measured at amortized cost
120,438
12,187
14,535
19,265
166,425
3,861
22,794
155,394
7,873
189,921
–
–
550
18,838
19,389
–
–
39,391
537
39,928
–
120,438
11,977
6,695
426
19,099
–
22,794
114,198
7,159
144,151
210
7,289
–
127,937
3,861
–
1,804
177
5,842
€ million
Dec. 31, 2017
Level 1
Level 2
Level 3
Fair value of financial assets measured at amortized cost
Financial services receivables
Trade receivables
Other financial assets
Cash, cash equivalents and time deposits
Fair value of financial assets measured at amortized cost
Fair value of financial liabilities measured at amortized cost
Put options and compensation rights granted to
noncontrolling interest shareholders
Trade payables
Financial liabilities
Other financial liabilities
Fair value of financial liabilities measured at amortized cost
128,195
13,357
13,544
18,457
173,553
3,811
23,046
164,411
8,992
200,259
–
–
170
18,043
18,213
–
–
50,970
596
51,566
–
128,195
13,184
5,925
414
19,524
–
23,046
111,606
8,184
142,836
173
7,449
–
135,817
3,811
–
1,835
212
5,857
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
275
D E R I VAT I V E F I N A N C I A L I N ST R U M E N T S W I T H I N H E D G E A CCO U N T I N G BY L E V E L
€ million
Dec. 31, 2016
Level 1
Level 2
Level 3
Noncurrent assets
Other financial assets
Current assets
Other financial assets
Noncurrent liabilities
Other noncurrent financial liabilities
Current liabilities
Other current financial liabilities
3,023
1,577
1,745
1,956
–
–
–
–
3,019
1,577
1,745
1,956
4
–
0
–
€ million
Dec. 31, 2017
Level 1
Level 2
Level 3
Noncurrent assets
Other financial assets
Current assets
Other financial assets
Noncurrent liabilities
Other noncurrent financial liabilities
Current liabilities
Other current financial liabilities
3,315
1,909
261
446
–
–
–
–
3,315
1,909
261
445
–
–
–
0
The allocation of fair values to the three levels in the fair value hierarchy is based on the availability of
observable market prices. Level 1 is used to report the fair value of financial instruments for which a price is
directly available in an active market. Examples include marketable securities and other equity investments
measured at fair value. Fair values in Level 2, for example of derivatives, are measured on the basis of observable
market inputs using market-based valuation techniques. In particular, the inputs used include exchange rates,
yield curves and commodity prices that are observable in the relevant markets and obtained through pricing
services. Level 3 fair values are calculated using valuation techniques that incorporate inputs that are not
observable in active markets. In the Volkswagen Group, long-term commodity futures are allocated to Level 3
because the prices available on the market must be extrapolated for measurement purposes. This is done on
the basis of observable inputs obtained for the different commodities through pricing services. Options on
equity instruments and residual value protection models are also reported in Level 3. Equity instruments are
measured primarily using the relevant business plans and entity-specific discount rates. The significant inputs
used to measure fair value for the residual value protection models include forecasts and estimates of used
vehicle residual values for the appropriate models.
276
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
C H A N G E S I N B A L A N C E S H E E T I T E M S M E A S U R E D AT F A I R VA L U E B A S E D O N L E V E L 3
€ million
Balance at Jan. 1, 2016
Foreign exchange differences
Total comprehensive income
recognized in profit or loss
recognized in other comprehensive income
Additions (purchases)
Sales and settlements
Transfers into Level 2
Balance at Dec. 31, 2016
Total gains or losses recognized in profit or loss
Net other operating expense/income
of which attributable to assets/liabilities held at the reporting date
Financial result
of which attributable to assets/liabilities held at the reporting date
€ million
Balance at Jan. 1, 2017
Foreign exchange differences
Total comprehensive income
recognized in profit or loss
recognized in other comprehensive income
Additions (purchases)
Sales and settlements
Transfers into Level 2
Balance at Dec. 31, 2017
Total gains or losses recognized in profit or loss
Net other operating expense/income
of which attributable to assets/liabilities held at the reporting date
Financial result
of which attributable to assets/liabilities held at the reporting date
Financial assets
measured at fair value
Financial liabilities
measured at fair value
119
0
24
17
7
23
–9
–6
152
17
–
–
17
14
251
0
97
100
–3
–
–89
–30
230
–100
–
–
–100
–74
Financial assets
measured at fair value
Financial liabilities
measured at fair value
152
–9
68
72
–4
47
–11
–31
215
72
–
–
72
32
230
–1
526
526
0
115
–104
–2
765
–526
–
–
–526
–525
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
277
The transfers between the levels of the fair value hierarchy are reported at the respective reporting dates. The
transfers out of Level 3 into Level 2 comprise commodity futures for which observable quoted prices are now
available for measurement purposes due to the decline in their remaining maturities; consequently, no
extrapolation is required. There were no transfers between other levels of the fair value hierarchy.
Commodity prices are the key risk variable for the fair value of commodity futures. Sensitivity analyses are
used to present the effect of changes in commodity prices on earnings after tax and equity.
If commodity prices for commodity futures classified as Level 3 had been 10% higher (lower) as of
December 31, 2017, earnings after tax would have been €10 million (previous year: €6 million) higher (lower)
and equity would have been €– million (previous year: €3 million) higher (lower).
The key risk variable for measuring options on equity instruments held by the Company is the relevant
enterprise value. Sensitivity analyses are used to present the effect of changes in risk variables on earnings after
tax.
If the assumed enterprise values had been 10% higher, earnings after tax would have been €3 million
(previous year: €1 million) higher. If the assumed enterprise values had been 10% lower, earnings after tax
would have been €3 million (previous year: €1 million) lower.
Residual value risks result from hedging agreements with dealers under which earnings effects caused by
market-related fluctuations in residual values that arise from buy-back obligations under leases are borne in
part by the Volkswagen Group.
The key risk variable influencing the fair value of the options relating to residual value risks is used car
prices. Sensitivity analyses are used to quantify the effects of changes in used car prices on earnings after tax.
If the prices for the used cars covered by the residual value protection model had been 10% higher as of
December 31, 2017, earnings after tax would have been €319 million (previous year: €249 million) higher. If the
prices for the used cars covered by the residual value protection model had been 10% lower as of Decem-
ber 31, 2017, earnings after tax would have been €333 million (previous year: €249 million) lower.
278
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
O F F S E T T I N G O F F I N A N C I A L A S S E T S A N D L I A B I L I T I E S
The following tables contain information about the effects of offsetting in the balance sheet and the potential
financial effects of offsetting in the case of instruments that are subject to a legally enforceable master netting
arrangement or a similar agreement.
A M O U N T S T H A T A R E N O T S E T
O F F I N T H E B A L A N C E S H E E T
Gross amounts of
recognized
financial assets
Gross amounts of
recognized
financial liabilities
set off in the
balance sheet
Net amounts of
financial assets
presented in the
balance sheet
Financial
instruments
Collateral received
Net amount at
Dec. 31, 2016
5,591
–
5,591
–3,425
–175
1,990
118,470
12,188
17,520
19,265
14,709
–395
–2
–
–
–14
118,075
12,187
17,520
19,265
14,695
–
0
–
–
0
–65
–7
–
–
–
118,010
12,179
17,520
19,265
14,695
€ million
Derivatives
Financial services
receivables
Trade receivables
Marketable securities
Cash, cash equivalents and
time deposits
Other financial assets
A M O U N T S T H A T A R E N O T S E T
O F F I N T H E B A L A N C E S H E E T
Gross amounts of
recognized
financial assets
Gross amounts of
recognized
financial liabilities
set off in the
balance sheet
Net amounts of
financial assets
presented in the
balance sheet
Financial
instruments
Collateral received
Net amount at
Dec. 31, 2017
6,936
0
6,936
–1,036
–197
5,704
126,877
13,356
15,939
18,457
13,780
–482
0
–
–
–20
126,395
13,356
15,939
18,457
13,760
–
0
–
–
–
–67
–1
–
–
–
126,328
13,355
15,939
18,457
13,760
€ million
Derivatives
Financial services
receivables
Trade receivables
Marketable securities
Cash, cash equivalents and
time deposits
Other financial assets
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
279
A M O U N T S T H A T A R E N O T S E T
O F F I N T H E B A L A N C E S H E E T
Gross amounts of
recognized
financial liabilities
Gross amounts of
recognized
financial assets set
off in the balance
sheet
Net amounts of
financial liabilities
presented in the
balance sheet
Financial
instruments
Collateral pledged
Net amount at
Dec. 31, 2016
3,849
6,058
154,819
22,796
8,278
–
–
–
–2
–409
3,849
6,058
154,819
22,794
7,869
–
–3,427
–
0
–
–
–24
–3,041
–
–
3,849
2,607
151,778
22,794
7,869
A M O U N T S T H A T A R E N O T S E T
O F F I N T H E B A L A N C E S H E E T
Gross amounts of
recognized
financial liabilities
Gross amounts of
recognized
financial assets set
off in the balance
sheet
Net amounts of
financial liabilities
presented in the
balance sheet
Financial
instruments
Collateral pledged
Net amount at
Dec. 31, 2017
3,795
2,254
163,472
23,046
9,483
–
–7
–
0
–495
3,795
2,246
163,472
23,046
8,988
–
–904
–
0
–
–
–12
–2,795
–
–
3,795
1,330
160,677
23,045
8,988
€ million
Put options and
compensation rights
granted to noncontrolling
interest shareholders
Derivatives
Financial liabilities
Trade payables
Other financial liabilities
€ million
Put options and
compensation rights
granted to noncontrolling
interest shareholders
Derivatives
Financial liabilities
Trade payables
Other financial liabilities
The “Financial instruments” column shows the amounts that are subject to a master netting arrangement but
were not set off because they do not meet the criteria for offsetting in the balance sheet. The “Collateral
received” and “Collateral pledged” columns show the amounts of cash collateral and collateral in the form of
financial instruments received and pledged for the total assets and liabilities that do not meet the criteria for
offsetting in the balance sheet.
280
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
C H A N G E S I N C R E D I T R I S K VA L UAT I O N A L LOWA N C E S O N F I N A N C I A L A S S E T S
€ million
Balance at Jan. 1
Exchange rate and other
changes
Changes in consolidated
Group
Additions
Utilization
Reversals
Reclassification
Balance at Dec. 31
Specific valuation
allowances
Portfolio-based
valuation
allowances
Specific valuation
allowances
2017
Portfolio-based
valuation
allowances
2016
2,092
2,175
–87
–18
853
427
339
20
–46
0
525
–
676
–20
2,094
1,959
4,268
–132
–18
1,378
427
1,014
–
4,054
2,142
1,970
4,112
90
–25
663
429
404
56
–12
0
727
–
453
–56
2,092
2,175
78
–25
1,390
429
857
0
4,268
The valuation allowances mainly relate to the credit risks associated with receivables from the financial services
business.
A S S E T - B A C K E D S E C U R I T I E S T R A N S A C T I O N S
Asset-backed securities transactions with financial assets amounting to €24,561 million (previous year:
€24,191 million) entered into to refinance the financial services business are included in bonds, commercial
paper and notes, and liabilities from loans. The corresponding carrying amount of the receivables from the
customer and dealer financing and the finance lease business amounted to €26,689 million (previous year:
€26,184 million). Collateral of €41,799 million (previous year: €43,847 million) in total was furnished as part of
asset-backed securities transactions. The expected payments were assigned to structured entities and the
equitable liens in the financed vehicles were transferred. These asset-backed securities transactions did not
result in the receivables from financial services business being derecognized, as the Group retains nonpayment
and late payment risks. The difference between the assigned receivables and the related liabilities is the result of
different terms and conditions and the share of the securitized paper and notes held by the Volkswagen Group
itself, as well as the proportion of vehicles financed within the Group.
Most of the public and private asset-backed securities transactions of the Volkswagen Group can be repaid
in advance (clean-up call) if less than 9% or 10%, as appropriate, of the original transaction volume is out-
standing. The assigned receivables cannot be assigned again or pledged elsewhere as collateral. The claims of
the holders of commercial paper and notes are limited to the assigned receivables and the receipts from those
receivables are earmarked for the repayment of the corresponding liability.
As of December 31, 2017, the fair value of the assigned receivables still recognized in the balance sheet was
€27,089 million (previous year: €27,856 million). The fair value of the related liabilities was €24,511 million
(previous year: €24,424 million) at that reporting date.
Companies of the Volkswagen Financial Services subgroup are contractually obliged, under certain
conditions, to transfer funds to the structured entities that are included in its financial statements. Since the
receivables are transferred to the special purpose entity by way of undisclosed assignment, the situation may
occur in which the receivable has already been reduced in a legally binding manner at the originator, for
example if the obligor effectively offsets it against receivables owed to it by a company belonging to the
Volkswagen Group. In this case, collateral must be furnished for the resulting compensation claims against the
special purpose entity, for example if the rating of the Group company concerned declines to a contractually
agreed reference value.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
281
Other disclosures
33. Cash flow statement
Cash flows are presented in the cash flow statement classified into cash flows from operating activities,
investing activities and financing activities, irrespective of the balance sheet classification.
Cash flows from operating activities are derived indirectly from earnings before tax. Earnings before tax are
adjusted to eliminate noncash expenditures (mainly depreciation, amortization and impairment losses) and
income. Other noncash income and expense results mainly from measurement effects in connection with
financial instruments and to fair value changes relating to hedging transactions (see section entitled “Other
financial result”). This results in cash flows from operating activities after accounting for changes in working
capital, which also include changes in lease assets and in financial services receivables.
Investing activities include additions to property, plant and equipment and equity investments, additions
to capitalized development costs and investments in securities, loans and time deposits.
Financing activities include outflows of funds from dividend payments and redemption of bonds, inflows
from the capital increases and issuance of bonds, and changes in other financial liabilities. Please refer to the
“Equity” section for information on the inflows from the issuance of hybrid capital in June 2017 in the amount
of €3,473 million contained in the capital contributions.
The changes in balance sheet items that are presented in the cash flow statement cannot be derived directly
from the balance sheet, as the effects of currency translation and changes in the consolidated Group are
noncash transactions and are therefore eliminated.
In 2017, cash flows from operating activities include interest received amounting to €6,641 million
(previous year: €6,364 million) and interest paid amounting to €2,332 million (previous year: €2,716 million).
Cash flows from operating activities also include dividend payments received from joint ventures and
associates of €3,653 million (previous year: €3,613 million).
Dividends amounting to €1,015 million (previous year: €68 million) were paid to Volkswagen AG
shareholders.
€ million
Cash, cash equivalents and time deposits as reported in the balance sheet
Time deposits
Cash and cash equivalents as reported in the cash flow statement
Dec. 31, 2017
Dec. 31, 2016
18,457
–420
18,038
19,265
–431
18,833
Time deposits are not classified as cash equivalents. Time deposits have a contractual maturity of more than
three months. The maximum default risk corresponds to its carrying amount.
282
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The following table shows the classification of changes in financial liabilities into cash and non-cash
transactions:
€ million
Bonds
Other total third-party
borrowings
Finance lease liabilities
Total third-party borrowings
Put options and
compensation rights granted
to noncontrolling interest
shareholders
Other financial assets and
liabilities
Financial assets and liabilities
in financing activities
Jan. 1, 2017
Cash-effective
changes
Foreign exchange
differences
Changes in
consolidated
group
Changes in
fair values
Dec. 31, 2017
N O N - C A S H C H A N G E S
52,022
12,402
–1,018
102,259
539
154,819
3,849
87
3,501
–28
15,875
–118
–274
–5,273
–25
–6,316
–
17
–
–370
–16
–386
–
–
–289
–240
9
–520
64
10
63,118
99,875
479
163,472
3,795
–160
158,755
15,483
–6,299
–386
–446
167,107
34. Financial risk management and financial instruments
1 . H E D G I N G G U I D E L I N E S A N D F I N A N C I A L R I S K M A N A G E M E N T P R I N C I P L E S
The principles and responsibilities for managing and controlling the risks that could arise from financial
instruments are defined by the Board of Management and monitored by the Supervisory Board. General rules
apply to the Group-wide risk policy; these are oriented on the statutory requirements and the “Minimum
Requirements for Risk Management by Credit Institutions”.
Group Treasury is responsible for operational risk management and control of risks from financial
instruments. The main functions of the MAN and PHS subgroups are included in Group Treasury’s operational
risk management and control for risks relating to financial instruments, while the Scania subgroup is only
included to a limited extent. Subgroups have their own risk management structures. The Risk Management
Group Executive Committee is regularly informed about current financial risks. In addition, the Group Board
of Management and the Supervisory Board are regularly updated on the current risk situation.
For more information, please see the management report on page 187-188.
2 . C R E D I T A N D D E F AU LT R I S K
The credit and default risk arising from financial assets involves the risk of default by counterparties, and
therefore comprises at a maximum the amount of the claims under carrying amounts receivable from them
and the irrevocable credit commitments. The maximum potential credit and default risk is reduced by
collateral held and other credit enhancements
in the amount of €78,934 million (previous year:
€77,465 million). Collateral is held exclusively for financial assets in the “measured at amortized cost” category.
It relates primarily to collateral for financial services receivables and trade receivables. Collateral comprises
vehicles and assets transferred as security, as well as guarantees and real property liens. Cash collateral is also
used in hedging transactions. The risk arising from nonderivative financial instruments is also accounted for
by recognizing bad debt losses. Significant cash and capital investments, as well as derivatives, are only entered
into with national and international banks. Risk is additionally limited by a limit system based primarily on the
equity base of the counterparties concerned and on credit assessments by international rating agencies.
Financial guarantees issued also give rise to credit and default risk. The maximum potential credit and default
risk is calculated from the amount Volkswagen would have to pay if claims were to be asserted under the
guarantees. The corresponding amounts are presented in the Liquidity risk section.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
283
There were no material concentrations of risk at individual counterparties or counterparty groups in the past
fiscal year due to the global allocation of the Group’s business activities and the resulting diversification. There
was a slight change in the concentration of credit and default risk exposures to the German public banking
sector as a whole that has arisen from Group-wide cash and capital investments as well as derivatives: the
portion attributable to this sector was 7.4% at the end of 2017 compared with 13.0% at the end of 2016. Any
existing concentration of risk is assessed and monitored both at the level of individual counterparties or
counterparty groups and with regard to the countries in which these are based, in each case using the share of
all credit and default risk exposures accounted for by the risk exposure concerned.
For China, credit and default risk exposures accounted for 29.5% at the end of 2017, as against 27.9% at the
end of 2016. There were no other concentrations of credit and default risk exposures in individual countries.
C R E D I T A N D D E F AU LT R I S K R E L AT I N G TO F I N A N C I A L A S S E T S BY G R O S S C A R RY I N G A M O U N T
€ million
Measured at amortized cost
Financial services
receivables
Trade receivables
Other receivables
Measured at fair value
Neither
past due
nor
impaired
Past due
and not
impaired
Impaired Dec. 31, 2017
Neither
past due
nor
impaired
Past due
and not
impaired
Impaired Dec. 31, 2016
124,044
10,395
13,403
16,862
2,888
2,833
102
–
2,900
129,832
115,747
562
196
290
13,791
13,700
17,152
9,421
14,391
17,907
3,001
2,596
110
–
3,003
121,751
607
162
259
12,624
14,663
18,166
164,704
5,822
3,948
174,475
157,466
5,706
4,031
167,203
There are no past due financial instruments measured at fair value in the Volkswagen Group. In fiscal year 2017,
marketable securities measured at fair value with a cost of €86 million (previous year: €83 million) were
individually impaired. In addition, portfolio-based impairment losses are recognized in respect of the financial
services receivables presented above that are not past due and not individually impaired, as well as of the
financial services receivables presented above that are past due and not individually impaired. The assets in the
class used for hedging are neither past due nor impaired.
284
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
C R E D I T R AT I N G O F T H E G R O S S C A R RY I N G A M O U N T S O F F I N A N C I A L A S S E T S
T H AT A R E N E I T H E R PA ST D U E N O R I M PA I R E D
€ million
Risk class 1
Risk class 2
Dec. 31, 2017
Risk class 1
Risk class 2
Dec. 31, 2016
Measured at amortized cost
Financial services
receivables
Trade receivables
Other receivables
Measured at fair value
104,143
10,259
13,313
22,086
149,802
19,901
124,044
136
90
–
10,395
13,403
22,086
99,153
9,284
14,238
22,021
16,595
115,747
137
153
–
9,421
14,391
22,021
20,127
169,928
144,694
16,885
161,580
The Volkswagen Group performs a credit assessment of borrowers in all loan and lease agreements, using
scoring systems for the high-volume business and rating systems for corporate customers and receivables from
dealer financing. Receivables rated as good are contained in risk class 1. Receivables from customers whose
credit rating is not good but have not yet defaulted are contained in risk class 2. The financial assets measured
at fair value include derivative financial instruments within hedge accounting in an amount of €5.2 billion
(previous year: €4.1 billion); they are allocated to risk class 1.
M AT U R I T Y A N A LY S I S O F T H E G R O S S C A R RY I N G A M O U N T S O F F I N A N C I A L A S S E T S
T H AT A R E PA ST D U E A N D N OT I M PA I R E D
€ million
up to 30 days
30 to 90 days
more than 90 days
Dec. 31, 2016
P A S T D U E B Y
G R O S S C A R R Y I N G
A M O U N T
Measured at amortized cost
Financial services receivables
Trade receivables
Other receivables
Measured at fair value
2,205
1,080
49
–
3,334
788
720
36
–
1,544
8
795
24
–
828
3,001
2,596
110
–
5,706
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
285
€ million
up to 30 days
30 to 90 days
more than 90 days
Dec. 31, 2017
P A S T D U E B Y
G R O S S C A R R Y I N G
A M O U N T
Measured at amortized cost
Financial services receivables
Trade receivables
Other receivables
Measured at fair value
2,148
1,164
43
–
3,355
728
689
21
–
1,438
12
980
37
–
1,029
2,888
2,833
102
–
5,822
Collateral that was accepted for financial assets in the current fiscal year was recognized in the balance sheet in
the amount of €109 million (previous year: €120 million). This mainly relates to vehicles.
3 . L I Q U I D I T Y R I S K
The solvency and liquidity of the Volkswagen Group are ensured at all times by rolling liquidity planning, a
liquidity reserve in the form of cash, confirmed credit lines and the issuance of securities on the international
money and capital markets. The volume of confirmed bilateral and syndicated credit lines stood at €19.9 billion
as of December 31 2017, of which €3.4 billion was drawn down.
Local cash funds in certain countries (e.g. China, Brazil, Argentina, India and South Africa) are only available
to the Group for cross-border transactions subject to exchange controls. There are no significant restrictions
over and above these.
The following overview shows the contractual undiscounted cash flows from financial instruments.
M AT U R I T Y A N A LY S I S O F U N D I S CO U N T E D C A S H F LOW S F R O M F I N A N C I A L I N ST R U M E N T S
R E M A I N I N G
R E M A I N I N G
C O N T R A C T U A L M A T U R I T I E S
C O N T R A C T U A L M A T U R I T I E S
€ million
under one year
within one
to five years
over five years
2017 under one year
within one
to five years
over five years
2016
Put options and
compensation
rights granted to
noncontrolling
interest
shareholders
Financial liabilities
Trade payables
Other financial
liabilities
Derivatives
3,379
83,867
23,041
7,360
72,635
–
–
69,968
16,113
5
1,557
47,414
–
86
332
190,281
118,945
16,531
3,379
169,949
23,046
9,003
120,381
325,758
3,382
90,044
22,788
6,009
77,294
–
–
3,382
60,603
10,955
161,602
6
–
22,794
1,789
59,007
83
119
7,880
136,420
332,079
199,517
121,405
11,157
When calculating cash outflows related to put options and compensation rights, it was assumed that shares
would be tendered at the earliest possible repayment date.
286
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Derivatives comprise both cash flows from derivative financial instruments with negative fair values and cash
flows from derivatives with positive fair values for which gross settlement has been agreed. Derivatives entered
into through offsetting transactions are also accounted for as cash outflows. The cash outflows from derivatives
for which gross settlement has been agreed are matched in part by cash inflows. These cash inflows are not
reported in the maturity analysis. If these cash inflows were also recognized, the cash outflows presented
would be substantially lower. This applies in particular also if hedges have been closed with offsetting
transactions.
The cash outflows from irrevocable credit commitments are presented in section entitled "Other financial
obligations”, classified by contractual maturities.
As of December 31, 2017, the maximum potential liability under financial guarantees amounted to €261 mil-
lion (previous year: €173 million). Financial guarantees are assumed to be due immediately in all cases.
4 . M A R K E T R I S K
4.1 Hedging policy and financial derivatives
During the course of its general business activities, the Volkswagen Group is exposed to foreign currency,
interest rate, commodity price, equity price and fund price risk. Corporate policy is to limit or eliminate such
risk by means of hedging. All necessary hedging transactions with the exception of the Scania, MAN and
Porsche Holding GmbH (Salzburg) subgroups are executed or coordinated centrally by Group Treasury.
The following table shows the gains and losses on hedges:
€ million
Hedging instruments used in fair value hedges
Hedged items used in fair value hedges
Ineffective portion of cash flow hedges
2017
307
–300
–11
2016
670
–739
6
The ineffective portion of cash flow hedges represents the income and expenses from changes in the fair value
of hedging instruments that exceed the changes in the fair value of the hedged items but that are documented
to be within the permitted range of 80% to 125% overall when measuring effectiveness. Such income or
expenses are recognized directly in the financial result.
During the fiscal year, €554 million increasing earnings (previous year: €1,222 million reducing earnings)
was transferred from the cash flow hedge reserve to the other operating result, €11 million increasing earnings
(previous year: €10 million reducing earnings), was transferred to the financial result, and €7 million (previous
year: €90 million), both reducing earnings, was transferred to cost of sales and the financial result.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
287
The Volkswagen Group uses two different methods to present market risk from nonderivative and derivative
financial instruments in accordance with IFRS 7. For quantitative risk measurement, interest rate and foreign
currency risk in the Volkswagen Financial Services subgroup are measured using a value-at-risk (VaR) model on
the basis of a historical simulation, while market risk in the other Group companies is determined using a
sensitivity analysis. The value-at-risk calculation indicates the size of the maximum potential loss on the
portfolio as a whole within a time horizon of 40 days, measured at a confidence level of 99%. To provide the
basis for this calculation, all cash flows from nonderivative and derivative financial instruments are aggregated
into an interest rate gap analysis. The historical market data used in calculating value at risk covers a period of
1,000 trading days. The sensitivity analysis calculates the effect on equity and profit or loss by modifying risk
variables within the respective market risks.
4.2 Market risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup)
4.2.1 Foreign currency risk
Foreign currency risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup) is
attributable to investments, financing measures and operating activities. Currency forwards, currency options,
currency swaps and cross-currency swaps are used to limit foreign currency risk. These transactions relate to
the exchange rate hedging of all material payments covering general business activities that are not made in
the functional currency of the respective Group companies. The principle of matching currencies applies to the
Group’s financing activities.
Hedging transactions entered into in 2017 as part of foreign currency risk management were amongst
others in Argentine pesos, Australian dollars, Brazilian real, sterling, Chinese renminbi, Hong Kong dollars,
Indian rupees, Japanese yen, Canadian dollars, Mexican pesos, Norwegian kroner, Polish zloty, Russian rubles,
Swedish kronor, Swiss francs, Singapore dollars, South African rand, South Korean won, Taiwan dollars, Czech
koruna, Hungarian forints and US dollars.
All nonfunctional currencies in which the Volkswagen Group enters into financial instruments are included
as relevant risk variables in the sensitivity analysis in accordance with IFRS 7.
If the functional currencies concerned had appreciated or depreciated by 10% against the other currencies,
the exchange rates shown below would have resulted in the following effects on the hedging reserve in equity
and on earnings after tax. It is not appropriate to add together the individual figures, since the results of the
various functional currencies concerned are based on different scenarios.
288
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
The following table shows the sensitivities of the main currencies in the portfolio as of December 31, 2017.
€ million
Exchange rate
EUR/USD
Hedging reserve
Profit/loss after tax
EUR/GBP
Hedging reserve
Profit/loss after tax
EUR/CNY
Hedging reserve
Profit/loss after tax
EUR/JPY
Hedging reserve
Profit/loss after tax
EUR/CHF
Hedging reserve
Profit/loss after tax
EUR/AUD
Hedging reserve
Profit/loss after tax
EUR/CAD
Hedging reserve
Profit/loss after tax
EUR/SEK
Hedging reserve
Profit/loss after tax
CZK/GBP
Hedging reserve
Profit/loss after tax
EUR/CZK
Hedging reserve
Profit/loss after tax
EUR/TWD
Hedging reserve
Profit/loss after tax
GBP/USD
Hedging reserve
Profit/loss after tax
EUR/KRW
Hedging reserve
Profit/loss after tax
EUR/PLN
Hedging reserve
Profit/loss after tax
PLN/CZK
Hedging reserve
Profit/loss after tax
BRL/USD
Hedging reserve
Profit/loss after tax
D E C . 3 1 , 2 0 1 7
D E C . 3 1 , 2 0 1 6
+10%
–10%
+10%
–10%
1,627
–365
1,126
–73
–1,303
193
–1,124
75
515
–58
271
–40
246
16
164
–36
121
–51
105
–22
91
0
69
–20
72
–10
63
–2
55
–3
–
–60
58
0
–16
41
–491
62
–244
20
–232
–20
–164
37
–113
48
–100
18
–91
0
–69
20
–72
10
–63
2
–59
6
–
60
–58
0
16
–41
1,929
–338
1,202
–58
665
6
318
–7
380
–9
178
–23
145
–54
91
–24
106
0
31
–43
36
–10
106
2
77
–8
–107
–21
14
0
–20
82
–2,294
649
–1,189
51
–662
25
–318
7
–375
2
–182
26
–154
63
–89
23
–106
0
–31
43
–36
10
–106
–2
–82
13
108
21
–14
0
20
–82
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
289
4.2.2 Interest rate risk
Interest rate risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup) results from
changes in market interest rates, primarily for medium- and long-term variable interest receivables and
liabilities. Interest rate swaps and cross-currency interest rate swaps are entered into to hedge against this risk
primarily under fair value or cash flow hedges, and depending on market conditions. Intragroup financing
arrangements are mainly structured to match the maturities of their refinancing. Departures from the Group
standard are subject to centrally defined limits and monitored on an ongoing basis.
Interest rate risk within the meaning of IFRS 7 is calculated for these companies using sensitivity analyses.
The effects of the risk-variable market rates of interest on the financial result and on equity are presented, net
of tax.
If market interest rates had been 100 bps higher as of December 31, 2017, equity would have been €88 million
(previous year: €60 million) lower. If market interest rates had been 100 bps lower as of December 31, 2017,
equity would have been €24 million (previous year: €60 million) higher.
If market interest rates had been 100 bps higher as of December 31, 2017, earnings after tax would have
been €76 million (previous year: €10 million) higher. If market interest rates had been 100 bps lower as of
December 31, 2017, earnings after tax would have been €64 million (previous year: €24 million) lower.
4.2.3 Commodity price risk
Commodity price risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup) primarily
results from price fluctuations and the availability of ferrous and non-ferrous metals, precious metals,
commodities required in connection with the Group’s digitalization and electrification strategy, as well as of
coal, CO2 certificates and rubber.
Commodity price risk is limited by entering into forward transactions and swaps.
Up to the end of 2016, hedge accounting in accordance with IAS 39 was applied in some cases to the hedging
of commodity risk associated with aluminum and coal. Since the beginning of 2017, hedge accounting has not
been applied to these hedging relationships.
Commodity price risk within the meaning of IFRS 7 is presented using sensitivity analyses. These show the
effect on earnings after tax of changes in the risk variable commodity prices.
If the commodity prices of the hedged nonferrous metals, coal and rubber had been 10% higher (lower) as
of December 31, 2017, earnings after tax would have been €101 million (previous year: €82 million) higher
(lower).
If the commodity prices of the hedges included in hedge accounting had been 10% higher (lower) as of
December 31, 2016, equity would have been €48 million higher (lower). As of the end of 2017, hedge accounting
was not applied to these hedging relationships.
4.2.4 Equity and bond price risk
The Spezialfonds (special funds) launched using surplus liquidity and the equity interests measured at fair
value are subject in particular to equity price and bond price risk, which can arise from fluctuations in quoted
market prices, stock exchange indices and market rates of interest. The changes in bond prices resulting from
variations in the market rates of interest are quantified in sections 4.2.1 and 4.2.2, as are the measurement of
foreign currency and other interest rate risks arising from the special funds and the equity interests measured
at fair value. As a rule, we counter the risks arising from the special funds by ensuring a broad diversification of
products, issuers and regional markets when investing funds, as stipulated by our Investment Guidelines. In
addition, we hedge exchange rates when market conditions are appropriate.
As part of the presentation of market risk, IFRS 7 requires disclosures on how hypothetical changes in risk
variables affect the price of financial instruments. Potential risk variables here are in particular quoted market
prices or indices, as well as interest rate changes as bond price parameters.
If share prices had been 10% higher as of December 31, 2017, equity would have been €28 million (previous
year: €4 million) higher. If share prices had been 10% lower as of December 31, 2017, equity would have been
€108 million (previous year: €28 million) lower.
290
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
4.3 Market risk at Volkswagen Financial Services subgroup
Exchange rate risk in the Volkswagen Financial Services subgroup is mainly attributable to assets that are not
denominated in the functional currency and from refinancing within operating activities. Interest rate risk
relates to refinancing without matching maturities and the varying interest rate elasticity of individual asset
and liability items. The risks are limited by the use of currency and interest rate hedges.
Microhedges and portfolio hedges are used for interest rate hedging. Fixed-rate assets and liabilities
included in the hedging strategy are recognized at fair value, as opposed to their original subsequent measure-
ment at amortized cost. The resulting effects in the income statement are offset by the corresponding gains
and losses on the interest rate hedging instruments (swaps). Currency hedges (currency forwards and cross-
currency interest rate swaps) are used to mitigate foreign currency risk. All cash flows in foreign currency are
hedged.
As of December 31, 2017, the value at risk was €167 million (previous year: €95 million) for interest rate risk
and €165 million (previous year: €199 million) for foreign currency risk.
The entire value at risk for interest rate and foreign currency risk at the Volkswagen Financial Services
subgroup was €167 million (previous year: €197 million).
5 . M E T H O D S F O R M O N I TO R I N G H E D G E E F F E C T I V E N E S S
In the Volkswagen Group, hedge effectiveness is assessed prospectively using the critical terms match method
and using statistical methods in the form of a regression analysis. Retrospective analysis of effectiveness uses
effectiveness tests in the form of the dollar offset method or a regression analysis.
Under the dollar offset method, the changes in value of the hedged item expressed in monetary units are
compared with the changes in value of the hedging instrument expressed in monetary units.
Where regression analysis is used, the change in value of the hedged item is presented as an independent
variable, and that of the hedging instrument as a dependent variable. Hedge relationships are classified as
effective if they have sufficient coefficients of determination and slope factors.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
291
N OT I O N A L A M O U N T O F D E R I VAT I V E S
€ million
under one year
R E M A I N I N G T E R M
within one to
five years
T O T A L
N O T I O N A L
A M O U N T
T O T A L
N O T I O N A L
A M O U N T
over five years
Dec. 31, 2017
Dec. 31, 2016
Notional amount of hedging
instruments used in cash flow hedges:
Interest rate swaps
Currency forwards
Currency options
Cross-currency swaps
Cross-currency interest rate swaps
Commodity future contracts
Notional amount of other derivatives:
Interest rate swaps
Interest rate option contracts
Currency forwards
Other currency options
Cross-currency swaps
Cross-currency interest rate swaps
Commodity future contracts
3,490
32,329
8,128
–
387
–
20,483
–
19,592
10
20,825
3,350
798
8,999
35,538
11,435
–
165
–
38
–
–
–
–
–
48,067
20,125
–
2,942
–
1,451
6,025
477
–
2
–
–
293
–
12,527
67,867
19,563
–
551
–
88,675
–
22,535
10
22,276
9,667
1,275
17,054
84,754
26,081
2,295
1,951
679
84,612
–
28,436
45
12,207
8,839
1,235
Both derivatives closed with offsetting transactions and the offsetting transactions themselves are included in
the respective notional amount. The offsetting transactions cancel out the effects of the original hedging
transactions. If the offsetting transactions were not included, the respective notional amount would be
significantly lower. In addition to the derivatives used for hedging foreign currency, interest rate and price risk,
the Group held options and other derivatives on equity instruments at the reporting date with a notional
amount of €29 million (previous year: €45 million) whose remaining maturity is under one year.
Existing cash flow hedges in the notional amount of €361 million (previous year: €811 million) were
discontinued because of a reduction in the projections. €3 million (previous year: €5 million) was transferred
from the cash flow hedge reserve to the financial result, reducing earnings. In addition, hedges were to be
terminated due to internal risk regulations.
Items hedged under cash flow hedges are expected to be realized in accordance with the maturity buckets of
the hedges reported in the table.
The fair values of the derivatives are estimated using market data at the balance sheet date as well as by
appropriate valuation techniques. The following term structures were used for the calculation:
in %
EUR
CHF
CNY
CZK
GBP
JPY
KRW
SEK
USD
Interest rate for six months
–0.3214
–0.5535
Interest rate for one year
–0.2826
–0.4924
Interest rate for five years
0.3170
–0.1410
Interest rate for ten years
0.8840
0.2690
4.9281
4.7799
4.7400
4.6300
0.4824
0.4543
1.6200
1.8450
0.5446
0.6229
1.0325
1.2735
0.0281
0.0295
0.1013
0.2613
1.7108
–0.3815
1.8385
–0.3298
2.1275
2.2000
0.4980
1.2000
1.7499
1.9011
2.2400
2.3920
292
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
35. Capital management
The Group’s capital management ensures that its goals and strategies can be achieved in the interests of
shareholders, employees and other stakeholders. In particular, management focuses on generating the
minimum return on invested assets in the Automotive Division that is required by the capital markets, and on
increasing the return on equity in the Financial Services Division. In the process, it aims overall to achieve the
highest possible growth in the value of the Group and its divisions for the benefit of all the Company’s
stakeholder groups.
In order to maximize the use of resources in the Automotive Division and to measure the success of this, we
have for a number of years been using a value-based management system, with value contribution as an
absolute performance measure and return on investment (ROI) as a relative indicator.
Value contribution is defined as the difference between operating profit after tax and the opportunity cost of
invested capital. The opportunity cost of capital is calculated by multiplying the market cost of capital by average
invested capital. Invested capital is calculated by taking the operating assets reported in the balance sheet
(property, plant and equipment, intangible assets, lease assets, inventories and receivables) and deducting non-
interest-bearing liabilities (trade payables and payments on account received). Average invested capital is derived
from the balance at the beginning and the end of the reporting period. Despite the charges relating to the special
items recognized in the operating result, the Automotive Division disclosed a positive value contribution of
€5,935 million in the reporting period which, due to the improvement in the operating result before special
items and an only slight increase in the cost of capital, was significantly higher than the prior-year figure.
The return on investment (ROI) is defined as the return on invested capital for a particular period based on the
operating result after tax. If the return on investment exceeds the market cost of capital, there is an increase in the
value of the invested capital and a positive value contribution. In the Group, a minimum required rate of return on
invested capital of 9% is defined, which applies to both the business units and the individual products and product
lines. Our goal of generating a sustained return on investment of over 15% is anchored in Strategy 2025. The
return on investment therefore serves as a consistent target in operational and strategic management and is
used to measure target attainment for the Automotive Division, the individual business units, and projects and
products. The return on investment achieved for the Automotive Division was 12.1%, which is above our
minimum rate of return on invested capital of 9% and significantly exceeds the current cost of capital of 6.0%.
Due to the specific features of the Financial Services Division, its management focuses on return on equity, a
special target linked to invested capital. This measure is calculated as the ratio of earnings before tax to average
equity. Average equity is calculated from the balance at the beginning and the end of the reporting period. In
addition, the goals of the Financial Services Division are to meet the banking supervisory authorities’ regulatory
capital requirements, to procure equity for the growth planned in the coming fiscal years and to support its
external rating by ensuring capital adequacy. To ensure compliance with prudential requirements at all times, a
planning procedure integrated into internal reporting has been put in place at the Volkswagen Bank, allowing the
required equity to be continuously determined on the basis of actual and expected business performance. In the
reporting period, this again ensured that regulatory minimum capital requirements were always met both at
Group level and at the level of subordinate companies’ individual, specific capital requirements.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
293
The return on investment and value contribution in the Automotive Division as well as the return on equity
and the equity ratio in the Financial Services Division are shown in the following table:
€ million
Automotive Division¹
Operating result after tax
Invested capital (average)
Return on investment (RoI) in %
Cost of capital in %
Opportunity cost of invested capital
Value contribution²
Financial Services Division
Earnings before tax
Average equity
Return on equity before tax in %
Equity ratio in %
2017
2016
11,756
97,021
12.1
6.0
5,821
5,935
2,502
25,626
9.8
13.7
7,419
91,020
8.2
6.2
5,643
1,775
2,408
22,342
10.8
12.5
1 Including proportionate inclusion of the Chinese joint ventures and allocation of consolidation adjustments between the Automotive and Financial Services
Divisions; excluding effects on earnings and assets from purchase price allocation.
2 The value contribution corresponds to the Economic Value Added (EVA®). EVA® is a registered trademark of Stern Stewart & Co.
36. Contingent liabilities
€ million
Dec. 31, 2017
Dec. 31, 2016
Liabilities under guarantees
Liabilities under warranty contracts
Assets pledged as security for third-party liabilities
Other contingent liabilities
423
60
21
7,909
8,413
419
75
20
6,305
6,819
The trust assets and liabilities of the savings and trust entities belonging to the South American subsidiaries
not included in the consolidated balance sheet amount to €768 million (previous year: €944 million).
In the case of liabilities from guarantees, the Group is required to make specific payments if the debtors fail
to meet their obligations.
The other contingent liabilities primarily comprise potential liabilities arising from matters relating to taxes
and customs duties, as well as litigation and proceedings relating to suppliers, dealers, customers, employees and
investors. The contingent liabilities recognized in connection with the diesel issue totaled €4.3 billion, of which
€3.4 billion was attributable to investor lawsuits. Also included are certain elements of the class action lawsuits
relating to the diesel issue as well as criminal proceedings/misdemeanor proceedings as far as these can be
quantified. As some of these proceedings are still at a very early stage, the plaintiffs have in a number of cases
so far not specified the basis of their claims and/or there is insufficient certainty about the number of plaintiffs
or the amounts being claimed. These lawsuits meet the definition of a contingent liability but cannot, as a rule,
be disclosed because it is impossible to measure the amount involved.
294
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
In addition, other contingent liabilities include an amount of €0.7 billion for potential liabilities from tax risks
at MAN Latin America. In the tax proceedings involving MAN Latin America and the Brazilian tax authorities,
the Brazilian tax authorities take a different position with regard to the tax effects of the acquisition structure
for MAN Latin America chosen by MAN in 2009. It is not currently considered likely that a claim will be made
against MAN Latin America in connection with these liabilities.
On May 5, 2016, the U.S. National Highway Traffic Safety Administration (NHTSA) announced, jointly with
the Takata company, a further extension of the recall for various models from different manufacturers
containing certain airbags produced by the Takata company. Recalls were also ordered by the local authorities
in individual countries. The recalls also included models manufactured by the Volkswagen Group. Appropriate
provisions have been recognized. Currently, the possibility of further extensions to the recalls that could also
affect Volkswagen Group models cannot be ruled out. It is not possible at the moment to provide further
disclosures in accordance with IAS 37.86 in relation to this matter because the technical investigations and
consultations with the authorities are still being carried out.
As permitted by IAS 37.92, in order not to prejudice the outcomes of the proceedings and the interests of
the Company, we have not made any further disclosures about estimates in connection with the financial
effects of, and disclosures about, uncertainty regarding the timing or amount of contingent liabilities in
connection with the diesel issue and investigations by the European Commission. Further information can be
found under the section entitled “Litigation”.
37. Litigation
In the course of their operating activities, Volkswagen AG and the companies in which it is directly or indirectly
invested become involved in a great number of legal disputes and governmental proceedings in Germany and
abroad. In particular, such legal disputes and other proceedings may occur in relation to suppliers, dealers,
customers, employees, or investors. For the companies involved, these may result in payment or other
obligations. Above all, in cases where US customers assert claims for vehicle defects individually or by way of a
class action, highly cost-intensive measures may have to be taken and substantial compensation or punitive
damages paid. Corresponding risks also result from US patent infringement proceedings.
Risks may also emerge in connection with the adherence to regulatory requirements. This particularly
applies in the case of regulatory vagueness that may be interpreted differently by Volkswagen and the
authorities responsible for the respective regulations. In addition, legal risks can arise from the criminal
activities of individual persons, which even the best compliance management system can never completely
prevent.
Where transparent and economically viable, adequate insurance coverage was taken out for these risks. For
the identifiable and measurable risks, provisions considered appropriate were recognized and information
about contingent liabilities disclosed. As some risks cannot be assessed or can only be assessed to a limited
extent, the possibility of loss or damage not being covered by the insured amounts and provisions cannot be
ruled out. This particularly applies to legal risk assessment regarding the diesel issue.
Diesel issue
On September 18, 2015, the US Environmental Protection Agency (EPA) publicly announced in a “Notice of
Violation” that irregularities in relation to nitrogen oxide (NOx) emissions had been discovered in emissions
tests on certain vehicles of Volkswagen Group with type 2.0 l diesel engines in the USA. It was alleged that
Volkswagen had installed undisclosed engine management software installed in 2009 to 2015 model year 2.0 l
diesel engines to circumvent NOx emissions testing regulations in the USA in order to comply with certification
requirements. The California Air Resources Board (CARB), a unit of the US environmental authority of
California, announced its own enforcement investigation into this matter.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
295
In this context, Volkswagen AG announced that noticeable discrepancies between the figures achieved in
testing and in actual road use had been identified in around eleven million vehicles worldwide with type EA 189
diesel engines. The vast majority of these engines were type EA 189 Euro 5 engines.
On November 2, 2015, the EPA issued a “Notice of Violation” alleging that irregularities had also been
discovered in the software installed in US vehicles with type V6 3.0 l diesel engines. CARB also issued a letter
announcing its own enforcement investigation into this matter. AUDI AG has confirmed that at least three
auxiliary emission control devices were inadequately disclosed in the course of the US approval
documentation. Around 113 thousand vehicles from the 2009 to 2016 model years with certain six-cylinder
diesel engines were affected in the USA and Canada, where regulations governing NOx emissions limits for
vehicles are stricter than those in other parts of the world.
Numerous court and governmental proceedings were subsequently initiated in the USA and the rest of the
world. During the reporting period, we succeeded in ending most significant court and governmental
proceedings in the USA by concluding settlement agreements. This includes, in particular, settlements with the
US Department of Justice (DOJ). Outside the USA, we also reached agreements with regard to the implementation
of the technical measures with numerous authorities.
The Supervisory Board of Volkswagen AG formed a special committee that coordinates the activities
relating to the diesel issue for the Supervisory Board.
The global law firm Jones Day was instructed by Volkswagen AG to carry out an extensive investigation of
the diesel issue in light of the DOJ’s and the Braunschweig public prosecutor’s criminal investigations as well as
other investigations and proceedings which were expected. Jones Day was instructed by Volkswagen AG to
present factual evidence to the DOJ.
To resolve US criminal law charges, Volkswagen AG and the DOJ entered into a Plea Agreement, which
includes a Statement of Facts containing a summary of the factual allegations which the DOJ considered
relevant to the settlement with Volkswagen AG. The Statement of Facts is based in part on Jones Day’s factual
findings as well as the evidence identified by the DOJ itself.
Jones Day has completed the work required to assist Volkswagen AG in assessing the criminal charges in the
USA with respect to the diesel issue. However, work in respect of the legal proceedings which are still pending in
the USA and the rest of the world is ongoing and will require considerable efforts and a considerable period of
time. In connection with this work, Volkswagen AG is being advised by a number of external law firms.
Furthermore, in September 2015, Volkswagen AG filed a criminal complaint in Germany against unknown
persons as did AUDI AG. Volkswagen AG and AUDI AG are cooperating with all responsible authorities in the
scope of reviewing the incidents.
Potential consequences for Volkswagen’s results of operations, financial position and net assets could emerge
primarily in the following legal areas:
1. Coordination with the authorities on technical measures
Based on decisions dated October 15, 2015, the Kraftfahrt-Bundesamt (KBA – German Federal Motor Transport
Authority) ordered the Volkswagen Passenger Cars, Volkswagen Commercial Vehicles and SEAT brands to recall
all the diesel vehicles that had been issued with vehicle type approval by the KBA from among the eleven
million vehicles affected with type EA 189 engines. The recall concerns the member states of the European
Union (EU28). On December 10, 2015 a similar decision was issued regarding Audi vehicles with the EA 189
engine. The timetable and action plan forming the basis for the recall order corresponded to the proposals
presented in advance by Volkswagen. Depending on the technical complexity of the concerned remedial
actions, this means that the Volkswagen Group has been recalling the affected vehicles, of which there are
around 8.5 million in total in the EU28 countries, to the service workshops since January 2016. The remedial
actions differ in scope depending on the engine variant. The technical measures cover software and in some
cases hardware modifications, depending on the series and model year. The technical measures for all vehicles
in the European Union have since been approved without exception. The KBA ascertained for all clusters
(groups of vehicles) that implementation of the technical measures would not bring about any adverse changes
in fuel consumption figures, CO2 emissions figures, engine power, maximum torque and noise emissions. Once
the modifications have been made, the vehicles will thus also continue to comply with the legal requirements
and the emission standards applicable in each case. The technical measures for all affected vehicles with type
EA 189 engines in the European Union were approved without exception, and implemented in most cases.
296
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
In some countries outside the EU – among others South Korea, Taiwan and Turkey – national type approval is
based on prior recognition of the EC/ECE type approval; the technical measures must therefore be approved by
the national authorities. With the exception of South Korea and Chile, we were able to conclude this approval
process in all countries. There, the majority of approvals were likewise granted; in relation to the pending
approvals, Volkswagen is in close contact with the authorities.
In addition, there is an intensive exchange of information with the authorities in the USA and Canada,
where Volkswagen’s proposed modifications in relation to the four-cylinder and the six-cylinder diesel engines
also have to be approved. Due to NOx limits that are considerably stricter than in the EU and the rest of the
world, it is a greater technical challenge here to refit the vehicles so that the emission standards defined in the
settlement agreements for these vehicles can be achieved.
For many months, AUDI AG has been intensively checking all diesel concepts for possible discrepancies and
retrofit potentials. A systematic review process for all engine and gear variants has been underway since 2016.
On June 14, 2017, based on a technical error in the parameterization of the transmission software for a
limited number of specific Audi A7/A8 models that AUDI AG itself discovered and reported to the KBA, the KBA
issued an order under which a correction proposed by AUDI AG will be submitted. The technical error lies in the
fact that, in the cases concerned, by way of exception a specific function that is standard in all other vehicle
concepts is not implemented in actual road use. In Europe, this affects around 24,800 units of certain Audi
A7/A8 models. The KBA has not categorized this error as an unlawful defeat device.
On July 21, 2017, AUDI AG offered a software-based retrofit program for up to 850,000 vehicles with V6 and
V8 TDI engines meeting the Euro 5 and Euro 6 emission standards in Europe and other markets except the USA
and Canada. The measure will mainly serve to further improve the vehicles’ emissions in real driving
conditions in inner city areas beyond the legal requirements. This was done in close cooperation with the
authorities, which were provided with detailed reports, especially the German Federal Ministry of Transport
and the KBA. The retrofit package comprises voluntary measures and, to a small extent, measures directed by
the authorities; these are measures taken within the scope of a recall, which were proposed by AUDI AG itself,
reported to the KBA and taken up and ordered by the latter. The voluntary tests have already reached an
advanced stage, but have not yet been completed. The measures adopted and mandated by the KBA involved
the recall of different diesel vehicles with a V6 or V8 engine meeting the Euro 6 emission standard, for which
the KBA categorized certain emission strategies as an unlawful defeat device. From July 2017 to January 2018,
the measures proposed by AUDI AG were adopted and mandated in various decisions by the KBA on vehicle
models with V6 and V8 TDI engines.
Currently, AUDI AG assumes that the total costs of the software-based retrofit program including the
amount based on recalls will be manageable and has recognized corresponding balance-sheet risk provisions.
Should additional measures become necessary as a result of the investigations by AUDI AG and the
consultations with the KBA, AUDI AG will quickly implement these as part of the retrofit program in the interest
of customers.
2. Criminal and administrative proceedings worldwide (excluding the USA/Canada)
In addition to the described approval processes with the responsible registration authorities, in some countries
criminal investigations/misdemeanor proceedings (for example, by the public prosecutor’s office in
Braunschweig and Munich, Germany) and/or administrative proceedings (for example, by the Bundesanstalt
für Finanzdienstleistungsaufsicht, BaFin – the German Federal Financial Supervisory Authority) have been
opened. The public prosecutor’s offices in Braunschweig and Munich are investigating the core issue of the
criminal investigations. Whether this will result in fines for the Company, and if so what their amount might
be, is currently subject to estimation risks. According to Volkswagen’s estimates so far, the likelihood of a
sanction in the majority of these proceedings is less than 50%. Contingent liabilities have therefore been
disclosed in cases where they can be assessed and for which the likelihood of a sanction was deemed not lower
than 10%.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
297
3. Product-related lawsuits worldwide (excluding the USA/ Canada)
In principle, it is possible that customers in the affected markets will file civil lawsuits against Volkswagen AG
and other Volkswagen Group companies. In addition, it is possible that importers and dealers could assert
claims against Volkswagen AG and other Volkswagen Group companies, e.g. through recourse claims. As well as
individual lawsuits, class action lawsuits are possible in various jurisdictions (albeit not in Germany).
Furthermore, in a number of markets it is possible that consumer and/or environmental organizations will
apply for an injunction or assert claims for a declaratory judgment or for damages.
In the context of the diesel issue, various lawsuits are currently pending against Volkswagen AG and other
Volkswagen Group companies at present.
There are pending class action proceedings and lawsuits brought by consumer and/or environmental
associations against Volkswagen AG and other companies of the Volkswagen Group in various countries such as
Argentina, Australia, Belgium, Brazil, China, the Czech Republic, Israel, Italy, Mexico, the Netherlands, Poland,
Portugal, Switzerland, Taiwan and the United Kingdom. The class action proceedings are lawsuits aimed among
other things at asserting damages or, as is the case in the Netherlands, at a declaratory judgment that cus-
tomers are entitled to damages. With the exception of Brazil, where there has already been a non-binding
judgment in the first instance, the amount of these damages cannot yet be quantified more precisely due to the
early stage of the proceedings. Volkswagen does not estimate the litigants’ prospect of success to be more than
50% in any of the class action proceedings.
In South Korea, various mass proceedings are pending (in some of these individual lawsuits several
hundred litigants have been aggregated). These lawsuits have been filed to assert damages and to rescind the
purchase contract including repayment of the purchase price. Due to special circumstances in the market and
specific characteristics of the South Korean legal system, Volkswagen estimates the litigants’ prospects of
success in the South Korean mass proceedings mentioned above to be inherently higher than in other
jurisdictions outside the USA and Canada. On May 12, 2017, one first-instance judgment was delivered in these
proceedings in South Korea during the fiscal year, in which the court completely dismissed an action filed to
assert criminal damages over pollution. The judgment has since become binding.
Contingent liabilities have been disclosed for pending class action and mass proceedings that can be
assessed and for which the chance of success was deemed not implausible. Provisions were recognized to a
small extent.
Furthermore, individual lawsuits and similar proceedings are pending against Volkswagen AG and other
Volkswagen Group companies in numerous countries. In Germany, there are around 9,500 individual lawsuits.
In Italy, Austria and Spain, lawsuits numbering in the low three-digit range and in France and Ireland individual
lawsuits in the two-digit range are pending against Volkswagen AG and other companies of the Volkswagen
Group, most of which are aimed at asserting damages or rescinding the purchase contract.
In addition, on November 29, 2017, Volkswagen AG was served with an action brought by financialright
GmbH asserting the rights assigned to it by a total of approximately 15,000 customers in Germany. This action
seeks the payment of around €350 million in return for restitution of the vehicles.
In Switzerland, a claim for damages was brought against Volkswagen AG in December 2017 from the
assigned rights of some 6,000 customers; the stated amount in dispute is approximately 30 million Swiss
francs.
According to Volkswagen’s estimates so far, the litigants’ prospect of success is below 50% in the vast
majority of the individual lawsuits. Contingent liabilities have therefore been disclosed for those lawsuits that
can be assessed and for which the chance of success was deemed not implausible.
It is too early to estimate how many customers will take advantage of the option to file lawsuits in the
future, beyond the existing lawsuits, or what their prospects of success will be.
298
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
4. Lawsuits filed by investors worldwide (excluding the USA/ Canada)
Investors from Germany and abroad have filed claims for damages against Volkswagen AG – in some cases
along with Porsche Automobil Holding SE (Porsche SE) as joint and several debtors – based on purported losses
due to alleged misconduct in capital market communications in connection with the diesel issue.
The vast majority of these investor lawsuits are currently pending at the District Court (Landgericht) in
Braunschweig. On August 5, 2016, the District Court in Braunschweig ordered that common questions of law and
fact relevant to the lawsuits pending at the District Court in Braunschweig be referred to the Higher Regional
Court (Oberlandesgericht) in Braunschweig for a binding declaratory decision pursuant to the German Act on
(Kapitalanleger-Muster-
Model Case Proceedings
verfahrensgesetz – KapMuG). In this proceeding, common questions of law and fact relevant to these actions
shall be adjudicated in a consolidated manner by the Higher Regional Court in Braunschweig (model case
proceedings). All lawsuits at the District Court in Braunschweig will be stayed pending up until resolution of the
common issues, unless they can be dismissed for reasons independent of the common issues that are
adjudicated in the model case proceedings. The resolution of the common questions of law and fact in the
model case proceedings will be binding for all pending cases in the stayed lawsuits.
in Disputes Regarding Capital Market
Information
At the District Court in Stuttgart, further investor lawsuits have been filed against Volkswagen AG, in some
cases along with Porsche SE as joint and several debtors. On December 6, 2017, the District Court in Stuttgart
issued an order for reference to the Higher Regional Court in Stuttgart in relation to procedural issues,
particularly for clarification of jurisdiction. On account of the diesel issue, model case proceedings against
Porsche SE are also pending before the Higher Regional Court in Stuttgart.
Further investor lawsuits have been filed at various courts in Germany as well as in Austria and the
Netherlands. In Austria, the Supreme Court ruled on July 7, 2017 that the investor lawsuits against Volkswagen
AG do not fall within the jurisdiction of the Austrian courts. Consequently, all but one of the investor lawsuits
that were formerly pending in Austria have been dismissed or withdrawn. The last pending lawsuit has been
dismissed at first instance.
Worldwide (excluding USA and Canada), investor lawsuits, judicial applications for dunning procedures and
conciliation proceedings, and claims under the KapMuG are currently pending against Volkswagen in
connection with the diesel issue, with the claims totaling approximately €9 billion. Volkswagen remains of the
opinion that it duly complied with its capital market obligations. Therefore, no provisions have been
recognized for these investor lawsuits. Insofar as the chance of success was estimated at not lower than 10%,
contingent liabilities have been disclosed.
5. Proceedings in the USA/Canada
Following the publication of the EPA’s “Notices of Violation”, Volkswagen AG and other Volkswagen Group
companies have been the subject of intense scrutiny, ongoing investigations (civil and criminal) and civil
litigation. Volkswagen AG and other Volkswagen Group companies have received subpoenas and inquiries from
state attorneys general and other govern- mental authorities and are responding to such investigations and
inquiries.
In addition, Volkswagen AG and other Volkswagen Group companies in the USA/Canada are facing litigation
on a number of different fronts relating to the matters described in the EPA’s “Notices of Violation”.
A large number of putative class action lawsuits by customers and dealers have been filed in US federal
courts and consolidated for pretrial coordination purposes in the federal multidistrict litigation proceeding in
the State of California.
On January 4, 2016, the DOJ, Civil Division, on behalf of the EPA, initiated a civil complaint against Volks-
wagen AG, AUDI AG and certain other Volkswagen Group companies. The action sought statutory penalties
under the US Clean Air Act, as well as certain injunctive relief, and was consolidated for pretrial coordination
purposes in the California multidistrict litigation.
On January 12, 2016, CARB announced that it intended to seek civil fines for alleged violations of the
California Health & Safety Code and various CARB regulations.
In June 2016, Volkswagen AG, Volkswagen Group of America, Inc. and certain affiliates reached settlement
agreements with the DOJ on behalf of the EPA, CARB and the California Attorney General, private plaintiffs
represented by a Plaintiffs’ Steering Committee (PSC) in the multidistrict litigation pending in California, and
the U.S. Federal Trade Commission (FTC). These settlement agreements resolved certain civil claims made in
relation to affected diesel vehicles with 2.0 l TDI engines from the Volkswagen Passenger Cars and Audi brands
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
299
in the USA. Volkswagen AG and certain affiliates also entered into a First Partial Consent Decree with the DOJ,
EPA, CARB and the California Attorney General, which was lodged with the court on June 28, 2016. On October 18,
2016, a fairness hearing on whether final approval should be granted was held, and on October 25, 2016, the
court granted final approval of the settlement agreements and the partial consent order. A number of class
members have filed appeals to an US appellate court from the order approving the settlements.
The settlements include buyback or, for leased vehicles, early lease termination, or a free emissions
modification of the vehicles, provided that the EPA and CARB approve the modification. Volkswagen will also
make additional cash payments to affected current owners or lessees as well as certain former owners or
lessees.
Volkswagen also agreed to support environmental programs. The company will pay USD 2.7 billion over
three years into an environmental trust, managed by a trustee appointed by the court, to offset excess nitrogen
oxide (NOx) emissions. Volkswagen will also invest a total of USD 2.0 billion over ten years in zero emissions
vehicle infrastructure as well as corresponding access and awareness initiatives.
Volkswagen AG and certain affiliates also entered into a separate Partial Consent Decree with CARB and the
California Attorney General resolving certain claims under California unfair competition, false advertising, and
consumer protection laws related to both the 2.0 l and 3.0 l TDI vehicles, which was lodged with the court on
July 7, 2016. Under the terms of the agreement, Volkswagen agreed to pay California USD 86 million. The court
entered judgment on the Partial Consent Decree on September 1, 2016 and the USD 86 million payment was
made on September 28, 2016.
On December 20, 2016, Volkswagen entered into a Second Partial Consent Decree, subject to court approval,
with the DOJ, EPA, CARB and the California Attorney General that resolved claims for injunctive relief under the
Clean Air Act and California environmental, consumer protection and false advertising laws related to the
3.0 l TDI vehicles. Under the terms of this Consent Decree, Volkswagen agreed to implement a buyback and lease
termination program for Generation 1 3.0 l TDI vehicles and a free emissions recall and modification program
for Generation 2 3.0 l TDI vehicles, and to pay USD 225 million into the environmental mitigation trust that has
been established pursuant to the First Partial Consent Decree. The Second Partial Consent Decree was lodged
with the court on December 20, 2016 and approved on May 17, 2017.
In addition, on December 20, 2016, Volkswagen entered into an additional, concurrent California Second
Partial Consent Decree, subject to court approval, with CARB and the California Attorney General that resolved
claims for injunctive relief under California environmental, consumer protection and false advertising laws
related to the 3.0 l TDI vehicles. Under the terms of this Consent Decree, Volkswagen agreed to provide addi-
tional injunctive relief to California, including the implementation of a “Green City” initiative and the intro-
duction of three new Battery Electric Vehicle (BEV) models in California by 2020, as well as a USD 25 million
payment to CARB to support the availability of BEVs in California.
On January 11, 2017, Volkswagen entered into a Third Partial Consent Decree with the DOJ and EPA that
resolved claims for civil penalties and injunctive relief under the Clean Air Act related to the 2.0 l and 3.0 l TDI
vehicles. Volkswagen agreed to pay USD 1.45 billion (plus any accrued interest) to resolve the civil penalty and
injunctive relief claims under the Clean Air Act, as well as the customs claims of the US Customs and Border
Protection. Under the Third Partial Consent Decree, the injunctive relief includes monitoring, auditing and
compliance obligations. This Consent Decree, which was subject to public comment, was lodged with the court
on January 11, 2017 and approved on April 13, 2017. Also on January 11, 2017, Volkswagen entered into a
settlement agreement with the DOJ to resolve any claims under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and agreed to pay USD 50 million (plus any accrued interest), specifically denying any
liability and expressly disputing any claims.
300
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
On July 21, 2017, the federal court in the multidistrict litigation in California approved the Third California
Partial Consent Decree, in which Volkswagen AG and certain affiliates agreed with the California Attorney
General and CARB to pay USD 153.8 million in civil penalties and cost reimbursements. These penalties covered
California environmental penalties for both the 2.0 l and 3.0 l TDI vehicles. An agreement in principle had been
reached on January 11, 2017.
The DOJ also opened a criminal investigation focusing on allegations that various federal law criminal
offenses were committed. On January 11, 2017, Volkswagen AG agreed to plead guilty to three federal criminal
felony counts, and to pay a USD 2.8 billion criminal penalty. Pursuant to the terms of this agreement,
Volkswagen will be on probation for three years and will work with an independent monitor for three years. The
independent monitor will assess and oversee the company’s compliance with the terms of the resolution. This
includes overseeing the implementation of measures to further strengthen compliance, reporting and
monitoring systems, and an enhanced ethics program. Volkswagen will also continue to cooperate with the
DOJ’s ongoing investigation of individual employees or former employees who may be responsible for criminal
violations.
Moreover, investigations by various US regulatory and government authorities are ongoing, including in
areas relating to securities, financing and tax.
On January 31, 2017, Volkswagen AG, Volkswagen Group of America, Inc. and certain affiliates entered into a
settlement agreement with private plaintiffs represented by the PSC in the multidistrict litigation pending in
California, and a consent order with the FTC. These agreements resolved certain civil claims made in relation to
affected diesel vehicles with 3.0 l TDI engines from the Volkswagen, Audi and Porsche brands in the USA. On
February 14, 2017, the court preliminarily approved the settlement agreement with private plaintiffs. On May 11,
2017, the court held a fairness hearing on whether approval should be granted and on May 17, 2017, the court
granted final approval of the settlement agreement and the partial stipulated consent order.
Under the settlements, consumers’ options and compensation will depend on whether their vehicles are
classified as Generation 1 or Generation 2. Generation 1 (model years 2009-2012) consumers will have the
option of a buyback, early lease termination, trade-in, or a free emissions modification, provided that EPA and
CARB approve the modification. Additionally, Generation 1 owners and lessees, as well as certain former owners
and lessees, will be eligible to receive cash payments.
Generation 2 (model years 2013-2016) consumers will receive a free emissions-compliant repair to bring the
vehicles into compliance with the emissions standards to which they were originally certified, as well as cash
payments. Volkswagen has received approval from the EPA and CARB for emissions-compliant repairs within
the time limits set out in the settlement agreement. Volkswagen will also make cash payments to certain
former Generation 2 owners or lessees.
In September 2016, Volkswagen announced that it had finalized an agreement to resolve the claims of
Volkswagen branded franchise dealers in the USA relating to TDI vehicles and other matters asserted con-
cerning the value of the franchise. The settlement agreement includes a cash payment of up to USD 1,208 bil-
lion, and additional benefits to resolve alleged past, current, and future claims of losses in franchise value. On
January 18, 2017, a fairness hearing on whether final approval should be granted was held, and on January 23,
2017, the court granted final approval of the settlement agreement.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
301
Additionally, in the USA, some putative class actions, some individual customers’ lawsuits and some state or
municipal claims have been filed in state courts.
Volkswagen reached separate agreements with the attorneys general of 45 US states, the District of
Columbia and Puerto Rico, to resolve their existing or potential consumer protection and unfair trade practices
claims – in connection with both 2.0 l TDI and 3.0 l TDI vehicles in the USA – for a settlement amount of
USD 622 million. Five states did not join these settlements and still have consumer claims outstanding:
Arizona, New Mexico, Oklahoma, Vermont and West Virginia. Volkswagen has also reached separate agreements
with the attorneys general of eleven US states (Connecticut, Delaware, Maine, Massachusetts, New Jersey, New
York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington) to resolve their existing or potential
future claims for civil penalties and injunctive relief for alleged violations of environmental laws for a settlement
amount of 207 million. The attorneys general of ten other US states (Illinois, Maryland, Minnesota, Missouri,
Montana, New Hampshire, New Mexico, Ohio, Tennessee and Texas) and some municipalities have also filed
suits in state and federal courts against Volkswagen AG, Volkswagen Group of America, Inc. and certain
affiliates, seeking civil penalties and injunctive relief for alleged violations of environmental laws. Illinois,
Maryland, Minnesota, Missouri, Montana, New Hampshire, Ohio, Tennessee and Texas participated in the state
settlements described above with respect to consumer protection and unfair trade practices claims, but those
settlements did not include claims for environmental penalties. The environmental claims of two other states –
Alabama and Wyoming – have been dismissed as preempted by federal law. Alabama has appealed this
dismissal.
In addition to the lawsuits described above, for which provisions have been recognized, a putative class
action has been filed on behalf of purchasers of Volkswagen AG American Depositary Receipts, alleging a drop
in price purportedly resulting from the matters described in the EPA’s “Notices of Violation”. A putative class
action has also been filed on behalf of purchasers of certain USD-denominated Volkswagen bonds, alleging that
these bonds were trading at artificially inflated prices due to Volkswagen’s alleged misstatements and that the
value of these bonds declined after the EPA issued its “Notices of Violation”.
These lawsuits have also been consolidated in the federal multidistrict litigation proceeding in the State of
California described above. Volkswagen is of the opinion that it duly complied with its capital market
obligations. Therefore, no provisions have been recognized. In addition, contingent liabilities have not been
disclosed as they currently cannot be measured.
In Canada, civil consumer claims and regulatory investigations have been initiated for vehicles with 2.0 l
and 3.0 l TDI engines. On December 19, 2016, Volkswagen AG and other Canadian and US Volkswagen Group
companies reached a class action settlement in Canada with consumers relating to 2.0 l diesel vehicles. Also on
December 19, 2016, Volkswagen Group Canada agreed with the Commissioner of Competition in Canada to a
civil resolution regarding its regulatory inquiry into consumer protection issues as to those vehicles. On
December 21, 2017, Volkswagen announced an agreement in principle on a proposed consumer settlement in
Canada involving 3.0 l diesel vehicles. The court preliminarily approved the settlement agreement on January 12,
2018, and the notice and opt out period began on January 17, 2018. Final approval hearings are scheduled in
Quebec and Ontario for April 3 and 5, 2018, respectively. On January 12, 2018, Volkswagen and the Canadian
Commissioner of Competition reached a resolution related to civil consumer protection issues relating to 3.0 l
diesel vehicles. Also, criminal enforcement-related investigations by the federal environmental regulator and
quasi-criminal enforcement-related investigations by a provincial environmental regulator are ongoing in
Canada related to 2.0 l and 3.0 l diesel vehicles. On September 15, 2017, a provincial regulator in Canada, the
Ontario Ministry of the Environment and Climate Change, charged Volkswagen AG under the province’s
environmental statute with one count alleging that it caused or permitted the operation of model year
2010–2014 Volkswagen and Audi brand 2.0 l diesel vehicles that did not comply with prescribed emission
standards. Following initial court appearances on November 15, 2017 and February 7, 2018, the matter was put
over to April 4, 2018 pending ongoing evidence disclosure. No trial date has been set. Provisions have been
recognized for possible obligations stemming from pending lawsuits in Canada.
302
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Moreover, in Canada, two securities class actions by investors in Volkswagen AG American Depositary Receipts
and shares are pending against Volkswagen AG in the Quebec and Ontario provincial courts. These actions
allege misrepresentations and omissions in financial reporting issued from 2009–2015 stemming from the
diesel issue. The proposed class periods are for residents in the provinces who purchased the relevant securities
between March 12, 2009 and September 18, 2015, and held all or some of the acquired securities until after the
alleged first corrective disclosures. Discovery has not begun. In both actions, motions for certification were
filed. In the Quebec matter, the motion was heard on February 5 and 6, 2018 and the court’s decision is on
reserve. In the Ontario matter, the motion is scheduled for hearing on July 10 and 11, 2018.
In addition, putative class action and joinder lawsuits by customers, and a certified environmental class
action on behalf of residents, remain pending in certain provincial courts in Canada.
An assessment of the underlying situation is not possible at this early stage of those proceedings.
6. Additional proceedings
With its ruling from November 8, 2017, the Higher Regional Court of Celle ordered, upon the request of three US
funds, the appointment of a special auditor for Volkswagen AG. The special auditor should examine whether
there was a breach of duties on behalf of the members of the Board of Management and Supervisory Board of
Volkswagen AG in connection with the diesel issue starting from June 22, 2006 and if this resulted in damages
for Volkswagen AG. The ruling from the Higher Regional Court of Celle is formally legally binding. However,
Volkswagen AG lodged a constitutional complaint toward the German Federal Constitutional Court regarding
the infringement of its constitutionally guaranteed rights. It is currently unclear when the Federal
Constitutional Court will reach a decision on this matter.
In addition, the District Court of Hanover has filed a second motion for the appointment of a special
auditor for Volkswagen AG, which is also aimed at the examination of transactions in connection with the
diesel issue. This proceeding will be suspended until the ruling has been announced by the Federal
Constitutional Court.
7. Risk assessment regarding the diesel issue
To protect against the currently known legal risks related to the diesel issue, provisions of approximately
€2.0 billion exist as of December 31, 2017 on the basis of existing information and current assessments.
Beyond this, appropriate provisions have been recognized for defense and legal advice expenses. Insofar as
these can be adequately measured at this stage, total contingent liabilities in relation to the diesel issue to the
aggregate amount of €4.3 billion (previous year: €3.2 billion), of which lawsuits filed by investors account for
€3.4 billion (previous year: €3.1 billion), were disclosed in the notes. The provisions recognized for this matter
and the contingent liabilities disclosed as well as the other latent legal risks are partially subject to substantial
estimation risks given the complexity of the individual factors, the ongoing approval process with the
authorities and the fact that the independent, comprehensive investigations have not yet been completed.
In line with IAS 37.92, no further statements have been made concerning estimates of financial impact or
about uncertainty regarding the amount or maturity of provisions and contingent liabilities in relation to the
diesel issue. This is so as to not compromise the results of the proceedings or the interests of the Company.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
303
Additional important legal cases
In 2011, ARFB Anlegerschutz UG (haftungsbeschränkt) brought an action against Volkswagen AG and Porsche
Automobil Holding SE for claims for damages for allegedly violating disclosure requirements under capital
market law in connection with the acquisition of ordinary shares in Volkswagen AG by Porsche in 2008. The
damages currently being sought based on allegedly assigned rights amounted to approximately €2.26 billion
plus interest. In April 2016, the District Court in Hanover had formulated numerous objects of declaratory
judgment that the cartel senate of the Higher Regional Court in Celle will decide on in model case proceedings
under the KapMuG. In the first hearing on October 12, 2017, the senate indicated that it currently does not see
claims against Volkswagen AG as justified, both in view of a lack of substantiated evidence and for legal reasons.
Some of the desired objects of declaratory judgment on the litigants’ side may also be inadmissible, it said.
Volkswagen AG sees the statements of the court’s senate as confirmation that the claims made against the
company have absolutely no basis.
At the time (2010/2011), other investors had also asserted claims – including claims against Volkswagen AG –
arising out of the same circumstances in an approximate total amount of €4.6 billion and initiated conciliation
proceedings. Volkswagen AG always refused to participate in these conciliation proceedings; since then, these
claims have not been pursued further.
In 2011, the European Commission conducted searches at European truck manufacturers on suspicion of an
unlawful exchange of information during the period 1997–2011 and issued a statement of objections to MAN,
Scania and the other truck manufacturers concerned in November 2014. With its settlement decision in
July 2016, the European Commission fined five European truck manufacturers. MAN’s fine was waived in full as
the company had informed the European Commission about the irregularities as a key witness.
In September 2017, the European Commission then fined Scania €0.88 billion. Scania has appealed to the
European Court in Luxembourg and will use all means at its disposal to defend itself. Scania had already
recognized a provision of €0.4 billion in 2016.
Furthermore, antitrust lawsuits for damages from customers were received. As is the case in any antitrust
proceedings, this may result in further lawsuits for damages. Neither provisions nor contingent liabilities were
stated because the early stage of proceedings makes an assessment currently impossible.
The Annual General Meeting of MAN SE approved the conclusion of a control and profit and loss transfer agree-
ment between MAN SE and Volkswagen Truck & Bus GmbH (formerly Truck & Bus GmbH), a subsidiary of
Volkswagen AG, in June 2013. In July 2013, award proceedings were instituted to review the appropriateness of
the cash settlement set out in the agreement in accordance with section 305 of the Aktiengesetz (AktG –
German Stock Corporation Act) and the cash compensation in accordance with section 304 of the AktG. It is not
uncommon for noncontrolling interest shareholders to institute such proceedings. In July 2015, the Munich
Regional Court ruled in the first instance that the amount of the cash settlement payable to the noncontrolling
interest shareholders of MAN should be increased from €80.89 to €90.29 per share; at the same time, the
amount of the cash compensation was confirmed. The assessment of liability for put options and
compensation rights granted to noncontrolling interest shareholders was adjusted in 2015. Both applicants and
Volkswagen Truck & Bus GmbH have appealed to the Higher Regional Court in Munich. Volkswagen continues
to maintain that the results of the valuation are correct. The appropriateness of the valuation was confirmed by
the audit firms engaged by the parties and by the court-appointed auditor of the agreement.
Within the scope of the European Commission's ongoing antitrust investigations regarding German
automakers, authorities examined documents in the offices of Volkswagen AG in Wolfsburg and AUDI AG in
Ingolstadt as part of an announced review. The Volkswagen Group and the Group brands concerned have been
cooperating fully and for a long time with the European Commission and have submitted a corresponding
application. It is currently unclear whether the European Commission will instigate formal proceedings.
In addition, a few national and international authorities have initiated antitrust investigations. Volkswagen
is cooperating closely with the responsible authorities in these investigations. An assessment of the underlying
situation is not possible at this early stage.
304
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Since November 2016, Volkswagen has been responding to information requests from the EPA and CARB related
to automatic transmissions in certain vehicles with petrol engines.
Additionally, fourteen putative class actions have been filed against Audi and certain affiliates alleging that
defendants concealed the existence of “defeat devices” in Audi brand vehicles with automatic transmissions. All
of these putative class actions have been transferred to the federal multidistrict litigation proceeding in the
State of California, and plaintiffs filed a consolidated class action complaint on October 12, 2017, which
Volkswagen AG and certain of its affiliates moved to dismiss on December 11, 2017. On January 16, 2018,
plaintiffs filed an opposition to the motion to dismiss and the court has set a deadline of February 16, 2018 for
defendants to file a reply. A hearing is scheduled for May 11, 2018. On December 22, 2017, a mass action on
behalf of approximately 75 individual plaintiffs alleging similar claims was filed in a California state court,
which was removed to the Northern District of California on January 25, 2018.
In Canada, two similar putative class actions, including a national class, have been filed in Ontario and
Quebec provincial courts against AUDI AG, Volkswagen AG and US and Canadian affiliates regarding alleged CO2
“defeat devices” in certain petrol Audi models with automatic transmissions. Both of the Canadian actions are
in the pre-certification stage. Contingent liabilities have therefore been disclosed in cases where they can be
assessed and for which the likelihood of a sanction was deemed not lower than 10%.
From July through November 2017, plaintiffs filed numerous complaints in various US jurisdictions on behalf
of putative classes of purchasers of German luxury vehicles against several automobile manufacturers,
including Volkswagen AG and other Group companies. These complaints assert claims under the US Sherman
Antitrust Act, the Racketeer Influenced and Corrupt Organizations Act, state unfair competition and consumer
protection statutes, and common law unjust enrichment. The complaints allege that since the 1990s, defen-
dants engaged in a conspiracy to unlawfully increase the prices of German luxury vehicles by agreeing to share
commercially sensitive information and to reach unlawful agreements regarding technology, costs, and sup-
pliers. Moreover, the plaintiffs allege that the defendants agreed to limit the size of AdBlue tanks to ensure that
US emissions regulators did not scrutinize the emissions control systems in defendants’ vehicles, and that such
an agreement for Volkswagen was the impetus for the creation of the defeat device. On September 28, 2017, a
hearing before the Judicial Panel on Multidistrict Litigation (JPML) was held, and on October 4, 2017 the JPML
issued its decision consolidating and transferring these cases to Judge Breyer in the Northern District of
California. On December 14, 2017, co-lead counsel were appointed representing the interests of a putative class
of indirect purchasers and a putative class of direct purchasers, as well as Plaintiffs’ Steering Committee. On
December 20, 2017, deadlines were set for the filing of initial and responsive pleadings and an initial case status
conference scheduled for April 5, 2018, and co-lead counsel were directed to file consolidated class action
complaints on behalf of the two putative classes by March 15, 2018. Neither provisions nor contingent
liabilities were stated because the early stage of proceedings makes an assessment currently impossible.
From July through October 2017, plaintiffs filed claims in Ontario, Quebec and British Columbia on behalf
of putative classes of purchasers of German luxury vehicles against several automobile manufacturers,
including Volkswagen Canada Inc., Audi Canada Inc., and other Group companies. The claims assert causes of
action under the Competition Act, common law, and Quebec’s civil law and contain similar allegations to the US
complaints described in the paragraph above. Neither provisions nor contingent liabilities were stated because
the early stage of proceedings makes an assessment currently impossible.
In the tax proceedings between MAN Latin America and the Brazilian tax authorities, the Brazilian tax
authorities took a different view of the tax implications of the acquisition structure chosen for MAN Latin
America in 2009. In December 2017, a second instance judgment was rendered in administrative court
proceedings, which was negative for MAN Latin America. MAN Latin America will initiate proceedings against
this judgment before the regular court in 2018. Due to the difference in the penalties plus interest which could
potentially apply under Brazilian law, the estimated size of the risk in the event that the tax authorities are able
to prevail overall with their view is laden with uncertainty. However, a positive outcome continues to be
expected for MAN Latin America. Should the opposite occur, this could result in a risk of about €0.7 billion for
the contested period from 2009 onwards, which has been stated within the section entitled “Contingent
liabilities”.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
305
In line with IAS 37.92, no further statements have been made concerning estimates of financial impact or about
uncertainty regarding the amount or maturity of provisions and contingent liabilities in relation to additional
important legal cases. This is so as to not compromise the results of the proceedings or the interests of the
Company.
38. Other financial obligations
€ million
2017
2018 – 2021
from 2022
Dec. 31, 2016
P A Y A B L E
P A Y A B L E
P A Y A B L E
T O T A L
Purchase commitments in respect of
property, plant and equipment
intangible assets
investment property
Obligations from
loan commitments to unconsolidated subsidiaries
irrevocable credit and lease commitments to customers
long-term leasing and rental contracts
7,170
1,243
13
126
4,551
995
1,585
386
–
2
0
2,489
–
–
–
–
44
2,261
8,756
1,629
13
128
4,595
5,745
Miscellaneous other financial obligations
2,569
1,416
1,072
5,056
€ million
2018
2019 – 2022
from 2023
Dec. 31, 2017
P A Y A B L E
P A Y A B L E
P A Y A B L E
T O T A L
Purchase commitments in respect of
property, plant and equipment
intangible assets
investment property
Obligations from
loan commitments to unconsolidated subsidiaries
irrevocable credit commitments to customers
long-term leasing and rental contracts
7,347
946
41
186
3,436
1,026
1,394
479
–
21
201
2,389
–
–
–
–
59
2,133
8,740
1,425
41
207
3,695
5,548
Miscellaneous other financial obligations
2,476
1,469
929
4,874
306
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Other financial obligations from long-term leasing and rental contracts are partly offset by expected income
from subleases of €1,467 million (previous year: €1,664 million).
To enhance comparability, irrevocable credit commitments to customers are reported without leasing com-
mitments from fiscal year 2017 onward. As of December 31, 2016, the corresponding amount was €2.1 billion.
Other financial obligations include an amount of €1.3 billion for investments in zero emissions vehicle
infrastructure to which the Volkswagen Group had committed itself in the settlement agreements in the USA in
connection with the diesel issue and in corresponding access and awareness initiatives for these technologies.
39. Total audit fees of the Group auditor
Under the provisions of the Handelsgesetzbuch (HGB – German Commercial Code), Volkswagen AG is obliged to
disclose the total audit fee of the Group auditor, PricewaterhouseCoopers GmbH Wirtschaftsprüfungs-
gesellschaft.
€ million
Financial statement audit services
Other assurance services
Tax advisory services
Other services
2017
2016¹
17
2
1
13
33
19
4
0
4
27
1 Some services, which were previously reported as other assurance services, are now classified as audit services.
Prior-year figures have been adjusted accordingly.
The fee paid to the auditors in 2017 was mostly attributable to the audit of the consolidated financial
statements of Volkswagen AG and of annual financial statements of German Group companies as well as to
reviews of the interim consolidated financial statements of Volkswagen AG and of interim financial statements
of German Group companies. The auditors provided assurance services and tax advice only to a small extent.
Other services provided by the auditors in the reporting period focused on advice on how to implement new
legal standards and on support for measures in connection with the diesel issue.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
307
40. Total expense for the period
€ million
Cost of materials
2017
2016
Cost of raw materials, consumables and supplies, purchased merchandise and services
151,449
140,307
Personnel expenses
Wages and salaries
Social security, post-employment and other employee benefit costs
41. Average number of employees during the year
Performance-related wage-earners
Salaried staff
of which in the passive phase of partial retirement
Vocational trainees
Employees of Chinese joint ventures
42. Events after the balance sheet date
There were no significant events after the end of fiscal year 2017.
31,432
7,518
38,950
29,971
7,046
37,017
2017
2016
253,469
288,478
541,947
(7,156)
17,891
559,838
74,558
634,396
236,204
292,240
528,444
(5,915)
17,962
546,406
72,940
619,346
308
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
43. Remuneration based on performance shares and phantom shares
(share-based payment)
At the beginning of 2017, the Supervisory Board of Volkswagen AG resolved to adjust the remuneration system
of the Board of Management with effect from January 1, 2017. All members of the Board of Management voted
in favor of switching to the new remuneration system in the course of fiscal year 2017. The new remuneration
system of the Board of Management comprises non-performance-related and performance-related com-
ponents. The performance-related remuneration consists of a performance-related annual bonus with a one-
year assessment period and a long-term incentive (LTI) in the form of a performance share plan with a forward-
looking three-year term (share-based payment). In addition, a bonus was converted into phantom preferred
shares (phantom shares) in 2016.
P E R F O R M A N C E S H A R E S
Each performance period of the performance share plan has a term of three years. At the time the LTI is granted,
the annual target amount under the LTI is converted, on the basis of the initial reference price of Volkswagen’s
preferred shares, into performance shares of Volkswagen AG, which are allocated to the respective member of
the Board of Management as a pure calculation position. After the end of the three-year term of the
performance share plan, a cash settlement shall take place. The payment amount corresponds to the number of
determined performance shares, multiplied by the closing reference price at the end of the three-year period
plus a dividend equivalent for the relevant term. The payment amount under the performance share plan shall
be limited to 200% of the target amount. If 100% of the targets agreed in each case are achieved, the target
amount is €1.8 million for each member of the Board of Management and €3.8 million for the Chairman of the
Board of Management.
A total of 141,426 performance shares were allocated to the members of the Board of Management for 2017.
The fair value of the obligation as of December 31, 2017 amounts to €43.8 million. The compensation cost of
€43.8 million is recognized under personnel costs. If the members of the Board of Management had left the
Company as of December 31, 2017, the obligation (intrinsic value) would have amounted to a total of €20.3 mil-
lion.
P H A N TO M S H A R E S
At its meeting on April 22, 2016, Volkswagen AG’s Supervisory Board accepted the offer made by the members
of the Board of Management to withhold 30% of the variable remuneration for fiscal year 2015 for the Board of
Management members active on the date of the resolution and to make its disposal subject to future share
price performance by means of phantom shares. The amount withheld led to the creation of 50,703 phantom
preferred shares. The fair value of the obligation to the members of the Board of Management as of Decem-
ber 31, 2017 amounted to €7.0 million. The change in the fair value of €2.0 million was recognized under
personnel costs. If all members of the Board of Management had left as of December 31, 2017, the obligation
(intrinsic value) would have amounted to a total of €7.3 million.
For further details on performance shares and phantom shares, please refer to our disclosures in the
remuneration report, which is part of the Group management report.
44. Related party disclosures in accordance with IAS 24
Related parties as defined by IAS 24 are natural persons and entities that Volkswagen AG has the ability to
control or on which it can exercise significant influence, or natural persons and entities that have the ability to
control or exercise significant influence on Volkswagen AG, or that are influenced by another related party of
Volkswagen AG.
All transactions with related parties are conducted on an arm’s length basis.
At 52.2%, Porsche SE held the majority of the voting rights in Volkswagen AG as of the reporting date. The
creation of rights of appointment for the State of Lower Saxony was resolved at the Extraordinary General
Meeting of Volkswagen AG on December 3, 2009. As a result, Porsche SE cannot appoint the majority of the
members of Volkswagen AG’s Supervisory Board for as long as the State of Lower Saxony holds at least 15% of
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
309
Volkswagen AG’s ordinary shares. However, Porsche SE has the power to participate in the operating policy
decisions of the Volkswagen Group and is therefore classified as a related party as defined by IAS 24.
The contribution of Porsche SE’s holding company operating business to Volkswagen AG on August 1, 2012
has the following effects on the agreements between Porsche SE, Volkswagen AG and companies of the Porsche
Holding Stuttgart Group that existed prior to the contribution and were entered into on the basis of the
Comprehensive Agreement and its related implementation agreements:
> Volkswagen AG continues to indemnify Porsche SE against certain financial guarantees issued by Porsche SE
to creditors of the companies belonging to the Porsche Holding Stuttgart Group up to the amount of its share
in the capital of Porsche Holding Stuttgart, which amounts to 100% since the contribution as of August 1, 2012.
Porsche Holding Finance plc, Dublin, Ireland, was contributed to the Volkswagen Group in the course of the
transfer of Porsche SE’s holding company operating business. Until June 2017, the indemnification also
included financial guarantees issued by Porsche SE to creditors of Porsche Holding Finance plc in relation to
interest payments on, and the repayment of, bonds in the aggregate amount of €250 million. As part of the
contribution of Porsche SE’s holding company operating business to Volkswagen AG, Volkswagen AG
undertook to assume standard market liability compensation effective August 1, 2012 for guarantees issued
to external creditors, whereby it is indemnified internally.
> Volkswagen AG continues to indemnify Porsche SE internally against claims by the Einlagensicherungsfonds
(German deposit protection fund) after Porsche SE submitted an indemnification agreement required by the
Bundesverband Deutscher Banken (Association of German Banks) to the Einlagensicherungsfonds in August
2009. Volkswagen AG has also undertaken to indemnify the Einlagensicherungsfonds against any losses
caused by measures taken by the latter in favor of a bank in which Volkswagen AG holds a majority interest.
> Under certain conditions, Porsche SE continues to indemnify Porsche Holding Stuttgart, Porsche AG and
their legal predecessors against tax liabilities that exceed the obligations recognized in the financial state-
ments of those companies relating to periods up to and including July 31, 2009. In return, Volkswagen AG has
undertaken to pay to Porsche SE any tax benefits or tax refunds of Porsche Holding Stuttgart, Porsche AG and
their legal predecessors and subsidiaries for tax assessment periods up to July 31, 2009. Based on the results
of the external tax audit for the assessment periods 2006 to 2008 that has now been completed, a
compensation obligation running into the low triple-digit millions of euros would arise for Volkswagen AG.
New information emerging in the future from the external tax audit that commenced at the end of 2015 for
the 2009 assessment period could result in an increase or decrease in the potential compensation obligation.
Under the terms of the Comprehensive Agreement, Porsche SE and Volkswagen AG had granted each other put
and call options with regard to the remaining 50.1% interest in Porsche Holding Stuttgart held by Porsche SE
until the contribution of its holding company operating business to Volkswagen AG. Both Volkswagen AG (if it
had exercised its call option) and Porsche SE (if it had exercised its put option) had undertaken to bear the tax
burden resulting from the exercise of the options and any subsequent activities in relation to the equity
investment in Porsche Holding Stuttgart (e.g. from recapture taxation on the spin-off in 2007 and/or 2009). If
tax benefits had accrued to Volkswagen AG, Porsche Holding Stuttgart, Porsche AG, or their respective
subsidiaries as a result of recapture taxation on the spin-off in 2007 and/or 2009, the purchase price to be paid
by Volkswagen AG for the transfer of the outstanding 50.1% equity investment in Porsche Holding Stuttgart if
the put option had been exercised by Porsche SE would have been increased by the present value of the tax
benefit. This arrangement was taken over under the terms of the contribution agreement to the effect that
Porsche SE has a claim against Volkswagen AG for payment in the amount of the present value of the realizable
tax benefits from any recapture taxation of the spin-off in 2007 as a result of the contribution. It was also
agreed under the terms of the contribution that Porsche SE will indemnify Volkswagen AG, Porsche Holding
Stuttgart and their subsidiaries against taxes if measures taken by or not taken by Porsche SE result in
recapture taxation for 2012 at these companies in the course of or following implementation of the
contribution. In this case, too, Porsche SE is entitled to assert a claim for payment against Volkswagen AG in the
amount of the present value of the realizable tax benefits that arise at the level of Volkswagen AG or one of its
subsidiaries as a result of such a transaction.
310
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
Further agreements were entered into and declarations were issued in connection with the contribution of
Porsche SE’s holding company operating business to Volkswagen AG, in particular:
> Porsche SE indemnifies its contributed subsidiaries, Porsche Holding Stuttgart, Porsche AG and their
subsidiaries against liabilities to Porsche SE that relate to the period up to and including December 31, 2011
and that exceed the obligations recognized in the financial statements of those companies for that period.
> Porsche SE indemnifies Porsche Holding Stuttgart and Porsche AG against obligations arising from certain
legal disputes; this includes the costs of an appropriate legal defense.
> Moreover, Porsche SE indemnifies Volkswagen AG, Porsche Holding Stuttgart, Porsche AG and their
subsidiaries against half of the taxes (other than taxes on income) arising at those companies in conjunction
with the contribution that would not have been incurred in the event of the exercise of the call option on the
shares of Porsche Holding Stuttgart that continued to be held by Porsche SE until the contribution.
Volkswagen AG therefore indemnifies Porsche SE against half of such taxes that it incurs. In addition, Porsche
Holding Stuttgart is indemnified against half of the land transfer tax and other costs triggered by the merger.
> Additionally, Porsche SE and Porsche AG agreed to allocate any subsequent VAT receivables or liabilities from
transactions in the period up to December 31, 2009 to the company entitled to the receivable or incurring the
liability.
> A range of information, conduct and cooperation obligations were agreed by Porsche SE and the Volkswagen
Group.
According to a notification dated January 2, 2018, the State of Lower Saxony and Hannoversche Beteiligungs-
gesellschaft Niedersachsen mbH, Hanover, held 20.00% of the voting rights of Volkswagen AG on December 31,
2017. As mentioned above, the General Meeting of Volkswagen AG on December 3, 2009 also resolved that the
State of Lower Saxony may appoint two members of the Supervisory Board (right of appointment).
The following tables present the amounts of supplies and services transacted, as well as outstanding
receivables and liabilities, between consolidated companies of the Volkswagen Group and related parties.
R E L AT E D PA RT I E S
€ million
2017
2016
2017
2016
S U P P L I E S A N D S E R V I C E S
R E N D E R E D
S U P P L I E S A N D S E R V I C E S
R E C E I V E D
Porsche SE and its majority interests
Supervisory Board members
Board of Management members
Unconsolidated subsidiaries
Joint ventures and their majority interests
Associates and their majority interests
Pension plans
Other related parties
State of Lower Saxony, its majority interests and joint ventures
7
2
0
1,039
14,294
214
1
0
11
12
3
0
890
13,728
190
4
0
6
1
2
0
1,300
1,225
733
0
0
9
2
5
0
973
1,377
912
0
0
6
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
311
€ million
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
R E C E I V A B L E S F R O M
L I A B I L I T I E S
( I N C L U D I N G O B L I G A T I O N S ) T O
Porsche SE and its majority interests
Supervisory Board members
Board of Management members
Unconsolidated subsidiaries
Joint ventures and their majority interests
Associates and their majority interests
Pension plans
Other related parties
State of Lower Saxony, itsmajority interests and joint ventures
13
0
0
1,480
9,889
76
1
–
2
323
0
0
1,036
8,808
53
1
–
2
0
254
72
1,773
2,168
572
–
63
1
1
297
39
1,188
1,784
495
8
64
1
The tables above do not contain the dividend payments of €3,653 million (previous year: €3,613 million)
received from joint ventures and associates and dividends of €308 million (previous year: €17 million) paid to
Porsche SE.
Receivables from joint ventures are primarily attributable to loans granted in an amount of €6,277 million
(previous year: €5,769 million) as well as trade receivables in an amount of €3,354 million (previous year:
€2,855 million). Receivables from non-consolidated subsidiaries also result mainly from loans granted in an
amount of €1,038 million (previous year: €479 million) and from trade receivables in an amount of €224 million
(previous year: €196 million).
Impairment losses of €56 million (previous year: €35 million) were recognized on the outstanding related
party receivables. In fiscal year 2017, expenses of €36 million (previous year: €18 million) were incurred in this
context.
In addition, the Volkswagen Group has furnished guarantees to external banks on behalf of related parties
in the amount of €220 million (previous year: €112 million).
In the reporting period, the Volkswagen Group made capital contributions of €203 million (previous year:
€391 million) to related parties.
The changes in supplies and services received from and rendered to joint ventures and their majority
interests are primarily attributable to deliveries to the Chinese joint ventures.
The decrease in receivables from Porsche SE is attributable to a loan repayment.
As in the previous year, obligations to members of the Supervisory Board relate primarily to interest-bearing
bank balances of Supervisory Board members that were invested at standard market terms and conditions at
Volkswagen Group companies.
Obligations to the Board of Management comprise outstanding balances for the annual bonus and the fair
values of the performance shares and phantom shares in the amount of €67.0 million (previous year:
€26.1 million) granted to Board of Management members.
312
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
In addition to the amounts shown above, the following expenses were recognized for the members of the Board
of Management and Supervisory Board of the Volkswagen Group in the course of their activities as members of
these bodies:
€
Short-term benefits
Benefits based on performance shares and virtual shares
Post-employment benefits
Termination benefits
2017
2016
33,967,996
45,456,678
45,777,248
10,872,088
6,940,142
–670,296
9,347,409
–
97,557,473
54,133,791
Benefits paid on the basis of performance shares include the cost of €43.8 million attributable to the per-
formance shares granted to Board of Management members under the remuneration system applicable as
from 2017. Pursuant to the guidance of IFRS 2, this requires inclusion of not only the performance share plan
for 2017, but also of a pro-rated amount for future share plans to be granted during the current employment
contract.
Overall, benefits based on phantom shares resulted in income in 2016, because the income from reversing the
provision for performance-based Board of Management remuneration (€1.5 million) due to the waiver for fiscal
year 2015 exceeded the cost attributable to the performance of the share price up to December 31, 2016 (€0.8 mil-
lion). In fiscal year 2017, the share price performance led to the recognition of expenses of €2.0 million for the
phantom shares.
The employee representatives and the representative of the senior executives on the Supervisory Board are
also entitled to a regular salary as set out in their employment contracts. For members of German works
councils, this is based on the provisions of the Betriebsverfassungsgesetz (BetrVG – German Works Constitution
Act). Investigations by the authorities are currently under way to determine whether the remuneration of some
works council members can be justified. As a precaution, components of the remuneration of some works
council members has been retained in this context until the matter is clarified. (cid:3)
The post-employment benefits relate to additions to pension provisions for current members of the Board
of Management. The termination benefits relate to the severance payment made to Ms. Hohmann-Dennhardt
in connection with her early departure from the Board of Management.
Disclosures on the pension provisions for members of the Board of Management and more detailed
explanations of the remuneration of the Board of Management and the Supervisory Board can be found in the
section entitled “Remuneration of the Board of Management and the Supervisory Board” and in the remu-
neration report, which is part of the management report.
45. German Corporate Governance Code
On November 17, 2017, the Board of Management and Supervisory Board of Volkswagen AG issued their
declaration of conformity with the German Corporate Governance Code as required by section 161 of the
Aktiengesetz (AktG – German Stock Corporation Act) and made it permanently available to the shareholders of
Volkswagen AG on the Company’s website at www.volkswagenag.com/ir.
On November 30, 2017, the Board of Management and Supervisory Board of AUDI AG likewise issued their
declaration of conformity with the German Corporate Governance Code and made it permanently available to
the shareholders at www.audi.com/cgk-declaration.
In December 2017, the Executive Board and Supervisory Board of MAN SE issued their declaration of
conformity with the German Corporate Governance Code as required by section 161 of the AktG and made it
permanently available to the shareholders at www.corporate.man.eu/en.
The Executive and Supervisory Boards of RENK AG issued a declaration of conformity on December 5, 2017 and
made it permanently available to the shareholders at www.renk.biz/corporated-governance.html.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
313
46. Remuneration of the Board of Management and the Supervisory Board
€
2017
2016
Board of Management remuneration
Non-performance-related remuneration
Performance-related remuneration
Long-term incentive component
Supervisory Board remuneration
Non-performance-related remuneration
Performance-related remuneration
14,337,116
18,093,835
15,844,041
21,453,778
20,104,770
–
50,285,927
39,547,612
3,516,389
270,450
3,786,839
709,346
4,687,220
5,396,565
N O N - P E R F O R M A N C E - R E L AT E D R E M U N E R AT I O N O F T H E B OA R D O F M A N A G E M E N T
The non-performance-related remuneration of the Board of Management comprises fixed remuneration and
fringe benefits. In addition to the basic level of remuneration, the fixed remuneration also includes differing
levels of remuneration for appointments assumed at Group companies. The prior-year figure also includes an
amount of €6.3 million to compensate Ms. Hohmann-Dennhardt for lost entitlements resulting from the
change in employer. The fringe benefits result from the grant of noncash benefits and include in particular the
use of operating assets such as company cars and the payment of insurance premiums. Taxes due on these
noncash benefits were mainly borne by Volkswagen AG.
P E R F O R M A N C E - R E L AT E D R E M U N E R AT I O N A N D LO N G - T E R M I N C E N T I V E CO M P O N E N T O F T H E B OA R D O F
M A N AG E M E N T
Performance-related remuneration includes the annual bonus with a one-year assessment period. The long-
term incentive component contains the long-term incentive (LTI) in the form of a performance share plan with
a forward-looking three-year term. The performance shares granted to the incumbent members of the Board of
Management under the new remuneration system in 2017 were recognized at their fair value of €20.1 million
at the grant date; this amount represents remuneration under German GAAP.
At its meeting on April 22, 2016, Volkswagen AG’s Supervisory Board accepted the offer made by the
members of the Board of Management to withhold 30% of the variable remuneration for fiscal year 2015 for the
Board of Management members active on the date of the resolution and to make its disposal subject to future
share price performance by means of phantom shares. The resulting effects on remuneration were reported as
appropriate in previous years.
In fiscal year 2017, expenses of €43.8 million were recognized for the performance shares and of €2.0 mil-
lion for the phantom shares. If these expenses exceed the fair value of the performance shares at the grant date,
they do not represent remuneration under German GAAP and are therefore not included in the tables above.
As in the previous year, no interest-free advances were paid to members of the Board of Management.
314
Notes to the Consolidated Financial Statements
Consolidated Financial Statements
S U P E R V I S O RY B OA R D R E M U N E R AT I O N
As a result of its regular review of the Supervisory Board remuneration, the Supervisory Board proposed a
reorganization of the system of Supervisory Board remuneration to the 2017 Annual General Meeting, which
was approved on May 10, 2017 with 99.98 % of the votes cast. The remuneration of the members of the
Supervisory Board of Volkswagen AG no longer contains any performance-related remuneration components
but consists entirely of non-performance-related remuneration components. Remuneration for supervisory
board work at subsidiaries continues to comprise a mix of non-performance-related and performance-related
components.
The remuneration disclosed for members of the Supervisory Board for 2016 shows the amounts
determined on the basis of the old system of Supervisory Board remuneration. The members of the
Supervisory Board declared to the Management Board that they would waive the portion of their remuneration
for fiscal year 2016 that exceeds the amount that would have resulted for fiscal year 2016 from implementing
the system of Supervisory Board remuneration resolved by the Annual General Meeting on May 10, 2017 with
retroactive effect to January 1, 2017. The total amount waived for 2016 by all members of the Supervisory Board
is €1.2 million. Mr. Pötsch additionally waived an amount of €0.1 million of his variable remuneration for fiscal
year 2016 and waived his remuneration for fiscal year 2017 in full. The reason for this waiver is the agreement
made in connection with Mr. Pötsch’s transfer from the Management Board to the Supervisory Board as of
October 8, 2015, which specified that the amount of Supervisory Board remuneration received up to
December 31, 2017 would be deducted from the compensation payment to which he would have been entitled
for the period from October 8, 2015 to December 31, 2017.
P E N S I O N E N T I T L E M E N T S
On December 31, 2017, the pension provisions for members of the Board of Management in accordance with
IFRSs amounted to €125.4 million (previous year: €113.5 million). Current pensions are index-linked in
accordance with the index-linking of the highest collectively agreed salary insofar as the application of section 16
of the Gesetz zur Verbesserung der betrieblichen Altersversorgung (BetrAVG – German Company Pension Act)
does not lead to a larger increase.
Former members of the Board of Management and their surviving dependents received €19.9 million
(previous year: €11.1 million). This includes the amounts promised to Ms. Hohmann-Dennhardt in connection
with her departure from the Board of Management. Ms. Hohmann-Dennhardt received non-performance-
related remuneration of €2.1 million and performance-related remuneration of €4.9 million for the period
from February 1, 2017 to December 31, 2018.
Pension provisions in accordance with IFRSs for this group of individuals amounted to €269.0 million
(previous year: €270.0 million).
The individual remuneration of the members of the Board of Management and the Supervisory Board is
explained in the remuneration report in the management report on page 67. A comprehensive assessment of
the individual bonus components and of the LTI in the form of the performance share plan can also be found
there.
Consolidated Financial Statements
Responsibility Statement
315
Responsibility Statement
To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated
financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the
Group, and the Group management report includes a fair review of the development and performance of the
business and the position of the Group, together with a description of the material opportunities and risks
associated with the expected development of the Group.
Wolfsburg, February 23, 2018
Volkswagen Aktiengesellschaft
The Board of Management
Matthias Müller
Matthias Müller
Karlheinz Blessing
Karlheinz Blessing
Herbert Diess
Herbert Diess
sco Javier Garcia Sanz
Francisco Javier Garcia Sanz
eizmann
Jochem Heizmann
Andreas Renschler
Andreas Renschler
Rupert Stadler
Hiltrud Dorothea Werner
Hiltrud Dorothea Werner
ank Witter
Frank Witter
316
Independent Auditor’s Report
Consolidated Financial Statements
Independent Auditor’s Report
On completion of our audit, we issued the following unqualified auditor’s report dated February 23, 2018. This
report was originally prepared in German. In case of ambiguities the German version takes precedence:
To VOLKSWAGEN AKTIENGESELLSCHAFT, Wolfsburg
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE GROUP MANAGEMENT
REPORT
AU D I T O P I N I O N S
We have audited the consolidated financial statements of VOLKSWAGEN AKTIENGESELLSCHAFT, Wolfsburg, and
its subsidiaries (the Group), which comprise the income statement and the statement of comprehensive
income, the balance sheet, the statement of changes in equity and the cash flow statement for the financial year
from January 1 to December 31, 2017, and notes to the consolidated financial statements, including a summary
of significant accounting policies. In addition, we have audited the group management report of VOLKSWAGEN
AKTIENGESELLSCHAFT, which is combined with the Company’s management report, for the financial year from
January 1 to December 31, 2017. We have not audited the content of those parts of the group management
report listed in the “Other Information” section of our auditor’s report in accordance with the German legal
requirements.
In our opinion, on the basis of the knowledge obtained in the audit,
(cid:120)
the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as
adopted by the EU, and the additional requirements of German commercial law pursuant to § [Article]
315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with
these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group
as at December 31, 2017, and of its financial performance for the financial year from January 1 to
December 31, 2017, and
the accompanying group management report as a whole provides an appropriate view of the Group’s
position. In all material respects, this group management report is consistent with the consolidated
financial statements, complies with German
legal requirements and appropriately presents the
opportunities and risks of future development. Our audit opinion on the group management report does
not cover the content of those parts of the group management report listed in the “Other Information”
section of our auditor’s report.
(cid:120)
Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating
to the legal compliance of the consolidated financial statements and of the group management report.
B A S I S F O R T H E AU D I T O P I N I O N S
We conducted our audit of the consolidated financial statements and of the group management report in
accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as “EU Audit
Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits
promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our
responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities
for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our
auditor’s report. We are independent of the group entities in accordance with the requirements of European law
and German commercial and professional law, and we have fulfilled our other German professional
responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of
the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1)
of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinions on the consolidated financial statements and on the group management
report.
Consolidated Financial Statements
Independent Auditor’s Report
317
E M P H A S I S O F M AT T E R – D I E S E L I S S U E
We draw attention to the information provided and statements made in section “Key Events” of the notes to the
consolidated financial statements and in section “Diesel Issue” of the group management report with regard to
the diesel issue including information about the underlying causes, the noninvolvement of members of the
board of management as well as the impact on these financial statements.
Based on the results of the various measures taken to investigate the issue presented so far, which underlie
the consolidated financial statements and the group management report, there is still no evidence that
members of the Company’s board of management were aware of the deliberate manipulation of engine
management software before summer 2015. Nevertheless, should as a result of the ongoing investigation new
solid knowledge be obtained showing that members of the board of management were informed earlier about
the diesel issue, this could eventually have an impact on the consolidated financial statements and on the
group management report for financial year 2017 and prior years.
The provisions for warranties and legal risks recorded so far are based on the presented state of knowledge.
Due to the inevitable uncertainties associated with the current and expected litigation it cannot be excluded
that a future assessment of the risks may be different.
Our opinions on the consolidated financial statements and on the group management report are not
modified in respect of this matter.
K E Y AU D I T M AT T E R S I N T H E AU D I T O F T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N T S
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the consolidated financial statements for the financial year from January 1 to December 31, 2017. These
matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.
In our view, the matters of most significance in our audit were as follows:
(cid:6938)(cid:3) Accounting treatment of risk provisions for the diesel issue
(cid:6939)(cid:3) Recoverability of goodwill and brand names
(cid:6940)(cid:3)
(cid:6941)(cid:3) Completeness and measurement of provisions for warranty obligations arising from sales
(cid:6942)(cid:3)
Impairment of capitalized development costs
Financial instruments – hedge accounting
Our presentation of these key audit matters has been structured in each case as follows:
(cid:311) Matter and issue
(cid:312) Audit approach and findings
(cid:313)
Reference to further information
Hereinafter we present the key audit matters:
(cid:6938)(cid:3) Accounting treatment of risk provisions for the diesel issue
(cid:311)
Companies of the Volkswagen Group are involved in investigations by government authorities in
numerous countries (in particular in Europe, the United States, Canada and South Korea) with respect to
irregularities in the exhaust gas emissions from diesel engines in certain vehicles of the Volkswagen Group.
Different measures are being implemented in various countries for affected vehicles. These include hardware
and/or software solutions, vehicle repurchases or the early termination of leases and, in some cases, cash
payments to vehicle owners. Furthermore, payments are being made as a result of criminal proceedings and
civil law settlements with various parties. In addition, there are civil lawsuits pending from customers, dealers
and holders of securities. Further direct and indirect effects concern in particular impairment of assets
(intangible assets, property, plant and equipment, and inventories) and customer-specific sales programs.
318
Independent Auditor’s Report
Consolidated Financial Statements
The Volkswagen Group recognizes the expenses directly related to the diesel issue in its operating income. The
expenses incurred in fiscal year 2017 amount to EUR 3.2 billion and relate in their entirety to further additions
to reserves for field activities and repurchases (EUR 2.2 billion) as well as legal risks (EUR 1.0 billion). In
addition to provisions, contingent liabilities for legal risks in the amount of EUR 4.3 billion are reported as of
December 31, 2017.
The reported provisions and contingent liabilities are exposed to considerable estimation risk due to the
wide-ranging investigations and proceedings that are ongoing, the complexity of the various negotiations and
pending approval procedures by authorities, and developments in market conditions. This matter was of
particular importance for our audit due to the material amounts of the provisions as well as the scope of
assumptions and discretion on the part of management.
(cid:312)
In order to audit the recognition and measurement of provisions for field activities and vehicle
repurchases arising as a result of the diesel issue, we critically examined the processes put in place by the
companies of the Volkswagen Group to make substantive preparations to address the diesel issue, and assessed
the progress made in implementing the technical solutions developed to remedy it. We compared this
knowledge with the technical and legal opinions of independent experts, as presented to us. We used an IT data
analysis solution to examine the quantity structure underlying the field activities and repurchases. We assessed
the inputs used to measure the repair solutions that have been defined to date or are still in development and
the planned repurchases. We used this as a basis to evaluate the calculation of the provisions.
In order to audit the recognition and measurement of the provisions for legal risks and the disclosure of
contingent liabilities for legal risks resulting from the diesel issue, we assessed both the available official
documents such as those from the US Department of Justice, as well as in particular the work delivered and
opinions prepared by experts commissioned by the Volkswagen Group. As part of a targeted selection of key
procedures and supplemented by additional samples, we inspected the correspondence relating to the
litigation and, in talks with officials from the affected companies and the lawyers involved, and including our
own technical and legal experts, we discussed the assessments made.
Taking into consideration the information provided and statements made in the section entitled “Key
events” in the notes to the consolidated financial statements and in the section entitled “Diesel Issue” in the
combined management report with regard to the diesel issue including information about the underlying
causes, the non-involvement of members of the board of management as well as the impact on these financial
statements, we believe that, overall, the assumptions and inputs underlying the calculation of the risk
provisions for the diesel issue are appropriate to properly recognize and measure the provisions.
(cid:313) The Company's disclosures on the diesel issue are contained in the sections entitled “Key events” and
“Litigation” in the notes to the consolidated financial statements, and in the sections entitled “Diesel Issue” and
“Report on Risks and Opportunities”, subsections “Risks from the Diesel Issue” and “Litigation” in the
combined management report.
(cid:6939) Recoverability of goodwill and brand names
in
The
the consolidated
intangible assets reported
(cid:311)
financial statements of VOLKSWAGEN
AKTIENGESELLSCHAFT include EUR 40.4 billion in goodwill and purchased brand names (intangible assets with
indefinite useful lives). The Company allocates goodwill and brand names to the subgroups and brands,
respectively, within the Volkswagen Group. As part of the regular impairment testing of goodwill and brand
names, the Company compares the carrying amount of the subgroups and brands, respectively, against their
respective recoverable amount. In general, the recoverable amount is calculated on the basis of the value in use.
The value in use is calculated using discounted cash flow models on the basis of the Volkswagen Group's five
year operating plan prepared by management and acknowledged by the Supervisory Board and extrapolated
based on assumptions about long term growth rates. The discount rate used is the weighted average cost of
Consolidated Financial Statements
Independent Auditor’s Report
319
capital for the relevant reporting segment. The result of this measurement depends to a large extent on
management's assessment with regard to the future cash inflows of the respective subgroups and brands,
respectively, and on the discount rate used, and is therefore subject to considerable uncertainty. Against this
background and due to the underlying complexity of the measurement models, this matter was of particular
importance for our audit.
(cid:312) As part of our audit, we assessed, among other things, the method used to perform impairment tests and
the calculation of the weighted cost of capital. We evaluated the appropriateness of the future cash inflows used
in the measurement, including by comparing this data with the five-year operating plan prepared by
management and acknowledged by the Supervisory Board, and through reconciliation with general and sector-
specific market expectations. We also evaluated that the costs for Group functions not recognized in a segment
were properly included in the impairment test for the respective subgroup and brand, respectively. With the
knowledge that even relatively small changes in the discount rate applied can have a material impact on the
recoverable amounts calculated in this way, we also focused our testing in particular on the parameters used to
determine the discount rate applied, and evaluated the measurement model. Furthermore, due to the
materiality of the goodwill and brand names, we also performed our own sensitivity analyses for the sub-
groups and brands, respectively, (comparison of carrying amounts and recoverable amounts) and determined
that the respective goodwill and brand names were sufficiently covered by the discounted future cash flows.
Overall, we consider the measurement inputs and assumptions used by management to be in line with our
expectations and to lie also within a range that we consider reasonable.
The Company’s disclosures on goodwill and brand names are contained in section entitled “Intangible
(cid:313)
assets” in the notes to the consolidated financial statements.
(cid:6940)
Impairment of capitalized development costs
(cid:311)
In the consolidated financial statements of VOLKSWAGEN AKTIENGESELLSCHAFT capitalized development
costs amounting to EUR 21.0 billion are reported under the "Intangible assets" balance sheet item. In
accordance with IAS 38, research costs are treated as expenses incurred, while development costs for future
series products are capitalized provided that sale of these products is likely to bring an economic benefit. Until
amortization begins, developments must be tested for impairment in accordance with IAS 36 at least once a
year based on the cash-generating units to which they are allocated. To meet this requirement, over the period
from capitalization until completion of development the Company assesses whether the costs incurred are
covered by future cash flows. Once amortization begins, an assessment must be carried out at each reporting
date as to whether there are indications of impairment. If this is the case, an impairment test must be
performed and any impairment loss recognized. For impairment losses recognized in prior periods, an annual
assessment must be carried out as to whether there are indications that the reason for the impairment has
ceased to apply.
The Volkswagen Group generally applies the present value of the future cash flows (value in use) from the
relevant cash-generating units to test these intangible assets for impairment. The value in use is determined
using the discounted cash flow method based on the Group’s five-year financial planning prepared by
management. The discount rate used is the weighted average cost of capital (WACC). The weighted average cost
of capital applied in the Volkswagen Group includes the weighted average cost of equity and debt before taxes.
The impairment identified during the impairment testing was recognized under the "Cost of sales" line item
in the income statement as impairment losses amounting to EUR 0.4 billion.
320
Independent Auditor’s Report
Consolidated Financial Statements
The result of this measurement depends to a large extent on management's assessment of future cash inflows
and the discount rate used, and is therefore subject to considerable uncertainty. Against this background and
due to the complex nature of the valuation, this matter was of particular significance in the context of our
audit.
(cid:312) As part of our audit we assessed whether, overall, the assumptions underlying the measurements
particularly in the form of future cash inflows, and the discount rates used provide an appropriate basis by
which to test the individual cash-generating units for impairment. We based our assessment, among other
things, on a comparison with general and sector-specific market expectations as well as management's detailed
explanations regarding key planning value drivers. We also evaluated that the costs for Group functions were
properly included in the impairment tests of the respective cash-generating units. With the knowledge that
even relatively small changes in the discount rate applied can in some cases have material effects on values, we
also focused our testing on the parameters used to determine the discount rate applied, and evaluated the
measurement model. We also assessed the consistency of the measurement model applied and evaluated the
mathematical accuracy of the calculations. Furthermore, we performed our own additional sensitivity analysis
for those cash-generating units with little headroom (present value exceeds carrying amount) in order to gauge
the impairment risk and enable us to adapt our audit procedures accordingly. With respect to completed
development projects, we inquired management about whether or not there were indications of impairment or
that reasons for impairment had ceased to apply, and critically examined these assumptions based on our
knowledge of the Group's legal and economic environment. In the case of impairment losses or a reversal of
impairment losses, we assessed that these were properly assigned to the assets allocated to the cash-generating
unit. In our view, the measurement inputs and assumptions used by management, and the measurement
model, were properly derived for the purposes of conducting impairment tests.
(cid:313)
Company’s disclosures on capitalized development costs and the associated impairment testing are
contained in sections entitled “Accounting policies” and “Intangible assets” in the notes to the consolidated
financial statements.
(cid:6941)(cid:3) Completeness and measurement of provisions for warranty obligations arising from sales
(cid:311)
In the consolidated financial statements of the Volkswagen Group EUR 27.9 billion in provisions for
obligations arising from sales are reported under the "Other provisions" balance sheet item. These obligations
primarily relate to warranty claims arising from the sale of vehicles, motorcycles, components and genuine
parts. Warranty claims are calculated on the basis of losses to date, estimated future losses and the policy on ex
gratia arrangements. An estimate is also made of the discount rate. In addition, assumptions must be made
about the nature and extent of future warranty and ex gratia claims. These assumptions are based on qualified
estimates.
From our point of view, this matter was of particular importance for our audit because the recognition and
measurement of this material item is to a large extent based on estimates and assumptions made by the
Company's management.
(cid:312) With the knowledge that estimated values result in an increased risk of accounting misstatements and
that the measurement decisions made by management have a direct and significant effect on consolidated net
profit/loss, we assessed the appropriateness of the carrying amounts, including by comparing these figures
with historical data and using the measurement bases presented to us. Furthermore, we assessed that the
interest rates with matching terms were properly derived from market data. We evaluated the entire
calculations (including discounting) for the provisions using the applicable measurement inputs and assessed
the planned timetable for utilizing the provisions.
In doing so, we were able to satisfy ourselves that the estimates applied and the assumptions made by
management were sufficiently documented and supported to justify the recognition and measurement of the
provisions for warranty obligations arising from sales.
Consolidated Financial Statements
Independent Auditor’s Report
321
The Company’s disclosures on other provisions are contained in sections entitled “Accounting policies” and
(cid:313)
“Noncurrent and current other provisions” in the notes to the consolidated financial statements.
(cid:6942)
Financial instruments – hedge accounting
(cid:311)
The companies of the Volkswagen Group use a variety of derivative financial instruments to hedge in
particular against currency and interest rate risks arising from their ordinary business activities. Management’s
hedging policy is documented in corresponding internal guidelines and serves as the basis for these
transaxtions. Currency risk arises primarily from sales and procurement transactions and financing
denominated in foreign currencies. The means of limiting this risk include entering into currency forwards,
currency options and cross-currency interest rate swaps. The companies enter into interest rate hedges for the
purpose of achieving an economically sensible ratio of variable to fixed interest rate exposures. Interest rate
risk is minimized by entering into interest rate swaps and cross-currency interest rate swaps.
Derivatives are measured at fair value as of the balance sheet date. The positive fair values of all of the
derivatives used for hedging purposes amount to EUR 6.9 billion as of the balance sheet date, while the negative
fair values amount to EUR 2.2 billion. Insofar the financial instruments used by the Volkswagen Group are
effective hedges of future cash flows in the context of hedging pursuant to the requirements of IAS 39, the
effective portion of the changes in fair value is recognized in other comprehensive income over the duration of
the hedging relationships until the maturity of the hedged cash flows (cash flows hedges). As of the balance
sheet date, a cumulative EUR 3.5 billion under consideration of income taxes was recognized in equity as the
effective portion of fair value changes. Insofar derivative financial instruments are used to hedge against
changes in the carrying amount of balance sheet items pursuant to the requirements of IAS 39, changes in the
fair value of both the hedged items and the hedging instruments are recognized on a net basis in the
corresponding income statement item (fair value hedges).
From our point of view these matters were of particular importance for our audit due to the high complexity
and number of transactions as well as the extensive accounting and disclosure requirements of IAS 39.
(cid:312) As a part of our audit and with the support of our internal specialists from Corporate Treasury Solutions,
among other things we assessed the contractual and financial parameters and evaluated the accounting
treatment, including the effects on equity and profit or loss, of the various hedging relationships. Together with
our specialists, we also evaluated the Company’s internal control system with regard to derivative financial
instruments, including the internal activities to monitor compliance with the hedging policy. In addition, for
the purpose of auditing the fair value measurement of financial instruments, we also assessed the methods of
calculation employed on the basis of market data. In addition to evaluating the internal control system, we
obtained bank confirmations for the hedging instruments in order to assess completeness. With regard to the
expected cash flows and the assessment of the effectiveness of hedges, we essentially conducted a retrospective
assessment of past hedging levels. In doing so, we were able to satisfy ourselves that the estimates and
assumptions made by management were substantiated and sufficiently documented.
(cid:313)
The Company’s disclosures on hedge accounting are contained in sections entitled “Accounting policies”,
“Noncurrent and current other financial assets”, “Noncurrent and current other financial liabilities”, “Additional
balance sheet disclosures in accordance with IFRS 7 (Financial Instruments)” in the notes to the consolidated
financial statements.
322
Independent Auditor’s Report
Consolidated Financial Statements
OT H E R I N F O R M AT I O N
The executive directors are responsible for the other information. The other information comprises the
following non-audited parts of the group management report:
(cid:120)
the statement on corporate governance pursuant to § 289f HGB and § 315d HGB included in section
“Corporate Governance Report” of the group management report
the corporate governance report pursuant to No. 3.10 of the German Corporate Governance Code
the separate non-financial report pursuant to § 289b Abs. 3 HGB and § 315b Abs. 3 HGB
(cid:120)
(cid:120)
The other information comprises further the remaining parts of the annual report, which we obtained prior to
the date of our auditor’s report – excluding cross-references to external information – with the exception of the
audited consolidated financial statements, the audited group management report and our auditor’s report.
Our audit opinions on the consolidated financial statements and on the group management report do not
cover the other information, and consequently we do not express an audit opinion or any other form of
assurance conclusion thereon.
In connection with our audit, our responsibility is to read the other information and, in so doing, to consider
whether the other information
(cid:120)
is materially inconsistent with the consolidated financial statements, with the group management report or
our knowledge obtained in the audit, or
(cid:120) otherwise appears to be materially misstated.
Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the
Group Management Report
The executive directors are responsible for the preparation of the consolidated financial statements that
comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German
commercial law pursuant to § 315e Abs. 1 HGB and that the consolidated financial statements, in compliance
with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial
performance of the Group. In addition the executive directors are responsible for such internal control as they
have determined necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the executive directors are responsible for assessing the
Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable,
matters related to going concern. In addition, they are responsible for financial reporting based on the going
concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there
is no realistic alternative but to do so.
Consolidated Financial Statements
Independent Auditor’s Report
323
Furthermore, the executive directors are responsible for the preparation of the group management report that,
as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with
the consolidated financial statements, complies with German legal requirements, and appropriately presents
the opportunities and risks of future development. In addition, the executive directors are responsible for such
arrangements and measures (systems) as they have considered necessary to enable the preparation of a group
management report that is in accordance with the applicable German legal requirements, and to be able to
provide sufficient appropriate evidence for the assertions in the group management report.
The supervisory board is responsible for overseeing the Group’s financial reporting process for the
preparation of the consolidated financial statements and of the group management report.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and whether the group management
report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent
with the consolidated financial statements and the knowledge obtained in the audit, complies with the German
legal requirements and appropriately presents the opportunities and risks of future development, as well as to
issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the
group management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted
Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always
detect a material misstatement. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements and this group management report.
(cid:120)
We exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements and of the
group management report, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit
opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
(cid:120) Obtain an understanding of internal control relevant to the audit of the consolidated financial statements
and of arrangements and measures (systems) relevant to the audit of the group management report in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an audit opinion on the effectiveness of these systems.
324
Independent Auditor’s Report
Consolidated Financial Statements
(cid:120) Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness
of estimates made by the executive directors and related disclosures.
(cid:120) Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the
related disclosures in the consolidated financial statements and in the group management report or, if such
disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to be able to continue as a going concern.
(cid:120) Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements present the underlying transactions and
events in a manner that the consolidated financial statements give a true and fair view of the assets,
liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted
by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB.
(cid:120) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express audit opinions on the consolidated financial statements and on the
group management report. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinions.
(cid:120) Evaluate the consistency of the group management report with the consolidated financial statements, its
conformity with German law, and the view of the Group’s position it provides.
(cid:120) Perform audit procedures on the prospective information presented by the executive directors in the group
management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the
significant assumptions used by the executive directors as a basis for the prospective information, and
evaluate the proper derivation of the prospective information from these assumptions. We do not express a
separate audit opinion on the prospective information and on the assumptions used as a basis. There is a
substantial unavoidable risk that future events will differ materially from the prospective information.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement that we have complied with the relevant
independence requirements, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, the related safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter.
Consolidated Financial Statements
Independent Auditor’s Report
325
OT H E R L E G A L A N D R E G U L ATO RY R E Q U I R E M E N T S
Further Information pursuant to Article 10 of the EU Audit Regulation
We were elected as group auditor by the annual general meeting on May 10, 2017. We were engaged
by the supervisory board on May 11, 2017. We have been the group auditor of the VOLKSWAGEN
AKTIENGESELLSCHAFT, Wolfsburg, without interruption since the financial year 1948/1949.
We declare that the audit opinions expressed in this auditor’s report are consistent with the additional
report to the audit committee pursuant to Article 11 of the EU Audit Regulation (longform audit report).
G E R M A N P U B L I C AU D I TO R R E S P O N S I B L E F O R T H E E N G A G E M E N T
The German Public Auditor responsible for the engagement is Frank Hübner.
Hanover, February 23, 2018
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft
Norbert Winkeljohann
Wirtschaftsprüfer
(German Public Auditor)
Frank Hübner
Wirtschaftsprüfer
(German Public Auditor)
326
Five-Year Review
Additional Information
Five-Year Review
Volume Data (thousands)
Vehicle sales (units)
Germany
Abroad
Production (units)
Germany
Abroad
Employees (yearly average)
Germany
Abroad
Financial Data (in € million)
Income Statement
Sales revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Net other operating result
Operating result
Financial result
Earnings before tax
Income tax expense
Earnings after tax
Cost of materials
Personnel expenses
Balance Sheet (at December 31)
Noncurrent assets
Current assets
Total assets
Equity
of which: noncontrolling interests
Noncurrent liabilities
Current liabilities
Total equity and liabilities
2017
2016
2015
2014
2013
10,777
1,264
9,513
10,875
2,579
8,296
642
287
355
230,682
188,140
42,542
22,710
8,254
2,240
13,818
94
13,913
2,275
11,638
151,449
38,950
262,081
160,112
422,193
109,077
229
152,726
160,389
422,193
10,391
1,257
9,135
10,405
2,685
7,720
619
280
339
217,267
176,270
40,997
22,700
7,336
–3,858
7,103
189
7,292
1,912
5,379
140,307
37,017
254,010
155,722
409,732
92,910
221
139,306
177,515
409,732
10,010
1,279
8,731
10,017
2,681
7,336
604
276
329
213,292
179,382
33,911
23,515
7,197
–7,267
–4,069
2,767
–1,301
59
–1,361
143,700
36,268
236,548
145,387
381,935
88,270
210
145,175
148,489
381,935
10,217
1,247
8,970
10,213
2,559
7,653
583
265
318
202,458
165,934
36,524
20,292
6,841
3,306
12,697
2,097
14,794
3,726
11,068
132,514
33,834
220,106
131,102
351,209
90,189
198
130,314
130,706
351,209
9,728
1,187
8,541
9,728
2,458
7,270
563
255
308
197,007
161,407
35,600
19,655
6,888
2,613
11,671
757
12,428
3,283
9,145
127,089
31,747
202,141
122,192
324,333
90,037
2,304
115,672
118,625
324,333
Cash flows from operating activities
–1,185
9,430
13,679
10,784
12,595
Cash flows from investing activities attributable to operating
activities
Cash flows from financing activities
18,218
17,625
16,797
9,712
15,523
9,068
16,452
4,645
14,936
8,973
Additional Information
Financial Key Performance Indicators
327
Financial Key Performance
Indicators
%
Volkswagen Group
Gross margin
Personnel expense ratio
Operating result as a percentage of sales revenue
Return on sales before tax
Return on sales after tax
Equity ratio
Dynamic gearing1 (years)
Automotive Division2
Change in unit sales year-on-year3
Change in sales revenue year-on-year
Research and development costs as a percentage of sales revenue
Operating result as a percentage of sales revenue
EBITDA (in € million)4
Return on investment (ROI)5
Cash flows from operating activities as a percentage of sales
revenue
Cash flows from investing activities attributable to operating
activities as a percentage of sales revenue
Capex as a percentage of sales revenue
Net liquidity as a percentage of sales revenue
Ratio of noncurrent assets to total assets6
Ratio of current assets to total assets7
Inventory turnover8
Equity ratio
Financial Services Division
Increase in total assets
Return on equity before tax9
Equity ratio
2017
2016
2015
2014
2013
18.4
16.9
6.0
6.0
5.0
25.8
0.0
+ 3.7
+ 5.9
6.7
5.7
26,094
12.1
5.9
9.0
6.4
9.7
23.7
16.3
5.2
36.9
6.0
9.8
13.7
18.9
17.0
3.3
3.4
2.5
22.7
0.1
+ 3.8
+ 1.1
7.3
2.5
18,999
8.2
10.9
8.6
6.9
12.5
23.4
15.9
5.5
31.4
8.3
10.8
12.5
15.9
17.0
–1.9
–0.6
–0.6
23.1
0.1
–2.0
+ 3.6
7.4
–3.4
7,212
–0.2
12.9
8.1
6.9
11.5
23.1
15.2
5.8
32.6
13.9
12.2
11.9
18.0
16.7
6.3
7.3
5.5
25.7
0.1
+ 5.0
+ 1.4
7.4
6.1
23,100
14.9
12.2
8.7
6.5
8.7
22.3
14.3
6.2
36.9
15.1
12.5
11.3
18.1
16.1
5.9
6.3
4.6
27.8
0.1
+ 4.1
+ 1.3
6.7
5.6
20,594
14.5
11.8
9.3
6.3
8.6
21.3
13.4
6.5
39.8
3.9
14.3
10.5
1 Ratio of cash flows from operating activities to current and noncurrent financial liabilities.
2 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.
3 Including the Chinese joint ventures. These companies are accounted for using the equity method.
4 Operating result plus net depreciation/amortization and impairment losses/reversals of impairment losses on property, plant and equipment, capitalized development costs, lease
assets, goodwill and financial assets as reported in the cash flow statement.
5 For details, see Value-based management on page 127.
6 Ratio of property, plant and equipment to total assets.
7 Ratio of inventories to total assets at the balance sheet date.
8 Ratio of sales revenue to average monthly inventories.
9 Earnings before tax as a percentage of average equity.
328
Glossary
Additional Information
Glossary
Selected terms at a glance
Hybrid drive
Modular Transverse Toolkit (MQB)
Drive combining two different types of engine
As an extension of the modular strategy, this
Big Data
and energy storage systems (usually an internal
platform can be deployed
in vehicles whose
Big data is a term used to describe new ways of
combustion engine and an electric motor).
architecture permits a transverse arrangement of
analyzing and evaluating data volumes that are
the engine components. The modular perspective
too vast and too complex to be processed using
Hybrid notes
enables high synergies to be achieved between
manual or conventional methods.
Hybrid notes issued by Volkswagen are classified
the vehicles in the Volkswagen Passenger Cars,
in their entirety as equity. The issuer has call
Volkswagen Commercial Vehicles, Audi, SEAT and
Compliance
options at defined dates during their perpetual
ŠKODA brands.
Adherence to statutory provisions, internal com-
maturities. They pay a fixed coupon until the
pany policies and ethical principles.
first possible call date, followed by a variable
Plug-in hybrid
rate depending on their terms and conditions.
Performance levels of hybrid vehicles. Plug-in
Compressed Natural Gas (CNG)
hybrid electric vehicles (PHEVs) have a larger
Burning this compressed natural gas releases
Industry 4.0
battery with a correspondingly higher capacity
approximately 25% less CO2 than petrol because
Describes the fourth industrial revolution and
that can be charged via the combustion engine,
of its low carbon and high energy content.
the systematic development of real-time and
the brake system, or an electrical outlet. This
intelligent networks between people, objects and
increases the range of the vehicle.
Corporate Governance
systems, exploiting all of the opportunities of
International term for responsible corporate
information technology along the entire value
Rating
management and supervision driven by long-
added chain.
Intelligent machines,
inventory
Systematic assessment of companies in terms of
term value added.
systems and operating equipment that inde-
their credit quality. Ratings are expressed by
pendently exchange information, trigger actions
means of rating classes, which are defined
Direct Shift Gearbox (DSG)
and control each other will be integrated into
differently by the individual rating agencies.
Gearbox that consists of two gearboxes with a
production and logistics at a technical level. This
dual clutch and so combines the agility, driving
offers tremendous versatility, efficient resource
Turntable concept
pleasure and low consumption levels of a manual
utilization, ergonomics and the integration of
Concept of flexible manufacturing enabling the
gearbox with the comfort of an automatic.
customers and business partners in operational
production of different models in variable daily
Driving Cycles
the facility to vary daily production volumes of
Levels of fuel consumption and exhaust gas
Liquefied Natural Gas (LNG)
one model between two or more plants.
processes throughout the entire value chain.
volumes within a single plant, as well as offering
emissions for vehicles registered in Europe were
LNG is needed so that natural gas engines can be
previously measured on a chassis dynamometer
used in long-distance trucks and buses, since this
Vocational groups
with the help of the “New European Driving
is the only way of achieving the required energy
For example, electronics, logistics, marketing, or
Cycle (NEDC)”. Since fall 2017, the existing test
density.
procedure for emissions and fuel consumption
finance. A new teaching and learning culture is
gradually being established by promoting
used in the EU is being gradually replaced by the
Modular Electric Toolkit (MEB)
training in the vocational groups. The specialists
Worldwide Harmonized Light-Duty Vehicles Test
The modular system is being developed for the
are actively involved in the teaching process by
Procedure (WLTP). This has been in place for new
manufacturing of electric vehicles. The MEB
passing on their skills and knowledge to their
vehicle types since fall 2017 and will apply to all
establishes parameters for axles, drive systems,
colleagues.
new vehicles from fall 2018. The aim of this new
high-voltage batteries, wheelbases and weight
test cycle is to state CO2 emissions and fuel
ratios to ensure a vehicle optimally fulfills the
Zero-Emissions Vehicle (ZEV)
consumption in a more practice-oriented man-
requirements of e-mobility. The first vehicle
Vehicles that operate without exhibiting any
ner. A further important European regulation is
based on the MEB should go into series produc-
harmful emissions
from combustion gases.
the Real Driving Emissions (RDE) for passenger
tion in 2020.
Examples of zero-emissions vehicles
include
cars and light commercial vehicles, which also
monitors emissions using portable emission
measuring technology in real road traffic.
purely battery-powered electric vehicles (BEV) or
fuel cell vehicles.
Additional Information
Glossary
329
Capitalization ratio
Return on equity before tax
The capitalization ratio is defined as the ratio of
The return on equity shows the ratio of profit before
capitalized development costs to total research and
tax to average shareholders’ equity of a period,
development costs in the Automotive Division. It
expressed as a percentage. It reflects the company’s
shows the proportion of primary research and devel-
profitability per share and indicates the interest rate
opment costs subject to capitalization.
earned on equity.
Distribution ratio
Return on sales before tax
The distribution ratio is the ratio of total dividends
The return on sales is the ratio of profit before tax to
attributable to ordinary and preferred shares to
sales revenue in a period, expressed as a percentage. It
earnings after tax attributable to the shareholders of
shows the level of profit generated for each unit of
Volkswagen AG. The distribution ratio provides infor-
sales revenue. The return on sales provides infor-
mation on how earnings are distributed.
mation on the profitability of all business activities
before deducting income tax expense.
Dividend yield
The dividend yield is the ratio of the dividend for the
Tax rate
reporting year to the closing price per share class on
The tax rate is the ratio of income tax expense to
the last trading day of the reporting year; it represents
profit before tax, expressed in percent. It shows what
the interest rate earned per share. The dividend yield
percentage of the profit generated has to be paid over
is used in particular for measuring and comparing
as tax.
shares.
Equity ratio
The equity ratio measures the percentage of total
assets attributable to shareholders’ equity as of a
reporting date. This ratio indicates the stability and
financial strength of the company and shows the
degree of financial independence.
Gross margin
Gross margin is the percentage of sales revenue
attributable to gross profit in a period. Gross margin
provides information on profitability net of cost of
sales.
Price-earnings ratio
The price-earnings ratio is calculated by dividing the
share price per share class at the end of the year by
the earnings per share. It reflects a company’s profita-
bility per share; a comparison over several years shows
how its performance has developed over time.
330
Index
Additional Information
Index
A
G
Q(cid:3)
Accounting policies
220 ff
General economic development
95, 157, 168
Quality assurance
149 ff, 173
B
Global Compact
Group structure
135
21, 59 ff, 114, 162
R
Balance sheet
122 ff, 130 f, 198 f, 244 ff
Basis of consolidation
208 ff
I
Ratings
Refinancing
Board of Management
7 ff, 15 ff, 84
IFRSs
203 ff
Remuneration
113, 167
112 f
67 ff, 314 f
Brands
C
21 ff
Income statement
115 ff, 130, 195, 234 ff
Report on post-balance sheet date events
156, 308
Information technology
155, 174
Research and development
132, 136, 170
Investment planning
162
Return on investment (ROI) and
Cash flow statement
119 ff, 202, 282
CO2 emissions
Consolidation methods
137 f, 146 f, 174 ff
K
218
Key figures
Core performance indicators
55
Corporate Governance
12, 59 ff, 313
L
value contribution
Risk management
127 f, 162, 293 f
164 ff
U3, 23
S
Sales and marketing
147 ff, 161, 172 f
97, 160, 187 f, 219
Litigation
177 ff, 295 ff
Segment reporting
Declaration of conformity
15, 59 ff, 313
Market development
22 f, 157 ff, 168 ff
100 f, 160 f
M(cid:3)
U4, 101 ff
Models
109
131, 258
N(cid:3)
163, 170, 175, 190
Nonfinancial key performance indicators
134 ff
Currency
D
Deliveries
Dividend policy, yield
Dividend proposal
Driving Cycles
E
Earnings per share
Shareholders
Shares
Statement of comprehensive income
Strategy
Summaries
Supervisory Board
Sustainability
T
114, 231 ff
88, 110
88, 108 ff
196 f
51 ff
129, 162 f, 189
12 ff, 85 ff
134 ff
O
109, 241
Orders received
41, 43, 106
Target-performance comparison
129
Employees
107, 132, 151 ff, 161, 173 f, 308
Environmental
protection
Environmental strategy
Equity
F
132, 138 f, 146 f, 174 ff
155 ff
200 f, 257 ff
P
Procurement
Production
142 ff, 171
25 ff, 107, 132, 143 ff, 171 f
V
Value added
Vehicle sales
Proposal on the appropriation of net profit
Prospects
131
190
Financial data, overview
326 f
Financial risk management
118, 187, 283 ff
126
23, 107, 132
Scheduled Dates 2018
FI N ANC IA L CALE N DAR
March 13
Volkswagen AG Annual Media Conference
and Investor Conference, Berlin
April 26
Interim Report January – March
May 3
Volkswagen AG Annual General Meeting (CityCube Berlin)
August 1
Half-Yearly Financial Report
Oktober 30
Interim Report January – September
Contact
Information
Contents
Contact Information
P U B LI SH ED BY
Volkswagen AG
Financial Publications, Letterbox 1848-2
38436 Wolfsburg, Germany
Phone + 49 (0) 5361 9-0
Fax + 49 (0) 5361 9-28282
Volkswagen AG
Group Communications, Letterbox 1970
38436 Wolfsburg, Germany
Phone + 49 (0) 5361 9-0
Fax + 49 (0) 5361 9-28282
This annual report is published in English and German.
Both versions of the report are available on the Internet
at www.volkswagenag.com/ir.
The German version is legally binding.
I NV ESTO R RE L ATI ONS
Volkswagen AG
Investor Relations, Letterbox 1849
38436 Wolfsburg, Germany
Phone + 49 (0) 5361 9-0
Fax + 49 (0) 5361 9-30411
E-mail investor.relations@volkswagen.de
Internet www.volkswagenag.com/ir
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