Risks and opportunities from the macroeconomy, the industry, markets and sales

The most significant risks from the regular GRC process and the QRP lie in restrictions on trade and increasingly protectionist tendencies resulting in a negative trend in markets and unit sales.

Macroeconomic risks and opportunities

We believe that risks to continued global economic growth arise primarily from turbulence in the financial and commodity markets, increasingly protectionist tendencies, and structural deficits, which pose a threat to the performance of individual advanced economies and emerging markets. In addition, there are increasing environmental challenges that affect individual countries and regions to varying degrees. The possible worldwide transition from an expansionary monetary policy to a more restrictive one also presents risks for the macroeconomic environment. Persistently high private- and public-sector debt in many places is clouding the outlook for growth and may likewise cause markets to respond negatively. Declines in growth in key countries and regions often have an immediate impact on the state of the global economy and therefore pose a central risk. In particular, the Volkswagen Group would be adversely affected by a disorderly Brexit and by other trade policy measures such as tariffs or non-tariff trade barriers.

The economic development of some emerging economies is being hampered primarily by dependence on energy and commodity prices and capital inflows, but also by socio-political tensions. Corruption, inadequate government structures and a lack of legal certainty also pose risks.

Geopolitical tensions and conflicts, along with signs of fragmentation in the global economy, are a further major risk factor to the performance of individual countries and regions. In light of the existing, strong global interdependence, local developments could have adverse effects on the world economy. Any escalation of the conflicts in Eastern Europe, the Middle East, or Africa, for example, could cause upheaval on the global energy and commodity markets and exacerbate migration trends. An aggravation of the situation in East Asia could put further strain on the global economy. The same applies to violent conflicts, terrorist activities, cyber attacks and the spread of infectious diseases, which may prompt unexpected, short-term responses from the markets.

On the whole, we do not anticipate a global recession for the year 2020. However, due to the risk factors mentioned, as well as cyclical and structural aspects, a decline in global economic growth or a period of below-average growth rates is possible.

The macroeconomic environment may also give rise to opportunities for the Volkswagen Group if actual developments differ in a positive way from expected developments.

Sector-specific risks and market opportunities/potential

Western Europe, especially Germany, and China are our main sales markets. A drop in demand in these regions due to the economic climate would have a particularly strong impact on the Company’s earnings including financial services. We counter this risk with a clear, customer-oriented and innovative product and pricing policy.

Outside Western Europe and China, delivery volumes are spread widely across the key regions: Central and Eastern Europe, North America and South America. In addition, we either already have a strong presence in numerous existing and developing markets or are working systematically towards this goal. Particularly in smaller markets with growth potential, we are increasing our presence with the help of strategic partnerships in order to cater to local requirements.

Price pressure in established automotive markets for new and used vehicles as a result of high market saturation is a particular challenge for the Volkswagen Group as a supplier of volume and premium models. Competitive pressures are likely to remain high in the future. Individual manufacturers may respond by offering incentives in order to meet their sales targets, putting the entire sector under additional pressure.

Excess capacity in global automotive production may lead to a rise in inventories and therefore an increase in the amount of capital tied up. With a decline in demand for vehicles and genuine parts, automotive manufacturers may adjust their capacities or intensify measures to promote sales. This would lead to additional costs and greater price pressure.

The growth markets of Central and Eastern Europe, South America and Asia are particularly important to the Volkswagen Group. These markets harbor considerable potential; however, the underlying conditions in some countries in these regions make it difficult to increase unit sales figures there. Some have high customs barriers or minimum local content requirements for production, for example. At the same time, wherever the economic and regulatory situation permits, there are opportunities above and beyond current projections. These arise from faster growth in the emerging markets where vehicle densities are currently still low.

In Europe, there is a risk that further municipalities and cities will impose a driving ban on diesel vehicles in order to comply with emission limits. In China, restrictions on vehicle registrations could enter into force in further metropolitan areas in the future. Furthermore, China imposed a so-called “new energy vehicle quota” in 2019, which means that battery-electric vehicles, plug-in hybrids and fuel cell vehicles will have to account for a certain proportion of a manufacturer’s new passenger car fleet. To ensure compliance with emissions standards, we continuously tailor our range of vehicle models and engines to the conditions in the relevant markets. These requirements may lead to higher costs and consequently to price increases and declines in volumes.

The demand that built up in individual established markets in times of crisis could result in a more marked recovery if the economic environment eases more quickly than expected.

Economic performance varied in individual regions in fiscal year 2019. The resulting challenges for our trading and sales companies, such as efficient inventory management and a profitable dealer network, are considerable and are being met by appropriate measures on their part. However, financing business activities through bank loans remains difficult. Our financial services companies offer dealers financing on attractive terms with the aim of strengthening their business models and reducing operational risk. We have installed a comprehensive liquidity risk management system so that we can promptly counteract any liquidity bottlenecks at the dealers’ end that could hinder smooth business operations.

We continue to approve loans for vehicle finance on the basis of the same cautious principles applied in the past, for example by taking into account the regulatory requirements of section 25a(1) of the Kreditwesengesetz (KWG – German Banking Act).

Volkswagen may be exposed to increased competition in aftermarkets for regulatory reasons. This is due to the provisions of the block exemption regulations, which have applied to after-sales services since June 2010, and also to the amendments included in EU Regulation 566/2011 of June 8, 2011 and EU Regulation 858/2018 applicable from September 1, 2020, regarding access by independent market participants to technical information.

In Germany, legislation is currently being prepared to restrict or abolish design protection for repair parts through the introduction of a repair clause. In addition, the European Commission is evaluating the market with regard to existing design protection. A possible restriction or abolition of design protection for visible replacement parts could adversely affect the Volkswagen Group’s genuine parts business.

The automotive industry faces a process of transformation with far-reaching changes. Electric drives, connected vehicles and autonomous driving are associated with both opportunities and risks for our sales. In particular, more rapidly evolving customer requirements, swift implementation of legislative initiatives and the market entry of new competitors from outside the industry will require changed products, a faster pace of innovation and adjustments to business models. There is uncertainty regarding the widespread use of electric vehicles and the availability of the necessary charging infrastructure.

Furthermore, we cannot entirely rule out the possibility of freight deliveries worldwide being shifted from trucks to other means of transport, and demand for the Group’s commercial vehicles falling as a result.

Below, we outline the regions and markets with the greatest growth potential for the Volkswagen Group.


In China, the largest market in the Asia-Pacific region, there was a noticeable year-on-year decline in the passenger car market in the reporting year. Demand for vehicles is expected to increase in the coming years due to the need for individual mobility. However, the current trade dispute with the USA will slow the pace of this growth. It is also expected that demand will shift from the coastal metropolises to the interior. In order to leverage the considerable opportunities offered by this market – also with regard to e-mobility – and to defend our strong market position in China over the long term, we are continuously expanding our product range to include models that have been specially developed for this market. We are further extending our production capacity in this growing market through additional production facilities.


Despite political stability, India’s economic momentum slowed in 2019. The passenger car market was unable to continue its growth path and declined considerably. We expect the market to fall slightly short of the prior-year level in 2020 but to return to growth in subsequent years. Against this backdrop, the Group is currently consolidating its activities, as India remains an important strategic future market for the Group.


The volume of the US vehicle market in 2019 was slightly down on the previous year. In 2020, the market volume is again expected to be slightly down on the reporting period. In the USA, Volkswagen Group of America is consistently pursuing the strategy of becoming a full-fledged volume supplier. The expansion of local production capacity – including a production facility for electric vehicles in the future – will allow the Group to better serve the market in the North America region. We are also working intensively on offering additional products specifically tailored to the US market.


The economic environment eased somewhat in the reporting year, while Brazil’s political path has been uncertain since the presidential elections. The volume of demand in the vehicle market continued to recover markedly compared with the weak prior years. We anticipate a continued upturn in demand in 2020. The growing number of automobile manufacturers with local production has resulted in a sharp increase in price pressure and competition. The Brazilian market plays a key role for the Volkswagen Group. To strengthen our competitive position here, we offer vehicles that have been specially developed for this market and are locally produced, such as the Gol and the Virtus.


The volume of the Russian vehicle market in 2019 was slightly down on the previous year and we are forecasting that the passenger car market will slightly exceed the reporting year in 2020. However, the heavy reliance on oil and gas income, rising taxes, currency volatility resulting at present in high vehicle prices, the political crisis and the related sanctions imposed by the EU and the USA continue to impact the development of demand negatively. The market remains strategically important to the Volkswagen Group, which is why we have a strong focus on market cultivation there.

The Middle East

Political and economic uncertainty is weighing on the region’s main sales markets, particularly Turkey. Here, the continued weakness of the Turkish lira and the resulting high inflation, among other things, led to a decline in purchasing power and therefore weaker demand in 2019. Despite the instability, however, the Middle East region offers short-term and long-term growth potential. We aim to leverage the potential for growth with a range of vehicles that has been specifically tailored to this market, without as yet having our own production facilities there.

Power Engineering

Trends in the global economy, such as increasing interest in technologies to reduce emissions and a greater international division of labor, are set to continue, despite increased geopolitical and macroeconomic risks compared with the previous year. This also applies to the resulting transport routes and volumes and to the demand for touristic offers such as cruises. Growing global energy needs call for innovation in industry and a growing willingness on the part of governments to invest in line with the global climate policy.

We are working systematically to leverage market opportunities across the world, for example by positioning ourselves as a solution provider for reduced-carbon drive system and energy generation technologies as well as for storage technologies. Moreover, significant potential can be leveraged in the medium term by enhancing our after-sales business through the introduction of new products and the expansion of our service network. The requirements for occupational safety, which will continue to increase in the future, the availability of the plants that are already in operation, the increase in environmental compatibility, and efficient operation, together with the large number of engines and plants, will provide the basis for growth.

As part of the capital goods industry, the Power Engineering business is affected by fluctuations in the investment climate. Even minor changes in growth rates or growth forecasts, resulting from geopolitical uncertainties or volatile commodities and foreign exchange markets, for example, can lead to significant changes in demand or the cancellation of already existing orders. The measures we use to counter the considerable economic risks include flexible production concepts and cost flexibility by means of temporary employment, working time accounts and short-time work, and – if necessary – structural adjustments.

Sales risks

As a result of the diesel issue, the Volkswagen Group may experience decreases in demand, possibly exacerbated by media reports or insufficient communication. Other potential consequences include lower margins in the new and used car businesses and a temporary increase in funds tied up in working capital. The Volkswagen Group has recognized provisions arising from the diesel issue, in particular for the service measures, recalls and customer-related measures. Further significant financial liabilities may emerge due to existing estimation risks particularly from technical solutions, repurchase obligations, customer-related measures and possible official or statutory requirements for diesel vehicles.

The Volkswagen Group’s multibrand strategy may weaken individual Group brands if there are overlaps in customer segments or the product portfolio. This effect may be reinforced by the Volkswagen Group’s common-parts strategy, as this strategy means that, in some cases, the differences in product substance between the brands are small. This could result in internal cannibalization between the Group brands, higher marketing costs, or repositioning expenses. By sharpening the brand identities as part of our Best Brand Equity strategic module, we are working to minimize these risks.

Viewed over an extended period, the fleet customer business is more stable than the business with retail customers; in 2019, it continued to be characterized by increasing concentration and internationalization.

The Volkswagen Group is well positioned with its broad portfolio of products and drive systems, as well as its target-group-focused customer care. There is no concentration of default risks at individual fleet customers or markets. The consistently high market share in Europe shows that fleet customers still have confidence in the Group.

Consumer demand is shaped not only by real factors such as disposable income, but also by psychological factors that cannot be planned for. Unexpected buyer reluctance could stem from households’ worries about the future economic situation, for example. This is particularly the case in saturated automotive markets such as Western Europe, where demand could drop as a result of owners holding on to their vehicles for longer. We are countering reluctance to buy with our attractive range of models and our strict policy of customer orientation.

A combination of buyer reluctance in some markets as a result of the crisis, and increases in some vehicle taxes based on CO2 emissions – which have already been observed in many European countries – may shift demand towards smaller segments and engines. We counter the risk that such a shift will negatively impact the Volkswagen Group’s financial situation by constantly developing new, fuel-efficient vehicles and alternative drive technologies, based on our drivetrain and fuel strategy.

Automotive markets around the world are exposed to risks from government intervention such as tax increases, which curb private consumption, restrictions on trade, and protectionist tendencies. Sales incentives may lead to shifts in the timing of demand.

Commercial vehicles are capital goods: even minor changes in growth rates or growth forecasts may significantly affect transport requirements and thus demand. The production fluctuations occurring as a result require a high degree of flexibility from manufacturers. Although production volumes are significantly lower, the complexity of the trucks and buses range does in fact significantly exceed the already very high complexity of the passenger cars range. Key factors for commercial vehicle customers are total cost of ownership, vehicle reliability and the service provided. Furthermore, customers are increasingly interested in additional services such as freight optimization and fleet utilization, which we offer in the commercial vehicle segment through the digital brand RIO, for example.

Power Engineering’s two-stroke engines are produced exclusively by licensees, particularly in South Korea, China and Japan. On account of volatile demand in new ship construction, there is excess capacity in the market for marine engines, which may result in a decline in license revenues and bad debt losses. Due to changes in the competitive environment, especially in China, there is also the risk of losing market share. We address these risks by constantly monitoring the markets, working closely with all licensees and introducing new and improved technologies.

Other factors

Going beyond the risks outlined in the individual risk categories, there are other factors that cannot be predicted and whose repercussions are therefore difficult to control.

Should these transpire, they could have an adverse effect on the further development of the Volkswagen Group. In particular, such occurrences include natural disasters, epidemics – such as the current spread of the coronavirus –, violent conflicts and terrorist attacks.

The spread of the coronavirus could give rise to risks for global economic growth and subsequently risks for the Volkswagen Group particularly with regard to procurement, production and sales.