Risks relating to demand

Production risks relating to demand

The turbulence on the world passenger vehicle markets resulting from the global economic slump led to substantial fluctuations in the number of units of individual models produced at the Volkswagen Group’s production facilities. We do not expect to see any significant improvement in global macroeconomic conditions in 2010. Forecast installation rates for features or components are increasingly uncertain due to the unstable sales markets. We are mitigating this risk as the situation demands using the extensive flexibility measures available under our existing working time models. Together with our intelligent turntable concept and our highly flexible suppliers, we are confident that we shall be able to optimally adapt the program at our vehicle and component plants to volatile market conditions.

We use appropriate insurance contracts to hedge economic risks that may result from interruptions to production. We ensure a high level of facility availability and stable output through regular preventive maintenance measures.

Risks arising from changes in demand

Consumer demand depends not only on real factors such as disposable income, but also to a significant extent on psychological factors that are impossible to plan for. For example, rising fuel and energy costs – combined with uncertainty over the future taxation of CO2 emissions – could lead to unexpected buyer reluctance, which could be further exacerbated by media reports. The financial and economic crisis is having significant negative effects on global economic development and hence on the entire automotive sector. Many automotive markets have entered a downward spiral, which in some cases has assumed dramatic proportions, while others could only be supported through government intervention. Once the support programs launched by many governments run out there is a danger – particularly in saturated markets such as North America and Western Europe – that owners will hold on to their vehicles for longer and that demand will drop as a result. We are combating this buyer reluctance with our attractive range of models and in-depth customer orientation.

What is more, a CO2-based vehicle tax, which has already been formulated in several European countries, and high oil and energy prices could lead to a shift in demand towards smaller segments and engines, and hence impact the Group’s financial result. We are countering this risk by developing fuel-efficient vehicles and alternative fuels as part of our fuel and drive train strategy.

In the rapidly expanding markets of Asia and Eastern Europe, risks may also arise due to government intervention in the form of restrictive lending or tax increases, which could adversely affect private consumption.

Dependence on fleet customer business

In fiscal year 2009, the percentage of total registrations in Germany accounted for by business fleet customers declined to 7.7%. This was due to the sharp increase in the number of private registrations resulting from the scrapping premium and buyer reluctance among business customers caused by the economic situation. Nevertheless, the Volkswagen Group’s share of the market for these customers rose to 46.3%. In Europe, the Volkswagen Group extended its market lead thanks to its extensive product range and target group-oriented customer care. Registrations by business fleet customers declined by 23.8%, while the Group’s share of the market improved to 25.9%. Thanks to its broad product portfolio, the Group is also well positioned in view of the growing importance of the issue of CO2 and the trend towards downsizing. The fleet customer business is continuing to experience increased concentration and internationalization. Thanks to its extensive product range and target group-oriented customer care, the Volkswagen Group extended its market lead in Europe. No default risk concentrations exist for individual corporate customers.

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