Reportfor the Year1970

VolkswagenwerkAktiengesellschaftWolfsburg

Table of Contents

The Board of Directors and Managementof Volkswagenwerk Aktiengesellschaftpresent the Report for the Year 1970with their compliments.

Page

Agenda

for the Annual Meeting of Stockholders 1

Board of Directors 3

Management 3

Selected Data of Volkswagenwerk AG and itsSubsidiaries and Affiliates 4

Report of Management

World-wide Economic Developments in 1970 5Business Trends and Developments of

Volkswagenwerk AG and its Subsidiaries andAffiliates during 1970 6

Review of 1970 Operations of Volkswagenwerk AGand its Subsidiaries and Affiliates

Sales 8Raw Material Purchases and Material Control 10Production 11Labor Force 12Capitallnvestments 14Research and Development 16Subsidiaries and Affiliates 17

Outlook for Volkswagenwerk AG andits Subsidiaries and Affiliates 22

Comments on the 1970 Financial Statements ofVolkswagenwerk AG 23

Comments on the Consolidated FinancialStatements of Volkswagenwerk AG and itsDomestic Subsidiaries 30

Proposed Distribution of Net Earnings for 1970 34

Report of the Board of Directors 35

Financial Statements of Volkswagenwerk AG

Balance Sheet 36Statement of Earnings 38

Consolidated Financial Statements ofVolkswagenwerk AG and its DomesticSubsidiaries

Consolidated Balance Sheet 40Consolidated Statement of Earnings 42

Comparative Summary of Selected Data ofVolkswagenwerk AG and its Subsidiaries andAffiliates 1966-1970 44

VW Holdings in Domestic and ForeignSubsidiaries and Affiliates 46

Wolfsburg. April 1971

Agenda

for the Annual Meeting of Stockholdersof Volkswagenwerk Aktiengesellschaftto be held at 10:00 A. M. on Thursday. July 1. 1971at the Stadthalle in Wolfsburg.

1. Presentation of audited financial statements and thereport of Management for 1970, together with the report ofthe Board of Directors, the recommendations with respectto disposition of the current year's net earnings shown inthe statement of earnings, the consolidated financial state-ments and related comments for the year 1970.

2. Resolution with respect to disposition of the net earn-ings for the year shown on the balance sheet.

Management and the Board of Directors proposeto distribute to the stockholders a dividend ofDM 166,500,000 out of net earnings for the year ofDM 166,780,239. This dividend amounts to DM 9.25on DM 50 par value of capital stock, or represents a18.5% dividend on the capital stock.

3. Resolution with respect to discharge of responsibility ofManagement for the year 1970.

4. Resolution with respect to discharge of responsibility ofthe Board of Directors for the year 1970.

With respect to items 3. and 4., Management and theBoard of Directors propose to be discharged ofresponsibility.

5. Election of members of the Board of Directors.

The Board of Directors consists of 21 members ofwhich 14 are representatives of the stockholders and7 represent the employees of the company (section101 of Stock Corporation Law (AktG), section 76 ofWorks Council Act (BetrVerfG)). In accordance withsection 12 of the charter of Volkswagenwerk AG theFederal Republic of Germany and the State of LowerSaxony are each entitled to delegate two members ofthe Board of Directors as long as they are in possessionof company stock. The stockholders attending theannual meeting have to elect 10 members of the Boardof Directors, but they are not bound by the nominationssubmitted.

The Board of Directors proposes to elect the followingpersons as members of the Board of Directors:

Hans Bimbaum, Chairman of the Board of Manage-ment of Salzgitter AG, Salzgitter

Dr. jur. F. Wilhelm Christians, Member of the Board ofManagement of Deutsche Bank AG, DusseldorfBiiderich-Meererbusch

Walter Haefner, Business Proprietor, Erlenbach/Switzerland

Kurt Hahnel, Member of the Board of Management ofDeutsche Girozentrale - Deutsche Kommunalbank,Frankfurt

1

Dr. jur. Alfred Haiti, Company Adviser, FrankfurtDr. h. c. Walter Hesselbach, Chairman of the Board of

Management of Bank fur Gemeinwirtschaft,Frankfurt

Dr. jur. Eduard Leuze. Lawyer, ReutlingenDr. h. c. Ludwig Poullain, Chairman of the Board of

Management of Westdeutsche Landesbank - Giro-zentrale, Munster

Dr. jur. Horst Rheinfels, Lawyer, CologneDr. jur. Josef Rust, Chairman of the Board of Manage-

ment of Wintershall AG, ret., Kassel

6. Resolution with respect to an amendment of the charter.

In view of the fact that the number of members of theBoard of Directors has been increased from 18 to 21Management and the Board of Directors propose tothe stockholders that section 16, paragraph 1 of thecharter be amended as follows:

"A quorum of the Board of Directors shall be presentif at least eleven members including the chairman ofthe Board of Directors or one of his deputies are pre-sent at the time when business is to be dealt with."

7. Resolution seeking the approval of the stockholderspresent at the annual meeting for a corporate agreement.

On April 23,1971 VolkswagenwerkAG and AUDI NSUAUTO UNION AG concluded a controlling and profittransfer agreement. This agreement is available forperusal in the registered offices of the two companiesand a copy of it is obtainable on request. The mainpoints are as follows:

Control and transfer of profits

AUDI NSU AUTO UNION AG subordinates itsmanagement to the Volkswagenwerk AG which isaccordingly entitled to issue directives to the Board ofManagement of AUDI NSU AUTO UNION AG subjectto the legal requirements. The Board of Managementof AUDI NSU AUTO UNION AG shall continue tomanage and represent the company. AUDI NSU AUTOUNION AG has placed itself under an obligation totransfer its net earnings after reserve transfers toVolkswagenwerk AG where these exceed the amountwhich must be paid to the holders of the participatingcertificates that were issued following the resolutionpassed by the stockholders present at the annual meet-ing held on April 26, 1969 (sections 4 and 25 of thecharter of AUDI NSU AUTO UNION AG).

Payment on participating certificates anddividend guaranties

As long asthe agreement shall be in force Volkswagen-werkAG isobligedtocompensate for any loss incurredby AUDI NSU AUTO UNION AG and in addition tothis to enable that company to provide such an amount

as net earnings after reserve transfers as would benecessary to make full payment on the participatingcertificates in accordance with section 4, paragraph2 of the charter. Volkswagenwerk AG guarantees thatpursuant to section 304 AktG AUDI NSU AUTOUNION AG's independent stockholders shall receiveappropriate remuneration foreach businessyearasfrom1971 and that a payment shall be made on everyAUDI NSU stock as a share of the profits whichwould represent two fifth of the amount to be paid ona Volkswagenwerk AG share with the same par valuein respect of the same business year. Should the capi-tal stock be increased from own funds either fromVolkswagenwerkAG or AUDI NSU AUTO UNION AGan appropriate amendment of this guaranty will beprovided for.

Compensation

Volkswagenwerk AG is bound to the terms of thisagreement to exchange the shares of an independentstockholder of AUDI NSU AUTO UNION AG forVolkswagenwerk AG's stock in the ratio of 2.5 AUDINSU AUTO UNION AG's shares for 1 Volkswagen-werk AG's stock of same par value should he so request.No compensation shall be made in respectof peak quo-tations. The obligation to effect an exchange shall belimited to the six months' period following the entry ofthe corporate agreement into the Mercantile Registerat Heilbronn.

Other arrangements

Volkswagenwerk AG confirms in the corporate agree-ment the assurances which it gave to the NSU Boardof Management on the occasion of the amalgamationof Auto Union G. m. b. H. with NSU MotorenwerkeAG in respect of the business policy of AUDI NSUAUTO UNION AG concerning the further utilizationof NSU/Wankel patents. Accordingly, Volkswagen-werk AG will not issue to the Board of Management ofAUDI NSU AUTO UNION AG any directives contraryto these assurances. The agreement will come intoeffect retrospectively from January 1, 1971 and willexpire on December 31, 1980. It continues for oneyear periods unless notice has been given six monthsbefore its termination. The Managements of the con-tracting parties may repudiate the agreement if it hasnot been entered in the Mercantile Register by April 30,1972 at the latest. All litigation arising out of thisagreement will be settled by a Court of Arbitrationwhose decision will be final.

Management and the Board of Directors propose toapprove the conclusion of the corporate agreement.

8. Appointment of auditors for the year 1971.

The Board of Directors proposes to appoint the Deut-sche Revisions- und Treuhand-Aktiengesellschaft,Treuarbeit, Hanover, as auditors for the year 1971.

2

Board of Directors(Aufsichtsrat)

Management(Vorstand)

Dr. jur. Josef Rust, Kassel, ChairmanOtto Brenner, Frankfurt, Deputy ChairmanHelmut Greulich, Hanover since July 9, 1970,

Deputy Chairman from August 3, 1970Dr. rer. pol. Wolfram Langer, Wiesbaden,

Deputy Chairman, to February 23, 1970Karl Moller, Hanover, Deputy Chairman, to July 9, 1970Dr. jur. Gerhard Reischl, Bonn, since February 23, 1970,

Deputy Chairman from April 16, 1970Hugo Bork, WolfsburgSiegfried Ehlers, WolfsburgMrs. Elgin Gartner-Amrhein, StuttgartWalter Haefner, ZurichHeinrich Heerdt, KasselProf. Dr. jur. Siegfried Heinke, Hanover, since July 9,1970Heinz Hilbich, HanoverProf. Dr. phil. Eduard Justi, BrunswickAlfred Kubel, Hanover, to July 9, 1970Dr. rer. pol. h. c. Ludwig Poullain, MiinsterDr. jur. Horst Rheinfels, CologneDr. rer. pol. Hermann Richter, DiisseldorfErich Schilling, IngolstadtDr. oec. publ. Johann Baptist Schollhorn, BonnDr. jur. Wilhelm Vallenthin, Frankfurt

Prof. Dr. rer. pol. h. c. Kurt Lotz, ChairmanHorst BacksmannDr. rer. pol. Carl H. HahnOtto HohneProf. Dr.-Ing. Werner HolsteHorst MiinznerFrank Novotny, to December 31, 1970Dr. jur. Gerhard PrinzDr. rer. pol. Friedrich Thomee

3

Selected Data of Volkswagenwerk AGand its Subsidiaries and Affiliates

1970 1969 Increase(Decrease)

Sales (DM)Volkswagenwerk AG and itsSubsidiaries and Affiliates

Volkswagenwerk AG

in million DM 15,791domestic sales-% 31

export sales-% 69per employee DM 87,467

in million DM 9.913domestic sales-% 38

export sales-% 62per employee DM 83,336

13.9342971

84,826

9.2383466

84.763

1,857

2.641

675

- 1,427

13

3

7

- 2

Sales (units)

Volkswagenwerk AG and itsSubsidiaries and AffiliatesVolkswagenwerk AG

Production

Volkswagenwerk AG and itsSubsidiaries and AffiliatesVolkswagenwerk AG

Labor Force

Volkswagenwerk AG and itsSubsidiaries and AffiliatesVolkswagenwerk AG

number of vehiclesnumber of vehicles

number of vehiclesnumber of vehicles

at year-endat year-end

2,206,9211,625,885

2,214,9371,621,197

190,306124,792

2.087.1091.633.625

2.094.4381.639.630

168,469112.454

119,812- 7,740

120,499- 18,433

21,83712,338

6

6- 1

1311

InvestmentsVolkswagenwerk AG and itsSubsidiaries and AffiliatesVolkswagenwerk AG

Depreciation

Volkswagenwerk AG and itsSubsidiaries and AffiliatesVolkswagenwerk AG

Net Earnings

Volkswagenwerk AG

in million DMin million DM

in million DMin million DM

in million DM

1,5361.131

836 .579

190

1.076740

691536

330

460391

14543

140

4353

218

- 4 2

Dividends Proposed in million DM 166.5 166.5

%

4

Report of Management

World-wide Automobile Production and Output of MajorAutomobile Producing Countries and of Volkswagenwerk^G and its Subsidiaries and Affiliates in millions of units(logarithmic scale)

World-Wide EconomicDevelopments in 1970

Economic developments in western industrial countrieswere in 1970 once again characterized by widely-differingtrends. In the USA and in Great Britain signs of stagnationwere already clearly recognizable, while in the countries onthe mainland of Europe and in Japan the rising demand wasonly slightly affected by monetary restrictions. It is noti-ceable that the tendencies towards price increases becamemore pronounced in almost all the western countries. Thismakes it difficult for the governments of many states torealize their economic aims, namely to ensure full employ-ment, to re-establish price stability, to avoid endangeringthe growth of the economy and to maintain the balance ofpayments. Thus, already at the end of 1970, despite steadilyrising prices, the USA adopted a policy of expansion inorder to prevent a more serious recession. In doing so theAmericans started an international trend towards the low-ering of interest rates.

Above all, the economic trend in the USA meant that, aftera pronounced increase in world automobile production inrecent years, the figure of 28.9 million vehicles for 1970was not as high as in the previous year.

The shares of individual countries in world automobile pro-duction have developed since 1 966 as follows:

in_% 1966 1967 1968 1969 1970

USA 42 38 39 35 29Japan 9 13 15 16 18Federal Republic 12 10 11 12 13France 7 8 7 8 9Great Britain 8 8 8 7 7Italy 5 6 6 5 6

On the whole the development of the world motor vehiclemarket can be regarded as satisfactory if one considers thatthe US automobile industry was able, with its availablecapacity, to make up for a halt in production in a very shorttime. In the next few years the automobile industry willhave to make considerable efforts to comply with stricterregulations concerning motor vehicle safety in many coun-tries. The technical modifications involved will cause consi-derable increases in costs.

In 1970, the economic development in the Federal Republicwas determined primarily by the further increase in privatedemand. Sales of consumer durables, and thus also of auto-mobiles, profited especially from this development. With2.3 million new car registrations, the previous year's figureof 2.0 million vehicles was exceeded by 16.4%.

On foreign markets the revaluation of the Deutsche Mark inOctober 1969 produced its full effect in 1970 and made thecompetitive position of the German automobile industry onthe world market more difficult. Because of this the Federal

5

1966 1967 1968 1969 1970

30

onzu

10

c0

QO

O

z

1

World-wide

USA

Japan

Federal Republicof Germany

France

Volkswagenwerk

Great BritainItaly

Republic's automobile exports could only be increased by2.3%. Since the increased costs resulting from the reva-luation of the Deutsche Mark could only be passed on tocustomers in export territories to a limited extent, the Ger-man automobile manufacturers had to accept considerablelosses in profits from exports.

Business Trends and Developmentsof Volkswagenwerk AG and itsSubsidiaries and Affiliates during1970

The 1970 business year for the Volkswagenwerk AG andits subsidiaries and affiliates was characterized by continuinggrowth and receding profits. With an increasing demand itwas not possible, despite extra production shifts, to produceenough vehicles to enable all market possibilities to beexploited. Even the completion of the sixth VW plant atSalzgitter did not enable the bottleneck in production tobe overcome on a short-term basis. If the Company and itssubsidiaries and affiliates were able to increase its sales in1970 by 13.3% to DM 15.800 million, this can be attributedprimarily to the sales success of the producing subsidia-ries, apart from additional profits due to price increases andthe increased proportion of models giving bigger profitmargins. In addition the good development of sales wasfavorably influenced by the continued lively demand forvehicles on the domestic market. Thus domestic salesincreased by 21.2% to DM 4,900 million while the salesachieved by foreign subsidiaries increased by 23.6% toDM 3,900 million. On the other hand the export salesof the domestic companies only rose by 3.7 % toDM 7,000 million.

Altogether 2.2 million vehicles were sold by Volkswagen-werk AG and its subsidiaries and affiliates in 1970, around6% more than in the previous year. In the Federal Republicthe volume of sales rose by 8.3% to 725,055 vehicles, andin countries where the Volkswagenwerk has its own pro-duction plants it rose by 30.6% to 327,216 vehicles. On theother hand, the Volkswagenwerk's and its domestic sub-sidiaries' export sales were down slightly - by 1.6%. Thisdrop in exports can mainly be ascribed to the inability of thedomestic producing companies to cope with the demandand to losses of sales in some countries following therevaluation of the Deutsche Mark.

The sales range was once again expanded in 1970. In thesecond half of the year the new VW 1302 and VW K 70models were introduced and were well received by themarket. At AUDI NSU work started on production of theAudi 100 Coupe, while Volkswagen do Brasil commencedproduction of the VW 1600 TL (Fastback), the VW 1500"Beetle" and the Karmann Ghia TC.

In the year under review the Volkswagenwerk AG acquiredthe Selbstfahrer Union group of Hamburg, the largest carhire company in the Federal Republic. The Volkswagen-werk AG also owns 50% of the stock of the Weser-Ems-Vertriebsgesellschaft m. b. H. of Bremen, founded in 1970.

The considerable rise in material and labor costs made priceincreases on the part of the Volkswagenwerk AG and AUDINSU inevitable during the year under review. These priceincreases had to be carefully calculated so that they corres-ponded to market conditions and did not endanger the fulluse of production capacity, and thus the jobs of workers.The additional proceeds resulting from the price increasesand from cost savings due to rationalization measures, werenot, however, sufficient in 1970 to prevent a considerabledrop in profits. In 1970 the net earnings of the Volkswagen-

6

Trend of Consolidated Sales in million DM

1966 1967 1968 1969 1970

Total

Domestic

werkAG dropped to DM 190 million (1969 DM 330 million).Despite this considerable drop in profits, the Managementand the Board of Directors propose to distribute to thestockholders DM 166.5 million out of the 1970 netearnings. This dividend is equivalent to a distribution of18.5% on the capital stock increased in the previous yearfrom the Company's own funds or DM 9.25 on DM 50 parvalue of capital stock.

Sales of ourForeignManufacturingSubsidiaries

Export Sales ofVolkswagenwerk AGand its DomesticSubsidiaries

• Includes saleslax

7

9,998* 9,335* 11,700 13,934 15.791

31%

29%

24%

27%

33%

Review of 1970 Operations ofVolkswagenwerk AG and itsSubsidiaries and Affiliates

SalesConsolidated sales of 2,206,921 vehicles exceeded salesof the previous year by 5.7%. This expansion is chiefly dueto the increasing sales success of AUDI NSU, Volkswagendo Brasil and Volkswagen de Mexico, while the Volkswa-genwerk AG's sales were down slightly, despite increaseddemand.

A comparison of unit sales for 1970 and 1969 follows:

Because of the increased demand created by the prevailingeconomic conditions, the Volkswagenwerk AG's and itssubsidiaries' and affiliates' sales in the Federal Republicincreased by 8.3% to 725,055 vehicles, including 642,920passenger cars. The passenger car share of the market fellduring the second half of the year to 30.7% (31.7% in1969), mainly due to the supply difficulties in the secondhalf of the year. VW Trucks and Station Wagons achieveda 73.0% share of new registrations in its competitionrange with a figure of 82,135 vehicles (75.2% in 1969).

Volkswagenwerk AGAUDI NSU AUTO UNION

less sales to subsidiariesand affiliates

Volkswagen do BrasilVolkswagen of South AfricaVolkswagen de MexicoMotor ProducersVolkswagen of America*)Volkswagen CanadaVolkswagen FranceOther subsidiaries or affiliates

Total Sales

Sales of Passenger Carsincluding Squareback Sedans

Sales of Trucks and Station Wagons

*) together with its subsidiaries

1970

1.62b.ob5309,560

1.93b -I4h

695.542

1,V39,y0o

234.83739,57135,48817,320

565.8383S 25531,223

4.486

2,206,921

1,919,748287,-73

1969

1,633,625264.714

1,898,339

685,626

1,212,713

176,26633,72425,79814,678

558,88039,11625,484

450

2,087,109

1.816.487270,622

Increase (DecUnits

-7,74044,846

37,106

9.916

27,190

58,5715,8479,6902,6426,958

- 8615,7394,036

119.812

103.26116,551

rease)%

17

2

1

2

33173818

1- 223

.

6

66

The drop in the Volkswagenwerk AG's sales was due tobottlenecks in production, following the introduction of thenew models in the second half of the year, which couldnot even be overcome by means of extra shifts. Certainlydeliveries to customers were increased compared with theprevious year through depletion of stocks within the dealerorganisation, but it was still not possible to meet the increas-ed demand for VW products in practically every market.This led to large backlogs of orders towards the end of theyear under review.

AU Dl NSU were also unable to fully satisfy the demand forAudi models, despite a considerable increase in their pro-duction capacity. In the year under review nearly 35% moreAudi models were sold than in the previous year.

Total sales oftheVWorganisation abroad-including sales ofvehicles produced by foreign subsidiaries-were 4.5% betterthan in the previous year with a figure of 1,481,866 vehicles.

In the USA, in the face of a general decline in thedemand for motor vehicles, deliveries to customers wereincreased by 3.3% to a figure of 569,696 Volkswagens.TheAudi-Porsche dealer organisation set up in the year underreview sold 21.344 vehicles. Overall, the share of the passen-ger car market gained by Volkswagens, Audi and Porschevehicles sold by Volkswagen of America rose from 5.3% to6.3 %. These sales figures were achieved despite continuallyincreasing competition from the Japanese and from thesmall car models produced by American manufacturers. Adefinite "small car boom" is discernible on the US market.

8

New Vehicle Registrations of Passenger Cars (includingDual-Purpose Vehicles) in the Federal Republic of Ger-many and West Berlin in 1969 and 1970

Volkswagenwerk AG and itsSubsidiaries and Affiliates

Opel

Ford

Renault

Daimler-Benz

The Fiat Group

BMW

Simca

Peugeot

Citroen

Others

1970 631,765 30.7%

1969 568.779 31.7%

1970 405.824 19.7%

1969 349,959 19.5%

1970 301,075 14.6%

1969 280.112 15.6%

1970 148,615 7.2%

1969 113,377 6.3%

1970 145,882 7.1%

1969 127.624 7.1%

1970 141,378 6.9%

1969 137.043 7.6%

1970 86,674 4.2%

1969 77,348 4.3%

1970 74,019 3.6%

1969 53,855 3.0%

1970 37,488 1.8%

1969 26,836 1.5%

1970 31,326 1.5%

1969 21,812 1.2%

1970 53,781 2.7%

1969 40,131 2.2%

9

In the other overseas markets - particularly in Brazil andMexico, where appreciable improvements in the shareof the market were achieved - good sales were recorded.On the other hand, in some European countries consi-derable losses in the share of the market were suffered,mainly because of price increases following the revaluationof the Deutsche Mark late in 1 969. Exceptions were providedby France, Italy and especially Great Britain, where ourshare of the market increased. However, the situation withregard to earnings remained unsatisfactory.

Among the passenger car models offered for sale by Volks-wagenwerk AG and its subsidiaries and affiliates, the"Beetle" once again was the biggest seller: altogether1,202,146 vehicles of this type were sold, while during thesecond half of the year the main interest focused on thenewly-developed VW 1 302. Nevertheless, the proportion of"Beetle" models among total sales was slightly down onthe previous year's figure with 54% compared with 58% in1969, since sales shifted rather more towards products inhigher price categories. Above all, sales of the Audi 100models improved considerably in 1970, with an increaseof 51.2% to over 100.000 vehicles. The VW K 70. whichwas first introduced in West Germany in November, andwhich provides the traditional VW range with a model ofa different technical conception, has already been well re-ceived by the public and will strengthen the position of theVolkswagenwerk AG in the middle class category.

These increasing sales successes were made possible be-cause of the efficiency of Volkswagenwerk AG's and itssubsidiaries and affiliates approximately 15,000 sales andservice centres at home and abroad. Of these, 9,043 belongto the VW organisation. The VW Diagnosis and Maintenancesystem, which has now been introduced on a world-widebasis, has met with approval from customers and has furtherincreased public confidence in the VW sales organisation.

Raw Material Purchases andMaterial Control

The continuing high level of economic activity and conse-quent higher material requirements caused problems in thepurchase of materials in the year under review as in 1969.Through close cooperation with our suppliers we were,however, able to satisfy our production requirements. Thuswe once more owe thanks to our suppliers.

Consolidated purchases rose by DM 1,500 million toDM 9,800 million; this was due to the increase in production,increased investments and increased material prices. Forthe Volkswagenwerk AG alone the volume of raw materialpurchases rose by DM 900 million to DM 6,700 million.

In the period under review the volume of imported materialsincreased by more than 42%. Most of these purchases weremade from countries in Western Europe and in the WesternHemisphere.

The general rise in prices during the last quarter of the yearunder review - due to unusually high increases in costs -affected the operating results for 1970 only to a negligibleextent, since the existing 12-month-purchase contractswere hardly affected.

10

Production

The Volkswagenwerk AG and its subsidiaries and affiliatesproduced 2,214,937 vehicles in 1970 - 5.8% more than in1969. The breakdown shows the number of vehicles pro-duced by each manufacturing company:

Volkswagenwerk AGAUDI NSU AUTO UNION .

Production in Domestic PlantsLess: Production of "knocked-down" vehicles for

assembly by foreign subsidiaries and affiliates

Volkswagen do BrasilVolkswagen of South AfricaVolkswagen de MexicoMotor Producers

Production in Foreign Plants

Total Production in Domestic and Foreign Plants

Passenger Cars and Square-back Sedans

Trucks and Station Wagons

1970

1.621,197316,539

1,937,736

48,396

1,889,340

233.01139,85635.62617.104

325,597

2,214,937

1,926,926288,011

1969

1.639,630264,414

1,904,044

60,840

1,843,204

178.17934,14624,43714,472

251,234

2.094.438

1.821,304273,134

Increase (DeUnits

-18,43352,125

33,692

-12,444

46,136

54,8325,710

11,1892,632

74,363

120,499

105,62214,877

crease)%

- 120

2

- 2 0

3

31174618

30

6

65

In the year under review the Volkswagenwerk AG did notquite reach the volume of production achieved in the previousyear. A shift of demand to the larger models requiring morework and the technical improvements to all types introducedin the second half of the year caused the labor time pervehicle to rise. This resulted in an additional requirement forlabor which could not always be met at the point of need,due to the difficult situation in the labor market.

The 19.7% increase in production on the part of AUDI NSUmeant that this company was working at full capacity. Inaddition, 20,911 Audi 100 cars were assembled by theVolkswagenwerk AG in order to cope with the increaseddemand for these vehicles.

In the year under review Volkswagenwerk AG and AUDINSU together accounted for 50.4% of the total automobileproduction in the Federal Republic.

The share in our total production accounted for by ourforeign producing subsidiaries rose to 14.7% (12.0% in1969). This increase is chiefly due to the production in-creases in Brazil and Mexico.

11

Labor Force

The increase in Volkswagenwerk AG's and its subsidiaries'and affiliates' production was made possible only by afurther expansion of the labor force and by the workingof substantial overtime and extra shifts.

Volkswagenwerk AG and its subsidiaries and affiliates hada total labor force of 1 90,306 employees at year-end com-pared with 1 68,469 at the end of 1 969. The labor force ofVolkswagenwerk AG and its domestic subsidiaries andaffiliates rose in 1970 by 15,075 to 154,885 employees.

The increase in Volkswagenwerk AG's laborforce amountedto 12,338 employees or 11.0% in the year under review.A large proportion of this increase was accounted for by the5,061 new workers recruited for the Salzgitter plant. Atyear-end, 110,968 wage-earners and 13,824 salaried staffwere employed.

The following is a summary of the Volkswagenwerk AGlabor force and of the labor force of its subsidiaries andaffiliates according to plants:

During the year under review there continued to be a short-age of labor on the domestic market, so that it was necessaryto recruit an even larger number of workers from abroad.The rate of foreign workers to the total labor force roseaccordingly from 8.9% to 11.5%. On December 31, 19708,078 of the 14,401 foreign workers were Italians, most ofwhom were working at the Wolfsburg plant. The remainderwas mainly of Turkish, Greek, Spanish and - since 1970 -Tunisian nationality.

The average age of Volkswagenwerk AG employees re-mained almost the same as in the previous year at 36.0years. The average seniority was 8.0 years (8.1 years in1969). The rate of women rose from 11.7% to 12.2%.

The continuing high demand on the labor market causedthe personnel turnover rate to rise from 7.8% in 1969 to10.0%. Likewise, the incidence of absence due to sicknesswas considerably higher than in previous years at 7.2%(5.9% in 1969, 5.0% in 1968); it exceeded the long-termVolkswagenwerk AG average of 4.8% and the averageincidence of absence due to sickness in the metal-workingindustry of 6.9%.

Volkswagenwerk AG

WolfsburgHanoverKasselEmdenBrunswickSalzgitter

AUDI NSU AUTO UNION

Other domestic subsidiaries

Volkswagenwerk AG and its domestic subsidiaries

Foreign production and assembling companiesForeign distributing companies

Foreign subsidiaries and affiliates

Total labor force of Volkswagenwerk AG and itssubsidiaries and affiliates

! • S1/197O

b9.2Oi:27 ,44 /17.S3?U 1 •' -:/ .J'"' i

1 •: / , ;

1 1,4,M;v.

3? IT:<.

2 ti4o

3f>,421

190.306

12/31/1969

55.60326,81716,1407,0026.845

47

112,454

26,595

761

139,810

26,3302,329

28,659

168.469

Increase

3.597630

1,3931,121

5365,061

12,338

A5b2

185

15 075

6,443319

6,762

21,837

%

629

168

11

10

24

11

2414

24

13

12

Number of Employees at Year-End

1966 1967 1968 1969 1970Volkswagenwerk AG and itsSubsidiaries and Affiliates

Volkswagenwerk AG and itsDomestic Subsidiaries

Volkswagenwerk AG

124.581

103,135

91.645

13

129.111 145,401 168.469 190.306

154.885

124,792112,454104,97591,869

102,932 117,593 139,810

In the year under review Volkswagenwerk AG increased itssponsorship of housing construction in the areas of itsplants in order to help solve the continuing housing prob-lems affecting its employees. Compared with the previousyear in which 1,281 apartments and private homes wereconstructed under the sponsorship of the firm, in 1970 thenumber of homes completed with financial help from Volks-wagenwerk rose to 1,855, including 384 places in hostels.In addition, at year-end 1,705 homes were under construc-tion (752 in 1969). Loans totalling DM 11.8 million weregranted to employees wishing to build their own homes.

Wages and salaries paid by Volkswagenwerk AG for 1970amounted to DM 2,287 million compared with DM 1,816 mil-lion in 1969. Social contributions in the same periodincreased from DM 780 million in the previous year toDM 1,064 million.

The increase in personnel costs compared with 1969 is dueto the expansion of the labor force, increases in wages andsalaries and in social benefits and to changes in legislation,for instance, the law concerning the continued payment ofwages in cases of sickness.

As a result of the wage and salary agreements reached atthe end of 1970 and of new legislation, the Company willbe burdened still further, particularly by the 12% increasein wages and salaries as from December 1, 1970. In addi-tion there are changes in the wages and salary structure,demands for longer holidays, the payment of extra moneyfor savings schemes and finally the granting of a subsidyfor sickness insurance premiums for Factory employeeswho have voluntary insurance, as required by law.

In the year 1970, as before, we paid particular attention tothe basic and further training of our employees. The numberof apprenticeships in the various plants rose to 2,200 in theyear under review. The systematic training of managementand potential management personnel, which in the previousyear had been started at a special company training center,was intensified and expanded. A considerably extendedrange of specialized courses gave our employees the oppor-tunity of acquainting themselves with new developmentsin their field of work. Once again in 1970 a number ofcommercial and engineering trainees took advantage of ourvoluntary training scheme.

Our success in 1970 is due to the untiring efforts of ouremployees. We wish to thank them all and in particular themembers of our Factory Councils who carried out theirduties as representatives of the employees so conscien-tiously and in the common interest.

Capital Investments

Capital investments of Volkswagenwerk AG and its subsi-diaries and affiliates in 1970, after elimination of intercom-pany additions to property, plant and equipment, amountedto DM 1,536 million; of which DM 1,493 million andDM 43 million were expended for property, plant andequipment, and financial investments, respectively.

Volkswagenwerk AG's investments in property, plant andequipment and financial investments increased by 52.9 % toDM1,131 million. The funds earned did notsuffice intheyearunder review to finance the greatly increased volume ofinvestments, so that part of the liquid reserves accumulatedin previous years had to be used. Of the investment carriedout in 1970, 51.2% was financed from depreciation (72.5%in 1969).

In the year under review the major portion of capital invest-ments in property, plant and equipment served mainly toexpand productive facilities and adapt them to suit thecontinual modifications being made to our products. In thecourse of these measures all opportunities for rationalizationwere seized. Notable among the investments was thecompletion of the new plant in Salzgitter. Investmentsdesigned to further the expansion of the research anddevelopment center continued unabated.

Expansion of capacity and rationalization of the productionfacilities were also the main reasons for AUDI NSU invest-ments which increased by 36.1% to DM 225 million. Inparticular the expansion of the press facilities together withthe building of production sheds and the developmentcenter at Ingolstadt stand out in particular.

In the year under review the foreign subsidiaries and affili-ates invested DM 263 million, of which Volkswagen doBrasil, which again bore the heaviest investment burden ofall the foreign companies, accounted for DM 156 million.

14

Capital Investments and Provision for Depreciation andWrite-down of Investments of Volkswagenwerk AG andits Subsidiaries and Affiliates and Capital Investments ofVolkswagenwerk AG in million DM

Investments of Volkswagenwerk AGand its Subsidiaries and Affiliates

Investments of Volkswagenwerk AG

Provision for Depreciation and Write-down ofInvestments of Volkswagenwerk AG and itsSubsidiaries and Affiliates

1966 1967 1968 1969 1970

15

872

703

651

787

615

496 508

708740

619

1.076

1,131

691

836

1,536

Research and Development

In the field of research and development, once again duringthe year under review a considerable proportion of theavailable capacity was devoted to the further developmentof the current product line. In this connection, the extensivetechnical modifications to the "Beetle" were of most signif-icance. The new front section, together with the new sus-pension strut front axle, enabled the luggage compartmentto be almost doubled in capacity and gives even betterhandling. At the same time the output of the 1300 cc enginewas raised to 52 SAE bhp (60 bhp for 1600 cc engine).The other models, in particular the VW 1600, the VW 411and the trucks and station wagons, underwent numerousdetail improvements which did not affect the externalappearance but which play a big part in improving qualityand increasing comfort and safety.

The VW K 70 developed in its basic conception byAUDI NSU.was adapted for the requirements of large-scaleproduction.

Apart from this, our development work included the design-ing and testing of novel automobile constructional features,both with regard to complete vehicles and to mechanicalunits and individual components. This enabled knowledgeto be gained which is of value for our current product rangeand for future developments.

The problems of exhaust emission control and vehicle safetycontinue to occupy an important place in our developmentwork. Our research into exhaust-free propulsion systemswas stepped up. The decision of Volkswagenwerk to collab-orate with other European automobile manufacturers inthe development of an "Experimental Safety Vehicle" shouldhelp to indicate the possibilities and limits of future inter-national regulations concerning motor vehicle constructionin respect of primary and secondary safety.

Our research activities were concerned largely with theproblems of environment pollution and traffic density inbuilt-up areas, as well as with the related demands foralternative propulsion methods and traffic systems. In thisconnection the main research was in the field of vehiclepropulsion and simulation technology and of electronics.

In the year under review work began on the developmentof a process control system which enables data acquisitionand test supervision to be carried out automatically. Thus,a large number of test stands can be operated simultane-ously and test times can be reduced.

The intensified research and development activity on thepart of Volkswagenwerk necessitated an increase in thenumber of qualified staff and also increased investments.Above all our testing facilities had to be expanded, and hereincreased use was made of simulation techniques. In thisconnection particular mention must be made of the instal-lation of a driving simulator which enables driving test pro-grams to be carried out and repeated at any time withoutendangering human life or materials. The employment ofsuch simulators makes it necessary to have complicatedelectronic data processing units which work in accordancewith the so-called Hybrid system.

16

Subsidiaries and Affiliates

Selected Data of Major VW Subsidiaries and Affiliates

Manufacturing Companies

AUDI NSU AUTO UNION AG,

Neckarsulm

Sales in million DM

1970 Percentagechange ascompared toprevious year

Number of Employeesat Year-End1970 Percentage

change ascompared toprevious year

2,079 26 29.147 10

Volkswagen do Brasil S. A.,

Sao Bernardo do Campo*) 2,376 31 23.946 26

Volkswagen of South Africa

Ltd.. Uitenhage. C. P.*) " ) 382 14 4.115 17

Volkswagen de Mexico, S. A.

de C. V., Puebla/Pue.*) 297 29 3,631 30

Motor Producers Ltd.,

Melbourne 121 13 1,081

Distributing Companies

Volkswagen of America, Inc.,

Englewood Cliffs, N.J.*) **) 4,323 7 1.722 10

Volkswagen Canada Ltd.,

Toronto, Ontario 329 - 2 449 - 5

Volkswagen France S. A.,

Villers-Cotterets*) 151 15 391 33

') Includes the employees of its subsidiaries." ) Sales consolidated with its subsidiaries.Note:Sales converted to DM based on the yearly average rates of exchange. Sales of Volks-wagen do Brasil were converted to DM based on monthly average rates of exchange.

17

1

Investments in Subsidiariesand Affiliates: Domestic

AUDI NSU AUTO UNION AG, Neckarsulm

The businessyear which has just ended was characterizedby a favorable sales trend which enabled the productivefacilities to be used to capacity and made extra workingshifts necessary.

In the year under review sales increased by 25.8% toDM 2,079 million. This increase in sales exceeded the 16.9 %rise in unit sales to 309,560 vehicles, since the Audi modelswith their bigger profit margins accounted for a larger pro-portion of the total sales. Mainly responsible for the increa-ses was domestic business, which in 1970 accounted for52.4% of total sales (51.7 % in 1969). The company achiev-ed a 7.7 % share of new passenger car registrations (includ-ing Squareback models) in the Federal Republic (7.5% in1969).

By the middle of the year the demand, particularly for Audimodels, had reached such a pitch that the production wasinsufficient to cope with it, despite considerable extensionof the productive facilities. Not until the end of the year didthe situation become normalized to some extent.

In 1970, AUDI NSU produced 316,539 vehicles (including"knocked-down" vehicles for assembly in South Africa), orjust 20% more than in the previous year. The assembly of20,911 Audi vehicles by the Volkswagenwerk AG in Wolfs-burg made an important contribution to this increase.

In the year under review substantial investments were madetowards the expansion of the plant and rationalization, aswell as for the purpose of widening the range of modelsproduced.

The increases in wages and salaries and in social benefitsin 1970, together with increased material costs and theconsequences of the revaluation of the Deutsche Mark, hada pronounced negative effect on the development of profits.The price increases of December 1969 did not suffice tomake up for these additional burdens, so that in the yearunder review, despite the heartening sales and productiontrend, definite dents in earnings had to be accepted. Thistendency will continue in 1971.

For 1970 AUDI NSU showed net earnings after reservetransfers of DM 4.1 million which are to be distributed onparticipating certificates.

Selbstfahrer Union, Hamburg

Through the acquisition of the entire stock of the Selbst-fahrer Union group, the biggest car hire firm in Germany,the Volkswagenwerk AG and its subsidiaries and affiliatesin 1970 increased its activity in a branch of business whichis becoming more and more important in view of increas-ing demand. Compared with the previous year the pro-ceeds from the car hire business increased by 71.3% toDM 64 million.

The profit from this business was adversely affected by costincreases in 1970. In addition, it was also reduced by non-recurring expenses resulting from the adaptation of evalu-ation methods to bring them in line with the principles ofVolkswagenwerk AG.

VW-Porsche Vertriebsgesellschaft m. b. H.,Ludwigsburg

This company, which markets sports cars at home andabroad for Dr.-lng. h. c. F. Porsche KG and Volkswagen-werk AG, moved its headquarters from Stuttgart to Lud-wigsburg during the year under review; there a new partsdepot was established and put into operation. Salesamounted to 37,022 vehicles. In the incomplete 1969business year the company sold 6,985 vehicles.

A Profit and Loss Assumption Agreement exists betweenthe marketing company and the two controlling companies,which each own 50% of the stock.

Weser-Ems-Vertriebsgesellschaft m. b. H.,Bremen

In 1970 Volkswagenwerk AG founded the Weser-Ems-Vertriebsgesellschaft together with the VW distributor inBremen. 25% of the original capital of DM 3 million waspaid in. This company, in which both partners have an equalinterest, will take over the distributorship function for theWeser-Ems district from July 1971. In the year under reviewa start was made on the necessary building work.

Wolfsburger Transportgesellschaft m. b. H.,Wolfsburg

In the year under review this company, which handles seaand air transportation and all transactions connected there-with for the Volkswagen organisation, transported 887,000vehicles compared with 865,000 in the previous year.

Earnings for 1970 were satisfactory, as in previous years.

Volkswagen-Finanzierungsgesellschaft m. b. H.,Wolfsburg

This company supports the Volkswagenwerk's sales effortthrough dealer financing and through financing sales ofvehicles to the consumer. In the year under review theVolkswagen-Finanzierungsgesellschaft was granted fullbank rights by the Federal Supervisory Office for CreditMatters.

Although the dealer financing business did not reach thevolume of the previous year, customer financing businessincreased considerably, despite keen competition from othercredit institutes.

18

Although fees could not always be made to match the risingcost of refinancing, good earnings were achieved in the1970 business year.

Volkswagen Leasing G. m. b. H., Wolfsburg

This company engages in the leasing of all models offeredby the Volkswagen organisation on the domestic marketand of VW Diagnosis and Maintenance stands. It was ableto more than double its volume of business in 1970.

The profit, which showed an increase compared with theprevious year, was taken over by Volkswagenwerk AG inaccordance with the existing Profit and Loss AssumptionAgreement.

Deutsche Automobilgesellschaft m. b. H.,Hanover

Daimler-Benz AG and Volkswagenwerk AG hold an equalinterest in this company. It is engaged in research and deve-lopment in new fields of automotive technology.

The company does not carry out any business functiondesigned to earn a profit. The expenditure on research whichwas entailed resulted in a loss which was borne equally bythe two controlling companies in accordance with the exist-ing Profit and Loss Assumption Agreement.

VW-Wohnungsbau Gemeinniitzige Gesellschaftm. b. H., Wolfsburg

At the end of 1970 this company had 197 apartments underconstruction in the area of the Wolfsburg and Kassel plants;roughly half of these should be ready for occupation by thespring of 1971. On December 31,1970 the company owned6,842 apartments and 132 accommodation units in hostels.

VW-Siedlungsgesellschaft m. b. H., Wolfsburg

VW-Siedlungsgesellschaft is engaged in the constructionof apartments for VW employees in the areas surroundingour plants. In 1970, 404 apartments were completed andoccupied, of which 384 were accommodation units inhostels, so that by the end of the year the company owned3,816 units. On December 31, 1970 a further 1,500 apart-ments were under construction or in the planning stage.

The loss for the year, resulting primarily from the maximumwrite-off of asset values allowed under existing tax laws,was absorbed by Volkswagenwerk AG in accordance withthe Profit and Loss Assumption Agreement existing betweenthe two companies.

On December 31.1970 the two housing companies owneda total of 10,790 apartments.

Investments in Subsidiariesand Affiliates: Foreign

Volkswagen do Brasil S. A.,S5o Bernardo do Campo

Once again in 1970 the Brazilian automobile industry en-joyed a boom. In the year under review altogether 417.000vehicles were produced, 18% more than in the previousyear. Of these, a large proportion came from Volkswagendo Brasil, which increased its production by almost 31 % to233,011 vehicles (178.179 in 1969).

Volkswagen do Brasil increased its sales in 1970 by 31.0%to DM 2,376 million. Unit sales of 234,837 vehicles exceed-ed those of the previous year by 33.2%.

The share of the passenger car market was increased, aboveall by the success of the newly-introduced VW 1600 models,to 66.2% (61.2% in 1969). The 1500 cc version of the"Beetle" introduced in August 1970, the Brazilian versionof the VW 1600 TL (Fastback) and the Karmann Ghia TCwere well received by the public. The company's share ofthe truck and station wagon market increased from 49.9%to 50.6 %. On July 8,1970 the "millionth" Volkswagen cameoff the company's production line.

Earnings were good in the 1970 business year.

The damage to one of the new production sheds caused bythe big fire at the end of 1970 is largely covered by insur-ance. Its effect on the 1971 business year will be strictlylimited, since the measures taken immediately enabled pro-duction to be resumed after the factory vacation in mid-January. In February 1971 the daily production amount-ed to 1,009 vehicles and therefore already exceeded theworking day average for 1970 of 967 vehicles. The rapidrecovery after this unfortunate event was largely due to thehard work of the employees and the support of the BrazilianGovernment.

During the year under review, the capital stock of Volks-wagen do Brasil was increased by Cr.$ 103,663,735(DM 76.6 million) to Cr.$468,1 57,655 (DM 346.1 million).Oftheincrease,Cr.$8,646,940(DM6.4million)resultedfroma contribution of productive equipment and Cr.$ 95,016,795(DM 70.2 million) from the capitalization of a reserve, setup in accordance with Brazilian law, for the revaluation ofproperty, plant, equipment and investments and for thepotential loss of current asset values. Total capital stock isrepresented by Cr.$ 189,624,305 (DM 140.2 million) ofpreferred stock and Cr.$ 278,533,350 (DM 205.9 million)of common stock. Volkswagenwerk AG continues to own80% of both the outstanding preferred and common shares.

Volkswagen of South Africa Ltd., Uitenhage, C. P.

Economic development in South Africa continued itsfavorable trend during 1970, accompanied increasingly by

19

rising prices and balance of payments problems. Therestrictive measures introduced by the South African Govern-ment did not.have much effect in the year under review.

Volkswagen of South Africa increased its sales fromDM 334 million in 1969 to DM 382 million in 1970.

Unit sales rose by 17.3% to 39.571 vehicles (33,724 in 1969).In the face of toughening competition the Volkswagen andAudi share of the passenger car market rose from 14.1 %to 14.6%. Production was increased by 16.7% to 39,856vehicles.

In the year under review the capital stock of Volkswagende Mexico was increased by mex. $ 4,831,000 (DM 1.4 mil-lion) to mex. $471,952,000 (DM 137.8 million) due to in-vestment on the part of Volkswagenwerk AG in the formof productive equipment.

With a view to promoting sales, Volkswagen de Mexicofounded during the year under review the firm of VolkswagenCommercial, S. A. de C. V.

Motor Producers Ltd., Melbourne, Australia

In order to remain competitive on the South African market,Volkswagen of South Africa will in future produce threepassenger car models and thereby comply with govern-ment requirements that the local content of passengercars should be increased stage by stage until 1976. For thispurpose considerable investments will be necessary overthe next few years.

Earnings of the company were good during the businessyear.

In 1970, sales of the company amounted to DM 121 million,thus exceeding the figure for the previous year ofDM 107 million by 13.1%.

Although the market as a whole was stagnant during theyear under review, unit sales increased by 18.0% to17,320 vehicles. The sales success in 1970 meant that asfar as passenger cars were concerned the full sales quotaallowed under the so-called Local Content Plans was usedup, and the VW share of the passenger car market rosefrom 2.7% to 3.2%. The VW Trucks and Station Wagonscontinued to be leading in their field of competition.

Volkswagen de Mexico,S. A. de C. V., Puebla/Pue.

The development of the company in the year under reviewwas characterized by increased export activity, which alsomade it possible to increase sales which are limited onthe domestic market by government quotas.

To enable production facilities to be utilized fully, othermake vehicles were assembled once again. Total produc-tion rose by 27.7% to 26.592 vehicles (including 17,104Volkswagens) compared with 20,829 vehicles (including14,472 Volkswagens) in the previous year.

The company closed the 1 970 business year with a profit.

The company's sales rose compared with the previousyear by 29.5% to DM 297 million. Exports amounted toDM 30 million. This was mainly due to deliveries ofparts to the USA, the Federal Republic and Columbia.

In 1970, Volkswagen de Mexico, with sales of 35,488vehicles, increased its share of the passenger car market to26.7% (22.5% in 1 969) and its share of the small car marketto 60.2% (56.7% in 1969). Since November 1970 thecompany has been offering the VW 181 utility vehicleon the Mexican market in addition to its previous range ofmodels.

Production increased in 1970 by 45.8% to 35,626vehicles.

Because of the satisfactory earnings in 1970, it was possibleto reduce the deficit carried over from previous years to agreat extent.

Industrias del Motor, S. A. (IMOSA),Vitoria, Spain

The Spanish economy was adversely affected in 1970 as aresult of the Government's policy of credit restriction. OurSpanish subsidiary company had to accept a slight drop inunit sales of 509 to 8,362 vehicles because of thesemeasures.

Although the company increased its earnings, it was notpossible to close the business year with a profit. This wasdue both to the economic situation in Spain and tothe adoption to a large extent of the VW organisation'sevaluation principles.

The capital stock, amounting to Ptas 486,000,000(DM 25.3 million) has been fully paid in. The holdingsof Volkswagenwerk AG and AUDI NSU amount toPtas 121,500,000 (DM 6.3 million).

20

P. T. German Motor Manufacturing,Djakarta/Indonesia

This company was founded in October 1970 by Volks-wagenwerk AG in conjunction with Daimler-Benz AG andan Indonesian associate, the P. T. Indofing Finance Group.The purpose of the undertaking is to assemble Volkswagenand Mercedes vehicles.

the total Volkswagen, Audi and Porsche share of thepassenger car market as a whole rose from 5.3% to 6.3%in the year under review.

Volkswagen of America's earnings were satisfactory in1970.

The capital stock was fixed at Rp 567 million, equivalent toDM 5.5 million, of which DM 3.2 million had been paid inby year-end. Volkswagenwerk AG, Daimler-Benz AG andthe Indonesian associate each have a 33/3% interest inthe company.

Volkswagen of America, Inc.,Englewood Cliffs, N. J.

Sales of imported passenger cars rose in 1970 by 14%to 1.2 million cars; the imported car share of the totalpassenger car market in the United States rose to 14.6%(11.2% in 1969). This considerable rise was due tovarious factors. The production and sales of the Americanautomobile industry were reduced by a strike. The tenseeconomic situation led in 1970 to an increase in thedemand for less expensive models. The small car market,on which the American manufacturers are now represen-ted as well as most of the imported foreign makes, pro-fited as a whole from this trend. The trend will increase stillfurther over the next few years.

In 1970. Volkswagen of America increased its sales by7% to DM 4.323 million. Apart from the larger share oftotal sales gained by the more profitable VW 1600, VWTrucks and Station Wagons, Porsche and Audi models,the price increases necessitated by the revaluation of theDeutsche Mark and the cost situation also served toincrease proceeds.

In the year under review 569,696 Volkswagens were deli-vered to customers in the USA (551,366 in 1969). Inaddition 21,344 Porsche and Audi vehicles were sold inthe USA via the newly-established Porsche Audi dealerorganisation. Thus, this organisation achieved a goodmarket success in the very first year of its existence.

The demand for our models continued to increase, despitetougher competition following the introduction of theAmerican small cars. However, this demand could not befully satisfied because of delivery problems, particularly inthe second half of the year.

The result was that, although imports increased greatly,Volkswagen of America's share of imported car registra-tions dropped slightly to 43.3% (47.4% in 1 969). However,

Volkswagen Canada Ltd., Toronto, Ontario

The Canadian automobile market was characterized in1970 by a general decrease in demand. Because of this,and because of the appearance of new firms on the smallcar market, competition has continued to become morefierce for Volkswagen Canada.

The company's sales, at DM 329 million, were down slight-ly compared with those of the previous year. Sales alsowent down slightly by 861 to 38,255 vehicles. On theother hand, the share of the passenger car market went upslightly during the year under review from 4.7% to 5.1 %.

The fierce competition was not without influence onthe company's earnings. However, the company againshowed a profit for the year.

Volkswagen France S. A., Villers-Cotterdts

It was not until the beginning of October 1970 that theFrench Government slightly relaxed the severe creditrestrictions imposed during the second half of 1969. Inspite of this still difficult situation. Volkswagen Francesucceeded in increasing its sales from DM 132 million toDM 151 million during the year under review. Unit salesincreased from 25.484 to 31.223 vehicles. This figureincludes 2,565 Audi vehicles (2,936 in 1969).

The company was able to break even in 1970.

Svenska Volkswagen AB, Sodertalje

The restrictive measures imposed by the Government inorder to dampen the spending boom in Sweden reducedthis company's sales and earnings during 1970. In the yearunder review 23.982 Volkswagen and VW-Porsche vehic-les were sold, compared with 28.002 in the previous year.

The company earned a profit for the year.

In 1970 Svenska Volkswagen AB acquired the entirecapital stock of Volkswagen i Stockholm AB which isresponsible for VW retail business in the Stockholm area.

21

HOLAD Holding & Administration AG,Basle, Switzerland

This company continues to hold 10% of the capital stockof Wolfsburger Transportgesellschaft. In 1970 it alsoacquired 73.5% of the capital stock of the Societe Volks-wagen de Financement S. A.. Paris, a financing company,as well as 70% of the capital stock of Vorelco Ltd.,Toronto, which finances sites for the VW organisation.

Dividends from investments were reinvested by HOLADwithin our organisation.

Outlook for Volkswagenwerk AGand its Subsidiaries and Affiliates

The lack of clarity in the economic situation on the worldmarkets makes it difficult to make forecasts for the secondhalf of 1971. In contrast with the previous year, however,the stimulus for economic growth will emanate more fromthe USA. On the other hand, the economic development insome Western European countries will tend to slacken off;here we can expect only a modest overall increase in thegrowth rate of the gross national product.

The overall world demand for automobiles will increasein 1971. It is to be expected that in view of the relaxationof the domestic demand, the automobile industry of theFederal Republic will again put more emphasis on exportsales rather than on domestic business.

Volkswagenwerk is making every effort to share in theincreasing automobile business in 1971 as before. To thisend it is important for us to replenish the inordinately lowstocks of vehicles with the domestic and foreign VW or-ganisation, by means of increased production throughextra shifts when necessary, so that the requirements ofday-to-day business can be met. Side-by-side with thisVolkswagenwerk will expand its product range on thevarious markets. A step in this direction will be the stage-by-stage introduction of the VW K 70, which has alreadybeen well received on the domestic market. In additionVolkswagen of America will begin to import the VW 411into the USA in May 1971. Thus the sales organisation inour largest export market will have at its disposal a rangeof models with which it can successfully face the com-petition as hitherto. We therefore expect our sales in theUSA to increase once again in 1971.

Despite continued expansion in the volume of business, wemust expect the trend with regard to earnings to be un-satisfactory. The continually rising costs of materials andof labor cannot possibly be absorbed as the result ofinternal measures in 1971.

At the beginning of 1971 Volkswagenwerk AG acquireda 75% interest in Volkswagen Bruxelles S. A. of Brussels.This company is continuing to run the assembly plantestablished by our Belgian General Importers and will beincreasing its assembly capacity to a considerable extent.

In 1971, the two companies, Volkswagen Porsche AustriaGes. m. b. H. and Volkswagen Porsche Austria Ges. m. b. H.& Co. KG, both with head offices in Salzburg were foundedin order to carry out the functions of Volkswagen and Por-sche importers in Austria. Volkswagenwerk AG has 25%and 24.75% holdings of the respective capital stock ofS 400,000 and S 2.000,000.

22

Comments on the 1970Financial Statements ofVolkswagenwerk AG

Financial Position

The balance sheet of Volkswagenwerk AG as at December31, 1970 is characterized by two factors.

The investments which increased by more than 50%compared with the previous year have resulted in an aboveaverage rise of property, plant, equipment and investments.

In consequence of the unsatisfactory earnings situation thefinancing from own funds has not kept pace with thisdevelopment so that in the year under review a worsening ofthe balance sheet structure had to be accepted. This can beseen from the changes in our financial position which wereas follows:

Assets

Property, Plant, Equipment and InvestmentsCurrent Assets

12/31/1970

3,1962.063*)

5,259*)

in million

61%39%

100%

12/31/1969

DM

2.5572.031 *)

4.588")

56%44%

100%

Liabilities

Stockholders' Equity (Capital Stock and Reserves)Liabilities payable within:

more than 4 years1 to 4 years1 year or less

2,412

651417

1,779

46%

12%8%

34%

2.386

455391

1.356

52%

10%8%

30%

5,259*)

*) Current assets and balance sheet totals were decreased by the amount shownunder liabilities as allowance for doubtful trade acceptances and accounts.

4,588*) 100%

In keeping with the increase in balance sheet totals byDM 671 million the net book value of property, plant,equipment and investments went up by DM 639 million andcurrent assets rose by DM 32 million. Liabilities increasedby DM 645 million with due consideration given to theproposed dividend. Short-term liabilities rose to a greaterextent than long-term and medium-term liabilities. Stock-holders' equity and long-term liabilities covered property,plant, equipment and investments and also part of theinventories.

23

100%

Balance Sheet

The sources and uses of funds statement shown below dis-closes that due to the large scale investments the liquidfunds were reduced.

1970 1969

Sources of Funds

Increase in stockholders' equity:Portion of earnings addedto reservesPortion of earnings addedto reserves for special purposes

in million

24

2

DM

177

18

Provision for depreciation of physicalplant, write-down of investmentsin subsidiaries and affiliates, andwrite-down of long-term loans re-ceivable (net of accummulateddiscount)

Decrease in property, plant,equipment and investments

Decrease in short-term receivables

Increase in liabilities (includingundetermined liabilities):Long-term liabilitiesShort- and medium-term liabilities

575

50

28

196449

1.324

533

32')

-

29369

1,158

Uses of Funds

Increase in property, plant,equipment and investments

Increase in inventories

Increase in medium- and short-termreceivables

Decrease in Liquid Funds

1,264

249

1.'".13

189

845*)

129

226

1.200

42

Assets

During 1970, the additions to Property, Plant and Equip-ment of DM 935 million were DM 321 million higher com-pared to the previous year. Our major investments havebeen described in the "Capital Investments" section ofthis report (see page 14). The additions to land, buildings,machinery and equipment, including transfers fromconstruction in progress and advance payments to vendorsand contractors, amounted to DM 918 million and consistedof the following:

DM 291 million land and buildings

- comparedtoDM181 million in 1969 -

and

DM 627 million machinery and equipment- compared to DM 307 million in 1969.

At year-end, the book value of DM 2,504 million, shownon the balance sheet for property, plant and equipment,represents 39% of the original purchase or productioncost of DM 6.477 million. These amounts exclude miscel-laneous low value items as such items were written off inthe years of acquisition.

The original cost of property, plant and equipment is thepurchase or the production cost possibly plus the use taxin accordance with section 30 of UStG (investment tax).Production costs consist of direct material, direct labor andthe appropriate amount of allocated overhead, includingdepreciation as required by existing tax laws. Administrativeexpenses are not included. Additional investments whichwere made last year have been deducted from property,plant, equipment and investments in this year's balancesheet where subsidies have been granted or grants madefrom public funds since these have reduced the purchaseor the production cost. Advance payments to vendorsand contractors are the actual amounts disbursed.

Regular depreciation on plant and equipment was pro-vided for using the straight-line method and, to the extentpermissible for tax purposes, using the declining-balancemethod (which will be converted to the straight-line methodin the future). Additions during the report year have beendepreciated with the full, half or proportional annualrate in accordance with present tax regulations. We havenot given up using the declining-balance method inour trade balance although the second tax law enacted tostimulate the economy would allow us to do so becausewe feel that the declining-balance depreciation is moreexact. The use tax will be depreciated separately over thelife of the asset using the declining-balance method. Asin prior years, miscellaneous low value items were writtenoff in the year of acquisition.

•) Decreased by DM 160 million representing receipt of AUDI NSU capital stock inexchange for our interest in AUTO UNION, now liquidated.

24

The rates for regular depreciation are based on the followingestimated useful lives:

BuildingsBuildings used for research and

development and land improve-ments

Production machinery and powerproducing machinery

Plant and office equipment

mainly 30-50 years

mainly 10-18 years

mainly 7-14 yearsmainly 2- 8 years

During 1970, for the most part, additional depreciation wasprovided for to take full advantage of existing tax benefits.This consisted primarily of increased depreciation onplant and equipment completed, under construction orfor which advance payments have been made to vendorsand contractors and which are used in research anddevelopment.

The following summary shows additional details of the 1970depreciation provision:

The balance of approximately DM 2 million representedthe contribution to the increased capital stock of Volks-wagen de Mexico S. A. de C. V., Puebla/Pue. and ourinvestments in P. T. German Motor Manufacturing,Djarkarta/lndonesia and Weser-Ems-Vertriebsgesellschaftm. b. H., Bremen.

When it was customary to make write-downs of invest-ments for the period up to the end of 1966 this practicewas continued in accordance with section 14, paragraph 2of stock corporation law preliminary legislation (EG AktG).As from 1967, the current year's foreign investments werewritten down to take full advantage of the tax benefitsavailable on investments made in developing countries, inaddition to the write-downs permitted for tax purposesand in view of the economic risks inherent in long-terminvestments in overseas countries.

Other Investment Securities consist of 5% West GermanGovernment Bonds for the Promotion of Developing Coun-tries. The fourth repayment on the bonds, amouting to

straight-line*)

Regular depreciationdeclining-balance

directwrite-off

Additionaldepreciation Total

Depreciationon additionsduring 1970

Addit ions")during 1970

Thousand DMOwned land and land with land rights

with office and factory buildingsand other structures

with apartmentswithout buildings

Buildings on leased landMachinery and fixturesPlant and office equipmentConstruction in progressAdvance payments to vendors and contractors

Total

*) Including modified straight-line depreciation inaccordancewithalaw with respectto the method of depreciating buildings.**) Additions and transfers from construction in progress and advance payments tovendors and contractors on machinery and equipment.

59,874923

_1,925

164.165118,491

—-

345,378

42,231__

59174,534

5,269_-

122,625

____

27,197_-

27,197

10,803136157

_7,032

68719,800

1,700

40,315

112,9081.059

1572.516

245,731151,644

19,8001,700

535.515

35.0956

15775

66,73468.4171 9.800

1.700

191.984

284,218351499

1.751424.092202,531

58.4453.400

975.287

All items of property, plant and equipment are free of liensand encumbrances.

Under the caption Investments, the book value ofInvestments in Subsidiaries and Affiliates increased byDM 179 million. The additions of DM 196 million con-sisted of:

DM 178 million purchase of stock ofAUDI NSU AUTO UNION AG.Neckarsulm,

DM 10 million acquisition ofSelbstfahrer Union, Hamburg,

DM 6 million contribution to the increased capital stockof Volkswagen do Brasil S. A., Sao Ber-nardo do Campo.

DM 2.5 million was received in 1970. The value shown onthe balance sheet for these securities is below market value.DM 6.5 million par value of these bonds were pledgedas collateral in favor of various Customs Authorities assecurity for the continuous processing of imported goods.

During 1970, the total of Long-term Loans with an InitialTerm of Four Years or Longer increased to DM 433 million.These loans were granted, as in previous years, primarilyfor housing construction. Interest-free and low interest-bearing loans have been discounted to reflect present va-lues, all other loans are shown at face value.

Of the loans made in accordance with section 89 of AktG,DM 10,842,437 represent loans to an unaffiliated nonprofithousing construction company, located in Wolfsburg, inwhich Volkswagenwerk AG holds a minority interest.

25

Write-downs pertaining to current year's additions to invest-ments amounted to DM 34 million, of which DM 26 millionrepresents amounts discounted with respect to loansgranted during 1970.

As a result of our expanded product line, the book value ofInventories increased.

Liabilities

The Capital Stock was increased to DM 900 million bytransferring DM 150 million from other reserves in accord-ance with the resolution of last year's annual meeting ofstockholders.

During 1970, the Legal Reserve remained unchanged.

Raw materials and supplies were valued, at current, averagepurchase costs or lower replacement costs deducted bywrite-downs permitted for tax purposes. Work in processinventories and finished products were valued using pro-duction costs which consisted of the average purchase costof raw materials, direct labor and the production overheadswhich must be capitalized in accordance with existing taxregulations. In previous years, however, the fixed overheadsincluded in the production overheads especially depre-ciation were not taken into consideration when the inven-tories were valued. Goods purchased for resale were valuedon the same basis as raw materials and supplies. Slow-mov-ing parts inventories were written down to the extentallowable for tax purposes.

Trade Accounts Receivable represent DM 76 million duefrom customers in foreign countries and DM 24 milliondue from customers located in the Federal Republic ofGermany. Subsequent to December 31, 1970, all materialamounts were collected when due.

The portfolio of Securities increased by DM 33 millionto DM 42 million, particulary due to the purchase of de-benture bonds in order to obtain interest from investmentof liquid funds. Values have, where necessary, been cal-culated at the rate valid at the end of the year.

Receivables from Subsidiaries and Affiliates decreasedby DM 73 million to DM 115 million. Most of these werereceivables due from abroad. Where appropriate, lowervaluations were placed to a minor degree on receivablesin view of the inherent risks relating to the rate of exchange,currency transfers and other potential losses.

Miscellaneous Other Current Assets consist mainly ofclaims, the exact amounts of which could not be deter-mined at the balance sheet date, in respect of excesspayments of corporation and business profit tax, invest-ment surcharges in accordance with the amended tax lawof 1969, sales tax refunds and repayable advance taxpayments. These assets also include loans which stillhave more than one year to run and these loans have showna two third decrease on the previous year's figure. Doubt-ful accounts were minor in amount and have beenwritten off. The advance tax payments have been dis-counted to reflect present values.

The Reserve for the Share-the-Burden Property Levy re-presents the discounted amount of this liability as ofDecember 31, 1970.

After the elimination of reserves as required by law theincrease in Reserves for Special Purposes primarily pertainsto the current year's investment in developing countriesand to the increase in the contingency reserve.

The increase in the Allowance for Doubtful Trade Accept-ances and Accounts, determined in the same manner as inthe prior year, is due to the raised trade receivables andtrade acceptances.

Changes in Undetermined Liabilities were as follows:

Balance January 1, 1970Amount usedEliminations

Additions

Balance December 31. 1970

DMDMDM

DMDM

DM

1,038 million355 million

99 million

584 million585 million

1,169 million

Undetermined liabilities in respect of pension plan costs,which were based on actuarial computations in accordancewith existing tax laws, obligations towards the employeesand taxes increased during 1970. Undetermined liabilities inrespect of distribution costs especially for warranties anddiagnoses remained unchanged as compared with theprevious year.

Undetermined liabilities of DM 7 million for maintenancework which could not be performed in 1970 for technicalreasons were established at the end of 1970. Undeterminedliabilities to the amount of DM 15 million were used formaintenance work performed during the year under review.

Of the undetermined liabilities shown on the balance sheet,approximately

DM 548 million can be considered relatingto long-term liabilities

DM 189 million as medium-term liabilities, andDM 432 million are of a short-term nature.

26

Liabilities with an Initial Term of Four Years or Longerfurther decreased as a result of the repayment of loans on aninstallment basis. At December 31, 1970, long-term loansconsisted of:

DM 56 million 5%% per annum plant improvement loan ofDM 150 million, which was received in theyears 1961 through 1963, to be repaid in8 equal annual installments commencing in1966.

DM 50 million loan granted to us by the State of LowerSaxony. The loan is to be repaid by themiddle of 1980 at an interest rate equal tothe prevailing German Federal Bank dis-count rate.

We were contingently liable for DM 16,800,000 in con-nection with the purchase of shares of domestic companieswith limited liability. This amount is in addition to theContingent Liability with respect to Discounted TradeAcceptances shown on the balance sheet.

DM 5 million balance of DM 6 million loan and aDM 1.5 million loan granted to us in 1964and 1969 respectively, by the FederalAgency for Employment to construct hous-ing for our foreign workers. The loans are tobe repaid within 10 years commencingin 1966 and 1969 respectively, and bearinterest at the rate of 2 %% per annum.

DM 4 million loan granted to us in 1970 by the FederalRepublic of Germany for setting up sidingsin the Salzgitter plant. This loan bears nointerest and is to be repaid in ten equalannual installments commencing in 1973.

The increase in Trade Accounts Payable resulted from theincreased purchases made. Of the total trade accountspayable at December 31, 1970, approximately 18% re-presents acquisition of property, plant and equipment.

Due to Banks resulted from executing a temporary loan at afavorable interest rate.

Prepayments by Customers of DM 9 million were receivedin respect of domestic transactions and DM 7 million re-present advance payments received from foreign importers.

The increase in Accounts Payable to Subsidiaries andAffiliates resulted mainly from advance payments receivedfrom foreign subsidiaries.

Miscellaneous Other Liabilities increased by DM 154 mil-lion mainly as a result of a loan obtained by Volkswagen-werk AG in connection with the construction of the newplant near Salzgitter and of higher payroll accruals.

27

Statement of Earnings

As a result of the increased sales the Gross Output went upby 8% to DM 10,138 million.

The ratios of selected cost, expense and earnings data togross output were as follows (1969 ratios in parantheses):

Cost of Materials 57.3% (54.5%)

Labor Cost 26.0% (22.4%)

Depreciation and Write-downof Investments 5.7% (5.7%)

Taxes 2.6% (7.7%)

Sundry Expenses lessSundry Income 6.5% (6.2%)

Net Earnings 1.9% (3.5%)

In 1970, Sales increased by DM 675 million toDM 9,913 million. This was due, despite thefactthatthesalesvolume was roughly the same, to price increases, the ex-tension of domestic business, the larger ratio of moreprofitable models and to the higher turnover of parts.Domestic sales increased by 18%, whereas export saleswere 2% higher than in 1969. The ratio of vehicle sales tototal sales was 81 % whereas the corresponding ratio forparts amounted to 11 %.

28

Expenditures for Raw Materials, Supplies and OtherMaterials exceeded those of the prior year by DM 694 mil-lion or 13.6%. Expenditures for raw materials increased by13.8% over 1969. This rise was due to the fact that ap-proximately the same number of vehicles was producedwhereas the prices of raw materials rose and our modelrange was extended.

Income from Profit Assumption Agreements resulted onlyfrom the transfer of the 1970 operating profit of a domesticsubsidiary.

Income from Investments in Subsidiaries and Affiliates wasreceived in 1970 in the form of distribution of dividendsfor the year 1969 primarily from Wolfsburger Transport-gesellschaft. AUDI NSU, Volkswagen-Finanzierungs-gesellschaft and our subsidiaries in the USA, Brazil andSouth Africa.

At year-end, DM 14 million of Income from Other FinancialInvestments resulted from interest on loans granted where-as DM 4 million of this income represented amortizationof discount on long-term loans previously discounted toreflect present values.

The decrease in Taxes on Income, Earnings and Property byDM 289 million was caused mainly by lower net earningsand in addition by time variations between trade and taxbalance sheets.

The decrease in Other Taxes is solely the result of taxes onexports levied only during the previous year in accordancewith the law on measures to protect the economy frominfluences from abroad.

Expenditures under Loss Assumption Agreements wereincurred by assuming the operating losses of VW-Sied-lungsgesellschaft, VW-Porsche Vertriebsgesellschaft andDeutsche Automobilgesellschaft.

More than half of Other Expenses was incurred for thedistribution of our products and consisted mainly of ship-ping costs and advertising and sales promotion costs.

Compensation to Management for the year 1970 amountedto DM 4,329,101. Pension payments to retired members ofmanagement or their surviving beneficiaries amounted toDM 979,075. Compensation paid to Members of the Boardof Directors was DM 286,990.

Other Interest and Similar Income consisted mainly ofincome from bank balances.

Elimination of Reserves for Undetermined Liabilities NoLonger Required resulted primarily from lower require-ments for warranty obligations, taxes and pending law-suits in previous years.

Other Income resulted, for the most part, from revenuesfrom auxiliary services, taxes rebilled to subsidiaries andaffiliates with whom tax assumption agreements existedand billing of services.

The reasons for the DM 520 million increase in expendituresfor Wages and Salaries and Social Expenditures - com-pulsory were stated in the "Labor Force" section of thisreport (see page 12).

As in the prior year, the major single item of PensionExpenditures and Voluntary Payments consists of chargesfor future and present pension payments.

Specific explanations have already been presented inappropriate sections of this report in connection with theProvision for Depreciation of Physical Plant, the Write-down of Financial Investments and the Write-down ofCurrent Assets and Provision for Doubtful Trade Accept-ances and Accounts.

As in prior years. Interest Expense and Similar Chargesresulted, for the most part, from long-term loans.

29

Comments on the ConsolidatedFinancial Statements ofVolkswagenwerk AG and itsDomestic Subsidiaries

The consolidated financial statements include, in additionto Volkswagenwerk AG, the following domestic subsidi-aries:

AUDI NSU AUTO UNION AG, Neckarsulm,Volkswagen-Finanzierungsgesellschaft m.b. H., Wolfsburg,

Auto Union Kredit G.m.b. H., Ingolstadt,Wolfsburger Transportgesellschaft m.b. H., Wolfsburg,Volkswagen Leasing G.m.b.H., Wolfsburg,Autovermietung Selbstfahrer Union G.m.b.H., Hamburg,Selbstfahrer Union G.m.b.H. & Co. KG, Hamburg,

Autohaus Globus G.m.b.H., Hamburg,Selbstfahrer Vermietungs-G. m. b. H., Hamburg,DIRANUS Versicherungs-Vermittlungs-G. m. b. H.,Hamburg,

VW-Siedlungsgesellschaft m.b. H., Wolfsburg, andVW-Wohnungsbau Gemeinnutzige Gesellschaft m.b.H.,

Wolfsburg.

In addition, Volkswagenwerk AG holds a direct or indirectinvestment of more than 50% in two other domestic sub-sidiaries which, however, as in prior years, were excludedfrom the consolidated statements.

Auto Union G.m.b.H., Munich was not included becauseit only exists in law and has not conducted any businesssince being organized, and Auto Union Ersatzteile-General-depot E. Frankenbach G.m.b.H., Hamburg, was excludedbecause the company's sales are immaterial in comparisonto the consolidated balances.

The NSU Vertriebsgesellschaft m.b.H., Neckarsulm whichwas included in the consolidated statements for the prioryear was converted to AUDI NSU AUTO UNION AG in1970.

For the first time Selbstfahrer Union G.m.b.H. & Co. KGand Autovermietung Selbstfahrer Union G.m.b. H. as wellas their subsidiaries Autohaus Globus G.m.b.H., Selbst-fahrer Vermietungs-G.m.b.H. and DIRANUS Versiche-rungs-Vermittlungs-G.m.b. H. which had been acquiredduring the year under review were included in the consoli-dated statements.

The balances shown in the consolidated financial state-ments for assets and liabilities were determined in accord-ance with the regulations governing the year-end closingof a stock corporation.

Although not required by corporation law, the consolidatedstatements show the changes which took place in property,plant, equipment and investments. The consolidated state-ment of earnings is prepared in detail and includes the sub-sidiaries mentioned previously.

In the consolidated financial statements, the book values ofinvestments in consolidated companies were set offagainst the corresponding year-end capital stock and re-serve balances of the subsidiaries and the difference result-ing therefrom was transferred to adjustment items arising

from capital consolidation. In order to improve the clarityof the consolidated balance sheet we have for the first timeshown the other adjustment items arising from consoli-dation, which previously considerably increased the netearnings brought forward from previous year in the con-solidated financial statements in particular and thereforeaffected its clarity, as a special item on the liabilities side ofthe consolidated balance sheet. What is involved are mainlythe differences resulting during the consolidation of theliabilities from the write-down of housing constructionloans granted by Volkswagenwerk AG to VW-Wohnungs-bau and VW-Siedlungsgesellschaft, net earnings whichwere distributed by consolidated companies to the parentcompany and the write-down of internally supplied in-ventories and equipment to production cost of Volks-wagenwerk AG and its domestic subsidiaries. The relativefigures for last year have been calculated and are quotedfor comparison purposes. Minority interest in stockholders'equity of AUDI NSU is shown as "Minority interest inAUDI NSU AUTO UNION AG". The minority interest ofour Swiss subsidiary, HO LAD, in the net assets of ourdomestic subsidiary, Wolfsburger Transportgesellschaftm. b. H., is included as "Minority Interest of UnconsolidatedSubsidiaries in Consolidated Subsidiaries" in the consoli-dated balance sheet. Reserves of VW-Wohnungsbau areincluded in consolidated undetermined liabilities becauseof the legal restrictions regarding the disposition of stock-holders' equity of this type of nonprofit company.

30

Consolidated Balance Sheet

As in prior years, the consolidated financial position wassignificantly affected by the balance sheet of Volkswagen-werk AG. A comparison of the condensed consolidatedbalance sheet for 1970 and 1969 follows:

Assets

Property, Plant, Equipment and InvestmentsCurrent Assets

12/31/1970

3,7472,830*)

6,577*)

Million DM

57%43%

100%

12/31/1969

3.0732,662(

5.735

*)

• )

54%46%

100%

Liabilities

Stockholders' Equity (including minority interests)

Liabilities payable within:more than 4 years1 to 4 years1 year or less

2,594

6,577*)

39%

100%

2,748

5.735')

48%

937463

2,583

14%7%

40%

718430

1,839

13%7%

32%

100%

*) Currant assets and balance sheet totals were decreased by the amount shownunder liabilities as allowance for doubtful trade acceptances and accounts.

Stockholders' equity and long-term liabilities covered pro-perty, plant, equipment and investments and also part ofthe inventories.

Compared to December 31, 1969, the significant changesin the current year's consolidated financial statementsresulted mainlyfrom the changes in the financial position ofVolkswagenwerk AG, previously discussed. The followingmust be observed:

Compared to 1969, the book value of Property, Plant andEquipment increased by DM 574 million to DM 3,434 mil-lion, as a result of DM 1,287 million of additions lessDM 732 million of provision for depreciation and disposals,plus DM 19 million representing the book value, as ofJanuary 1, 1970, of property, plant and equipment of theSelbstfahrer Union companies. Amounts pertaining toSelbstfahrer Union companies have been included in theconsolidation for the first time. Of the total amountinvested during 1970,73% and 17%, respectively, pertain to

Volkswagenwerk AG and AUDI NSU. At year-end, thebook value of property, plant and equipment represented44% of original cost of DM 7,889 million.

Investments increased by DM 101 million which consistedprimarily of long-term loans granted by Volkswagenwerk AG.

Higher inventory levels in connection with our expandedproduct line, particularly with regard to raw materials andproducts, caused a DM 321 million increase in Inventoriesto DM 1,307 million. Of the total inventories, DM 528 mil-lion are represented by raw materials and supplies,DM 404 million by work in process and DM 375 million byfinished products and goods.

Receivables increased by DM 49 million to DM 871 million.Of this total, DM 463 million pertain to Volkswagenwerk AG,DM 263 million to our financing companies, DM 109 mil-lion to AUDI NSU and DM 36 million to the other domesticsubsidiaries.

31

During 1970, Liquid Funds decreased by DM 201 million toDM 661 million, this decrease being mainly due to the largeinvestments made during the year under review. The sourcesand uses of funds are shown in the following statement:

Sources of Funds

Increase in stockholders' equity _ 359

1970 1969

in million DM

Provision for depreciation ofphysical plant and write-downof investments (net ofaccumulated discount)

Decrease in property, plant.equipment and investments

Increase in liabilities(including undeterminedliabilities):

Long-term liabilitiesShort- and medium-termliabilities

689

69

219

111

1.754

639

44

91

551

1.684

Uses of Funds

Decrease of stockholders' equitythrough change to adjustmentitems arising from capitalconsolidation (see below), etc. 154

Increase in property, plant, equipmentand investments (includingamounts, as of January 1, 1970,of Selbstfahrer Union companies) 1,432

Increase in inventories 321

Increase in medium- and short-termreceivables*)

Decrease in Liquid Funds*)

48

1,198269

362

1,955 1.829

201 145

A debit balance is shown in respect of the AdjustmentItems arising from Capital Consolidation for the year underreview because the acquisition price of the AUDI NSUstock purchased and the purchase price for the Selbst-

*) with due consideration given to the allowance for doubtful trade acceptancas andaccounts.

fahrer Union companies were above the balance sheetrating of these companies. The adjustment item arisingfrom capital consolidation with regard to Volkswagen-Finanzierungsgesellschaft and Volkswagen Leasing was setoff against the debit balance mentioned above. For balancesheet purposes this item is in the nature of a good will.

The main items amongst Other Adjustment Items are thedifferences, amounting to DM 139 million and resultingduring the consolidation from the write-down of housingconstruction loans granted by Volkswagenwerk to VW-Wohnungsbau and VW-Siedlungsgesellschaft and the netearnings to the amount of DM 54 million which weredistributed by consolidated companies to the parent com-pany. The adjustment items concerning the net earnings forthe current year are shown under the statement of earningsitem "Transfer to the adjustment items arising from con-solidation - Other adjustment items".

The purchase of additional AUDI NSU stock by Volkswagen-werk AG which effected a change in its interest in thiscompany resulted in a corresponding decrease of MinorityInterest in AUDI NSU AUTO UNION AG by DM 57 millionto DM 88 million.

Reserves for Special Purposes increased by DM 3 millionto DM 115 million, of which DM 48 million is by way ofequity capital.

The Allowance for Doubtful Trade Acceptances andAccounts includes for the first time a collective adjustmentof the financing companies Volkswagen-Finanzierungs-gesellschaft and Auto Union Kredit. Comparative figureshave been calculated for the previous year.

Undetermined Liabilities increased by DM 195 million over1969. Pension Plan Costs, of which 92% are accrued byVolkswagenwerk AG, were, as in prior years, based onactuarial computations in accordance with existing taxlaws. Other Undetermined Liabilities consist mainly ofdistribution costs, personnel costs, and pending taxes.

Of the total Trade Accounts Payable. DM 762 million,which represented the main item, and DM 165 million,respectively.pertaintoVolkswagenwerkAG and AUDI NSU.

More than half of the liabilities Due to Banks were takenup by refinancing credits of our financing companies.

In addition to the contingent liabilities shown on the balancesheet, other Contingent Liabilities amounted toDM 7,945,475 in connection with the purchase of sharesof domestic companies with limited liability and the ad-ditional capital contribution to be made to two foreignsubsidiaries. Of the total other investment securities,DM 6.5 million par value bonds were pledged as collateralin favor of various Customs Authorities as security foruninterrupted clearance of imported goods.

32

Consolidated Statement of Earnings

As in previous years, Volkswagenwerk AG's operating re-sults significantly affected the consolidated net earnings.Consequently, the comments on the statement of earningsof Volkswagenwerk AG are pertinent, for the most part, tothe consolidated statement of earnings. The expensesincurred and the income accrued by the Selbstfahrer Unioncompanies in 1970 and which have been included in theconsolidated financial statements for the first time arerelatively low and do not constitute a major hindrance to acomparison with the previous year.

The ratio of selected cost, expense and earnings data togross output, which amounted to DM 12.171 million in1970 compared to DM 10.953 million in 1969. was asfollows:

Cost of materialsLabor costDepreciation and write-down of investmentsTaxesSundry expenses less sundry incomeNet earnings

7,1983.189

690297594203

1970

59.1 %26.2%

5.7%2.4%4.9%1.7%

Million DM

6.2342,528

641767444339

1969

56.9%23.1 %

5.8%7.0%4.1 %3.1 %

Consolidated net earnings of the domestic subsidiaries ofDM 203 million were DM 13 million higher than net earn-ings of Volkswagenwerk AG. This difference is primarilydue to the exclusion from consolidation of the expenseincurred by Volkswagenwerk AG for the discounting ofhousing construction loans which were granted by Volks-wagenwerk AG to its domestic subsidiaries.

Insofar as consolidated subsidiaries distribute earnings tothe Volkswagenwerk AG further taxes amounting to amaximum of DM 16 million are payable from the earningsreceived by Volkswagenwerk AG.

33

Proposed Distribution of NetEarnings for 1970

Management proposes to dispose of net earnings as follows:

Distribution to stockholders DM 166,500,000

- this represents a 18.5 % dividend onthe capital stock, or DM 9.25on DM 50 par value of capital stock

Carry forward the balance ofNet earnings after reserve transfers

DM 280,239DM 166.780,239

Wolfsburg. April 1971

The Management

34

Report of the Boardof Directors

During the year under review, Management has kept theBoard of Directors currently informed as to the status of thecompany and its business activity. By these means, theBoard of Directors was able to exercise continuous controlover the conduct of the business.

The financial statements, the annual report, and the auditreport of the Deutsche Revisions- und Treuhand-Aktien-gesellschaft, Treuarbeit, Hanover, were reviewed by theBoard of Directors. The auditors expressed unqualifiedapproval of the financial statements of the Company. TheBoard of Directors approves the audit report and statesthat its own review of the financial statements and annualreport disclosed no exceptions.

The Board of Directors has approved the yearly report pre-pared by Management, which is hereby confirmed. TheBoard of Directors has examined and concurs with theproposal of Management concerning the distribution of netearnings available for distribution.

The Board of Directors has reviewed the consolidat-ed financial statements of Volkswagenwerk AG and itsdomestic subsidiaries, the comments thereon, and theauditor's report.

On July 9, 1970 the State of Lower Saxony delegatedMr. Helmut Greulich, Lower Saxony Minister of Economicsand Public Works and Prof. Dr. Siegfried Heinke, LowerSaxony Minister of Finance to replace Messrs. Karl Mollerand Alfred Kubel as members of the Board of Directors inaccordance with section 1 2 of the charter. The Board ofDirectors expresses its thanks to Mr. Moller and Mr. Kubelfor their many years of service and for their valuable counsel.

On December 31, 1970 Mr. Frank Novotny retired from theBoard of Management after many years of distinguishedand valuable service.

Wolfsburg, April 1971

Chairman of the Board of Directors

35

Volkswagenwerk AktiengesellschaftBalance Sheet December 31,1970

Assets

Property, Plant, Equipment and Investments

A. Property, plant and equipmentReal estate and land rights

with office, factory and other buildingswith residential buildingswithout buildings

Buildings on leased real estateMachinery and fixturesPlant and office equipmentConstruction in progressAdvance payments to vendors and contractors

B. InvestmentsInvestments in subsidiaries and affiliatesOther investment securitiesLong-term loans receivable with an initial term

of four years or longerFace value at 12 /31 /70 DM 432.852,187including secured by mortgages

DM 223.966,094subsidiaries and affiliatesDM 187.696.892loans in accordance with section89 AktG DM 11,121.205

Jan. 1,1970

DM

1,131.821,12814,301.75437.493.69120.331.740

520.644.972141,088,368240.994.46240.264.546

2.146,940.661

240.074.78615.443.751

154.704,129

410.222,666

2.557,163.327

Additions

DM

171,900,278383.948

2.874.2001.180.854

365.084.543153.003.584209.278.535

30.803.178

934,509.120

196.239.528

133,386.638

329.626.166

1.264.135.286

Current Assets

A. InventoriesRaw materials and suppliesWork in progressFinished products

B. Other current assetsAdvance payments to suppliersTrade accounts receivable

including amounts due in more than one year DM 6.281,148Trade acceptancesCash on hand, including post office checking account balancesCash in banksSecuritiesReceivables from subsidiaries and affiliates

including amounts for goods and services rendered DM 43.288.999Miscellaneous other current assets

Deductions

DM

6.093.47086.774

535.94941.224

4.437.0222.476.369

25.865.8772.321.973

41.858.658

2.206,250

5,642,220

7,848.470

49.707.128

Transfers

DM

118,393.5207.240

- 3.932,972570.453

59.082.83549.485.505

-188.689.143- 34.917.438

—

—

—

—

Accumulationof Discount

DM

—

3.277.495

3.277,495

3,277.495

DM

416.575.834344,826.005257.904,526

2.721.716100.356.996

2.698.872675.126

529.218.36441.772.424

115.091.962

256.199.397

Provision forDepreciation

DM

112.907.9691.058.941

157.3952.515,917

245.731,041151.643.295

19.800.0001.700.000

535,514,558

17,248.473

25.824,698

43,073,171

578.587.729

DM

1.019.306.365

1.048.734.857

Prepaid and Deferred Expenses

36

Dec. 31, 1370 Dec. 31.1969

Liabilities

Dec. 31. 1970 Dec. 31.1969

DM

1.303.113.48713.547.22735.741.57f.19.525.906

694,644,287189.457.793215.917,977

32,128.313

Thousand DM

1.131.82114.30237.49420.332

520.645141.088240.99440.264

2,504.076,565

419.065,84113.237.501

259.901,344

692.204.686

3,196,281.251

2.068.041,222

75,?44

2.146.940

240,07515.444

154,704

410.223

2.557.163

336.334236.868196.460769.662

1.81872.950

8.367627

746.4828.769

187.813

238.2661.265.092

2.034.754

124

Capital Stock

Reserves

Legal reserveReserve fortheShare-the- Burden Property Levy

Jan. 1. 1970Transfer to earnings

Other reservesJan. 1. 1970Transfer for increase of capital stockTransfer from 1970 earnings

DM

20.943.0001.875.000

1.335.125.578150.000.000

26.000.000

Reserves for Special Purposes

Reserve for investments in developing countries inaccordance with section 1 of the tax law

Reserve for price increases in accordance with section 74of EStDV

Allowance for Doubtful Trade Acceptancesand Accounts

Undetermined Liabilities

Old-age pensionsOther undetermined liabilities

Maintenance not performed during current yearWarranties without legal obligationOther

Liabilities with an Initial Term of Four Years or Longer

Due to banksOther liabilities

including amounts due within four years DM 63,509.774

Other Liabilities

Trade accounts payableDue to banksPrepayments by customersAccounts payable to subsidiaries and affiliates

including trade accounts payable DM 10,065.298advance payments received DM 114,390,012

Miscellaneous other liabilities

Deferred Income

Net Earnings after Reserve Transfers(Available for Distribution)

Share-the- Burden Property LevyPresent discounted amount DM 19,067,288Quarterly installment DM 689,021

Contingent liabilities with respect totrade acceptances DM228.319.569

DM

233.799.000

19.068.000

1.211.125.578

105.134.663

8.896.338

475.318.570

7.000.0003,166,000

683,809,455

22,200,00092.773,195

761,697,20832,877.00015.990.025

140.744.671

378.457.016

DM900.000.000

1.463.992.578

114.031.001

5.153.000

1.169,294.025

114.973.195

1.329.765.920

407,759

166.780.239

Thousand DM750.000

233.799

20.943

1.335.1261.589.868

102.813

7.176109,989

4.133

397.078

15.0003.774

621.7661.037.618

29.600100.650130.250

546.766

9.34522.338

224.463802.912

355

166.916

5.264.397,717 4.592.041 5.264,397.717 4.592.041

37

Statement of Earningsof Volkswagenwerk AGYear ended December 31. 1970

Sales(excluding sales tax)Increase in inventories

Material, wages and overhead capitalized as additions to plant and equipment

Gross Output

Expenditures for raw materials, supplies and other materials

Excess of Gross Output over Expenditures for Raw Materials, etc.

Income from profit assumption agreementsIncome from investments in subsidiaries and affiliatesIncome from other financial investmentsOther interest and similar incomeGain on disposal of property, plant, equipment and investmentsElimination of reserves for undetermined liabilities no longer requiredOther income

including extraordinary income of DM 11,418,286

Wages and salariesSocial expenditures - compulsoryPension expenditures and voluntary paymentsProvision for depreciation of physical plantWrite-down of financial investmentsWrite-down of other current assets and provision for

doubtful trade acceptances and accountsLoss on disposal of property, plant, equipment and investmentsnterest expense and similar charges

Taxesa) on income, earnings and property DM 262,192,270b) other DM 2,391,940

Share-the-Burden Property LevyExpenditures under loss assumption agreementsAdditions to reserves for special purposesOther expenses

Net Earnings

Balance carried forward

1970

DM

9,912.843,888115.670,116

660.37278.819.69018.363.97999.006.290

3.756.61998.853.956

106,467.104

2.286.907,710253.384.815

94.065,185535.514,558

43,073,171

9,395.0411,767.744

41.245.027

264.584,2102.756,0867,444,3034.042,235

997.346.127

DM

1O.O?8.51 4,004109,813,716

10.138.333,720

5.317.246.211

4.326.087.509

405.928,010

4,732.015,519

4,541,526,212

190,489,307

190.489,307

1969

ThousandDM

9.237.87674,964

9,312.84076.472

9.389.312

5.118.598

4.270.714

50187.087

5.54081.081

2.39543.744

110.878

331.226

4.601.940

1.816.145204.516

81.547432,219103,773

15.2071.564

22.270

551.037167.761

2.7568.160

43.422821.321

4.271.698

330,242

330.242

38

Balance brought forwardNet earnings brought forward from previous yearTransfer from the reserve for the Share-the-Burden Property Levy

Transfer to other reserves from net earnings

Net Earnings after Reserve Transfers

1970

DM

190,48'!.3074H).932

1.875,000

192.780,239?fi,noo,ooo

166,780.239

1969

ThousandDM

330,242

1.795

332,037165,121

166.916

During 1970, pension payments amounted to DM 7,066,724:payments during the next five years will approximate1 20, 1 36, 1 56. 1 84, 210% of this amount.

Wolfsburg, April 1971

Volkswagenwerk Aktiengesellschaft

The Management

According to our audit, made in conformity with our profession-al duties, the accounting, the annual financial statements andthe report of the Board of Management comply with GermanLaw and the Company's statutes.

Hanover, April 16.1971

Deutsche Revisions- und Treuhand-Aktiengesellschaft

Treuarbeit

Wirtschaftspriifungsgesellschaft

Steuerberatungsgesellschaft

Prof. Dr. Forster

Wirtschaftsprufer

Dr. Apelt

Wirtschaftsprufer

39

Consolidated Balance Sheetof Volkswagenwerk Aktiengesellschaft and itsDomestic Subsidiaries December 31,1970

Assets

Property, Plant. Equipment and Investments

A. Property, plant, equipment and trademarksReal estate and land rights

with office, factory and other buildingswith residential buildingswithout buildings

Buildings on leased real estateMachinery and fixturesPlant and office equipmentConstruction in progress and advance payments

to vendors and contractorsDeviative assetsTrademarks

B. InvestmentsInvestments in subsidiaries and affiliatesOther investment securitiesLong-term loans receivable with an initial term of

four years or longerFace value at 12/31 /70 DM 266,005.366including secured by mortgages

DM 72.335,295subsidiaries and affiliatesDM 15.677,738loans in accordance with section89 of AktG DM 11.208,206loans in accordance with section115 of AktG DM 12.600

Jan. 1,1970

DM

1.281.665.19931 2.422.447

60.773,26722.610.550

625.147.852217.994.311

339.754.224

2

2,860,367.852

66.583.54615.443,751

1 30.504,392

212,531,689

3.072,899.541

Jan. 1.1970Companiesincluded forthe first time

DM

15,170

——

18,983.626

—21.333

—

19.020.129

59.282—

313.523

372,805

19.392,934

Current Assets

A. InventoriesB. Other current assets

Advance payments to suppliersTrade accounts receivable

including amounts due in more than one year DM 8,035.240Trade acceptances

including acceptances discountable at German Federal Bank DM 612.045acceptances due from subsidiaries and affiliates DM 66,780

Checks on handCash on hand, including German Federal Bank and post office

checking account balancesCash in banksSecuritiesReceivables from subsidiaries and affiliates

including amounts for goods and services rendered DM 48,477.699Loans receivable in accordance with section 89 of AktGLoans receivable in accordance with section 115 of AktGMiscellaneous other current assets

Prepaid and Deferred ExpensesDiscount on loans payableOther

Additions

DM

232.497,85731,717,78014.260.271

2.676,901411.455,874280.869.195

313.586.160

—

1,287,064,038

21,413.341—

104.010.632

125.423.973

1.412,488,011

Deductions

DM

6,244.011271.154

2.578.875390.035

4.222.74420.051.911

28.264,046.

—

62.022.776

1.0002.206.250

4.632.358

6,839,608

68.862.384

Transfers

DM

140.079.9211.889.224

— 4.532.476540.235

72.919.09859,672,173

—270.568.175

—

—

182.975

— 182.975

—

—

Provision forDepreciation

DM

120.392.61310.708.363

157.3942.858,158

285.591.600229.330.860

21.500.00016.133

1

670.555.122

17.262,263

748.438*;

18.010.701*;

688.565.823*;

DM

1,307.460,310

3,862,273181.318,960

4.788.848

259.152

1.400.786612.701.787

41.772.424129.348.733

33.17513.092

545,283,903

4.613.7796.791.232

•) Reduced by Accumulation of Discount of DM 1.834.847

40

Liabilities

Dec. 31.1970 Dec. 31.1-969 Dec. 31.1970 Dec. 31.1969

DM

1,527,621.523335.049,934

67.764.79322.579.493

819.708,480328.136,534

333.008.1635.200

1

Thousand DM

1.281.665312.423

60.77322.611

625.148217.994

339.754——

3,433.874.121

70.975.88113,237,501

229.264.776

313,478.158

3.747,352.279

2.828.243.443

11.405.011

2.860.368

66,58415.444

130.504

212.532

3.072.900

985.801

3.483133,100

12.679

20

946840.498

8.769

165.569

33

512.6312.663.529

3.1604.0897.249

Capital StockReservesLegal reserveReserve for the Share-the-Burden Property LevyOther reserves

Adjustment items arising f rom consolidationCapital consolidationOther adjustment items

Minori ty Interest in AUDI NSU AUTO UNION AGincluding minority interest in net

earnings thereof DM4.141,200Minori ty Interest of Unconsolidated Subsidiariesin Consolidated Subsidiaries

including minority interest in netearnings thereof DM4,718.681

Reserves for Special PurposesReserve for investments in developing countries

in accordance with section 1 of the tax lawReserve for price increases in accordance with

section 74 of EStDVReserve for replacements in accordance with

paragraph 35 of EStR

Allowance for Doubtful Trade Acceptances and AccountsUndetermined liabilitiesOld-age pensionsOther undetermined liabilities

Maintenance not performed during current yearWarranties without legal obligationsOther

Liabilities w i th an Initial Term of Four Years or LongerDue to banks

including secured by mortgages DM 185,766.643Other liabilities

including secured by mortgages DM 108,045.345

including amounts due within four years DM 110.948,838

Other LiabilitiesTrade accounts payableDue to banksPrepayments by customersAccounts payable to subsidiaries and affiliates

including trade accounts payable DM 8,108advance payments received DM 114,244,843

Miscellaneous other liabilities

Deferred Income

Net Earnings after Reserve Transfers andMinority InterestsContingent liabilities with respect to

trade acceptances DM165.850.325Contingent liabilities with respect

to guarantees DM 1.438.464

233.799.00019.068.000

1.211.125,578

—81.378,196190.409.709

106.554.663

8.896.338

—

519.279.248

7,000.0006,766,000

823.530.163

207.994.569

202.845.213

962.548.067426.812.902

20.974.853119,850.321

439.952.542

DM900.000.000

1.463.992.578

109.031.51387.652.672

4.768.681

115,451.0019.640.110

1,356,575,411

410.839.782

1.970,138.685

3.026.336

155.883.964

6,587.000.733 5.743,678 6.587,000,733

DM ThousandDM750.000

233.79920.943

1,335.1261.589.868

52.572159.256211.828144.794

5.461

104.233

7.176

485

111.894

8.236

432.874

17.0776,060

705.312

1.161.323

206.314

202.370

408.684

685,352198.25112.2038.916

264.6221.169.344

4.146

178.100

6.743.678

41

Consolidated Statement of Earningsof Volkswagenwerk Aktiengesellschaftand its Domestic SubsidiariesYear ended December 31, 1970

Sales (excluding sales tax)ncrease in inventories

Material, wages and overhead capitalized as additionsto plant and equipment

Gross Output

Expenditures for raw materials, supplies and other materials

Excess of Gross Output over Expenditures for Raw Materials, etc.

Income from investments in unconsolidated subsidiaries and affiliatesIncome from other financial investmentsOther interest and similar incomeGain on disposal of property, plant, equipment and investmentsElimination of reserves for undetermined liabilities no longer requiredElimination of reserves for special purposes no longer requiredOther income

including extraordinary income DM 17,762,836

Wages and salariesSocial expenditures - compulsoryPension expenditures and voluntary paymentsProvision for depreciation of physical plantWrite-down of financial investmentsWrite-down of other current assets and provision for doubtful

trade acceptances and accountsLoss on disposal of property, plant, equipment and investmentsInterest expense and similar chargesTaxes

a) on income, earnings and property DM 286,849,278b) other DM 6,478,658

Share-the-Burden Property LevyExpenditures under loss assumption agreementsAdditions to reserves for special purposesOther expenses

Net Earnings

Balance carried forward

1970

DM

11.853.681.854147.297.529

24.661.27316.919.891

134.847,9108.216,194

101,218,547485,000

142.168.974

2.773.184.246310.415.102105,318,568670,555,122

19.845.548

15.108.5393.950.536

80.354.962

293,327,9363.324.0883.078.6094.042.235

916.036.422

DM

12.000.979.383

169.975.005

12.170.954.388

7.197.732.065

4,973,222,323

428.517.789

5,401.740.112

5.198,541.913

203,198.199

203.198.199

1969

ThousandDM

10.755.39280.055

10.835,447

117,547

10,952.994

6.233.961

4.719.033

41,8594.005

109.9816.147

46,592

143,452

352.036

5,071,069

2,189,061249.378

89,506536,977104.144

19,9552.862

49.594

583,002180.573

3,3245.090

44,588674.281

4.732.335

338.734

338.734

42

Balance brought forward

Net earnings brought forward from the previous year

Transfer from the reserve for the Share-the- Burden Property Levy

Transfer to other reserves

Transfer from adjustment items arising from consolidationCapital consolidationOther adjustment items

Transfer to adjustment items arising from consolidationCapital consolidationOther adjustment items

Minority interest in net earnings of AUDI NSU AUTO UNION AGconsolidated subsidiaries

Net Earnings after Reserve Transfers and Minority Interests

1970

DM

3.125.600—

22.169.606

DM

203.198.19:1

4.71 4.0'.-".?

207,912.851

1.876.000

?09.7R7.f 3:2fi.00('.(-00

183.787.851

3.1 2D.6OO

186.913.401

22.169.6064.141,2004.718.681

15!"..383.904

1969

Thousand DM

338.734

12.152

350,886

1.795

352.681165.121

187.560

3.558

191.118

1.131-

6.4765.411

178.100

Wolfsburg. April 1971

Volkswagenwerk Aktiengesellschaft

The Management

According to our audit, made in conformity with our professionalduties, the consolidated financial statements and the report ofthe Board of Management for the Group comply with GermanLaw.

Hanover, April 16.1971

Deutsche Revisions- und Treuhand-AktiengesellschaftTreuarbeitWirtschaftsprufungsgesellschaftSteuerberatungsgesellschaft

Prof. Dr. Forster

Wirtschaftsprufer

Dr. Tubbesing

Wirtschaftsprufer

43

Comparative Summary of SelectedFinancial Data of Volkswagenwerkand its Subsidiariesand Affiliates 1966-1970*)

in million DM

Assets

Property, plant, equipment and investments (as at Dec. 31)Additions during the yearDepreciation during the year***)

Current assets (as at Dec. 31) ****)including inventories of

Liabilities

Stockholders' equityincluding reserves and retained earnings )

minority interest

Liabilitiespayable within more than four years

Balance Sheet Total****)

*) Amounts for 1966 were adjust-ed to conform to AktG 1965.

••) Comparative figures for 1966.1967. 1 968 and 1969 wereadjusted to the new basis forcomparison in 1970.

* " ) Amounts for the years 1967.1968. 1969 and 1970 are notexactly comparable with thosefor 1966 because of the valu-ation requirements of the newstock corporation law.

• • " ) For the years 1968. 1969 and1970, current assets and balancesheet totals were decreased bythe amount shown under liabili-ties as allowance for doubtfultrade acceptances and accounts.

•*•*•) Includes reserves for specialpurposes consisting of equitycapital.

Balance Sheet Ratios

in %

Property, plant, equipment and investments as a percentage of balance sheet totalProperty, plant, equipment and investments as a percentage of current assets

Current assets as a percentage of short-term liabilities

Stockholders' equity as a percentage of balance sheet totalStockholders' equity as a percentage of liabilitiesStockholders' equity as a percentage of property, plant, equipment and investmentsStockholders' equity and long-term liabilities as a percentage of property, plant,

equipment and investments

44

Consolidated Total

1966 1967

2,9a1872651

2,7581,512

2,5391,704

85

3,200657

5,739

52108

125

447985

107

3,237787496

2,3811,229

2,7381,886

102

2,880631

5,618

58136

123

499585

104

" )

1968

3,289708619

3,1301,352

3,1002,237

113

3,319644

6,419

51105

136

489394

114

1969

3,8691,076

691

3,8391,710

3.6102,588

272

4,098725

7,708

50101

138

478893

112

1970

4,5211,536

836

•1,4272,128

3,6242,486

238

5,324943

8,948

51102

118

406880

101

Volkswagenwerk AG

1966 1967

2,129703567

1,333650

1,8371,087

1,625366

3,462

62160

120

5311386

103

2,343615386

1,163576

2,0211.271

1.485362

3,506

67201

119

5813686

102

1968

2.277508530

1,718640

2.1911,441

1,804426

3.995

57133

147

5512296

115

1969

2.557740536

2.031770

2.3861,636

2.202455

4,588

56126

150

5210893

111

1970

3,1961,131

579

2,0631,019

2,4121,512

2,847651

5,259

61155

116

468575

96

45

The Organizational Structure of Volkswagenwerk AG and itsDomestic and Foreign Subsidiaries and Affiliates

Corporate Management

Groups

Volkswagen

Distributing Companies

Volk»waoen of America. i,-Bfiglewood Cliffs, N. J.-Capital Stock USS 5.000.000100.0%

Subsidiaries and rtVtinaiBij•Volkswagen Southeastern Distr.. Inc.USS 250.000 100.0%Volkswagen Northeastern Distr.. Inc.USS 250.000 100 0%Volkswagen North Central Distr IncUSS ZbO.OOO 1000%Volkswagen South Atlantic Oistr. Int.US$ 250.000 100.0%Volkswagen South Central Distr.. Inc.USS 250,000 100.0%VICO Corporator)USS 2.159.94C 48tf.Sylvan Avenue Corporation

.-USS 400.000 100.0%Volkswagen Products Corporation

Volkswagen France S. A.Villars-CotteretsCapital Stock FF 7,000.0001 at

ml AKilntii uiK'iwagan Utj

Flnancenient S. A.FF 7,500.000 '73.5% HOLADSsrv (.« rt'AssuraiVolk'vv^dn S fFr- 100000

Volkswagen Canada Ltd.Toronto. OntarioCapital Stock can J 600 000

Svehs'.'SddwtaiiuCapital Stock skr 42,000.000

skf 6,000,00'. •

tirnmeiCapital Stock DM 3.000.000i: o n %

GBS. m. S>. H..&; Co'KS*}'SaizbufgCapita!

Subsidiaries and AffiliatesProducing Companies

Volkswagen do Brasil S. A.Sao 8ernardo do CampoCapital Stock Cr$ 468.157.65580.0%

Subsidiaries and AffiliatesFinanciadora Volkswagen S. A.Cr$ 8.800.000 100.0%Distrivolks S. A.CrJ 1.336,000 100.0%Forjaria Sao Bernardo S. A.Cr$ 5,575,620 33.3%VEMAG S. A.Cr$ 61.098.866 49.6%10.4% AUDI NSU

AUTO UNION AG

Volkswagen of South Africa Ltd.Uitenhage, C. P.Capital Stock R 800,000

Subsidiaries and AffiliatesSouth African Motor AcceptanceCorporation (PTY) Ltd. (SAMAC)R 2.000.000 50.0%50.0% Volkswagen

of America, Inc.

Volkswagen de Mexico,S. A. de C. V.Puebla, Pue.Capital Stock mex$ 471.952.000100.0%

Motor Producers Ltd.Melbourne, AustraliaCapital Stock $A 10,000.000100.0%

Subsidiaries and AffiliatesVolkswagen Comercial,S A. de C V Volkswagen Bruxelles S. A.mexS 5,000.000 100.0% Brussels, Belgium

Cjpital Stockblrs 425,000,00075.0%

P. T. German MotorManufacturingDjakarta. IndonesiaCapital Stock Rp 567,000.00033.3%

') Formed or acquiredin 1971

46

Plant* tbOTtfer^

i

and Affili.i'

cans 5.000,000 30.0%/P.4>Vi HOtAD

ng Personnel Finance, Generaland and Cost Account-

Control Employee Welfare ing. Budgeting

Investments in Sub-sidiaries and Affiliates,Planning and Organization

AUDI NSU AUTO UNION AGNeckarsulmCapital Stock DM215.000.OOO75.2%

Plant Locations Ingolstadt

Neckarsulm

Heilbronn

Neuenstein

VW-PorsoheVertriebsgasallichaft m. b. H.LudwigsburgCapital Stock DM 14,000.00050.0%

Distributing Companies Other Companies

AUDI NSU A/SOdense, DenmarkCapital Slock dkr 40.000100.0%

Auto Union- Ersatzteile-GeneraldapotE. Frankenbach G. m. b. H.HamburgCapital Stock DM 350.000100,0%

AUDI-NSU Vcrtriabs AGSchin/nach-Bad. SwitzerlandCapital Stock sfr 250.0002b.0%

COMOBIL S. A.Geneva. SwitzerlandCapital Stock sfr 1,000,00050.0%

CO MOTOR S. A.Luxemburg, Lux.Capital Stock Ifrs 170,000,00048.0%

Other Companies

ndustrias del Motor, S. A (IMOSA)'film;!, Spain:aiiii.il Slock Ptas 486.000 0005 0 'i. Volkswapcnwpik AG

.5 0% AUDI NSU AUTO UNION AG

!-ubsir)iarii:s • " " ! Al l i l i . i l . - .fpmmcicio o lnilu:;hl.i AI.IVMMV;lei Aulomovi l , S. A (I.IAL)AHA)ll.is 3b.000.000 100 0';;,"uiuf.trui Ai ix i l i ' in" 'l i ' l Auio-jfovil, S. A. ( IN /J i ID)'tai. I3.ooo.ooo IOUO1;;.ilCCA I :,p iriol.t. S. A.tii:; 30,000.000 80.0%

Volkswagen-Finanzierungsgesellschaft m. b. H.Wcilfsbu'ijCapital Stock DM 7.500.000 100.0°..

Deutsche Automobilgesellschaft m. b. H.Hcinover

Canil.il Stock DM 5.000.000 50.0%

Selbstfahrer UnionHnmburoCapital Slock DM 1.800.000 100.0%

Volkswagen Leasing G. m h. H.VVolfibuNiCapital Stock DM 1,000,000 100.0%

Wolfsburger Transportgesellschaft m. b. H.Wfill •hu:r,LnpiMl ::I..nk DM IiOO.OOOO 00.0%10.0% HOLAD

VW-Siedlungsgesellschaft m. b. H.VVolfsbuinCapital Stock DM 20.000.000 100.0%

VW-Wohnungsbau Gemeinnutzige Gesellschaft m. b. H.WoHsburc)Capital Stock DM 2.000.00U 100.0%

HOLAD Holding & Administration AGBasle, SwitzerlandCapital Slock sfr 110,000

Transalme Sociedade dc RepresentacoesAdministracao e Organizacao Ltda.Sao Bernardo do Campo. BrazilCapital Slock CrS 35.000

100.0%

100.0°/

Minor holdingsare not included

47

AUDI NSUPORSCHE