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2007 ANNUAL FINANCIAL REPORT

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2007 ANNUAL FINANCIAL REPORT Powered By Docstoc
					           Rocker’s Snaps                      Talkmaster’s Hobby                    Engineer’s Vision
           Multitalent Bryan                   Late night star Jay                   Why future Audi
           Adams photographs                   Leno and his iconic                   models will be even
           the Audi A4                         automobiles                           more fuel-efficient



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           2007 ANNUAL FINANCIAL REPORT




                                                                                                                                PASSION
                                                                                                     Success formula for a mobile lifestyle
Audi Group Key Figures



                                                      2007        2006    Change in %


Production                                Cars     980,880     926,180            5.9
                                       Engines    1,915,633   1,895,695           1.1


Vehicle sales                             Cars    1,200,701   1,135,554           5.7
Audi                                               964,151     905,188            6.5
   Germany                                         254,014     257,792           – 1.5
   Outside Germany                                 710,137     647,396            9.7
Lamborghini                                          2,406       2,087           15.3
Other Volkswagen Group brands                      234,144     228,279            2.6


Employees                              Average      53,347      52,297            2.0


Revenue                             EUR million     33,617      31,142            7.9


Profit before tax                   EUR million      2,915        1,946          49.8


Profit after tax                    EUR million       1,692      1,343           26.0


Rate of return before tax              Percent          8.7         6.2


Return on investment                   Percent         18.6        14.2


Capital investments                 EUR million       2,115       1,925           9.9
Development expenditure
recognized as an intangible asset                      497         625         – 20.5


Depreciation and amortization       EUR million      2,287       2,515          – 9.1


Cash flow from operating
activities                          EUR million      4,876       4,428           10.1


Balance sheet total at Dec. 31      EUR million     22,578      18,910           19.4


Equity ratio at Dec. 31                Percent         37.0        38.4
                                                                                                                                              1


                                                                                Editorial
                                                                                Mobile lifestyle




                                                                                2007 was a remarkable year for Audi: We ended with out-
                                                                                standing results and came a great deal closer to achieving
                                                                                our ambitious strategic corporate goals.
                                                                                We presented numerous attractive new models in the course
                                                                                of the year: The A4 Sedan, R8, A5, TT Roadster, RS 6 Avant
                                                                                and A3 Cabriolet models are exciting experts and customers
                                                                                alike around the globe.
                                                                                And, yet again, Audi celebrated major successes in motor-
                                                                                sports: Our diesel race car, the Audi R10 TDI, achieved a
                                                                                repeat win in the Le Mans 24 Hours, and we also took the
                                                                                overall victory in the German Touring Car Masters (DTM).
                                                                                We are pursuing our ambitious goals with passion. Because
                                                                                we want to ensure Audi’s competitive edge. Through inno-
                                                                                vation, a global mindset and a sense of responsibility. Our
                                                                                understanding of progressiveness expresses itself in every-
                                                                                thing driving the brand with the four rings. And it does so
                                                                                with great success.
                                                                                Once again, our 2007 Annual Report not only describes the
                                                                                diversity of topics moving us here at Audi, it also offers
                                                                                interesting insights and perspectives.
                                                                                In this report, many renowned journalists and authors were
                                                                                asked to reflect on exciting trends of now and the future.
                                                                                I recommend the financial section of this Annual Report to
                                                                                any of you wanting to know more about our record figures
                                                                                for 2007 in sales, revenue and earnings.
                                                                                I wish you a pleasant read.


                                                                                Best wishes,
Photos: Igor Panitz (cover), Claudia Kempf, Andreas Teichmann (pages 2 and 3)




                                                                                Rupert Stadler
                                                                                Chairman of the Board of Management
                     The Board of Management




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Report of the Supervisory Board




                                        The year 2007 was another successful year for Audi. The Group
                                        achieved its best production figures and posted its 12th unit
                                        sales record in succession. It also improved key financial per-
                                        formance indicators, such as revenue and earnings, to record
                                        levels. The most satisfactory aspect in this regard is that earn-
                                        ings were increased to an even greater extent than unit sales
                                        and revenue, impressively substantiating yet again the qualita-
                                        tive growth of this automobile company.
                                        Favored by the continuing strong dynamics of the world econo-
                                        my, the global demand for automobiles increased again last
                                        year. Developing countries in the Asia-Pacific, Latin Ameri-
                                        can, and Central and Eastern European regions, in particular,
                                        displayed strong momentum, while the traditional markets
                                        such as the U.S., Western Europe and Japan were stagnant or
                                        on the decline.
                                        In 2007, the Audi brand faced up to intensified competitive
                                        pressure by introducing numerous new models that delighted
                                        customers worldwide. The attractive product portfolio was first
                                        enhanced at the start of last year with the new Audi TT Roadster.
                                        This was followed by the mid-engine Audi R8 sports car as well
                                        as the A5 Coupé and the S5 Coupé. Production of the new Audi
                                        A4 Sedan began in the fall, its sporty design heralding the start
                                        of a new era for this strongest-selling series. In expanding the
                                        product portfolio with the new e models, Audi offers its cus-
                                        tomers especially efficient vehicle concepts which once again
                                        improve fuel economy and emission values.
                                        If Audi can boast such a rich variety of products as well as an-
                                        other improvement in key financial indicators, this is thanks to
                                        the dedication of its management, workforce and employees’
Prof. Dr. rer. nat. Martin Winterkorn   elected representatives. The Supervisory Board would like to
Chairman of the Supervisory Board       offer its thanks and appreciation to all involved.

                                        During the past fiscal year, the Board of Management pro-
                                        vided the Supervisory Board with regular, comprehensive
                                        and up-to-date accounts of its actions.
                                        All decisions that were fundamentally important to the Com-
                                        pany were discussed in depth between the Board of Manage-
                                        ment and the Supervisory Board. In 2007, the Supervisory
                                        Board thoroughly reviewed the economic situation of the
                                        Company, the development of its business, its business strat-
                                        egy as well as its risk situation and risk management, at five
                                        joint meetings and based on regular written and oral reports
                                        from the Board of Management, subsequently consulting with
                                        the Board of Management on these matters.
                                        Essential topics covered during Supervisory Board meetings
                                        included responses AUDI AG provides relating to the CO2 de-
                                        bate. The Supervisory Board also discussed the development
                                        of the Audi brand in the European and especially in the non-
                                        European markets. Furthermore, the Supervisory Board
                                        viewed the range of models scheduled for launch in the up-
                                        coming years and approved the necessary capital. The Super-
                                        visory Board is convinced that these planned models will
                                                                                                                                                      5




                       ensure that Audi will continue rigorously along its path to be-   the District Court of Ingolstadt appointed Wolfgang Müller
                       coming the world’s most successful premium manufacturer.          as supplementary member of the Supervisory Board for the
                       The Supervisory Board’s Presiding Committee met prior to          remainder of Mr. Polzmacher’s tenure.
                       every joint meeting to consult on important issues.               Effective February 23, 2007, Erich Schmitt, “SEAT, S.A.,
                       The Audit Committee held its scheduled meetings during the        Chairman of the Board of Management,” left the Board of
                       past fiscal year under the chairmanship of Hans Dieter Pötsch.    Management of AUDI AG as a consequence of the Volkswagen
                       On these occasions, the Audit Committee reviewed the 2006         Group’s dissolving its brand groups. The Supervisory Board
                       Annual and Consolidated Financial Statements, the Compa-          thanks Mr. Schmitt for more than 14 years of successful and
                       ny’s risk management and the current situation as of the end      multifaceted work as part of the Audi Board of Management.
                       of 2007. In particular, the committee analyzed the growth         As the President of SEAT, S.A., Mr. Schmitt will remain with
                       prospects of the Audi brand, including the attendant complex-     the Volkswagen Group.
                       ity and achievable rates of return. It also examined possible     Effective September 1, 2007, the Supervisory Board ap-
                       risks and repercussions resulting from the debates on reducing    pointed Axel Strotbek as new member of the Board of Man-
                       fuel consumption and emissions.                                   agement of AUDI AG. Mr. Strotbek took over responsibility
                       Following thorough discussions, the Supervisory Board             for the “Finance and Organization” division. The responsi-
                       approved the financial, personnel and investment plans            bility of Rupert Stadler for this business division ended at
                       on December 5, 2007.                                              the same time.
                       The Annual and Consolidated Financial Statements, as well         The Supervisory Board attaches particular importance to the
                       as the Management Reports for AUDI AG and the Audi Group,         Company management’s assessment of the future develop-
                       were audited by PricewaterhouseCoopers Aktiengesellschaft         ment of the Audi Group.
                       Wirtschaftsprüfungsgesellschaft, which issued its unqualified     Due to the anticipated cooling off of U.S. economic growth, a
                       certification. The audits by the Audit Committee and the          slowdown in the development of the world economy is expect-
                       Supervisory Board yielded no objections, and the Annual and       ed in 2008 which is likely to affect the dynamics of the global
                       Consolidated Financial Statements were duly approved by the       automobile economy. In drawing up its strategic plans, the
                       Supervisory Board at the meeting of February 22, 2008. The        Board of Management has taken into account the changing
                       Annual Financial Statement has thus been established.             macroeconomic conditions, the increasing competitive inten-
                                                                                         sity, and the ongoing debate on climate protection. In doing so,
                                                                                         it has primarily intensified its efforts toward further reduction
                       “Audi will continue rigorously along                              of fuel consumption and emissions. In keeping with this goal,
                                                                                         Audi will be introducing TDI engines to the market in 2008
                       its path to becoming the world’s most
                                                                                         which will feature an “ultra low emission system.” This can re-
                       successful premium manufacturer.”                                 duce nitrogen oxide emissions by up to 90 percent. There are
                       Prof. Dr. rer. nat. Martin Winterkorn                             also plans to expand the model range of the Audi Q7 to include
                                                                                         a full-hybrid model.
                                                                                         As part of the strategic goal of making Audi the most success-
                       On December 5, 2007, following consultations before its meet-     ful premium brand by the year 2015, the company plans to sell
                       ing, the Supervisory Board endorsed the remuneration model        over one million vehicles in 2008. In this context, manage-
                       for the members of the Board of Management of AUDI AG,            ment and workforce are continuing to work intensively on
                       and agreed on the content of the annual declaration of            the expansion of the range of models. In addition to the estab-
                       conformity pursuant to Section 161 of the German Stock            lished markets of Western Europe, the U.S. and Japan, the
                       Corporation Law (Aktiengesetz, AktG).                             Board of Management is focusing its work on important grow-
                       The following changes in the composition of the Supervisory       ing markets such as China, India and Russia.
                       Board and of the Board of Management became effective             The Supervisory Board remains committed to supporting the
                       during the past fiscal year:                                      realization of the ambitious goals the Audi Group has set for
                       Effective February 12, 2007, Joachim Dilger, representative       itself. Accordingly, the Supervisory Board will continue to
                       of the management of AUDI AG for the Supervisory Board,           assist the Board of Management actively and constructively,
                       stepped down. Upon request of the Board of Management of          above and beyond the statutory minimum scope that is legally
                       AUDI AG, the District Court of Ingolstadt resolved on Febru-      required of its activity.
                       ary 22, 2007, to appoint Hubert Waltl as a supplementary
                       member of the Supervisory Board for the remainder of              Ingolstadt, February 22, 2008
                       Mr. Dilger’s tenure. The Supervisory Board would like to
Photo: Claudia Kempf




                       thank Mr. Dilger for his four and a half years of activity.
                       At the end of the Annual General Meeting on May 9, 2007,
                       Richard Polzmacher left the Supervisory Board of his own
                       volition. The Supervisory Board would like to thank               Prof. Dr. rer. nat. Martin Winterkorn
                       Mr. Polzmacher for his successful work. On May 30, 2007,          Chairman of the Supervisory Board
                                                                                        Making Of
                                                                                         Igor Panitz
                                                                                         Photographer, Ech-
                                                                                         terdingen, Germany
                                                                                         15 hours in the stu-
                                                                                         dio, countless set-
                                                                                         tings and hundreds
                                                                                         of shots: That is what
                                                                                         it took for Igor Panitz
                                                             to be satisfied – to make him feel he had final-
                                                             ly taken “his” picture. Again and again, Panitz
                                                             had the crew rearrange the spotlights and re-
                                                             flectors. Again and again, models had to change
                                                             position until, finally, they and the silver Audi
                                                             A4 Sedan* were in harmony. For Panitz, even
                                                             the most minute detail counts.
                                                             Cover photo and page 86




                         Making-of
Igor Panitz
XXXFotograf, New York, USA
XXXNebel, Rauch, verschiedene Lichtquellen, in die
„Luft gemalte Bewegungen“, lange Belichtungszeiten –
das waren die Zutaten für den spektakulären „anderen
des Lichtkünstlers Timothy Saccenti. Das spezielle Gra-
fikdesign für die Lichteffekte entwickelte die sechsköpfi-
ge Crew im Vorfeld mit einem Miniatur-Modell des sil-
bernen TT Roadster. Titel und Seite 86
                                                                                                                                                                                                         7


                                                                                      Authors & Artists
                                                                                      The faces behind the stories




                                                                                                                                             Frank Sieren
                                                                                                                                             Business journalist,
                                                                                                                                             Beijing, China
                                                                                                                                             Frank Sieren is one of Ger-       Marlis Prinzing
                                                                                                                                             many’s top experts on China       Science journalist,
                                                                                                           Vir Sanghvi                       and has written a number of       Süßen, Germany
                                                                                                           Business journalist,              business bestsellers about the    With her series of talks,“Das
                                                                                                           New Delhi, India                  country. From Beijing, where      Rote Sofa,” Marlis Prinzing
                                                                                                           The editorial director of the     he has lived since 1994, he       spent eight years touring
                                                                                                           Hindustan Times, a major          reports on the breathtaking       Baden-Württemberg, Germany.
                                                                                                           English-language newspaper        developments in China. On a       90 prominent names from
                                                                                                           from the subcontinent, is one     walk with Audi Chairman           the worlds of business and
                                                                                                           of the country’s best-known       Rupert Stadler and Zhu Yan-       society submitted to her
                                                                                                           journalists. He has witnessed     feng, long-time President of      tenacious questions. One
                                                                                                           at first hand and written         China FAW Group Corpora-          name was still missing on her
                                                                                                           about the careers of major        tion, Frank Sieren experi-        list: Frank Schätzing, who
                                                                                                           business players such as Nan-     enced a global metropolis         touched the ecological con-
                                                                                                           dan Nilekani. Sanghvi is also     gripped by Olympic fever.         sciences with his bestseller,
                                                                                                           one of India’s most popular       Page 22                           “The Swarm.” Now, Prinzing
                                                                                                           talk show hosts. For this An-                                       has finally interviewed him,
                                                                                                           nual Report, he takes a close                                       sitting high above the roof-
                                                                                                           look at India’s economic                                            tops of Cologne, Germany,
                                                                                                           miracle. Page 14                                                    his native city. Page 72




                                                                                                                                             Wladimir Kaminer
                                                                                                                                             Bestselling author
Photos: Thomas Walter, Enno Kapitza, ZB/picture alliance, Paul Schmitz, private (3)




                                                                                                                                             Berlin, Germany
                                                                                                                                             Without speaking a word of
                                                                                                           Tatjana Pokorny                   German, Wladimir Kaminer          Zoltán Tarpai
                                                                                                           Sports writer,                    arrived in East Berlin in 1990    Lifestyle writer,
                                                                                                           Hamburg, Germany                  from Russia. He now writes        Budapest, Hungary
                                                                                                           For 12 years, Tatjana Pokorny     German in a congenial and         Zoltán Tarpai loves the finer
                                                                                                           has covered the world’s best      witty style. His tales often      things in life. Not just wine
                                                                                                           sailing crews both in public      have an autobiographical          and cigars, about which he
                                                                                                           and in private. In 2003 and       stamp, and the story “Rapid       writes regularly for lifestyle
                                                                                                           2007 she even moved to Auck-      Russians”describes his best       magazines, but also beautiful
                                                                                                           land, New Zealand, and Va-        friend Andrej’s complex           cars. For his tribute to lea-
                                                                                                           lencia, Spain, for six months     relationship with a yellow        ther, Zoltán took a tour of
                                                                                                           during the America’s Cup.         Moskvitch. Page 40                the factory of László Vass,
                                                                                                           World-class sailor Jochen                                           home of the latter’s famous
                                                                                                           Schümann and Axel Strotbek,                                         Budapest shoes, and paid a
                                                                                                           Member of the Board for Fi-                                         visit to Lamborghini in
                                                                                                           nance and Organization of                                           Sant’Agata Bolognese, Italy.
                                                                                                           AUDI AG, met her in the                                             Page 100
                                                                                                           Audi wind tunnel.
                                                                                                           Pages 122 and 130


                                                                                                           *Fuel consumption and emission figures at the end of the annual report.
Contents
         REVIEW 2007                           MARKETS & MOVERS




R                                      1
         Past successes are the            14 REACHING FOR THE STARS
         basis for the successes              India joins the league
         of the future. Audi stays            of economic powers
         in the fast lane.
                                           20 RESPONSIBILITY AS
                                              A CORPORATE VALUE
                                              Audi takes on global
                                              responsibility with social
    130 “BUSINESS IS LIKE SPORT”
                                              projects
        Axel Strotbek, Member of
        the Board for Finance and          22 BETWEEN BUSINESS
        Organization of AUDI AG,              AND BOHEMIANS
        talks to sailing star Jochen          Audi Chairman Rupert
        Schümann                              Stadler visits Beijing
    132 AT A GLANCE                        28 FACES OF A CITY
        Figures of the Audi Group             Ingolstadt is a city to watch
    133 AUDI GROUP                         36 PANORAMA
        FINANCES 2007                         The world’s first Audi terminal
                                              opens in Sydney
    232 AUDI AG
        FINANCES 2007
    284 FUEL CONSUMPTION AND
        EMISSION FIGURES




                                               ARTS & ARTISTS




                                       2
                                           40 RAPID RUSSIANS
                                              Wladimir Kaminer on
                                              mobility in Soviet times
                                           44 CONCERT IN MOTION
                                              Essay by Dieter Meier
                                           46 MODERN CLASSICS
                                              The Audi Summer Concerts
                                              present superstars from the
                                              world of classical music
                                           48 ONE FOR THE ROAD,
                                              TWO FOR THE SHOW
                                              Jay Leno, Hollywood’s most
                                              avid car collector
                                           52 PANORAMA
                                              Premiere of the Audi Symphony
         TECHNOLOGY & RESEARCH                       SPORT & ATHLETES




3                                           5
     56 THE EFFICIENCY                          110 270 NEW RAÚLS
        REVOLUTION                                  The Real Madrid academy
        Audi faces the climate offensive            shapes the soccer stars of
        with innovative technology                  the future
     64 ICKX AGAINST ICKX                       114 EVERY SECOND COUNTS
        An eco-duel for two racers                  Another Audi victory at the
                                                    Le Mans 24 Hours
     68 INQUIRING MINDS
        In every engineer there’s a             116 GOING FOR BROKE
        Gyro Gearloose                              Golfer Lorena Ochoa storms to
                                                    the top of the world rankings
     72 EVERY DAWN BRINGS A
        NEW FUTURE                              118 THE CONQUEROR
        Writer Frank Schätzing on                   Mattias Ekström second-time
        tomorrow’s world                            German Touring Car champion
     76 INSPIRED BY NATURE                      120 A QUESTION OF STYLE
        How car engineers use                       Olympic equestrian events
        evolution’s blueprints                      at the Hong Kong Jockey Club
     82 PANORAMA                                122 A RIGHT ROYAL SHOWDOWN
        Audi supports “Formula Student”             The international sailing elite
        engineering competition                     meets at the Audi MedCup
                                                126 PANORAMA
                                                    American Le Mans Series




         DESIGN & CREATIVITY




4
     86 A DIFFERENT VIEW
        Fashion legends, video artists
        and rock stars photograph the
        new Audi models
     96 ESSENCE OF THE MOMENT
        Portrait of rock star Bryan Adams
     98 THE STRADIVARIUS CODE
        Violin maker Stefan-Peter Greiner
        seeks the perfect sound
    100 SENSE AND SENSUALITY
        Visit to the Lamborghini leather
        workshop
    104 THE MEDAL MAKER
        Xiao Yong, designer of the
        medals for Beijing 2008
    106 PANORAMA                                              Highlights in pictures on
        2007 awards                                              the next double page.
   Contents
   Highlights

                                                               PAGE 22
                                                               BETWEEN BUSINESS
                                                               AND BOHEMIANS
                                                               Audi Chairman Rupert
                                                               Stadler visits Beijing
                                                               PAGE 48
                                                               ONE FOR THE ROAD,
                                                               TWO FOR THE SHOW
                                                               Jay Leno, Hollywood’s
                                                               most avid car collector
                                                               PAGE 64
                                                               ICKX AGAINST ICKX
                                                               An eco-duel for two
                                                               racers
                                                               PAGE 110
                                                               270 NEW RAÚLS
                                                               The Real Madrid academy
                                                               shapes the soccer stars of
                                                               the future



PAGE 48
ARTS & ARTISTS



                                            PAGE 22
                                            MARKETS & MOVERS




                                 PAGE 110
                        SPORT & ATHLETES




PAGE 64
TECHNOLOGY & RESEARCH
                                                           PAGE 96
                                                           DESIGN & CREATIVITY




                                                                                 PAGE 96
                                                           PAGE 86
Photos: John Lamm, Montserrat/Genin/Focus, Enver Hirsch,




                                                           DESIGN & CREATIVITY   ESSENCE OF
                                                                                 THE MOMENT
                                                                                 Portrait of rock star
                                                                                 Bryan Adams
Angelo Cavalli/gettyimages, Bryan Adams (2)




                                                                                 PAGE 86
                                                                                 A DIFFERENT VIEW
                                                                                 Fashion legends, video
                                                                                 artists and rock stars
                                                                                 photograph the new
                                                                                 Audi models
                                     1


14 REACHING FOR THE STARS
   India joins the league
   of economic powers
20 RESPONSIBILITY AS
   A CORPORATE VALUE
   Audi takes on global
   responsibility with
   social projects
22 BETWEEN BUSINESS
   AND BOHEMIANS
   Audi Chairman Rupert
   Stadler visits Beijing
28 FACES OF A CITY
   Ingolstadt is a city to watch
36 PANORAMA
   The world’s first Audi terminal
   opens in Sydney
Photo: Bialobrzeski/laif




                           Markets & Movers
                         14         MARKETS & MOVERS




 9
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                                                                        GDP growth of 9.4 % in the 2006/07 fiscal year.




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                          Reaching for
                                                                                                                                                    I
                                                                                                                                                                 was last in New York at the end of September 2007.
                                                                                                                                                             My visit was timed to coincide with the annual session of
                                                                                                                                                             the United Nations General Assembly where Sonia

                             the stars                                                                                                                       Gandhi, the President of India’s ruling Congress Party,
                                                                                                                                                             would be speaking. All over Manhattan, posters an-
                                                                                                                                                       nounced that India had now completed 60 years as an inde-
                                                In this essay, Indian writer                                                                           pendent country. I had arrived in the middle of a festival
                                                                                                                                                       called India@60, jointly organized by the Indian government
                                             Vir Sanghvi gathers together                                                                              and the country’s private industry.
                                               personal impressions from                                                                               There were the usual celebrations of art and folklore, but
                                                 all over the world to trace                                                                           some of the events took me completely by surprise. At Bryant
                                                                                                                                                       Park in the center of Manhattan, crowds of New Yorkers gath-
                                              his country’s rise to econo-                                                                             ered to watch displays of Bollywood dancing and Indian rock
                                                          mic power status.                                                                            stars like Remo Fernandes or the Colonial Cousins. Tickets
                                                                                                                                                       for the Indian movie “Gandhi, My Father,” an account of the
                                                                                                                                                       differences between Mahatma Gandhi and his son, sold out
                                                                                                                                                       within minutes of going on sale.

                                                                                                                                                       Elsewhere in New York another kind of India predomi-
                                                                                                                                                       nated. At those centers of the American Establishment, the
                                                                                                                                                       Yale Club and Harvard Club, the cream of New York gathered
                                                                                                                                                       to discuss where India was headed. At the Yale Club, Indra
                                                                                                                                                       Nooyi, head of PepsiCo, and Naina Lal Kidwai, head of HSBC
                                                                                                                                                       Bank in India, spoke of their Indian roots. Both Nooyi and
                                                      An economic miracle: India is a country whose economy grows by some nine percent annually on average, and whose young IT talents
                                                      are highly sought by global corporations. A country where even farmers with ox-drawn carts use cell phones.




                                                      “Now every global corporation                                     treated with derision, is now accorded a rare respect in such
                                                                                                                        fields as information technology. Each month, the government’s
                                                      is investing in India or looking for
                                                                                                                        Foreign Investment Promotion Board finds that it has more
                                                      a way into the market.”                                           applications for investment than it can handle. Prices on the
                                                      Arun Sarin, CEO of Vodafone Group Plc                             stock market have risen to dizzying levels over the past three
                                                                                                                        years – some indices are up by 300 percent.

                                                      Kidwai are on Fortune magazine’s list of the most powerful        And our popular culture has finally got the respect it de-
                                                      businesswomen in the world. I was part of a discussion at the     serves. Last year, at the Frankfurt Book Fair, I was asked more
                                                      Harvard Club. Our panel included Arun Sarin, CEO of Voda-         questions about Bollywood stars than about famous writers.
                                                      fone Group Plc. What impressed him, he said, was that every       Now even America seems to have woken up to the power of
                                                      global corporation was investing in India or was looking for a    Bollywood as a global alternative to Hollywood.
Photos: Eye Ubiquitous/Hutchison, Bialobrzeski/laif




                                                      way into the market. Afterwards, TV crews jostled to ask us       You can see the changes within India too. Two decades ago, it
                                                      about the Indian economy. I sat back in my chair and mar-         was still something of a mark of pride to have a landline tele-
                                                      veled for a moment. Just what was going on?                       phone in your home. Now, cell phones are so ubiquitous that
                                                                                                                        they are no longer a status symbol. Owning your own home
                                                      I thought back to the India of 20 years before. Even at           seemed like a dream for the middle classes. Today, even young
                                                      that time, we were a populous nation with a free-spending         couples are moving into places of their own.
                                                      middle class, estimated at 100 million plus. And yet, nobody
                                                      seemed to care very much about us. But today, India is very       The rich are simply blossoming. The result? Property
                                                      much the flavor of the decade.                                    prices in New Delhi and Mumbai rival Manhattan and
                                                      Even America seems fascinated by India. American business-        London’s Mayfair, skyrocketing by more than 35 percent in
                                                      men who used to be content flying over Mumbai now make it         2006 alone. The prices of certain office complexes have even
                                                      a point to plan a stopover there. The Made in India label, once   doubled during the construction phase. The world’s most
 16    MARKETS & MOVERS




Engine for growth: The free-spending middle class numbers almost 200 million people. India is the luxury market of tomorrow.
Each year, there are hundreds of thousands more cars on the roads.




“This can be India’s century if                                     Ambani believes, India will move even faster ahead. After all,
                                                                    India is the world’s second-largest food producer after China,
enough of us reach for the stars.”                                  although at 1.5 percent, its share of world trade is compara-
Mukesh Ambani, head of Reliance                                     tively low.

                                                                    Even Arun Sarin, despite being born and educated in In-
expensive luxury brands are making a beeline for India. Earli-      dia, said in New York that he was struck by the high caliber of
er this year, I asked Yves Carcelle, the head of Louis Vuitton,     Indian managers. He has spent much of his working life
why his company was so bullish in India. Carcelle was un-           abroad, but when Vodafone acquired Hutch Essar in India a
equivocal. “India is the luxury destination of the 21st century.”   year or so ago, he returned to the country of his birth. “The
Another example: 20 years ago, there was just one state-            managers of the company we had acquired were truly the
owned airline. Now we have a dozen private carriers, but the        equal of the best in the world,” he remembers.
super rich would rather buy their own planes, and at least          Who are these people? And why has it taken until now for
300 private jets have been ordered.                                 them to come to prominence? Some of it has to do with demo-
                                                                    graphics. India may be an old civilization, but it is an astonish-
How have things changed so much? I asked Mukesh Am-                 ingly young country. Around 60 percent of the population is
bani, head of the giant Indian conglomerate Reliance. He is         under 30, and one-third are under 15. And the generation that
convinced that India’s greatest resource is its people. “Give       led India to its height of glory was born at the end of the 1950s
the Indian people the freedom and the space to excel and they       and 1960s.
will do so,” he explains. “This can be India’s century if           Nandan Nilekani, Co-Chairman of software company Infosys,
enough of us reach for the stars.” He gives the example of the      is one such example. When I first met him in 1980, he was a
agricultural sector (where Reliance has made huge invest-           brilliant young computer engineer, who had benefited from
ments recently) as the great underutilized resources of the         going to one of the state-run Indian Institutes of Technology
Indian economy. Apply modern technology and logistics and,          (IIT) – the best 3,500 are selected each year, from up to
                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////




                                                                                                                                                                                                                                                                                                                  11 million new IT jobs expected by 2010.
                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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                                                                                                                                                             /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           Boomtime in large cities: Even today, property prices are         ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           on a par with those in Manhattan.                                 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                          THE ECONOMY IN FIGURES
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           250,000 hopefuls. Many of the best brains in his age group        ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           were trained at the IITs. But when several flew off to work                                                                                              1.12 bn
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                         New Delhi
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           abroad (one reason why Silicon Valley is so full of Indians),                                                                                             people live in India,
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////India////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
Photos: Roemers/laif, Bialobrzeski/laif, Moshir Desai/corbis, Ellingermann/laif, AUDI AG




                                                                                                                                                                                                     ////////////
                                                                                           critics complained that the Indian taxpayer was subsidizing                   Mumbai                                                                      of whom 60 % are
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                                                                           Hyderabad
                                                                                                                                                                                                                                                     under //////
                                                                                                                                                             ///////////////////////////////////////////////////////////////////////////////////////////////////////30.///////////////////////////////////////////////////////////
                                                                                           American industry.                                                ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                                                                             Bangalore
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           Fortunately, many of the best refused to leave the country.       ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           Some, like Nandan, teamed up with friends to start their own      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           companies. “We were in the right place at the right time,” he
                                                                                           says looking back. As computers began to take over the world,
                                                                                                                                                                         827 bn
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                          US dollars was India’s GDP
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           India had the best computer programmers. Infosys grew from                     in the 2006/07 fiscal year.
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           being a small enterprise to becoming a world leader in its        ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

                                                                                           field, entirely on the strength of its founders’ intellect and                 31%
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           vision. The software industry is still a mainstay of the Indian                increase //// /// industry’s //////////////////// //// ////// /////////////////
                                                                                                                                                             //////////////////////////////////in//IT///////////////////////////revenues//in //the///2006/07////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                          fiscal year. 11 million new jobs expected by 2010.
                                                                                           economy. In the 2006/07 fiscal year alone, revenue surged by      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           31 percent, to 40 billion US dollars.                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

                                                                                           Nandan believes that there will be many more success stories                   20 bn
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             //////////////////////////////////////of//new//private//////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           in the Infosys mold because India – and young India in partic-                 US dollars //// ///////// /////////////// building activity (2007),
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           ular – has what it takes to become an information technology                   set //// /////// five-fold ///// ///////////
                                                                                                                                                             //////////////////////to//rise//////////////////////by//2015./////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           superpower. Each year sees hundreds of thousands of comput-
                                                                                           er specialists enter the job market. In Bangalore, where Info-                16 %
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                          annual rise in demand for cars in 2007. There are
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           sys is based, every young person wants to follow in Nandan’s      ////////////////////////////////////vehicles//////////every//1,000////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                          15 motor ///////////////// for //////////// /////////// inhabitants.
                                                                                                                                                             ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           footsteps. But meanwhile two other cities in southern India –     ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                           Hyderabad und Chennai – are witnessing IT booms of their own.     ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////


                                                                                                                                                             Source: German Federal Office for Foreign Trade, German Foreign Office
  18     MARKETS & MOVERS




                                                                                                                                  35
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
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                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
The heroes of Bollywood have long been a prime export. Bollywood is                                 //////////////////////////////////////////////////////////////////////////////////////////////
synonymous with Mumbai’s Hindi film industry.                                                       /////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
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                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
If Nandan is one face of the Indian success story, then                                             //////////////////////////////////////////////////////////////////////////////////////////////
                                                                    The answer was typical: He has faith in his gut instinct about
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
Karan Johar is another. The son of a successful film producer,      people and believes that young India is full of talent. More
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
Karan was finally seduced by the glitz and glamor of the in-                                          //////////////// /// ////////// ////////// /
                                                                    recently, he produced a movie//directed//by//Farah///Khan,///a/////////////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
dustry and planned a movie of his own. His father was skepti-       choreographer who had never//directed//before.//It//went///on////////////////////////////////////////
                                                                                                      /////////////// ///////////// // //////// ////
cal, at least until Bollywood superstar Shahrukh Khan, affec-       to become a great success. //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
tionately known as “King Khan,” told him he believed in his                                         //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                      is /////////////////////// /////////// /////////////
                                                                    Shahrukh, for one, says he////////sometimes///taken//aback/////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
                                                                    by the response he gets when /he//goes//abroad.//I//have//seen//him///////////////////////////////
                                                                                                     /// //////// ////////////// / //////// //////// ///////
“India has everything that’s needed                                 being mobbed in London when he visited Madame Tussauds,
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
to become a knowledge superpower:                                                                   /// ///////////////// //// ////////// //// ////////
                                                                    the famous wax museum which//displayed//an//effigy//of//him./////////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
Talented young people.“                                             He modestly believes that his success//is//only//a//reflection//of////////////////////////////////////
                                                                                                    ////////////// // //////// / ////////////////// ////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
                                                                    a greater global interest in India.
Nandan Nilekani, Co-Chaiman of software company Infosys                                             /////////////////////////////////////////////////////////////////////////////////////////////
                                                                    Of course, that’s not entirely true. Just on the basis of the
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    ////// ///// /////////// //// // /////// /// /////
                                                                    number of people who recognize//his//name,//he//is//one//of//the////////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
son’s talent and wanted to star in his film. “Kuch Kuch Hota        most famous people on the planet.////////////////////////////////////////////////////////////////////////////////////
                                                                                                    /////////
Hai” (Something is Happening), starring Shahrukh, went on to                                        //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    /////////////////////////////////////////////////////////////////////////////////////////////
become a hit. Since then, the blockbusters have kept on com-        But I find it encouraging that nearly everybody I spoke to –
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
ing for Karan. The interesting thing about his success is that                                      // // ////////////// //////////// /// //////// //////////
                                                                    whether from business or films//–//seemed//keener//to//push//India//////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
his films make much of their money on overseas release.             than to push themselves. With//that//kind//of//national//spirit//and////////////////////////////////
                                                                                                      /////// //////// /// /////////////// ///////// ///////
“Kabhi Alvida Naa Kehna” (Never Say Goodbye), a daring              that kind of commitment, you can see why this could well
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
film about infidelity, also starring Shahrukh, did not do well in                                   //// //////////////
                                                                    come to be known as the Indian//century./////////////////////////////////////////////////////////////////////////
                                                                                                                                                •
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
India’s small towns, but was a huge international success.                                          /////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                    //////////////////////////////////////////////////////////////////////////////////////////////
I asked Shahrukh why he was emboldened enough to agree to                                           /////////////////////////////////////////////////////////////////////////////////////////////
act in a film made by a boy who had never directed before.                                          //////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                            ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                           ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                           ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                           ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                           ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                           ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////




                                                                                                                                                                                                                                         Ulf Berkenhagen,
                                                                                                                                                                                                                                         Member of the Board




50
                                                                                                                                                                                                                                         for Purchasing of
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////                                                                                  AUDI AG
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              The hunter, not the hunted. Globalized
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             markets as a challenge for purchasing.
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                      ////////// // //////////// //// purchasing, one thing is obviously
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////When//it//comes//to ///////////
                                                                                                   India has 350 TV channels.




////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             crucial: Price. But today, purchasing is about much
                                                                                                                                                                      ///////// //////// ///////////// getting
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////more//than//simply/////////// the best deal. What we are
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                     concerned with today is costs, overall profitability in
 /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             combination with the highest demands regarding qual-
                                                                                                                                                                      ///// We ///////// ////// cars ///
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////ity./////////want//our///////////to embody what is relevant to our
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             customers, and what they are willing to pay for. Our job
 /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             and responsibility is building cars with a convincing ra-
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////tio//of//price//to /performance. In this quest, our alliance
                                                                                                                                                                      //// /// ///////// //// //////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             with Volkswagen provides us with valuable synergies.
                                                                                                                                                                      ///////////////// ////////// ////// turbulent developments in the mar-
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////However,//given//the ////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                      /////// ///// energy /////// //////
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////kets//for////////////////and//raw materials, it is still a huge chal-
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////             lenge to keep costs under control.
 /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              Against this background, internationalization of pur-
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              chasing plays a key role. As a global car manufacturer,
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              we need to keep up with our foreign suppliers. That is
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              why Audi Purchasing is becoming more and more in-
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              volved in regions where new markets have opened up
 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////in//recent//years.//Examples include China or India, where
                                                                                                                                                                      /// /////////// /////////// /////////////
                                   CULTURE & EDUCATION IN FIGURES
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              the demand for locally-made parts is certainly set to in-
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////              crease.
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                  17,000
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                               How do these markets work? Which suppliers in which
                                                                                                                                                               regions can be considered as long-term partners?
                                   universities and colleges train a total of some
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////10//million/////////////////////The//real//hotbeds//of///////////////are///////////////////
                                   //// ///////////// students. ////// /////// /////////////// /// talent /////                                                These are issues that we at Purchasing are keeping a
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        keen eye on, with the due respect for regional differ-
                                   the//seven///////////////Institutes//of//Technology///////////////////////////////////
 //////////////////////////////////////// /////////// Indian ////////////////// /// ////////////////////// (IITs).                                             ences. Always knowing where the world market is go-
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        ing, that’s what I consider to be the main virtue of
                                  1,000
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        tomorrow’s purchasing managers. That’s all the more
 //////////////////////////////////films//are//produced//in//India//each//year//–//more//than//////////////////
                                   ///////// ////// ////////////////// /// ///////// //////// //////// / ////////// ////////                                   important because in a few years we will be buying for
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                   double the number for Hollywood.                                                                                            1.5 million vehicles. Building structures and processes
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                               to accommodate purchasing on this scale will not be
                                  60 million
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                               child’s play.
                                   Indian households have cable or satellite TV today,
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        We can only be successful in taking this route if we
                                   compared to just 1.2 million in the early 1990s.
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        continue to work in partnership with our suppliers. Our

                                  62,500
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                               aim is to establish long-term global alliances based on
                                                                                                                                                               honest, open dialog that benefits both sides. That is
                                   newspapers published in India, with a total circula-
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                               the only way to ensure a successful cooperation that
                                   /////// //// 180 ////////////// /////// //////////// /////////////////////////////////
 //////////////////////////////////tion//of //////////million./The//largest//English-speaking//////////////////////
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        will last for the entire lifecycle of a car. However, negoti-
                                   daily newspapers are The Times of India, Hindustan
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        ating prices in the future is hardly going to be a picnic.
                                   Times and The Hindu.
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        Persistent work on cost structures is called for, on our
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                               part and on the part of our suppliers. This is imperative
                                   240 million
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        particularly because we at Audi think of ourselves as
                                   cell phone users. India is forecast to become the
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        shapers: Rather than chasing markets, our aim is to
                                   //////////////////////// ////// //////////// market worldwide //// //////////
 //////////////////////////////////third-largest//cell//phone//////////////////////////////////////by//2010.////////////////                                   conquer them. To be the hunter, not the hunted – and
///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////        bring out the best.
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

                             Source: German Federal Office for Foreign Trade, Registrar of Newspapers for India,
                             German Academic Exchange Service, German Federal Institue for Civic Education
 20     MARKETS & MOVERS




Responsibility as
a corporate value
Audi is about more than competitiveness and profitability, it also
cares about dealing responsibly with human and natural resources.
COPY Walter Raml




                                          D
                                                    rivers often have their             ployees a full picture of their state of
                                                     hands on the stick shift,          health,” says Dr. Joachim Stork, head of
                                                       but rarely stop to think what    Audi’s medical department.
                                                     it is covered in. At Audi, the
                                          leather stick shift cover with its fine       “A large company is responsible for
                                          stitching and accurately designed metal       more than just its employees. Audi also
                                          frame is assembled by mentally                promotes the arts and community work,”
                                          handicapped people, in workshops for          says Dr. Werner Widuckel, Member of
                                          the disabled. “I believe it’s important not   the Board for Human Resources of
                                          just for non-disabled but also for dis-       AUDI AG. Management and staff jointly
                                          abled people to do a job with real value,     laid down this commitment as early as
                                          work they can be proud of. And by that I      2005 in an agreement titled “Zukunft
                                          mean turning out flawless quality,” says      Audi” (The Future of Audi), providing
                                          Audi Chairman Rupert Stadler.                 for, among others, a job guarantee valid
                                                                                        until 2011. In addition, Widuckel be-
                                          Contracting work out to workshops             lieves that the company has a responsi-
                                          for the disabled is just one example of       bility to promote development of its
                                          the many ways in which Audi takes on          home region. This is why Audi – to-
                                          corporate responsibility. In 1995,            gether with the city of Ingolstadt and the
                                          Audi became the first premium car             neighboring districts of Pfaffenhofen,
                                          manufacturer to have its production           Neuburg-Schrobenhausen and Eichstätt
                                          facilities certified according to the EU’s    – founded “Initiative Regionalmanage-
                                          stringent environmental regulations.          ment e.V.,” an association to further in-
                                          Neckarsulm came first, then Ingolstadt        crease the region’s attractiveness and
                                          two years later and finally Gyor (Hun-
                                                                          ˝             quality of life. Audi is also active in the
                                          gary) in 1999. The audits involved a          context of “Europäische Metropolregion
                                          detailed evaluation of many product           München,” a network involving busi-
                                          design and manufacturing processes.           nesses, government, schools, the arts
                                                                                        and administration which is committed
Above
  Committed: Governor of California       At its German sites alone, Audi is re-        to fostering sustainable development
  Arnold Schwarzenegger and his wife      sponsible for approximately 45,000            throughout Southern Bavaria.
  Maria Shriver collecting donations
  for “Best Buddies.”
                                          staff. This responsibility goes far beyond
Below
                                          compliance with legal requirements. For       In December of each year, Audi
  Playing for Mexican orphans: The Audi   example: In addition to the standard oc-      demonstrates its commitment in a very
  charity match “Pan de Vida” raised      cupational health checkups, the medical       special way. In 2007, the annual Christ-
  50,000 euros. Rupert Stadler lined up
  for the Audi team. Playing with him
                                          department offers a comprehensive di-         mas donations collected by the Ingol-
  were former stars such as Karl-Heinz    agnostic program for all employees,           stadt workforce amounted to more than
  Rummenigge, Thomas Berthold, Guido      who can use the service free of charge        half a million euros for the first time,
  Buchwald and Fredi Bobic.
                                          during working hours of their own ac-         while Neckarsulm collected more than
                                          cord. “The acceptance rate for the ‘Audi      210,000 euros. Started by the workers’
                                          Checkup’ is encouragingly high – more         council in 1977, these donations have
                                          than 90 percent. The checkups give em-        grown into a cornerstone for local
                                                Good friends: Former star sprinter Carl Lewis supports the Kennedy foundation “Best Buddies,” here with board member Katie Meade.




                                                community initiatives at the German loca-    China, like the USA, is one of Audi’s       “As a business, we
                                                tions. Each year, in addition, the Company   largest export markets. There, the brand    are part of society,
                                                tops up the employees’ contributions.        is the market leader in the premium seg-
                                                                                             ment. The management of Audi China
                                                                                                                                         and we want to play
                                                As a company with a worldwide pres-          believe that success brings responsibil-    a positive role.”
                                                ence, Audi believes it has a global re-      ity, hence “Driving Dreams,” a program      Rupert Stadler, Chairman of the
                                                sponsibility, such as when it comes to       launched with a partner. The aim of         Board of Management of AUDI AG
                                                encouraging cooperation between non-         “Driving Dreams” is to improve educa-
                                                disabled people and the mentally handi-      tional opportunities for disadvantaged
                                                capped. This is the aim of “Best Bud-        young people in remote areas of West-
                                                dies,” an initiative founded in 1989 by      ern China. In many villages there, train-   maneuver safely through traffic. Atti-
                                                Anthony Kennedy Shriver. The founda-         ing centers have been built where young     tudes also offers a learning package so
                                                tion regularly organizes meetings and        people can later come back to obtain        that teachers and children can continue
                                                events for the disabled, to better inte-     school-leaving qualifications.              the program after the classes.
                                                grate them into society. The founda-
                                                tion’s conviction is that a mental handi-    Audi is also very well placed in the        “There are many more examples of
                                                cap should not be a stigma.                  premium segment in Spain. In 2000,          Audi’s commitment to corporate re-
Photos: charly kurz/lookatonline, AUDI AG (2)




                                                                                             Audi España launched the project            sponsibility, for example through
                                                Since 2007, Audi has been the main           “Attitudes.” To date, over 30,000           fundraising events,” says Rupert Stadler.
                                                sponsor of Best Buddies in the USA.          schoolchildren throughout Spain have        “As a business, we are part of society
                                                “We took a close look at what they           attended the road safety and environ-       and we want to play a positive role in
                                                were doing, and we were very favorably       mental classes offered as part of Atti-     shaping people’s lives. Even in India,
                                                impressed by the personal commitment         tudes. The program brings together          where we have just started production,
                                                of the Kennedy-Shriver family and that       theory and practice, involving classroom    we have interesting initiatives for young
                                                of the Governor of California, Arnold        discussions, lessons on the computer        people in the pipeline. For us, this is a
                                                Schwarzenegger,” says Matthias Braun,        but most importantly on bikes and           way of making a contribution toward
                                                responsible at Audi for the American         electric go-karts, so children can have     improving equal opportunities at our
                                                markets.                                     fun while effortlessly learning how to      site in Aurangabad.”  •
 22    MARKETS & MOVERS




A keen sense for a growth market: Rupert Stadler and Zhu Yanfeng in front of the new National Theater.
Between business
and bohemians
Zhu Yanfeng, long-time President of Chinese car manufacturer
China FAW Group Corporation (FAW) and current Vice-Governor
of Jilin Province, takes a walk with Audi Chairman Rupert Stadler
through Beijing – a global metropolis gripped by Olympic fever.
COPY Frank Sieren PHOTOGRAPHY Katharina Hesse




T       he “eggshell,” as the locals call the new concert hall,
        is elegantly shrouded in mist. The imposing building
        rises up from the flat surface of the lake in which it
was built, looking as though it were floating on it. “That’s a
phenomenal piece of architecture,” says Rupert Stadler, visi-
bly impressed. In the background is the hum of traffic from
Chang’an, the boulevard that cuts Beijing into north and south.
After a brief pause, his business partner solemnly replies: “It
points to where China wants to go: Towards a balance between
cultural and economic development.” He casually places one
foot on the barrier surrounding the small lake. “Up to now, our
economic development has been the stronger of the two.”
Several Beijing opera singers clad in colorful traditional cos-
tumes are rehearsing in the open space behind them. In this
modern environment, they look almost magical.

                                                                     Foot off the gas: Zhu Yanfeng and Rupert Stadler stroll through
“We sense that the Chinese market                                    Nan Luo Gu Xiang, a quiet, secluded street in Beijing.

wants and needs new technology to
                                                                     decided to visit two places in Beijing: The National Theater,
meet its new challenges.”
                                                                     one of the world’s most beautiful modern concert halls, right
Rupert Stadler,
Chairman of the Board of Management of AUDI AG                       next to the Gate of Heavenly Peace – in the heart of the urban,
                                                                     sophisticated part of Beijing. And Nan Luo Gu Xiang, the
                                                                     city’s most charming traditional street. Protected by its status
Even car executives sometimes like to take a walk – to               as a UNESCO World Heritage site, this is one of the few places
clear their minds, say, or, in this case, to get a better feel for   where you can still encounter the traditional, small-scale,
the growth market that is China. Better than through presenta-       slow-paced Beijing.
tions in air-conditioned conference rooms. Today, Zhu Yan-
feng and Rupert Stadler are out for their first-hand impression.     As the two continue walking and talking around the
They want to experience the pace of life in the capital of the       lake, the Great Hall of the People emerges behind the concert
world’s most populous country, to get a feel for its tradition,      hall. This is where the Chinese government entertains visiting
its drive to innovate. Both men are in their mid-40s. For both       heads of state. It was built in Stalinist style on the orders of
of them China’s rise is a phenomenon that will mark their            Mao in 1959. The minimalist dome of the theater easily holds
lives. China is a market of the future, and thus one that de-        its own against the monumental pillared structure. Zhu ex-
serves closer inspection. It is the only country in the world        plains: “Both buildings are the result of the immense effort
with the potential to overtake America as the world’s largest        involved in moving China forward.” In the north, on the other
car market in the next decade. FAW and Audi have success-            side of Chang’an, lies the Forbidden City. No other place in
fully worked together here for 20 years, in a joint venture          China brings architectural tradition and modern styles from
based in Changchun in Northern China. Zhu and Stadler have           the past 100 years so closely together. Stadler is one of the
 24    MARKETS & MOVERS




first foreigners ever to see the inside of the new National
Theater. This is how the Chinese express their consideration
for their foreign friends. Inside, Zhu and Stadler are speech-
less. Through the glass roof, they can see the sky. As they walk
on further into the building, the room opens out into a vast,
futuristic lobby. Stadler is spellbound. This might be an excel-
lent location for Audi’s numerous cultural sponsorship events.
Audi has been chosen to supply the Official Premium Car for
the Olympic Games, and Stadler and Zhu agree that China will
benefit enormously from the Olympics. “All major sporting
events help a country progress,” says Zhu. They both step into
the largest auditorium. Finished in wood and painted in beige,
the opera hall can seat 2,400 people. Under the protective
mantle of the gigantic dome, there are two more halls: The
concert hall, with glowing red seats for 2,000 spectators, and
the theater, with 1,000 seats. China’s new landmark cost just
under 300 million euros.



“The secret of China’s success is a
combination of a radical aperture and
an irrepressible entrepreneurial spirit.”
Zhu Yanfeng



“This building is a statement of China’s new self-assur-
ance,” says Zhu as they both board their Audi A8. The driver
crosses Chang’an and heads northward. “The first time I visit-
ed China was ten years ago,” Stadler explains as the car nego-
tiates traffic. “Back then, you could still see bicycles every-
where. Today, they have completely disappeared, and the
streets are now filled with cars. Everything is changing at
breakneck speed. You can tell that the country is undergoing a
real transformation. What would you say is the secret of Chi-
na’s success?” “It’s a combination of things,” replies Zhu. “On
the one hand we have been radically opening up our country
to the world. On the other hand there’s a boundless entrepre-
neurial spirit.” “It’s the pace that really impresses me,” adds
Stadler. “Remember during those meetings two years ago,
when we wrote a note on a piece of paper: ‘It’s all about
speed.’” “Yes, that’s one of the secrets behind the success of
this market,” says Zhu, “being able to decide quickly. What
was still valid five years ago is now history.”

The driver stops the car at the southern gate of Nan
Luo Gu Xiang. The buildings here were mostly built in the
century before last, and most are traditional courtyard houses.
The two men stroll down the street, past small shops, green-
grocers, restaurants and cookshops. In some points inside this
rather traditional mix, the odd designer bar and luxury bou-
tique can be found. One building has two stories and it is
Western-looking. A man selling newspapers tells them it was
built for a Russian professor in the 1920s. The street is a micro-
cosm of China. Former government ministers live here, but so
do bicycle repairmen and taxi drivers, civil servants just as
Above
   A futuristic glass and titanium
   dome: The National Theater is one
   of the most ambitious building
   projects in modern China.
Left
   Building boom: Glass-walled office
   towers, luxury apartment blocks
   and shopping centers increasingly
   dominate Beijing’s skyline.
Right
   An in-depth dialog: China’s
   ascent shapes the lives of both
   Zhu and Stadler.
                        Above
  Dubbed the Bird’s Nest:
       The new Olympic
        Stadium is a net
       woven from steel.
                        Below
Breaking ground, breaking
    through: The Olympics
are bringing fresh impulse
                  to China.
                                                                                                                                                                                                       MARKETS & MOVERS                     27




                                                                                                                                                                         that’s indispensable for our society. The design of a car can
                                                                                                                                                                         create a whole attitude to life. It stands for quality of life. It is a
                                                                                                                                                                         private oasis of calm, somewhere you can escape to when you
                                                                                                                                                                         drive to or from work. You can enjoy the journey because you
                                                                                                                                                                         can listen to music or even enjoy some sporty driving.”

                                                                                                                                                                         Zhu nods, then abruptly asks: “What are the strengths
                                                                                                                                                                         and weaknesses of the Germans and the Chinese?” Stadler
                                                                                                                                                                         does not need long to find an answer. This is a question he has
                                                                                                                                                                         often mused over. “We may be better technicians, but the Chi-
                                                                                                                                                                         nese probably make the better salesmen. What do you think?”
                                                                                                                                                                         says Stadler, throwing the ball back into Zhu’s court. “We are
                                                                                                                                                                         faster and more flexible, while the Germans are more orderly
                                                                                                                                                                         and think things through. That is to say we’re the perfect
                                                                                                                                                                         match,” laughs Zhu. An informal, off-the-cuff exchange would
                                                                                                                                                                         have been inappropriate around the negotiating table sur-
                                                                                                                                                                         rounded by their employees. But out on the sidewalk, they
                                                                                                    Local color: Cookshops are also part of the pulsating                can say what they think. The pair greet a couple of old men
                                                                                                    street scene in Beijing.                                             playing the traditional Chinese game of Mahjong, something
                                                                                                                                                                         of a cross between chess and checkers. Sitting on small stools
                                                                                                    businessmen. Here, you can go to the store next door for a           at a street corner, they are bent in concentration over the
                                                                                                    beer in your pajamas. There is even a knife grinder                  playing tiles.
                                                                                                    plying his trade in the street. Here, time moves more slowly
                                                                                                    than anywhere else in Beijing. This is where young bohemians         At the end of the walk, both men look back on the success-
                                                                                                    go out at night. Yet even here, there are still signs of progress.   ful 20-year partnership between Audi and FAW. Zhu asks
                                                                                                    The homes of the less affluent residents are currently being         Stadler for his views on the decisive factors behind this suc-
                                                                                                    converted from coal to night-storage heating. “This will get         cess. “A lot of groundbreaking work,” replies Stadler after a
                                                                                                    rid of the acrid smell of coal that hangs in the air all winter      brief pause for thought, “and a willingness to negotiate.”
                                                                                                    long,” explains Zhu.                                                 “Yes,” replies Zhu, “in this business, both sides have to be sure
                                                                                                                                                                         that they will benefit. And we managed to achieve that.”       •
                                                                                                    They come to a small traffic jam. Two drivers are arguing
                                                                                                    loudly about who gets to go first. “Cars are soon going to be
Photos: sinopictures/CNS, Martin Puddy/gettyimages, Angelo Cavalli/gettyimages, UPI/laif, AUDI AG




                                                                                                    banned from this street,” suspects Stadler, “and that’s a good
                                                                                                    idea. A city needs both traffic and car-free zones.” Both men
                                                                                                    have long been thinking about the role the automobile should
                                                                                                    play in a modern city. To both of them, this is part and parcel
                                                                                                    of their environmental awareness. “Society is changing. The
                                                                                                    challenge of dealing with resources in a responsible manner is
                                                                                                    becoming ever greater. We are clearly sensing that the Chinese
                                                                                                    market wants and needs new technology to meet these new
                                                                                                                                                                                                         Xu Jianyi,
                                                                                                    challenges,” says Stadler. “We need to manage China’s growth,                                        President of China FAW
                                                                                                    and we need people committed to implementing these new                                               Group Corporation
                                                                                                    policies,” replies Zhu. “The earlier we start thinking about
                                                                                                    this, the better. The car market is set to grow dramatically,”          Leadership change: A new President for
                                                                                                    says Stadler.                                                           our Chinese joint venture partner
                                                                                                                                                                            On December 27, 2007, Zhu Yanfeng was named Vice-
                                                                                                    “We need to prepare for further growth, but we also                     Governor of the Jilin Province effective immediately.
                                                                                                    need to face up to the responsibility that comes with it,” re-          Xu Jianyi was appointed as his successor as President
                                                                                                    marks Zhu. They walk past a broom seller carrying his entire            of China FAW Group Corporation (FAW).
                                                                                                    stock-in-trade through the streets on a bicycle. There is a             Xu Jianyi previously held executive positions at FAW
                                                                                                    pause in the conversation. Zhu picks it up again: “What was             and served several years ago as Commercial Vice-
                                                                                                    your first car?” “A VW Golf convertible in the early 1980s,”            President of FAW-Volkswagen. In this position, he
                                                                                                                                                                            managed the Audi integration into FAW-Volkswagen
                                                                                                    answers Stadler. “And yours?” “A Beijing Jeep, I got it in
                                                                                                                                                                            and the negotiations for the local manufacture of
                                                                                                    1991.” “What is it about cars that you find fascinating?” asks          the Audi A6.
                                                                                                    Stadler. “Cars have a soul, and they make the world go faster,”
                                                                                                    answers Zhu. “How about you?” “To me, the car is a product
 28    MARKETS & MOVERS




Faces of a city
The people of Ingolstadt make it the prospering city
on the river Danube. The dynamic region is marked
by a high quality of life, strong economic growth and
a cosmopolitan feel.
COPY Karin Michaelis PHOTOGRAPHY Bert Heinzlmeier, Peter von Felbert




Café Moritz in the City Hall Square, with
the Moritzkirche in the background.
THE LUMINARY
Terttu Pietilä, Finnish
The words of her grandfather from Lap-
land are still ringing in her ears: “Your
intuition will tell you whether a place is
good.” And Ingolstadt emits good
vibes, says Terttu Pietilä, who took over
as head of neurosurgery at Ingolstadt
Hospital almost four years ago. Life be-
side the river, flowing in a broad curve
through the landscape, the early morn-
ing mist hanging over the Danube’s
leafy floodplain, birds twittering in the
lowland forests: This Finn has taken a
shine to green Ingolstadt. “Cycling
along the banks of the Danube frees
your mind,” says the 51-year-old doctor.
With the wind blowing through her hair,
she watches oarsmen training on the
reservoir, as boats glide in circles
around them. Then she picks up pace
and leaves the city behind. The only
people she encounters are a couple of
random joggers or every so often a
fully-laden cyclist on holiday, heading
for the Danube delta. “It’s the best way
to shake off the weekday stress,” says
Terttu Pietilä. As a European delegate
to the World Federation of Neurosurgi-
cal Societies, her presence is often re-
quired at overseas conferences. She
performs 1,500 operations a year, and
her team includes colleagues from nine
different countries. “One of them is
from Bavaria,” she says with a smile.
It seems it took a while for her to get
used to his dialect.
                01
View of city gate
   and cathedral
                02
      Street life
                03
      Tagtraum,
    student café
                04
    The Lechner
       museum


                01   02

                03   04
                                                                              MARKETS & MOVERS                    31




                            Amid the bubbling fountains and tall         play ice hockey for the local team, ERC
GLOBAL PLAYER               linden trees shading the café tables,        Ingolstadt. Herbert skated for the “Pan-
Ritchie Herbert, Canadian   the hustle and bustle of the city magic-     thers” for three years, earning a few
                            ally disappears. “This is a gem,” says the   Mexican waves from packed-out ter-
                            Canadian, a resident of Ingolstadt for       races. Even when he’s not on an editorial
                            16 years, of Café Hohe Schule. “Hi           assignment, Herbert enjoys walking
                            Ritchie. The usual?” asks the waitress.      around “his” Ingolstadt with a camera –
                            Here, in the middle of the old town, is      there is no shortage of photo opportuni-
                            the local newspaper’s photo reporter’s       ties. A former student of art history, he
                            favorite place to enjoy a cappuccino         eventually moved to Europe in 1992, at-
                            between press conferences and theater        tracted by the culture. No doubt about
                            premieres. “Hello Ritchie,” waves a fe-      it, this 1,200-year-old fortified city is cer-
                            male passer-by. “See you at the street       tainly brimming with cultural history.
                            party.” “Practically everyone knows me,”     “Just yesterday, I rediscovered two old
                            smiles the 44-year-old. Hardly surpris-      house doors with amazing decorations,”
                            ing, as he is a local reporter and, what’s   enthuses the reporter from Toronto.
                            more important to the locals, used to        Ottmar Engasser, Donaukurier
 32   MARKETS & MOVERS




                         Her favorite place? “The little theater in   also what brought the 34-year-old to
THE ESTHETE              the old town,” is the spontaneous reply,     Ingolstadt 13 years ago. She was
Teona Chkheidze,         “because of its cosy atmosphere.” The        determined to continue her studies
Georgian                 top floor of the “Stadel,” a landmark        with her childhood teacher, Professor
                         former storage building, seats no more       Konstantin Vardeli.
                         than 99 people. Between one and four         Although she has surrounded herself
                         actors perform on the stage in plays         with a lot of Georgian culture in her
                         such as “Null Bock auf Klassiker?”           beautiful house at the edge of the city,
                         (Shove those classics) or “Goethe, hör       it is clear that Teona Chkheidze has
                         mich an” (Goethe, listen to me). During      long felt very much at home in Ingol-
                         the intermission, you can even talk          stadt. “Here, you’re not just a number
                         shop with the performers.                    like in a big city,” she explains.
                         Sometimes the spotlight is on Teona          There’s also the weekly market, where
                         herself, a violinist with the Georgian       cut flowers shine out from rows of
                         Chamber Orchestra, as the mellow             buckets in a rainbow of color. This is
                         tones of a Mozart piece radiate from         where Teona prefers to buy Schroben-
                         the strings of her violin at one of the      hausen asparagus, a local specialty.
                         theater’s cultural evenings. Music was       Harald Jung, Neuburger Rundschau
               01   02

               03   04




               01
 Asam church
               02
     Shopping
               03
Weekly market
at the city hall
               04
   Bridge over
   the Danube
THE HIGH - FLYER
Gorazd Ocvirk, Slovenian
To the left, the aroma of grilled lamb
chops, to the right, fragrant char fish
with thyme and oregano. For Gorazd
Ocvirk these are the scents of a sum-
mer evening in Ingolstadt, when an
extended Turkish family mingles with
German neighbors and a gang of uni-
versity students around the local lake.
“A multi-cultural society in the open
air,” smiles the young Slovenian, who is
writing his doctorate thesis at the facul-
ty of business administration at the
local Catholic University of Eichstätt-
Ingolstadt, only a short bike ride from
his little apartment in the historic town
center. “Everything you need is reach-
able on foot – the university, the super-
market, and lots of pubs.” Also next
door is the Italian espresso bar, where
Gorazd Ocvirk almost always runs into
friends when he goes there for a cap-
puccino. Just a few steps on is a typical
university student pub with rustic
wooden tables. Or what about the for-
mer tire store converted into a club,
decorated in pure white, where you can
dance to salsa, live jazz or hip hop on
two floors? But for Gorazd Ocvirk, noth-
ing beats the pulsating atmosphere at
Café Tagtraum on Friday nights, when
a friend of his plays in a band. Top that
with a glass of beer, and what more
could a man ask for!
                                                                                                                                     MARKETS & MOVERS                  35




Ingolstadt is home to 123,000 people, 27 % more than 20 years ago.
About 100,000 jobs are based in the city. The region’s unemployment rate
is less than 3 %. Ingolstadt is a powerhouse.




L          ocated on the Danube, and
           home to the Audi headquar-
ters, the city is a well-kept secret – for
now. Whether we’re talking dynamic
                                                                                  logistics center alone. At the end of 2007,
                                                                                  30 medium-sized companies from the
                                                                                  logistics and assembly industries, em-
                                                                                  ploying 3,200 people, had located in the
                                                                                                                                know each other. Ingolstadt combines
                                                                                                                                the opportunities found in a big city
                                                                                                                                with the manageability of a small town,
                                                                                                                                which is why its economy boasts many
economy, unemployment, prospects for                                              state-of-the-art industrial park.             success stories. Not only Audi, blazing
the future, quality of life or research –                                                                                       from one sales record to another.
Ingolstadt scores top marks in many of                                            Success is attractive. More and more          Another local company which is now a
the latest statistics, studies and forecasts.                                     people are being drawn to Ingolstadt.         global player is the Media Saturn Group.
                                                                                  No other major city in Bavaria is grow-       The textile industry features the well-
Take the rate of unemployment for                                                 ing faster, and more than 123,000 peo-        known medium-sized enterprises
example: Barely three percent in the                                              ple now live in the city on the Danube,       Bäumler and Rosner. And part-time
region. There are around 100,000 jobs                                             including a disproportionately large          employment agency TUJA was also
in the city. Audi is by far the largest em-                                       number of young people. Forecasts pre-        founded in Ingolstadt.
ployer: Around 32,000 of its more than                                            dict a population of about 135,000 by
53,000-strong global workforce are                                                the year 2020. While the declining birth      This booming community has also
based in Ingolstadt. In 2007, the car                                             rate means that many other towns no           continued its university tradition.
manufacturer hired 600 high school                                                longer know what to do with their             Here is where Bavaria’s first university
graduates, 150 more than the previous                                             schools, Ingolstadt is investing in school    was founded, transferred from Ingol-
year. The company will also hire 800                                              building measures (98 million euros           stadt to Landshut in 1800 and later to
university graduates in 2008. Hardly                                              over the past twelve years alone).            Munich. Today, the faculty of business
surprising then that Audi ranks highly                                                                                          administration of the Catholic Uni-
among the most popular employers.                                                 Young entrepreneurs also find the             versity of Eichstätt-Ingolstadt and the
                                                                                  business climate in Ingolstadt favorable.     local University of Applied Sciences
“When it comes to employment,                                                     With 69 companies and about 220               each enjoy excellent reputations. Only
Ingolstadt really does offer good pros-                                           employees, Ingolstadt’s new business          in 2007 Bavaria’s state Ministry of the
pects,” says Werner Richler, managing                                             center is running at full capacity.           Economy agreed to increase the number
director of the municipal economic                                                According to managing director Norbert        of student places in the city by 1,500.
development company IFG. For years,                                               Forster: “99 percent of businesses can        City hall spokesman Gerd Treffer
the city has been making its own contri-                                          hold their own in the marketplace.”           believes the city’s policy of integration
bution. Since 1995 IFG has invested a                                             The best thing is that each year, an aver-    is its biggest success, one example
total of 200 million euros in the local                                           age of twelve companies need to move          being the newly built mosque. “The
                                                                                  out because they run out of space. Some       climate here really is cosmopolitan,”
                                                                                  now employ more than 100 people.              he says. This is one reason why many
///////////////////////////////////////////////////////////////////////////////                                                 foreigners have chosen to make
///////////////////////////////////////////////////////////////////////////////
         WATCH THE MOVIE
///////////////////////////////////////////////////////////////////////////////
         On www.audi.com/ar2007/ingolstadt,
                                                                                  One reason for the success are the            Ingolstadt their home.  •
///////////////////////////////////////////////////////////////////////////////   close links to business, politics and the     Karin Michaelis grew up in Ingolstadt and
          ////////// //////////// //////// ////// on / trip
/////////Ritchie//Herbert//takes/you///////a/////////////////////                 authorities. Forster regards this as a        writes for Automobilwoche as well as for
         through “his” Ingolstadt.
///////////////////////////////////////////////////////////////////////////////
///////////////////////////////////////////////////////////////////////////////   major advantage of Ingolstadt – people        technology magazine Innovate.
36   MARKETS & MOVERS



Panorama                                                         01
                                                                 Corporate architecture

                                                                 Urban encounter
                                                                 AUDI AG is further developing the hangar-style
                                                                 architecture typical of the brand. From December 2007,
                                                                 its showrooms have been taking on a new look: The
                                                                 opening of the world’s first Audi terminal in Sydney,
                                                                 Australia, marked the presentation of the new architec-
                                                                 tural concept, which can be adapted to fit into almost any
                                                                 urban context.
                                                                 The terminals, usually multi-story, sport a curve carved
                                                                 into the facade, story-high windows, thus creating a con-
                                                                 trast between transparent surfaces on the one hand and
                                                                 solid ones on the other. Audi’s terminal architecture is a
                                                                 response to the limited available space and other require-
                                                                 ments in large cities. Audi is aiming to build over 350 ter-
                                                                 minals by 2012, guaranteeing a uniform identity for the
                                                                 brand all across the world.




     01
      Seminal: The world’s first Audi Center in terminal style
      was inaugurated in Sydney.
                  02
                  Anniversary

                  75 years of the four rings
                  Four intertwined rings: The symbol of the merger
                  between the four Saxon car companies Audi, DKW,
                  Horch and Wanderer, which came together to form
                  Auto Union AG in 1932. To this day, the four rings re-
                  main the symbol of AUDI AG, and embody the past,
                  present and future.
                  2007 marked the 75th anniversary of the union: Vari-
                  ous events were held to mark the anniversary. Special
                  exhibitions in Zwickau, Chemnitz and Ingolstadt chart-
                  ed the company’s history. Audi lined up at the start of
                  vintage car events such as the Mille Miglia, the Donau
                  Classic and the Chronoswiss Classics, with a large                     02
                                                                                          Tradition-conscious: Audi Chairman Rupert Stadler at the
                  number of historic cars made by Audi, DKW, Horch                        Chronoswiss Classics, in a Wanderer W 25 K.
                  and Wanderer.




                                                                                     03                              04
                                                                                     Exclusive concert               Integration award

                                                                                     Seal meets A5                   Audi as a model
                                                                                     The launch event series         Businesses need to set
                                                                                     called Talk of the Town         new standards in helping
                                                                                     opened in Munich in             disabled people integrate
                                                                                     June 2007 before travel-        into the world of work.
                                                                                     ling to five other German       Last year, Bavaria’s State
                                                                                     cities. Over 700 guests         Ministry of Welfare and
                                                                                     attended the celebration,       Social Affairs recognized
                                                                                     which was held in the           AUDI AG’s efforts in the
                                                                                     event arena of the city’s       field, presenting the com-
                  03
                                                                                     Olympic Park. The               pany with the “Job Suc-
                   Star power at A5 presentation: Soul singer Seal with guitarist.
                                                                                     evening’s highlights            cess 2007 – Disabled Peo-
                                                                                     included the new Audi           ple in the Workplace”
                                                                                     A5 and an exclusive             award, thus confirming
                                                                                     concert by world-               Audi’s exemplary com-
                                                                                     famous singer Seal.             mitment toward integrat-
                                                                                                                     ing disabled people into
                                                                                                                     the job market.




                  04
Photos: AUDI AG




                   Committed: Dr. Werner Widuckel (center, first row), Member
                   of the Board for Human Resources of AUDI AG, with other
                   prize winners and representatives from the field of politics.
40 RAPID RUSSIANS
   Wladimir Kaminer on
   mobility in Soviet times
44 CONCERT IN MOTION
   Essay by Dieter Meier
46 MODERN CLASSICS
   The Audi Summer Concerts
   present superstars from the
   world of classical music
48 ONE FOR THE ROAD,
   TWO FOR THE SHOW
   Jay Leno, Hollywood’s
   most avid car collector
52 PANORAMA
   Premiere of the Audi Symphony




                                   2
                 Arts & Artists
Foto: Tim Gutt
40   ARTS & ARTISTS
Rapid Russians
Author Wladimir Kaminer knows how to put a quaint comic
slant on everyday life. In an exclusive for the Audi Annual
Report, he writes about Russia’s love affair with fast cars.




D               uring the 1980s, Russia was still a pedestri-
                  an’s paradise. Even in Moscow, you could
                 quite happily cross any street on a red light
               with your eyes closed. Your chances of being
knocked down were no greater than the odds of winning a car
in the lottery. The cheapest Soviet-era passenger car cost about
the same as an engineer would earn – in three years.
And as for life expectancy under socialism, it was low. So you
                                                                    Today, driving a car is not much harder than riding a street car
                                                                    or a bike. Any kid can do it. Cars are so stuffed with electron-
                                                                    ics that the driver hardly knows what’s going on underneath
                                                                    the hood. Under socialism, driving was a challenge, a test.
                                                                    Anyone who was able to drive a car in Communist Russia
                                                                    would probably have had no trouble flying a plane had he
                                                                    needed to. The only thing that Communist drivers had over
                                                                    their Western counterparts was that they never had trouble
hardly stood a chance of legally earning enough money within        finding a parking space.
your short lifetime. Barring a few exceptions.
The first exception was the “Sports Lottery.” If you got six        80 families used to live in our Moscow apartment block.
numbers right out of 49, you won a car. The second exception        There were three cars in the parking lot. One of them, a yel-
was a five-year contract to conquer Siberia with an accom-          low Moskvitch, belonged to my friend Andrej, an unusually
panying savings plan. Anyone who signed up to this agreement        young driver by Soviet standards. Officially, the car belonged
had to toil away for five years building the world’s longest        to his grandfather, a war veteran who had received a whole
railway – the Baikal-Amur line. Having served his time, he’d        string of medals, including the highest accolade: A star that
receive an apartment, or a car.                                     marked him out as a Hero of the Soviet Union. War veterans
The third possibility for would-be car owners was to embark         were eligible for discounts when they bought cars, but they
on a career in the Communist party, and with a bit of luck at       had to be prepared for a long wait, just like everyone else.
some point they would receive an official black Volga – com-        Andrej’s grandfather most likely joined the queue for a car in
plete with chauffeur. You could also marry a rich KGB widow.        1945, right after the end of World War II. Decades later, he
But all these methods belong to the realm of theory. Soviet         had forgotten his dream of a car, when suddenly, just before
reality looked somewhat different: To win in the lottery, you       his 80th birthday, he received a call telling him he could pick
needed to be really lucky, while working on the Baikal-Amur         up the car allocated to him. “Come to Branch Number 108 on
line meant your nose was likely to freeze off, and rich KGB         Friday at nine o’clock and don’t forget your 12,000 roubles!”
widows weren’t something you ran into every day of the week.        trilled a friendly female at the other end of the line.
Because of all this, motorists, in Soviet times, were in a caste    The call came too late. Gramps was too old to drive, and the
of their own.                                                       car – a Moskvitch – was much too expensive for the family.
                                                                    12,000 roubles was a lot of money. But his grandson was over-
They were secretive folks each of whom, in his own way,             whelmed at the thought of owning a car. Such an unprecedent-
had signed a pact with the devil, and, as penance, had to suffer    ed rise in living standards would make the girls look at him in
his carless neighbors’ envy and glee forever afterwards. Life       a completely different light. He discussed the subject at length
for the car driver was far more complicated than it was for         with his grandfather, received his blessing and his savings,
pedestrians. During the week, drivers would set their alarm         plundered the family piggy bank, borrowed from everyone he
clocks about an hour earlier than pedestrians to prepare their      knew, and even tracked down a distant relative, a successful
Ladas and Moskvitches for the journey. At weekends, when            party official, his mother’s cousin, who lent him the missing
the rest of civilized society was at home in front of the TV,       4,000 roubles despite never having set eyes on the boy in his
relaxing with their friends in the sauna or going out to catch a
movie, motorists would lie underneath their vehicles, screw-        ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
driver in hand. Spending weekends toiling in the garage be-         ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                             Wladimir Kaminer, born in Moscow (1967), came to
                                                                    ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
came a part of their lifestyle – more so than the actual driving.            Berlin in 1990 from the former Soviet Union. At the
                                                                    ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
Soviet makes of car were not simply new or used, in good                     ////////////// Burger” /////////// ///////// he ///////////////// //////// //
                                                                    /////////“Kaffee//////////////////dance//club,///////regularly//held/a////////////////////////////////////////////
                                                                    ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                             “Russian disco” – now a firm favorite among Berlin
working order or broken down. They possessed the ability to         ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                             clubbers. “Russendisko“ was also the name of his
                                                                    ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
be both at the same time. When new, they were already used.
                                                                             /////// ////////// ///////// collection, /////// //////// him /// ////// /////
                                                                    /////////first//short//story///////////////////////that//took//////////to//the//top/////////////////////////////////////
Never in perfect working order, they never broke down com-          ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                             of the bestseller lists. In 2007 his eleventh book,
pletely. And each driver became a first-class mechanic simply       ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                             “Ich bin kein Berliner,” was published.
                                                                    ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
out of necessity.                                                   ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
life. On Friday, clutching a sports bag containing 12,000 rou-       were an invitation to a motor race with a prize of ten roubles.
bles, Andrej and I went to the car dealership near Moscow’s          Anyway, the main problem faced by racers was not the police,
south railway station. Taking delivery of the car lasted an en-      but the constant lack of spare parts. Eventually, socialism
tire day. From 50 (!) different cars on display at the dealership,   foundered on its inability to supply these spare parts. But for a
we chose one that actually ran. It was bright yellow, and a slip     while, people tried to take the matter into their own hands.
of paper on the trunk read “Banana” – probably the official          At the end of the 1980s, when Gorbachev was in power in the
name of its color. In any case, from that time on, we only ever      Kremlin but private enterprise was still prohibited, a nocturnal
called it Banana.                                                    spare parts bazaar developed into a regular feature in Moscow
                                                                     – a black market the size of a whole city district. The identity
The cash was handed over the counter and was carefully               of the organizers – and how they managed to keep such a cap-
counted out. Our Banana adventure was about to begin. First          italist activity going for such a long time, right under the noses
we had to visit the licensing bureau, the garage, and the po-        of the state – is still a mystery.
lice. And the 12,000 roubles didn’t quite cover it all: We had to
give the salesman a five-rouble note so we could take it for a       The market was held on Moscow’s ring road, the ex-
test drive. Then another five-rouble note was needed at the          pressway going around the capital, moving to a different sec-
door of the licensing center, that had “closed just a minute         tion each night, effectively gravitating around Moscow. The
ago.” But at the sight of the banknote, the door opened, anoth-      police stayed away: When they did show their faces, the whole
er five-rouble note and the engineer, who had allegedly “just        market moved on by ten kilometers. Every driver in the city
gone on lunch hour,” was willing to postpone his break for an        always seemed to know where the market was going to be held
hour. Yet another five roubles, and a technician explained to us     – an extraordinary feat, given that there was no internet or cell
what needed replacing immediately on our brand-new, care-            phones in those days. My friend Andrej bought parts there for
fully selected car (with a year’s state warranty) and what parts     his Moskvitch. They didn’t come direct from the factory, but
could wait. Fuel tank, gearbox, front-wheel suspension: One          from talented tinkers and self-styled mechanical hotshots.
third of our yellow Moskvitch was repaired the very first day.       Some of these clandestine craftsmen acquired a reputation
                                                                     that spread far beyond Moscow: People came from as far away
Having suspected this might happen, Andrej had                       as Moldavia in order to finally get a real gearbox for their
brought a wad of five-rouble notes with him. At the end of the       Lada. Thus, a developed socialist regime saw its people fixing
day, that was gone, but we did get to take the Banana for a          their own cars. Initially, perestroika and the Western-style
moonlight dip in a Moscow lake. We sped through the city do-         democracy that followed meant that an unbelievable amount
ing 140 kilometers per hour (kph) and with the windows open,         of junk from the whole world ended up in Eastern Europe.
pointed the headlights onto the water when we got to the lake        From Japan, America and Europe, anything that had more
and turned the radio on full blast. It was a great night. Unfor-     than two wheels was carted to Russia to be sold there. And
gettable. But the very next day, the Banana wouldn’t run any-        Soviet drivers, who thought they knew everything about what
more. Something to do with the gearbox. Since that time, I           went on under a car’s hood, were shamelessly exploited. They
have never seen Andrej without a spanner in his hand. So, be-        would buy the worst kind of junk provided it had a Western
ing a car owner in Communist Russia was no picnic. The cars          badge on it. So the streets of Russia came to be cluttered with
literally fell to pieces, but despite, or perhaps because of this,   old cars from the West. But foreign cars evidently weren’t
most drivers were speed freaks. On the face of it, speed limits      happy in Russia. Japanese makes were particularly suscepti-
in the Soviet Union were strict: 60 kph in cities, 100 on “high-     ble, and in winter, a temperature of minus 15° centigrade
speed roads,” the Soviet expressways. But rules in Communist         would set a whole series of their alarms off. “The cars are
Russia were made to be broken. Nobody respected the speed            homesick,” people joked.
restrictions, and anyone who could took advantage of his priv-
ileged position, pushing the few cars there were to the limit.       During the capitalist years that followed, cars improved
People in Soviet times rarely drove. But when they did, they         but Moscow found itself with a colossal parking problem.
drove fast.                                                          Russians, it seems, love nothing better than buying fast cars,
                                                                     even though they no longer have anywhere to race them. To
Despite strict laws then, the Soviet Union was a paradise            resolve the problem, some people have suggested building a
for speeders. At the time, there were no computers and no            trunk road onto the roofs of Moscow’s apartment blocks –
digitalized criminal records, the highest penalty for road traf-     adding a third dimension to our traffic system, as it were. Until
fic offenses was ten roubles and even then the fine only had to      that’s done, Russians will probably just have to learn to live
be paid if the traffic police managed to catch up with the           with jams.           •
racers. That was difficult: Most people didn’t have their own
cars, but drove with a letter of authorization, and so drivers
                                                                                                                                                                                                  Illustrations: Mawil




were difficult to trace. Even worse, almost all drivers “forgot”
to fasten their license plate to the back of the car, leaving the    //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                     //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                              WATCH THE VIDEO PODCAST
police no choice but to chase after the speeders and try to pull     //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                              At www.audi.com/ar2007/kaminer Wladimir Kaminer reads
them over. While under capitalism, speed limits are enforced         //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                              //////// his //////// ////////// ///////// ////////////////
                                                                     /////////from////////story /about /rapid /Russians.///////////////////////////////////////////////////
by means of electronic monitoring, under communism, they             //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
ARTS & ARTISTS   43
 44   ARTS & ARTISTS




Concert in motion
Driving is more fun with a little music – perhaps from “Yello,” the fathers of
electro-pop who achieved worldwide fame. One of their most popular tracks
is “The Race.” Dieter Meier, mastermind of the innovative musical duo,
talks about the special bond between driving and listening.
PHOTOGRAPHY Pablo Faccinetto




                                            y mother had a fascination for sports cars, and drove
                                            one long past her 70th birthday. She even had the clutch
                                            pedal lengthened so she could indulge in the pleasure of
                                            double-clutching and revving the engine up to the correct
                                            speed, thus ensuring a smooth downshift. As a consequence,
                                            the engine’s roar became the soundtrack to little Dieter’s
                                            vacation as his mother drove him in her raceabout to a pen-
                                            insula at the upper end of Lake Zurich where the family
                                            used to spend summer weekends.

                                            But a few years have passed since then, and today,
                                            sporty driving, along with the coloratura roar of an engine
                                            hitting the high C, has mostly faded into the powerful silence
                                            of the modern power plant, which offers today’s drivers such
                                            a wide range of driving styles. When I drive a high-perform-
                                            ance car at low speeds, only a faint hum reminds me of the
                                            multitude of parts moving under the hood, with the cockpit
                                            becoming a concert hall, an acoustic space that endears me
                                            to traffic jams downtown and lets me glide down express-
                                            ways and country highways, lost in music, often more so than
                                            in a concert hall, because driving and listening are such sym-
                                            biotic partners.

                                            Relaxed, and free from the burden of listening keenly,
                                            I achieve that aristocratic state of attentive casualness,
                                            enjoying the music just like the Esterházys would have done,
                                            as Joseph Haydn accompanied them in F-sharp minor
                                            through the twilight of a summer evening to a country house
                                            outside Budapest. With Frédéric Chopin, I coast relaxed and
                                            happy in autumnal Paris, starting the evening with oysters and
                                            a glass of champagne at La Coupole, looking forward to my
                                            trip to Biarritz, as trees, mountains and chateaus flit by to the
                                            sounds of the Well-Tempered Clavier as played by the
                                            great Glenn Gould.  •
//////////////////////////////////////////////////////////////////////////////
//////////////////////////////////////////////////////////////////////////////
         Born in 1945, Dieter Meier is
//////////////////////////////////////////////////////////////////////////////
         a Swiss artist who founded
//////////////////////////////////////////////////////////////////////////////
         “Yello” /// ////////// together with
////////////////////////in//1979, ///////////////////////////////////////
//////////////////////////////////////////////////////////////////////////////
         musician Boris Blank. Since
//////////////////////////////////////////////////////////////////////////////
         then, the duo have sold
//////////////////////////////////////////////////////////////////////////////
         around //// ///////////// records. ///
/////////////////////////14//million ///////////////////In////////////
//////////////////////////////////////////////////////////////////////////////
         2007, Yello wrote the music
//////////////////////////////////////////////////////////////////////////////
         for the launch of the Audi A5.
//////////////////////////////////////////////////////////////////////////////
         Yello’s //////////// ////////////// ////////////
///////////////////////highly//creative//videos/////////////
//////////////////////////////////////////////////////////////////////////////
         are also the work of Meier.
         Several ////////// //////// this ///////////
/////////////////////////years//ago,//////////extra-////////////
//////////////////////////////////////////////////////////////////////////////
         vagant /////////////////////// //////////////
////////////////////////globetrotter//opened///////////////
//////////////////////////////////////////////////////////////////////////////
         an organic farm in Argentina
         and // restaurant /// /////////////
//////////////////a///////////////////////in//Zurich./////////////////
//////////////////////////////////////////////////////////////////////////////
         Meier // //////// a ////////////// /// /////
//////////////////////is//also/////partner//in//Eu-/////////////
//////////////////////////////////////////////////////////////////////////////
         phonix, a computer mixing
         consoles ////////////////////////// //////////
////////////////////////////manufacturer//locat-////////////
//////////////////////////////////////////////////////////////////////////////
         ed in Silicon ////////////
///////////////////////////////////Valley.///////////////////////////////
//////////////////////////////////////////////////////////////////////////////
46   ARTS & ARTISTS



                                                                                  HIGHLIGHTS OF THE 2007
                                                                                  AUDI SUMMER CONCERTS

                                                                                  Diana Damrau, soprano
                                                                                  Lang Lang, pianist
                                                                                  Annette Dasch, soprano
                                                                                  Royal Philharmonic Orchestra
                                                                                  Bruckner Orchester Linz
                                                                                  Ars Nova Copenhagen, choir
                                                                                  Bremer Shakespeare Company
                                                                                  Martin Stadtfeld, pianist
                                                                                  Hessisches Staatstheater
                                                                                  NeoBarock, string quartet
                                                                                  Schleswig-Holstein Festival Chor
                                                                                  Lautten Compagney




                                                                               Shakespeare’s “Twelfth Night,”
                                                                               performed by the Bremer Shakespeare
                                                                               Company.




                                  T     he word classic means “time-
                                        less,” but also denotes a contrast
                                  between the modern and the traditional.
                                                                               they need to be masters of their art, in
                                                                               the same way as Bach, Mozart and
                                                                               Beethoven, Lang Lang, Annette Dasch
                                  The essence of classical music is the        and Christoph Eschenbach. Classical

     Modern                       perpetual reexamination of a musical
                                  masterpiece from the standpoint of
                                  the present day. Pianist Lang Lang,
                                                                               music is the perfect paradigm for
                                                                               anyone who turns the classical into a
                                                                               trademark.
     classics                     sopranos Diana Damrau and Annette
                                  Dasch, and conductor Christoph Es-           Classical has never been so modern.
                                  chenbach are as important to classical       In Germany, opera houses and concert
   Each year, international       music as Bach, Mozart and Beethoven.         halls now attract at least as many visitors
superstars from the world         They are the ones who bring an other-        as do the matches of the country’s pre-
of classical music perform        wise silent score to life, making us         mier soccer division. Worldwide classi-
       at the Audi Summer         experience why these composers still         cal music in recent years has even pro-
    Concerts – now a well-        have the power to move us today, what is     duced pop stars such as Anna Netrebko.
                                  timeless – classical – about them.           As ambassadors of timelessness, rap-
established feature on the                                                     ture, perfection and passion, they have
          musical calendar.       The classical defies fashion, yet it         long transcended the arts sections of
           COPY Axel Brüggemann   also absorbs it, develops it and leads it    the papers and are now at home on
                                  into another dimension. Classical music      glossy magazine covers and television
                                  is international, it is a global language.   programs. In terms of music sales, the
                                  Being classical is an art, as is making      classical market is one of the most sta-
                                  cars, which also relies on both the tradi-   ble. Small wonder then that festivals
                                  tional and the contemporary. A new au-       such as that in Salzburg have become
                                  tomobile ought to be a classic, remind-      places of pilgrimage. Classical is a new
                                  ing us of a great past while pointing the    “attitude,” echoing a desire for contem-
                                  way to an exciting future. Naturally, a      plation and new meaning.
                                  car also needs to look good, pleasing to
                                  the eye – and perfectly designed. Archi-     Having recognized the importance of
                                  tecture is music made into material,         music, Audi was quick to set a trend,
                                  they say, while music is also inspiration    and has long been a sponsor of events in
                                  cast in sound. Hardly surprising then,       Salzburg and elsewhere. And with the
                                  that car manufacturers are basically ori-    25 dates on the Audi Summer Concert
                                  ented towards the classical. Ultimately,     calendar in and around Ingolstadt, the
                  company has even evolved into an events
                  organizer. This commitment goes far be-
                  yond mere sponsorship. In organizing
                  this summer concert series, Audi aims
                  not just to support classical music as a
                  cause, but also to participate in defining
                  what classical actually is. With this com-
                  mitment, Audi is thus accepting cultural
                  responsibility, and its position is ab-
                  solutely clear: Classical is a mixture of
                  the unforgettable, performed by the best
                  exponents of their art, but it is also the
                  nurturing of a new generation and a
                  commitment to the avant garde.

                  Guest performers at the 2007 Audi
                  Summer Concerts, the 18th edition of                                                       Above
                  the festival, included Lang Lang, An-                                                        A star on opera night: Diana Damrau.
                  nette Dasch and Christoph Eschenbach.                                                      Below
                                                                                                               Standing ovations for superstars Lang
                  Lang Lang is one of today’s most cele-                                                       Lang and Christoph Eschenbach.
                  brated virtuosos, and together with
                  Christoph Eschenbach has brought
                  Beethoven’s piano concertos to the
                  classical music charts. Soprano Annette
                  Dasch is a new talent discovered at last
                  year’s Salzburg Festival: With her light
                  and agile voice, she is particularly con-
                  vincing in Baroque opera. At the sum-
                  mer concerts, she brought Haydn’s long-
                  forgotten masterpiece “Armida” into the
                  present day, demonstrating just how
                  modern classical music can be.

                  For Audi, however, the concept of
                  classical is not just about having the
                  stars of today reviving the successes of
                  yesteryear. Being classical is also about
                  promoting the future. This is the second
                  pillar of the Audi Summer Concerts.
                  Thus, the festival has some of the
                  region’s young musicians performing
                  alongside the legends of classical music,
                  and music is made accessible for the
                  audience of the future. This year, there
                  was the children’s classic “Pinocchio,”
                  the world premiere of the “Little Mer-
                  maid” as set to music by a young Israeli
                  composer, and that other perennial           “Classical is international, music
                  favorite, “Carnival of the Animals”          is a global language.” Axel Brüggemann
                  by Camille Saint-Saëns.
                  Just like the automotive industry, the       namely tradition and vision. Classical
                  world of classical music is also keen to     music is an art that especially in this age
                  transmit knowledge to future genera-         of globalization and individualism is
                  tions and to develop a sense of tradition    becoming increasingly popular. Audi
                  – always with the aim of achieving inno-     has long been aware of this interest,
                  vation and renewal through passion.          which it intends to continue cultivating
Photos: AUDI AG




                  Over recent years, classical music has       through its festival commitments and its
                  radically changed its marketing strategy.    very own summer concerts.     •
                  It has become open to the world, and         Axel Brüggemann is music critic and chief
                  knows what strengths it can play to,         editor of the classic magazine Crescendo.
 48   ARTS & ARTISTS




One for the road,
two for the show
Jay Leno is not just one of America’s best-known late night talk
show hosts. He is also Hollywood’s craziest car collector. Vintage
cars, exotic motors and dream sports cars – he has devoted almost
his entire life to the automobile. His latest “ride” is an Audi R8.
COPY Jeremy Hart PHOTOGRAPHY John Lamm
                                                                 A soft spot for fast,
                                                                     attractive cars:
                                                                   Jay Leno with his
                                                                        new Audi R8.




C
                ars and stars have         viewer, talk show host Jay Leno, when it
                 been inseparable since    comes to appreciating, understanding
                 the silver screen and     and collecting cars. Leno fronts the
                 the internal combustion   Tonight Show every weekday evening on
                 engine grew up togeth-    the NBC network, and is as familiar to
                 er – changing the way     Americans as the stars he has on his
the world traveled and the way the         chat show. He also tours North America
world was entertained. Little wonder       every weekend, performing stand-up
then that Los Angeles, the home of Hol-    comedy shows to live audiences every-
lywood, is an automotive epicenter in      where from Hawaii to Bermuda.
global terms. None of Hollywood’s roy-     Jay Leno loves the job, but in reality he
alty compares with their favorite inter-   works to fuel his passion. He loves cars
– all cars. Beautiful, fast, old… it makes                                        engine which he discovered rusting in a     from the guy buying it.” On the way
no difference, as long as they have four                                          hangar and nursed to museum condition       back, he stopped off at a comedy club in
wheels and an engine encased in sheet                                             as he has done with so many other cars.     Times Square. It could easily have been
metal. Over 200 cars and motorcycles                                              Even so, you may sometimes also see         his downfall. He was allowed to do a set
from almost every decade of car pro-                                              one of his vintage vehicles broken down     on stage, and he finally set off for home.
duction are parked in his garage. A se-                                           by the roadside. Stanley steamers and       But two hours later, he remembered
ries of warehouses in an industrial park                                          their like might be stunning to look at     with alarm that the paper bag containing
to the north of L.A. are full to the brim                                         and challenging to drive, but pre-World     the 30,000 dollars had been left on top
with automobile memorabilia: From                                                 War I technology is not the most reli-      of the piano. “Those were the longest
Stanley steamers to jet bikes, hirsute                                            able. Leno’s obsession (and obsession is    two hours of my life,” he remembers.
1970s HEMI muscle cars to a Fiat                                                  not too strong a word) arose in 1959,       “I got back to the club at three in the
Topolino, eco-cars and super cars. The                                            when he was nine years old, from a          morning. I jumped right up on to the
latest addition to his fleet is an Audi R8.                                       chance meeting with a man in a classic      stage where a girl was singing, saw that
There are few private collections as                                              British sports car parked outside a barn    the bag was still lying on the piano,
large, eclectic and lovingly maintained                                           near his parents’ home. “It was a Jaguar    grabbed it and made my exit with the
as Leno’s. He owns a selection of auto-                                           XK120. Steel gray with red leather          excuse that I’d forgotten my lunch!”
motive history that would delight even                                            seats. It was stunning,” remembers
the pickiest connoisseur.                                                         Leno. “I stood there open-mouthed at        Mixing work and pleasure was to be-
                                                                                  the end of the driveway. He motioned        come increasingly difficult for this car-
Although Leno has spent a fortune                                                 for me to come over: ‘Hey, you like         crazy comedian. He rarely has guests on
on his car collection, the garage is any-                                         cars?’ he asked. And he let me sit be-      the show because of a car connection.
thing but a museum. Jay buys cars be-                                             hind the wheel and play with the con-       But the “Big Dog Garage,” where he
cause he likes driving them – all. Jay                                            trols.” It was a moment that changed his    keeps his cars, often welcomes visitors
and his cars are a regular sight on the                                           life. His first car was a Ford truck, but   such as Pink Floyd drummer Nick Ma-
roads of Southern California. You can                                             he got it at the tender age of 14 and so    son. Only most stars have no idea about
see them on Leno’s daily journey to the                                           was too young to drive it on the road.      cars, Leno complains. Just recently one
studio, on the racetrack or on weekend                                            “So I rebuilt it and then drove 1,500       of his celebrity guests said during the
trips. He has even been known to drive                                            miles in it,” says Leno. “300 yards at a    commercial break that he wanted to do
one of his most unusual possessions to                                            time. Up and down our driveway. I still     something for the environment, and was
work – a huge American LaFrance fire                                              have the crick in my neck,” he grins.       going to get a hybrid because “it doesn’t
                                                                                  Having nowhere to drive the truck ex-       use any gas.” Leno shakes his head:
///////////////////////////////////////////////////////////////////////////////   cept up and down the family drive only      “What could I say? I just asked him
///////////////////////////////////////////////////////////////////////////////   intensified Leno’s passion for cars.        what he thought hybrid meant.”
         Jay ///////// /////// //////// ///// ///////// /////
/////////////////Leno//was//born//on /April//28,//////////
         1950 in New Rochelle, New York
///////////////////////////////////////////////////////////////////////////////                                               In 2009, as he approaches 60, Jay Leno
         State. ///// began ///// //////////// in
//////////////////////He///////////////his//career//////////////////              As his career as a comedian revved up,      will hand over his talk show to his suc-
///////////////////////////////////////////////////////////////////////////////
         small //////// //////// /////////////// clubs,
/////////////////////New//York//comedy///////////////////////                     it was touch and go whether cars would      cessor. At last, he will have more time
         where he appeared almost
///////////////////////////////////////////////////////////////////////////////
/////////////////////night.//In//1992, /Leno//took//////////
                                                                                  pay for his comedy or vice-versa. In the    for his greatest passion. Car crazy as he
         every /////////// /// ////////// ///////// ////////
///////////////////////////////////////////////////////////////////////////////
         over from the king of late-night                                         evenings, he used to appear at various      is, he cannot even face Christmas with-
///////////////////////////////////////////////////////////////////////////////
         TV, Johnny Carson, as the pre-
///////////////////////////////////////////////////////////////////////////////   improvisation clubs in New York. By         out them. “Persuading my wife wasn’t
///////////////////////of//NBC’s//Tonight//Show.///////////
         senter /// /////////// ////////////// ///////////                        day, he worked at a Rolls-Royce dealer.     easy,” he says. But because English lit-
///////////////////////////////////////////////////////////////////////////////
         He will leave the show in 2009.                                          “Once I had to deliver a Corniche con-      erature is his wife’s passion and Dickens
///////////////////////////////////////////////////////////////////////////////
///////////////////////////////////////////////////////////////////////////////   vertible. I had to collect 30,000 dollars   is her favorite, Jay hit upon a clever
                                                                                                                              idea. “The people who created the Star
                                                                                                                              Wars set turned my garage into the most
                                                                                                                Jester and
                                                                                                                   amateur    beautiful Dickensian-looking Christmas
                                                                                                                 chef: Nor-   place you’ve ever seen.” Unfortunately,
                                                                                                                 mally Jay    in Dickens’ time, there were no cars. So
                                                                                                                Leno uses
                                                                                                                  the oven.   Mr. and Mrs. Leno cruised through Los
                                                                                                                              Angeles at Christmas in a 1909 Baker
                                                                                                                              Electric. It would most likely have blend-
                                                                                                                              ed in well at that time: “It looks like a
                                                                                                                              Victorian phone booth on wheels,” says
                                                                                                                              Leno. And unlike hybrids, this one really
                                                                                                                              doesn’t use gasoline. Thoroughly mod-
                                                                                                                              ern, in other words.  •
                                                                                                                              Jeremy Hart is one of the world’s most widely
                                                                                                                              published car journalists. He writes for the
                                                                                                                              Sunday Times and the Independent on Sun-
                                                                                                                              day as well as Top Gear and Car Graphic.
                                                                                                                              He has been friends with Jay Leno for years.
                                                                                   ARTS & ARTISTS             51




                                                          Car guy: Jay Leno likes the gear shift of the Audi R8.




Jay Leno on the Audi R8                           ing I enjoy more than turning the mainspring
                                                  of a watch. I just like that distinctive click
/// “With the R8, Audi has chosen to go in a      that you get each time when you do that –
new direction, which is exciting. I was in        you don’t get that with an electronic watch.
Hollywood a few days ago with the car, and        That’s what I like about the Audi. The switch-
people came up to me asking what it was. ‘Is      es have the feel of a mechanical watch.“ ///
it a prototype? How long has it been out?’        “The competition will really have to watch
They loved it.“ /// “The R8 is pure emotion.“     out.“ /// “Every day I discover something
/// “Even in photos, the R8 looks great, but it   new about the car. This love for detail is just
looks even better in person. When you see         fantastic. Even though you’re almost sitting
an R8 coming down the road, you know              on the asphalt, you don’t actually have to
it is an R8. Unfortunately, there are too many    be a racing driver yourself to fit under the
cars around today that have no real identity.“    steering wheel and slide into the driver’s
/// “I love driving it with the windows down.     seat. They thought of straightening out the
It sounds fantastic. The rich sound of the en-    lower end of the wheel – another one of
gine, the sound of the air intake, the growl of   those details.” /// “There’s an astonishing
the exhaust, it’s a knockout.” /// “But you no-   amount of room inside the cabin – almost
tice the car’s real quality when you drive it.    like you were in a sedan.“ /// “My favorite
Its handling is precise and sensitive. The all-   thing about it is the manual gear shift. It
wheel drive keeps the power cleanly on the        shows Audi have really decided to make a
road.“ /// “At the end of the day there’s noth-   statement.” ///
Panorama




           01
           Promoting culture

           Music festivals and Audi
           Audi has been sponsoring classical music festivals for
           over two decades. In 2007, the company extended its
           partnership with the Salzburg Festival for a further
           three years. Every year, this music and theater festival
           succeeds in attracting famous performers and music
           lovers from all over the world.
           Last year, the Schleswig-Holstein Music Festival, with
           the support of Audi, offered around 150 musical
           events to the international classical music scene.
           Every year the spotlight falls on a different country, so
           that audiences can gain a full appreciation of the mu-
           sic of different nations over a period of seven weeks.
           Another noted event sponsored by Audi during the
           2007 classical season was the new operatic perform-
           ance of Lewis Carroll’s novel “Alice in Wonderland”
           and a staging of Handel’s opera “Alcina” at the Munich
           Opera Festival.

           01
            Festival performance in
            Munich: “Alcina” by Handel.
                                                                                                                                                                      ARTS & ARTISTS             53




                                                                                                                                   03                                04
                                                                                                                                   On Lake Constance                 “Wetten, dass..?“

                                                                                                                                   Garden of art                     Win an A4
                                                                                                                                   Last summer, the island           The newly-crowned
                                                                                                                                   of Mainau was trans-              German Touring Car Mas-
                                                                                                                                   formed into a stage for           ters (DTM) champion,
                                                                                                                                   art and culture. Under            Mattias Ekström, paid a
                                                                                                                                   the slogan “The island of         visit to the set of one of
                                                                                                                                   Mainau: Szczesny 2007 –           Germany’s most popular
                                                                                                                                   The dream of an earthly           TV programs. In the No-
                                                                                                                                   paradise,” artist Stefan          vember edition of “Wet-
                                                                                                                                   Szczesny transformed              ten, dass..?” the Swede
                                                                                                                                   this island of flowers into       drove a new Audi A4 onto
                                                                                                                                   a work of art. Under the          the stage. The sporty
                                                                                                                                   patronage of AUDI AG,             sedan will be entered
                                                                                                                                   Szczesny adorned the              into a raffle at the end of
                                                                                                                                   island with sculptures,           March 2008, in support of
                                                                                                                                   paintings, ceramics and           the German sports foun-
                                                                                                                                   mosaics and executed an           dation Stiftung Deutsche
                                                                                                                                   oversized painting on a           Sporthilfe. During the pre-
                                                                                                                                   75-meter zeppelin in a            vious season, an Audi R8
                                                                                                                                   hangar at Friedrichshafen         sportscar was donated
                                                                                                                                   Airport. The airship with         as a lottery prize in aid of
                                                                                                                                   its colorful motif of a           the youth sports project
                                                                                                                                   woman could be seen               “Bewegungscamps für
                                                                                                                                   high above Lake Con-              Jugendliche,” an initiative
                                                                          02
                                                                           Musical event: World premiere of the                    stance until the end of           launched by the German
                                                                           Audi Symphony at the Grand Palais, Paris.               August 2007.                      Athletics Association.




                                                                          02
                                                                          Progressive classics

                                                                          Audi Symphony debuts
                                                                          In June 2007, against the monumental backdrop of
                                                                          the Grand Palais in Paris, conceptual artists Bauhouse
Photos: Wilfried Hösl, AUDI AG, ZLT /Achim Mende, Michael Mittelsteiner




                                                                          from Berlin presented the premiere of the “Audi Sym-
                                                                          phony.” The performers integrated sequences from         03
                                                                          Audi image films and commercials into their 16-minute     High-flyer: Szczesny’s airship depicting a woman.
                                                                          work and set it to classical music.
                                                                          The debut performance, featuring musicians from the
                                                                          Berliner Staatskapelle orchestra, Bauhouse demon-
                                                                          strated the connection between the classics and elec-
                                                                          tronics, with an interplay of sounds and images.
                                                                          The multimedia performance was staged during the
                                                                          Audi talents awards, commendations presented by
                                                                          Audi to young talents in the fields of contemporary
                                                                          art, industrial design, sports innovation and music.




                                                                                                                                   04
                                                                                                                                    For a good cause: Mattias Ekström (left) appears in an A4 in the
                                                                                                                                    show of host Thomas Gottschalk.
56 THE EFFICIENCY REVOLUTION
   Audi faces the climate offensive
   with innovative technology
64 ICKX AGAINST ICKX
   An eco-duel for two racers
68 INQUIRING MINDS
   In every engineer there’s a Gyro
   Gearloose
72 EVERY DAWN BRINGS A
   NEW FUTURE
   Writer Frank Schätzing on
   tomorrow’s world
76 INSPIRED BY NATURE
   How car engineers use
   evolution’s blueprints
82 PANORAMA
   Audi supports “Formula Student”
   engineering competition
Photo: stone/gettyimages




                                        3


                           & Research
                           Technology
   56         TECHNOLOGY & RESEARCH




                                                                                                                                             Intelligent traffic light systems in cities result in lower CO2 emissions.
                                                                                                                    TRAVOLUTION
                                                                                                                                                                                                                          ALTERNATIVE
                                                                                                                                                                                                                                                     Biofuels of the future could considerably decrease CO2 output.
GEARBOXES                                                          CO2 reduction through powertrain optimization.
ENGINES




                                                                                                                                                                                                                          FUELS

////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////




The efficiency revolution
                           OPTIMIZATION
                                                                                                                                            DRIVER AIDS

                                                                                                                                                                                                                   PLEASURE                                                    Sportiness and dynamics are preserved.
                                                                                                Energy-efficient e models emit less CO2 .
                           VEHICLE



                                                                                                                                                                                                                   DRIVING
                                                                                                                                                                         Driving style influences CO2 emissions.




////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////


                            Low consumption, high performance: With state-of-the-art
                            powertrain systems, intelligent onboard electronics and innovative
                            energy management, Audi combines respect for the environment
                            with sports-car performance. COPY Thomas Ramge
 58        TECHNOLOGY & RESEARCH




P    eter Gebhard knows exactly when to change gear. It’s
     part of his job. At the Audi test circuit just outside Ingol-
stadt, the Head of Vehicle Testing has great fun demonstrating
just how the new electronic shift recommendation works. If the
engine is straining slightly too hard in a lower gear, the blue
                                                                     point of view. “The driver’s foot is still the most important fac-
                                                                     tor in saving fuel,” says this engineer, adding: “Correct gear
                                                                     shifts can lead to fuel savings of around 30 percent in the urban
                                                                     cycle.” Training for environmentally aware driving can also
                                                                     help, as can onboard electronics that provide suggestions on
light on the display (known as the “power glow”) turns yellow.       how to reduce consumption.
An arrow tells you to shift up. Gebhard follows the system’s ad-
vice, and the power glow turns blue again. The size of the light     The Audi e models of the future are being designed for ef-
shows you how much power is demanded from the car, and               ficiency and will provide their drivers with a whole package of
how long you should accelerate in this gear, from an efficiency      environmentally compatible digital technology. The onboard
                                                                     computer calculates whether closing the window and turning
                                                                     on the air conditioning can be a way of saving fuel. It tells you
                                                                     the extent to which rear-window heating affects fuel consump-
                                                                     tion, and whether it needs to be turned on at all. It also sup-
                                                                     plies the driver with some interesting figures – such as how
                                                                     much sooner he would reach his destination by driving an av-
                                                                     erage of ten kilometers per hour faster – and how much more
                                                                     fuel he would need. An electronic “Eco Trainer” rates the dri-
                                                                     ver’s overall on-road performance. The navigation system is
                                                                     also based on the concept of fuel efficiency. Not only does it
      01                                                     02      show the shortest and the fastest route, but also what is likely
                                                                     to be the most fuel-efficient one, which might be a different
                                                                     road entirely. “We’re not trying to tell drivers what to do, or
                                                                     patronize them with annoying and invasive technology. What
                                                                     we give our customers are the tools they need so that they can
                                                                     take their own decisions on how to reduce fuel consumption,”
                                                                     explains Gebhard.

                                                                     Energy in the car, whether it is electrical, thermal or me-
                                                                     chanical, should be used as efficiently as possible. However,
                                                                     fuel economy is not incompatible with high performance. To-
                                                                     day, harmonizing efficiency and sportiness is not only a tech-
                                                                     nical challenge but also an ecological and political necessity.
                                                                     Because high-performance cars will only be socially accept-
                                                                     able if they learn to get by on less fuel.

                                                                     Modular efficiency. The question Audi are asking them-
                                                                     selves is this: How can we make a sporty car even more fuel-
                                                                     efficient without losing dynamic performance? Motor vehi-
                                                                     cles, particularly in the premium segment, are already very
      03                                                     04
                                                                     efficient in comparison with other energy consumers. Road
                                                                     traffic contributes a share of just twelve percent to Germany’s
                                                                     total CO2 output. The combined output from other areas such
      Electronic “environment assistant”                             as energy and heat generation, industry, and households adds
                                                                     up to more than 80 percent.
      01                             02
           Instant advice: Should     Comfort requirements:          “We need to think of a car as a total energy system, then make
           I open the window?         How much fuel is               adjustments in all the areas we can reach,” is Gebhard’s suc-
           Or turn on the air con-    used just for well-
           ditioning?                 being?
                                                                     cinct analysis. In the past, this has worked well: A current A6
      03                             04
                                                                     consumes 35 percent less fuel to generate one kilowatt of
           The eco trainer: This      Electronic shift indica-       power than its 1990s counterpart. In terms of consumption
           awards points for over-    tor: If the engine is          figures – which are essentially proportional to CO2 emissions
           all on-road behavior.      straining too hard, the
           Full throttle means        yellow light warns you
                                                                     – a present-day Audi A4 can easily compete with mass pro-
           points are deducted.       to shift up.                   duced cars from a lower vehicle category. The target for the
                                                                     near future is clear: By 2012, AUDI AG intends to reduce the
                                                                     CO2 emissions of its fleet by a further 20 percent.
                                                                                                                                             Audi A5 2.0 T CNG
                                                                                                                                             concept car: The
                                                                                                                                             4-cylinder engine
                                                                                                                                             has been designed
                                                                                                                                             to run on gasoline
                                                                                                                                             and natural gas. The
                                                                                                                                             Compressed Natural
                                                                                                                                             Gas (CNG) is held by
                                                                                                                                             lightweight pressure
                                                                                                                                             tanks. The gasoline
                                                                                                                                             tank holds 14 liters.




      The future of fuel                                                        FOSSIL FUELS                                REGENERATIVE FUELS
      Like hydrogen, second-                                                    Crude oil/natural gas/coal      CO2         Wind/sun/water/biomass/waste
      generation biofuels are seen
      to have a particularly promis-
                                                                               Gasoline/diesel       Gasoline/diesel     Gasoline/diesel     Gasoline/diesel
                                         specific CO2 emissions [CO2 g/km]




      ing future. Large-scale pro-                                                                   10 % biogen         20 % biogen         >20 % biogen
      duction methods are under                                                                      SynFuels            SynFuels            SynFuels
      development. This second                                                                                           SunFuels            SunFuels
      generation will not compete                                                                                        Hydrogen            Hydrogen
      with the production of food-
      stuffs, and will gradually
      replace fossil fuels. Today,                                             Combustion            Optimized           Optimized           Optimized
      SunFuel and SunDiesel can                                                engines, hybrids      combustion          combustion          combustion
      already be mixed with regu-                                                                    engines,            engines, hybrids,   engines,
      lar diesel, and in the future,                                                                 hybrids             fuel cells (small   hybrids, fuel
      they will reduce CO2 output                                                                                        series)             cells
      by up to 90 percent.                                                   today                   10 years            20 years            >20 years




“We are working hard on all aspects of our cars to                                                   future, we’ll be taking our modular efficiency system even
reduce consumption and emissions even further. On engines,                                           further,” says Gebhard. Specifically, this means that many
natu-rally, but also on weight, aerodynamics, transmissions,                                         Audi models with efficient TDI and TFSI powertrain systems
energy management and so on,” says Audi Chairman Rupert                                              will be fitted with an innovative energy management system
Stadler. The successful trend toward downsized engines with                                          that exploits coasting and braking phases to generate electric-
higher boost pressure is continuing. Thanks to direct injection,                                     ity. This will be stored in new high-performance accumulators,
turbocharging, high torque, reduced cylinder capacity and                                            among others, to be used when the car stops or when it is ac-
lower friction losses, many of Audi’s TFSI (turbocharged fuel-                                       celerating, relieving the burden on the alternator and onboard
stratified injection) gasoline engines and TDI (turbocharged
direct injection) diesel powerplants are already the best in
their class. Engine optimization is still key, but the layman
                                                                                                                             “We need to think
tends to overestimate the fuel-saving potential achievable via                                                               of a car as a total
this route. In this context, it helps to look at how the energy                                                              energy system.”
contained in fuel is translated in the vehicle. In other words:                                                              Peter Gebhard,
Which parts use how much fuel?                                                                                               Head of Vehicle Testing,
                                                                                                                             AUDI AG
Just under one-third of the energy is lost as the engine
converts chemical into mechanical energy. This is a law of                                           electrical system, thus saving fuel. Another benefactor of
physics that not even the best engineer in the world can                                             the new accumulator is the new start-stop system, which sig-
change. A further 19 percent disappears due to friction, gas                                         nificantly reduces consumption in city centers with intersec-
exchange inside the cylinder and combustion method. Effi-                                            tions. An extremely economical air conditioning system,
ciency gains can still be made in these areas, but the efforts                                       transmission heating to improve gearbox efficiency, tires with
made in the engine department need to be combined with oth-                                          reduced roll resistance and a further reduction in air drag
er measures, because 19 percent of energy is eaten up by the                                         are a few of the other tools available with the modular effi-
powertrain, i.e. transmission, tires, wheel bearings and power                                       ciency system.
steering pump. Air conditioning and electrics demand a fur-
ther eight percent. Weight and aerodynamic resistance count                                          The world’s cleanest diesel. Audi will continue to pay
for just under one-quarter of the consumed energy. “In the                                           special attention to clean diesel technology. This is because

                                                                                                                                                     Continued on page 62
60   TECHNOLOGY & RESEARCH




 THE WORLD’S
 CLEANEST DIESEL
 For the foreseeable future, it is
 diesel technology that can make
 the largest contribution toward
 reducing CO2 emissions.The world’s
 cleanest diesel technology, to be
 introduced by Audi from mid-2008,
 will combine TDI engines with
                                        OPTIMIZED
 what is known as an ultra low          TURBOCHARGING
 emission system. It raises the
                                        Turbocharged direct-injec-
 tried-and-tested TDI principle of      tion diesels provide high
 turbocharged direct injection to a     performance in combina-
 new level, and already meets fu-       tion with low fuel con-
 ture emissions standards. The          sumption.
 brand-new TDI generation’s status
 (see engine diagram, right) as the
 ultimate clean-running, hi-tech
 diesel is assured by significant
 reductions in emissions thanks
 to the DeNOx catalytic converter
 and particulate filter. Nitrogen ox-
 ide emissions can be cut by up                          COMMON RAIL
                                                        INJECTION
 to 90 percent. The catalytic con-
                                                      SYSTEM
 verter transforms nitrous oxides
                                                  The new piezo common
 into harmless nitrogen and water
                                               rail injection system en-
 vapor with the assistance of a bio-           ables an exceptionally
 degradable additive.                          high injection pressure of
                                               2,000 bar.




                                                                                    Aiming for
                                                                                 eco-balance:
                                                                            Audi is launching
                                                                                   its epochal
                                                                                  TDI strategy
                                                                            with an “ultra low
                                                                            emission system”
                                                                               in the Audi Q7,
                                                                               among others,
                                                                                        in 2008
                             ENHANCED EXHAUST
                             GAS RECIRCULATION
                             SYSTEM                      COMBUSTION CHAMBER
CHARGE - AIR DUCTS
                             The advanced exhaust gas    PRESSURE SENSOR
WITH BYPASS VALVE
                             recirculation system sig-   The world’s first sensor of
These connect engine and
                             nificantly lowers exhaust   its kind allows even more
turbocharger. Turbocharg-
                             gas emissions.              precise control of engine
ers compress air for com-
                                                         combustion processes.
bustion, increasing effi-
ciency. A bypass valve
allows intelligent control
of the intake temperature.
 62    TECHNOLOGY & RESEARCH


for the foreseeable future, it is the diesel which can make          Almost 20 years ago, Audi made waves with the hybrid Audi
the largest contribution toward reducing CO2 emissions.              Duo, although this model did not attract widespread interest
“From mid-2008, we will be introducing the world’s cleanest          from customers. The car was clearly well ahead of its time.
diesel technology as standard,” is how Georg Middelhauve             Today, by contrast, there is widespread discussion about the
and Zaccheo Giovanni Pamio proudly put it. The two develop-          pros and cons of hybrid engines. Hybrid technology is just one
                                                                     of many technical options, and its advantages are particularly
                                                                     apparent in stop-and-go traffic.
          “Of course we need to build
                                                                     2008 will see the launch of the Audi Q7 with its full hybrid
          efficient cars. But fuel also offers                       system which lowers CO2 emissions by up to 23 percent as
          enormous potential for reducing                            measured under the New European Driving Cycle. This SUV
          CO2 emissions.”                                            will also boast acceleration values that compare very favorably
          Immanuel Kutschera, Head of Pre-Development,               to those of a sports car. A hybrid engine makes sense for cus-
          Diesel Engines and Fuel Cells, AUDI AG                     tomers who mainly drive in cities, and Audi will be making
                                                                     additional hybrid variants available in the coming years for
ment engineers have played a significant part in ensuring that       these drivers. But it is important to remember one thing: From
TDI engines will be combined with an “ultra low emission             a green perspective, economical diesels are clearly superior
system,” thereby setting a new global standard. Especially           when it comes to driving long distances. In the debate on car-
efficient combustion methods and the sophisticated treatment         generated CO2 emissions, one thing stands out, and that is that
of exhaust gases with catalytic converters and particulate fil-      attention centers on a car’s fuel economy and driver behavior.
ters helped the development engineers to achieve the desired         Immanuel Kutschera adds another crucial factor: “Of course
result: The reduction of CO2 exhaust gas and nitrogen oxide          we need to build efficient cars. But fuel also offers enormous
emissions to a level that falls well below all current worldwide     potential for reducing CO2 emissions.” At Audi, Kutschera is
legal limits. This diesel technology has excellent potential for     responsible for investigating the potential of alternative fuels.
large growth markets such as the U.S., China and India.              He is a mechanical engineer, but as terms such as E100, Sun-
                                                                     Fuel or CNG crop up in Kutschera’s conversation, you might
Hybrids with a boost. All this means that development of             be forgiven for thinking you were talking to a chemist. A
gasoline and diesel engines is evolving in the right direction.      chemist armed with a map of the world, that is, one which
Yet Audi is not only a technical trailblazer with its TDI and        he uses to show where alternative fuels are already being
TFSI technologies, but also in the field of hybrid engines.          used. Brazil, for instance, uses pure bioethanol, while China



   No more waiting at red lights
   Cars were made for driving, not for standing in traffic
   jams. No form of driving is more harmful to the environ-
   ment than backups at traffic lights. This is not a new dis-
   covery, yet municipal traffic planners have for the most
   part failed to ensure a good flow of traffic in their cities up
   to now. There are technical reasons for this: Modern traffic
   light systems are rather inflexible. Also, progressive signal
   systems that let traffic flow on thoroughfares thanks to se-
   rialized green lights create no overall benefit if they make
   too many cars wait at red lights on neighboring roads. A
   joint project between Audi, the Technical University of Mu-
   nich and Munich-based IT development company Gevas
   Software aims to change all that using “Travolution.” The
                                                                     The Travolution pilot scheme: Intelligent traffic signals tell
   name is a contraction of traffic and evolution.
                                                                     drivers when the light will change to green.

   Travolution promises intelligent green light for all. Induc-
   tion loops at traffic lights send traffic data to a central
   computer. This calculates how heavy the traffic will be in        inform the driver about 200 meters ahead of the junction
   five minutes’ time, and switches the traffic lights accord-       of when he can expect the lights to turn to green, so that
   ingly. Data processing is the biggest technical challenge.        he can adjust his speed accordingly.
   The mass of traffic information is unscrambled using a
   highly complex computing model from the field of genet-           “In city centers, this means achievable fuel savings of up
   ics (the genetic algorithm). Efforts seem to be paying off,       to 15 percent,” says Cornelius Menig, Audi’s project man-
   as pilot schemes implemented have shown that Travolu-             ager. A consortium of European car manufacturers has al-
   tion can considerably reduce travel times.                        ready been formed. One of its tasks will be to draw up
   Travolution combines intelligent traffic light control with       communications standards for intelligent traffic light sys-
   driver information systems. For this, traffic lights will be      tems. Introducing intelligent traffic management will ben-
   fitted with wireless radio circuits that broadcast informa-       efit drivers and the environment alike. After all, cars were
   tion directly to the vehicles, where an in-car display will       made for driving, not for standing in traffic jams.
                                                                                                                                                                 ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                                                ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                         CAR ENERGY CONSUMPTION
                                         Only part of the energy contained in fuel is
                                         actually used for locomotion.

                                         31 % engine:                                                                             12 % weight
                                         Chemical en-
                                         ergy is trans-
                                         formed into                                                                             11% aerody-
                                         mechanical                                                                               namic drag
                                         energy                                                          A                                                                                                                                    Michael Dick,
                                                                                     C
                                                                                                                                                                                                                                              Member of the
                                                                                                                                    8 % aircon,                                                                                               Board for Technical
                                                                                                                                       cooling,                                                                                               Development of
                                                                                                                                      electrics                                                                                               AUDI AG
                                                                                                 B
                                         19 % engine:
                                         Friction, gas
                                         exchange and                                                                    19 % powertrain:                           Economically sporty. Efficiency marks
                                         combustion                                                             Transmission, tires,                                Audi’s development effort.
                                                                                                              wheel bearings, power
                                                                                                                     steering pump                                  Quality – Audi being a premium manufacturer, this is
                                                                                                                                                                    the top priority for us. On the one hand, it means build-
                                          A    OVERCOMING EXTERNAL RESISTANCE                                                                                       ing cars that provide the ultimate in ride comfort, relia-
                                          B    LOSSES                                                                                                               bility and sporty performance. From another perspec-
                                          C    ENERGY CONVERSION                                                                                                    tive, we think of quality as offering technical solutions
                                                                                                                                                                    with an emphasis on efficiency. This is particularly true
                                                                                                                                                                    when it comes to fuel consumption. Audi has already
                                                                                                                                                                    given ample proof of its leading role in this field, intro-
                                    seems to prefer compressed natural gas. Canadian researchers                                                                    ducing the world’s most successful efficiency technol-
                                    are working on the first large-scale solution for a second-                                                                     ogy into a car with the TDI.
                                    generation substitute, known as SunFuel, while their German
                                                                                                                                                                    We are convinced that diesel has a very promising fu-
                                    counterparts are working on SunDiesel. Unlike first-genera-
                                                                                                                                                                    ture, and is also set to make a breakthrough in the USA.
                                    tion biodiesels or ethanol, second-generation biofuels are not
                                                                                                                                                                    Billions of liters of fuel could be saved there each year
                                    obtained from fruit (something that raises the cost of food in                                                                  if diesel were used more widely – this is something that
                                    developing countries), but from straw or wood. During com-                                                                      will play an important role in the future as against the
                                    bustion, SunFuel and SunDiesel emit approximately the same                                                                      background of rising raw material prices. Nor has the
                                    amount of CO2 into the atmosphere as the plants extracted                                                                       potential in our home country been fully explored yet:
                                    from the air beforehand.                                                                                                        Every one percent increase in the proportion of diesel
                                                                                                                                                                    engines used in Germany reduces total fuel consump-
                                                                                                                                                                    tion by 90 million liters each year.
                                    Kutschera foresees a clear diversification in the fuel indus-
                                                                                                                                                                    Audi intends to exploit these opportunities by launch-
                                    try over the next ten years. More and more countries will rely                                                                  ing the world’s cleanest diesel technology in produc-
                                    on those fuels that they find are convenient and reliably avail-                                                                tion vehicles from mid-2008. New TDI models will be
                                    able. Ethanol will be the fuel of choice in tropical countries,                                                                 fitted with what is known as an ultra low emission
                                    while SunDiesel will prevail in densely forested regions, and                                                                   system. This will combine the hallmark engine power
                                    compressed natural gas in countries with supplies of natural                                                                    with even more impressive consumption figures and
                                                                                                                                                                    extremely low emissions.
                                    gas. And so on. Conversely, for a premium manufacturer with
                                    a global presence, this means needing to be able to offer the
                                                                                                                                                                    But when we talk about increased efficiency, we
                                    right engines for all fuels. “We can call on extensive experi-                                                                  are certainly not just talking about engines. After all,
                                    ence in this area,” says Kutschera. And neither will the new                                                                    the engine accounts for just 50 percent of a car’s ener-
                                    fuels pose any problem for the development engineers in                                                                         gy requirement. We are just as interested in the other
                                    Ingolstadt. There may, however, be difficulties arising from                                                                    half. That’s why we have put together a modular effi-
                                    other factors. “Governments need to be clear and consistent                                                                     ciency system that provides solutions for every aspect
                                                                                                                                                                    of the car. It is designed to probe all possible ways of
                                    about how they deal with this issue. We need to have a solid
                                                                                                                                                                    reducing fuel consumption and emissions, and to im-
                                    base for our decisions regarding the necessary investments,”
                                                                                                                                                                    plement technical innovations that will reduce weight,
                                    says Kutschera.               •                                                                                                 optimize road resistance and friction, and promote the
                                    Economics journalist Thomas Ramge writes for German business                                                                    intelligent management of heat and energy. We will
Photos and illustrations: AUDI AG




                                    monthly brand eins and weeklies Die Zeit and The Economist.                                                                     also be involving drivers themselves, supplying them
                                                                                                                                                                    with electronic aids that provide tips on fuel-efficient
                                                                                                                                                                    driving, for example.

                                    /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////       Low consumption, high performance – that’s the
                                    /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                             WATCH THE MOVIE                                                                                                        technical challenge we will rise up to again and
                                    /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////       again. Audi will continue to demonstrate that har-
                                             Find out more about AUDI AG’s efficiency strategies at
                                    /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                    /////////www.audi.com/ar2007/efficiency.//////////////////////////////////////////////////////
                                             //////////////////////////////////////////////////////////                                                             monizing efficiency and sports-car performance
                                    /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////       really is possible.
 64     TECHNOLOGY & RESEARCH




A versatile duo: Profes-
sional racing drivers
Jacky and Vanina Ickx
Ickx against Ickx
Two professionals in an ecological head-to-head, battling to see who
can use less fuel. Racing legend Jacky Ickx and his daughter Vanina, also
a racing driver, line up against each other in their home city of Brussels,
behind the wheel of an Audi efficiency car – the Audi A3 1.9 TDI e.
COPY Gert Verhoeven PHOTOGRAPHY Enver Hirsch




                                                                                                                 Efficiency test:
                                                                                                                 Through Brussels
                                                                                                                 in an Audi A3 1.9
                                                                                                                 TDI e. The tank is
                                                                                                                 full, and all in-
                                                                                                                 struments are




A
                                                                                                                 zeroed.
                s the two Audi A3 cars drive into the court-
               yard of Abbaye de la Chambre, the mist has                                                        TEST ROUTE
                just lifted. It is a beautiful fall day. Great condi-
                                                                                                                 01 ABBAYE DE LA
                  tions for a sporting encounter with a “green”                                                     CHAMBRE
feel. One of the world’s best-known racing drivers, six-time                                                        Start: The former
Le Mans champion Jacky Ickx, competes against his daughter,                                                         Cistercian monas-
                                                                                                                    tery in the green
who has also caught the motor racing bug. But today is not                                                          lung of Brussels.
about speed and seconds, but efficiency and fuel consumption                                                     02 PLACE DU GRAND
– during a city tour in everyday conditions, complete with rush                                                     SABLON
                                                                                                                    Shopping: The
hour, the battle for parking spaces, and stop-and-go traffic.                                                       chocolates for the
                                                                                                                    winner will be
The scene of the eco-duel: Brussels. The destination is                                                             bought in the his-
                                                                                                                    toric downtown.
Audi’s new plant in the district of Forest, where thousands of                                                      Looking for a park-
A3 models have rolled off the line since May 2007, and where                                                        ing space costs fuel.
the forthcoming Audi A1 will be built from the end of 2009.                                                      03 PLACE JOURDAN
“I often used to play near Abbaye de la Chambre,” remembers                                                         Lunch break: The
                                                                                                                    best French fries in
Jacky. As a child, the Brussels-born driver lived just a stone’s                                                    Belgium can be
throw away. The wooded area and parkland surrounding the                                                            found just behind
abbey is now part of the “green lung” of Brussels.                                                                  the European Par-
                                                                                                                    liament.
                                                                          BRUSSELS
                                                                          Route: 40 km                           04 BOTANIQUE
The test cars are two extremely energy-efficient Audi A3                                       05                   Stop and go
models. Under the hood purrs a 1.9 liter four-cylinder diesel                                                       through downtown
engine, turbocharged to offer high torque even at low revs.                                                         Brussels.
                                                                                                                 05 ATOMIUM
The power plant is optimized with a specially configured                                                            A pause for sight-
manual transmission system, with a slightly longer ratio for                                         04             seeing, then on to
                                                                                              02
third to fifth gears. The A3 1.9 TDI e* with 77 kW (105 hp)                                                         the ring road. Away
                                                                                                          03        from the city traffic
is also the perfect partner if you want to get the most out of                                                      at last.
every last drop of fuel.                                                                              01 Start   06 AUDI PLANT
                                                                                         06 Finish                  FOREST
The Ickx family now prepare their efficiency cars for the                                                           Finish: And
                                                                                                                    the winner is?
start, and set the fuel consumption gauge to zero. Over the

*Fuel consumption and emission figures at the end of the annual report.
                                                                                                                  01


                                                       02           01
                                                                       Jacky and Vanina want to
                                                                       know: Who’s the most ef-
                                                                       ficient driver? They start
                                                                       off at Abbaye de la Cham-
                                                                       bre, where Jacky used to
                                                                       play as a child.
                                                                    02
                                                                       Brimming with ambition.
                                                                       Vanina’s sights are firmly
                                                                       set on victory. She drives
                                                                       smoothly and prudently.
                                                                    03
                                                                       The agony of choice: At
                                                                       famous chocolatier Wit-
                                                                       tamer, Jacky Ickx selects
                                                                       the winner’s prize: Bel-
                                                                       gian chocolates.


                                                                                                                             03




next 40 kilometers, they will both be depending on their own                                                                 Brussels, the home of the world’s best chocolatiers, than
personal fuel-saving tricks, though they will receive support                                                                Belgian chocolates? At the Place du Grand Sablon, one of the
from the new electronic shift indicator which tells them the                                                                 most beautiful squares in the old city, they both pay a short
most fuel-efficient gear to drive in. A gear shift indicator in-                                                             visit to the famous chocolatier Wittamer.
forms the driver when he needs to change up or down, en-
abling him to utilize the car’s full potential. The aim is to keep                                                           By now it is almost noon, and both cars turn into Place
the engine rotating at the ideal speed at all times. Once famil-                                                             Jourdan in the center of Brussels. In the middle of the square
iar with the system, combined consumption can be held down                                                                   is the capital’s oldest French fries stand. You need a little
to 4.5 liters of diesel per 100 kilometers.                                                                                  patience, because for over 50 years, “Chez Antoine” has been
                                                                                                                             the place to go for original Belgian “pommes frites.” Here you
Through Avenue de l’Hippodrome, the pair head out onto                                                                       can find rich and poor, young and old – a real melting pot of
Avenue Louise. Vanina is not only competitive on the race-                                                                   languages and cultures. Among them many a Eurocrat who
track, today she is determined to go home as the champion of                                                                 strolled over especially through Parc Léopold – the EU quarter
fuel economy. She takes it easy on the gas pedal, quickly                                                                    is just a short hop away.
changing up, to keep the needle within the lower regions of
the rev counter, while displaying a very sleek, smooth driving                                                               After a cornet of frietjes, our rivals blend into traffic once
style at the same time. “Environmentally aware driving is not                                                                more. The next stage, “Botanique,” has been chosen with bio-
the same as real racing,” she says. “Here, it’s all about fore-                                                              logy graduate Vanina in mind. The Botanic Gardens in the
sight and keeping things fluid.”                                                                                             heart of Brussels are a haven of tranquility. In springtime, you
                                                                                                                             can for instance admire the magnificent display of irises.
Ickx against Ickx. They will soon have to cross the Brussels
ring road; their first stop has been arranged in the historic                                                                Back in the car, both drivers head toward the Atomium, an
district of Sablon. A winner deserves a gift: What better in                                                                 absolute must for anyone visiting Brussels. The aluminum
                                                                                                                             casing has just been replaced, and the world-famous balls are
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////   gleaming like never before.
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
         WATCH THE MOVIE
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////   On the way, I ask Jacky Ickx whether his racing experience
         At www.audi.com/ar2007/ickx you can see Jacky and
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
/////////Vanina//Ickx///////their//“tour//de//ville”///////////////////////////////////////////////////////
         /////////// ////// on /////// //////// /// //////// through Brussels.
                                                                                                                             will come in handy for this contest. “You know,” says the
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////   former runner-up in the Formula One drivers’ world champi-
                                                                                                             TECHNOLOGY & RESEARCH                      67




                                                                             04




                                                                             05


                      04                            06
                       Jacky’s counting on vic-       Biology lesson: At the
                       tory – after all, he knows     Botanic Gardens, Vanina
                       everything there is to         Ickx teaches her dad
                       know about fuel saving.        about photosynthesis
                      05                              and how plants trans-
                       On the city expressway,        form carbon dioxide into
                       it is possible to drive        organic compounds.
                       efficiently by keeping a
                       constant speed.                                              06




                      onship, “many things work differently in the world of motor
                      sport. You take the engine to its maximum, and that means
                      driving at the limits of its performance.” But fuel consumption
                      is more important in motor racing than you might think. In en-
                                                                                                     A close run: Vanina Ickx
                      durance racing in particular, economical driving can give you                     snatches victory in the
                      a crucial advantage. “If you can go for one or two laps further           eco-duel, using an average of
                      on the same amount of fuel, you gain precious time,” says Jacky.             0.2 liters less fuel than her
                                                                                                      father. She consistently
                                                                                                   followed the advice of the
                      After a superb view over Brussels from Salon 58, a res-                        electronic shift indicator.
                      taurant in the highest ball of the Atomium, the diesel engines
                      start up again. The green duo are now homing in on the Audi
                      plant in Forest. Jacky takes a glance at his fuel consumption
                      gauge: Much too high! Little wonder – after all it has been                                                  The winner’s
                      pretty much city traffic all the way. But the ring road offers an                                            smile: At the
                                                                                                                                   Audi plant in
                      opportunity to push the average consumption down. Jacky is                                                   Forest, Jacky
                      no stranger to the tricks of fuel-saving. Once again, he proves                                              Ickx has to admit
                      that constant speed is a recipe for economical driving.                                                      that his daugh-
                                                                                                                                   ter has a couple
                                                                                                                                   more fuel-
                      Jacky is the first to reach the gates of the new Audi                                                        economy tricks
                      plant. But less than a minute later, Vanina’s A3* also rolls into                                            up her sleeve
                                                                                                                                   than he has.
                      the parking lot. Although Jacky initially claims victory, the                                                Perhaps Vanina
                      fuel consumption gauge clearly shows that his daughter had a                                                 will still let him
                      better grasp of what the race was about. Her onboard compu-                                                  have a few of
                                                                                                                                   those delicious
Photo: Jens Mauritz




                      ter shows that her fuel consumption, at 4.7 liters, was better                                               chocolates she
                      than Jacky’s 4.9. Obviously, even an old hand can learn some-                                                just won.
                      thing from a youngster when it comes to efficiency.    •
                      Belgian motoring journalist Gert Verhoeven writes for the Belgian
                      Automobile Club’s Uit Magazine, Het Laatste Nieuws and AutoMax.

                      *Fuel consumption and emission figures at the end of the annual report.
 68    TECHNOLOGY & RESEARCH




A born engineer: Cederic Schäfer
from Aachen builds machines and
small robots.
Inquiring minds
Many children and youngsters dream of becoming engineers.
Hardly surprising, keen as they are to ask questions, investigate
and build things. In addition, their imagination is stirred by
hi-tech heroes from comic books, movies and television.
COPY Titus Arnu PHOTOGRAPHY Stefan Pielow




 F           lying carpets, noise nullifiers, goblin foilers and
             firefly catchers? All perfectly feasible, at least if
             you are Gyro Gearloose. After all, the dauntless
  tinkerer from Ducksburg also came up with “black light,”
  which creates darkness in broad daylight. Another innova-
                                                                     stars or professional sportsmen, Cederic’s vision of his fu-
                                                                     ture career involves “something to do with technology and
                                                                     computers.”
                                                                     More and more young people are beginning to think the
                                                                     same way. In Germany, engineers are ranked as one of the
  tion of his were “super worms” for more effective fishing,         top five most respectable professions, far ahead of journal-
  intelligence waves and an apparatus that allowed dogs to           ists or politicians. Doctors may remain in first place, but
  speak. “I’ll invent anything!” is his motto.                       teachers, architects and lawyers are only just ahead of
                                                                     engineers these days. The reasons for engineering’s high
  Gyro Gearloose is the original engineering genius, but             esteem, and this is shown time and again in surveys, are the
  he’s also famously out of this world. Another such example         multitude of challenging tasks, engineers’ increasing im-
  is Professor Calculus, the highly intelligent, hard-of-hear-       portance for industry, and their excellent prospects. Engi-
  ing inventor from the Tintin comics, who can also appear           neers themselves also describe their jobs as being creative
  strangely out of place in the real world. When Gyro Gear-          and full of variety. Certainly, not all engineers become
  loose is short of ideas, he hits himself on the head with a
  wooden hammer until inspiration dawns upon him.
  Cederic Schäfer from Aachen does not have a yellow beak,           “Technology fascinates me.
  though the 12-year-old is fascinated by the technical talent       I used to make films with my toys,
  of the Ducksburg genius. Cederic reads Mickey Mouse                now I build robots.”
  books, but also tomes on physics and Albert Einstein. In
                                                                     Cederic Schäfer, 12-year-old schoolboy
  his free time, he constructs machines, cars and robots from
  building blocks. At school, he is part of a project in which
  children build robots cooperatively, which then enter into         famous, but the “Q”s of today are more in demand than
  competitions against other robots. And it dawned on                ever. Q, as any high-tech buff will tell you, is the pseudo-
  Cederic very early on, without the use of a wooden ham-            nym of Major Geoffrey Boothroyd, who devises spy equip-
  mer, that he liked solving technical problems. And that’s          ment and hi-tech toys for James Bond at the top secret
  one of the best qualities for later going on to become             R&D department of the British secret service MI6. What
  an engineer.                                                       would Bond do without Q?
  Until he does, perhaps MacGyver can continue to feed his
  imagination. This supercool action hero is probably the            Today, an engineer will often work on interdisciplinary
  only special agent who would rather wield his technical            projects, regularly travel abroad and ideally speak several
  skills and knowledge acquired from his studies than a              foreign languages. One example is Petra Kim-Reschke,
  weapon. In the American TV show of the same name,                  head of Audi’s dual-clutch transmission mechanical testing
  MacGyver shows children (and adults) that science can be           department in Ingolstadt. She has a degree in engineering
  fun. While many of his classmates aspire to becoming pop           and used to work for an Asian car manufacturer. She speaks
 70    TECHNOLOGY & RESEARCH




The ability to com-
promise: Engineer
Petra Kim-Reschke
needs to work in a
team to find viable
solutions.




   “Young people shouldn’t go into engi-                           Compromise? Would Batman, another highly talented tech-
                                                                   nological wizard, settle for compromises? Does MacGyver
   neering just because of career pros-
                                                                   care about cooperation? The fact is, mavericks like Gyro
   pects, but mostly because they are                              Gearloose would have no chance in today’s professional
   curious and enjoy meticulous work.”                             life. These days, the decision-makers among engineers are
   Petra Kim-Reschke, Head of Mechanical Testing of                initiators versed in technology. They work as team players,
   Dual-clutch Transmissions, AUDI AG                              and see themselves as executives or process facilitators.

   German, English and Korean. In something resembling the         But hero inventors from the small or large screen will
   ingenious spirit of Q, her team is working on a brand-new       always provide a source of inspiration. For example, Tony
   transmission system for series production.                      Stark (alias Iron Man) acquired superhuman strength
   Kim-Reschke does a lot of her work in the workshop, on          thanks to the hi-tech metal armor he designed. In the
   the test bench and in the car, she explains. But being an en-   Hollywood movie starring Robert Downey Jr., scheduled
   gineer involves far more than inventing and tinkering. It is    for cinema release this year, the superhero appropriately
   mainly about working as a team to find viable solutions,        drives a mid-engined Audi R8 sportscar.
   and coordinating different testing schedules. “A willingness    In reality, the life of an engineer is not quite as spectacular,
   to compromise usually helps more than a differential equa-      although Petra Kim-Reschke does travel a lot. “Personal
   tion,” says the 37-year-old.                                    contact is an important part of my job,” she says.
                                                                                       ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////




                 “Initially, I thought I’d embark on a career in technology be-
                 cause everything is so clear-cut,” she explains. “Technology is
                 obviously the foundation, but it involves much more human
                 interaction than you might think.”                                                                                                                 Dr. Werner Widuckel,
                 Cederic Schäfer’s school project is rather similar. None of the                                                                                    Member of the Board
                 children work on their projects by themselves. Rather, the                                                                                         for Human Resources
                                                                                                                                                                    of AUDI AG
                 robots are developed, assembled, tested and then fine-tuned
                 by teams of ten. The children meet up once or twice a week to
                 work on their projects. The aim is not just to program the               Premium-class HR work means making
                 robots so they reach their targets as quickly and independently          Audi the most attractive employer.
                 as possible. The students also have to be able to give a short
                 presentation. Also, in addition to the contest between the               Audi can only live up to its premium reputation by em-
                 robots they have built on their project, a special prize will also       ploying extremely well-qualified men and women. With-
                 be awarded for the best teamwork.                                        out a motivated, committed and healthy workforce, our
                                                                                          success as a company would be unimaginable. That is
                                                                                          why HR holds such an important place in our business
                 National competitions like “Schüler experimentieren”
                                                                                          strategy: We invest heavily in hiring new staff, and also
                 (High-school students conduct experiments) are designed to               in ensuring first-rate, integrated personnel develop-
                 encourage children to see engineering in a positive light, and           ment. To support Audi’s worldwide growth, we will in
                 to get a real feeling for technology. Conventional physics and           future be offering more and more job rotation between
                 technology lessons, presented in an overly theoretical manner,           our national and international locations, for instance.
                 often discourage students from conducting their own practical
                                                                                          Equally important, if not more so, is our employees’
                 experiments. Their curiosity and innate inquisitiveness is often
                                                                                          contribution to the company’s success. The success
                 stifled as a result. The consequence is that student numbers in
                                                                                          of AUDI AG is what our employees make it – that is
                 engineering and other technical subjects are falling. Even               what we firmly believe. Premium-class HR work there-
                 though Germany is a technologically advanced nation, there               fore means making the Company the most attractive
                 are companies lacking in new scientific talent. According to             employer. After all, our employees aspire to perform,
                 statistics issued by the Federation of German Industries, tens           and they need the best possible conditions in which
                 of thousands of specialist staff are required, particularly in           to do so.
                 Germany’s flagship industries such as automobile manufactur-
                                                                                          This is why we give special attention to learning – life-
                 ing and engineering.
                                                                                          long learning. We are committed to providing employ-
                                                                                          ees of all ages with the skills they need, in every area of
                 Cederic Schäfer needed no external encouragement.                        the business, from manufacturing through to technical
                 He began his creative experiments all by himself, just because           development. We also take into account that the way a
                 he enjoyed them. “I used to make films with my toys,” ex-                person learns will change in the course of his life. Com-
                 plains the 12-year-old. “I got a small video camera and acted            panies who let the know-how of experienced employ-
                                                                                          ees go to waste are merely jeopardizing their own com-
                 out scenes with the figures.”
                                                                                          petitiveness.
                 He first experimented with modeling clay and used it to make
                 animated cartoons. Now he builds small machines and cars,                Demographic change, then, which so many seem to
                 which he programs and mechanizes. Audi engineer Petra                    view as a catastrophe in the making, instead should be
                 Kim-Reschke believes this is exactly the right way to go. Her            seen much more as the basis for a pact between gener-
                 advice to young people is that they should not choose engi-              ations, opening up new opportunities. This is why, for
                 neering as a profession just because of career prospects, but            example, Audi relies on mixed-age teams, so that tried
                                                                                          and tested know-how is not lost. The old idea that work
                 mostly because they are curious and enjoy meticulous work.
                                                                                          makes you ill and that you should strive to retire as
                 To this day, she enjoys the practical side of her job: “I love
                                                                                          early as possible has never been less true than today
                 hardware!” she says.                                                     and should finally be laid to rest. Instead, let us all
                 Perhaps one day Cederic will also become a hero inventor,                recognize that trusting people to perform a wide range
                 better than Q, MacGyver, Iron Man, Professor Calculus and                of tasks is the best way to get them to contribute to a
                 Gyro Gearloose put together. Although the famous duck in-                company’s well-being, whatever their age.
                 ventor is perhaps not the perfect role model, as Cederic criti-
                                                                                          Lifelong learning is an opportunity: This way of thinking
                 cally remarks: “Those things that Gearloose does – now
                                                                                          represents a paradigm shift. Mastering this is a job not
                                               •
Photo: AUDI AG




                 they’re really over the top!”
                                                                                          just for HR but for the Company as a whole.
                 Titus Arnu, a specialist in culture and media, is a reporter for
                 Süddeutsche Zeitung, one of Germany’s leading daily newspapers.
                 In addition, he also writes for science and travel magazines.
 72    TECHNOLOGY & RESEARCH




Every dawn brings
a new future
Frank Schätzing is one of Germany’s most successful
contemporary writers. He rose to fame with his thriller
“The Swarm,” set to hit the screens in 2009 as a
Hollywood movie. In this interview, Schätzing talks
about responsibility, fear and the world of tomorrow.
INTERVIEW Marlis Prinzing PHOTOGRAPHY Paul Schmitz




Novelist Frank Schätzing lives
and works in Cologne. His motto:
Creative people must always be
prepared to accept failure.
F    using fact and fiction in a novel can have a tan-
     gible impact: A survivor of the South East
Asian tsunami owes his life to the accurate descrip-
tion of a sea swell in your novel “The Swarm.” Does
that ever cross your mind as you write?
Not at first. I’m not trying to write a “User’s Guide to Planet
Earth.” My job is to tell stories. I make my money by wri-
ting about monsters, mass murderers and psychopaths.
That’s entertainment. I relish toying with the esthetics of
fear. The question of educating the public only comes in
when I transport horror into the real world. Although at this
point, you do start to take on a certain responsibility. After
all, if I want to write about natural disasters in a credible
way, I know I will need to do a lot of research on my own
because what I write will be influencing the public’s opi-
nion and even society’s code of values.

But some of your characters really do exist. Sam
in your novel is actually called Jill Tartar; she’s a
researcher with SETI, an organization that searches
space for signs of intelligent life. Do you believe in
alien life forms?
Of course. There are masses of them. Life has developed on
countless planets, and intelligent civilizations have evolved
on a lot of them. To think anything else would be arrogant
and naive.

What do you trust in?
In my own power of judgment, my intellect, my clear vision.
 74    TECHNOLOGY & RESEARCH




“The future is not something abstract that is lurking in wait for us ten years from
now. There is no reason to be afraid of it. Instead, we should be asking ourselves
what kind of future we want, and start building it here and now.“ Frank Schätzing




People say you’re a bon vivant. What do you take                   Some people believe that modern times are too bleak
real pleasure in?                                                  to consider having children.
Small things. Good conversation, good wine, or half an hour        That’s humbug! People had it far worse in past centuries.
sitting in the sun to recharge my batteries. I don’t need yachts   Today some dangers may appear larger than those faced by
or private jets.                                                   our ancestors, but let’s face it: For the people concerned it
                                                                   makes no difference whether they die in a crusade or because
Is indulgence irresponsible while others are living                of a nuclear explosion. People have in fact never had such
in poverty?                                                        high prospects of quality of life before.
You don’t make the world a better place by denying yourself
as much as possible, but by accepting social responsibility, on    What about the future?
the basis of give and take: If we feel responsible for others’     The future is not something abstract that is lurking in wait for
conditions, the whole world will be a better place to live in.     us ten years from now. There is no reason to be afraid of it.
Anyone can do that, either by themselves or collectively.          Instead, we should be asking ourselves what kind of future
                                                                   we want, and start building it here and now. Every dawn
What’s the essential factor, in your opinion?                      brings a new future. We should always take a long hard look
Sustainability. Many unsound approaches are based on utopian       at the past, so we can learn from it and improve.
ecology. I try to question every potential influence over our
world, and ask myself whether our children and our children’s      In your stories, you play with fear and horror. What
children will live better because of it. To do that, I have to     are you actually afraid of?
think in a way that humans are not genetically equipped to do:     It’s funny, but I hardly have any fears. My only real vision of
Humans live for the moment. They can hardly imagine what           fear is of losing my powers of reason, that I might start going
will happen to the world after they are gone. We really need       crazy. That the specters hidden deep within me will somehow
to think about that a bit more often.                              take control. But even this fear is something you can learn to
                                                                   live with. What you need to do is to accept this dark side of
What is particularly valuable for you?                             power, because it ultimately makes us better able to recognize
Harmony among people. Consensus. Overcoming differences.           what is good.

In “The Swarm” there are two methods: The armed                    For nine years, you haven’t taken a plane. Is that
forces and the politicians choose war, while the scien-            because you are afraid of flying?
tists seek to be reconciled with a rebellious Nature.              Oh, that’s not a real fear, it’s a state of mind. Silly things, real-
In the book reconciliation prevails. In the real world,            ly. The older I become, the more I try to confront what it is
a happy ending and global peace seem to be im-                     that is disturbing me at a given moment, because I don’t want
possible. Why are we failing?                                      to let myself be dominated by such things. That’s why a short
Human beings are not peaceful. We are creatures that always        time ago, I decided to take the plane after all and simply got
will be fighting for space – spiritual and geographical –          on a flight to Oslo. Luckily the weather was good that day.
for resources and for dominance. We are not cut out for peace.
But I still hope that over time, we will learn to control          Are you afraid of missing out on something?
ourselves and move towards peace. Not because we are all be-       Very much so. There’s still so much that I still want to do –
coming do-gooders, but because we are beginning to see that        travel into space, dive to the bottom of the sea. But to be
more can be gained from peace than from war. As a result of        honest, if I were to be struck by lightning today, my final
globalization, ownership of land and amassing material             thought would probably be that I can actually look back at
goods are beginning to lose value. Knowledge is the                fifty wonderful years.
resource of the future. There will be wars about that, too,
but they are more likely to be fought on the internet than on      Are you afraid of death and dying?
the battlefield.                                                   What I am afraid of is long-term suffering, wasting away,
                                                                                                           Digging deeply:
Alzheimer’s and dementia, definitely. But not of death itself.                                             Journalist Marlis
Think of it: It’s actually fascinating! To me, this is going to be                                         Prinzing interviews
the ultimate experience. I can’t escape death, so I try to look                                            Frank Schätzing.

at it in a positive light. It will be my final adventure, I want to
enjoy it.

You’re writing a new book. What’s it about?                                Frank Schätzing, writer, record producer,
Ssshh.                                                                     advertising expert and connoisseur.
Is the sea still your subject?                                             Born in Cologne (1957), graduated in communication
                                                                           science and went on to work as a creative director in
As a habitat yes, but not as material for a book. I’ve said
                                                                           the advertising industry for many years. In 1990 he
everything I want to say about the sea, and now my thoughts                founded the Cologne-based advertising agency “Intevi”
have turned elsewhere.                                                     with a partner, as well as the music production compa-
                                                                           ny “Sounds Fiction.” Schätzing’s first novel, “Death and
How does a truly brilliant creation come about –                           the Devil,” was published in 1995. It was followed by
a brilliant book, for example?                                             mysteries and thrillers, all set in his home city of Cologne.
Anyone who really wants to be creative has to follow one rule              He achieved international fame with “The Swarm” in
                                                                           which a tormented nature rebels against mankind. To
of thumb: You need to be wholeheartedly prepared to fail, to
                                                                           date, his books have sold about seven million copies
fall flat on your face, to flop. If you can accept that, you will          and have been translated into 20 languages.
be able to go wherever your own ideas take you. You will try to
                                                                           BIBLIOGRAPHY (among others): “The Swarm,”
get most things right, instead of striving to get as few things
                                                                           “Nachrichten aus einem unbekannten Universum”
wrong as possible. That’s the only way innovation can develop.             (News from an Unknown Universe), “Death and the
But today, that specter of fear looms everywhere – in politics,            Devil,” “Lautlos” (Silent), “Mordshunger” (Starving
in business, in the media. It whispers in the ears of decision-            to Death).
makers, telling them to do anything rather than make any mis-
takes that might hurt their job, their share of the audience or
their share of the vote. That’s why they pre-test everything, to
make sure that nothing can go wrong afterwards. That’s ab-              successful, by creating attention, conveying their strengths in a
surd. What these people are trying to do is to rid every idea of        gripping, convincing way. The product itself is a question of
its last little bit of originality, individuality, polarity. Never be   belief. No marketing department in the world can sell some-
unpopular, never ruffle any feathers. The results are halfhear-         thing that its own people don’t believe in. I could put the
ted solutions.                                                          20th new kind of butter onto the shelves. But only if I am truly
                                                                        convinced that the world needs this butter. That’s the only way
To what extent should we allow public opinion to                        I can be successful.
influence our work?
Obviously, in order to be successful, you need to keep an eye           As the host of the three-part TV documentary “2057 –
on the market, and develop some intuition. But the public will          unser Leben in der Zukunft,” you presented 500 scien-
only ever be interested in tried-and-tested formulas, which is          tists’ ideas of the future. Can you tell us what your
why many people never dare to present the public with an un-            own vision is?
usual idea. I think that the American movie producer Samuel             We can only develop scenarios on the basis of probabilities.
Goldwyn got it right when he said: “The public only knows               But there’s one thing I do believe in, and that is that we are
what it wants when it sees it.”                                         merging more and more with technology. We are heading to-
                                                                        wards the cyborg era, that is to say we will become mechani-
How important is marketing in generating success?                       cal beings, joined to our machines. Technology is the natural
Marketing helps to sell. It can help to make products and ideas         continuation of evolution.  •
76   TECHNOLOGY & RESEARCH
Inspired by nature
The car industry has long seen nature as a source of inspiration
for functional and design ideas. Engineers are now looking to
nature for two things especially: Saving weight and saving energy.
COPY Klaus Jopp
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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                 The penguin principle. When it comes to optimizing                                                                  drag coefficient of just 0.03. If we translate this into
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 aero- and hydrodynamics, nature is truly amazing.                                                                   notional fuel efficiency, a penguin could travel
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                     //////////////// ///////// /////// 2,000 //////////////////// /////////// ////////// ////
///////////////////////////////////penguin ////////example.//Its//body//is//perfectly/////////////////between//1,500//and/////////////kilometers//under//water//on///////////////////
                 Take the //////////////// for ///////////////// //// ///////// /// ////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 designed for efficiency. Thanks to its streamlined                                                                  one liter of fuel. “Penguin design” thus promises
                 shape, ////// ///////////////// ///////////////// ////// //// /////////////////// low                               //////////////////// fuel ////////////////
////////////////////////////////this//supreme//swimmer//has//an//extremely//////////////////////significant//////////savings. /////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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                 The beetle principle. Evolution has also given the                                                                  crash-safe at the same time. Taking a cue from the
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 beetle cutting-edge technology. Its stable dorsal                                                                   beetle, manufacturers made the frame for a new hi-
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                                                                     /////// //////////////////// //////// from // ////////////////// ///////////////// ///////
///////////////////////////////////////has//been//used//by//car//manufacturers,//////////////////////tech//polyamide//seat ////////////a//one-piece//molding.//One//////////////////
                 protection ////// ///////// ///////// //// ///// /////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 among others, as a source of inspiration in their                                                                   advantage of this is that plastic weighs much less
//////////////////////////////for//a//seat//that//is//ergonomically//perfect,//but///////////////////than//metal,//used//conventionally,//but //////just///////solid.//////////////////
                 quest //// // /////// /////// /// /////////////////////////// ////////////// //////                                 //////// /////////// ///////// ///////////////////////////// ////// is /////// as //////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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                                                                                          TECHNOLOGY & RESEARCH                     79




T          he Gentoo penguin can swim underwater at a top
           speed of seven meters per second. In terms of air
           speed, this translates into over 100 meters per second –
the force of a hurricane. Thanks to their streamlined shape,
these creatures are able to swim up to 100 kilometers per day.
All they need as fuel for this remarkable daily performance is
                                                                      owes part of its appeal to the world of flora and fauna: The
                                                                      transmission supports, inspired by the design of the giant
                                                                      water lily, or radar sensors that were inspired by the orienta-
                                                                      tion system found in bats.

                                                                      This principle presents a particular technical challenge
a stomach full of small shrimp. “Expressed in notional fossil         for the creation of sensitive characteristics. In order to feel
fuel, this means that on one liter of fuel, a penguin could swim      their way around, these nocturnal animals emit ultrasonic
between 1,500 to 2,000 kilometers,” explains Werner Nachti-           squeaks inaudible to the human ear 170 times a second, using
gall, Germany’s leading bionics expert and director of the            the returning echo to differentiate between potential prey
BIOKON competence center at Saarland University.                      and their own kind and recognize obstacles. They can even
                                                                      decode chaotic background noise. Ultrasound is also used by
Faced with this wonder of fuel efficiency, it is all too easy         whales and dolphins – and now in cars, too, for example in
to see why a car manufacturer like Audi would look long and           parking sensors.
hard at bionics. This field of research, whose name has been          The newly introduced Audi side assist helps drivers when
coined from biology and technology, deals with applying the           changing lanes. Radar sensors built into the rear bumper, mon-
structural, operational and developmental principles of bio-          itor blind spot areas. If the sensor spots a vehicle, the driver is
logical systems in a technical context. “But it’s not about           informed via an LED integrated into the wing mirror.
straightforward copying. The idea that nature has prepared
blueprints for technology will get you nowhere,” says Nachti-
gall. “In nature, bionic principles have been able to develop         “Transferring an active bionic principle
more or less unrestricted,” comments Dr. Klaus Koglin, Head
                                                                      is far harder than just recognizing it.”
of Technology Development at Audi. All of Audi’s engineers,
however, need to achieve a delicate balance between design,           Dr. Klaus Koglin, Head of Technology Development, AUDI AG
lightweight construction, safety, vehicle handling, comfort and
profitability in their creative solutions. Consequently, it is no
easy task to transpose a structural design found in nature into a     For the development of new tires, the tire industry has
technical solution. “In reality, transferring an active bionic        looked at what amounts to half a zoo. Cats, polar bears, spi-
principle is far harder than just recognizing it, as it requires      ders and frogs all act as models for tire construction, com-
the cooperation of almost all partners within the process             pounds and profiles. Big cats are a good example. Despite
chain, that means designers, engineers, planners, process             their incredible speed, they can change direction or come to
managers and technology developers,” says Koglin.                     a halt in a split second. The secret? Their paws broaden on
                                                                      impact. Tires incorporating this technology are now on the
One of the most popular examples of bionics is the so-                market. Although narrow, they bring additional rubber into
called lotus effect. A microscopically small structure on the         contact with the road surface on braking, thus shortening
leaf of a lotus flower prevents the adhesion of droplets of           the stopping distance.
water or dust particles. The transfer of this effect to industrial    The beauty of nature can also be inspiring. For example, the
research has given us self-cleaning roof tiles and marquees,          lighting functions in the Audi R8 are performed by LEDs.
as well as washstands that always stay clean. Needless to say,        Naturally, this also requires corresponding advances in design.
Audi is working on dirt-repellent nanopaint. At Audi’s head-          Consequently, the R8’s headlights, for instance, are modeled
quarters in Ingolstadt, construction methods have been                along the lines of an open pine cone – a series of reflector
enhanced by bionic concepts since the 1970s. Take the devel-          shells arranged concentrically one behind the other. The
opment of the innovative Audi Space Frame, for example.               distinctive shape of the lights is also reminiscent of the mes-
“Every engineer knows the importance of firm knots and the            merizing eyes of a panther.
supporting effect of light tensile surfaces between them,” says
Dr. Claus Haverkamp, Head of Car Body Structure Develop-              Sharkskin is another example of evolution at its best. It
ment at Audi. “Researchers have copied a great deal from              disproves the obvious principle that the smoother a surface, the
nature, such as the structure of the bamboo plant, the dragon-        faster it can move. A shark’s body is completely covered with
fly or the water lily.” Here, high rigidity and solidity, maxi-       miniscule plates which form microscopic longitudinal grooves.
mum flexibility and low weight combine to form the perfect            This structure ensures that the water glides over the shark’s
mix of characteristics.                                               body with less resistance. Professional swimmers now wear
Bionics stimulates creativity and the drive to innovate. “Bionic      body suits made from imitation sharkskin, in order to swim
principles often open up new perspectives, other than the             each length of the pool a few hundredths of a second faster. The
traditional approaches adopted by engineers,” explains                grooves on ships are also a clever strategy to help prevent bar-
Haverkamp. The advantage here is that nature has honed its            nacle and mussel growths. The same principle has also been
technological prowess over millions of years. The Audi A8             adopted to laminate aircraft on an experimental basis. The
   80         TECHNOLOGY & RESEARCH




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////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 The dragonfly principle. The gossamer-thin wings of                                                                 the weight of the dragonfly’s wings makes up just
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 a dragonfly are crisscrossed with a dense network                                                                   two percent of its total body weight at most. Audi
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 of ////////// /////////// //////////////// //////// /////////////// //////////////////
///////////////////////veins.//These//combine//high//solidity,//maximum//////////////////////engineers//used//this//principle//of//firm//knots//and//sta-///////////////////
                                                                                                                                      ////////////////// ///////// /////// //////////////// /// //////// ////////// ////// ///////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 flexibility and low weight to form the perfect mix of                                                               bilizing lightweight tensile surfaces to develop the
                 characteristics. /////////////// their ///////////////// ///////// ////////                                          //////// /////////// /////////////
////////////////////////////////////////////////Despite ////////////relatively//large//size,////////////////////Audi//Space//Frame.///////////////////////////////////////////////////////////////////////////////////
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
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                                                                                                                                          result: Kerosene savings of up to three percent are possible –
                                                                                                                                          which corresponds to 2.5 tonnes on a long-distance flight.

                                                                                                                                          Spiders’ webs are a great example of the efficiency pres-
                                                                                                                                                                                                                                                                                                  Frank Dreves,
                                                                                                                                          ent in evolution. Finer than human hair and stronger than steel                                                                                         Member of the Board
                                                                                                                                          filaments, they are also more elastic than rubber. This is the                                                                                          for Production of
                                                                                                                                                                                                                                                                                                  AUDI AG
                                                                                                                                          only way a spider’s web can withstand the impact of a beetle
                                                                                                                                          in full flight, for example. This makes spider’s silk far superior
                                                                                                                                          to any synthetic fiber such as nylon or kevlar. Its strength is               A steady drive for perfection: Audi’s
                                                                                                                                          due to the long protein chains which the spider produces in                   successful production system
                                                                                                                                          order to hold the web firm. Only recently have scientists man-
                                                                                                                                          aged to create genetically engineered spider silk. The potential              What is it that makes car manufacturing sustainable?
                                                                                                                                          of this high-performance material is limitless. Fireproof cloth-              It’s impossible to identify just one aspect. Rather, it’s
                                                                                                                                          ing is one possibility, as are bullet-proof vests. Hopes for the              about the complex interaction of several factors. The
                                                                                                                                                                                                                        crucial goal is to manufacture and offer the customer
                                                                                                                                          medical field include extremely fine suture material for oph-
                                                                                                                                                                                                                        an attractive, premium-quality product at a competitive
                                                                                                                                          thalmic or neurological surgery, artificial tendons and replace-
                                                                                                                                                                                                                        price. This requires not only an attractive product de-
                                                                                                                                          ments for bandages, band-aid and casts.                                       sign and superior features, but also optimal utilization
                                                                                                                                                                                                                        of the available manufacturing capabilities and the
                                                                                                                                          At Audi, lessons learned from nature are not just applied                     establishment of efficient, supported manufacturing
                                                                                                                                          to the vehicles themselves – but also to the whole production                 methods, based on clear standards.
                                                                                                                                          process. “We think in terms of improved functionality at our
Photos: digital vision/gettyimages, Bill Curtsinger/gettyimages, Massimo Fiorito/chipimages, recaro pr, fototo/blickwinkel, AUDI AG (3)




                                                                                                                                                                                                                        With the new A4, we have successfully implemented
                                                                                                                                          plants and production facilities, but also in terms of workflow
                                                                                                                                                                                                                        the “turntable concept” between Ingolstadt and
                                                                                                                                          organization,” says Koglin. Already in use are grips, clamps,
                                                                                                                                                                                                                        Neckarsulm. This means that, for the first time, we can
                                                                                                                                          manipulators and tactile sensors able to detect the presence of               completely produce a high-volume model at two loca-
                                                                                                                                          components. Vacuum grippers, for example, work on the                         tions, from the sheet metal deep-drawing stage right
                                                                                                                                          gecko principle. These lizards have billions of tiny hairs on the             through to filling up the tank for the first time. This
                                                                                                                                          soles of their feet, which gives them such perfect grip that they             allows for a flexible response to changes in demand.
                                                                                                                                          can even walk hanging down vertically from flat surfaces.                     The integration of the Brussels plant into Audi’s pro-
                                                                                                                                                                                                                        duction network is another important step toward
                                                                                                                                          The larger the animal, the finer the hair structure. The best
                                                                                                                                                                                                                        achieving our strategic objectives. It provides us with
                                                                                                                                          thing is that this adhesion can be loosened easily and without
                                                                                                                                                                                                                        additional capacity and more flexibility in the produc-
                                                                                                                                          leaving a trace, something that makes it extremely interesting                tion of the A segment. In 2008, 84,000 vehicles will roll
                                                                                                                                          for industrial use. Gecko gloves could be useful for moun-                    off the production line at our fourth European site.
                                                                                                                                          taineers or window cleaners. Researchers are also busy work-                  The small, compact Audi A1 will also be manufactured
                                                                                                                                          ing on “gecko tape,” which should provide excellent adhesion.                 exclusively at the Brussels plant, which could amount
                                                                                                                                                                                                                        to a production volume of as many as 100,000 units
                                                                                                                                                                                                                        per annum.
                                                                                                                                          Penguins and bats, geckos and spiders, bamboo and water
                                                                                                                                          lilies – we are far from having discovered all the potential
                                                                                                                                                                                                                        The Audi Production System is vitally important for
                                                                                                                                          Mother Earth has to offer. “Nature is like a magic fountain,”                 perfection – in terms of both quality and productivity.
                                                                                                                                          says American biologist Edward Osborne Wilson, who last                       To ensure a better response to growing requirements in
                                                                                                                                          taught at Harvard and was presented with the U.S.’s highest                   terms of ergonomics, productivity and flexibility, we
                                                                                                                                          scientific award. “The more we draw from the reservoir of                     have systematically enhanced our Audi Production Sys-
                                                                                                                                          knowledge and opportunities that Nature has given us, the                     tem. The key principles have been and remain consis-
                                                                                                                                                                                                                        tently making production processes worker-friendly
                                                                                                                                          deeper it becomes.”
                                                                                                                                                                                                                        and clearly focusing on minimizing throughput time.
                                                                                                                                                                                                                        This allows us to establish clear standards as a basis
                                                                                                                                          Industry is certainly not the only area to benefit from bionic                for developing a synchronized company that’s focused
                                                                                                                                          research. It will also benefit the environment, since many                    on value creation. I firmly believe that when it comes to
                                                                                                                                          of the innovative solutions from the hi-tech laboratory that is               expanding our product range, standardization is crucial
                                                                                                                                          nature embody the principle of sustainability: After all, the                 for success. This applies to processes and production
                                                                                                                                          only solutions that have survived during the course of evolu-                 equipment, but also to the products themselves. Prod-
                                                                                                                                                                                                                        uct standards help us to develop our cars in such a way
                                                                                                                                          tion are those that require minimal utilization of energy
                                                                                                                                                                                                                        that our colleagues on the lines can assemble them ef-
                                                                                                                                          and materials.  •                                                             ficiently. They also help us to deal with the increasing
                                                                                                                                          Klaus Jopp, chemist and author, writes for Financial Times Deutschland,       complexity caused by derivatization, and to meet our
                                                                                                                                          WirtschaftsWoche, Stern and Bild der Wissenschaft.                            customers’ demands for a varied product range while
                                                                                                                                                                                                                        maintaining premium quality.
 82    TECHNOLOGY & RESEARCH



Panorama


01                            02                                                           03
“Engine of the Year”          Partnerships with universities in 2007                       Audi drive select

Audi comes 1st                University meets industry                                    Three in one
Audi celebrates its third     Audi secures progress through science thanks to its          Audi drive select gives
consecutive “Engine of        partnerships with many universities, colleges and re-        you three cars in one: At
the Year” award. A panel      search facilities. The first such project began in 2003      the touch of a button the
of over 60 renowned mo-       with the Technical University in Munich. By the end of       customer can switch be-
toring journalists from 30    2007 there were no fewer than nine university partner-       tween “automatic,” “dy-
different countries be-       ships. New partners include among others Munich’s            namic” or “comfort”
stowed the coveted            Ludwig-Maximilians-Universität since November 2007           modes. This makes it
award on the 2.0 liter        and the University of Dortmund. The aim of the part-         possible to drive the car
TFSI engine. The four-        nerships is to transfer knowledge between industry           with very balanced, ex-
cylinder unit dominated       and the field of academic research. The projects are         tremely sporty or particu-
its class and favorably       geared towards meeting AUDI AG’s new requirements            larly comfortable settings
impressed the jury, lead-     in the field of research and development. Project par-       and also to create a per-
ing the experts again to      ticipants work with Audi to provide possible solutions       sonalized profile.
recognize Audi for the        to issues in the fields of powertrain and lightweight
best work in engine de-       construction, production technology, IT, engineering
velopment.                    and business and social sciences. Over the past year,
                              researchers worked on approximately 100 doctorate
                              projects of which 63 were part of the research partner-
                              ship. Apart from the universities already listed, Audi
                              also works with Ingolstadt University of Applied Sci-
                              ences and the universities of Karlsruhe, Stuttgart,
                              Erlangen-Nuremberg in Germany as well as with Bu-
01                            dapest’s University of Technology and the SZE Gyor
 Simply the best:             in Hungary.
 The 2.0 liter TFSI engine.



                                                                         03
                                                                          Audi drive select: The driving style can be
                                                                          changed at the touch of a button.
                  05
                   Promoting young talent: The team from the Technical University of Munich won the Audi Contest Formula Student.
                   Pictured here with Dr. Werner Widuckel (center), Member of the Board for Human Resources of AUDI AG.




                  04                                                                05
                  Cell phone                                                        Audi supports “Formula Student”

                  iPhone now Audi compatible                                        30,000 euros for young engineers
                  Audi and the Apple iPhone, in other words, hi-tech                Sporty, progressive and sophisticated – these are the
                  and innovative design. It has been possible to use the            properties a racing car needs in order to compete at
                  Apple iPhone in any Audi model ever since its launch              the top level in Formula Student, an international de-
                  in November 2007. Thanks to Audi’s close cooperation              sign competition in which elite teams from all over the
                  with Apple, drivers can enjoy the iPhone’s full func-             world develop prototypes for a single-seater racing car
                  tionality. The only requirement is a cell phone adapter           which then race against each other.
                  with Bluetooth interface, available as an option for all          The Audi Contest was initially established in order to
                  Audi model lines.                                                 actively support young engineers. 19 teams competed
                                                                                    for scientific and financial sponsorship from Audi
                                                                                    ahead of their potential participation in Formula Stu-
                                                                                    dent. The teams from the Technical University of Mu-
                                                                   04
                                                                    Cult object     nich, Joanneum Graz in Austria and Hamburg Universi-
                                                                    for all mo-     ty of Applied Sciences eventually won over the jury
                                                                    dels: The
                                                                                    with their technical and business concepts for build-
                                                                    Apple iPhone
                                                                    can be used     ing a prototype. Audi provided the winning teams with
                                                                    in any Audi.    a total sum of 30,000 euros. Formula Student was
                                                                                    launched in 2006 by the German Engineers’ Associa-
                                                                                    tion (VDI), under the slogan “For the future of young
Photos: AUDI AG




                                                                                    engineers.”
 86 A DIFFERENT VIEW
    Fashion legends, video artists
    and rock stars photograph the
    new Audi models
 96 ESSENCE OF THE MOMENT
    Portrait of rock star Bryan Adams
 98 THE STRADIVARIUS CODE
    Violin maker Stefan-Peter Greiner
    seeks the perfect sound
100 SENSE AND SENSUALITY
    Visit to the Lamborghini leather
    workshop
104 THE MEDAL MAKER
    Xiao Yong, designer of the
    medals for Beijing 2008
106 PANORAMA
    2007 awards
Photo: Soren Sölker Starbird




                               4
                                   Design &Creativity
 86    DESIGN & CREATIVITY




A different
view
In real life, they create
images of people or record
music videos. Some rather
unusual photographic artists
give us their very special
views of Audi’s new models.




THE AUDI A3 CABRIOLET*,
AS SEEN BY IGOR PANITZ

*Fuel consumption and emission figures at the end of the annual report.
 88    DESIGN & CREATIVITY




*Fuel consumption and emission figures at the end of the annual report.
THE AUDI TT ROADSTER*,
AS SEEN BY TIMOTHY SACCENTI
THE AUDI A5, AS SEEN BY GABO
              DESIGN & CREATIVITY   91




THE AUDI R8, AS SEEN BY KARL LAGERFELD
THE AUDI RS 6 AVANT*,
AS SEEN BY JAN VON HOLLEBEN
                                 DESIGN & CREATIVITY              93




*Fuel consumption and emission figures at the end of the annual report.
94   DESIGN & CREATIVITY




                           ///////////////////////////////////////////////////////////////////////////////
                           ///////////////////////////////////////////////////////////////////////////////
                                    WATCH THE SLIDE SHOW
                           ///////////////////////////////////////////////////////////////////////////////
                                    Find out how the photographs for
                           ///////////////////////////////////////////////////////////////////////////////
THE AUDI A4 SEDAN*,                 /// ////////////// ///////// were ////////// ////
                           /////////“A//different//view”///////////taken./Go//////////////
                                    to www.audi.com/ar2007/creative.
                           ///////////////////////////////////////////////////////////////////////////////
AS SEEN BY BRYAN ADAMS     ///////////////////////////////////////////////////////////////////////////////
                     THE AUDI A3 CABRIOLET*                                                  THE AUDI TT ROADSTER*
                     AS SEEN BY IGOR PANITZ                                                  AS SEEN BY
                     Page 86                                                                 TIMOTHY SACCENTI
                                                                                             Page 88




A woman’s accessory. Igor Panitz is a perfectionist.                Pure projection. Timothy Saccenti uses the silver Audi
For “A different view,” he directed a classic fashion               TT Roadster as an artist’s canvas. In his “other life,”
shoot, with the A3 Cabriolet seen as an “accessory.”                the New York photographer has directed music videos.
A specialist in still lifes, he used the car as a frame-            For “A different view,” he photographed the car in front
work, bringing the female model back into the fore-                 of a jet black set – with no photographic light in the
ground. “By bringing the camera right up close, I can               traditional sense of the word. The six-man crew
set the focus on an emotional plane,” says Panitz.                  worked with indirect light effects and projections.
“What this picture conveys is a longing for a far-away              The movements are “painted” in the air by the people
place.” Igor Panitz also shot the cover picture for the             who held up the light sources. “It created a kind of bal-
2007 Audi Annual Report.                                            let,” says Saccenti. The light moves over the smooth
                                                                    surface, creating an impression of speed and energy.




               THE AUDI A5                                                       THE AUDI R8
               AS SEEN BY GABO                                                   AS SEEN BY
               Page 90                                                           KARL LAGERFELD
                                                                                 Page 91




The second face. Gabo has an uncanny feel for the                   A black and white kaleidoscope. Karl Lagerfeld is an
perfect light, which has made her a respected portrait              icon of the fashion world. With this individual interpre-
photographer. Her aim is to find the face behind the                tation of the R8 sportscar, he makes a brief foray into
face, the soul of a person. So it was no surprise that              the world of car photography. He focuses on a kaleido-
during the A5 shoot, she wasn’t content just to show                scopic abstraction of man and machine. By working
the appearance of the car, but wanted to capture the                with reflections and distorting the image, he takes
coupé’s personality. Gabo photographed the car as if                apart the overall design of the R8. The effect is rather
it were a work of art. The models she commissioned                  like looking through a kaleidoscope. Behind the wheel
for the shoot were actors Natalia Wörner and Robert                 is one of the most in-demand male models, US-Ameri-
Seeliger. “The Ligurian light made the car sparkle like             can Brad Kroenig, whom the couturier has been
a diamond,” says Gabo.                                              photographing for five years for his long-term study
                                                                    “One Man Shown.”




                               THE AUDI RS 6 AVANT*                                          THE AUDI A4 SEDAN*
                               AS SEEN BY                                                    AS SEEN BY BRYAN ADAMS
                               JAN VON HOLLEBEN                                              Page 94
                               Page 92




Not just a plaything. Jan von Holleben shows the Audi               Freedom included. Rock star Bryan Adams has also
RS 6 Avant in a sandbox landscape. A natural sand                   made a name for himself as a portrait photographer
dune and two oversized sand castles act as a back-                  with his shots of fellow musicians (see page 96).
drop. They look just as if they’d been built by children,           Stage-managed studio shoots? Not for him. His pic-
an impression that’s reinforced by the little molds,                tures are direct and candid. Bryan Adams captures the
shells, buckets and green shoots in the foreground.                 moment, whether he’s photographing people or ob-
Tricks of perspective and photographic wizardry create              jects. That is why he photographed the new Audi A4,
the illusion of depth. The car looks as though it’s driv-           with no frills and no technical gadgets – on an Octo-
ing through a giant sandbox. The children’s obvious                 ber day in a Cologne underpass. Freedom and desire –
joy in pretending to drive the car only heightens the               Adams believes that like rock music, a car can convey
image’s dynamism.                                                   an attitude to life.

*Fuel consumption and emission figures at the end of the annual report.
 96   DESIGN & CREATIVITY




The essence of the moment
This successful rock musician from Canada is also known for his direct,
no-frills manner. A direct approach also characterizes his photography.
Bryan Adams will appear at the Audi Open Air concert in Ingolstadt on
July 12, 2008, featuring songs from his new album “11”.
COPY Stefan Nink




                                                                    U
                                                                                           nder the spot-
                                                                                           light, the new
                                                                                             model is resplen-
                                      Authentic: Self-portrait of                            dent in red. You
                                      Bryan Adams. The musi-                                 can almost hear
                                      cian and song writer is
                                      just as successful behind                             the rich roar of
                                      the lens as he is on stage.                         the engine, but in-
                                                                    stead there’s the sound of guitar chords.
                                                                    A distinctive riff pervades the air. One
                                                                    that everyone knows, one that reminds
                                                                    everyone in the hall of something: Sum-
                                                                    mertime driving with the top down, an
                                                                    exchange of glances in a bar, or a sunny
                                                                    day at the beach. “Wait! Isn’t that ...?”
                                                                    everyone thinks, and suddenly there he
                                                                    is, standing next to Rupert Stadler on
                                                                    stage, clad in jeans, shirt, impish grin
                                                                    with guitar, singing a wonderful
                                                                    acoustic version of “Run To You,” with
                                                                    its evergreen lyrics about longing, se-
                                                                    duction and desire. The audience went
                                                                    wild. It was September, at the Frankfurt
                                                                    Motor Show (IAA). The occasion was
                                                                    the world premiere of the new Audi A4,
                                                                    and there was a surprise guest: None
                                                                    other than Bryan Adams.


                        “Cars and rock music have a lot in common. You can feel the
                        bass riff of a good rock song deep inside, just like the roar of
                        a powerful engine.” Bryan Adams

                                                                    Bryan Adams? Bryan Adams. An in-
                                                                    dividual with so many talents and who
                                                                    has achieved so much that the only way
                                                                    to describe him is with a rundown in
                                                                    fast-forward.
                                                                    Here goes: Canadian musician, song
                                                                    writer, composer of soundtracks, author,
                                                                    publisher, actor, photographer, but
                                                                    above all – a superstar. His first record
                                                                    contract came in 1978. He was 18 at
                                                                                                                         pictures that are just as forthright, pure
                                                                                                                         and honest as his songs. Like his songs,
                                                                                                                         his photographs also immortalize a mo-
                                                                                                                         ment, capturing its essence. Adams says
                                                                                                                         that he uses this direct approach in his
                                                                                                                         photographs, as in all areas of life, not
                                                                                                                         just his work: “I believe that these gen-
                               “But you’re the one that always turns me     to another world, one that’s hidden          uine, no-frills presentations just show
                               on,” sang surprise guest Bryan Adams at      deep within. “You can feel the bass riff     that you’re credible, real.”
                               the world premiere of the Audi A4 at the
                               Frankfurt Motor Show 2007.                   of a good rock song deep inside, just
                                                                            like the roar of a powerful engine.”         For Adams, the switch from guitar to
                                                                            That’s why Bryan Adams believes there        camera was pretty much logical: After
                               the time. Since then, he has never left      is no better place for music than a car.     all, there are hardly any other art forms
                               the charts. Ten studio albums are out so     Really? “Really! If a song sounds good       that are so closely related as rock music
                               far, contributions to 42 soundtracks and     in a car, it sounds good anywhere else!”     and photography. This is because the
                               countless singles: “Cuts Like a Knife,”                                                   camera can get close, very close, to the
                               “18 Till I Die,” “Summer of ’69,”            Bryan Adams lives in Victoria on             subject. Also, because the musician on
                               “Heaven,” “Everything I Do (I Do It For      Vancouver Island, surrounded by the          stage is very conscious of the camera,
                               You),” all of them hits, all catchy tunes,   most beautiful picture-postcard land-        and acts accordingly. But above all, be-
                               all of them having become, dare we say       scape. Having seen it, it becomes            cause rock music not only offers the
                               it, pop classics. Adams has teamed up        easy to understand why so many people        photographer a superficial area to work
                               with Sting and Rod Stewart for the           vacationing in Canada seem simply con-       with, but also a complete attitude to life:
                               soundtrack to “The Three Musketeers,”        tent traveling around by car admiring        Desire, happiness, ecstasy – all can be
                               he has sung along with Barbra Streisand      the lakes and woods. Bryan Adams             captured in a sixtieth of a second.
                               (“I Finally Found Someone”) for one of       clearly would love to do the same, if        Adams loves this direct, yet multi-
                               his three Oscar nominations, he has per-     only he had more time. Unfortunately         dimensional feel.
                               formed with his band to help refugee         time is something he is rather short of,
                               Palestinian children, endangered whales      particularly since Bryan Adams the mu-       And finally, the inevitable question:
                               and to protest against the Iraq war.         sician was joined by an alter ego: Bryan     What does Bryan Adams listen to in
                               Bryan Adams is a man who gets involved,      Adams the photographer. And particu-         the car? “Run to You” or “Born to Run”?
                               a man who opens his mouth. The son of        larly because, as one might imagine, he      He laughs. “Guitars are always good.
                               a diplomat, he earned his first wage         is as successful behind the lens as he is    If I’m traveling cross-country in a con-
                               washing dishes. He is a rock star, no        on stage. He has photographed Mickey         vertible, I need music I can tap my feet
                               doubt about it, but also a sophisticate.     Rourke and Queen Elizabeth (one of his       to.” Then he has to leave the Frankfurt
                               Young at heart, he is blessed with a         portraits of the monarch now adorns a        Motor Show, his plane is waiting to take
                               charisma as broad as the Canadian            Canadian stamp), published the illus-        him on to the next studio, the next
                               prairies and the looks of a male model,      trated book “American Women,” with           shoot. As he makes his way to the exit,
                               and looks equally good in a custom-          fashion celebrity Calvin Klein, and has      his gaze lingers on the other star of the
                               made suit as in a leather jacket. He also    exhibited at some of the world’s top gal-    day, which is still on stage, gleaming red
                               loves cars.                                  leries. In 2003, he founded “Zoo” in         and appearing to be waiting for some-
                                                                            Berlin, a fashion and design magazine        one to simply jump in and turn the igni-
                               Following his appearance at the              which he still helps to publish today. His   tion key. Reading his thoughts, Rupert
                               Frankfurt Motor Show he went on the          pictures of fellow musicians like Robert     Stadler says laughing: “Don’t worry,
Photos: Bryan Adams, AUDI AG




                               record saying: “Cars and rock music          Plant, Pink, Amy Winehouse, Joss Stone       you’ll certainly have the chance to drive
                               have so much in common! They symbol-         and Plácido Domingo have appeared in         the new A4 very soon.”   •
                               ize freedom and independence.” Both          renowned publications such as Vanity         Stefan Nink is a music journalist and a
                               are about traveling, breaking new            Fair, Vogue and Harper’s Bazaar, among       co-founder of the German “Rolling Stone”
                               ground, discovering what’s new, differ-      others. When he works as a photogra-         magazine. As a host on German public radio
                               ent or unknown. A car journey and a          pher, Adams believes in simple pictures      station SWR, he regularly conducts inter-
                               good rock song – both can transport you      with no technical frills or touching up,     views with the stars.
 98    DESIGN & CREATIVITY




Objects of desire: The waiting period for
a Greiner violin is four to five years.




The Stradivarius Code
Stefan-Peter Greiner belongs to a new élite of violin makers. His quest to
achieve the perfect sound to rival a Stradivarius is aided by physics and
chemistry. The rest is art, and craftsmanship.
COPY Robert Kittel PHOTOGRAPHY Thorsten Futh




T     he southern part of Bonn is a
      real treasure trove. Each house is
an antique, and along the Argelander-
straße stands a particularly fine art nou-
                                             soles with their hands, greets us: “Many
                                             people imagine my workshop to be
                                             much bigger. But for me it’s perfect.”
                                             Three meters by three – really not much
                                                                                        Beethoven would have been proud.
                                                                                        Many famous soloists swear by the vio-
                                                                                        lins made by the ancient masters, no-
                                                                                        tably Antonio Stradivari and Giuseppe
veau residence. But if the house itself is   room for the workplace of a “King of       Guarneri. Both made their violins and
a work of art, the contents are even         Sound.” Greiner makes violins, and         violas between 1680 and 1740, in
more so. Stefan-Peter Greiner works in       enthusiast critics have taken to dubbing   Cremona, Italy. There are still about
the basement. The hallway is where           him the “new Stradivarius.”                500 Stradivarius violins in existence,
wooden boards are stored that used to                                                   and until now their sound has never
be trees in a spruce forest. The scent of    Violin making is romantic – and so         been equaled. The asking price? Up to
dry branches and resin hangs in the air.     is Greiner. The 41-year-old craftsman      five million euros. Not bad for a couple
Greiner, clad in an apron, like those        drives a vintage car and wears white       of hundred grams of glued wood.
worn by shoemakers who still shape the       shirts with stand-up collars, of which     Greiner takes a sip of café latte – from
                                                              on the wooden table. The sheets are
                                                              covered with lots of tiny dots, arranged
                                                              into a diagram – a map of the sounds
                                                              produced by excellent violins, including
                                                              several by Stradivari. “We’ve been con-
                                                              ducting scientific acoustic tests for
                                                              years,” says Greiner. By “we” he means
                                                              himself and his partner Heinrich Dünn-
                                                              wald, a physicist at the technical uni-
                                                              versity in Aachen, and an expert in the
                                                              field of violin sounds. Together, they
                                                              have analyzed the curves and density
                                                              distributions of over 1,000 wooden             Wolfgang Josef Egger,
                                                              instruments, with the aim of cracking          Head of Design, Audi Group.
                                                              the code – the Stradivarius Code. They
                                                              even inserted some of the old violins
                                                              into computer tomographs. Their most           No compromises:
                                                              important finding is that 90 percent of        Design as an expression
                                                              violin making is about technical knowl-        of total quality
                                                              edge. The remaining ten percent is
                                                              down to art, and the creator’s “signa-         Perhaps it is a little presumptu-
                                                              ture.” That is what makes the difference.      ous to compare the work of a vir-
                                                                                                             tuoso violin maker with the prod-
                                                                                                             uct of an extremely creative car
                                                              Greiner’s hands are not delicate.
                                                                                                             designer. Despite all the differ-
                                                              The fingertips are calloused and               ences in detail, however, there ac-
                                                              cracked, and the reasons are right there       tually are a few parallels. Just like
                                                              in front of him on the table: Wooden           a valuable musical instrument, an
                                                              violin forms, in various stages of pro-        Audi is also the product of its
                                                              duction. Then he carves and files, sands       maker’s supreme precision and
                                                                                                             quality. For us, the creative
                                                              and saws. When the basic construction
                                                                                                             process is not about producing
                                                              of the violin is finished, that is, when it    art for art’s sake, but about creat-
                                                              has been glued and fitted with strings,        ing a form, a design that perfectly
                                                              the instrument, as yet unvarnished, is         embodies the strengths of a car
                                                              adjusted for tone. This is fine-tuning of      and projects its contours to per-
                                                              a very special kind. The essence of            fection. The precise drawing of
                                                              sound – the human voice – is used as a         lines and the interplay of concave
                                                                                                             and convex surfaces have a very
                 a stylish old cup, of course. It is easy     model. Greiner calls it “giving the in-
                                                                                                             specific purpose: To bring out the
                 to imagine him sitting here in the           strument character,” and it can some-          character of the model, bestow it
                 evenings, by candle light, daubing var-      times take up to a week of extra work.         with an air of dynamism and pow-
                 nish onto the body of a violin. At times     He taught himself to build his first violin    erful elegance. As in violin mak-
                 like these, his thoughts turn to the         at the age of 14. That was followed by         ing, form and function are insepa-
                 musician the instrument is intended for,     training and a master craftsman’s diplo-       rably intertwined in car design.
                 his appearances on stage, his favorite       ma in Bonn. He developed his own               Just like master instrument mak-
                                                                                                             ers, we car designers also aim to
                 pieces, his role in the orchestra. Greiner   style, studied musicology, history of art
                                                                                                             build bridges between the tradi-
                 aims to achieve a symbiosis between the      and phonetics. He tinkered some more,          tional and the modern, as we
                 violin and the musician. “He should feel     went to classical music concerts and           carefully evolve our models using
                 – and of course hear – my personal           waylaid the musicians outside the stage        contemporary technology. The
                 touch, my personal craftsmanship. I          door, thrusting his violins into their         most dramatic similarity, how-
                 want to deliver perfect quality.”            hands. “Here, try this,” he would say,         ever, is the absolute desire for
                                                              eventually breaking through. German            quality, the principle that you are
                                                                                                             never satisfied until you have
                 But surely perfection is the arch-           soloist Christian Tetzlaff was one vio-
                                                                                                             reached the optimum. Always
                 enemy of creativity? Especially in a         linist he managed to win over.                 keep looking for perfection,
                 craft that feeds on the legends of the       In a television “play-off” between a           whether it be the perfect sound
                 past? On Bach, Mozart and Beethoven?         Greiner violin and a Stradivarius, none        or the perfect design: That is the
                 Greiner nods in agreement, but points        of the experts could tell the difference.      mark of a true creator, one who
                 out that what makes his craftsmanship        According to the professionals, the in-        accepts no compromises. And this
Photo: AUDI AG




                                                                                                             is true both in a violin maker’s
                 special is the way it blends tradition and   struments were on the same level.     •        workshop and in an automotive
                 modernity. His methods are extremely         Robert Kittel writes for German publications
                                                                                                             design studio.
                 scientific. He turns around, reaches for a   GQ and brand eins magazine, Stern.de and
                 couple of paper printouts and lays them      Wiener of Austria.
100   DESIGN & CREATIVITY




Sense and sensuality
Leather – the scent of luxury. At Lamborghini and in the factory
of shoemaker László Vass, this exquisite natural material is
ennobled by master craftsmanship.
COPY Zoltán Tarpai PHOTOGRAPHY Sandro Michahelles
                             Right
   Two worlds, one passion:
Lamborghini’s chief designer
    Filippo Perini (right) and
 shoemaker László Vass both
 share a passion for working
                with leather.
                              Left
       It’s a question of feel:
Lamborghini leather, lovingly
  finished by hand, must be
          absolutely flawless.




                                     F       ilippo Perini expertly runs the finely-structured
                                             material through his hands. He grasps it, rubs it be-
                                             tween his fingers and strokes the surface. It is supple,
                                     elastic, soft yet firm to the touch, with an incomparable
                                     fragrance you can almost taste: This is leather, soon to be
                                     draped across the dashboard of a Gallardo or adorning the
                                     roof lining of a Murciélago.
                                     Filippo Perini is chief designer at the Lamborghini factory in
                                     Sant’Agata Bolognese. He regularly drops by the leather work-
                                     shop. This is where his visions and ideas come to life. The
                                     smell of leather floats over the workbenches, seeps in through
                                     the door and window frames of the “selleria” (upholstery
                                     workshop). At Lamborghini this is an especially important
                                     department, as stated by Manfred Fitzgerald, Director of
                                     Brand & Design: “Our clients love the high-quality material
                                     and, most of all, the individual workmanship.”

                                     Draped over high rails are huge skins, in bright yellow, acid
                                     green, orange, black, white and magenta. Color matching is
                                     one of the designers’ biggest challenges. The interiors and
                                     bodywork need to be perfectly harmonized. “We also coordi-
                                     nate the colors of the seat belts and stitching,” explains Perini.
                                     The initial design calls for innovation, while the later stages
                                     of the process have more to do with craftsmanship. “It’s the
                                     little things that cause the problems. We have to work the
                                     leather so it can be combined with other components,” says
                                     Perini. There is practically nothing on a dashboard that can’t
                                     be upholstered. For example, the whole structure can be cov-
                                     ered with leather, even tiny details such as the individual slats
                                     of the air vents or the switch panels. In the work area, all you
                                     can hear is the cutting of knives, the clatter of scissors and the
 102   DESIGN & CREATIVITY




whirring of sewing machines. This is no place for flapping or        Leather samples are stacked high on the tables in the Centro
fussing. Leather needs peace, quiet and tender loving care. As       Stile (styling center). One beneficial quality of this natural
Perini says: “We want the customer to sense the craftsman-           product is its remarkable durability. “The leather for our seats
ship, from the stitching to the seat covers.” Only then will it be   practically has to breathe,” Perini explains, “whereas for
good enough to bear the Bull logo.                                   airbag covers, we want leather that is durable but will never-
                                                                     theless tear easily when it needs to.”
“Come and feel this leather,” the chief designer calls to            Lost in his thoughts, László Vass arranges the Lamborghini
his Hungarian guest, László Vass. The selleria reminds the           leather samples and compares them with the samples of calf-
master shoemaker of his own workshop, where he has been              skin, cowhide and horse skin that he has brought with him.
making the famous Budapest shoes for almost 40 years. His
shoes are equally in demand in New York, Barcelona, Paris            “The customer has to sense the crafts-
and Tokyo.
                                                                     manship, from the stitching to the seat
Luxury and leather are also dominant themes in the life of
Vass: His workforce numbers just 20 people, all experts in           covers. Only then will it be good enough
their craft. Vass has trained many of them himself. His hand-        to bear the Bull logo.”
picked team comes from every corner of Hungary, and is pre-          Filippo Perini, chief designer at Lamborghini
serving the old tradition of shoemaking. Even in 2008, in his
small workshop in Budapest’s Rákospalota city district, shoes        “Glossy leather is better suited to shoes,” he says, “while matte
are made using only knives, sewing, cutting and punching             is preferred for cars.” This is really the only thing on which the
tools. “In my trade, what matters is the delicate perfection of      two experts can find no parallels. “We also manufacture
details, and although you can do a lot with machines, we stick       durable products,” muses Vass. If cared for properly, welt-
with the traditional methods,” says Vass.                            sewn Budapest shoes look brand-new even after ten years.
                                                                     “We aim to leave leather in its natural state.” Vass favors plant-
                                                                     based tanning agents and inserts leather even between the
                                                                     upper and the inlay. “Our shoes transmit real emotions,” he
                                                                     says rather poetically. “We even emboss them with the names
                                                                     of our regular patrons.”

                                                                     There is no question that Lamborghini leather has to meet
                                                                     the toughest quality standards. They are tested not only for
                                                                     tensile strength and resistance to abrasion, but also fire reac-
                                                                     tion and stain resistance. Only the best cowhide is used. Scar-
                                                                     ring from insect bites or barbed wire is a no-no. Each individ-
                                                                     ual pre-treated skin arriving from the tanneries is subjected to
                                                                     an inch-by-inch visual and tactile examination. “Our leather
                                                                     must be inherently luxurious,” says Perini. At Lamborghini,
                                                                     everything is done in the name of exclusivity. After all, only
                                                                     ten of these exceptional Italian cars are produced every day.
Dream car: The Murciélago is the epitome of luxury:
Leather trim comes as standard, of course.                           Leather quality is also a big issue for Vass. When the shoe is
                                                                     cut, great attention is paid to integrity, tautness, durability and
                                                                     stretch. Elegant shoes for special occasions are mostly made
Vass, a famous face in fashion circles, has brought a few            from calfskin, while cowhide is used for more casual models.
pairs of his Italian models with him, as a tribute to the home of    Both men see themselves as artists. “My work is most similar
the leather shoe – Italy. These two leather experts from such        to sculpture, because I use materials to shape a product that
different environments are curious to learn something from each      creates new values,” says Perini. Vass, an enthusiastic collector
other. “Creative people need to go through life with their eyes      of contemporary art, adds: “Materials have always provided
open,” says Perini. He is positively enthusiastic about the curves   inspiration for art.”                 •
of the Hungarian shoes, as keeping up with trends in fashion is
important to him. “That’s why in 2004, we also began working
                                                                                                                                                                                                  Photo: Lamborghini




with Versace.” The result: Working with the Lamborghini cus-
tomization team “ad personam,” the Versace designers left            //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                     //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                              WATCH THE MOVIE
their mark on the interior of the Murciélago. The bottom sec-        //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                              Go to www.audi.com/ar2007/lamborghini to experience the
                                                                     //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
tion of the instrument panel, the doors, the roof lining and the     /////////spectacular /presentation//of//a//an//uncompromising//car.////////////////////
                                                                              //////////////////// ///////////////////// /// / /// ///////////////////////////// /////
central console are all covered with fine-grained nappa.             //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
      04


      05




01


02
                                       06


                                       07




     01
      Bold colors such as magenta
      or acid green are typical of
03    this Italian car manufacturer.
     02
      Leather needs peace and
      quiet. Only the whirring of
      sewing machines can be
      heard in the upholstery
      workshop.                        08
     03
      Upholstering a car seat
      takes several hours.
     04
      The sign of the bull: Only
      the best will do.
     05
      Lamborghini leather needs
      to be inherently luxurious.
     06
      Car seat leather is usually
      matte, while glossy leather
      is better suited for shoes.
     07+08
      Traditional shoemaking
      techniques and a love of
      detail make the exquisite
      Budapest shoes by
      László Vass unique.
 104    DESIGN & CREATIVITY




Master of
understatement:
Designer Xiao Yong
in his studio in Jiu
Chang, the artists’
quarter of Beijing.




The Medal Maker
He has immortalized the Olympic spirit in jade: Top Chinese designer
Xiao Yong won the competition to design the medals for the 2008
Summer Olympics.
COPY Ruth Kirchner PHOTOGRAPHY Justin Jin




F
         or a top designer, he looks rather unassuming, but        around 250 brands and company logos, not forgetting posters
         Xiao Yong, 38, actually is China’s hottest new creative   for businesses and a large number of events. Galleries and
         talent. His studio, an old beverage factory in the        museums are already collecting his work, and he has received
         artists’ quarter Jiu Chang, is somewhat hard to spot.     over 40 international design awards.
No plaque adorns the heavy iron door in the grey brick             But Xiao Yong is yet to make his greatest entrance. When the
building. “Here is where I find peace,” laughs Xiao Yong.          athletes step onto the podium at the 2008 Beijing Olympics to
His two dogs, Dang Dang and Ding Ding, are lounging lazily         collect their medals, in a certain sense Xiao Yong will be there
in the fall sun.                                                   with them. He is the man behind the medal design. “That’s
                                                                   just one of my many projects,” he shrugs modestly.
The fresh-faced designer is every bit as unpretentious as          On the front of the medal, Xiao has followed the directions of
his simple yet effective creations: Two simple red chevrons        the International Olympic Committee (IOC) to the letter. It
forming the logo for the Beijing Urban Planning Museum,            shows Nike, the winged goddess of victory, and a sports arena
for example, or a simple line drawing for a telecommunica-         in Athens, birthplace of the Games. But on the back, Xiao has
tions company. Over the past 15 years, Xiao has styled             added a very special touch to the metal disc, with a simple
                                                                                      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                     ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                     ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                     ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                                                                     ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 ring of jade. The ring is green for the bronze medal, gray for      ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                 the silver and white for the gold. “Jade is a living material,”
                 says the designer. “It is smooth, it breathes, and is not as cold
                 as metal.” Jade has been cherished in China for thousands of
                 years. “Gold has its worth, but jade is priceless,” the Chinese
                 saying goes. This precious stone is also a symbol of purity,
                 virtue and goodness.

                 Xiao believes that jade is particularly appropriate as a
                 reward for the best sporting performances and as a symbol of                                                                                      Ralph Weyler,
                 Chinese culture and philosophy. “I want to combine the                                                                                            Member of the Board
                 Olympic spirit with traditional Chinese values.” Sport meets                                                                                      for Marketing and
                                                                                                                                                                   Sales of AUDI AG
                 culture, and East meets West! A combination that also befits
                 Xiao Yong, and is reflected in his personal history. He grew up
                 in the city of Jinan on the Yellow River in the East Chinese            Visionary brand architecture:
                 province of Shandong. He then studied in Beijing, before trav-          The Audi terminal
                 eling to Berlin and Stuttgart, then Denmark, and finally the
                 Finnish capital of Helsinki, where he earned a master’s degree          Audi – a brand name that stands for strong brand val-
                 in graphic design. His workshop exudes Scandinavian simplic-            ues. Worldwide, our customers have come to associate
                 ity. A light-colored wooden table, glass and a light-filled             the four rings with sportiness, progressiveness and
                                                                                         sophistication, the genes of our brand. Audi is one of
                 courtyard. This is where Xiao retreats to work on his design
                                                                                         the leading car brands in design, material and build
                                                                                         quality. This leading position in the premium segment
                                                                                         is evidenced by more than just our products. Wherever
                 “Jade is a living material. It is smooth,                               customers come across the four rings, we enable them
                 it breathes, and is not as cold as metal.”                              to experience our brand values, whether this is at fairs,
                                                                                         at our numerous arts and sports sponsoring events or,
                 Xiao Yong, Designer
                                                                                         most obviously, in our dealerships. Precisely here, in
                                                                                         our 2,700 dealerships worldwide, is where we are creat-
                                                                                         ing exclusive brand worlds, providing room for our fast-
                 projects, although he doesn’t have much time. He lectures
                                                                                         growing product portfolio, in an exclusive atmosphere,
                 as a professor at the nearby Central Academy of Fine Arts, is           with premium service. Today, Audi is at the beginning
                 a member of the Board of the Chinese Industrial Design                  of a unique repositioning of its entire sales network.
                 Association and the International Association of Design Schools.
                 Apart from his Beijing workshop, he has another three design            Our brand architecture also has a special role to play in
                 studios in China. He has also published several books and is            this regard. Our Audi hangar design created an inter-
                                                                                         nationally uniform concept, which has thrilled our cus-
                 much in demand as a guest speaker in China, Europe and
                                                                                         tomers as well as architects and urban planners. We
                 the U.S.
                                                                                         have now taken this pioneering feature of branded
                                                                                         architecture one step further with the Audi terminal, an
                 This is because design from China has become very pop-                  architectural solution which fully meets our aspirations
                 ular – particularly when it’s as cool as the work of Xiao Yong.         regarding innovative design, shapes, materials as well
                 He has transposed the exotic, mythical elements of traditional          as urban planning demands for flexibility. The first ter-
                 Chinese art into modern, abstract design concepts but has still         minal was opened in Sydney, Australia, in December,
                                                                                         2007. The Audi terminal impresses through its dynamic
                 remained faithful to his roots. “Obviously, I’m familiar with
                                                                                         shape; curved rooms, sloping walls and windows
                 Western esthetics, but the important thing for me is to capture
                                                                                         spectacularly carved into the aluminum facade create
                 Chinese tradition and take it a step further.” His models?              a taut appearance. Inside, in the new Audi showroom, a
                 “Deng Xiaoping was our ideal designer,” says Xiao. As the               spacious communications platform puts the customer
                 mastermind of China’s policy of reform and openness, about              at the center of attention from the first moment on. The
                 30 years ago Deng recognized the sign of the times and adapted          luxurious interior finishing, designed to the last detail,
                 China’s development to keep pace with modern society.                   not only creates an outstanding atmosphere, but also
                                                                                         secures a first-class presence for our premium model
                 “Design needs innovation,” says Xiao. “We cannot simply
                                                                                         portfolio.
                 copy the past.” And is he looking forward to the Olympics?
                 “It’s part of my work,” says Xiao, who is taking part in a              The new dealership architecture is an expression of our
                 whole host of Games-related projects, including the Olympic             identity, and one that sets standards. The Audi terminal
                 Culture Festival.                                                       was hailed as Germany’s contribution to the Architec-
                 Audi will also be inviting leading musicians to Beijing, as part        ture Biennale in São Paulo in the fall of 2007; in the
                 of its Olympic “Passion for Movement” program. VIP guests,              summer of 2008, it will be shown at the German Archi-
                                                                                         tecture Museum in Frankfurt. This is proof that our
                 athletes and officials will be chauffeured in Audi’s “Official
                                                                                         brand’s comprehensive design is putting it where it
                                  •
Photo: AUDI AG




                 Premium Cars.”
                                                                                         belongs: At the very top.
                 Ruth Kirchner is a freelance correspondent in Beijing, she works
                 for Handelsblatt, ARD, Deutsche Welle and the German public radio
                 station SWR.
106   DESIGN & CREATIVITY



Panorama                                                                  02
                                                                          Ideas management

                                                                          Plenty of scope
                                                                          For the fourth consecutive
                                                                          time, the German Business
                                                                          Administration Institute
01                                                                        has awarded Audi with the
Awards 2007                                                               prize for the best ideas man-
                                                                          agement system.
Audi sweeps the board                                                     The executives’ broad scope
                                                                          for decision-making and the
2007 was once again a year packed with awards for Audi.                   attractive employee incen-
Around 50,000 readers of the motoring magazine Auto                       tive system are the key fea-
Bild (edition 36/2007) chose the Audi R8 as “the most                     tures of Audi’s concept of
beautiful car in the world.” In November, the new Audi A4                 ideas management. In 2007
received the “Golden Steering Wheel,” the award which                     alone, Audi saved 61.5 mil-
the German Sunday paper Bild am Sonntag (edition                          lion euros thanks to 19,000
45/2007) presents to the best new car each year. In the                   improvements, resulting in
reader polls run by auto motor und sport (edition 4/2007),                over six million euros being
the A3, the A6 and the Audi Q7 all picked up the most                     paid out to reward the con-
votes in their categories to rank as the “Best Cars of                    tributors of the solutions.
2007.” Readers of ADACmotorwelt (edition 2/2007) also
hailed the new Audi TT, awarding it the “Golden Angel”
reserved for Germany’s most popular car. The Audi A3, A4,
A6 and R8 all topped their classes in the 2007 Auto Trophy
awarded by Auto Zeitung (edition 26/2007). Audi notched
up four successes at the “2007 Fleet Awards” (Autoflotte,
edition 5/2007): The A3, A6, A8 and Audi Q7 all won first
place in their respective categories.




01
 “The most beautiful car in the world”: The Audi R8 won in “Auto Bild.“
                  03
                  Design shows

                  Audi sets the trend
                  At “Design Miami 2007” in December last year,
                  Audi again showed itself to be an exclusive
                  sponsor and creative exhibitor. The main attrac-
                  tion at the show was the Audi Cross Cabriolet
                  quattro, displayed in a remarkable installation.
                  A parallel attraction was the Audi Design Lab,
                  created specially for the event. Visitors got a
                  chance to look over the shoulders of Audi de-
                  signers as they sketched out their designs and
                  made clay models.                                    03
                                                                        Design highlight: Spotlight on the Audi Cross Cabriolet quattro.




                  04
                  Audi concept cars 2007

                  Mobility of tomorrow
                  Audi A1 project: The Audi A1 project is a design
                  study, set to be the entry model into the Audi
                  world. It combines dynamic styling with exem-
                  plary economy of space. Thanks to innovative
                  hybrid technology, the prototype only requires
                  4.9 l of premium fuel, while the 1.4 l TFSI engine
                  delivers an extremely sporty 150 hp. The electric
                  motor can power the Audi A1 project for up to
                  100 kilometers with zero emissions. Another
                  highlight of the Audi A1 project is the Audi mo-
                  bile device: A handy universal device that incor-
                  porates several controls of the car and also acts
                  as a cell phone and MP3 player.

                  Audi TT clubsport quattro: With the clubsport
                  quattro, Audi has unveiled the TT in its purest
                  form. Numerous details borrowed from the
                  world of motor racing give this concept car the
                  character of a true driving machine. The styling
                  is sporty and dynamic, as is the technology: A
                  300 hp 2.0 l TFSI engine. The Audi TT clubsport
                  quattro thus combines the performance of a
                  sports car with a unique design language.

                  Audi Cross Coupé quattro: The Audi Cross
                  Coupé quattro combines the styling and dynam-
                  ics of a compact high-end sports car with the
                  versatility of an SUV. Innovative technical solu-
                  tions open up new horizons in terms of efficien-
Photos: AUDI AG




                  cy, driving enjoyment and comfort. A newly
                  developed four-cylinder TDI engine with 204 hp       04
                                                                        2007 was a sparkling year for concept cars:
                  guarantees sportscar performance with maxi-           The Audi A1 project, Audi TT clubsport quattro
                  mum efficiency.                                       and the Audi Cross Coupé quattro.
110 270 NEW RAÚLS
    The Real Madrid academy
    shapes the soccer stars of
    the future
114 EVERY SECOND COUNTS
    Another Audi victory at the
    Le Mans 24 Hours
116 GOING FOR BROKE
    Golfer Lorena Ochoa storms to
    the top of the world rankings
118 THE CONQUEROR
    Mattias Ekström second-time
    German Touring Car champion
120 A QUESTION OF STYLE
    Olympic equestrian events at
    the Hong Kong Jockey Club
122 A RIGHT ROYAL SHOWDOWN
    The international sailing elite
    meets at the Audi MedCup
126 PANORAMA
    American Le Mans Series
Photo: Florian Geiß




                                        5

                      Sport &Athletes
 110   SPORT & ATHLETES




270 new Raúls
Real Madrid has the highest revenue of any soccer club in
the world. The Madrid club also sets standards when it
comes to youth soccer. On the outskirts of the city lies one
of the world’s largest soccer training centers.
COPY Alexander Gutzmer PHOTOGRAPHY Montserrat Velando, Genin Andrada




T
        he ultimate role model is everywhere. When the              famous for his crossing. Following great successes with Castilla,
        eight-year-old boys arrive at the club’s training ground    Real’s second team, he graduated to the first team in 1984,
        in the early evening, the image of soccer star Raúl         playing 404 matches for the “galácticos” under his nickname
looks down on them from posters and even drawings. At Real          Míchel until his retirement in 1996. A Real legend.
Madrid’s new training center, Raúl González Blanco is omni-         The same is true of Míchel’s deputy Ricardo Gallego, who started
present. The name of the star striker is sure to crop up in the     out as a 14-year-old in the youth academy and eventually won
youngsters’ discussions about the last match or their club’s        four Spanish championship titles in his nine years on the first
performance in the Champions League. The 274 boys and               team. Its youth policy has also been a factor in this success.
teenagers in the club’s 15 youth teams all want to follow in his    Players who have risen through the ranks, like Raúl, Miguel
footsteps. Raúl himself began his career at Real’s legendary        Torres and iconic goalkeeper Iker Casillas, help fans to identify
youth academy. Now he scores goals in the Primera División –        more strongly with the club. They are also more likely to with-
and is the club’s most important figurehead.                        stand outside offers because they are themselves that bit more
“Players like Raúl, with their long history at Real, are the soul   tightly bound to their clubs – although the legendary loyalty of
of our club,” says José Miguel González, who heads the acad-        players such as Míchel or Uwe Seeler, who stuck with Ham-
emy and himself spent 20 years playing for Real – rising up         burg throughout his playing career, is no longer found today.
through the club’s youth divisions before becoming a star,          As other clubs have done before, Real have also professional-
      The importance of
        ball possession:
The youngsters already
train four times a week.
 112          SPORT & ATHLETES


ized their youth team policies. Even the ten-year-olds now join
their coaches to analyze their game on video recordings.
Míchel prefers to use ex-professionals as coaches. “We look
for experts who really know what it’s all about. After all, we
want one player each year to go through to the first team.”
Bernd Schuster’s team currently includes seven players from
the youth academy, while a total of 38 Real graduates play in
Spain’s first division. The club is not trying to convey just tech-
nique and tactics. The keyword is the “holistic approach.”
The players are regularly given character training. As Míchel
says: “We cultivate strong characters who can face up to the
pressures of professional soccer.” The club also has two of its
own teachers to make sure that the young players’ academic
performance is not affected. A stable personality is extremely
important in professional soccer, particularly because the step
from the protected world of youth soccer into Spain’s tough
professional league is a difficult one. It makes sense, then, to
allow rookie players aged 18 or 19 into the second team, Real
Madrid Castilla, where they can put themselves to the test and
show what they can do in competitive conditions. The Castilla
team currently plays in the third division. “Here, youngsters
learn to handle the pressure they will later encounter in the
A team,” explains coach Juan Carlos Mandía.

The boys in the youngest team, the “Juvenil C,” still have
a long way to go before that point, although their lives are                                                                 02
already ruled by soccer. Four times a week, they train at the
new hi-tech camp, opened outside Madrid in 2005. The boys
are bussed from the city center to the training ground in the
north-east of the city. When the facility is complete, it will
have eleven pitches, offering excellent playing conditions for
everyone. However, not everyone will receive equal treatment.
Guest teams will have their own changing area and not be
allowed into the central building. The club is also building
pitches and a hotel complex for visiting teams who want to
hold training seminars here and breathe the “royal” atmos-
phere. The club also makes distinctions internally. “We try to
visibly motivate people,” explains Gallego, the deputy head of
the academy. Both the locker rooms and the pitches are
arranged in an ascending sequence up a slope. The lowest
building is home to “Benjamín B” and located a few steps
down from those for “Benjamín A,” and so on up to the level
of the professionals. Thus, players moving up a team experi-
ence promotion at a physical level as well.
This symbolizes how much importance Real places on compe-
tition. The youngsters seem to be up to the task. The atmos-
phere during training is relaxed, although concentration is in-
                                                                                                                             04   05
tense. The boys, who one minute ago noisily romped down the
hallways, now focus completely on the quite complex moves
they are practicing. “Tactics training starts early. Kids learn
fastest at a young age,” says Míchel. The club’s playing philos-
ophy is taught to the boys right from the beginning. Each
player can rattle off the rules – like young Victor Illana from
the Juvenil C team. “Our objectives are clear. We always

//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
         TEST YOUR KNOWLEDGE
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
         Find out more about Real Madrid’s youth training
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
/////////initiatives//and//try/your//hand//at//our//interesting//soccer//quiz//////////////
         //////////////// ////// //// /////// //////// // ///// ////////////////// ////////// //////
         at www.audi.com/ar2007/soccer.
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
                                         want to win, but always keep pushing right to the end.” Ball
                                         possession is a crucial part of the Real philosophy. “You can
                                         only score goals if you’ve got the ball,” says Victor. Manage-
                                         ment keeps an eagle eye on the progress of each player. The
                                         boys themselves are regularly informed of their stage of devel-
     01
      The galácticos in training:        opment. Victor tells us: “We players are given clear targets,
      Madrid will soon expand            both regarding our playing abilities and our fitness levels.”
      up to the gates of the
                                         Currently 16 players have even moved forward a year early.
      Ciudad Real.
     02
                                         From the beginning, the ultimate goal is right in front of their
      Deadly marksman: Real              eyes: To go through the B team, Castilla, to get to Real’s
      superstar Raúl is everyone’s       A team. “I absolutely want to play in the Bernabéu at some
      role model.
                                         point,” says Victor. His role model is defender Sergio Ramos.
     03
      The big goal ahead: Young          “An uncompromising, very modern defender. I think he’s
      players aim to play in             really impressive.”
      the Bernabéu stadium
      eventually.
                                         Up-and-coming talents like Victor are often impressively
     04
      Start them young:                  precocious; however, this can be problematic if their expecta-
      Little ones learn fastest.         tions grow as fast as their professional abilities. The physical
     05                                  proximity to megastars like Robinho or Arjen Robben, who
      Big on character:
      José Miguel González,
                                         train just a few meters away, can easily raise imaginations too
      head of the academy.               high. In addition, Real Madrid is a religion in Spain. Even
     06                                  young players at the club are looked up to, and run the risk of
      Clear objectives:                  seeing themselves as The Chosen Ones. “Above all, we have to
      The little ones need to im-
01    prove their fitness, too.
                                         make sure that they keep their feet firmly on the ground,” says
                                         Míchel. For this reason, the club prefers to let the players live
                                    03   with their families. “We have decided against setting up a
                                         boarding school for all players,” though the club has an agree-
                                         ment with a school in central Madrid that houses 26 older
                                         players whose families do not live in the capital. Though the
                                         club sees a player’s family as a bond with reality, sometimes
                                         it doesn’t work that way. “We are always having to bring over-
                                         enthusiastic fathers back down to earth,” says Míchel, who
                                         maintains as much contact as he can with the boys’ parents.
                                         The school also employs two psychologists who coach both
                                         the children and their parents.
                                         Psychologists, a whole crew of trainers, and a state-of-the-art
                                         medical center: Real Madrid is spending big money on new
                                         talent. The training complex in Valdebebas is a mecca for
                                         youth soccer. But its eleven pitches are just part of the plans
                                         for the facility. It will include hotels, museums, Real’s own
                                         TV station, extra sports facilities, a stadium for Real’s interna-
                                         tionally successful basketball team … the Ciudad Real Madrid
                                         is to become a world-class sports complex, covering no less
                                         than 125 hectares.  •
                                         Alexander Gutzmer is a business writer who has been covering
                                         management and brand creation in professional soccer for years.




                                            The car for the stars

                                            For several years, Audi has been Real Madrid’s car of
                                            choice. The players’ favorite model is the Audi Q7.
                                            Audi’s soccer family not only includes the current
                                            Spanish champions but also German record holders
                                            FC Bayern Munich along with FC Barcelona, Manchester
                                            United, Ajax Amsterdam, Olympique Lyon and Red Bull
                                            Salzburg. Players and officials of 2007 Champions
                                            League winners AC Milan have also been driving Audi
                                            models since early 2007.
                                    06
                                                                                                                             Pit stop: During driver and
                                                                                                                             tire changes every maneu-
                                                                                                                                 ver has to be just right.




Every second counts
Le Mans is legendary. The 24-hour race is associated with destiny, defeat, adren-
alin and drama, thrilling duels and great victories. Defending champions Audi
again managed to secure victory at the 2007 edition of this endurance classic.
COPY Hermann Reil




T     he Le Mans circuit in northern
      France has been the site of the
legendary sportscar race ever since
1923. Again and again the Le Mans 24
                                             pushes the drivers to the limits of their
                                             endurance.

                                             At 12:52:25 precisely, everyone holds
                                                                                          the pit crew to get ready for a driver and
                                                                                          tire change.

                                                                                          At 12:56 Marco Werner rolls back out
Hours has stunned and thrilled drivers       their breath one more time, whether          onto the circuit. Two hours of racing lie
and spectators from all over the world.      they are in the pits, on the grandstands     ahead of him, with five laps’ advantage
At the 75th edition of the race in 2007,     or watching on screen. The 78,745th          over the second-placed car, but in con-
the Audi team notched up a majestic but      second is a classic shocker. Frank Biela     ditions that are steadily worsening. For-
hard-fought victory. The race proved that    hits the brakes for the first chicane, but   tunately, Werner knows how to balance
no win – even the seventh – should ever      his Audi R10 TDI skids forward off the       speed and safety, risk and responsibility –
be taken for granted.                        tarmac. Slowly, gingerly, car number 1       the mark of a professional.
                                             rolls back onto the track.
More than 250,000 spectators en-                                                          At 15:02, Marco Werner crosses the
dured torrential rain to witness the final   Audi no. 1 picks up speed again.             finish line, taking Audi’s seventh
lap after 24 hours of racing. 24 nail-       Frank Biela steers with care and control     Le Mans victory since the year 2000.
biting hours packed with excitement,         before speeding up again. It was only        A crowd of 250,920 gets to witness
hopes and disappointments. The smell         the rain. Minutes earlier it had started
of gasoline and diesel wafts over the        pouring down over the start and finish       ///////////////////////////////////////////////////////////////////////////////
track, right up to the packed grand-         line. Biela got caught unawares by the       ///////////////////////////////////////////////////////////////////////////////
                                                                                                   WATCH THE MOVIE
                                                                                          ///////////////////////////////////////////////////////////////////////////////
stands. Tires squeal as cars drift around    slippery surface, but otherwise always                Experience a car with winners’
                                                                                          ///////////////////////////////////////////////////////////////////////////////
the corners and sometimes slide off          displayed the masterful control of an                 /////////// the /////// R8 /////////////// ///
                                                                                          /////////genes,////////Audi///////sportscar//on/////////////////
                                                                                                   www.audi.com/ar2007/r8.
                                                                                          ///////////////////////////////////////////////////////////////////////////////
the track – this 13.5 kilometer course       experienced driver. Then it’s time for       ///////////////////////////////////////////////////////////////////////////////
                                                                                                                    SPORT & ATHLETES                115



                  a superb win with an advantage that has
                  grown to ten laps by the end of the race.
                  24 times 60 minutes times 60 seconds –
                  the length of the toughest motor race in
                                                                “Absolutely fantastic”
                  the world, during which the car has to keep   Pink Floyd drummer Nick Mason has driven at
                  going flawlessly for 86,400 seconds. The
                                                                Le Mans five times. Today, he takes part in vintage
                  R10 TDI with race number 1 faced the
                  challenge admirably, covering a distance      car rallies.
                  of 4,981.5 kilometers over 369 laps.

                  Never before was the 24-hour race as
                  thrilling as in 2007. Audi had fielded
                  three diesel-powered R10 TDI sports
                  cars to repeat the previous year’s his-
                  toric first victory of a diesel-powered
                  vehicle. In 2006 the revolutionary R10
                  TDI, with a superior power output of
                  650 hp from its 12-cylinder TDI engine,
                  an impressive 1,100 Nm of torque and
                  incredible speed, turned the racing
                  world upside down. In 2007, Audi took
                  the lead right from the first lap and         Petrolhead: Famed musician Nick Mason has long been “moonlighting” as a race
                  never let it go after that. At any time       car driver. At the Goodwood Festival of Speed, he lined up on the grid in an Auto
                                                                Union Type C.
                  through Sunday morning, there were
                  always two R10 TDIs at the front. But
                  racing would not be racing without set-
                  backs. The third car went out after two


                                                                S
                  hours, due to an accident in weather
                  conditions that had been volatile right                 oaked to the skin but bliss-      car. Despite incessant rain and cold
                  from the start.                                         fully grinning from ear to ear,   weather, Mason had no problems
                                                                Nick Mason climbed out of the cock-         steering the Type C up the steep track.
                  The second Audi retired the next              pit. Perhaps it is surprising that a
                  morning. Dindo Capello never had a            64-year-old man could be as happy           This kind of ability is based on ex-
                  chance to keep his car in the race as a       about taking a drive as could be a          perience. Mason’s second passion,
                  wheel came off just before the Indiana-       little boy. But he does have his own        after music, has long been motor rac-
                  polis corner. A bitter moment for             private collection of about 40 rare         ing. Inspired by his father, who raced
                  Capello, given that his car number 2          vintage racing cars. In June last year,     a converted Bentley, he began desert-
                  had masterfully led the race for over         Mason, the ex-drummer of cult rock          ing his drum set for racing cars many
                  16 hours. A bitter moment for his team-       group Pink Floyd, lined up at the start     years ago, and acquired several rac-
                  mates, too, Allan McNish and Tom              of the Goodwood Festival of Speed in        ing licenses. He entered the legend-
                  Kristensen, winner of Le Mans a record-       a rather special car: In 1936, the Auto     ary Le Mans 24 Hours five times, and
                  breaking seven times. But Audi number 1       Union Type C was the gold standard          though today he no longer wants to
                  held on to the lead. The tension in           in the motor racing world, and even         subject himself to the exertions of
                  the Audi pits rose even further since the     today is the pride and joy of Audi          this race, he still feels totally com-
                  whole event was now focused on this           Tradition, the car-maker’s vintage car      fortable behind the wheel. Mason
                  one car. For just under seven and a half      division.                                   sees his collectors’ items as cars to be
                  hours, hopes rested on Frank Biela,                                                       driven: “Racing cars can only reveal
                  Marco Werner and Emanuele Pirro.              So it didn’t take too much arm-             their true beauty when they are driv-
                  And especially on the R10 TDI. It all         twisting to persuade Nick Mason to          en,” which is why he takes part in ral-
                  ended well.                                   take the wheel of this pedigree             lies several times a year, using a for-
                  “That was certainly the hardest race          single-seater. “It is a dream come true     mer airfield to keep his unusual fleet
                  we’ve ever driven at Le Mans,” said           for me to drive this car, and I’m well      of cars in training at other times. But
                  Rupert Stadler, Chairman of the Board         aware of what an honor it is,” he           although Nick Mason is the proud
                  of Management of AUDI AG, after the           smiled before his first lap. In fact, the   owner of dozens of motor racing rari-
                  chequered flag. “But once again, we           Auto Union Type C with its 16 cylin-        ties, he was particularly enthusiastic
                  have proved on the track that we are          ders, 520 hp and top speed of 340           about driving the Auto Union Type C.
Photos: AUDI AG




                  the best.” •                                  kph requires a competent driver who         His verdict? A happy sigh: “Absolutely
                  Hermann Reil is a freelance journalist with   knows how to handle a vintage racing        fantastic.” Katrin Raczek
                  a focus on automobiles. He writes for major
                  German weekly Welt am Sonntag.
116   SPORT & ATHLETES




Going for broke
She is not afraid to make mistakes
and likes to push herself to the
limit. Determined Lorena Ochoa is
the first Mexican to top the world
rankings in ladies’ golf. Here, she
talks about mental strength.
                                                                                                                                                               Lorena Ochoa, who took her first
                                                                                                                                                               steps on a golf course at the age
                                                                                                                                                               of five, belongs to a new genera-
                                                                                                                                                               tion of female golfers. The 26-year-
                                                                                                                                                               old is an ambassador for Audi.




                                                                    G            olf, and ladies’ golf
                                                                                 in particular, is some-
                                                                                 thing of an unknown
                                                                    quantity in Mexico. Nevertheless,
                                                                    in 2001 you received the country’s
                                                                    National Sports Award, the first
                                                                                                                                                               from the way your rivals play?
                                                                                                                                                               My game is aggressive. On the course,
                                                                                                                                                               I sometimes take great risks to achieve
                                                                                                                                                               extremely low scores. I probably play
                                                                                                                                                               like that because I’m not afraid of
                                                                                                                                                               making mistakes.
                                                                    female golfer and youngest ever
                                                                    nominee to do so. How did you                                                              The legendary golfer Arnold Palmer
                                                                    discover your passion for golf?                                                            once said that golf demands more
                                                                    When I won the National Sports Award         have compared you to Nancy                    mental strength, concentration
                                                                    for the first time in 2001, Mexicans         López and hailed you as the new               and determination than any other
                                                                    suddenly became much more interested         Annika Sörenstam. Are you the                 sport. What’s your take on that?
                                                                    in golf. My father is the reason for         female golfer of the future?                  Mental strength is extremely important
                                                                    my great love for the sport as he took       Being compared with Nancy López and           on the golf course. I’ve been playing
                                                                    me with him to the golf course when          Annika Sörenstam means a lot to me,           in the Ladies Professional Golf Associa-
                                                                    I was young.                                 because they are two athletes I really ad-    tion (LPGA) for five years now, and I’m
                                                                                                                 mire. But golf has changed a lot since        feeling more and more sure of myself.
                                                                    You started playing at the age of            their day. I belong to a new generation.      That’s why I keep working on the men-
                                                                    five, winning your first regional                                                          tal aspect of the game. I want to keep
                                                                    tournament one year later, and at            The term “glamour girls” is some-             the adrenalin and the pressure under
                                                                    the age of seven you were success-           thing we often hear these days in             control as far as possible. You also have
                                                                    fully playing at national level. At          connection with ladies’ golf, par-            to find ways to relax off the course,
                                                                    that time did you know that golf             ticularly in connection with players          without neglecting training. I am still
                                                                    would play such a major part in              like Natalie Gulbis and Paula                 trying to find the right balance here.
                                                                    your life?                                   Creamer. How do you see your
                                                                    Even as a child I was certain that it        role in the golf world?                       What is a day off, in the life of
                                                                    would. After I had played in Mexico,         Natalie Gulbis and Paula Creamer are          Lorena Ochoa? Are there days or
                                                                    people told me I had to go to the U.S. and   two excellent players, who know exactly       even weeks without golf?
                                                                    become a professional. For me, it all        what they want. But glamour is also really    Of course there are days when I don’t
                                                                    happened very naturally, though I know       important for both of them. Personally, I     play golf. At those times I love going to
                                                                    I was very lucky in that my family has       want to be known for my performances.         the beach to unwind, or to go water-
                                                                    always supported me.                         I want to win the tournaments I take          skiing. I try to take a week’s rest at least
Photos: Philippe Millereau/ Picture Alliance, Jürgen Frank/corbis




                                                                                                                 part in and be a worthy representative        once every couple of months to take
                                                                    Apart from golf, you also practice           for Mexico.                                   my mind off golf.
                                                                    other sports such as triathlon,
                                                                    football and tennis. You have even           You are seen as a role model for a            What personal and private goals
                                                                    taken part successfully in competi-          whole generation of young Mexi-               have you set yourself for the com-
                                                                    tions. What appeals to you about             cans. How do you cope with these              ing season?
                                                                    this extra challenge?                        high expectations?                            I have lots of goals. I always focus on
                                                                    I love all types of sport, especially out-   I am happy to take on this great respon-      things that are achievable for me. There
                                                                    door ones. I believe that all sports help    sibility, because I’d like to do everything   is always room for improvement, for
                                                                    make you stronger not just physically,       I can to help young Mexicans set their        becoming physically and mentally
                                                                    but also psychologically. It’s all about     sights high. That’s why I try to motivate     stronger. I want to focus intensively on
                                                                    thinking positively, and never quitting.     Mexican youngsters to play golf.              various techniques in order to perfect
                                                                                                                                                               my game and improve certain things –
                                                                    Since April 23, 2007, you have been          What makes your game special?                 my putt for example. It’s vital to have
                                                                    the world’s number one. People               How is the way you play different             goals, they keep you motivated.    •
118   SPORT & ATHLETES




                   The Conqueror
                   He’s done it! Swede Mattias Ekström won a gripping
                   final race to become the overall winner of the German
                   Touring Car Masters (DTM) for the second time after
                   2004. Portrait of a fighter for whom fair play and good
                   sportsmanship come first.
                   COPY Thomas Voigt
                                                                                                                           ures in his life, two sprightly and seemingly inexhaustible
                                                                                                                           Jack Russell terriers.

                                                                                                                           For Mattias Ekström, life off the track is a slow-paced,
                                                                                                                           sleepy world. Long walks around Lake Constance with the
                                                                                                                           dogs and with friends. An important factor in his move to
                                                                                             is Mattias Ekström’s          nearby Switzerland was being close to Audi Sport in Ingolstadt
                                                                                             favorite number. At           and the Audi Sport Team Abt Sportsline in Kempten. Another
                                                                                              last, he’s won it back –     factor was the wonderful view from the terrace of his home,
                                                                                              on the hood of his Audi.     decked out with modern, comfortable rattan furniture and a
                                                                                              This is his second Ger-      huge barbecue. Not too many flowerbeds in the garden – that
                                                                                              man Touring Car Mas-         might mean too much work. This is where the new champion
                                                                                              ters (DTM) victory,          comes to recharge his batteries for his next mission. Quite
                                                                                              after 2004. He tri-          often, incidentally, his teammate Martin Tomczyk will join
                                                                                              umphantly brought the        him. This year, this driver from Rosenheim, who like Ekström
                                                                                              title back home. His         made his DTM debut in 2001, was also one of his rivals, al-
                                                                                              body is honed to per-        though this never put any strain on their friendship. They raced
                                                                                              fection, his reaction        each other openly and honestly, and neither of them would
                                                                         times are far above those of an average Joe,      begrudge the title to the other. Sounds like “team spirit” is not
                                                                        and he is well known in motor-racing circles       just an empty phrase.
                                                                       for his outstanding stamina. But right at the
                                                                      moment of his triumph, the Swede’s knees             The harmony ends the moment Ekström puts his helmet on.
                                                                     gave way. Minutes after crossing the finish line,     On the track, the Swede battles it out right to the last lap, with
                                                                    the new DTM champion slowly sank down                  all the tricks up his sleeve, driving right to the limit, but prac-
                                                                     behind his Audi A4 DTM and waited for the             tically never over it. His opponents acknowledge as much. The
                                                                     adrenalin levels to return to normal. After the       champion does not want victory at just any price, but rather to
                                                                   final race in Hockenheim, the Swede struggled           play fair even in the most difficult situations under the most
                                                                  to put his feelings into words for the benefit of        severe pressure.
                                                                 a good 1.6 million TV viewers. “I was fighting for        There is a motto that has accompanied Mattias Ekström
                                                                my life,” he said into the microphone, exhausted.          throughout his career: “Go hard or go home,” emblazoned on
                                                              And he won – beating his opponents, his teammates,           the back of his helmet. The slogan, which is a memory of a
                                                             and himself.                                                  childhood squabble, has become both his motto and his yard-
                                                                                                                           stick. On the evening before the last race at Hockenheim,
                                                            Those who saw Mattias Ekström during the days                  Ekström’s mechanics, one after the other, crawled underneath
                                                          after the thrilling final race found him to be relaxed and       his Audi A4 DTM bearing the race number 3, and as a symbolic
                                                        just plain happy. “The minute I open my eyes in the morning,       gesture scribbled their hopes for the crucial event on the car’s
                                                      I’m in a good mood,” chirps the 29-year-old. The whirl of            underside. One wrote: “Now show how hard you can go.”
                                                      appointments and requests now being pelted at the titleholder        And he duly did.   •
                                                      is doing nothing to affect his good mood. He is the golden boy       Thomas Voigt has been covering DTM racing since its inception in
                                                      that his fans have known and loved for years.                        1984. The founder of online magazine racing1.de, he works as a
                                                                                                                           T V commentator for DSF and is editor of the official DTM year books.
                                                      He kept another side well hidden during the weeks leading
                                                      up to the great showdown. Right up to the last race, three
                                                      drivers were still in with a chance for the title. Never before
                                                      had the pressure on Mattias Ekström been so great, and never
                                                      before had he had so much time to reflect. To an outsider,
                                                      everything seemed so easy – but just how easily everything can
Photos: Ronald Wi/dpa Picture-Alliance, ExSpo/imago




                                                      be thrown away was demonstrated to perfection by the aston-
                                                      ishing end to the Formula One season. Having stayed the
                                                      course and battled against this pressure, and having hit the
                                                      target so accurately all makes this 2007 title win the greatest
                                                      moment of his life.
                                                      Yachts, parties, Monaco … none of these motor-racing clichés
                                                      fits him, not even remotely. What counts for Ekström are com-
                                                      pletely different values, ones that have nothing to do with ma-
                                                      terial things. Lou and Moss are two of the most important fig-



                                                                               Master class: In the final event, Mattias
                                                                                    Ekström drove the race of his life.
120     SPORT & ATHLETES




A question of style
Its revenue figures have the competition green with envy while its commu-
nity work leaves the city fathers jubilant: The Hong Kong Jockey Club is one
of the most renowned horse racing institutions in the world.
COPY Myrto-Christina Athanassiou




                                                 T      he only thing they’re short of is space, as they have
                                                        been for decades. This explains why the 1,200 thorough-
                                                 breds that race here are accommodated in three-story stables
                                                 (fully air-conditioned, of course). For the same reason, the
                                                 club does not breed its own horses. But apart from that, short-
                                                 age is about the last thing any of the former crown colony’s
                                                 seven million inhabitants would associate with the exclusive
                                                 Hong Kong Jockey Club. The club’s history dates back to
                                                 1841, when the horse-crazy British laid out the city’s first
                                                 racecourse in the middle of malaria-stricken Happy Valley.
                                                 Since the early 1970s, the club has had a monopoly on betting
                                                 on horses and lotteries, as the government wanted to combat
                                                 illegal gambling.

                                                 The club’s regular customers represent a third of Hong
                                                 Kong’s population, notorious for its love of gambling. Tens of
                                                 thousands stream through the gates on race days. Rumor has it
                                                 that daily ticket sales here amount to what an average Euro-
                                                 pean racecourse would sell in a year. That is why the club is
                                                 now the city’s largest taxpayer, contributing the equivalent of
                                                 nearly nine billion euros a year in income tax and gambling
                                                 tax. “There is hardly anyone in Hong Kong who doesn’t come
                                                 into contact with us on a daily basis one way or another,” says
                                                 CEO Winfried Engelbrecht-Bresges.

                                                 In this metropolis that never stands still and is so pas-
                                                 sionate about performance, people are used to dealing in
                                                 superlatives. For the club’s racehorses, only the best in the
                                                 world, the most talented will do. First and foremost there is
                                                 Silent Witness, the fastest horse on the planet between 2003
                                                 and 2005, an achievement which earned it not only its own
                                                 website but also a place in Time magazine’s list of the “100
                                                 most important people” in 2004. For the club’s jockeys and
                                                 trainers: Only the most highly regarded in their field. Douglas
                                                 Whyte for instance, the undisputed darling of the public, has
                                                 stayed at the top of the rankings for seven seasons. Whyte has
                                                 now overtaken even Tony Cruz, a household name thanks to a
                                                 hugely successful career as a jockey, and now a top trainer. For
Above                                            the members’ facilities: Only the finest, from gourmet restau-
  Tens of thousands stream into the Hong         rants to the luxury spa complex.
  Kong Jockey Club on race days. The club will
  host the riding events at this summer’s
  Olympic Games.                                 The stadium facilities are also world class – for instance
Below                                            the state-of-the-art veterinary clinic and anti-doping laboratory,
  The atmosphere at evening races in Happy
                                                 which has a reputation for uncompromising strictness. Nor
  Valley is electric.
                                                 does the club accept half measures when it comes to technology.
                                                               The club’s horses and jockeys are
                                                               world class. Horses born to win some-
                                                               times even get their own websites.




                                                               At over 70 meters long, the display board along the Sha Tin          Engelbrecht-Bresges: “Until now there hasn’t been a single
                                                               course is mentioned in the Guinness Book of Records as the           institution that provided systematic support to talented young
                                                               longest screen in the world.                                         players – there is now.” He is also committed to preserving
                                                                                                                                    Hong Kong’s cultural heritage. For instance, vast sums will be
                                                               The club is rather less keen to disclose its members’                poured into restoring the historic police headquarters and
                                                               names than it is to publish record statistics. Of course, the list   prison, for which the club has engaged the services of top
                                                               includes many in positions of power and influence, say the PR        architects. Particularly impressed by their design of the Tate
                                                               officials, as well as famous names from the world of entertain-      Modern in London, the club has commissioned Swiss archi-
                                                               ment. But privacy considerations mean that no names can be           tects Jacques Herzog and Pierre de Meuron.
                                                               named. To become a regular member, you will need to pay a
                                                               one-off entry fee which currently stands at around 22,000 euros,     The real baptism of fire, the spectacle to which The Hong
                                                               plus a monthly contribution of 118 euros. In return, horse           Kong Jockey Club is committing all its facilities and organiza-
                                                               owners enjoy special privileges with their own concierge ser-        tional know-how, will come this summer. Between August 9th
                                                               vice and a private box where champagne flows. However, any-          and 20th, Olympic riders will battle it out for a podium place in
Photos: Epa Paul/Picture Alliance, AUDI AG, Schiffmann/imago




                                                               one who is not recommended by a club member will not get             Hong Kong. The fact that the equestrian events are not being
                                                               in. Only a very few applicants are accepted each year. This          held on the Chinese mainland is due to international quaran-
                                                               noble group of horse enthusiasts is shielded from envious            tine restrictions: Something that The Hong Kong Jockey Club,
                                                               critics by the club’s unique financial structure. Since the mid-     dependent on horse imports since time immemorial, knows
                                                               1950s, the club has invested all its surpluses into community        better than any of its counterparts in the Middle Kingdom. The
                                                               projects, to the tune of around 90 million euros each year.          Olympic arena, training areas, halls and stables are all finished,
                                                               According to Engelbrecht-Bresges: “Leading an organization           and the club is looking forward to welcoming the 200 riders
                                                               that puts so much back into the community is something that          and their 225 horses. The citizens of Hong Kong are still rather
                                                               fills even a CEO with pride.”                                        reluctant to show enthusiasm for the Olympics. Winfried
                                                                                                                                    Engelbrecht-Bresges is undeterred: “We want to show the
                                                               The club finances youth employment, training initiatives,            world the incredible energy and the urge to accomplish that
                                                               projects for the elderly, medical causes, research, environ-         exists in Hong Kong.” He likes to call it the “can-do spirit.”
                                                               mental programs and sports facilities. The club gave the city        Doing whatever it takes – even if space is tight.•
                                                               its first public golf course as well as a soccer academy, some-      Myrto-Christina Athanassiou is a passionate horsewoman and fan of
                                                               thing close to the heart of former professional soccer player        Asia. She works for Das Parlament, Süddeutsche Zeitung and WDR.
122   SPORT & ATHLETES




A right royal
showdown
Sleek, hi-tech yachts, world-class sailors and royal
splendor: The Audi MedCup, one of Europe’s most
challenging regatta series. Also on board: Audi and
two-time America’s Cup champion Jochen Schümann.
COPY Tatjana Pokorny PHOTOGRAPHY Heinrich Hecht
A
         s the America’s Cup has             participants of the TP52 series of the
            come to a standstill because     Audi MedCup now include keen sailor
             of an ongoing legal battle,     King Juan Carlos I of Spain on the “Bri-
              the international sailing      bon,” his son Felipe as skipper of the
elite has switched to an alternative         “CAM” and King Harald V of Norway
arena: The Audi MedCup, where the            on the “Fram.”
world’s best sailors compete in the most     The charismatic Juan Carlos I has played
exclusive waters of the Mediterranean,       a particularly important role in the me-
on TP52 yachts. Last year, Audi was al-      teoric rise to fame of the TP52 class.
ready a premium sponsor of this attrac-      When Spain’s seafaring head of state
tive international sailing regatta series.   takes to the seas, the Spanish and in-
In 2008, the brand with the four rings is    deed the European sailing scene is keen
the title sponsor of the Audi MedCup.        to join in. The best America’s Cup skip-
The name TP stands for Transpac, as the      pers have also long felt at home in the
52-foot yachts were built, among other       TP52 class. Jochen Schümann, three-
things, for the classic American regatta     time Olympic champion and two-time
of the same name that traditionally runs     winner of the Cup, is happy to accept
from Los Angeles to Honolulu. Fans and       the challenge, as is Whitbread Round




                                                                     Pure adrenaline:
                                                                      When it comes
                                                                        down to split
                                                                      seconds on the
                                                                     high seas, every
                                                                      movement has
                                                                        to be perfect.
                                                                                                        SPORT & ATHLETES                                        125



“After the America’s Cup, the TP series
is the toughest sailing event.”
Jochen Schümann, two-time America’s Cup champion




the World Race winner Paul Cayard             Little wonder then that the class has
from the U.S. Everyone who’s anyone in        been making big waves even in Ger-
professional sailing seems to be involved     many’s “Big Boat” community, which
– or wants to be. Schümann has an easy        had been rather becalmed in recent
explanation for this interest: “All the top   years. Harm Müller-Spreer, already a
teams from the America’s Cup are also         three-time winner of the Gold Cup in
lining up at the start in TP yachts. After    the elegant Dragon class, formerly an
the America’s Cup, the TP series is the       Olympic sport, decided to field a team
toughest sailing event.”                      in the TP52 class two years ago, a com-
                                              mitment that he is now expanding. “I’ve
The success story of the TP52 class is        entered or even won every regatta in a
consistently adding new chapters by the       three-man keeler. So I was looking for a
year. The class is not only popular in the    new challenge,” explains this Hamburg            REGATTA CALENDAR
                                                                                               AUDI MEDCUP 2008
U.S., but has also been thriving for four     businessman. The racy TP52s, which
years in Europe. The reason behind this       according to Jochen Schümann look                May 12–17:
                                                                                               Alicante (Spain)
growing crowd of devotees lies in the         almost like the little sisters of the new
                                                                                               June 2–7:
simplicity of the Box Rule. For years         America’s Cup 90 class (AC90), arrived           Marseille (France)
sailors and designers had been clamor-        just in time. Watching 20 or 25 of these         June 30 – July 5:
ing for races like in motorsport, where       yachts take off or round a mark almost           Cagliari (Sardinia)
the first to reach the finish line is the     simultaneously is a spectacular sight            July 21–26:
winner, and does not need to wait for         that sends adrenaline into the veins of          Puerto Portals (Mallorca)
hours until all the competitors have ar-      even experienced pros.                           July 28 – August 3:
                                                                                               Copa del Rey* (Mallorca)
rived, to then be compared and classi-
                                                                                               August 25–30:
fied according to complicated formulas.       But Harm Müller-Spreer knew from
                                                                                               Coruña (Spain)
                                              the outset that success in this heavily          September 15–20:
With basic costs of around 600,000            contested category could only be                 Portimão (Portugal)
euros and at just under 16 meters long,       achieved through serious commitment.
                                                                                               * The classic Copa del Rey is not classed as
the boats are comparatively affordable,       He and his “Platoon” edged towards               part of the Audi MedCup, but is viewed as
even though they look like futuristic         peak performance during the first two            the highlight of the Mediterranean yachting
                                                                                               calendar. It regularly draws the best TP52
hi-tech racing yachts. As in the world        years, making astute gradual additions           crews to Mallorca.

of motorsport, they offer technology          to the crew. His boat was designed by
companies the chance to test out new          none other than Dutchman Rolf Vrolijk,
products and equipment arrangements.          who has long enjoyed cult status on the     Tim Kröger, Cup sailor Matti Paschen
Hulls, masts, wheels and tillers of TP52      yachting scene.                             from Hamburg, Ocean Race winner
yachts are made from carbon fiber, for        Müller-Spreer always knew that he           Tony Kolb and also Cup navigator Marc
example. The sails are “baked” from           would have to hire more professionals if    Lagesse from South Africa.
ultra-light fibers. A single spinnaker is     he then wanted to catch up with the top
just under 300 square meters in size.         teams, as he had done in the Dragon         Out of the 14 to 15 man crew, with
The budget can increase depending on          class over the past ten years. “I’m still   a maximum crew weight of 1,273 kg,
taste and policy in crew selection. Some      not expecting a victory this year, but we   more than half will be German. Just a
yachts are crewed by their owners, oth-       want to sail good races,” was his aspira-   few years ago, that would have been
ers by professional-only teams.               tion at the start of the 2007 season.       unimaginable in international profes-
                                              However, his expectations for the start     sional sailing.            •
                                              of the 2008 season have now risen.
Above left
                                              Jochen Schümann, the most successful
   A Mediterranean spectacle:                 sailor ever to come from Germany, is        ///////////////////////////////////////////////////////////////////////////////
   Competitions in the TP52 class follow      going to skipper the boat on a regular      ///////////////////////////////////////////////////////////////////////////////
                                                                                                   WELCOME ON BOARD
   attractively simple rules.                                                             ///////////////////////////////////////////////////////////////////////////////
                                              basis. There are also other experienced              You can find out what sail trimmers
                                                                                          ///////////////////////////////////////////////////////////////////////////////
Below left
                                              pros in the race, such as circumnaviga-              ////// grinders //// ////
                                                                                          /////////and////////////////do/at:///////////////////////////////////////
   Top-class crew: “Platoon” will                                                                  www.audi.com/ar2007/medcup.
                                                                                          ///////////////////////////////////////////////////////////////////////////////
   have Jochen Schümann on board.             tor and two-time America’s Cup entrant      ///////////////////////////////////////////////////////////////////////////////
Panorama




01
 Pole position: Audi maintained its command of the American Le Mans Series.




                     01                                                          02
                     American Le Mans Series                                     Audi quattro Cup world finals

                     Audi in 13th overall victory                                World amateur golf cup
                     At the final race of the American Le Mans Series in         In November 2007, over 100 final-
                     Laguna Seca (California), the Audi R10 TDI diesel race      ists from 43 countries took part in
                     car brought home its 13th overall victory since its first   one of the most popular tourna-
                     start in 2006. Dindo Capello (Italy) and Allan McNish       ment series for amateur golfers.
                     (Scotland) conquered the top spot and defended their        Britain’s Edward Greenhalgh and
                     lead right till the end. The German drivers of the sec-     Mike Williams (Group A, team
                     ond Audi R10 TDI, Mike Rockenfeller and Marco Werner,       handicap 0 – 18) and Australians
                     also put in a strong performance, rounding off Audi’s       Matthew Boyle and David Harris
                     triumph with third place.                                   (Group B, team handicap 19 – 36)
                                                                                 won the world final of the Audi
                                                                                 quattro Cup, held in Mexico. The fi-
                                                                                 nal concluded the worldwide quali-
                                                                                 fication tournaments, in which
                                                                                 around 80,000 golfers took part
                                                                                 last year. The Audi quattro cup has
                                                                                 been held for the last 17 years.
                                                                                                                    SPORT & ATHLETES                127




                  03
                  Audi driving experience

                  Skiers at the limit
                  The professional skiers of the Ger-
                  man Ski Federation (DSV) swapped
                  their skis for Audi TT and Audi Q7
                  models with quattro drive on a
                  race-free day during the World
                  Alpine Ski Championships, held in
                  Åre, Sweden. The DSV skiers,
                  though well accustomed to harsh
                  weather conditions, found that the
                  Audi driving experience in the win-
                  ter landscape demanded total con-                      02
                  centration. They practiced main-                        Golf: World final of the Audi quattro Cup in Los Cabos, Mexico.

                  taining control of the cars in ex-
                  treme conditions on snow and ice.




                  04
                  Audi Polo Challenge 2007

                  A royal victory
                  The Audi Polo Challenge is one
                  of the most exclusive tournaments
                  in the British polo season. For the                    03
                  second time, Prince William cap-                        Skiing aces: Alois Vogl, Felix Neureuther and Maria Riesch (from left).
                  tained his team against the Audi
                  UK team, whose line-up includes
                  star players from the English na-
                  tional team. As in the previous
                  year, the royal team succeeded in
                  winning the match. The historical
                  Coworth Polo Club was once again
                  the venue for this tournament,
                  which was established in 2002.
                  All proceeds from the event were
                  donated to charitable institutions,
                  which are chosen by Prince William
                  each year.
Photos: AUDI AG




                                                                    04
                                                      Top-class polo:
                                                  Prince William led
                                                 his team to victory.
R
             “The challenge lies in always
             keeping two steps ahead.”
             Axel Strotbek, Member of the Board for Finance and Organization of AUDI AG




130 “BUSINESS IS LIKE SPORT”
    Axel Strotbek, Member of
    the Board for Finance and
    Organization of AUDI AG,
    talks to sailing star Jochen
    Schümann
132 AT A GLANCE
    Figures of the Audi Group
133 AUDI GROUP
    FINANCES 2007
232 AUDI AG
    FINANCES 2007
284 FUEL CONSUMPTION AND
    EMISSION FIGURES
Photo: Benjamin Rondel/corbis




                                Review
Dynamic duo: Jochen Schümann (left)
and Axel Strotbek discover that they
have plenty in common.




“Business is like sport”
Axel Strotbek, Member of the Board for Finance and Organization of AUDI AG, and
world-class sailor Jochen Schümann on success, experience and ambitious goals.
INTERVIEW Tatjana Pokorny PHOTOGRAPHY Enno Kapitza




M        r. Strotbek, would you consider switching
         jobs with Jochen Schümann for one week?
What would appeal to you about his duties?
                                                                  bility as part of a team. I think that’s what both our jobs have
                                                                  in common. Whether it’s sailing or being on the board of a
                                                                  large company like the Audi Group – success only comes if
                                                                  every team member puts in hard work. But apart from the
AXEL STROTBEK: What I would find most appealing about             mental challenge, I’d also relish the physical test. Sport has al-
this proposition is the fresh air and freedom out on the open     ways been an important part of my life; it clears your head and
sea. But I would also relish the challenge of sharing responsi-   is a vital source of energy.
                                                                                                                  REVIEW         131




“Sustainable success can only be achieved with an elite team.”
Axel Strotbek, Member of the Board for Finance and Organization of AUDI AG




Let’s turn it around: Mr. Schümann, would you con-                 ing at the same time. I let my thoughts wander and come to
sider switching places and working in the financial                terms with things that might have been preying on my mind.
world of Mr. Strotbek?
                                                                   Where do you get the motivation for your
JOCHEN SCHÜMANN: Actually I really enjoy my job. I’ve              enormous efforts?
turned a hobby into a job, and made a success out of it. I have
no reason to switch.                                               STROTBEK: The car industry moves people in two ways. We
                                                                   drive cars, and we love cars. In my current job, the opportuni-
What are your biggest challenges?                                  ty to play an active part in shaping the future – that’s a fantas-
                                                                   tic motivation. I also relate very strongly to technology.
STROTBEK: The greatest challenge for me is to continue the
Audi success story. 2007 was our twelfth record year in a row      SCHÜMANN: You try to achieve perfection. I’ve learned that
for unit sales. This involved an incredible push to improve fi-    even winners can do lots of things better. Public recognition is
nancial performance, particularly in the past few years. Now       also an important motivating factor.
it’s all about sustaining this success. The automotive industry
is facing huge challenges. On the one hand, we are seeing          Can you explain to a non-expert why design and tech-
increasing competition in traditional markets such as North        nology are so crucial in professional sailing?
America and Europe, which have already reached a certain
level of saturation. On the other hand, we need to successfully    SCHÜMANN: We often design our boats ourselves – the hull,
manage growth in countries like China and Russia.                  the rudder, even the masts and sails. The way you handle tech-
                                                                   nology has an influence on sporting success. We dream about
SCHÜMANN: For both of us, it’s about sustainability. Anyone        “Vorsprung durch Technik” – leadership through technology.
can get to the top with a bit of luck. But the only real form of   With a faster yacht or a faster car, you’re already off to a good
success is the sustainable kind.                                   start. If you then adopt a good strategy and tactics, anybody
                                                                   wanting to beat you is going to have a pretty hard time.
STROTBEK: Business is a lot like sport: Sustainable success
can only be achieved with an elite team. That’s why we at          Mr. Schümann, you adopted the slogan “International
Audi pay a great deal of attention to development programs,        Campaign. German brain.” Mr. Strotbek, might that
fostering and furthering the careers of high performers, so        also apply to Audi?
that we have the right people on board to face our challenges
in the future.                                                     STROTBEK: Audi stands for “Vorsprung durch Technik”
                                                                   made in Germany. That is a decisive factor for our inter-
And how do you cope with these high expectations?                  national success.

SCHÜMANN: It’s only outsiders who paint this pressure as be-       You both have a very cosmopolitan background...
ing so great. I would say myself that I have responsibility, but
no pressure.                                                       STROTBEK: Living abroad gives you a huge amount in terms
                                                                   of life experience. You have to take risks with a few things:
STROTBEK: It’s always been important for me to grow with           Continuity, friendship and local interests. But those things are
the demands made on me. To reach your mental and physical          balanced out by unique experiences, meeting new people and
limits and use these experiences to grow – that’s what makes       exploring their cultures.
you stronger.
                                                                   SCHÜMANN: I can totally endorse that. You don’t forget your
SCHÜMANN: I play a lot of sport in my spare time. When I sit       own roots, but you stop being rooted. It’s thrilling to travel,
on a bike for hours and really wear myself out, it’s regenerat-    have new experiences and encounter diverse characters.      •
                        132         REVIEW IN BRIEF


                      2007 was another record year for the Audi Group – once more,
                      the Company exceeded its own high expectations.


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                    6
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                      NEW MODELS made their international debut in 2007: Audi A4 Sedan, Audi A5, Audi S5,
                      Audi TT Roadster, Audi A3 Cabriolet and Audi RS 6 Avant.



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                    964,151
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                      VEHICLES from the Audi brand were sold to customers around the world. The increase of 6.5 % made
                      2007 the 12th consecutive record year.



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                    33.6 bn
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                      EUROS in sales revenue for the Audi Group in 2007 exceeded any previous year and reflects
                      an increase of 7.9 %.

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                     8.7 %
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                      RATE OF RETURN before tax for the Group for the 2007 fiscal year, compared with 6.2 % for
                      the previous year.

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                   53,347
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                      EMPLOYEES, total for the Group at all of its global locations.
                                                                                                     133




Audi Group                  Finances 2007



                            Corporate Governance                                                   134

                            Audi Share Performance                                                 135

Management Report           Business and underlying situation                                      136
of the Audi Group for the      The Group                                                           136
2007 fiscal year               Corporate steering                                                  139
                               Research and development                                            141
                               Employee matters                                                    144
                               Audi in society                                                     146
                               Environmental aspects                                               147
                               Economic environment                                                150
                               Course of business                                                  153
                            Financial performance                                                  159
                            Net worth                                                              161
                            Financial position                                                     162
                            Report on post-balance sheet date events                               163
                            Risk report                                                            163
                            Report on expected developments                                        166


                            Auditor’s Report                                                       170

                            Declaration of the AUDI AG Board of Management                         171



Consolidated Financial      Income Statement                                                       172
Statements of the Audi
Group at December 31,       Balance Sheet                                                          173
2007
                            Cash Flow Statement                                                    174

                            Statement of Changes in Equity                                         175

                            Notes to the Consolidated Financial Statements                         176
                            Development of fixed assets in the 2007 fiscal year                    176
                            Development of fixed assets in the 2006 fiscal year                    178
                            General information                                                    180
                            Recognition and measurement principles                                 184
                            Notes to the Income Statement                                          191
                            Notes to the Balance Sheet                                             198
                            Other particulars                                                      211
                               Segment reporting                                                   224
                               German Corporate Governance Code                                    225
                               Details relating to the Supervisory Board and Board of Management   225
                            Events occurring subsequent to the balance sheet date                  229


                            Responsibility Statement                                               230

                            Statement of Interests held by the Audi Group                          231
134




Corporate Governance



Code amended in 2007          In 2007, the German Federal Ministry of Justice amended the German Corporate Governance
                              Code and promulgated the version dated June 14, 2007. The Board of Management and
                              Supervisory Board of AUDI AG discussed the amendments at length during the past fiscal
                              year and passed the appropriate resolutions.


Implementation of the         The recommendations in the Code, as amended June 12, 2006, had been largely complied
recommendations and           with until the announcement of the new version on July 20, 2007.
suggestions                   Since this announcement, the recommendations in the Code, as amended June 14, 2007,
                              have been conformed to with three exceptions.
                                  The Supervisory Board has not formed a nominating committee (Section 5.3.3 of the
                              Code). The tasks of the Supervisory Board’s Presiding Committee, which has four members,
                              include proposing suitable candidates to the Supervisory Board, which the latter can in turn
                              propose to the Annual General Meeting. The Company takes the view that an additional
                              nominating committee would not improve the work of the Supervisory Board. Furthermore,
                              the restriction applies that the elections to the Supervisory Board do not take the form of
                              elections of individuals (Section 5.4.3, Sentence 1, of the Code). Elections by list are com-
                              mon practice in democratic elections. AUDI AG does not disclose the remuneration of mem-
                              bers of the Supervisory Board individually, broken down by components (Section 5.4.7,
                              Para. 3, Sentence 1, of the Code), in order not to infringe on privacy rights.
                                  In addition, five departures are made from the suggestions in the Code: The Annual Gen-
                              eral Meeting will not be broadcast on the Internet (Section 2.3.4 of the Code) in order not to
                              infringe on the privacy rights of individual stockholders. For this reason, the provision for
                              absent stockholders to even be able to contact the Company’s proxy exercising voting rights
                              (Section 2.3.3, Sentence 3, 2nd half of sentence of the Code) during the Annual General
                              Meeting is superfluous. Furthermore, the suggestion made by the Code to cap compensa-
                              tion paid to Board of Management members who leave office prematurely without cause
                              (Section 4.2.3, Sentences 9 and 10, of the Code) and following a change of control (Section
                              4.2.3, Sentence 11, of the Code) has not been implemented. There are doubts in professional
                              circles as to the validity of such contractual clauses, which restrict the Supervisory Board’s
                              scope of action without creating significant benefits under current law. The Code’s sugges-
                              tion of taking long-term performance into consideration in the remuneration paid to mem-
                              bers of the Supervisory Board (Section 5.4.7, Para. 2, Sentence 2, of the Code) and taking
                              non-recurring variable components linked to business success into consideration in the
                              remuneration paid to members of the Board of Management (Section 4.2.3, Para. 2, Sen-
                              tence 2, of the Code) is not currently being implemented by AUDI AG, as the discussions in
                              professional circles as to the specific form to be taken have not yet been concluded. The
                              outcome of these discussions will be awaited before a decision is made.


Particulars pursuant to       No reportable acquisition or sales transactions were conducted during the past fiscal year.
Section 6.6 of the Code

Stock option plans and        AUDI AG does not offer any such plans or incentive arrangements.
similar securities-based
incentive arrangements

System of remuneration        The basic principles of the remuneration system for the members of the Board of Manage-
                              ment are detailed in the Notes to this Annual Report, under “Details of the Supervisory
                              Board and Board of Management.” This information is also available on the Company’s web-
                              site (www.audi.com/notes).


Declaration relating to the   The joint declaration of the Board of Management and the Supervisory Board of AUDI AG
Code on the Internet          relating to the recommendations of the German Corporate Governance Code was posted on
                              the Audi website (www.audi.com/cgk-declaration) on December 5, 2007.
                                                                                                                       135




Audi Share Performance



Stock market           Under the influence of a robust global economy, outstanding financial performance by
developments           many companies and huge confidence among market players, the key international stock
                       markets headed for new record highs in the first half of 2007. This euphoria continued un-
                       abated until the second half, when growing uncertainty was triggered by the real estate
                       crisis in the U.S. The German stock market developed on a highly positive note in 2007 as a
                       whole. In the first half of the year, the German Share Index (DAX) advanced 21.4 percent
                       before reaching an all-time high of more than 8,100 points in July. In the second half of the
                       year, further growth on German stock markets was hampered by the real estate crisis in
                       America and the mood of uncertainty this engendered on stock markets worldwide. The lead
                       index closed the year at 8,067 points, a year-on-year improvement of 22.3 percent.


Audi trading price     The trading price of Audi shares again rose to new record levels in 2007. The shares reached
trend                  their all-time high in November, occasionally exceeding the EUR 750 mark. From a trading
                       price of EUR 540 at the close of the previous year, Audi shares moved across a range of
                       – 7.6 percent to + 40.3 percent during fiscal 2007. The shares of AUDI AG ended the year at
                       EUR 625 – a gain of 15.7 percent for the year. Over a five-year period, Audi shares have
                       gained around 226 percent, outperforming the German Share Index. This impressive appre-
                       ciation reflects the capital market’s healthy confidence in the Audi Group’s strategy for the
                       future, and is also an indication of growing interest in the company on the part of market
                       players.


Profit transfer and    A control and profit transfer agreement is in force between AUDI AG and Volkswagen AG,
compensatory payment   which controls around 99 percent of the share capital of the former. In lieu of a dividend
for stockholders       payment, outside stockholders receive a compensatory payment. The level of this payment
                       is equivalent to the dividend paid on one Volkswagen AG ordinary share for the same fiscal
                       year, as determined by the Annual General Meeting on April 24, 2008.

                       Indexed Audi trading price trend
                       (ISIN: DE0006757008, WKN: 675700)

                       400%


                       350%


                       300%


                       250%


                       200%


                       150%


                       100%


                        50%
                           2002              2003             2004             2005            2006              2007
                               Audi share           German Share Index (DAX)
136




Management Report of the Audi Group
for the 2007 fiscal year




Business and underlying situation

The Group                      Company
                               The Audi Group, comprising the Audi and Lamborghini brands, is one of the most successful
                               carmakers in the premium segment.
                                   At the core of the Company is the Audi brand, whose vehicles captivate customers
                               around the world with their modern design and high build quality. The stated ambition of
                               the Audi brand is to fulfill challenging customer expectations of pioneering innovations
                               through the brand essence of “Vorsprung durch Technik” as well as the brand values of
                               sportiness, sophistication and progressiveness. Furthermore, the Company is placing in-
                               creasing emphasis on the sustainability of the technology it uses. Customers experience this
                               brand identity through a diverse range of models, which enabled Audi to further strengthen
                               its good position on car markets worldwide in 2007.

                               Audi vehicle sales by region



                                                                                                         2007       Share in %


                                    Germany                                                           254,014              26.3
                                    Europe excluding Germany                                          432,466              44.9
                                    China (including Hong Kong)                                       101,996              10.6
                                    USA                                                                93,506               9.7
                                    Other                                                              82,169               8.5
                                    Total                                                             964,151            100.0



                               The Italian Lamborghini brand upholds a long-standing tradition in the super sports car
                               segment. The allure of its uncompromising, unrivaled vehicles remains as great as ever. In
                               the past fiscal year, the Lamborghini brand enjoyed another sharp rise in demand.


                               Group structure and principal group companies
                               The Audi Group is headquartered in Ingolstadt. This is where Technical Development, Sales,
                               Administration and substantial portions of the manufacturing operations are based. In addi-
                               tion to the high-selling A3, A3 Sportback and the A4 Sedan and Avant models, the new A5
                               Coupé and the ultra-sporty S3 and S5 Coupé versions are built there as well. Volume produc-
                               tion of the new Audi Q5 will additionally begin in 2008. The bodies of the TT Coupé and
                               Roadster and of the A3 Cabriolet are also made in Ingolstadt.
                                  At Neckarsulm, the Company’s second German location, AUDI AG manufactures the A4
                               Sedan, A6 Sedan, Avant and allroad quattro, S6 Sedan and Avant models, as well as the A8
                               luxury sedan, plus its high-performance A8 W12 and S8 versions.
                                  The Audi R8 mid-engine sports car, hand-crafted to exceptionally high standards, and the
                               new RS 6 Avant are built by quattro GmbH, which is also based at Neckarsulm. This com-
                               pany, a wholly owned subsidiary of AUDI AG, also supplies an attractive customization pro-
                               gram for all Audi models (e.g. S line, exclusive line) and sells exclusive lifestyle articles that
                               embody the spirit of the brand with the four rings.
                                  The Belgian plant in Brussels, which became part of the Audi manufacturing network in
                               March 2007, currently builds the A3 Sportback and the VW Polo on behalf of Volkswagen AG.
                                                                                                                      137




                   AUDI HUNGARIA MOTOR Kft. develops and builds engines for AUDI AG and other Volks-
                wagen Group companies, as well as for third parties, at Győr, Hungary. The Audi TT Coupé
                and Roadster models and the new A3 Cabriolet are also built there in partnership with the
                Ingolstadt plant. This Company has advanced to become one of the country’s major export-
                ers and highest-revenue businesses.
                   The Bologna region of Italy is home to Automobili Lamborghini S.p.A., which builds the
                Gallardo Coupé, Gallardo Spyder, Gallardo Superleggera, Murciélago LP640 Coupé, Murcié-
                lago LP640 Roadster and Reventón super sports cars.
                   Vehicles of the Audi brand and of other Volkswagen Group brands are sold in Italy by
                VOLKSWAGEN GROUP ITALIA S.P.A., a subsidiary of Automobili Lamborghini Holding S.p.A.,
                based in Verona.

                Main companies within the Audi Group




                                           AUDI AG




AUDI HUNGARIA     Automobili Lamborghini           quattro GmbH                      Sales subsidiaries
MOTOR Kft.        Holding S.p.A.



                Automobili Lamborghini S.p.A.                                               Audi Australia Pty Ltd.
                Lamborghini ArtiMarca S.p.A.                            Audi Brasil Distribuidora de Veículos Ltda.
                MML S.p.A.                                                                       Audi Canada Inc.
                VOLKSWAGEN GROUP ITALIA S.P.A.                                                     Audi Japan K.K.

                    VOLKSWAGEN GROUP FIRENZE S.P.A.                                          Audi of America, LLC
                                                                                                Audi Retail GmbH
                                                                              Audi Zentrum Hannover GmbH
                                                                       Audi Vertriebsbetreuungsgesellschaft mbH
                                                                                      Audi Volkswagen Korea Ltd.
                                                                                Audi Volkswagen Middle East FZE


                Consolidated companies
                AUDI AG’s largest stockholder is Volkswagen AG, which currently holds around 99 percent of
                the share capital. A control and profit transfer agreement is in effect between the two com-
                panies. Volkswagen AG includes the consolidated financial statements of AUDI AG in its own
                consolidated financial statements.
                   The following changes to the Audi Group took place during the past fiscal year:
                Audi Retail GmbH and VOLKSWAGEN GROUP FIRENZE S.P.A. were included in the consoli-
                dated financial statements as fully consolidated companies as of January 1, 2007. A profit
                transfer agreement was concluded between Audi Retail GmbH and AUDI AG. Audi Zentrum
                Hannover GmbH has also been comprehensively consolidated from January 1, 2007, as are
                Audi of America LLC and Audi Canada Inc. These latter two new companies, established
                effective January 1, 2007, were consolidated in accordance with the criteria of IAS 27.13,
                Sentence 2.
                   AUTOGERMA S.p.A. was renamed VOLKSWAGEN GROUP ITALIA S.P.A. effective January 1,
                2007.
                   Profit transfer agreements exist between AUDI AG and the principal German subsidiaries.
138




      Additional disclosures pursuant to Section 315, Para. 4, of the German Commercial Code
      (HGB)
      Along with the introduction of the German Takeover Directive Implementation Act on July
      14, 2006, Directive 2004/25/EC of the European Parliament and Council of April 21, 2004, on
      takeover bids (“EU Takeover Directive”) has been implemented under German law. Among
      other things, the law envisages changes to the German Commercial Code and necessitates
      additional particulars in the Management Report, which are provided below:


      Capital structure
      On December 31, 2007, the share capital of AUDI AG remained unchanged at
      €
      EUR 110,080,000 and comprised 43,000,000 no-par bearer shares. Each share represents a
      mathematical share of EUR 2.56 of the issued capital.


      Stockholders’ rights and obligations
      Stockholders enjoy property €and administrative rights.
         The property rights include, above all, the right to a share in the profit (Section 58,
      Para. 4, of the German Stock Corporation Act [AktG]) and in the proceeds of liquidation
      (Section 271 of the German Stock Corporation Act), as well as a subscription right to shares
      in the event of capital increases (Section 186 of the German Stock Corporation Act).
          The administrative rights include the right to participate in the Annual General Meeting
      and the right to speak, ask questions, table motions and exercise voting rights there. Stock-
      holders may assert these rights, in particular, by means of a disclosure and avoidance ac-
      tion.
         Each share carries an entitlement to one vote at the Annual General Meeting. The Annual
      General Meeting elects the members of the Supervisory Board to be appointed by it, as well
      as the auditors; it decides, in particular, on the ratification of the acts of members of the
      Board of Management and Supervisory Board, on amendments to the Articles of Incorpora-
      tion and Bylaws, as well as on capital measures, on authorizations to acquire treasury
      shares and, if necessary, on the conduct of a special audit, the dismissal of members of the
      Supervisory Board within their term of office and on liquidation of the Company.
         The Annual General Meeting normally adopts resolutions by a simple majority of votes
      cast, unless a qualified majority is specified by statute.
         A control and profit transfer agreement exists between AUDI AG and Volkswagen AG as
      the controlling company. This agreement permits Volkswagen to issue instructions. The net
      profit of AUDI AG available for distribution is transferred to Volkswagen. Volkswagen AG is
      obliged to make good any loss. Outside Audi stockholders receive a compensatory payment
      that is linked to the dividend distributed on each Volkswagen share.


      Composition of the Supervisory Board
      The Supervisory Board comprises 20 members; half of them are representatives of the stock-
      holders, elected by the Annual General Meeting. The other half of the Supervisory Board
      members are employee representatives elected by the employees in accordance with the
      German Codetermination Act. A total of seven of these employee representatives are em-
      ployees of the Company; the remaining three Supervisory Board members are representa-
      tives of the unions. The Chairman of the Supervisory Board, a stockholder representative
      elected by the members of the Supervisory Board, ultimately has two votes on the Supervi-
      sory Board in the event of a tie vote, pursuant to Section 13, Para. 3, of the Articles of Incor-
      poration and Bylaws.
                                                                                                                             139




                           Statutory requirements and provisions under the Articles of Incorporation and Bylaws on
                           the appointment and dismissal of members of the Board of Management and on the
                           amendment of the Articles of Incorporation and Bylaws
                           The appointment and dismissal of members of the Board of Management are stipulated in
                           Sections 84 and 85 of the German Stock Corporation Act. Members of the Board of Man-
                           agement are accordingly appointed by the Supervisory Board for a period of no more than
                           five years. Reappointment or an extension of the term of office, in each case for no more
                           than five years, is permitted. Section 6 of the Articles of Incorporation and Bylaws further
                           stipulates that the number of members of the Board of Management is to be determined by
                           the Supervisory Board and that the Board of Management must comprise at least two per-
                           sons.


                           Key agreements by the parent company that are conditional on a change of control
                           following a takeover bid
                           AUDI AG has not reached any agreements that are conditional on a change of control follow-
                           ing a takeover bid. Nor has any compensation been agreed with members of the Board of
                           Management or employees in the event of a takeover bid.


Corporate steering         Strategy
                           The management of the Audi Group has set itself the target of establishing the Audi core
                           brand as the most successful premium brand in the world by 2015. A comprehensive, de-
                           tailed portfolio of measures designed to achieve this goal was again drawn up in fiscal 2007.
                           All activities stemming from this annual planning process reflect a quartet of strategic aims:



                                    Audi – the most successful premium brand




 Volume growth              Customer enthusiasm and          Substantial rise                  Most attractive
 to 1.5 million vehicles    image leader in emotion          in profitability                  employer
                            and quality



                           Volume growth to 1.5 million vehicles
                           Audi plans to sell 1.5 million premium vehicles by the year 2015. In order to achieve this
                           ambitious goal, the Company sustained the swift pace of its long-term model initiative in
                           2007. Vehicles such as the Audi A5 Coupé, which made its market debut in the early part of
                           the year, the Audi R8 thoroughbred mid-engine sports car and the new Audi A4 Sedan
                           launched in the fall thrilled customers and trade journalists from all over the world. In 2008,
                           further new models such as the Audi A3 Cabriolet, Audi TTS Coupé and Roadster and the
                           Audi Q5 will extend the Company’s youthful, sporty product line. The market launch of the
                           new Audi A4 Avant will round out the glittering array of new products in 2008.
                               At the same time, Audi is steadily increasing its engagement in car markets around the
                           world. The Audi sales organization in the important U.S. market was restructured and prepa-
                           rations were made for the nationwide launch of ultra-efficient diesel technology – a domain
                           in which Audi has enjoyed outstanding expertise for many years. In key growth markets
                           such as China and Russia, the Company extended its exclusive dealer and service network,
                           and laid the foundations for future success in India by kicking off local CKD assembly of the
                           Audi A6.
140




         Audi is planning to push its sales of premium vehicles above the one-million mark by as
      early as 2008. The Brussels plant in Belgium was integrated into the Audi manufacturing
      network in early 2007 in order to guarantee the necessary manufacturing capacity.


      Customer enthusiasm and image leader in emotion and quality
      The focus of all activities at Audi is on delivering innovative, sustainable solutions that fully
      live up to customers’ high expectations, as well as on offering exciting products that create
      an emotional bond between customer and brand. One example is the e model line that was
      launched during the past fiscal year. Aside from their very impressive fuel efficiency and
      emission values, these cars offer the standard of sportiness that Audi customers have come
      to expect and are tangible evidence of the “Vorsprung durch Technik” that typifies the
      brand. This ultra-efficient vehicle concept has been received with great enthusiasm by cus-
      tomers.
          Audi again won numerous awards for vehicles in 2007. In one of the leading reader polls,
      conducted by trade magazine auto motor und sport1), the Audi A3, Audi A6 and Audi Q7 all
      earned the distinction of “Best Cars” in their respective categories. Four Audi models were
      among the prizewinners in the “Auto Trophy 2007” awarded by trade magazine Auto Zei-
      tung2): The Audi A3, Audi A4, Audi A6 and Audi R8. The brand with the four rings also en-
      joyed notable success on the international stage. In China, the Company’s largest export
      market, Audi came in at the top of the J.D. Power Asia Pacific Study3), which analyzes the
      satisfaction of new car buyers, for the second year in a row. The Audi TT was proclaimed the
      “2007 World Car Design of the Year” by a jury of renowned trade journalists from 22 coun-
      tries.
          Numerous motor-racing successes once more underscored the brand’s sporting creden-
      tials in 2007. Audi repeated the legendary triumph of its R10 TDI diesel-powered racing car
      in the Le Mans 24 Hours and racked up its fifth win in the German Touring Car Masters
      (DTM) race series.


      Substantial rise in profitability
      Within the context of the Audi Group’s sustained rapid growth, its management is eager to
      steadily improve the Company’s profitability in order to generate the necessary financial
      resources for new, forward-looking capital investments. In addition to higher business vol-
      ume, ongoing analysis and enhancement of all corporate processes play a major role in this
      respect. Pioneering concepts such as the “Production Turntable” and modular toolkit sys-
      tems increase the synergy benefits, helping to implement new vehicle concepts more cost-
      effectively. The Company is also using systematic investment management to make opti-
      mum use of the available financial resources.


      Most attractive employer
      Audi’s ambitious growth will also continue to hinge upon committed, highly qualified em-
      ployees. One of the Company’s core strategic aims is therefore to become an even more
      attractive employer. The associated activities include creating a working environment in
      which a highly motivated team can continually develop. In addition to flexible working hour
      programs, the Company offers performance-based remuneration and pays out a variable
      share of its profit as a means of acknowledging the hard work and dedication of its employ-
      ees.




      1)
           Issue 04/2007, p. 120 ff.
      2)
           Issue 26/2007, p. 78 ff.
      3)                                                                             SM
           J.D. Power Asia Pacific 2007 China Customer Satisfaction Index (CSI) Study , press release dated July 30, 2007
                                                                                                                                             141




                              Both regular internal employee surveys and, for example, a survey conducted by the re-
                           nowned trendence Institute to identify the most popular employer in 20071) serve to confirm
                           just how successful these measures have been. In the latter survey, engineering students
                           ranked Audi second.
                              Audi plans further recruitments in fiscal 2008.


                           Internal steering system
                           All activities within the Audi Group focus on increasing the long-term value of the Company
                           through a system of financial targets. Internal steering is based on return on investment
                           (RoI), which serves as a gauge of the return on capital employed for various types and scales
                           of investment projects. RoI thus indicates the development of a company’s profitability and
                           is calculated according to the following formula:

                                                                      Operating result after tax
                           Return on investment (RoI) =                                                     x 100
                                                                       Average invested assets


                           In view of the varying tax rates applicable for the companies in the Group, the operating
                           result after tax is calculated using an average effective tax rate of 35 percent for the consoli-
                           dated companies.


                                 EUR million                                                                            2007         2006


                                 Operating result before tax                                                           2,705         2,015
                                 – Tax (35%)                                                                             947          705
                                 = Operating result after tax                                                          1,758         1,310
                                 Average operating assets                                                             12,100        11,575
                                 – Average non-interest-bearing liabilities                                            2,639         2,321
                                 = Average invested assets                                                             9,461         9,254
                                 Return on investment (in %)                                                            18.6          14.2



                           With a return on investment of 18.6 percent, the Audi Group easily exceeded the previous
                           year’s figure of 14.2 percent in fiscal 2007 and thus ranks as one of the most profitable
                           companies in the automotive industry worldwide.


                           System of remuneration for the Supervisory Board and Board of Management
                           Information on the system of remuneration for the Supervisory Board and Board of Man-
                           agement is provided in the Notes to the Consolidated Financial Statements under “Details
                           relating to the Supervisory Board and Board of Management.”


Research and development   In addition to their high build quality, the Audi Group’s premium vehicles are noted, first
                           and foremost, for their innovative technological concepts. Numerous developments again
                           reached production maturity in 2007.
                               The total number of employees in the Research and Development area averaged 6,211
                           (5,946) over the year, comprising 5,973 (5,717) at AUDI AG, 109 (99) at AUDI HUNGARIA MO-
                           TOR Kft. and 129 (130) at Automobili Lamborghini S.p.A.




                           1)
                                trendence Institute: The 2007 Graduates Barometer – Business and Engineering Edition, Berlin 2007
142




      Research and development expenditure recognized as an expense



        EUR million                                                             2007             2006


        Research expenditure and development expenditure not
        recognized as an intangible asset                                      1,570            1,077
        Amortization and disposals of development expenditure
        recognized as an intangible asset                                        656              905
        Total research and development expenditure recognized
        as an expense                                                          2,226            1,982



      Technical innovations

      Efficient sportiness: The Audi e models
      The first ultra-efficient Audi e models made their successful market debut at the start of
      2007. These vehicles achieve truly impressive fuel efficiency and low pollution emissions,
      while at the same time delivering the sportiness customers have come to expect from Audi.
      This was made possible by the use of cutting-edge technologies in the field of gasoline and
      diesel direct injection, as well as by a comprehensive package of measures such as trans-
      mission modifications, aerodynamic optimizations, driver assistance systems and ultra-
      modern Audi lightweight construction.
          The Audi A8 2.8 FSI e, unveiled in the second half of 2007, for example, achieves average
      fuel consumption of 8.3 liters of premium-grade fuel per 100 kilometers with an engine that
      boasts a power output of 154 kW (210 hp). This equates to emissions of 199 g of CO2/km.
      Over the course of the next few years, e models will be launched in all high-volume car lines.


      Audi TDI with “ultra low emission system”
      As one of the world leaders in the field of ultra-modern diesel technology, the Audi Group is
      heralding in a new era for this superior drive concept in launching the latest TDI generation.
      The proven principle of direct diesel injection with turbocharging has been combined with
      an array of innovative measures, such as the new piezo common rail system with 2,000-bar
      injection pressure, further enhanced turbocharging and the world’s first use of combustion
      chamber sensors, bringing a significant reduction in untreated engine emissions. In con-
      junction with the secondary ultra low emission system that reduces nitrogen oxide emis-
      sions by as much as 90 percent, the drive concept becomes a high-tech yet very economical
      diesel. The engines that have been developed currently satisfy the most stringent exhaust
      emissions in the world and already meet the 2014 limits under discussion for Europe. The
      Audi Q7 and Audi A4 will be the first car lines to feature the 3.0 liter TDI engine with ultra
      low emission system.


      New 1.4 liter TFSI engine in Audi A3
      The new 1.4 liter TFSI engine is another highly efficient, high-performance addition to the
      successful Audi A3 car line. The engine is based on the successful concept of FSI technology
      with turbocharging and develops 92 kW (125 hp) with peak torque of 200 Nm. Accelerating
      from 0 to 100 km/h in 9.6 seconds and with fuel consumption averaging 6.5 liters of pre-
      mium fuel per 100 kilometers, the new 1.4 TFSI in the Audi A3 delivers impressive driving
      enjoyment coupled with fuel efficiency and an emissions value of 154 g of CO2/km.
                                                                                                 143




Several vehicles in one: Audi drive select
Audi drive select made its first appearance in a production model in the new Audi A4 Sedan.
This advanced system enables drivers to fully adapt the vehicle’s characteristics to their own
personal preferences.
   Specifically, this is achieved by simultaneously incorporating various technical compo-
nents with individually variable settings, such as engine management, automatic transmis-
sion, steering and shock absorbers. In addition to the three main modes of “comfort” for a
comfortable response, “auto” for a balanced response and “dynamic” for an emphatically
sporty response, an “individual” mode is available as an option. This enables a freely con-
figurable combination of settings for the vehicle’s individual components. Consequently,
Audi drive select offers the customer a high level of individuality, successfully combining
several vehicle philosophies into one.


Acoustic roof on the Audi A3 Cabriolet
A fully automatic acoustic roof was unveiled as an equipment option for the new Audi A3
Cabriolet. Thanks to the soft top’s further improved thermal insulation and soundproofing,
the noise level inside this vehicle at a speed of 140 km/h is a mere 1 dB(A) higher than in an
Audi A3 with conventional roof. The acoustic roof opens up a whole new dimension in driv-
ing and, powered by a high-performance mechanism, takes a mere nine seconds to open.
When folded up in a Z-pattern, it takes up only a small amount of room and leaves more
trunk space than a steel roof concept would. The use of a fabric soft top also preserves the
classic, timeless convertible silhouette.


Innovations for safety

LED technology
For several years now, the Audi Group has been working extremely successfully on refining
LED technology. This offers particular advantages by comparison with conventional con-
cepts. In addition to lower energy consumption and less wear, this form of illumination is
closer to natural daylight, produces better contrast and is easier on the eye.
   The Audi brand, which had already featured the first all-LED headlights (low beams, high
beams, daytime running lights, turn signals) on a production car in the Audi R8, is now mak-
ing use of this innovative lighting concept in its new models. The new Audi A4 and Audi A3
Cabriolet, for example, are optionally available with LED daytime running lights. The white
light-emitting diodes accentuate the unique character of the brand with the four rings.


Comprehensive package of assistance systems for the midsize class
The new Audi A4 Sedan is the first midsize model to feature a comprehensive package of
assistance systems adapted directly from the full-size category. This vehicle can be option-
ally equipped with Audi side assist, which alerts the driver to other vehicles in the blind spot
when changing lanes. There is also an Audi lane assist feature to alert the driver should the
car drift out of lane. The optionally available adaptive cruise control (ACC) system regulates
the distance to a preceding vehicle detected by the radar sensor by means of controlled
braking and acceleration. If the vehicle in front brakes abruptly, Audi braking guard is acti-
vated. This system initially warns the driver by means of visible and audible signals and
then, if need be, briefly but forcefully applies the brakes to prompt the driver to brake the
car if necessary.
144




Employee matters   Workforce


                                                                                                    2007     2006


                     Audi Group, average for the year                                           53,347      52,297
                     of which:
                     AUDI AG                                                                    44,698      44,701
                         Ingolstadt plant                                                       31,369      31,276
                         Neckarsulm plant                                                       13,329      13,425
                     AUDI HUNGARIA MOTOR Kft.                                                       5,623    5,204
                     Lamborghini Group*                                                              933      720
                     VOLKSWAGEN GROUP ITALIA S.P.A.                                                  900      873

                   * excluding VOLKSWAGEN GROUP ITALIA S.P.A. and VOLKSWAGEN GROUP FIRENZE S.P.A.


                   The Audi Group employed an average of 53,347 (52,297) people worldwide in 2007.
                      Despite the sharp rise in vehicle sales, the workforce of AUDI AG at its two locations in
                   Ingolstadt and Neckarsulm remained on a par with the previous year at 44,698 (44,701).
                   AUDI HUNGARIA MOTOR Kft. reported 5,623 (5,204) employees. Personnel growth was
                   largely attributable to the expansion of toolmaking operations coupled with a sharp rise in
                   TT manufacturing and the production launch of the Audi A3 Cabriolet. The workforce of the
                   Lamborghini Group (excluding VOLKSWAGEN GROUP ITALIA S.P.A.) grew to 933 (720) em-
                   ployees. VOLKSWAGEN GROUP ITALIA S.P.A. employed 900 (873) people during the period
                   under review.
                      The proportion of severely handicapped individuals at AUDI AG edged up to 5.4 (5.2) per-
                   cent at year end. Audi furthermore exercises social responsibility in regularly awarding con-
                   tracts to “Lebenshilfe” workshops for the handicapped in the Ingolstadt and Neckarsulm
                   regions. These workshops assemble gear lever trims, shock absorbers and other compo-
                   nents.


                   Compatibility of job and family
                   Audi attaches high priority to the compatibility of job and family. The Company gives new
                   parents taking parental leave a seven-year guarantee of reemployment. To smooth the way
                   for integration after parental leave, Audi offers the “Job&Child” program. This enables par-
                   ents to maintain contact with the Company during parental leave, taking part in further
                   training and other measures.


                   New record ratings for industrial safety
                   Premium-segment vehicles can only be manufactured efficiently and economically with the
                   aid of ultra-modern production facilities. Innovative manufacturing methods are the key to
                   turning out high-quality products. At the same time, this requires that complex processes be
                   handled. Alongside the ongoing quest to maximize productivity, safety at the workplace
                   ranks as one of the overriding concerns here. Audi therefore builds aspects of industrial
                   safety into its processes as early as the planning stage.
                      The results are clearly evident: The rate of “reportable” accidents per million hours
                   worked at Audi is almost 50 percent lower than the average for the automotive industry.
                                                                                                145




   An Industrial Safety Award is given each year in recognition of exceptional achievements
by management and the workforce. In June 2007, the Board of Management and the General
Works Council presented awards and certificates in the three categories of “Accident-Free
Working,” “Progress in Reducing Accident Numbers” and “Industrial Safety Initiative.”
   Labor and management at Audi have concluded a company agreement on industrial
safety. Its purpose is to ensure that industrial safety is always understood as a joint, all-
encompassing task. This principle applies to production operations as well as to the entire
value chain.


Employee profit-sharing
The success of a company is simultaneously also a reflection of what all employees have
contributed. AUDI AG has therefore been allocating a variable share of profits to its employ-
ees for many years. The previous profit-sharing arrangements were extended in 2005 when
the agreement called “Audi’s Future – Performance, Success, Sharing” went into effect. The
additional bonus is tied directly to the Audi Group’s operating result and thus reflects the
performance of the Company itself. Together with the previous profit share, AUDI AG em-
ployees received an average performance-based bonus of EUR 3,700 in 2007 for the preced-
ing fiscal year.


Efficient suggestions award program
The ongoing enhancement of products and working processes is one of the main pillars of
Audi’s huge success. The company-wide suggestions award program is playing an increas-
ingly pivotal role here – with a dual effect: It helps the Company become more efficient
while at the same time increasing employee motivation by putting their suggestions into
practice and awarding bonus payments.
   The total amount saved thanks to employee suggestions reached a new record level of
around EUR 60 million in 2007. The number of suggestions assessed as having particular
merit (i.e. producing potential savings of over EUR 20,000) was higher than ever last year, as
were the actual savings per implemented suggestion. The participation rate showed a
marked increase by comparison with the year before.
   In July 2007, the German Institute of Management awarded AUDI AG its prize for the best
suggestions award program in the car industry for the fourth time in a row.


Handling demographic change
AUDI AG’s strategic aim is to become the most successful automobile manufacturer in the
premium segment. As it progresses along that path, the average age of the workforce at
AUDI AG will rise to around 45 over the next five years due to demographic change. By then,
some 5,400 employees engaged in direct manufacturing activities – one in four – will be
over 50 years of age. Some time ago, the Company therefore seized the initiative to develop
an appropriate response to this development.
    The interdisciplinary Audi Demographics Project seeks to shape the working conditions
for an aging workforce in such a way that, for example, persons over 60 years of age will still
be capable of performing such tasks as vehicle assembly. Audi is conducting a “Workplace
Structural Analysis” of its production operations. Each individual workplace is being ana-
lyzed and assessed in terms of physical strain potential. On the basis of these findings, ways
of further reducing this physical strain at the workplace are then identified and imple-
mented in order to make that workplace equally suited for employees of all ages.
    This subject area also encompasses the development of age-appropriate working hour
models, including both models for the individual’s working life as well as special part-time
arrangements. Representative employee surveys are used as a basis for future working hour
arrangements.
146




                     Another area covered by the Demographics Project is preventive healthcare: “Healthy Liv-
                  ing and Working.” The Audi Checkup is an important preventive healthcare instrument. This
                  comprehensive, voluntary health exam is offered free of charge to all employees and is
                  available during working hours. The checkup involves various tests, the results of which are
                  then discussed in detail between doctor and patient.
                     The elimination of government subsidies for partial early retirement creates further key
                  task areas which call for expert handling of demographic change. The Demographics Project
                  includes a communication campaign entitled “my way” that seeks to raise awareness of
                  aging and personal initiative. It highlights the principle that most aspects of aging are not a
                  matter of fate and that individuals have some degree of influence over everything from
                  personal fitness and lifestyle to financial planning for retirement.


Audi in society   Research partnerships
                  An automobile manufacturer that has embraced “Vorsprung durch Technik” needs to main-
                  tain thriving contacts with the research world. The first systematic partnership with universi-
                  ties was forged through the INI.TUM project, a successful partnership with the Technical
                  University of Munich that was launched in 2003. Since then, other partnership projects have
                  been put in place with the Universities of Stuttgart and Karlsruhe, the Ingolstadt University
                  of Applied Science, the Friedrich-Alexander University of Erlangen-Nuremberg and the
                  Ludwig-Maximilians University of Munich. In Hungary, AUDI HUNGARIA MOTOR Kft. partners
                  with the University of Győr and the Technical University of Budapest.
                     There were two objectives in selecting the university-level partners: The partners at the
                  universities needed to have a very good reputation for their research and teaching. And the
                  researchers had to be prepared to come from the major cities to Audi’s locations. These
                  requirements ensure that young researchers gain new insights into the way industry uses
                  research findings and also enhance the cities and towns that are home to Audi’s operations.
                  As of late 2007, 22 projects under the auspices of these institutes were already up and run-
                  ning, with a further 63 in the pipeline. The Audi university institutes have produced 17 inven-
                  tions to date.
                     The five German universities with which Audi collaborates have received commendation
                  under the German government’s Initiative for Excellence program – a fitting tribute to the
                  high standards of these research partners.


                  Location-specific partnerships
                  A company of Audi’s caliber bears responsibility for more than just its employees. Audi also
                  seeks to foster education and non-profit organizations.
                     AUDI AG has joined forces with the City of Ingolstadt, other major companies and the
                  districts of Pfaffenhofen, Neuburg-Schrobenhausen and Eichstätt in founding an association
                  named the “Regional Management Initiative for the Ingolstadt Region.” The goal is to har-
                  monize efforts to promote the entire region around Ingolstadt, where the Company head-
                  quarters are located. The association aims to improve the quality of life in the region, pro-
                  mote research and education, and create more jobs. This region already has one of the
                  highest employment rates in Germany. The core aims of the initiative additionally include
                  nurturing and developing the landscape and cultural life.
                      Audi also actively supports the “European Metropolitan Region of Munich,” where indus-
                  try has joined forces with political, educational, cultural and administrative bodies in an
                  effort to improve development prospects throughout southern Bavaria.
                                                                                                                        147




Environmental aspects   Environmental mission statement
                        As a globally operating company, the Audi Group actively embraces social responsibility.
                        This includes, in particular, the principle of sustainable management, which forms an inte-
                        gral part of the Audi Group strategy. In addition to prevention measures such as efficient
                        resources management, the Company is contributing to major advances in protecting the
                        environment through its many pioneering technological innovations, and proudly bears the
                        European Union’s symbol of environmental excellence.
                           On the basis of these ongoing efforts to reconcile economics with ecology, customers
                        can rest assured that conservation of resources ranks right alongside durability, quality and
                        safety as a core aspect in the development and production of every Audi vehicle.


                        High standard of location-based environmental protection
                        The Audi Group is a pioneer in location-based and company-wide environmental protection,
                        both in Germany and internationally.
                           In addition to organizational measures within its environmental management systems,
                        pollution at all locations is being steadily reduced with the aid of pioneering technologies.
                        Regular internal reviews and external auditing of all manufacturing plants help to monitor
                        the progress of these efforts.
                          All AUDI AG locations have been accredited in accordance with the EU Eco-Management
                        and Audit Scheme (EMAS). In 1995, the Company became the first premium-segment car-
                        maker to be awarded this prestigious certification for its Neckarsulm location. Ingolstadt
                        followed two years later, with the Hungarian plant at Győr following suit in 1999. The Ingol-
                        stadt and Győr manufacturing locations are additionally accredited under the worldwide
                        DIN EN ISO 14001 standard.


                        Conserving energy and reducing emissions
                        Environmental protection at the production locations places particular emphasis on con-
                        serving energy and reducing emissions to protect the climate. As in previous years, the total
                        energy consumption of the Audi Group was kept stable in 2007, despite the welcome in-
                        crease in vehicle production output.
                            Steadily improving the energy efficiency of its manufacturing facilities provides a particu-
                        lar focus. Another measure involves gradually increasing the proportion of rail freight.
                        Around 80 percent of freight traffic passing between Ingolstadt and Győr, in Hungary, al-
                        ready goes by rail. Audi is also working on comprehensive logistical processes, such as
                        optimizing truck capacity utilization, in order to reduce essential transportation trips to a
                        minimum.
                           Natural gas, district heating, heat recovery systems and a modern cogeneration plant are
                        just some of the many important examples of how this issue is being addressed.
                           Emissions of organic compounds can be further reduced by the use of modern plant en-
                        gineering and efficient painting techniques, such as the use of water-based paints. AUDI AG
                        has, for example, reduced emissions of organic compounds at the paint shop in Ingolstadt
                        by around 38 percent since 1998.
                           The strong rise in vehicle (up 16.4 percent) and engine production output (up 28.9 per-
                        cent) since 2004 contrasts with the disproportionately low growth in energy demand of just
                        3.7 percent:
148




                                                                                                                                               1)
                                Development of total energy consumption, vehicle and engine manufacturing by the Audi Group


                                                                                  2004                  2005                  2006                  2007

                                 2,800

                                 2,400

                                 2,000

                                 1,600

                                 1,200

                                      800

                                      400

                                        0
                                         Vehicle manufacturing 2)
                                         (thousand units)                          745                   765                   826                   867

                                         Engine manufacturing
                                         (thousand units)                        1,486                 1,695                 1,896                  1,916
                                         Total energy consumption
                                         (GWh)                                   2,114                 2,139                 2,156                  2,193


                                1)
                                     Ingolstadt, Neckarsulm, Győr and Sant’Agata Bolognese plants
                                2)
                                     Excluding Audi A4 Cabriolet, RS 4 Cabriolet, Audi Q7 and aspects of A3 production



                                Comprehensive measures for enhancing the fuel efficiency of Audi models
                                Audi already has an established reputation among premium manufacturers thanks to its
                                comprehensive strategy for reducing fuel consumption and emissions across the entire
                                fleet. These efforts will continue in the future, without altering the decidedly sporty charac-
                                ter of the brand. Simultaneous action will be taken in four specific areas:



                               Efficiency and sportiness thanks to “Vorsprung durch Technik”




 Optimizing                          Alternative drive systems                Improvements to the                        Maximizing the
 gasoline and diesel engines         and fuels                                total vehicle                              contribution by and for
                                                                                                                         the driver



                                Optimizing gasoline and diesel engines
                                Gasoline and diesel engines will remain the bedrock of vehicle drive systems in the coming
                                years. Further optimization of these drive concepts is therefore crucial. Audi has once again
                                demonstrated its immense expertise in the field of ultra-efficient internal combustion en-
                                gines through such developments as the progressive TFSI and TDI technologies.
                                   Audi will be putting the ultra low emission system for diesel engines into production ve-
                                hicles in the U.S. and Europe in the future. The levels of nitrogen oxides in emissions from
                                modern diesel engines, which are already very low, will then be largely eliminated by con-
                                trolled injection of an aqueous ammonia solution into the exhaust system. This highly effi-
                                cient diesel engine will make Audi the first manufacturer ever to comply with the world’s
                                strictest emission standard (LEV II BIN 5) in California and achieve the EU6 limits that are
                                currently under discussion for 2014.
                                                                                                 149




    Measures for gasoline engines include such technological innovations as the Audi
valvelift system, which has already been used in production in the Audi A6 2.8 FSI since the
fall of 2006. Controlled valve lift further boosts the torque and power output of the gasoline
engine, while appreciably improving fuel efficiency. The fuel consumption of the A6 2.8 FSI,
for example, has been cut by one liter of premium-grade fuel per 100 kilometers.


Alternative drive systems and fuels
Over the medium term, alternative drive systems and fuels will replace classic drive con-
cepts. Optimum ecological and economical implementation of these innovations is a major
challenge.
   Such systems include the Audi Q7 hybrid, which was presented to a select audience of
industry specialists in August 2007 at exclusive driving events – the Audi TechDays – as well
as innovative concepts for ethanol and natural gas engines that may be made available
beginning in 2009, demand permitting.
    The widespread introduction of virtually CO2-neutral alternative fuels is also in prepara-
tion through existing partnerships with fuel manufacturers. These modern, waste-based
fuels do not pose competition to food production and satisfy all performance requirements
of modern engines.


Improvements to the total vehicle
Audi views improvements to the total vehicle as a further important means of improving
efficiency. These include various thermo-management measures that enable the engine and
transmission to reach the most fuel-efficient operating temperature faster, along with brak-
ing energy recovery, which will be making its appearance in Audi vehicles in the future.
    Audi unveiled this type of concept in the new Audi A4 at the Frankfurt Motor Show (IAA)
in September 2007. The concept also featured Automatic Start/Stop, which switches off the
engine while the car is waiting at traffic lights, thereby reducing off-load consumption to
zero without in any way diminishing ride comfort. The concept car exhibited, an Audi A4 2.0
TDI developing 105 kW (143 hp), achieves CO2 emissions of less than 130 g/km, for example.


Maximizing the contribution by and for the driver
A vehicle’s fuel efficiency and emissions are influenced by individual driving style by as
much as 30 percent. For many years, Audi has therefore been offering Audi Economy Train-
ing courses to instruct drivers in the most relevant methods of more efficient fuel use. In-
formative assistance systems that provide the driver with comprehensive information to
promote fuel-efficient driving have also been exhibited at shows and other events.
   At the Shanghai Motor Show, Audi presented the Audi Cross Coupé quattro concept car
with the specially configured Audi drive select featuring an “efficiency” driving program in
addition to the “sport” and “dynamic” driving modes. This new mode modifies the engine
map and shift point to produce an ultra-economical driving style. Unless otherwise required,
the concept car’s system additionally deactivates especially energy-hungry components,
such as the air conditioning compressor. The system also uses navigation route data and
the radar-based adaptive cruise control system to achieve substantial fuel savings.
150




                       Audi intends to use the above measures, combined in the modular efficiency toolkit, to cut
                       the vehicle fleet’s CO2 emissions by 20 percent by 2012.
                          The new generation of the Audi A4 Sedan offers impressive proof of how much has al-
                       ready been achieved; its CO2 emissions have been cut by 15 percent, while its performance
                       has simultaneously risen by 14 percent.

                       Efficiency gains illustrated by the Audi A4 Sedan


                                           Audi A4 (B6)          Audi A4 (B7)     Audi A4 (B8)
                                              1.8 T                 1.8 T           1.8 TFSI

                                               2000                  2004             2007

                        Output           110 kW (150 hp)       120 kW (163 hp)   125 kW (170 hp)     + 14%


                        Torque                210 Nm                225 Nm           250 Nm          + 19%



                        CO2                  199 g/km              197 g/km         169 g/km          - 15%




                       In launching the e models at the start of 2007, Audi has also been able to provide a particu-
                       larly attractive form of travel that combines resource conservation with dynamism. The first
                       such model to appear was the Audi A3 1.9 TDI e, launched in January 2007, with an output of
                       77 kW (105 hp) and CO2 emissions of 119 g/km.


                       Audi vehicles already satisfy the forthcoming EU recycling directive
                       AUDI AG is the first and only volume car manufacturer whose current models already satisfy
                       EU Directive 2005/64/EC on the recyclability and recoverability of motor vehicles, which will
                       take effect in 2010. By then, new vehicles must be 85 percent recyclable and up to 95 per-
                       cent recoverable. The engineers who design the vehicles built by the brand with the four
                       rings select recoverable materials. Every model is therefore subjected to exhaustive recy-
                       cling tests and material analyses before its market launch.

                       Further information on environmental aspects can be found on the Internet at
                       www.audi.com/environmental-protection and on the Group portal at
                       www.volkswagen-sustainability.com.


Economic environment   Global economic situation
                       In 2007, vigorous economic growth worldwide was sustained at almost the same level as the
                       year before. The powerhouses of growth were principally the national economies in emerg-
                       ing countries in Asia, Latin America and Central and Eastern Europe, which experienced very
                       dynamic expansion. In the industrialized nations, the crisis prompted by the U.S. subprime
                       mortgage market clouded the economic climate on international financial markets in the
                       second half of the year.
                           There was a sharp slowdown in economic growth in the U.S. in 2007. Growth in gross
                       domestic product was down as well year on year, at 2.2 (2.9) percent. This was prompted by
                       slower growth in consumer spending in the wake of the financial crisis on the one hand and
                       weakened investment activity, particularly in private-sector housing, on the other.
                                                                                                 151




   The economy in Western Europe maintained the steady progress of the previous year.
The economy in the euro zone was thus able to grow by 2.6 (2.8) percent. Its development
was driven primarily by corporate investment and consumer spending, which benefited
from the continuing improvement in the labor market. The UK once again enjoyed stable
economic growth of 3.1 (2.9) percent.
   The German economy remained buoyant, if slightly less so than the year before. Eco-
nomic growth was, however, down year on year at 2.5 (2.9) percent. The mainstays of the
economy were corporate investment and exports which, despite the strength of the euro,
reached a new record level. The sharp rise in energy prices and in particular the VAT rate
hike at the start of 2007 impeded economic progress. Consumer spending was down mark-
edly as a result, especially during the first few months of the year. Bolstered by the rise in
employment, consumer spending recovered somewhat as the year progressed, but did not
quite reach the previous year’s level.
   The national economies in Central and Eastern Europe enjoyed continuing vigorous
growth in 2007. In Russia, gross domestic product rose by 7.8 (6.7) percent. Exports bene-
fited from the sharp rise in energy and raw materials prices during the course of the year.
   Economic growth in Latin American countries was again strong. The principal factors
here were the sharp rise in world market prices for raw materials and food, which boosted
the value of exports from this region.
   The emerging countries of Asia continued to experience dynamic economic growth. The
pulse rate of the economy rose yet again in China. The growth rate for gross domestic prod-
uct, for example, was up slightly over the previous year’s high figure at 11.4 (11.1) percent.
The Indian economy, too, maintained a strong rate of expansion, growing by 8.8 (9.4) per-
cent. In contrast, Japan’s economic progress remained moderate with GDP growth reaching
1.9 (2.4) percent.


International car market
Global demand for cars in 2007 was supported to a considerable extent by sustained strong
economic growth in emerging countries. Economic dynamism in Asia, Latin America and
Central and Eastern Europe was the main factor behind the 4.2 percent rise in vehicle sales
worldwide to 58.4 million passenger cars. By contrast, the markets in the U.S. and Japan
contracted. The overall market for passenger cars in Western Europe reached only the level
seen the year before, due in particular to the sharp decrease in new registrations in Ger-
many.
   Disregarding the German market, the car market in Western Europe exhibited an upward
trend in 2007. Total new registrations were up 3.1 percent year on year, at 11.7 million pas-
senger cars. Prompted by the payment of a disposal bonus for end-of-life vehicles, which
favored the compact car segment in particular, the Italian car market made distinctly posi-
tive progress, posting growth of 6.8 percent. Of the remaining key high-volume markets, the
UK and France reported growth of 2.5 and 3.2 percent respectively, while 1.2 percent fewer
new vehicles were registered in Spain.
    Economic growth in the countries of Central and Eastern Europe gained further momen-
tum by comparison with 2006, with new registrations rising by 30.2 percent to a total of 4.2
million vehicles. In Russia, the already booming car market exhibited especially strong
growth in response to the economic upturn, increasing by 37.5 percent to 2.3 million pas-
senger cars in the period under review.
    In the United States, the market remained tight due to the intensive use of sales incen-
tives. The ongoing real estate crisis and high fuel prices had a negative impact on vehicle
sales. With 16.1 million registrations of new passenger cars, the car market overall showed a
year-on-year decrease of 2.5 percent.
152




         In contrast, the upward trend on car markets in South America accelerated. In Brazil,
      passenger car sales rose by 26.9 percent to almost 2.0 million vehicles, while new registra-
      tions in Argentina were up 28.9 percent to 402,000 passenger cars.
         The Asia-Pacific region again witnessed a dynamic market for cars in 2007. Unit sales
      there totaled 14.3 million passenger cars, representing an increase of 7.8 percent. As in
      previous years, the driving force behind this growth was China, which achieved an above-
      average growth rate of 22.2 percent, bringing it to second place behind the U.S. with an
      overall market volume of 5.1 million passenger cars sold. The Indian car market, too, main-
      tained its dynamic progress, with growth of 16.0 percent, bringing total vehicle sales to
      around 1.2 million units. In contrast, registrations of new cars in Japan fell by 5.2 percent to
      4.4 million vehicles.


      The German car market
      In the first few months of 2007, the German car market was strongly influenced by consum-
      ers moving their purchases of cars into 2006 in order to avoid the rise in the VAT rate on
      January 1, 2007. The situation on the car market improved only marginally as the year pro-
      gressed due to continuing reticence on the part of consumers. Registrations of new pas-
      senger cars in Germany reached around 3.1 million units by year end, down 9.2 percent from
      the year before. The economic recovery in Germany therefore had no impact on the car
      market.
         Demand for more fuel-efficient diesel models rose as a result of further fuel price in-
      creases over the course of the year. The percentage of overall registrations accounted for by
      diesel models gained 3.4 percentage points, to 47.7 percent.
         German-built vehicles proved to be very popular on international markets, as a result of
      which high passenger car exports over-compensated for weak domestic demand. In the year
      under review, exports of passenger cars totaling 4.3 million units bettered the previous
      year’s record figure by 10.6 percent. The countries of Western Europe were the most impor-
      tant sales region, accounting for 2.6 million passenger cars, an increase of 10.7 percent. The
      strong euro and difficult market conditions had a negative effect on exports to the U.S. in
      2007. German manufacturers were nevertheless able to nearly equal the previous year’s
      export volume, with attractive new models helping them to a total of 551,000 passenger
      cars.
         Bolstered by high export demand, German car manufacturers built 5.7 million cars in
      2007, a year-on-year increase of 5.8 percent and therefore a new record total. The number of
      German-brand cars built abroad was up 10.4 percent over the previous year, at 5.2 million
      units.


      Management’s overall assessment
      The economic environment for the automotive industry in 2007 revealed sharp contrasts.
      Strong global economic growth sparked a rise in passenger car sales in many markets, in
      particular in emerging countries such as China and India. At the same time, however, car
      sales in the major volume markets of the U.S., Japan and Germany became divorced from
      general economic progress and experienced a downturn. Competition intensified even fur-
      ther as a result. Cost pressures also grew following energy and raw materials price in-
      creases.
         In order to safeguard and strengthen its long-term competitiveness, the Audi Group con-
      tinually strives to improve its own productivity. Thanks to the steady refinement of its prod-
      uct, process and cost management activities, the Company was very well equipped to han-
      dle the more difficult conditions encountered in the year under review.
                                                                                                                         153




                        The Audi Group responded to heightened competitiveness in the automotive sector with
                     extensive measures designed to further enhance the appeal and quality of its products and
                     service. In addition, Audi made substantial efforts to establish a foothold in emerging mar-
                     kets in order to seize opportunities for growth there. This paved the way for high-quality and
                     sustained growth in keeping with Audi’s strategy.
                        The new records established in 2007 for production output, unit sales, revenue and, of
                     course, profitability are impressive proof of how effective these measures were.


Course of business   Procurement
                     Audi Group Purchasing has set itself the goal of establishing long-term bonds with top-
                     performing suppliers worldwide. In addition to the overall economic picture, the selection
                     criteria of reliability, quality, innovativeness, service and price are particularly relevant. In
                     order to make optimal use of any joint synergy potential, this process is handled in close
                     consultation with VW Group Sourcing.
                        The cost of materials for the Audi Group in 2007 amounted to EUR 23,092 (21,627) million.
                     This includes all raw materials and consumables used, as well as purchased goods and
                     services.

                     Breakdown of the consolidated cost of materials by Group company



                                                                                                               16.9 %
                                                                                                Other Group companies




                      66.2 %                                                                                16.9 %
                      AUDI AG                                                              AUDI HUNGARIA MOTOR Kft.




                     The persistently high price levels for raw materials and energy again presented Audi Group
                     Purchasing with major challenges in 2007. Financial impact on profitability was nevertheless
                     largely cushioned by close cooperation with suppliers and the existence of long-term price
                     agreements.
                        Sourcing will gain increasing strategic importance with the sharp rise in manufacturing
                     volume and the growing trend toward model derivatization. In order to preempt the chal-
                     lenges of the future, partnerships with suppliers have been further intensified. Suppliers are
                     being involved in product development early on, so that economically advantageous solu-
                     tions can be identified together. Both ecological and purely economic aspects are taken into
                     account. For example, attention is paid to the recyclability of the materials used.
                        The Audi Group Supplier Meetings are an important tool for interfacing with the supply
                     industry. They provide a platform for informal exchanges and networking. Various events,
                     such as “TechShows,” provide companies with an opportunity to demonstrate how effective
                     and innovative they are.
                        The extended Web-based supplier platform additionally assures swift, ongoing commu-
                     nication, lastingly enhancing the efficiency of sourcing processes on both sides.
154




      Production
      In the past fiscal year the Audi Group increased vehicle production by 5.9 percent to 980,880
      (926,180) units, the highest figure in the Company’s history. This total comprised 978,300
      (924,085) vehicles from the premium brand Audi and 2,580 (2,095) super sports cars from the
      Italian Lamborghini brand.

      Vehicle production by model



                                                                             2007            2006


        Audi A3                                                            70,744          69,805
        Audi A3 Sportback                                                 160,171         159,581
        Audi A3 Cabriolet                                                     216               8
        Audi TT Coupé                                                      40,417          21,461
        Audi TT Roadster                                                   16,349           2,214
        Audi A4 Sedan                                                     156,281         165,139
        Audi A4 Avant                                                     129,805         142,027
        Audi A4 Cabriolet                                                  23,641          27,735
        Audi RS 4 Sedan                                                     2,401           4,384
        Audi RS 4 Avant                                                     2,191           2,666
        Audi RS 4 Cabriolet                                                   700             589
        Audi A5 Coupé                                                      25,554             487
        Audi Q5                                                               162               –
        Audi A6 Sedan                                                     157,645         150,901
        Audi A6 Avant                                                      71,945          70,430
        Audi A6 allroad quattro                                            16,340          11,838
        Audi RS 6                                                              35               –
        Audi Q7                                                            77,396          72,188
        Audi A8                                                            22,182          22,468
        Audi R8                                                             4,125             164
        Total, Audi brand                                                 978,300         924,085
        Lamborghini Gallardo                                                1,951           1,651
        Lamborghini Murciélago                                                629             444
        Total, Lamborghini brand                                            2,580           2,095
        Total, Group                                                      980,880         926,180



      528,310 (537,039) vehicles were built at the Ingolstadt plant during the past fiscal year. In
      addition to the successful production launch of the new Audi A4 Sedan, the new Audi A5
      Coupé went into volume production in preparation for a sliding market launch.
         The number of vehicles manufactured at the Company’s second German plant in Neckar-
      sulm rose by 6.2 percent to 279,184 (262,851). Under the “Production Turntable” project,
      production of the new Audi A4 Sedan began last year in tandem with the Ingolstadt plant.
         The Brussels plant, in Belgium, which was newly integrated into the Audi manufacturing
      network, was able to build an impressive 12,087 (−) vehicles during the past fiscal year.
         AUDI HUNGARIA MOTOR Kft. in Győr, Hungary, manufactured a total of 56,982 (23,683)
      vehicles thanks to the huge success of the new-generation Audi TT. The Audi A3 Cabriolet
      has been built in Hungary since November 2007 in partnership with the Ingolstadt plant.
                                                                                                  155




Engine production



                                                                         2007            2006


  Audi Group                                                        1,915,633        1,895,695
     of which AUDI HUNGARIA MOTOR Kft.                              1,913,053        1,893,600
     of which Automobili Lamborghini S.p.A.                             2,580            2,095



The Audi Group stepped up engine production by 1.1 percent to 1,915,633 (1,895,695) units,
thus establishing another new record in the past fiscal year. The share of diesel engines in
the overall total reached 55.4 (53.5) percent, once again underscoring the Company’s im-
pressive expertise in that area.
    The AUDI HUNGARIA MOTOR Kft. subsidiary built a total of 1,913,053 (1,893,600) engines
of which 692,521 (728,191) engines were supplied to Audi Group companies and 1,073,097
(1,056,504) engines to other Volkswagen Group companies, plus 109,612 (91,287) engines to
third parties.
    Automobili Lamborghini S.p.A. built 1,951 (1,651) 10-cylinder engines and 629 (444)
12-cylinder engines during the period under review.


Expansion of Audi production network
The manufacturing plant in Brussels, Belgium, and its workforce of around 2,100 people
were integrated into the Audi production network in May 2007. The Audi Group thus gained
vital additional capacity for meeting its strategic objective of building more than 1.5 million
premium vehicles in the year 2015. The Audi A3 Sportback is built at the Belgian plant, to-
gether with the VW Polo on behalf of Volkswagen AG. The new Audi A1 is due to go into
production there beginning in 2009.


The “Production Turntable” concept
In order to further boost efficiency, the Audi Group implements the Production Turntable
concept for its two highest-volume car lines, the Audi A4 and Audi A3. In addition to being
built at the Ingolstadt plant, the new Audi A4 Sedan is also manufactured in Neckarsulm and
the Audi A3 Sportback at the Belgian plant in Brussels. Audi can thus respond flexibly to
fluctuating demand and make optimal use of the available capacity at its locations. The
Production Turntable principle plays a key role in assuring long-term job security.


Production ramp-up in India
In the fall of 2007, the Audi Group began assembly of the Audi A6 in Aurangabad in western
India. This model is delivered to an exclusive zone of the Skoda Auto India Private Ltd. plant
in the form of parts sets (CKD), where it is assembled to AUDI AG quality standards. Audi is
using these local manufacturing operations to step up its involvement in this emerging
                                      €
market, where it plans to invest some EUR 30 million over the next few years. CKD assembly
of the new Audi A4 will follow toward the end of the current fiscal year.


Start of production for Audi A3 Cabriolet in Győr, Hungary
AUDI HUNGARIA MOTOR Kft. began production of the new Audi A3 Cabriolet in November
2007. This model is being built in tandem with the Ingolstadt plant (body manufacturing and
paint shop). The plant’s peak daily production capacity is 300 units.
156




      Unit sales and distribution
      In the past fiscal year, the Audi Group once again increased vehicle sales by an impressive
      5.7 percent to 1,200,701 (1,135,554) units.
          The Audi brand achieved its twelfth record-breaking year in succession last year, with ve-
      hicle sales up by 6.5 percent to 964,151 (905,188) units.

      Audi vehicle sales – largest markets



                                             Vehicle sales   Year-on-year   2007 market      Year-on-year
                                                     2007     percentage          share,      percentage
                                                                  change        percent        change in
                                                                                           overall market


        Audi worldwide                            964,151             6.5
        Germany                                   254,014           – 1.5            7.9            – 9.2
        China (including Hong Kong)               101,996            24.8            2.0            22.2
        United Kingdom                            100,712            17.1            4.2              2.5
        USA                                        93,506             3.8            0.6            – 2.5
        Italy                                      59,123             0.2            2.4              6.8
        Spain                                      58,850             7.9            3.7            – 1.2
        France                                     47,540             4.4            2.3              3.2
        Belgium                                    26,663             0.6            4.8            – 0.3
        Netherlands                                16,734           – 4.8            3.1              4.5
        Austria                                    15,860           – 7.3            5.3            – 3.4
        Switzerland                                15,599            11.8            5.6              5.7
        Sweden                                     15,477             6.1            4.9              8.5
        Japan                                      15,152             1.2            0.3            – 5.2
        Russia                                     15,007            49.3            0.6            37.5
        South Africa                               12,150           – 7.3            2.8            – 9.7



      In Germany, its home market, the brand with the four rings further increased its market
      share, selling 254,014 (257,792) vehicles. Despite the pressure placed on sales by the VAT
      rate hike on January 1, 2007, continued stiff competition and the model changeover affect-
      ing the Audi A4 Sedan in November 2007, market share grew to an excellent 7.9 (7.6) per-
      cent. This represents the highest market share in the history of the Company as a premium
      manufacturer.
         Audi also enjoyed notable success on major export markets. Vehicle sales in Western
      Europe (excluding Germany) grew by 6.1 percent to 396,393 (373,588) units. Sales pro-
      gressed particularly well in the UK (up 17.1 percent), Spain (up 7.9 percent), France (up 4.4
      percent) and Switzerland (up 11.8 percent).
         In China (including Hong Kong), Audi continued its unabated growth and remains the
      undisputed leader in the premium segment. Sales rose by 24.8 percent to 101,996 (81,708)
      Audi models, taking the Company over the 100,000-car mark in China for the very first time.
      Asia’s biggest car market has thus become the most important export market for the brand
      with the four rings. Audi is involved in numerous sponsoring activities in culture and sport
      in China, with a view toward further consolidating its strong image there. Audi vehicles, for
      example, will capture the limelight at this summer’s Olympic Games in Beijing in their ca-
      pacity as “Official Premium Cars.”
         Audi sales rose again in the intensely competitive U.S. market, thus bucking the overall
      market trend. Sales reached 93,506 (90,116) vehicles, representing a year-on-year improve-
      ment of 3.8 percent. In an effort to sustain this positive momentum, Audi is stepping up
                                                                                               157




measures aimed at optimizing its service and dealer network. In addition, the Company is
preparing a diesel initiative in the United States. New TDI engines featuring the ultra low
emission system are to be brought to market. They are notable for their high efficiency cou-
pled with low fuel consumption and emissions.
    Audi also posted significant growth rates in the relatively new markets of Central and
Eastern Europe. In Russia, the region’s most important growth market, the brand succeeded
in increasing vehicle sales by an outstanding 49.3 percent to 15,007 (10,050) premium vehi-
cles.

Vehicle sales by model



                                                                       2007             2006


  Audi A3                                                             71,701          73,678
  Audi A3 Sportback                                                  159,148         161,886
  Audi TT Coupé                                                       38,745          16,753
  Audi TT Roadster                                                    13,026           2,745
  Audi A4 Sedan                                                      157,258         162,239
  Audi A4 Avant                                                      136,135         142,302
  Audi A4 Cabriolet                                                   23,819          27,410
  Audi RS 4 Sedan                                                      2,408           4,375
  Audi RS 4 Avant                                                      2,193           2,661
  Audi RS 4 Cabriolet                                                   704              585
  Audi A5 Coupé                                                       18,553             232
  Audi A6 Sedan                                                      149,026         148,227
  Audi A6 Avant                                                       69,567          76,556
  Audi A6 allroad quattro                                             15,622           9,799
  Audi Q7                                                             81,775          52,771
  Audi A8                                                             21,362          22,601
  Audi R8                                                              2,952             108
  Total, Audi brand*                                                 964,151         905,188
  Lamborghini Gallardo                                                 1,793           1,610
  Lamborghini Murciélago                                                613              477
  Total, Lamborghini brand                                             2,406           2,087
  Other Volkswagen Group brands                                      234,144         228,279
  Total, Group                                                     1,200,701       1,135,554

* including internal vehicles for launch purposes


Sales of the Audi A3 and Audi A3 Sportback totaled 230,849 (235,564) units in the past fiscal
year, matching the previous year’s outstanding level. In addition, Audi unveiled its first
open-top version in the premium compact category to the public in November 2007. The
new Audi A3 Cabriolet embodies supreme driving enjoyment and will be available with a
choice of four powerful four-cylinder gasoline and diesel engines featuring progressive TFSI
and TDI technology right from market launch in April 2008.
   The new Audi TT Roadster made its debut in the spring of 2007. This sporty two-seater
retains the unique styling of its predecessor and, like the Audi TT Coupé, offers particularly
dynamic handling. A total of 51,771 (19,498) Coupés and Roadsters were handed over to
customers last year. The ultra-sporty Audi TTS Coupé and Roadster versions will be appear-
ing on the market in early summer 2008.
158




          Distribution of the new Audi A4 Sedan started in November 2007. Equipped with a huge
      array of technological innovations, new efficient powertrain versions and a unique design,
      this model sets the benchmark in the midsize category. The new Audi A4 Avant will follow in
      the first half of the current year. Despite the model changeover, demand for models in the
      Audi A4 car line (Sedan, Avant and Cabriolet) remained satisfyingly high at 317,212 (331,951)
      units.
          The Audi A5 Coupé, which made a very successful market entry in June 2007, acquired
      two further powertrain versions in September. The 3.2 FSI quattro with manual transmission
      develops 195 kW (265 hp). The 1.8 TFSI entry-level model with an output of 125 kW (170 hp)
      is a notably efficient version. The total number of Audi A5 Coupés delivered to customers
      had already reached 18,553 (232) by the end of December.
          The Audi A6 car line repeated its huge success from the year before, with sales totaling
      234,215 (234,582) vehicles. The development of demand for the Audi A6 allroad quattro was
      particularly pleasing, rising by an impressive 59.4 percent. The new Audi RS 6 Avant will
      begin appearing on markets this April. This high-performance model is outfitted with a
      newly developed 10-cylinder engine featuring FSI direct fuel injection and twin turbocharg-
      ers, quattro permanent all-wheel drive and sports suspension with Dynamic Ride Control. It
      is thrillingly and uncompromisingly sporty, yet eminently suitable for everyday use.
         In the premium SUV segment, the Audi Q7 maintained its impressive growth in 2007,
      with unit sales reaching 81,775 (52,771) vehicles. A version incorporating a 4.2 liter TDI en-
      gine, currently the most powerful diesel SUV in the world, appeared last March.
         The multiple award-winning Audi A8 car line was systematically refined last year. A more
      precise driving feel, an even better ride and acoustic comfort, as well as subtle enhance-
      ments to its design and interior underscore the exceptional status of the sportiest sedan in
      the luxury category. There is also a particularly efficient version available in the form of the
      new Audi A8 2.8 FSI e, which achieves average emissions of 199 g of CO2/km with a power
      output of 154 kW (210 hp). Even though the model facelift did not appear on the market until
      the third quarter of 2007, sales of this luxury sedan reached the previous year’s excellent
      level at 21,362 (22,601) units.
         Demand for the Audi R8 mid-engine sports car that was brought to market in early 2007
      exceeded all expectations. By December, customers had already accepted deliveries of 2,952
      (108) of these emotion-packed models that are the very embodiment of Audi’s “Vorsprung
      durch Technik” thanks to their innumerable technological innovations.
         In addition to the Audi brand, Italian super sports car manufacturer Lamborghini was ex-
      tremely successful as well. Vehicle sales were higher than ever before in 2007. Sales of the
      Gallardo car line, which was extended to include the Superleggera model early in the year,
      rose by 11.4 percent to 1,793 (1,610) sports cars. The top-of-the-line Murciélago recorded
      sales of 613 (477) units, a year-on-year increase of 28.5 percent.


      Qualification initiative for Audi dealers
      During the past fiscal year, the first 40 Audi dealerships completed the qualification pro-
      gram launched by AUDI AG in 2006.
         This modular program examines all areas of an Audi dealer’s business and then develops
      customized measures hand in hand with the dealer. The focus is on aspects that include
      economic efficiency, customer satisfaction and the quality of repairs and services. Even
      after successfully completing the implementation phase, all dealerships continue to receive
      long-term backup to ensure that improvements are maintained long-term. Initial assess-
      ments indicated that the improvements in the above focal areas were as high as 50 percent.
                                                                                                                         159




                           Around 180 Audi dealers are currently participating in the qualification program in Ger-
                        many, with the total expected to reach 400 by 2009. An additional 475 dealers in European
                        countries are expected to join by 2010. By the end of 2008, AUDI AG will have invested some
                        €
                        EUR 50 million in its comprehensive qualification program and thus in the efficiency of the
                        dealer network as well.


Financial performance

                        The Audi Group grew its revenue in fiscal 2007 by an impressive 7.9 percent to EUR 33,617
                        (31,142) million, the highest total ever in its lengthy history.
                           The Audi brand’s vehicle business played a significant role in the Company’s huge suc-
                        cess by generating revenue amounting to EUR 25,249 (23,404) million. The revenue mainstay
                        was the Audi A4 car line, which made very healthy progress over the year as a whole, de-
                        spite the changeover to the new sedan version in the second half. Revenue from sales of the
                        Audi A3, A6 and A8 models once again outpaced the previous year’s outstanding level, serv-
                        ing as tangible evidence of the high appeal of the brand with the four rings. The new Audi
                        A5 Coupé and the TT car line, including the new Audi TT Roadster that made its market
                        debut at the start of 2007, provided ample impetus for growth. The huge success of the Audi
                        R8 mid-engine sports car from the moment it was launched in April exceeded all expecta-
                        tions. Revenue from sales of the Audi Q7 once again rose impressively in the period under
                        review, making this vehicle a major source of growth for the Audi brand.
                           In addition to Audi-brand vehicles, the VOLKSWAGEN GROUP ITALIA S.P.A., Audi
                        Volkswagen Korea Ltd. and Audi Volkswagen Middle East FZE sales subsidiaries also sold
                        vehicles of the Bentley, SEAT, Škoda, VW Passenger Car and VW Commercial Vehicles
                        brands. The Company once again recorded an increase in revenue from the sale of vehicles
                        from other Volkswagen Group brands in fiscal 2007.
                           The cost of sales for the Audi Group rose by 4.3 percent in the period under review to
                        EUR 28,478 (27,309) million as a result of the higher sales volume. Further productivity gains,
                        improved processes and optimized material costs were the main reasons for the dispropor-
                        tionately low rise in cost of sales relative to revenue.
                            Overall, the Audi Group therefore enjoyed a notable increase in gross profit of 34.1 per-
                        cent to EUR 5,139 (3,833) million.
                            The 26.5 percent rise in distribution costs to EUR 2,737 (2,164) million and the 12.2 per-
                        cent rise in administrative expenses to EUR 266 (237) million were in large part attributable
                        to initial consolidation of the Audi of America, LLC and Audi Canada Inc. sales subsidiaries,
                        effective January 1, 2007. The other operating result was on a par with the previous year.
                            The Audi Group again improved its operating result by an impressive 34.2 percent in the
                        past fiscal year, in spite of a persistently unfavorable exchange rate. At EUR 2,705 (2,015)
                        million, the Company posted the highest result from operating activities in its history, a
                        fitting manifestation of its healthy, sustained growth.
                            The further improvement in net liquidity also boosted the interest income earned on the
                        latter and was consequently a major factor in the rise in the financial result to EUR 210 (– 69)
                        million.
160




      Development of profit before tax and rate of return before tax


                                               2004               2005        2006             2007

      3,000



      2,000



      1,000



            0


      Profit before tax (EUR million)         1,143              1,310       1,946            2,915


      Rate of return before tax (in %)          4.7                    4.9     6.2                 8.7


      The Audi Group therefore increased its profit before tax by 49.8 percent to EUR 2,915 (1,946)
                                                                   €
      million. The balance after deduction of taxes amounted to a profit after tax of EUR 1,692
      (1,343) million, representing a sharp year-on-year rise of 26.0 percent.

      Key earnings data



        %                                                                     2007            2006


        Rate of return before tax                                              8.7                6.2
        Equity return after tax                                               21.7             20.1
        Return on investment                                                  18.6             14.2



      The Audi Group’s highly profitable growth is also reflected in all key return ratios. The rate
      of return before tax, for instance, rose from 6.2 percent to an excellent 8.7 percent. This
      means that the Company has already achieved the target of 8 percent it had set itself for
      2010. The return on investment is no less impressive. This indicator rose from 14.2 percent
      to 18.6 percent, again underscoring the strong profitability of the Audi Group. The task over
      the coming years will now be to sustain the rates of return at these high levels.
                                                                                                                             161




Net worth

                            Balance sheet structure



  EUR million               2004     2005     2006     2007           2007    2006     2005     2004




                                                       7,379          8,355



                                              7,536                           7,265
                                                        946

                                     8,143             2,661                           6,104
                            8,430                                     5,269                     5,828
                                               749                                                                    Equity

Fixed assets                                  2,109    4,852                  4,610
Other non-current                     454                                              4,202                    Non-current
assets                                        3,632                                             4,291             liabilities
                             540     2,042
Inventories
                            1,832                                     8,954
                                     2,368
Other current                                                                 7,035
                                                       6,740
assets                      2,343                                                      5,806
                                              4,884                                             4,785                Current
Cash and cash equivalents            3,105                                                                         liabilities
                            1,759

                            14,904   16,112   18,910   22,578        22,578   18,910   16,112   14,904


                            The Audi Group’s balance sheet total grew by 19.4 percent over the past fiscal year to
                            EUR 22,578 (18,910) million.
                                Non-current assets remained on a par with the previous year at EUR 8,325 (8,285) million,
                            due in particular to higher property, plant and equipment and higher receivables from de-
                            rivative currency hedging instruments in conjunction with lower development expenditure
                            recognized as an intangible asset.
                                The 34.1 percent rise in current assets to EUR 14,253 (10,625) million was largely attribut-
                            able to increased cash and cash equivalents (up EUR 1,856 million) and trade receivables (up
                            EUR 309 million). In addition, inventories grew by EUR 552 million, primarily as a result of
                            initial consolidation of companies in fiscal 2007.
                                The overall volume of capital investments rose to EUR 2,115 (1,925) million, mostly as a
                            result of higher product investment. Property, plant and equipment accounted for EUR 1,527
                            (1,256) million of this total, representing a rise of 21.6 percent.
                                The equity of the Audi Group rose by 15.0 percent to EUR 8,355 (7,265) million. This
                            change was attributable principally to the cash infusion of€ EUR 428 million by Volkswagen to
                            the capital reserve of AUDI AG and allocation to other retained earnings of the balance re-
                            maining after the transfer of profit (€EUR 242 million).
                               The equity ratio for the Audi Group was 37.0 (38.4) percent.
162




                        Non-current liabilities amounting to EUR 5,269 (4,610) million rose year-on-year, primarily
                     as a result of the higher other liabilities and provisions.
                        Current liabilities rose to EUR 8,954 (7,035) million. The higher profit transfer to Volks-
                     wagen AG was responsible for this development together with a sales-related increase in
                     trade liabilities.

                     Capital investments and cash flow of the Audi Group


                                                            2004           2005             2006             2007


                     5,000


                     4,000


                     3,000


                     2,000


                     1,000


                         0

                         Capital
                         investments (EUR million)          2,056          1,708           1,925             2,115

                         Cash flow from operating
                         activities (EUR million)           2,690          3,252           4,428             4,876


Financial position

                     The Audi Group increased its cash flow from operating activities by an outstanding 10.1
                     percent to EUR 4,876 (4,428) million in fiscal 2007.
                                                                                                        €
                        The cash used in investing activities equaled the previous year’s high level at EUR 2,419
                     (2,442) million. Investments in property, plant and equipment and other intangible assets
                     were up sharply by 22.1 percent to EUR 1,578 (1,292) million. The priority capital investments
                     in 2007 were the ramp-ups for production of the Audi A4 and Audi A5 product families and
                     the Audi A3 Cabriolet, as well as preparations for volume production of the Audi Q5. As in
                     the previous year, cash flow from operating activities covered the cash used in investing
                     activities in full. This fact is further evidence of the Company’s financial strength.
                        Net liquidity as of December 31, 2007, was EUR 7,860 (5,720) million, an increase of 37.4
                     percent over the previous year.
                                                                                                                                163




                              Cash flow statement



                                 EUR million                                                           2007             2006


                                 Cash flow from operating activities                                  4,876            4,428
                                 Cash flow from investing activities                                 – 2,419          – 2,442
                                 Net cash flow                                                        2,457            1,986
                                 Cash flow from financing activities                                  – 582            – 202


                                 Net liquidity                                                        7,860            5,720



                              As of December 31, 2007, the Audi Group had other financial obligations amounting to€
                              EUR 1,462 (1,520) million, mainly in the form of ordering commitments.
                                 For further particulars, please refer to the Notes, Section 41, “Other financial obliga-
                              tions.”


Report on post-balance sheet date events

                              There were no reportable events of material significance after December 31, 2007.


Risk report


The risk management           The goal of the Audi Group’s risk management system is to minimize or, if possible, avoid
system within the Audi        the wide-ranging risks associated with entrepreneurial activity in order to safeguard the
Group                         Company against potential losses and against risks to it as a going concern. Entrepreneurial
                              risks are deliberately taken only where they are moderate and commensurate with the an-
                              ticipated benefit from that business activity.
                                  A Company-wide risk management and early warning system is in place within the Audi
                              Group to actively monitor and steer risks. This covers AUDI AG and all subsidiaries from
                              which significant risks that could threaten the parent company as a going concern could
                              spread.
                                  The tasks of risk management in the Audi Group are organized decentrally at the corpo-
                              rate divisions and subsidiaries. Integration into existing business processes helps to
                              promptly identify any risk-prone developments. All task areas as well as reporting and
                              documenting obligations for risk management are clearly defined and regularly monitored
                              to verify that the details on record are up to date.
                                  Potential risks are identified through the risk management procedures, based on defined
                              spheres of responsibility. The same applies to compiling and implementing appropriate
                              methods of steering and supervision, as well as to ongoing monitoring of the effectiveness
                              of the measures taken to achieve the objectives.
                                  Probabilities are estimated for all individual risks. The anticipated potential losses from
                              them are also quantified. The lost profit contribution and the costs incurred serve as the
                              metric for this purpose.
                                  The Board of Management and the Supervisory Board are regularly informed of all sig-
                              nificant risks within the Audi Group.
164




                        The Audi Group encounters the key risks listed below within the context of its business ac-
                        tivities. The individual risks described relate to the planning horizon of 2008 through 2010:


Economic and industry   As a globally active company, the Audi Group is highly dependent on international economic
risks                   conditions. This is particularly true with respect to the important sales markets of Europe,
                        the U.S., China and Japan. Although general economic developments in these regions are
                        positive on the whole, car markets reflect this situation to only a limited extent. Further-
                        more, a possible weakening of the global economy could have an adverse effect on con-
                        sumer behavior in the automotive sector. Another risk is posed by persistently high or rising
                        costs for energy and raw materials. In addition to having financial implications for sourcing
                        and manufacturing, they may lead to consumer reticence.
                           The premium segment in which the Audi and Lamborghini brands are positioned is gen-
                        erally less susceptible to the negative impact of cyclical fluctuations. Here too, however, a
                        risk to sales from a cooling-down of the general economy and a resulting downturn in the
                        market cannot be entirely excluded. The other Volkswagen Group brands, whose products
                        are sold via the Audi sales subsidiaries in Italy, Korea and the Arab world, are fundamentally
                        more exposed to cyclical sales risks.
                          As a company with worldwide operations, the Audi Group generates a large proportion of
                        its revenue in foreign currency. This revenue is exposed to risks from exchange rate fluctua-
                        tions that can adversely affect consolidated net profit. In addition to the pound sterling and
                        the Japanese yen, the euro can also fluctuate against the U.S. dollar in particular.
                            The automotive industry is marked by increasingly aggressive predatory competition, in
                        which sales incentives are becoming more and more widespread. This might result in price
                        erosion and could inflate marketing costs in the Audi Group’s key sales markets, with a cor-
                        respondingly detrimental effect on earnings.
                            Negative pricing practices by competitors that Audi might be obliged to match could also
                        have an adverse effect on the Group’s revenue and earnings performance.
                            The Audi Group’s far-reaching model initiative means that it is entering numerous new
                        product segments. In spite of meticulous planning and the use of market studies from the
                        very start of the product development process, it is not possible to anticipate every facet of
                        the market’s response. Furthermore market acceptance of new generations of well-
                        established car lines might not meet expectations.
                           Future changes to the political and statutory environment and potential new legislation
                        relating to vehicle safety, fuel efficiency or pollution emissions remain risk factors. The cur-
                        rent debate on CO2 emissions could have an adverse effect on the image of the automotive
                        industry.

                        The Audi Group counters economic and industry risks with anticipatory measures and takes
                        potential negative developments into account as early as the planning stage. The Company
                        also uses appropriate instruments to protect itself to an economically meaningful extent,
                        and regularly examines the economic environment for new and changing risks.
                                                                                                                        165




Risks from operating   There are diverse risks associated with the Audi Group’s operating activities that could sub-
activities             stantially undermine its financial position and financial performance.
                           These include critical occurrences such as major fires and explosions that could damage
                       or destroy assets and also cause considerable consequential losses by hindering the pro-
                       duction process. Production problems could take the form of disruptions to the energy sup-
                       ply and technical disruptions, in particular to information technology. Although such occur-
                       rences harbor considerable potential losses, their probability is viewed as relatively low. In
                       addition, adequate insurance coverage has been taken out on an economically meaningful
                       scope and preventive measures, such as fire protection systems, installed. The high flexibil-
                       ity of the Audi production network also reduces risk.
                           The manufacturing process might also be hampered by supply delays or non-delivery as
                       a result of tool breakage, losses from natural disasters and strikes at suppliers or in the
                       transportation sector. A rise in the number of crises at suppliers, in some cases leading to
                       their insolvency, has furthermore been observed. In addition to taking out appropriate in-
                       surance coverage, the Audi Group implements a detailed supplier selection, monitoring and
                       steering process to limit any risks to its financial performance early on.
                          The increasingly close ties between automotive manufacturers and the supply industry
                       bring with them the potential for both economic benefits and growing interdependence.
                       The exclusive use of innovative technologies by suppliers with global operations is lending
                       momentum to this trend. The Audi Group counters the resulting risks, for example, by defin-
                       ing appropriate contractual terms and retaining title over tools used by third-party compa-
                       nies.
                           The complex product development process for new vehicles and components entails di-
                       verse potential risks, such as delays, essential changes to the product at short notice and
                       the loss of expertise as a result of the involvement of third-party service providers.
                           As a manufacturer of premium-segment vehicles, the Audi Group has installed extensive,
                       efficient quality management procedures. Nevertheless, it is impossible to entirely rule out
                       potential product liability risks. These could result in significant financial losses to the Com-
                       pany, in addition to harming its image.
                           Infringement of statutory regulations may occur in the course of operating activities.
                       These risks are limited by Group-wide procedures and ongoing monitoring of changes in the
                       law.
                           The growing electronic networking of processes within the Audi Group presents poten-
                       tial information and IT risks. In addition to the risk of failure of key systems controlling busi-
                       ness processes, financial performance could be adversely affected by unauthorized access,
                       destruction and misuse, as well as by a heterogeneous system landscape. These risks are
                       appropriately cushioned by the implementation of Company-wide procedures, high security
                       standards and targeted communication with employees.


Financial risks        The financial risks resulting from the Audi Group’s business activities comprise market price
                       risks (exchange rate, interest rate and commodity price risks), creditworthiness risks and
                       liquidity risks.
                           Foreign exchange risks, relating in particular to the U.S. dollar, the pound sterling and
                       the Japanese yen, are also of particular relevance to the Audi Group in view of its worldwide
                       sales markets.
                           Detailed information on the hedging policy and on risk management in the area of finan-
                       cial risks, in particular relating to the use of derivative financial instruments in hedging
                       transactions, is presented in the Notes in “Other particulars” under Note 35 “Management
                       of financial risks.”
166




Overall assessment of the    There have been no substantial changes in the Audi Group’s risk position by comparison
risk position                with the year before.
                                The risks described harbor the potential to significantly undermine the Audi Group’s fi-
                             nancial position and financial performance. On the basis of all known facts and circum-
                             stances, however, no risks currently exist that could endanger the Company’s survival in the
                             foreseeable future.


Report on expected developments

Anticipated development of   General economic situation
the economic environment     The Audi Group believes that the global economy will slow down in 2008, following multiple
                             periods of strong growth. The principal determining factor here is the prospect of a rapid
                             slowdown in the U.S. economy, outweighing robust economic growth in numerous develop-
                             ing and emerging countries. The sustained high level of crude oil and raw materials prices
                             will also have a dampening effect.
                                In the United States, the continuing crisis in the real estate market will put a damper on
                             consumer spending. This will go hand in hand with increasingly restrictive lending practices
                             on the part of the banks, resulting in reduced private-sector investment activity. Economic
                             growth for the year as a whole is therefore expected to weaken even further.
                                In the euro zone, the economy will cool down somewhat in 2008, but the stable upward
                             trend will be sustained. The Audi Group expects to see a further decline in economic growth
                             in Germany. The dynamism of exports and capital expenditures will probably ease off. On
                             the other hand, however, consumer spending is likely to be stronger and make a larger con-
                             tribution to economic growth than in 2007, not least due to the continued upward trend of
                             employment, coupled with higher collective-bargaining settlements and lower inflation than
                             the year before.
                                 The rate of economic expansion will remain high in many countries throughout Latin
                             America as well as Central and Eastern Europe. Most notably in Russia, the rapid upward
                             trend will continue thanks to the strong exports of the country’s energy producers.
                                 The Chinese economy will be dampened somewhat in 2008 as a result of the weakening
                             of the U.S. economy and the corresponding downturn in exports to the U.S. Its economic
                             dynamism will, however, remain at a high level, with GDP growth likely to remain in the
                             double-digit range. Continued vigorous economic expansion is expected in India. The Japa-
                             nese economy will again expand at only a very modest rate in 2008.


                             The car industry
                             The Audi Group anticipates a renewed increase in global demand for automobiles of over
                             2 percent in 2008 to around 60 million passenger cars. Principal growth hotspots will be the
                             emerging markets of China, India and Russia.
                                The general market environment will remain difficult in Germany. The forecast rise in
                             consumer spending will induce only a slight improvement in sales figures. The Audi Group
                             expects to see an increase in the volume of new registrations in the German market of just
                             under 2 percent to around 3.2 million passenger cars.
                                The Audi Group expects registrations of new cars in Western Europe (excluding Germany)
                             to decline to 11.4 million vehicles. Dwindling sales figures in Italy will be the main factor at
                             work here.
                                In the countries of Central and Eastern Europe, on the other hand, the market will remain
                             dynamic, although the growth rate will be down slightly from the previous year. The Audi
                             Group is forecasting growth of over 9 percent for the Russian automobile market to nearly
                             2.6 million passenger cars.
                                                                                                                                167




                                A further deterioration in the U.S. car market is expected in 2008. The overall market vol-
                             ume of 16 million units sold will probably slip below the previous year’s total due to the
                             weakening of consumer spending.
                                The Asia-Pacific region will again enjoy strong growth in demand in 2008. The Chinese
                             car market, in particular, will continue to expand and should reach nearly 6 million units –
                             a growth rate of 17 percent. The rate of growth forecast for India is even higher at around
                             19 percent, bringing the total to 1.4 million passenger cars. In contrast, new registrations in
                             Japan will rise only marginally to just under 4.5 million passenger cars.


Anticipated development of   Increasingly intensive competition within the automotive industry and the ailing health of
the Audi Group               the economy will again pose major challenges for the Audi Group in 2008. An even greater
                             effort will therefore be required to repeat the economic successes of the past. Management
                             is nevertheless convinced that the Audi Group will be able to build on the outstanding re-
                             sults for 2007 and post positive overall results for its business activities in fiscal 2008.


                             Anticipated development of vehicle sales
                             The Audi Group will sustain growth in vehicle sales in 2008 and plans to improve signifi-
                             cantly on the previous year’s record figure by selling more than 1 million Audi vehicles.
                                 A large number of new models and derivatives, as well as those products with an estab-
                             lished market presence, should aid the core Audi brand in accessing new customer seg-
                             ments and give the brand’s appeal a long-term boost.
                               In its home market of Germany, the highest-volume market for Audi vehicles, the brand
                             with the four rings is striving to improve its market performance. Audi believes that it is well
                             equipped for further success in Western Europe, despite intensive competition there, and
                             expects to achieve growth in the face of a generally downward market trend.
                                Audi expects that the new markets in Central and Eastern Europe, and especially Russia,
                             will continue to provide strong impetus for growth.
                                Audi is aiming to strengthen its image and market position in the U.S. by further extend-
                             ing its exclusive dealer network and launching new, attractive models. The market launch of
                             the new Audi A4 will provide vital impulses here.
                                In its largest export market, China, Audi intends to continue to benefit from market
                             growth and to strengthen its position of leadership in the premium segment. The locally
                             built long-wheelbase version of the Audi A6 will play an important role in these plans.
                                Audi expects to see positive overall development of unit sales in Japan and the other
                             markets of the Asia-Pacific region.
                                The Indian automotive market, where Audi began local CKD assembly of the Audi A6 in
                             2007, will be playing an increasingly important role.


                             Anticipated financial performance
                             The Audi Group will see a further rise in revenue in fiscal 2008 as a result of the higher sales
                             figures it is targeting.
                                Based on the renewal and expansion of the product portfolio, the development of the ex-
                             clusive dealer and service network and further improvements in productivity and processes,
                             the Board of Management expects to see profits for 2008 rise in line with unit sales and
                             revenue.
168




      Anticipated financial position
      The Audi Group again expects to be able to finance its ambitious growth entirely from inter-
      nally generated cash flow in 2008, without recourse to external sources of financing. All
      Group companies are assured the necessary liquidity through the Group’s own cash pool.
          Cash flow from operating activities is expected to reach a level similar to that in 2007.
      Cash used in investing activities will probably rise year on year as the long-term model ini-
      tiative continues.
          The Audi Group’s net liquidity will continue to develop on a positive note up until the end
      of 2008, despite higher capital expenditures.


      Capital investments
      Capital investments scheduled for the medium term are intended predominantly for cus-
      tomer-driven additions to the model and engine lines, the resulting need for expanding
      development and production structures, for improving the productivity and quality of pro-
      cess chains, and for strengthening customer loyalty. All investment measures share the
      common objective of sustainably strengthening the Audi Group’s market position through a
      forward-looking model and brand strategy.
         The investment volume for property, plant and equipment envisaged for the period from
      2008 through 2012 amounts to around EUR 10.6 billion for the Audi Group, with the 2008
      fiscal year accounting for around one-fifth of this total. Cash flow from operating activities
      will cover investment spending in full for the entire planning period.
         Capital investments will principally relate to manufacturing operations.


      Anticipated development of the workforce
      The size of the workforce will increase moderately in 2008 by comparison with the past fis-
      cal year. The main factor at work here is that AUDI BRUSSELS S.A./N.V., with around 2,100
      employees, is being comprehensively consolidated for the first time starting in early 2008
      following the transfer of management responsibility from Volkswagen AG to AUDI AG.


      Opportunities for future development
      The Audi Group’s future development will essentially be driven by forward-looking strate-
      gies and measures designed to assure the Company’s steady, profitable growth.
         Systematic renewal and expansion of the product portfolio will play a key role. Following
      the successful launch of numerous new models during the past fiscal year, the long-term
      model initiative will continue seamlessly in 2008 with important market launches such as
      the Audi A3 Cabriolet, the Audi TTS models, the new Audi A4 Avant, the Audi RS 6 Avant and
      the Audi Q5.
         Sustaining growth in established markets will once again be an important target for
      2008. The main focus areas will include restructuring the sales organization in North Amer-
      ica and continued expansion of the worldwide exclusive Audi dealer and service network.
         The Audi Group will also be stepping up its involvement in growth markets and actively
      tapping into new markets.
         All in all, the Audi Group expects the above measures to provide lasting growth pros-
      pects that will drive the development of the Company’s unit sales as well as its financial
      performance over the coming years.
                                                                                                            169




             In addition to these strategic determinants, changes in external factors might also create
             further opportunities for the Audi Group. Declines in the prices of raw materials and advan-
             tageous exchange rate movements could, for instance, have a positive impact on financial
             performance.


             Overall assessment of anticipated future developments
             The Audi Group has set itself the target of sustained growth – in terms of both quality and
             quantity – for 2008 and subsequent fiscal years. This will be reflected in the business figures
             for 2008 and 2009.


Disclaimer

             The Management Report contains forward-looking statements. These statements are based
             on current assessments and are by their very nature subject to risks and uncertainties. Ac-
             tual outcomes may differ from those predicted in these statements.
170




Auditor´s Report



                    This report was originally prepared in the German language. In case of ambiguities the Ger-
                    man version shall prevail:


“Auditor’s Report

                    We have audited the consolidated financial statements prepared by the AUDI AG, Ingolstadt,
                    comprising the balance sheet, the income statement, statement of recognised income and
                    expense, cash flow statement and the notes to the consolidated financial statements, to-
                    gether with the group management report for the business year from January 1 to Decem-
                    ber 31, 2007. The preparation of the consolidated financial statements and the group man-
                    agement report in accordance with the IFRS, as adopted by the EU, and the additional re-
                    quirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB
                    (“Handelsgesetzbuch”: German Commercial Code) are the responsibility of the parent Com-
                    pany’s Board of Managing Directors. Our responsibility is to express an opinion on the con-
                    solidated financial statements and on the group management report based on our audit.
                       We conducted our audit of the consolidated financial statements in accordance with
                    § 317 HGB and German generally accepted standards for the audit of financial statements
                    promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany)
                    (IDW). Those standards require that we plan and perform the audit such that misstatements
                    materially affecting the presentation of the net assets, financial position and results of op-
                    erations in the consolidated financial statements in accordance with the applicable financial
                    reporting framework and in the group management report are detected with reasonable
                    assurance. Knowledge of the business activities and the economic and legal environment of
                    the Group and expectations as to possible misstatements are taken into account in the de-
                    termination of audit procedures. The effectiveness of the accounting-related internal control
                    system and the evidence supporting the disclosures in the consolidated financial state-
                    ments and the group management report are examined primarily on a test basis within the
                    framework of the audit. The audit includes assessing the annual financial statements of
                    those entities included in consolidation, the determination of the entities to be included in
                    consolidation, the accounting and consolidation principles used and significant estimates
                    made by the Company’s Board of Managing Directors, as well as evaluating the overall pres-
                    entation of the consolidated financial statements and the group management report. We
                    believe that our audit provides a reasonable basis for our opinion.
                       Our audit has not led to any reservations.
                       In our opinion based on the findings of our audit the consolidated financial statements
                    comply with the IFRS as adopted by the EU, and the additional requirements of German
                    commercial law pursuant to § 315a Abs. 1 HGB and give a true and fair view of the net as-
                    sets, financial position and results of operations of the Group in accordance with these
                    requirements. The group management report is consistent with the consolidated financial
                    statements and as a whole provides a suitable view of the Group’s position and suitably
                    presents the opportunities and risks of future development.”



                    Munich, February 7, 2008

                    PricewaterhouseCoopers
                    Aktiengesellschaft
                    Wirtschaftsprüfungsgesellschaft

                    Franz Wagner                         Petra Justenhoven
                    Wirtschaftsprüfer                    Wirtschaftsprüferin
                                                                                                                    171




Declaration of the AUDI AG Board of Management
on the 2007 Consolidated Financial Statements




                       The Board of Management of AUDI AG is responsible for the preparation of the Consolidated
                       Financial Statements and Group Management Report. Reporting is performed on the basis
                       of the International Financial Reporting Standards (IFRS) as applicable within the European
                       Union, and the interpretations of the International Financial Reporting Interpretations
                       Committee (IFRIC). The Group Management Report is prepared in accordance with the re-
                       quirements of the German Commercial Code. Under Section 315a of the German Commer-
                       cial Code, AUDI AG is obliged to prepare its Consolidated Financial Statements in accor-
                       dance with the requirements of the International Accounting Standards Board (IASB).
                           The regularity of the Consolidated Financial Statements and Group Management Report
                       is assured by means of internal controlling systems, the implementation of uniform guide-
                       lines throughout the Group, and employee training and advancement measures. Compliance
                       with the legal requirements and with internal Group guidelines, as well as the reliability and
                       functioning of the systems of controlling, are checked on an ongoing basis throughout the
                       Group. The early warning function required by law is achieved by means of a Group-wide
                       risk management system that enables the Board of Management to identify potential risks
                       at an early stage and initiate corrective action as necessary.
                          PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Munich,
                       has examined the Consolidated Financial Statements and Group Management Report in its
                       capacity as independent auditor, in accordance with the resolution of the Annual General
                       Meeting, and issued its unqualified certification as shown on the page opposite.
                           The Consolidated Financial Statements, the Group Management Report, the Audit Report
                       and the measures to be taken by the Board of Management for the prompt identification of
                       risks which could pose a threat to the Company’s survival were discussed at length by the
                       Supervisory Board in the presence of the auditors. The findings of this examination are indi-
                       cated in the Report of the Supervisory Board.
172



Consolidated Financial Statements of the Audi Group at December 31, 2007

Income Statement of the Audi Group
for the 2007 fiscal year




 EUR million                                          Notes        2007       2006


 Revenue                                                 1       33,617     31,142
 Cost of sales                                           2      – 28,478   – 27,309
 Gross profit                                                     5,139      3,833
 Distribution costs                                      3       – 2,737    – 2,164
 Administrative expenses                                 4        – 266      – 237
 Other operating income                                  5        1,266      1,051
 Other operating expenses                                6        – 697      – 468
 Profit from operating activities                                 2,705      2,015
 Result from investments accounted for using the
 equity method                                           7           47         17
 Finance cost                                            8
      Interest expense                                            – 153      – 128
      Interest on provisions                                       – 84      – 126
 Other financial results                                 9          400        168
 Financial result                                                   210       – 69
 Profit before tax                                                2,915      1,946
 Income tax expense                                     10       – 1,223     – 603
 Profit after tax                                                 1,692      1,343
      of which profit share of minority interests                    38          –
      of which profit share of AUDI AG stockholders               1,654      1,343


 Appropriation of profit share due to
 AUDI AG stockholders
      Profit transfer to Volkswagen AG                  11       – 1,412     – 856
      Transfer to retained earnings                                 242        487




 EUR                                                              2007        2006


 Earnings per share                                      12       38.46      31.24
 Diluted earnings per share                              12       38.46      31.24
                                                                                         173




Balance Sheet of the Audi Group
for the fiscal year ended December 31, 2007




 ASSETS EUR million                              Notes   Dec. 31, 2007   Dec. 31, 2006


 NON-CURRENT ASSETS                                             8,325           8,285
 Fixed assets                                                   7,379           7,536
    Intangible assets                              14           2,022           2,335
    Property, plant and equipment                  15           5,178           5,023
    Investment property                            16               9               9
    Investments accounted for using the equity
    method                                                        121             128
    Other long-term investments                    17              49              41
 Deferred tax assets                               18             660             636
 Other receivables and other financial assets      19             286             113
 CURRENT ASSETS                                                14,253          10,625
 Inventories                                       20           2,661           2,109
 Trade receivables                                 21           2,149           1,840
 Effective income tax assets                       22               5               7
 Other receivables and other financial assets      19           1,365             771
 Securities                                        23           1,333           1,014
 Cash and cash equivalents                         24           6,740           4,884
 BALANCE SHEET TOTAL                                           22,578          18,910




 EQUITY AND LIABILITIES EUR million              Notes   Dec. 31, 2007   Dec. 31, 2006


 EQUITY                                                         8,355           7,265
 Issued capital                                    25             110             110
 Capital reserve                                   25             911             483
 Retained earnings                                 25           7,291           6,672
 AUDI AG stockholders’ interests                   25           8,312           7,265
 Minority interests                                25              43               –
 LIABILITIES                                                   14,223          11,645
 Non-current liabilities                                        5,269           4,610
 Financial liabilities                             26               4               3
 Deferred tax liabilities                          27               5               7
 Other liabilities                                 28             288             201
 Provisions for pensions                           29           1,957           1,974
 Effective income tax obligations                  30             588             520
 Other provisions                                  31           2,427           1,905
 Current liabilities                                            8,954           7,035
 Financial liabilities                             26             527             210
 Trade payables                                    32           2,794           2,255
 Effective income tax obligations                  30             375             536
 Other liabilities                                 28           3,013           2,109
 Other provisions                                  31           2,245           1,925
 BALANCE SHEET TOTAL                                           22,578          18,910
174




Cash Flow Statement of the Audi Group
from January 1 to December 31, 2007




 EUR million                                                                   2007      2006


 Profit before profit transfer and taxation                                   2,915     1,946
 Income tax payments                                                         – 1,395    – 889
 Amortization of development expenditure recognized as an intangible
 asset                                                                          656       904
 Depreciation/amortization of and write-ups/write-downs on property, plant
 and equipment and other intangible assets                                    1,433     1,538
 Write-downs on long-term investments and goodwill amortization                 198        73
 Result from asset disposals                                                      1         3
 Result from investments accounted for using the equity method                    2      – 12
 Change in provisions                                                           597       961
 Change in inventories                                                        – 157      – 85
 Change in receivables                                                        – 349     – 425
 Change in liabilities                                                          961       425
 Other non-cash income and expenses                                              14      – 11
 Cash flow from operating activities                                          4,876     4,428
 Additions for development expenditure recognized as an intangible asset      – 497     – 625
 Investments in property, plant and equipment and other intangible assets    – 1,578   – 1,292
 Acquisition of affiliated companies and participating interests               – 44        –8
 Change in securities                                                         – 308     – 552
 Sale of shares                                                                   3        13
 Loans advanced                                                                – 27         0
 Proceeds arising from asset disposals                                           32        22
 Cash flow from investing activities                                         – 2,419   – 2,442
 Capital contributions                                                          433       231
 Transfer of profit                                                           – 856     – 462
 Change in financial liabilities and in credit extended                       – 157        30
 Lease payments                                                                  –2        –1
 Cash flow from financing activities                                          – 582     – 202
 Change in cash and cash equivalents from changes in the consolidated
 companies                                                                        8        –2
 Change in cash and cash equivalents from exchange-rate changes                – 27        –3
 Change in cash and cash equivalents                                          1,856     1,779
 Cash and cash equivalents at start of period                                 4,884     3,105
 Cash and cash equivalents at end of period                                   6,740     4,884




 EUR million                                                                   2007      2006


 Cash and cash equivalents                                                    6,740     4,884
 Securities and credit extended                                               1,651     1,050
 Gross liquidity                                                              8,391     5,934
 Credit outstanding                                                           – 531     – 214
 Net liquidity                                                                7,860     5,720
                                                                                                                         175




Statement of Changes in Equity of the Audi Group
for the 2007 fiscal year




 EUR million                                                                                             2007    2006


 Financial assets available for sale
    Fair value changes recognized directly in equity without affecting income                              33       4
    Included in the Income Statement                                                                      – 50      0
 Cash flow hedges
    Fair value changes recognized directly in equity without affecting income                             819     471
    Included in the Income Statement                                                                     – 298    – 19
 Currency translation differences                                                                           4     – 15
 Deferred tax items directly recognized in equity                                                        – 161   – 282
 Actuarial gains and losses from provisions for pensions                                                   51     284
 Income and expenditure after tax from investments included directly in equity accounted for using the
 equity method                                                                                            – 14      –
 Income and expense included directly in equity                                                           384     443
 Profit after tax                                                                                        1,692   1,343
 Total income and expense recognized in the fiscal year                                                  2,076   1,786
 Attributable to AUDI AG stockholders                                                                    2,038   1,786
 Attributable to minority interests                                                                        38       –
176




Notes to the Consolidated Financial Statements
of the Audi Group for the 2007 fiscal year




Development of fixed assets in the 2007 fiscal year


  EUR million                                  Gross carrying amounts


                                                                                                    Additions                             Disposals
                                                                                                         from                                  from
                                                               Changes                             accounting                            accounting
                                                                 in con-                             using the                             using the
                                                               solidated    Currency                    equity                                equity
                                                      Costs       group     changes    Additions      method     Transfers   Disposals      method
                                                Jan. 1, 2007
 Intangible assets                                    4,334             8         –         552             –           2       1,000             –
 Concessions, industrial property rights
 and similar rights and values, as well as
 licenses thereto                                       321             3         –          55             –           4          21             –
 Goodwill                                               172             5         –           –             –           –         177             –
 Development expenditure recognized as an
 intangible asset, products currently under
 development                                            883             –         –         322             –       – 562          31             –
 Development expenditure recognized as an
 intangible asset, products currently in use          2,956             –         –         175             –         562         771             –
 Payments on account for intangible assets                2             –         –           –             –          –2           –             –


 Property, plant and equipment                       16,200          58          –5       1,527             –          –2         499             –
 Land, land rights and buildings, including
 buildings on land owned by others and
 leased buildings                                     3,331          41          –4         101             –          54          66             –
 Plant and machinery                                  3,853             1         –         293             –         222         188             –
 Furniture, fixtures and office equipment,
 as well as leased furniture, fixtures and
 office equipment                                     8,438          16          –1         727             –         253         243             –
 Payments on account and assets
 under construction                                     578             –         –         406             –       – 531           2             –


 Investment property                                     13             –         –           –             –           –           –             –


 Investments accounted for
 using the equity method                                128             3        –4           –            47          –3           –            50


 Other long-term investments                            162             –         –          36             –           3          12             –
 Investments in affiliated companies                    151             –         –          36             –           3          12             –
 Participating interests                                 11             –         –           –             –           –           –             –


 Total fixed assets                                  20,837          69          –9       2,115            47           –       1,511            50
                                                                                                                                                           177




                Value adjustments in gross carrying amounts                                                                       Carrying amounts




                 Cumulative    Changes                                                                             Cumulative
                depreciation     in con-                            Additions,                                    depreciation
                        and    solidated   Currency   Additions,     unsched-                            Write-           and
       Costs    amortization       group   changes    scheduled           uled   Transfers   Disposals    ups     amortization
Dec. 31, 2007   Jan. 1, 2007                                                                                      Dec. 31, 2007   Dec. 31, 2007   Dec. 31, 2006
       3,896          1,999           3          –            493         379           –       1,000        –           1,874           2,022           2,335



         362            242           3          –             39           –           –          21        –             263              99              79
           –              –           –          –             –          177           –         177        –               –               –             172



         612             31           –          –             –          158        – 18          31        –             140             472             852


       2,922          1,726           –          –            454          44          18         771        –           1,471           1,451           1,230
           –              –           –          –             –            –           –           –        –               –               –               2


      17,279         11,177          11          –        1,169           225           –         481        –          12,101           5,178           5,023



       3,457          1,639           2          1            128           –           –          61        –           1,709           1,748           1,692
       4,181          2,799           1          –            331           –           –         186        –           2,945           1,236           1,054



       9,190          6,739           8         –1            710         225           –         234        –           7,447           1,743           1,699


         451              –           –          –             –            –           –           –        –               –             451             578


          13              4           –          –             0            –           –           –        –               4               9               9




         121              –           2          –             –            –          –2           –        –               –             121             128


         189            121           –          –             –           21           2           4        –             140              49              41
         178            119           –          –             –           21           2           4        –             138              40              32
          11              2           –          –             –            –           –           –        –               2               9               9


      21,498         13,301          16          –        1,662           625           –       1,485        –          14,119           7,379           7,536
178




Development of fixed assets in the 2006 fiscal year


  EUR million                                  Gross carrying amounts


                                                                                                    Additions                             Disposals
                                                                                                         from                                  from
                                                               Changes                             accounting                            accounting
                                                                 in con-                             using the                             using the
                                                               solidated    Currency                    equity                                equity
                                                      Costs       group     changes    Additions      method     Transfers   Disposals      method
                                                Jan. 1, 2006
 Intangible assets                                    4,139             –         –         661             –           9         475             –
 Concessions, industrial property rights
 and similar rights and values, as well as
 licenses thereto                                       287             –         –          35             –          10          11             –
 Goodwill                                               172             –         –           –             –           –           –             –
 Development expenditure recognized as an
 intangible asset, products currently under
 development                                            740             –         –         532             –       – 389           –             –
 Development expenditure recognized as an
 intangible asset, products currently in use          2,938             –         –          93             –         389         464             –
 Payments on account for intangible assets                2             –         –           1             –          –1           –             –


 Property, plant and equipment                       15,467             –        –2       1,256             –          –9         512             –
 Land, land rights and buildings, including
 buildings on land owned by others and
 leased buildings                                     3,248             –        –2          78             –          29          22             –
 Plant and machinery                                  3,910             –         –         152             –          85         294             –
 Furniture, fixtures and office equipment,
 as well as leased furniture, fixtures and
 office equipment                                     7,956             –         –         530             –         144         192             –
 Payments on account and assets under
 construction                                           353             –         –         496             –       – 267           4             –


 Investment property                                     14             –        –1           –             –           –           –             –


 Investments accounted for
 using the equity method                                121             –        –9           –            19           –           –             3


 Other long-term investments                            154             –         –           8             –           –           –             –
 Investments in affiliated companies                    143             –         –           8             –           –           –             –
 Participating interests                                 11             –         –           –             –           –           –             –


 Total fixed assets                                  19,895             –       – 12      1,925            19           –         987             3
                                                                                                                                                           179




                Value adjustments in gross carrying amounts                                                                       Carrying amounts




                 Cumulative     Changes                                                                            Cumulative
                depreciation      in con-                           Additions,                                    depreciation
                        and     solidated   Currency   Additions,    unsched-                            Write-           and
       Costs    amortization        group   changes    scheduled          uled   Transfers   Disposals    ups     amortization
Dec. 31, 2006    Jan. 1, 2006                                                                                     Dec. 31, 2006   Dec. 31, 2006   Dec. 31, 2005
       4,334           1,454           –          –           629         387           3         474        –           1,999           2,335           2,685



         321             138           –          –            62          50           3          11        –             242              79             149
         172               –           –          –            –            –           –           –        –               –             172             172



         883               1           –          –            –           31          –1           –        –              31             852             739


       2,956           1,315           –          –           567         306           1         463        –           1,726           1,230           1,623
           2               –           –          –            –            –           –           –        –               –               2               2


      16,200          10,246           –          –        1,266          160          –3         492        –          11,177           5,023           5,221



       3,331           1,546           –          –           115           –           –          22        –           1,639           1,692           1,702
       3,853           2,758           –          –           333           –           –         292        –           2,799           1,054           1,152



       8,438           5,942           –          –           818         160          –3         178        –           6,739           1,699           2,014


         578               –           –          –            –            –           –           –        –               –             578             353


          13               4           –          –            –            –           –           –        –               4               9              10




         128               –           –          –            –            –           –           –        –               –             128             121


         162              48           –          –            –           73           –           –        –             121              41             106
         151              46           –          –            –           73           –           –        –             119              32              97
          11               2           –          –            –            –           –           –        –               2               9               9


      20,837          11,752           –          –        1,895          620           –         966        –          13,301           7,536           8,143
180




General information

                        AUDI AG has the legal form of a German stock corporation (Aktiengesellschaft). Its regis-
                        tered office is on Ettinger Strasse, Ingolstadt, and is on file in the Commercial Register in
                        Ingolstadt under HR B 1.
                            Around 99 percent of the issued capital of AUDI AG is held by Volkswagen AG, of
                        Wolfsburg, with which a control and profit transfer agreement is in force. The Consolidated
                        Financial Statements of AUDI AG are included in the consolidated financial statements of
                        Volkswagen AG, which are on file at the Local Court of Wolfsburg. The purpose of the Com-
                        pany is the development, production and sale of motor vehicles, other vehicles and engines
                        of all kinds, together with their accessories, as well as machinery, tools and other technical
                        articles.


Accounting principles   AUDI AG prepares its Consolidated Financial Statements on the basis of the International
                        Financial Reporting Standards (IFRS) and the interpretations of the International Financial
                        Reporting Interpretations Committee (IFRIC). All pronouncements of the International Ac-
                        counting Standards Board (IASB) whose application is mandatory have been observed. The
                        prior-year figures have been calculated according to the same principles.
                           The Income Statement is prepared according to the internationally practiced cost of
                        sales method.
                            AUDI AG prepares its Consolidated Financial Statements in euros (EUR).
                            The Consolidated Financial Statements provide a true and fair view of the financial per-
                        formance and financial position of the Audi Group.
                           The requirements pursuant to Section 315a of the German Commercial Code (HGB) re-
                        garding the preparation of consolidated financial statements in accordance with IFRS, as
                        endorsed by the EU, are met.
                           All requirements that must be applied under German commercial law are additionally
                        observed in preparing the Consolidated Financial Statements. The German Corporate Gov-
                        ernance Code is additionally complied with and is permanently available on the Internet at
                        www.audi.com/cgk-declaration.


                        Effects of new or revised standards
                        The Audi Group applied IFRS 7 (Financial Instruments: Disclosures) for the first time in fiscal
                        2007 and therefore applied the associated amendment to IAS 1 (Presentation of Financial
                        Statements). IFRS 7 creates extensive disclosure standards for financial instruments. IAS 1
                        furthermore requires additional disclosures on capital management. The new requirements
                        to be applied do not have any impact on the classification or measurement of financial as-
                        sets or liabilities.

                        Observance of the following interpretations moreover became mandatory for the first time
                        during the current fiscal year:
                        – IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperin-
                            flationary Economies
                        –   IFRIC 8 Scope of IFRS 2
                        –   IFRIC 9 Reassessment of Embedded Derivatives
                        –   IFRIC 10 Interim Financial Reporting and Impairment
                        –   IFRIC 11 Group and Treasury Share Transactions in accordance with IFRS 2

                        The initial application of the interpretations had no effect or no material effect on the dis-
                        closures made in the Consolidated Financial Statements.
                                                                                                                                          181




                                         In accordance with the specifications of IAS 8 and in conjunction with the transitional
                                      provisions of IFRS 2, the application of IFRIC 11 (IFRS 2 Group and Treasury Share Transac-
                                      tions) was implemented in advance of the requirement.


                                      New or revised standards not applied
                                      The following new or amended accounting standards already approved by the IASB were
                                      not applied in the Consolidated Financial Statements for the 2007 fiscal year because their
                                      application was not yet mandatory:


  Standard/                                                                Mandatory      Endorsed by             Anticipated effects
  Interpretation                                                            effective            EU*


 IFRS 8             Operating Segments                                    Jan. 1, 2009            Yes             Segment reporting
                                                                                                          Reclassification of financial
 IAS 1              Presentation of Financial Statements                  Jan. 1, 2009            No          statement components
                                                                                                                 Increase in carrying
 IAS 23             Borrowing Costs                                       Jan. 1, 2009            No      amount of qualifying assets
 IFRIC 12           Service Concession Arrangements                       Jan. 1, 2008            No                             None
 IFRIC 13           Customer Loyalty Programs                             July 1, 2008            No                             None
                    The Limit on a Defined Benefit Asset, Minimum
 IFRIC 14           Funding Requirements and their Interaction            Jan. 1, 2008            No                    No significant

* as of December 31, 2007




The Group                             In addition to AUDI AG, the Consolidated Financial Statements include all principal compa-
                                      nies in which AUDI AG can directly or indirectly determine the financial and business policy
                                      in order to benefit from the activities of the companies (subsidiaries) in question. Consolida-
                                      tion begins at that point in time at which it acquires the opportunity for control; it ends
                                      when that opportunity ceases to be available.
                                         Associated companies are accounted for using the equity method.
                                         Subsidiaries excluded from consolidation and participating interests are always reported
                                      at their cost of acquisition, because no active market exists for the shares of these compa-
                                      nies and no fair value can reliably be determined with a justifiable amount of effort. These
                                      subsidiaries are substantially dormant companies or companies with only limited business
                                      operations.
                                        The following companies have been consolidated since December 31, 2006:
                                      VOLKSWAGEN GROUP FIRENZE S.P.A., which was established in September 2006; Audi Retail
                                      GmbH, which was established at the end of 2006; Audi Zentrum Hannover GmbH, which was
                                      acquired as of January 1, 2007; as well as Audi of America, LLC and Audi Canada Inc., which
                                      were established as of January 1, 2007, and had to be consolidated in order to satisfy the
                                      requirements of IAS 27.13, Sentence 2.
182




      The following table shows the composition of the Audi Group:


        Total                                                                2007             2006


        AUDI AG and fully consolidated subsidiaries
           Germany                                                               5                  3
           Other countries                                                     15               12
        Investments accounted for using the equity method
           Other countries                                                       1                  2
        Subsidiaries reported at cost of purchase and other associated
        companies
           Germany                                                             16               10
           Other countries                                                     12                   7
        Total                                                                  49               34



      The principal companies within the Audi Group are listed following the Notes. A list of all
      companies in which shares are held is published on the Audi website under
      www.audi.com/subsidiaries and is also available at www.unternehmensregister.de. This list
      can additionally be requested directly from AUDI AG, Finance Analysis and Publications
      I/FF-12, 85045 Ingolstadt, Germany.
        Due to their inclusion in Audi’s Consolidated Financial Statements, quattro GmbH,
      Neckarsulm, Audi Retail GmbH, of Ingolstadt, and Audi Vertriebsbetreuungsgesellschaft mbH,
      of Ingolstadt, satisfy the conditions of Section 264, Para. 3, of the German Commercial Code
      and make use of the exemption rule.


      Participating interests in associated companies
      As of the balance sheet date of December 31, 2007, FAW-Volkswagen Automotive Company,
      Ltd., of Changchun, China, in which an interest of 10 percent is held, was the only company
      accounted for using the equity method following the removal of YANASE Audi Sales Com-
      pany Ltd. from consolidation during the year under review now that all of its shares have
      been acquired by Audi Japan K.K. The company, which was renamed Audi Japan Sales K.K.
      following the takeover, has since been reported at amortized cost.
          On the basis of the interests in the associated companies, the following values are at-
      tributable to the Audi Group:


        EUR million                                                          2007             2006


        Non-current assets                                                    115              146
        Current assets                                                        194              136
        Non-current liabilities                                               126              156
        Current liabilities                                                   183              122
        Income                                                                596              544
        Net profit                                                             48               17
                                                                                                                           183




Principal influences of
                              EUR million                                                      Audi of    Audi Canada
changes to the group on                                                                   America, LLC            Inc.
the opening balance sheet
for 2007                      Non-current assets                                                   143              13
                              Current assets                                                       538              72
                                 of which inventories                                              357              46
                              Equity                                                                 4               1
                              Non-current liabilities                                              101              18
                              Current liabilities                                                  576              66
                              Balance sheet total                                                  681              85



                            The effect on the opening balance sheet of the other companies included in the consolida-
                            tion for the first time (Audi Zentrum Hannover GmbH, Audi Retail GmbH and VOLKSWAGEN
                            GROUP FIRENZE S.P.A.) amounts to EUR 23 million. The carrying amounts correspond to the
                            fair values.
                                The first-time consolidation of VOLKSWAGEN GROUP FIRENZE S.P.A. increased revenue
                            marginally in the 2007 fiscal year by EUR 29 million. Similarly the inclusion of the company
                            had only minor impact on consolidated net profit.
                               In connection with the initial consolidation as of January 1, 2007 of Audi Zentrum Han-
                            nover GmbH, following its acquisition from Volkswagen Retail GmbH, and the inclusion of
                            Audi of America, LLC and Audi Canada Inc. in the Consolidated Financial Statements pursu-
                            ant to IAS 27.13, Sentence 2, the predecessor method was applied for the first time within
                            the Audi Group. Revenue in the prior-year period of 2006 would have been EUR 21 million
                            higher if Audi Zentrum Hannover GmbH had been included.


Consolidation principles    The assets and liabilities of the domestic and foreign companies included in the Consoli-
                            dated Financial Statements are accounted for in accordance with the standard accounting
                            policies of the Audi Group.
                                In the case of subsidiaries that are being consolidated for the first time, the assets and
                            liabilities are to be measured at their fair value at the time of acquisition. Thus, differences
                            between pre-acquisition carrying amounts and fair values of assets acquired and liabilities
                            assumed are carried, depreciated or dissolved in accordance with the corresponding assets
                            and liabilities. If the purchase prices of the shares exceed the Group’s interest in the equity
                            calculated in this manner for the individual company, goodwill arises. Goodwill acquired in a
                            business combination is tested for impairment regularly, at the balance sheet date, and an
                            impairment loss recognized if necessary.
                                The predecessor method was applied within the Audi Group in fiscal 2007 for common
                            control transactions. Under this method, the assets and liabilities of the acquiree are meas-
                            ured at the gross carrying amounts of the previous parent company. The predecessor
                            method thus means that no adjustment to the fair value of the acquired assets and liabilities
                            is performed at the time of acquisition; any goodwill arising during initial consolidation is
                            adjusted against equity, with no effect on income.
                                The Consolidated Financial Statements furthermore include securities funds whose as-
                            sets are attributable in substance to the Group.
                                Receivables and liabilities between consolidated companies are netted, and expenses
                            and income eliminated. Intra-group profits and losses are eliminated from Group inventories
                            and fixed assets.
184




                                          Consolidation processes affecting income are subject to deferrals of income taxes, with
                                      deferred tax assets and liabilities being offset where the term and tax creditor coincide.
                                          The same accounting policies for determining the pro rata equity are applied to Audi
                                      Group investments accounted for using the equity method. The last set of audited accounts
                                      of the company in question serves as the basis for this purpose.


Currency translation                  The currency of the Audi Group is the euro (EUR).
                                         Foreign currency transactions in the separate financial statements of AUDI AG and its
                                      subsidiaries are translated at the prevailing exchange rate on the date of the transaction.
                                      Monetary items in foreign currency are reported as of the balance sheet date on the basis of
                                      the exchange rate prevailing on that date. Exchange differences are recognized in the cur-
                                      rent-period income statements of the respective Group companies.
                                         The foreign companies belonging to the Audi Group are foreign entities which prepare
                                      their financial statements in their local currency. The only exceptions are AUDI HUNGARIA
                                      MOTOR Kft. and Audi Volkswagen Middle East FZE, which prepare their annual financial
                                      statements in euros and U.S. dollars, respectively, rather than in local currency. The concept
                                      of the “functional currency” is applied when translating financial statements prepared in
                                      foreign currency. Assets and liabilities, with the exception of equity, are translated at the
                                      closing rate. The effects of foreign currency translation on equity are reported in the cur-
                                      rency exchange reserve with no effect on income. The items in the Income Statement are
                                      translated using weighted average monthly rates. Currency translation variances arising
                                      from the differing exchange rates used in the Balance Sheet and Income Statement are
                                      recorded in equity, with no effect on income.
                                         The development of the exchange rates serving as the basis for currency translation is
                                      shown below:


 1 EUR in units of foreign currency                                    Dec. 31, 2007   Dec. 31, 2006           2007             2006


                                                                       Closing rate                    Average rate
 Australia                                                     AUD            1.6757          1.6691          1.6356          1.6667
 Brazil                                                         BRL           2.6145          2.8152          2.6632          2.7336
 Canada                                                         CAD           1.4449          1.5281          1.4690          1.4242
 People’s Republic of China                                     CNY         10.7524         10.2793          10.4186         10.0082
 Japan                                                          JPY        164.9300        156.9300        161.2406         146.0624
 South Korea                                                   KRW        1,377.9600      1,224.8100      1,273.3329       1,198.1480
 United States                                                  USD           1.4721          1.3170          1.3706          1.2557



                                      As all consolidated subsidiaries have their registered offices in countries in which there is
                                      currently no hyperinflation, IAS 29 does not apply.


Recognition and measurement principles


Recognition of income                 Revenue, interest income and other operating income are always recorded as the services
and expenses                          are rendered or the goods or products are delivered, in other words upon passage of risk to
                                      the customer.
                                         Proceeds from the sale of vehicles for which buy-back agreements exist are not realized
                                      immediately, but on a linear basis over the rental period, on the basis of the difference be-
                                      tween the selling price and the anticipated buy-back price. These vehicles are reported un-
                                      der inventories.
                                                                                                                        185




                         Operating expenses are recognized when the service is rendered or at the time they are
                      incurred economically.


Intangible assets     Intangible assets acquired for consideration are recognized at cost of purchase, taking into
                      account ancillary costs and cost reductions, and are amortized on a scheduled straight-line
                      basis over their useful life.
                         Concessions, rights and licenses relate to purchased computer software and subsidies
                      paid.
                         Research costs are treated as current expenses in accordance with IAS 38. The develop-
                      ment expenditure for products going into production is recognized as an intangible asset,
                      provided that production of these products is likely to bring economic benefit to the Audi
                      Group. If the conditions stated in IAS 38 for recognition as an intangible asset are not met,
                      the expenditure is expensed in the Income Statement in the year in which it occurs.
                         Development expenditure recognized as an intangible asset comprises all direct costs
                      and overheads directly attributable to the development process. Borrowing costs are not
                      capitalized. Amortization is performed on a straight-line basis from the start of production,
                      over the anticipated model life of the developed products.
                         The amortization plan is based principally on the following useful lives:


                                                                                                          Useful life


                        Concessions, industrial property rights and similar rights and values            3–15 years
                           of which software                                                                 3 years
                        Development expenditure recognized as an intangible asset                        5–10 years



                      The amortization is allocated to the corresponding functional areas.
                         Goodwill created or acquired in a business combination is recognized and tested for im-
                      pairment regularly, as of the balance sheet date, pursuant to IAS 36. If necessary, an im-
                      pairment loss resulting from this test is recognized.


Property, plant and   Property, plant and equipment are measured at cost, with straight-line depreciation being
equipment             applied according to the pro rata temporis method.
                         The costs of purchase include the purchase price, ancillary costs and cost reductions.
                         In the case of self-constructed fixed assets, the cost of construction includes both the di-
                      rectly attributable cost of materials and cost of labor as well as indirect materials and indi-
                      rect labor, which must be capitalized, together with pro rata depreciation. Interest on bor-
                      rowings is not included.
186




                            The depreciation plan is based on the following useful lives, which are reassessed yearly:


                                                                                                               Useful life


                              Buildings                                                                       14–33 years
                              Plant fixtures                                                                  10–33 years
                              Plant and machinery                                                              6–12 years
                              Furniture and fixtures, including special tools                                  3–15 years



                            In accordance with IAS 17, property, plant and equipment used on the basis of lease agree-
                            ments is recognized in the Balance Sheet if the conditions of a finance lease are met; in
                            other words if the significant risks and opportunities which result from its use have passed
                            to the lessee. Recognition is performed at the time of the agreement, at the lower of cost or
                            the present value of the minimum lease payments. The straight-line depreciation method is
                            based on the shorter of economic life or the term of the lease contract. The payment obliga-
                            tions resulting from the future lease installments are recognized as a liability at the present
                            value of the leasing installments.
                                Where Group companies have entered into operating leases as the lessee, in other words
                            if not all risks and opportunities associated with title have passed to them, leasing install-
                            ments and rents are expensed directly in the Income Statement.


Investment property         Investment property is measured at amortized cost. Buildings are depreciated on a straight-
                            line basis over a useful life of 33 years.


Investments accounted for   Companies in which AUDI AG is directly or indirectly able to exercise significant influence on
using the equity method     financial and operating policy decisions (associated companies) are accounted for using the
                            equity method. The pro rata equity of these companies is regularly recorded under long-
                            term investments and the share of earnings recorded as income under the financial result.


Impairment tests            Fixed assets are tested regularly for impairment as of the balance sheet date. To test for
                            impairment, anticipated future cash flows are discounted at risk-appropriate, country-
                            specific rates of at least 9 percent.
                                Impairment loss pursuant to IAS 36 is recognized where the recoverable amount from the
                            use or disposal of the asset in question has declined below its carrying amount.
                                Within the Audi Group, the value in use of the cash-generating unit in question, deter-
                            mined according to the entity method, is used in assessing impairment of goodwill. The
                            planning data are compiled on the basis of available knowledge and are influenced by the
                            prevailing macroeconomic developments, as well as by past developments. The planning
                            horizon extends over a period of five years. Plausible assumptions on future developments
                            are made for subsequent years.
                                The impairment test for development work recognized as an intangible asset and for
                            property, plant and equipment is based on current market factors, currency-specific aspects
                            and the prevailing cost situation, with anticipated future cash flows being discounted at a
                            risk-appropriate rate of 9 percent before tax.
                                                                                                                          187




                           If the reasons for impairment performed in previous years cease to apply, impairment
                        losses are reversed. Goodwill impairment, however, remains unchanged pursuant to IAS 36.


Financial instruments   The scope of IAS 39 comprises financial assets and financial liabilities (financial instru-
                        ments).
                           Financial assets are categorized as follows:
                           – financial assets at fair value through profit or loss,
                           – loans and receivables,
                           – held-to-maturity investments,
                           – available-for-sale financial assets.
                           Financial liabilities are classified into the following categories:
                           – financial liabilities at fair value through profit or loss,
                           – financial liabilities measured at amortized cost.
                           Where financial instruments are purchased or sold in the customary manner, they are
                        recognized using settlement date accounting, in other words at the value on the day on
                        which the asset is delivered. Initial measurement of financial assets and liabilities is funda-
                        mentally at market value. The subsequent measurement of financial instruments depends
                        on their category, in accordance with the requirements of IAS 39.
                            The classification depends on the respective purpose for which a financial instrument
                        has been acquired, and is reassessed as of each balance sheet date. No financial assets in
                        the category of “held-to-maturity investments” are in use within the Audi Group.
                            Financial assets include both originated instruments and derivative instruments. Deriva-
                        tive financial instruments are used as a hedge for items on the Balance Sheet and for future
                        cash flows.
                            Where hedging instruments used for currency or price hedging purposes according to
                        business administration criteria do not fully satisfy the special eligibility requirements of IAS
                        39, they are classified as “financial instruments at fair value through profit or loss.”
                            Only originated financial instruments are contained in the “available-for-sale” financial
                        assets.
                            Financial instruments are reported at amortized cost (using the effective interest method)
                        or at fair value. They are abandoned if the rights to payments from the investment have
                        expired or been transferred and the Audi Group has in essence transferred all risks and
                        opportunities associated with their title.
                            The amortized cost of a financial asset or financial liability, using the effective interest
                        method, is the amount at which the financial asset or liability was measured at initial recog-
                        nition minus principal repayments and any impairment losses. Receivables and liabilities
                        denominated in foreign currencies are measured at the average rate on the balance sheet
                        date. In the case of liabilities, amortized costs always correspond to the nominal or settle-
                        ment value.
                           Fair value generally corresponds to the market value or trading price. If no active market
                        exists, fair value is determined using investment mathematics methods, for example by
                        discounting future cash flows at the market rate or applying established option pricing
                        models.
188




         At each balance sheet date an assessment is made as to whether there is any objective
      basis for impairment of a financial asset or group of financial assets.


      Originated financial instruments
      Investments in subsidiaries excluded from consolidation and in participating interests are
      generally shown at their respective cost of purchase, because no active market exists for
      these companies and no fair value can reliably be determined with a justifiable amount of
      effort. Where there is evidence that the fair value is lower, this fair value is reported.
         Loans and receivables originated by the enterprise, as well as liabilities, are measured at
      amortized cost. These include, in particular
         – loans advanced,
         – trade receivables and payables,
         – other current assets and liabilities,
         – financial liabilities.
         In the case of current items, the fair values to be additionally indicated in the Notes cor-
      respond to the amortized cost. For non-current assets and liabilities with more than one
      year to maturity, fair values are determined by discounting future cash flows at market
      rates.
         Liabilities from financial lease agreements are carried at the present value of the leasing
      installments.
        Available-for-sale financial assets include, in particular, cash pool deposits at affiliated
      companies and securities. These are fundamentally measured at the fair value that corre-
      sponds to the market value on the balance sheet date in the case of listed financial instru-
      ments. The fluctuations in value of available-for-sale securities are accounted for within a
      separate equity reserve with no effect on income, after taking into account deferred tax.
      Unless there is evidence of lasting impairment, the financial result includes only capital
      gains or losses. If there is evidence of a lasting decline in value, the cumulative loss is re-
      corded in the equity reserve and recognized in the Income Statement. Once impairment
      losses have been included in the Income Statement they are, however, no longer reversed
      by recognition in the Income Statement. In the 2007 fiscal year – as in previous years – there
      was no evidence of lasting impairment of the securities portfolio.


      Derivative financial instruments and hedge accounting
      Derivative financial instruments are used as a hedge against foreign exchange and raw ma-
      terials price risks for items on the Balance Sheet and for future cash flows. Futures, as well
      as options in the case of foreign exchange risks, are used for this purpose. A requirement of
      hedge accounting is that a clear hedging relationship between the underlying transaction
      and the hedge must be documented and its effectiveness must be demonstrated. How the
      fair value changes in hedges are accounted depends on the nature of the hedging relation-
      ship.
          In the case of hedges against the risk of changes in value of balance sheet items (fair
      value hedges), both the hedging transaction and the hedged risk portion of the underlying
      transaction are recognized at fair value. Changes in the value of hedging and underlying
      transactions are included in the financial result.
         When hedging future cash flows, the fluctuations in the market value of the effective por-
      tion of a derivative financial instrument are initially reported in a special reserve within eq-
      uity, with no effect on income, and are only recognized as income or expense once the
      hedged item is due. The ineffective portion of a hedge is recognized immediately in income.
                                                                                                                           189




                           Derivative financial instruments that serve currency or price hedging purposes according
                        to business administration criteria but do not satisfy the strict criteria of IAS 39 are meas-
                        ured at fair value through profit or loss.


Other receivables and   Other receivables and financial assets (except for derivatives) are recognized at amortized
financial assets        cost. Provision is made for discernible non-recurring risks and general credit risks in the
                        form of corresponding value adjustments.


Deferred tax            Pursuant to IAS 12, deferred tax is determined according to the balance sheet-focused liabil-
                        ity method. This method specifies that tax deferrals are to be created for all temporary dif-
                        ferences between the tax base of assets and liabilities and their carrying amounts in the
                        Consolidated Financial Statements (temporary concept). Deferred tax assets relating to
                        carryforward of unused tax losses must additionally be recognized.
                           Deferrals amounting to the anticipated tax burden or tax relief in subsequent fiscal years
                        are created on the basis of the anticipated tax rate at the time of realization. In accordance
                        with IAS 12, the tax consequences of distributions of profit are not recognized until the
                        resolution on the appropriation of profits is adopted.
                           Deferred tax assets include future tax relief resulting from temporary differences be-
                        tween the carrying amounts in the Consolidated Balance Sheet and the valuations in the
                        Balance Sheet for tax purposes. Deferred tax assets for carrying forward unused tax losses
                        that can be realized in the future and from tax relief must also be recognized.
                            Deferred tax assets and deferred tax liabilities are netted if the tax creditors and maturi-
                        ties are identical.
                            Pursuant to IAS 1.70, deferred tax is reported as non-current.
                            The carrying amount is reduced for deferred tax assets which are unlikely to be realized.


Inventories             Raw materials and supplies are measured at the lower of average cost of acquisition or net
                        realizable value (net selling price). Other costs of purchase and purchase cost reductions are
                        taken into account as appropriate.
                           Work in progress and finished goods are valued at the lower of cost of conversion or net
                        realizable value. Cost of conversion includes direct materials and direct labor, as well as a
                        directly attributable portion of the necessary indirect materials and indirect labor, produc-
                        tion-related depreciation and expenses attributable to the products from the amortization of
                        production development expenditure recognized as an intangible asset. Distribution costs,
                        administrative expenses and interest on borrowings are not capitalized.
                           Merchandise is valued at the lower of cost of purchase or net realizable value.
                            Provision has been made for all discernible storage and inventory risks in the form of ap-
                        propriate write-downs. Individual downward valuation adjustments are made on all invento-
                        ries as soon as the probable proceeds from their sale or use are lower than the carrying
                        amounts of the inventories. The estimated selling price less the estimated costs incurred up
                        until their sale is regarded as the net realizable value of inventories.


Securities, cash and    Securities held as current assets are measured at market value, i.e. at the trading price on
cash equivalents        the balance sheet date.
                           Cash and cash equivalents are stated at their market value, which corresponds to the
                        nominal value.
190




Provisions for pensions   Actuarial measurement of provisions for pensions is based on the Projected Unit Credit
                          Method for defined retirement benefit plans as specified in IAS 19 (Employee Benefits). This
                          method takes into account pensions and entitlements to future pensions known at the bal-
                          ance sheet date as well as anticipated future pay and pension increases.
                             Actuarial gains and losses are reported in a separate line item within equity, with no ef-
                          fect on income, after taking deferred tax into account.


Other provisions          In accordance with IAS 37, provisions are recognized if an obligation existing toward third
                          parties is likely to lead to cash outflows and where the amount of the obligation can reliably
                          be estimated.
                              Pursuant to IAS 37, the other provisions for all discernible risks and uncertain liabilities
                          are reported at their probable cost and are not offset against recourse entitlements.
                             Provisions with over one year to maturity are measured at their discounted settlement
                          value as of the balance sheet date. Market rates are used as the discount rates. Since the
                          settlement value pursuant to IAS 37 also includes the cost increases to be taken into ac-
                          count on the balance sheet date, a nominal interest rate of 5.2 percent was applied in
                          Germany.


Management’s estimates    To some degree, the preparation of the Consolidated Financial Statements involves making
and assessments           assumptions and estimates with regard to the level and disclosure of the recognized assets
                          and liabilities, income and expenditure, and contingent liabilities for the reporting period.
                             The assumptions and estimates relate principally to the reporting and measurement of
                          intangible assets, the Group-wide determination of the useful life of property, plant and
                          equipment and investment property, the collectability of receivables and the recognition
                          and measurement of provisions.
                             The assumptions and estimates are based on premises that reflect the facts as known at
                          any given time. In particular, the circumstances at the time of preparation of the Consoli-
                          dated Financial Statements and the development of the global and industry environment
                          deemed to be realistic were utilized as the basis with regard to anticipated future business
                          developments. Developments in this underlying situation that deviate from the assumptions
                          and are beyond management’s sphere of influence may mean that the actual amounts will
                          differ from the estimates originally anticipated. If the actual development varies from the
                          anticipated development, the premises and, if necessary, carrying amounts for the assets
                          and liabilities in question are adjusted accordingly.
                              At the time of the preparation of the Consolidated Financial Statements, the underlying
                          assumptions and estimates were not subject to any significant risks. As matters stand,
                          therefore, no significant adjustment to the carrying amounts for the assets and liabilities
                          stated in the Consolidated Financial Statements is expected in the following fiscal year.
                             The assumptions utilized as the basis for management’s estimates and assessments are
                          explained in the “Report on expected developments” in the Management Report.
                                                                                                                             191




Notes to the Consolidated Income Statement

                         1   Revenue

                             The composition of the revenue of the Group, by brand, is as follows:


                                EUR million                                                          2007           2006


                                Audi brand                                                        25,249           23,404
                                Lamborghini brand                                                     404            322
                                Volkswagen brand                                                     2,802          2,772
                                SEAT brand                                                            369            374
                                Škoda brand                                                           221            193
                                Bentley brand                                                          15              3
                                Total revenue from vehicles                                       29,060           27,068
                                Other sales                                                          4,557          4,074
                                Total revenue                                                     33,617           31,142



                             Revenue is categorized by region for the purpose of segment reporting, analogously to the
                             system used for internal Group steering and reporting.
                                Other sales constitute goods and services supplied to affiliated companies and sales to
                             third parties.


                         2   Cost of sales

                             Amounting to EUR 28,478 (27,309) million, cost of sales comprises the costs incurred in
                             generating revenue and purchase prices in trading transactions. This item also includes
                             expenses resulting from the formation of provisions for warranty costs, for development
                             expenditure which cannot be capitalized, for amortization of development expenditure rec-
                             ognized as an intangible asset, and for property, plant and equipment for manufacturing
                             purposes.
                                Cost of sales rose at a disproportionately lower rate than revenue in 2007. Cost of sales
                             included EUR 427 (547) million in impairment losses on intangible assets and property, plant
                             and equipment. The impairment losses were calculated on the basis of updated impairment
                             tests with particular account being given to the exchange rate of the euro as well as to mar-
                             ket risks.


                         3   Distribution costs

                             Distribution costs of EUR 2,737 (2,164) million substantially comprise labor and materials
                             costs for marketing and sales promotion, advertising, public relations activities and outward
                             freight, as well as depreciation attributable to the sales organization.
                                 The rise in distribution costs essentially relates to the initial consolidation of further
                             sales subsidiaries within the Audi Group.


                         4   Administrative expenses

                             Administrative expenses of EUR 266 (237) million include labor and materials costs, as well
                             as depreciation attributable to administrative operations.
192




      5   Other operating income


            EUR million                                                           2007            2006


            Income from rebilling                                                  402             324
            Income from derivative hedging transactions                            359              87
            Income from the reversal of provisions and accruals                    142             326
            Income from ancillary business                                         107              88
            Income from the processing of payments in foreign currency              56              54
            Income arising from asset disposals                                      8               8
            Income from the reversal of reductions for impairment on
            receivables and other assets                                             7              13
            Miscellaneous operating income                                         185             151
            Total other operating income                                         1,266           1,051



          Income from ancillary business includes rental income from investment property in the
          amount of EUR 2 (2) million.
            Income from the processing of payments in foreign currency substantially comprises
          gains resulting from exchange-rate movements between the dates of output and payment,
          as well as exchange-rate gains resulting from measurement at the average rate on the clos-
          ing date. Similarly, exchange rate losses are reported under other operating expenses.
             The overall line item for hedging instruments is shown under “Other particulars” (Note 35).


      6   Other operating expenses


            EUR million                                                           2007            2006


            Expense from derivative hedging transactions                           230             174
            Expense from the processing of payments in foreign currency             91              72
            Expense from the allocation of costs and rebilling                      58              57
            Impairment losses on receivables                                        14              10
            Losses arising from asset disposals                                     11              22
            Miscellaneous operating expenses                                       293             133
            Total other operating expenses                                         697             468



          Losses arising from disposals of assets include expenses from disposals of development
          expenditure recognized as an intangible asset as well as of property, plant and equipment.
             Miscellaneous operating expenses include amortization of goodwill for two European-
          based subsidiaries in the amount of EUR 177 million (Note 14).
             The overall line item for hedging instruments is shown under “Other particulars” (Note 35).
                                                                                                      193




7   Result from investments accounted for using the equity method


      EUR million                                                            2007            2006


      Income from investments accounted for using the equity method            48               18
      Expense from investments accounted for using the equity method          –1               –1
      Result from investments accounted for using the equity method            47               17



8   Finance cost


      EUR million                                                            2007            2006


      Interest and similar expenses                                         – 153            – 128
         of which to affiliated companies                                   – 152            – 122
      Interest expense                                                      – 153            – 128
      Interest effect from the measurement of provisions for pensions        – 87             – 91
      Interest effect from the measurement of other provisions                  3             – 35
      Interest on provisions                                                 – 84            – 126



    Interest income and expense are attributed on an accrual basis.
        The positive interest effect in fiscal 2007 from the measurement of other provisions was
    attributable to a rise in the discount rate following a rise in the domestic interest rate, and
    to changed maturities.


9   Other financial results


      EUR million                                                            2007            2006


      Investment result                                                         5             – 35
         Income from investments in affiliated companies                       28               23
         Income from profit transfer agreements                                 5                5
         Expense from the transfer of losses                                  –7                 –
         Expense from investments in affiliated companies                    – 21             – 63
      Income from the sale of securities                                       33                7
      Expense from the sale of securities                                    – 20              –5
      Income from the measurement of commodity futures                         36               23
      Expense from the measurement of commodity futures                         –              –9
      Interest and similar income                                             346              187
         of which from affiliated companies                                   268              134
      Total other financial results                                           400              168



    Income from investments in affiliated companies primarily relates to a share in the profits of
    Volkswagen Logistics GmbH & Co. OHG, of Wolfsburg.
       The overall line item of hedging instruments is shown under “Other particulars” (Note 35).
       Interest income is attributed on an accrual basis.
194




      10   Income tax expense

           Income tax expense includes taxes passed on by Volkswagen AG on the basis of the single-
           entity relationship between the two companies for tax purposes, along with taxes owed by
           AUDI AG and its consolidated subsidiaries, as well as deferred taxes.
              Tax expense consists of the following:


             EUR million                                                             2007            2006


             Current income tax expense                                             1,355            1,207
                of which for Germany                                                1,194            1,119
                of which for other countries                                          161               88
                of which income from the reversal of tax provisions                   –1                    0
             Deferred tax income                                                    – 132            – 604
                of which for Germany                                                 – 99            – 614
                of which for other countries                                         – 33               10
             Total income tax expense                                               1,223             603
                of which non-periodic tax income                                      –1             – 138
                of which deferred tax expense from the measurement of tax
                relief and loss carryforwards                                           –               86



           EUR 1,193 (1,118) million of the current tax expense was passed on by Volkswagen AG.
              The current taxes in Germany are calculated at a tax rate of 38.3 (38.3) percent. This
           represents the sum of the corporate income tax rate of 25.0 percent, the solidarity surcharge
           of 5.5 percent and the average trade earnings tax rate for the Group. Deferred taxes are
           calculated at the rate of 29.5 (38.3) percent. The reduction in the tax rate was the result of
           the German Corporation Tax Reform Act of 2008.
              The national income tax rates applicable for foreign companies range from 0 percent to
           41 percent.
              The effects arising as a result of the tax benefits on research and development expendi-
           ture in Hungary are reported under tax-exempt income in the reconciliation accounts.
               There are loss carryforwards totaling EUR 61 million, of which the amount of EUR 58 mil-
           lion can be used indefinitely. The realization of tax losses resulted in a reduction of EUR 19
           (20) million in current income tax expense in the 2007 fiscal year. Deferred tax assets total-
           ing EUR 164 million were not carried for reasons of impairment. Unused tax loss carryfor-
           wards accounted for EUR 2 million of this amount, tax rebates for EUR 162 million.
               Deferred tax totaling EUR 161 (282) million was recognized directly in equity without af-
           fecting the Income Statement. Treatment of actuarial gains or losses without affecting in-
           come pursuant to IAS 19 led to a reduction in equity in the current fiscal year from the for-
           mation of deferred tax amounting to EUR 40 (109) million. The change in deferred tax on
           effects reported within equity for derivative financial instruments resulted in a EUR 121 (173)
           million reduction in equity.
              Deferred tax effects of EUR 142 (– 8) million resulted from tax-rate changes, particularly
           in Germany.
                                                                                                                                          195




                                The following deferred tax assets and liabilities carried in the Balance Sheet are attributable
                                to the individual Balance Sheet items:


EUR million                                                        Dec. 31, 2007     Dec. 31, 2006   Dec. 31, 2007       Dec. 31, 2006


                                                                   Deferred tax assets               Deferred tax liabilities
Intangible assets                                                           100               127              441                 608
Property, plant and equipment                                               199               181              175                 239
Long-term investments                                                       109               114                 –                  5
Inventories                                                                     49             44               39                  38
Receivables and other assets                                                    43             22              281                 153
Other current assets                                                            50             93                 –                  5
Provisions for pensions                                                     113               199                 –                  –
Other provisions                                                            866               860               71                  89
Liabilities                                                                 115               100               16                  14
Loss carryforwards                                                              10             22                 –                  –
Gross value                                                               1,654             1,762            1,023               1,151
    of which non-current                                                  1,096             1,183              549                 748
Offsetting measures                                                       – 971           – 1,136            – 971              – 1,136
Consolidation measures                                                      – 23               10              – 47                 –8
Carrying amount                                                             660               636                 5                  7



                                Deferred taxes are explained in detail in the recognition and measurement principles.


                                Reconciliation from anticipated to reported income tax expense
                                Anticipated tax expense is lower than the reported income tax expense. The main reason for
                                this was the reduction in the tax rate in Germany from 38.3 to 29.5 percent beginning in
                                2008. This necessitated a reduction of EUR 128 million for impairment of deferred taxes. All
                                effects are presented in the following reconciliation:


                                  EUR million                                                                 2007                2006


                                  Profit before tax                                                          2,915               1,946
                                  Anticipated income tax expense 38.3 % (38.3 %)                             1,116                 745
                                  Reconciliation:
                                  Divergent foreign tax burden                                                 – 96               – 84
                                  Tax portion for:
                                     tax-exempt income                                                         – 87               – 58
                                     expenses not deductible for tax purposes                                   89                  23
                                     temporary differences and losses for which no deferred tax
                                     has been recorded                                                         114                  64
                                  Non-periodic tax income                                                       –1               – 138
                                  Effects of tax-rate changes                                                  142                  –8
                                  Other tax effects                                                            – 54                 59
                                  Income tax expense reported                                                1,223                 603
                                  Effective tax rate in %                                                      42.0               31.0
196




      11   Profit transfer to Volkswagen AG

           The amount of EUR 1,412 (856) million will be transferred to Volkswagen AG under the profit
           transfer agreement.


      12   Earnings per share

           Basic earnings per share are calculated by dividing the share of profit due to AUDI AG stock-
           holders by the weighted average number of shares in circulation during the fiscal year.
              In Audi’s case, the diluted earnings per share are the same as the basic earnings per
           share, since there were no potential shares of AUDI AG in existence at either December 31,
           2007, or December 31, 2006.


                                                                                  2007             2006


             Profit share of AUDI AG stockholders (EUR million)                   1,654           1,343
             Weighted average number of shares
             (basic and diluted totals are identical)                        43,000,000      43,000,000
             Earnings per share in EUR                                            38.46           31.24



           Outside stockholders of AUDI AG will receive a compensatory payment for each no-par share
           in lieu of a dividend for the 2007 fiscal year. The level of this payment corresponds to the
           dividend that is paid on one Volkswagen AG ordinary share. The dividend payment will be
           resolved by the Annual General Meeting of Volkswagen AG on April 24, 2008.


      13   Additional disclosures on financial instruments in the Income Statement

           Categories
           Financial instruments are divided into the following three categories within the Audi Group:
           – measured at fair value,
           – measured at amortized cost,
           – not under the scope of IFRS 7.
           The category of financial instruments that are not covered under the scope of IFRS 7 com-
           prises the investments accounted for using the equity method.


           Net results for financial instruments
           The net results for financial instruments – as categorized under IAS 39 – are as follows:


             EUR million                                                          2007             2006


             Financial instruments at fair value through profit or loss             42                  14
             Loans and receivables                                                – 140           – 112
             Available-for-sale financial assets                                   361                 181
             Financial liabilities measured at amortized cost                        –                 –4
                                                                                                 197




The net results for financial instruments include the net income or expense from interest,
fair value measurements, foreign currency translation, reductions for impairment and dis-
posal gains.
    The “financial instruments at fair value through profit or loss” category presents the re-
sults from the settlement and measurement of commodity futures. The “loans and receiv-
ables” category essentially consists of factoring expenses. The net result for available-for-
sale financial assets predominantly comprises income from the cash pool and investments
in securities.


Interest income and expense for financial instruments not measured at fair value


  EUR million                                                            2007            2006


  Interest income                                                         28               26
  Interest expense                                                      – 153           – 128
  Interest income and expense                                           – 125           – 102



Impairment losses for financial assets by category


  EUR million                                                            2007            2006


  Measured at fair value                                                   –                2
  Measured at amortized cost                                              35               72
  Impairment losses                                                       35               74



The impairment losses relate to value adjustments of financial assets.
   No impairment was applied to financial instruments falling outside the scope of IFRS 7.


Gains and losses from hedging relationships
The amount of EUR 190 (–78) million was generated through the realization of foreign
currency hedges in connection with cash flow hedges in the 2007 fiscal year.
198




Notes to the Balance Sheet

                        14   Intangible assets


                               EUR million                                                      Dec. 31, 2007   Dec. 31, 2006


                               Concessions, industrial property rights and similar rights and
                               values, as well as licenses thereto                                        99              79
                               Goodwill                                                                    –             172
                               Development expenditure recognized as an intangible asset
                                  Products currently under development                                   472             852
                                  Products currently in use                                            1,451           1,230
                               Payments on account for intangible assets                                   –               2
                               Total                                                                   2,022           2,335



                             A reduction for impairment in the amount of EUR 177 million was applied to the goodwill of
                             two fully consolidated European sales subsidiaries in view of increasingly intense competi-
                             tion and signs of stagnation in their respective market environments.


                             Research and development expenditure


                               EUR million                                                              2007            2006


                               Research expenditure and development expenditure
                               not recognized as an intangible asset                                   1,570           1,077
                               Amortization and disposals of development expenditure
                               recognized as an intangible asset                                         656             905
                               Total                                                                   2,226           1,982



                             Spending on research and development activities in the 2007 fiscal year totaled EUR 2,067
                             (1,702) million, EUR 497 (625) million of which satisfy the criteria for recognition as an asset
                             under IAS 38.


                        15   Property, plant and equipment


                               EUR million                                                      Dec. 31, 2007   Dec. 31, 2006


                               Land, land rights and buildings, including buildings on land
                               owned by others                                                         1,748           1,692
                               Plant and machinery                                                     1,236           1,054
                               Furniture, fixtures and office equipment                                1,743           1,699
                                  of which finance leases                                                  3               1
                               Payments on account and assets under construction                         451             578
                               Total                                                                   5,178           5,023



                             The carrying amounts for finance leases correspond to their fair values.
                                Payments totaling EUR 67 (57) million for assets rented on the basis of operating lease
                             agreements were recognized as an expense.
                                                                                                          199




        There are no significant restrictions on ownership and disposal for the reported property,
     plant and equipment.


16   Investment property

     Land and buildings held for the purpose of generating rental income (investment property)
     are reported under investment property pursuant to IAS 40. The fair value of investment
     property, based on appraisals, was EUR 12 (9) million.


17   Other long-term investments


       EUR million                                                      Dec. 31, 2007    Dec. 31, 2006


       Investments in affiliated companies                                        40               32
       Participating interests                                                     9                9
       Total                                                                      49               41



18   Deferred tax assets

     The temporary differences between tax bases and carrying amounts in the Consolidated
     Balance Sheet are explained under “Deferred tax” in the recognition and measurement prin-
     ciples and under Note 10 “Income tax expense.”
         Pursuant to IAS 1, deferred tax liabilities are reported as non-current liabilities, irrespec-
     tive of their maturities.


19   Other receivables and other financial assets

     The reported receivables and other assets are not subject to any significant restrictions on
     ownership or disposal.
        Derivative financial instruments are measured at market value. The overall line item for
     hedging instruments is shown under “Other particulars” (Note 35).


     Non-current other receivables and other financial assets


       EUR million                                                      Dec. 31, 2007    Dec. 31, 2006


       Loans advanced to affiliated companies                                     28                1
       Loans advanced to associated companies                                      –               13
       Other loans advanced                                                        1                1
       Other receivables from affiliated companies                               240               81
          of which from derivative currency hedging instruments
          (cash flow hedges)                                                     177               63
          of which from commodity futures                                         45               17
       Other tax assets                                                            6                7
       Other assets                                                               11               10
       Total                                                                     286              113



     The loans advanced have a fair value of EUR 28 (15) million. The miscellaneous non-current
     assets have a fair value of EUR 260 (98) million.
200




           Current other receivables and other financial assets


             EUR million                                                  Dec. 31, 2007    Dec. 31, 2006


             Other receivables from affiliated companies                           994              481
                of which from derivative currency hedging instruments
                (cash flow hedges)                                                 672              310
                of which from commodity futures                                      7                  6
             Other receivables from associated companies                             –                  5
             Other tax assets                                                       68                 55
             Other assets                                                          303              230
             Total                                                               1,365              771



           All current other receivables and financial assets are due within one year of the balance
           sheet date. The carrying amounts correspond to their fair values.
               The other assets include EUR 33 (22) million in refund entitlements from the German
           Federal Employment Agency for the implementation of partial early retirement plans.


      20   Inventories


             EUR million                                                  Dec. 31, 2007    Dec. 31, 2006


             Raw materials and supplies                                            372              373
             Work in progress                                                      287              316
             Finished goods and merchandise                                      2,002            1,420
             Total                                                               2,661            2,109



           Inventories amounting to EUR 28,450 (27,442) million were recorded as cost of sales at the
           same time that revenue from them was realized.
             The write-down resulting from the measurement of inventories on the basis of sales
           markets amounted to EUR 30 (44) million.
              No reversal of write-downs was performed in the fiscal year.
              Of the finished goods inventory, a portion of the company car fleet valued at EUR 98 (77)
           million has been pledged as collateral for commitments toward employees under the partial
           early retirement block model. The other reported inventories are not subject to any signifi-
           cant restrictions on ownership or disposal.
                                                                                                      201




21   Trade receivables


       EUR million                                                   Dec. 31, 2007    Dec. 31, 2006


       Trade receivables from
          third parties                                                     1,148              972
          affiliated companies                                                840              709
          associated companies and participating interests                    161              159
       Total                                                                2,149            1,840



     The fair values of the trade receivables correspond to their carrying amounts.
         Those trade receivables which will not be realized until more than 12 months subsequent
     to the balance sheet date amount to EUR 3 (4) million.


22   Effective income tax assets

     Entitlements to income tax rebates, predominantly for foreign Group companies, are re-
     ported under this item.


23   Securities

     Securities held as current assets comprise fixed-interest or variable-interest securities and
     equities, with yields of up to 5.20 percent being achieved.


24   Cash and cash equivalents

     Cash and cash equivalents essentially comprise credit balances with banks and affiliated
     companies amounting to EUR 6,740 (4,884) million.
        The yields on overnight money and time deposits ranged between 3.48 percent and 4.84
     percent.
        The credit balances were with various banks and in a variety of currencies. Liquid funds
     were invested with affiliated companies via the cash pooling arrangements.
202




EQUITY

         25   Changes in equity


                EUR million                                                             Issued capital   Capital reserve




                Position as of Jan. 1, 2006                                                      110              252
                Currency adjustments                                                               –                –
                Transfer to retained earnings                                                      –                –
                Changes in measurement not affecting income                                        –                –
                Result from securities                                                             –                –
                Result from settled cash flow hedges                                               –                –
                Deferred tax items netted directly against equity                                  –                –
                Capital contributions                                                              –              231
                Other changes                                                                      –                –
                Position as of Dec. 31, 2006                                                     110              483
                Reclassification of investments accounted for using the equity method              –                –
                Position after adjustment on Dec. 31, 2006                                       110              483
                Currency adjustments                                                               –                –
                Transfer to retained earnings                                                      –                –
                Changes in measurement not affecting income                                        –                –
                Result from securities                                                             –                –
                Result from settled cash flow hedges                                               –                –
                Deferred tax items netted directly against equity                                  –                –
                Minority interests                                                                 –                –
                Capital contributions                                                              –              428
                Other changes                                                                      –                –
                Difference from change in consolidated companies                                   –                –
                Position as of Dec. 31, 2007                                                     110              911
                                                                                                                          203




Retained earnings                                                                         Equity


                                              Reserve for
      Legal                                      market-
    reserve                                         price     Provisions        Equity
  and other          Currency   Reserve for     measure-    for pensions      method           AUDI AG
   retained         exchange     cash flow       ment of     and similar   accounting     stockholders’     Minority
   earnings           reserve      hedges      securities    obligations      after tax       interests    interests   Total
      6,194              – 13         – 84            –3          – 352              –             6,104          –    6,104
          –              – 16            –             –              –              –              – 16          –     – 16
        487                –             –             –              –              –              487           –     487
          –                –           471             4            284              –              759           –     759
          –                –             –             0              –              –                –           –       –
          –                –          – 19             –              –              –              – 19          –     – 19
          –                –         – 171            –2          – 109              –             – 282          –    – 282
          –                –             –             –              –              –              231           –     231
          1                –             –             –              –              –                1           –       1
      6,682              – 29          197            –1          – 177              –             7,265          –    7,265
          –               14             –                                        – 14                –                   –
      6,682              – 15          197            –1          – 177           – 14             7,265          –    7,265
          –                4             –             –              –           – 14              – 10          –     – 10
        242                –             –             –              –              –              242           –     242
          –                –           819            33             51              –              903           –     903
          –                –             –          – 50              –              –              – 50          –     – 50
          –                –         – 298             –              –              –             – 298          –    – 298
          –                –         – 126             5            – 40             –             – 161          –    – 161
          –                –             –             –              –              –                –          38      38
          –                –             –             –              –              –              428           5     433
          1                –             –             –              –              –                1           –       1
         –8                –             –             –              –              –               –8           –      –8
      6,917              – 11          592          – 13          – 166           – 28             8,312         43    8,355
204




      The share capital of AUDI AG totals EUR 110,080,000.00. Each share represents a mathemati-
      cal share of EUR 2.56 of the issued capital. It is classified into 43,000,000 no-par bearer
      shares.
         The capital reserves contain premiums paid in connection with the issuance of shares of
      the Company. In the year under review, capital reserves rose to EUR 911 million as a result
      of a contribution in the amount of EUR 428 million by Volkswagen AG to the capital reserve
      of AUDI AG.
         The opportunities and risks under foreign exchange contracts and currency option trans-
      actions serving as hedges for future cash flows are deferred in the reserve for cash flow
      hedges with no effect on the Income Statement. When the cash flow hedges become due,
      the results from the settlement of the exchange-rate hedging contracts are reported in the
      other operating income or expenses. Gains and losses from the measurement at fair value
      of financial assets available for sale are recognized in the reserve for the market-price
      measurement of securities. Upon disposal of the securities, share price gains and losses
      realized are reported under the financial result.
         Adjustments to actuarial assumptions on retirement benefit obligations are recognized
      in the provisions for pensions and similar obligations.
          Pursuant to IAS 28.39, foreign currency translation differences that do not affect income
      from the accounting of FAW-Volkswagen Automotive Company, Ltd. using the equity
      method were included in the reserve for equity method accounting after tax. The foreign
      currency translation differences were reclassified from the currency exchange reserve to a
      separate reserve item.
          The minority interests in the Company’s equity relate to Volkswagen Group of America,
      Inc., of Auburn Hills, U.S.A., and Volkswagen Canada Inc., of Ajax, Canada, which respec-
      tively hold 100 percent of the shares of Audi of America, LLC and Audi Canada Inc. and to
      which the earnings of the latter companies are attributable.
          The balance of EUR 242 (487) million remaining after the transfer of profit to Volkswagen
      AG is allocated to the other retained earnings.


      Stock option plan
      Under Volkswagen AG’s stock option plans, the members of the Board of Management and
      selected senior managers of the Audi Group were granted the right to acquire stock options
      for shares of Volkswagen AG by subscribing convertible bonds. In the 1999 to 2006 fiscal
      years, a total of eight tranches of the stock option plan were issued. The stock option plan
      was not extended for the period beyond 2006.
          Each convertible bond is entitled to be converted into 10 ordinary shares. Conversion
      may take place for the first time after a qualifying period of 24 months and then up until a
      period of five years from the time of issuance of the convertible bond has elapsed. For de-
      tails relating to the terms of subscription and exercise, please refer to the notes on equity in
      the Annual Report of Volkswagen AG.
          The convertible bonds are measured at fair value at the time of issue; in accordance with
      the transitional provisions of IFRS 2, only convertible bonds granted after publication of the
      draft standard on November 7, 2002, are affected. The fair value of the convertible bonds is
      determined using a binomial option pricing model, and reported as personnel costs on a
      pro rata basis over the 24-month qualifying period and under other changes in equity for
      AUDI AG. Expenses of EUR 0.5 million were incurred in fiscal 2007. The corresponding ex-
      pense for the previous fiscal year was EUR 0.6 million.
                                                                                                                          205




                   The following table presents the development of the convertible bonds issued (fifth to
                   eighth tranches) and their exercise prices.


                                                                        Average conversion            Convertible bonds
                                                                       price per convertible
                                                                                     bond*


                                                                                       EUR                     Quantity
                     Position as of Jan. 1, 2007                                     525.06                     25,400
                     In fiscal year
                         granted                                                          –                          –
                         additions                                                   640.00                         50
                         disposals                                                   522.01                       3,200
                         exercised                                                   419.79                     11,500
                     Position as of Dec. 31, 2007                                    640.00                     10,750

                   * Conversion price per 10 shares


                   The total as of December 31, 2007, includes convertible bonds from the eighth tranche only.
                   In the 2007 fiscal year, 11,500 convertible bonds were converted at a weighted average exer-
                   cise price of EUR 1,363.92.


LIABILITIES

              26   Financial liabilities

                   Non-current financial liabilities


                     EUR million                                                          Dec. 31, 2007   Dec. 31, 2006


                     Liabilities to banks                                                            3               3
                     Liabilities from financial lease agreements                                     1               0
                     Total                                                                           4               3



                   Non-current financial liabilities having a time to maturity of more than five years amount to
                   EUR 1 (1) million. The carrying amounts correspond to their fair values.


                   Current financial liabilities


                     EUR million                                                          Dec. 31, 2007   Dec. 31, 2006


                     Liabilities to affiliated factoring companies                                 479             140
                     Liabilities to affiliated companies from cash pooling                          34              24
                     Liabilities to banks                                                           12              45
                     Liabilities from financial lease agreements                                     2               1
                     Total                                                                         527             210



                   Measurement of the non-current and current financial lease agreements is based on market
                   interest rates in each case.
206




                              27       Deferred tax liabilities

                                       The temporary differences between tax bases and carrying amounts in the Consolidated
                                       Balance Sheet are explained under “Deferred tax” in the recognition and measurement prin-
                                       ciples, and under Note 10 “Income tax expense.” Pursuant to IAS 1, deferred tax liabilities
                                       are reported as non-current liabilities, irrespective of their maturities.


                              28       Other liabilities

                                       The derivative currency hedging instruments reported under other liabilities are measured
                                       at market values. The overall line item for currency hedging instruments is shown under
                                       “Other particulars” (Note 35).


                                       Non-current other liabilities


 EUR million                                                                   Dec. 31, 2007   Dec. 31, 2006   Dec. 31, 2007      Dec. 31, 2006


                                                                               Carrying amounts                Fair values
 Liabilities to affiliated companies                                                    191             131              173               114
      of which from derivative currency hedging instruments
      (cash flow hedges)                                                                 23              17                  23             17
      of which from commodity futures                                                     0               6                   0              6
 Other liabilities                                                                       97              70                  97             70
      of which relating to social insurance                                              30              20                  30             20
 Total                                                                                  288             201              270               184



                                       Liabilities having a time to maturity of more than five years amount to EUR 117 (148) million.


                                       Current other liabilities


                                         EUR million                                                           Dec. 31, 2007      Dec. 31, 2006


                                         Liabilities to affiliated companies                                           1,754             1,112
                                              of which from derivative currency hedging instruments
                                              (cash flow hedges)                                                             23             38
                                              of which from commodity futures                                                 2              4
                                         Liabilities to associates                                                           31             16
                                         Advances received for orders from customers                                     238               170
                                         Other liabilities                                                               990               811
                                              of which taxes                                                             107               106
                                              of which in respect of social insurance                                    105                94
                                         Total                                                                         3,013             2,109



                                       Other liabilities include obligations for derivative currency hedges in the amount of EUR 3
                                       million.
                                                                                                            207




29   Provisions for pensions

     Provisions for pensions are created on the basis of plans to provide retirement, disability
     and survivor benefits. The benefit amounts are generally contingent on the length of service
     and the remuneration of the employees.
         Both defined contribution and defined benefit commitments exist within the Group for
     retirement benefit arrangements. In the case of defined contribution plans, the Company
     pays contributions to public- or private-sector pension plans on the basis of statutory or
     contractual requirements, or on a voluntary basis. Payment of the contributions releases the
     Company from any other benefit obligations. The regular contributions paid are recorded as
     expense for the year in question; they amounted to EUR 237 (220) million for the Audi Group.
     Of this total, EUR 220 (206) million was paid into the government pension plan in Germany.
         The retirement benefit systems are based predominantly on defined benefit plans, with a
     distinction being made between systems based on provisions and externally financed bene-
     fit systems.
         The benefit entitlements to retirement benefits both in Germany and internationally are
     measured according to the Projected Unit Credit Method pursuant to IAS 19 (Employee
     Benefits), where the future obligations are measured on the basis of benefit claims vested
     pro rata as of the balance sheet date. For purposes of measurement, trend assumptions are
     used for the relevant quantities affecting the level of benefit.
       The retirement benefit scheme within the Audi Group was evolved into a pension fund
     model in Germany on January 1, 2001. The retirement benefit commitments for this model
     are also classified as defined benefits in accordance with the requirements of IAS 19. The
     remuneration-based annual cost of providing employee benefits is invested in mutual funds
     on a fiduciary basis by Volkswagen Pension Trust e.V. This model offers employees the op-
     portunity of increasing their pension entitlements, while providing full risk coverage. As the
     mutual fund units administrated on a fiduciary basis satisfy the requirements of IAS 19 as
     plan assets, these funds were offset against the retirement benefit obligations.
        The amounts recorded in the Balance Sheet for defined benefits are presented in the fol-
     lowing table:


       EUR million                                                          Dec. 31, 2007   Dec. 31, 2006


       Present value of externally funded defined benefit obligations                368             306
       Fair value of plan assets                                                     368             306
       Financing status (balance)                                                      0               0
       Present value of defined benefit obligations not externally funded          1,957           1,974
       Provisions for pensions recognized in the Balance Sheet                     1,957           1,974
208




      The present value of the defined benefits changed as follows:


        EUR million                                                             2007          2006


        Present value on January 1                                              2,280        2,418
        Changes in the consolidated companies and initial application
        of IAS 19                                                                  8             –
        Service cost                                                              79            99
        Interest cost                                                            104           104
        Actuarial gains (-) / losses (+)                                         – 70        – 279
        Pension payments from company assets                                     – 69         – 61
        Effects from transfers                                                    –6             –
        Currency differences                                                      –1           –1
        Present value on December 31                                            2,325        2,280



      The reconciliation for the fair value of the plan assets is as follows:


        EUR million                                                             2007          2006


        Plan assets on January 1                                                 306           238
        Expected return on plan assets                                            17            13
        Actuarial gains (+) / losses (-)                                         – 19          +5
        Employer contributions                                                    64            50
        Plan assets on December 31                                               368           306



      In the past fiscal year, actual losses from the plan assets amounted to EUR – 2 million.
          The long-term overall yield on the plan assets is determined on a uniform basis and de-
      pends on the actual long-term earnings of the portfolio, historical overall market yields and
      a forecast of the anticipated yields of the classes of security in the portfolio.
          Employer contributions to the fund assets totaling EUR 52 million are expected for the
      following fiscal year.
          The composition of fund assets is as follows, by category:


        % of fund assets                                                        2007          2006


        Shares                                                                   38.0         39.8
        Fixed-interest securities                                                53.8         51.3
        Cash                                                                      8.2          7.3
        Other                                                                     0.0          1.5



      Actuarial gains and losses result from changes in the entitlement base and from deviations
      in the actual trends (e.g. increases in pay or retirement benefits) from the figures assumed
      for calculation purposes. In accordance with the requirements of IAS 19, such gains and
      losses are recognized under a separate line item within equity, after taking deferred tax into
      account.
                                                                                             209




The following amounts were recognized in the Income Statement:


  EUR million                                                        2007            2006


  Current service cost for services provided by the employees
  in the fiscal year                                                  – 79            – 71
  Past service cost                                                     –             – 28
  Interest cost                                                      – 104           – 104
  Expected return on plan assets                                       17              13
  Total                                                              – 166           – 190



The interest element in pension costs is shown under finance cost. The expected return on
plan assets is also shown under this item.
   The provisions for pensions recognized in the Balance Sheet are determined by offset-
ting the present value against the fund assets pursuant to IAS 19. The development of the
net liability recognized as provisions for pensions was as follows:


  EUR million                                                        2007            2006


  Provisions for pensions on January 1                               1,974           2,180
  Changes in the consolidated companies
  and initial application of IAS 19                                     8               –
  Employee benefit expenses                                           166             190
  Actuarial gains (-) / losses (+)                                    – 51           – 284
  Pension payments from company assets                                – 69            – 61
  Contributions paid to external pension funds                        – 64            – 50
  Transfers received from affiliated companies                          1              –1
  Transfers made to affiliated companies                               –7               1
  Currency differences                                                 –1              –1
  Provisions for pensions on December 31                             1,957           1,974
      of which non-current                                           1,891           1,913



The experience adjustments, i.e. the effects of differences between actuarial assumptions
and what has actually transpired, are presented in the following table:


  %                                                                  2007            2006


  Difference between anticipated and actual performance
      as % of the present value of the obligation                   – 1.46            0.29
      as % of the fair value of the plan assets                     – 5.26            1.65
210




           Calculation of the retirement benefit obligations is based on the following actuarial assump-
           tions (weighted average):


             %                                                                  Dec. 31, 2007   Dec. 31, 2006


             Remuneration trend                                                          2.50           1.50
             Retirement benefit trend                                                    1.60           1.00
             Discount factor                                                             5.50           4.50
             Staff turnover rate                                                         1.40           2.00
             Anticipated yield on plan assets                                            5.00           5.00



           The “2005 G Reference Tables” published by HEUBECK-RICHTTAFELN-GmbH served as the
           biometric basis for calculation of retirement benefits.


      30   Effective income tax obligations

           Effective income tax obligations consist primarily of tax liabilities to Volkswagen AG under
           allocation plans.


      31   Other provisions


             EUR million                        Dec. 31, 2007                   Dec. 31, 2006


                                                                Of which due                    Of which due
                                                                   within one                      within one
                                                        Total            year           Total            year
             Obligations from sales
             operations                                3,630           1,647           2,835           1,373
             Workforce-related provisions                511             107             552             153
             Other provisions                            531             491             443             399
             Total                                     4,672           2,245           3,830           1,925



           Obligations from sales operations comprise risks from the sale of vehicles, components and
           genuine parts, including the disposal of end-of-life vehicles. These are predominantly war-
           ranty claims that are determined on the basis of previous or estimated future loss experi-
           ence. This item additionally includes rebates, bonuses and similar discounts due to be
           granted and arising subsequent to balance sheet date but occasioned by revenue prior to
           the balance sheet date.
              The workforce-related provisions are created, among other reasons, for service anniver-
           sary awards, partial early retirement arrangements, suggestion awards and severance pay-
           ments.
              The other provisions relate to a wide range of one-off risks.
              The composition of other provisions by anticipated outflow date will be 48 percent in
           2008, 45 percent in the years 2009 through 2012 and 7 percent thereafter.
                                                                                                                                     211




                                 The development of the provisions was as follows:


      EUR million          Jan 1, 2007       Change in          Used     Reversed       Allocated         Interest       Dec. 31,
                                               consoli-                                               effect from          2007
                                                 dated                                                  measure-
                                                 group                                                       ment

      Obligations from
      sales operations          2,835               304         1,028           41          1,557               3           3,630
      Workforce-
      related provisions          552                    0        88             7             60             –6             511
      Other provisions            443                15          127            41            242             –1             531
      Total                     3,830               319         1,243           89          1,859             –4            4,672



                           32    Trade payables


                                    EUR million                                                     Dec. 31, 2007    Dec. 31, 2006


                                    Trade payables to
                                         third parties                                                     2,236            1,741
                                         affiliated companies                                                550              501
                                         associated companies                                                   8              13
                                    Total                                                                  2,794            2,255



                                 The fair value of trade payables to third parties amounts to EUR 2,233 (1,737) million. In the
                                 case of liabilities to affiliated and associated companies, the fair value corresponds to the
                                 carrying amount.
                                     The customary retention of title applies to liabilities from deliveries of goods.


Other particulars

                           33    Capital management

                                 The primary goal of capital management within the Audi Group is to assure financial flexibil-
                                 ity in order to achieve the business and growth targets, and to enable continuous, steady
                                 growth in the value of the Company. The capital structure is steered specifically with this in
                                 mind, with the economic environment kept under constant observation. The objectives,
                                 methods and procedures for optimizing capital management remained unchanged at De-
                                 cember 31, 2007.
212




              The equity and financial liabilities from the transfer of profit are summarized in the fol-
           lowing table:


             EUR million                                                           Dec. 31, 2007   Dec. 31, 2006


             Equity                                                                       8,355           7,265
             as % of total capital                                                           81              87
             Financial liabilities from the transfer of profit                            1,943           1,069
                Current financial liabilities                                               527             210
                Non-current financial liabilities                                             4               3
                Liabilities from the transfer of profit                                   1,412             856
             as % of total capital                                                           19              13
             Total capital                                                               10,298           8,334



           Around 99 percent of the issued capital is held by Volkswagen AG, with which a control and
           profit transfer agreement exists.
              In the 2007 fiscal year, equity rose by 15 percent over the year before. This was substan-
           tially attributable to a cash injection to the capital reserve by Volkswagen AG and to the
           allocation to other retained earnings of the balance remaining after the transfer of profit.


      34   Additional disclosures on financial instruments in the Balance Sheet

           Carrying amounts of financial instruments
           The carrying amounts – as classified under IAS 39 – are presented in the following overview:


             EUR million                                                           Dec. 31, 2007   Dec. 31, 2006


             Financial assets measured at fair value through profit or loss                  53              24
             Loans and receivables                                                        2,642           2,150
             Available-for-sale financial assets                                          8,122           5,939
             Financial liabilities measured at fair value through profit or loss              2              10
             Financial liabilities measured at amortized cost                             5,029           3,615
                                                                                                                              213




                            The following table presents a reconciliation of the carrying amounts of the Balance Sheet
                            items with the individual categories:


EUR million                    Balance Sheet    Carrying amounts of financial instruments                          Carrying
                                         item                                                                     amounts,
                                Dec. 31, 2007                                                                 miscellaneous


                                                    Measured at         Measured at             Not under
                                                      fair value      amortized cost        scope of IFRS 7
Non-current assets
Other investments                        170                   –                  49                   121                –
Other receivables and
financial assets                         286                222                   58                     –                6
Current assets
Trade receivables                      2,149                   –               2,149                     –                –
Other receivables and
financial assets                       1,365                679                  435                     –              251
Securities                             1,333               1,333                   –                     –                –
Cash and cash equivalents              6,740               6,740                   –                     –                –
Non-current liabilities
Financial liabilities                      4                   –                   4                     –                –
Other liabilities                        288                  23                   9                     –              256
Current liabilities
Financial liabilities                    527                   –                 527                     –                –
Trade payables                         2,794                   –               2,794                     –                –
Other liabilities                      3,013                  28               1,695                     –            1,290



                            The fair values of financial assets and liabilities within the “measured at amortized cost”
                            category are indicated in the corresponding sections, under the Notes to the Balance Sheet.
214




 EUR million                    Balance Sheet      Carrying amounts of financial instruments                                 Carrying
                                          item                                                                              amounts,
                                 Dec. 31, 2006                                                                          miscellaneous


                                                            Measured        Measured at            Not under
                                                          at fair value   amortized cost       scope of IFRS 7
 Non-current assets
 Other investments                           169                     –               41                   128                       –
 Other receivables and
 financial assets                            113                    80               25                     –                       8
 Current assets
 Trade receivables                         1,840                     –             1,840                    –                       –
 Other receivables and
 financial assets                            771                   316              285                     –                     170
 Securities                                1,014                 1,014                –                     –                       –
 Cash and cash equivalents                 4,884                 4,884                –                     –                       –
 Non-current liabilities
 Financial liabilities                         3                     –                3                     –                       –
 Other liabilities                           201                    23                7                     –                     171
 Current liabilities
 Financial liabilities                       210                     –              210                     –                       –
 Trade payables                            2,255                     –             2,255                    –                       –
 Other liabilities                         2,109                    42             1,140                    –                     927



                             Reductions for impairment
                             The development of reductions for impairment to receivables and other financial assets
                             existing on the balance sheet date was as follows:


                               EUR million                                 2007      Individual              2006           Individual
                                                                                    write-down                             write-down


                               Position as of January 1                      19                19                 28               28
                               Allocated                                      9                 9                  8                8
                               Used                                          –2                –2                 –4               –4
                               Reversed                                      –7                –7                – 13             – 13
                               Position as of December 31                    19                19                 19               19



                             Portfolio-based write-downs are not used within the Audi Group.
                                                                                                                                     215




                       35      Management of financial risks

                               Credit risk
                               The credit risk from financial assets comprises the risk of default by a contractual party and
                               therefore does not exceed the positive fair values of these assets. The risk from originated
                               financial instruments is covered by value adjustments. The contractual partners for cash
                               and capital investments, as well as currency and raw materials hedging instruments, have
                               impeccable creditworthiness. Over and above this, the risks are restricted by a limit system
                               that is based on the credit ratings of international rating agencies.

                               The quality of financial assets by category is presented in the following table:


EUR million           Gross        Neither       Overdue,    Impaired         Gross         Neither       Overdue,        Impaired
                    carrying       overdue            not                   carrying        overdue            not
                    amount             nor       impaired                   amount              nor       impaired
                       2007       impaired                                     2006        impaired


Trade receivables     2,163          1,353           787           23           1,854         1,237            603             14
Other receivables     1,525          1,448            66           11            712              647               54         11
   Borrowings           312              311           0            1             24               23                0          1
   Other              1,213          1,137            66           10            688              624               54         10
Total                 3,688          2,801           853           34           2,566         1,884            657             25



                               The Audi Group’s trading partners, borrowers and debtors are regularly monitored under
                               the risk management system. All receivables that are neither overdue nor impaired, amount-
                               ing to EUR 2,801 (1,884) million, are allocable to risk category 1. Risk category 1 is the high-
                               est rating category within the Volkswagen Group; it includes “customers of high creditwor-
                               thiness” exclusively.

                               Analysis of gross carrying amounts of overdue, unimpaired financial assets by maturity
                               date:


                                 EUR million                    Overdue, not            Overdue
                                                                   impaired

                                                                                          Up to                          More than
                                                                Dec. 31, 2007           30 days     30 to 90 days          90 days

                                 Trade receivables                       787                661               51               75
                                 Other receivables                        66                 46                9               11
                                    Borrowings                             0                  0                –                –
                                    Other                                 66                 46                9               11
                                 Total                                   853                707               60               86
216




                              EUR million                 Overdue, not        Overdue
                                                             impaired

                                                                                 Up to                       More than
                                                          Dec. 31, 2006        30 days      30 to 90 days      90 days
                              Trade receivables                    603             493                46             64
                              Other receivables                     54              26                 7             21
                                 Borrowings                          0               0                 –              –
                                 Other                              54              26                 7             21
                              Total                                657             519                53             85



                         The vast majority of the overdue and unimpaired financial assets are overdue by only a very
                         short period – predominantly due to the customer’s purchase invoice and payment pro-
                         cesses. It was therefore not necessary to implement any contractual changes to prevent
                         financial instruments from becoming overdue.
                            The Audi Group did not accept any collateral with the intention of selling it in fiscal 2007.


                         Liquidity risk
                         A liquidity forecast based on a fixed planning horizon and available yet unused lines of
                         credit assure adequate liquidity at all times.


                         Analysis of undiscounted cash used for financial liabilities by maturity date
                         The financial assets reported as of the balance sheet date are categorized separately by
                         maturity date in the following table:


      EUR million                                                  Total   To contractual maturity date


                                                                                                   1 to 5   More than
                                                                             Up to 1 year          years      5 years
      Financial liabilities                                          531             527               3             1
      Trade payables                                               2,794           2,725              46            23
      Other financial liabilities                                  1,751           1,721              30             –
      Derivatives used as hedges                                   9,224           4,466           4,758             0
      Total                                                       14,300           9,439           4,837            24



                         The cash used for derivatives where gross settlement has been agreed is offset by cash
                         received. These cash receipts are not presented in the analysis by maturity date. Had the
                         cash receipts been also taken into account, the cash used would have been significantly
                         lower in the analysis by maturity date.


                         Mutual fund price risk
                         The special mutual funds created using surplus liquidity are exposed, in particular, to an
                         equity and bond price risk that may arise from fluctuating stock market prices and indices,
                         and market interest rates. The changes in bond prices resulting from a variation in market
                         interest rates are quantified separately in the corresponding notes on the “Price and cur-
                         rency risk” and on the “Interest rate risk,” reflecting the evaluation of foreign exchange and
                         other interest risks from the special mutual funds.
                                                                                                 217




    The risk from special mutual funds is generally countered by maintaining a broad mix of
products, issuers and regional markets when investing funds, as stipulated in the invest-
ment guidelines. Where necessitated by the market situation, currency hedges in the form
of futures contracts are additionally used. Such measures are coordinated centrally by
Group Treasury and implemented at the operational level by the special mutual funds’ risk
management.
    With regard to representation of market risks, IFRS 7 additionally requires disclosures on
how hypothetical changes in risk variables would affect the prices of financial instruments.
Market prices and indices can serve as risk variables.
    If equity trading prices had risen (fallen) by 10 percent by comparison with the position
as of December 31, 2007, the equity reserve and the fair value of the equities held would
have been EUR 6 million higher (lower) (December 31, 2006: EUR 12 million higher (lower)).


Price and currency risk
The Audi Group is exposed to price and exchange rate fluctuations in view of its interna-
tional business activities. These risks are limited by concluding appropriate hedges for
matching amounts and maturities. The currency risk hedging measures to hedge against
currency risks are coordinated regularly between AUDI AG and the group treasury of Volks-
wagen AG in accordance with Volkswagen’s organizational guideline.
  Marketable derivative financial instruments (foreign exchange contracts, currency option
transactions, currency swaps and commodity futures) are used for this purpose. The hedg-
ing transactions are performed centrally on behalf of AUDI AG by Volkswagen AG on the
basis of an agency agreement. Contracts are concluded exclusively with top-caliber national
and international banks whose creditworthiness is regularly examined by leading rating
agencies. The results from hedging contracts are credited or debited to the Audi Group each
month on the basis of the proportionate share of the Volkswagen Group’s overall hedging
volume.
    In accordance with the Volkswagen organizational guideline, AUDI AG additionally con-
cludes hedging transactions of its own to a limited extent, where this helps to simplify cur-
rent operations.
    Measures involved in the management of currency risks primarily related to the U.S. dol-
lar, the pound sterling, the Canadian dollar and the Japanese yen.
    To reflect price and currency risks, IFRS 7 requires sensitivity analyses that reveal the ef-
fects of hypothetical changes in relevant risk variables on profit and equity.
    The periodic effects are determined by applying the hypothetical changes in the risk
variables to the inventory of financial instruments on the reporting date. It is assumed for
this purpose that the inventory on the reporting date is representative of the entire year.
    Currency risks pursuant to IFRS 7 arise as a result of financial instruments that are de-
nominated in a currency other than the functional currency and are of a monetary nature.
Exchange rate variances from the translation of financial statements into the Group cur-
rency are disregarded. All non-functional currencies in which the Audi Group enters into
financial instruments are fundamentally treated as relevant risk variables.
    Within the Audi Group, the principal originated monetary financial instruments (liquid
assets, receivables, securities held and equity instruments held, interest-bearing liabilities,
liabilities under finance lease arrangements, interest-free liabilities) are either denominated
directly in the functional currency or substantially transferred to the functional currency
through the use of derivatives. The short maturity of the instruments also means that poten-
tial exchange rate movements have only a very minor impact on profit or equity.
218




         Had the value of the euro been 10 percent higher (lower) against all originated financial
      instruments held in foreign currency on December 31, 2007, the other financial result and
      the fair value of the financial instruments would have been EUR 26 million lower (higher)
      (December 31, 2006: EUR 35 million lower (higher)).
         Had the value of the euro been 10 percent higher (lower) against all securities invest-
      ments held in foreign currency on December 31, 2007, there would have been no significant
      effect on equity or profit.
         Movements in the exchange rate against the underlying currencies for these transactions
      affect the hedging reserve in equity and the fair value of these hedging transactions.
         Had the value of the euro been 10 percent higher (lower) against the hedged foreign cur-
      rencies on December 31, 2007, the hedging reserve in equity and the fair value of the hedg-
      ing transactions overall would have been EUR 550 million higher or EUR 504 million lower
      (December 31, 2006: EUR 549 million higher or EUR 350 million lower).


      Raw materials risk
      Raw materials risks are avoided or limited by entering into commodity futures or long-term
      supply agreements. Hedging measures relate principally to the supply of the following raw
      materials: Aluminum, lead, copper, palladium, platinum and rhodium.
         Had the raw material prices been 10 percent higher (lower) on December 31, 2007, profit
      would have been EUR 40 million higher (lower) (December 31, 2006: EUR 46 million higher
      (lower)).


      Interest rate risk
      The interest rate risk stems from changes in market rates, above all for medium- and long-
      term variable-rate receivables and liabilities.
         The Audi Group is exposed to interest rate risks primarily in the euro zone, the United
      Kingdom, the United States and Asia.
         Interest rate risks are presented by means of sensitivity analyses pursuant to IFRS 7.
      These analyses reveal the effects of changes in the market rates on interest payments, in-
      terest income and expense, other earnings components, as well as equity, if applicable. The
      interest rate sensitivity analyses are based on the following assumptions:
         Had the market interest rate been 100 basis points higher (lower) on December 31, 2007,
      equity would have been EUR 20 million lower or EUR 22 million higher (December 31, 2006:
      EUR 18 million lower or EUR 20 million higher).
         Had the market interest rate been 100 basis points higher (lower) on December 31, 2007,
      profit would have been EUR 4 million higher (lower) (December 31, 2006: EUR 3 million
      higher (lower)).


      Credit risk
      The credit risk from financial assets comprises the risk of default by a contractual party and
      therefore does not exceed the positive fair values of these assets.
          The assumption is made that the actual risk from originated financial instruments is cov-
      ered by adequate reductions for impairment or uncollectability.
          The credit risk from derivative financial instruments does not exceed the balance of posi-
      tive market values in the event of default by a contractual party of Volkswagen AG or Audi
      Group companies. The actual credit risk is negligible, as contracts are concluded only with
      business partners of impeccable creditworthiness and trading limits are defined for each
      business partner as a risk management measure.
                                                                                                                                   219




                                  Methods of monitoring the effectiveness of hedging relationships
                                  Within the Audi Group, the effectiveness of hedging relationships is evaluated prospectively
                                  using the critical terms match method. Retrospective evaluation of the effectiveness of
                                  hedges involves an effectiveness test in the form of the dollar offset method.
                                     In the case of the dollar offset method, the changes in value of the underlying transac-
                                  tion, expressed in monetary units, are compared with the changes in value of the hedge
                                  expressed in monetary units. All hedge relationships were effective within the range speci-
                                  fied in IAS 39 (80 to 125 percent).


                                  Nominal volume of derivative financial instruments
                                  The nominal volumes of the hedges presented represent the total of all buying and selling
                                  prices on which the transactions are based.


EUR million                       Nominal volumes                                                 Market values


                                                        Time to                        Time to
                                                       maturity                       maturity
                                  Dec. 31, 2007     up to 1 year   Dec. 31, 2006   up to 1 year   Dec. 31, 2007   Dec. 31, 2006
Cash flow hedges
   Foreign exchange contracts            6,807            4,463           6,667          4,569             625             205
   Currency option transactions          2,414                –           3,186          3,158             175             235
   Currency swaps                            1                1               1              1               0                 0
Commodity futures                          451              177             635            191              50                14
Total portfolio                          9,673            4,641          10,489          7,919             850             454



                                  The derivative financial instruments used exhibit a maximum hedging term of five years.


                          36      Cash Flow Statement

                                  The Cash Flow Statement details the payment streams for both the 2007 fiscal year and the
                                  previous year, categorized according to cash used and received for operating, investing and
                                  financing activities. The effects of changes in the consolidated companies and to foreign
                                  exchange rates on cash flows are presented separately.
                                     Cash flow from operating activities includes all payment streams in connection with or-
                                  dinary activities. Under the indirect calculation method, all expenditures not affecting cash
                                  (comprising substantially depreciation and amortization) are eliminated, starting with the
                                  profit before profit transfer and taxation.
                                     In 2007, cash flow from operating activities included payments for interest received
                                  amounting to EUR 278 (175) million and for interest paid amounting to EUR 91 (71) million.
                                  The Audi Group received dividends and profit transfers totaling EUR 84 (37) million in 2007.
                                     The income tax payments item substantially comprises payments made to Volkswagen
                                  AG on the basis of the single-entity relationship for tax purposes in Germany, as well as
                                  payments to foreign tax authorities.
                                     Cash flow from investing activities includes additions to development expenditure rec-
                                  ognized as an intangible asset as well as additions to other intangible assets, property,
                                  plant and equipment, and long-term investments and non-current loans advanced. The
                                  change in investment property, the proceeds arising from asset disposals and the change in
                                  securities effective as payment are similarly reported in cash flow from investing activities.
220




              Cash flow from financing activities includes cash used for the transfer of profit, as well as
           changes in financial liabilities and credit extended.
              The changes in the balance sheet items that are presented in the Cash Flow Statement
           cannot be derived directly from the Balance Sheet because the effects of currency transla-
           tion and of changes in the consolidated companies do not affect cash and are segregated.
              The change in cash and cash equivalents as a result of changes in the consolidated com-
           panies relates to companies that have been consolidated for the first time.


      37   Contingencies

           Contingencies are unrecognized contingent liabilities whose amount corresponds to the
           maximum possible claim as of the balance sheet date.


             EUR million                                                    Dec. 31, 2007   Dec. 31, 2006


             Liabilities from guarantees                                               9               8
             Furnishing of collateral for outside liabilities                         53               –
             Total                                                                    62               8



      38   Litigation

           Neither AUDI AG nor any of its Group companies are involved in ongoing or prospective
           legal or arbitration proceedings which could have a significant influence on their economic
           position. Appropriate provisions have been created within each Group company, or ad-
           equate insurance benefits are anticipated, for potential financial charges resulting from
           other legal or arbitrational proceedings.


      39   Assets and liabilities held for sale

           There were no assets or liabilities held for sale on either December 31, 2007, or
           December 31, 2006.


      40   Change of control agreements

           Change of control clauses are contractual agreements between a company and third parties
           to provide for legal succession should there be a direct or indirect change in the ownership
           structure of any party to the contract.
              The contractual agreements between the Audi Group and third parties do not contain
           any change of control clauses in the event of a change in the ownership structure of
           AUDI AG or its subsidiaries.
                                                                                                                                221




                           41      Other financial obligations


EUR million                         Dec. 31, 2007                                                      Dec. 31, 2006


                                    Due                                                                Due
                                     within 1 year       1 to 5 years     over 5 years         Total    after 1 year    Total
Ordering commitments for
   property, plant and equipment               871               332                 –        1,203             392     1,195
   intangible assets                           173                47                 –          220              55      264
Commitments from long-term
rental and lease agreements                     21                17                 1           39              35       61
Total                                        1,065               396                 1        1,462             482     1,520



                           42      Discontinued operations

                                   There are no plans to discontinue or cease operations as defined by IFRS 5.


                           43      Cost of materials


                                     EUR million                                                               2007     2006


                                     Raw materials and consumables used, as well as
                                     purchased goods                                                         21,242    19,925
                                     Purchased services                                                       1,850     1,702
                                     Total                                                                   23,092    21,627



                           44      Personnel costs


                                     EUR million                                                               2007     2006


                                     Wages and salaries                                                       2,836     2,804
                                     Social insurance as well as expenses for employee benefits and
                                     support payments                                                           570      636
                                          of which relating to retirement benefit plans                          84      104
                                          of which defined contribution pension plans                           237      220
                                     Total                                                                    3,406     3,440



                           45      Total average number of employees for the year


                                                                                                               2007     2006


                                     Domestic Group companies                                                45,372    45,179
                                     Foreign Group companies                                                  7,975     7,118
                                     Total                                                                   53,347    52,297
                                          of which apprentices                                                2,002     2,031
222




      46   Related party disclosures

           Related parties as defined in IAS 24 are:
           – the parent company, Volkswagen AG, and its subsidiaries outside the Audi Group
           – Porsche Automobil Holding SE, of Stuttgart, and its affiliated companies.
              Its voting interest in Volkswagen AG was 30.6 percent on July 31, 2007. It appoints two
              members of the Supervisory Board of Volkswagen AG.
           – other parties (individuals and companies) which could be affected by the reporting entity
              or which could influence the reporting entity, such as
                  the members of the Board of Management and Supervisory Board of AUDI AG,
                  the members of the Board of Management and Supervisory Board of Volkswagen AG,
                  associated companies,
                  unconsolidated subsidiaries.

           The volume of transactions with the parent company, Volkswagen AG, and with other sub-
           sidiaries which do not belong to the Audi Group is presented in the following overview:


             EUR million                                                        2007            2006


             Sales and services supplied to
                 Volkswagen AG                                                 4,443           3,937
                 Volkswagen AG subsidiaries not
                 belonging to the Audi Group                                   8,870          10,319
             Purchases and services received from
                 Volkswagen AG                                                 4,955           4,930
                 Volkswagen AG subsidiaries not
                 belonging to the Audi Group                                   3,821           3,446
             Receivables from
                 Volkswagen AG                                                 5,885           5,582
                 Volkswagen AG subsidiaries not
                 belonging to the Audi Group                                   2,820             487
             Liabilities to
                 Volkswagen AG                                                 2,722           2,307
                 Volkswagen AG subsidiaries not
                 belonging to the Audi Group                                   1,166             630
             Contingent liabilities to
                 Volkswagen AG                                                     –               –
                 Volkswagen AG subsidiaries not
                 belonging to the Audi Group                                      86              31



           As of December 31, 2007, sales of receivables to Volkswagen AG subsidiaries which are not
           members of the Audi Group amounted to EUR 1,590 million (1,168) million.
              Any claims against Volkswagen AG subsidiaries which are not members of the Audi
           Group arising from the contingencies is considered to be unlikely.
                                                                                                                 223




   The extent of business relations between fully consolidated companies of the Audi Group
and non-consolidated companies, associated companies and other related parties is pre-
sented in the following tables:


   EUR million                             Dec. 31, 2007      Dec. 31, 2006   Dec. 31, 2007    Dec. 31, 2006


                                           Goods and services supplied        Goods and services received
  Associated companies                            1,453              1,169                 1                16
  Non-consolidated subsidiaries                     238                  –                14                –
  Porsche companies*                                833                  –                13                –

* related parties since the 2007 fiscal year




   EUR million                             Dec. 31, 2007      Dec. 31, 2006   Dec. 31, 2007    Dec. 31, 2006


                                           Receivables from                   Liabilities to
  Associated companies                              149                150                31                30
  Non-consolidated subsidiaries                      26                  –                10                –
  Porsche companies*                                 11                  –                 1                –

* related parties since the 2007 fiscal year


All business transactions with related parties have been conducted on the basis of interna-
tional comparable uncontrolled price methods pursuant to IAS 24, according to the terms
that customarily apply to outside third parties. The goods and services procured from re-
lated parties primarily include supplies for production, as well as development, transporta-
tion, financial and distribution services and, to a lesser extent, design, training and other
services and supplies of genuine parts. Business transacted for related parties mainly com-
prises sales of new and used cars, engines and components.
    Members of the Boards of Management or Supervisory Boards of Volkswagen AG and
AUDI AG also belong to the supervisory or management boards of other companies with
which the Audi Group maintains business relations. All transactions with such companies
are similarly conducted according to the terms that customarily apply to outside third par-
ties. A full list of the non-executive directorships of members of the Board of Management
and Supervisory Board of AUDI AG is presented in the Annual Financial Statements of
AUDI AG.
    In the same manner, the service relationships with the members of the Boards of Man-
agement and Supervisory Boards of Volkswagen AG and AUDI AG were conducted at arm’s
length. As in the previous year, the volume of transactions was low. Services having a total
value of EUR 36 thousand were purchased from this group of persons during the year under
review, and services with a total value of EUR 139 thousand were provided by the Audi
Group. For details of the remuneration paid to the members of the Board of Management
and Supervisory Board of AUDI AG, please refer to “Details of the Supervisory Board and
Board of Management” (Note 50).
   Cash management transactions with affiliated companies were also conducted at arm’s
length.
224




                          47   Auditor’s fees


                                 EUR thousand                                                                  2007              2006


                                 Auditing of the financial statements                                           438               565
                                 Other certification or appraisal services                                        90                –
                                 Tax consultancy services                                                          8               12
                                 Other services                                                                 246               116
                                 Total                                                                          782               693



                               Based on the requirements of commercial law, the auditor’s fees include auditing of the
                               Consolidated Financial Statements and auditing of the annual financial statements of the
                               domestic subsidiaries.


                          48   Segment reporting

                               The Audi Group primarily comprises only the “Cars” segment.
                                  The secondary segment reporting structure is based on the Group’s internal steering and
                               reporting arrangements. The Audi Group is structured into the segments of Germany, Rest
                               of Europe and Rest of World on the basis of the regional locations of its assets.
                                  Inter-segment transactions are fundamentally conducted at arm’s length, as is also cus-
                               tomary for transactions with outside third parties.


 EUR million                              2007              2006               2007            2006            2007              2006


                                External revenue                    Internal revenue                   Total revenue
 Germany                                 20,847          21,950               5,867           3,238          26,714            25,188
 Rest of Europe                           8,179           7,824               3,492           2,728          11,671            10,552
 Rest of World                            4,591           1,368                   4               2            4,595            1,370
 Consolidation measures                      –                –              – 9,363        – 5,968          – 9,363          – 5,968
 Audi Group                              33,617          31,142                   –               –          33,617            31,142




 EUR million                              2007              2006    Dec. 31, 2007      Dec. 31, 2006   Dec. 31, 2007     Dec. 31, 2006


                                Profit before tax                   Segment assets                     Segment liabilities
 Germany                                  2,371           1,542              17,580          16,110          12,272            12,029
 Rest of Europe                            465              462               5,568           5,166            1,387            1,386
 Rest of World                              87              – 56              1,515             674            1,664              639
 Consolidation measures                     –8               –2              – 2,745        – 3,675          – 1,140          – 2,427
 Audi Group                               2,915           1,946              21,918          18,275          14,183            11,627
                                                                                                                                   225




EUR million                                                          2007             2006               2007              2006


                                                             Investments in intangible
                                                             assets and property, plant
                                                             and equipment                       Long-term investments
Germany                                                             1,831             1,511                   34               3
Rest of Europe                                                        235                 399                 –                5
Rest of World                                                             13                7                  2               –
Consolidation measures                                                    –                 –                 –                –
Audi Group                                                          2,079             1,917                   36               8




EUR million                                                          2007             2006              2007               2006


                                                             Depreciation and amortization       Other non-cash expenses
Germany                                                             1,689            2,027               961               1,522
Rest of Europe                                                       591                  417            214                270
Rest of World                                                             7                71            273                130
Consolidation measures                                                    –                 –            738                 –6
Audi Group                                                          2,287            2,515              2,186              1,916




Revenue by region                                            2007 share                          2006 share


                                                               EUR million                  %     EUR million                 %
Germany                                                             8,994                 26.8          9,101               29.2
Rest of Europe                                                     17,017                 50.6         15,530               49.9
North America                                                       3,479                 10.3          3,067                9.9
Asia/Oceania                                                        3,641                 10.8          2,992                9.6
Africa                                                                289                  0.9            286                0.9
South America                                                         197                  0.6            166                0.5
Total                                                              33,617             100.0            31,142              100.0



                         49   German Corporate Governance Code

                              The Board of Management and Supervisory Board of AUDI AG submitted the declaration
                              pursuant to Section 161 of the German Stock Corporation Act relating to the “German Cor-
                              porate Governance Code” on December 5, 2007, and made it permanently accessible on the
                              Internet at www.audi.com/cgk-declaration.


                         50   Details of the Supervisory Board and Board of Management

                              The remuneration paid to members of the Board of Management complies with the legal
                              requirements of the German Stock Corporation Act, as well as the recommendations and
                              most of the suggestions in the German Corporate Governance Code.
                                 The total short-term remuneration comprises fixed and variable income components.
                              The fixed components assure a base remuneration that enables the Board member to exe-
                              cute his duties in the best interests of the Company and with the care of a reasonable and
                              prudent operator, without becoming dependent upon the attainment of short-term targets.
                              Conversely, variable components that are contingent on the economic results of the Com-
226




      pany assure that the interests of the members of the Board of Management are consistent
      with those of the other stakeholders.
         The remuneration paid to members of the Board of Management for the 2007 fiscal year
      amounted to EUR 4,614 (4,531) thousand, of which variable components accounted for
      EUR 2,309 (2,479) thousand. The variable component in the year before also included remu-
      neration under stock options granted; the fair value at the time of granting amounted to
      EUR 106 thousand. The fixed remuneration components for the members of the Board of
      Management totaled EUR 2,305 (2,052) thousand in the 2007 fiscal year. Disclosure of the
      remuneration paid to each individual member of the Board of Management, by name, pur-
      suant to Section 314, Paragraph 1, No. 6a), Sentences 5 to 9, of the German Commercial
      Code has not been effected, as the 2006 Annual General Meeting adopted a corresponding
      resolution that is valid for a period of five years.
         In addition to fixed payments in cash, there are varying levels of contributions in kind,
      including, in particular, the use of company cars.
        Each member of the Board of Management is paid a variable annual bonus. The variable
      bonus comprises annually recurring components that are linked to the Company’s economic
      success. It is largely based on the earnings achieved by the Company and its economic posi-
      tion. There are no non-recurring variable components linked to business success in the
      remuneration paid to members of the Board of Management.
          Stock options serve as variable remuneration components providing a long-term incen-
      tive. These options are based on the performance of Volkswagen ordinary shares. Since
      Volkswagen AG’s stock option plan was not extended beyond 2006, no further convertible
      bonds were issued in the 2007 fiscal year.
          The structure of the stock option plan is essentially as follows: The basis for determining
      the conversion price (base conversion price) of a tranche consists of the average Xetra clos-
      ing prices of Volkswagen ordinary shares on the five trading days preceding each decision
      to issue convertible bonds. Conversion may be effected for the first time following a qualify-
      ing period of 24 months and thereafter up until a period of five years has elapsed from the
      time the convertible bonds were issued. The conversion price is initially 110 percent of the
      base conversion price, rising by five percentage points in each subsequent year. Members
      of the Board of Management may exercise their conversion rights only three times a year,
      during four-week exercise periods, each of which commences on a public reporting date of
      Volkswagen AG. In the spirit of the German Corporate Governance Code, the stock option
      plan is thus based on demanding, relevant comparison parameters. Further details are pre-
      sented in the Agenda to the Annual General Meeting of Volkswagen AG on April 16, 2002,
      which authorized the introduction of the stock option plan.
         The structure of the stock option plan is designed to grant the members of the Board of
      Management a remuneration component that is based on appreciation of the Company’s
      trading price. It is thus intended to contribute toward increasing value creation and toward
      enhancing the value of Volkswagen AG. Moreover, stock option plans are a widely used
      instrument for recruiting and retaining board members.
         Retrospective adjustment of the stock option plan’s performance targets or comparison
      parameters is not permissible.
         Inordinate proceeds from the stock options are not expected due to the linkage with the
      trading price performance of Volkswagen ordinary shares and the restricted number of
      options per tranche. In order to implement the recommendation of the German Corporate
      Governance Code, the Supervisory Board is prepared to reach an agreement with the mem-
      bers of the Board of Management on a cap in the event of exceptional, unforeseen devel-
      opments.
         In the 2007 fiscal year, 1,500 stock options were exercised by members of the Board of
      Management of AUDI AG. On December 31, 2007, the members of the Board of Management
      were entitled to purchase a total of 14,500 ordinary shares of Volkswagen AG upon the con-
                                                                                               227




ditions of conversion being met. The value of the stock options totaled EUR 1,266 thousand
on December 31, 2007. This calculation is based on a binominal model and takes all param-
eters of the stock option plan into account.
    Under certain circumstances, members of the Board of Management are entitled to re-
tirement benefits and a disability pension. The amount of EUR 2,064 (577) thousand was
allocated to the provisions for pensions for current members of the Board of Management
during the 2007 fiscal year; the provisions for pensions on December 31, 2007, totaled
EUR 7,116 (7,454) thousand.
    Former members of the Board of Management and their survivors received payments to-
taling EUR 1,957 (1,359) thousand. The provisions for pensions for this group of individuals
amount to EUR 21,083 (22,175) thousand.
    The members of the Board of Management, together with their seats on other supervi-
sory boards and regulatory bodies – pursuant to Section 285, Sentence 1, No. 10, of the
German Commercial Code and Section 125, Para. 1, Sentence 3, of the German Stock Corpo-
ration Act – are indicated in the Notes to the Financial Statements of AUDI AG.
    The basic features of the remuneration paid to members of the Supervisory Board are
stipulated in Section 16 of the Articles of Incorporation and Bylaws. The total short-term
remuneration comprises fixed and variable components. The level of the variable remunera-
tion components is based on the compensatory payment made for the 2007 fiscal year in
accordance with the applicable provision in the Articles of Incorporation and Bylaws. The
remuneration paid to members of the Supervisory Board of AUDI AG totaled EUR 558 (459)
thousand, including EUR 175 (172) thousand in fixed remuneration components and
EUR 383 (287) in variable remuneration components.
228




                             1)
      Supervisory Board


        As of Dec. 31, 2007

                                                                                 2)
        Prof. Dr. rer. nat. Martin Winterkorn                        Chairman
                                                                     Stockholder representative
                                                                                            2) 6)
        Berthold Huber                                               Deputy Chairman
                                                                     Employee representative
                                                                                                         2)
        Dr. rer. pol. h.c. Bruno Adelt                               Stockholder representative
        Senator h.c. Helmut Aurenz                                   Stockholder representative
                                                                                                    6)
        Heinz Eyer                                                   Employee representative
        Dr. rer. pol. Thomas R. Fischer                              Stockholder representative
                                                                                                    6)
        Wolfgang Förster                                             Employee representative
                                                                                                            5)
        Francisco Javier Garcia Sanz                                 Stockholder representative
        Dr. jur. Claus Helbig                                        Stockholder representative
                                                                                                    6)
        Johann Horn                                                  Employee representative
                                                                                                    2) 4) 6)
        Peter Mosch                                                  Employee representative
                                                                                                    6)
        Wolfgang Müller                                              Employee representative
        Dr. rer. pol. Horst Neumann                                  Stockholder representative
        Dr.-Ing. Franz-Josef Paefgen                                 Stockholder representative
                                                                                                            3)
        Hans Dieter Pötsch                                           Stockholder representative
                                                                                                    5) 6)
        Norbert Rank                                                 Employee representative
        Dr. rer. pol. Axel Freiherr von Ruedorffer                   Stockholder representative
                                                                                                    6)
        Jörg Schlagbauer                                             Employee representative
                                                                                                    6)
        Max Wäcker                                                   Employee representative
        Hubert Waltl                                                 Employee representative
        Dr. rer. pol. Carl H. Hahn                                   Honorary Chairman

      1) The profession and company of the members of the Supervisory Board, together with other non-executive
        directorships, are presented in the Notes to the Financial Statements of AUDI AG.
      2) Member of the Presiding Committee and the Negotiating Committee
      3) Chairman of the Audit Committee
      4) Deputy Chairman of the Audit Committee
      5) Member of the Audit Committee
      6) The employees’ elected representatives have stated that their remuneration as Supervisory Board members be paid
        to the Hans Böckler Foundation, in accordance with the guidelines of the German Confederation of Trade Unions.
                                                                                                                                229




Events occurring subsequent to the balance sheet date

                               Volkswagen AG transferred management responsibility for AUDI BRUSSELS S.A./N.V. to
                               AUDI AG effective January 1, 2008. The control requirements of IAS 27.13, Sentence 2, are
                               accordingly satisfied as of the start of the 2008 fiscal year, and this company will therefore
                               be included in Audi’s Consolidated Financial Statements in the future.
                                  This company’s initial consolidation will have no significant impact on the financial posi-
                               tion and financial performance of the Audi Group.
230




Responsibility Statement



“Responsibility Statement

                            To the best of our knowledge, and in accordance with the applicable reporting
                            principles, the Consolidated Financial Statements give a true and fair view of the
                            assets, liabilities, financial position and profit or loss of the Group, and the
                            Group Management Report includes a fair review of the development and
                            performance of the business and the position of the Group, together with a
                            description of the principal opportunities and risks associated with the expected
                            development of the Group.“

                            Ingolstadt, February 7, 2008

                            The Board of Management




                                 Rupert Stadler




                                 Ulf Berkenhagen                 Michael Dick                   Frank Dreves




                                 Axel Strotbek                   Ralph Weyler              Dr. Werner Widuckel
                                                                                       231




Statement of Interests held by the Audi Group
for the fiscal year ended December 31, 2007




Principal Group companies


  Name and registered office                                           Capital share
                                                                                in %


 Fully consolidated companies
 AUDI AG, Ingolstadt
 Audi Australia Pty Ltd., Botany (Australia)                                   100.0
 Audi Brasil Distribuidora de Veículos, São Paulo (Brazil)                     100.0
 Audi Canada Inc., Ajax (Canada)*                                                  –
 AUDI DO BRASIL E CIA., Curitiba (Brazil)                                      100.0
 AUDI HUNGARIA MOTOR Kft., Győr (Hungary)                                      100.0
 Audi Japan K.K., Tokyo (Japan)                                                100.0
 Audi of America, LLC, Auburn Hills (USA)*                                         –
 Audi Retail GmbH, Ingolstadt                                                  100.0
     Audi Zentrum Hannover GmbH, Hanover                                       100.0
 Audi Vertriebsbetreuungsgesellschaft mbH, Ingolstadt                          100.0
 Audi Volkswagen Korea Ltd., Seoul (South Korea)                               100.0
 Audi Volkswagen Middle East FZE, Dubai (United Arab Emirates)                 100.0
 Automobili Lamborghini Holding S.p.A., Sant´Agata Bolognese (Italy)           100.0
     Automobili Lamborghini S.p.A., Sant´Agata Bolognese (Italy)               100.0
     Lamborghini ArtiMarca S.p.A., Sant´Agata Bolognese (Italy)                100.0
     MML S.p.A., Sant´Agata Bolognese (Italy)                                  100.0
     VOLKSWAGEN GROUP ITALIA S.P.A., Verona (Italy)                            100.0
            VOLKSWAGEN GROUP FIRENZE S.P.A., Florence (Italy)                  100.0
 quattro GmbH, Neckarsulm                                                      100.0
 Companies accounted for using the equity method
 FAW-Volkswagen Automotive Company Ltd., Changchun (China)                      10.0

* AUDI AG exercises control pursuant to IAS 27.13, Sentence 2.
232




AUDI AG                       Finances 2007




Management Report             Business and underlying situation                           233
of the AUDI AG for the 2007      Company                                                  233
fiscal year                      Corporate steering                                       234
                                 Research and development                                 236
                                 Employee matters                                         238
                                 Audi in society                                          240
                                 Environmental aspects                                    241
                                 Economic environment                                     244
                                 Course of business                                       246
                              Financial performance                                       251
                              Net worth                                                   252
                              Financial position                                          252
                              Report on post-balance sheet date events                    253
                              Risk report                                                 253
                              Report on expected developments                             256


Consolidated Financial        Balance Sheet                                               260
Statements of the AUDI AG
at December 31, 2007          Income Statement                                            261

                              Notes to the Financial Statements                           262
                              Development of fixed assets in the 2007 fiscal year         262
                              General comments                                            264
                              Notes to the Balance Sheet                                  264
                              Notes to the Income Statement                               269
                              Other particulars                                           272


                              Responsibility Statement                                    276

                              Mandates of the Board of Management                         277

                              Mandates of the Supervisory Board                           278

                              Auditor´s Report                                            281

                              Statement of interests held by AUDI AG and the Audi Group   282
                                                                                                                               233




Management Report of AUDI AG
for the 2007 fiscal year




Business and underlying situation

Company                        The products of AUDI AG make it one of the most successful carmakers in the premium
                               segment. The stated ambition of the Audi brand is to fulfill challenging customer expecta-
                               tions of pioneering innovations through the brand essence of “Vorsprung durch Technik” as
                               well as the brand values of sportiness, sophistication and progressiveness. Furthermore, the
                               Company is placing increasing emphasis on the sustainability of the technology it uses.
                                  Customers experience this brand identity through a diverse range of models, which en-
                               abled Audi to further strengthen its good position on car markets worldwide in 2007.

                               AUDI AG is headquartered in Ingolstadt. This is where Technical Development, Sales, Ad-
                               ministration and substantial portions of the manufacturing operations are based. In addition
                               to the high-selling A3, A3 Sportback and the A4 Sedan and Avant models, the new A5 Coupé
                               and the ultra-sporty S3 and S5 Coupé versions are built there as well. Volume production of
                               the new Audi Q5 will additionally begin in 2008. The bodies of the TT Coupé and Roadster
                               and of the A3 Cabriolet are also made in Ingolstadt.
                                   Neckarsulm, the Company’s second German location, is where the A4 Sedan, A6 Sedan,
                               Avant and allroad quattro, S6 Sedan and Avant models, as well as the A8 luxury sedan to-
                               gether with its high-performance A8 W12 and S8 versions, plus the R8 and RS 6 Avant
                               models, are manufactured.

                               AUDI AG’s largest stockholder is Volkswagen AG, which currently holds around 99 percent of
                               the share capital. A control and profit transfer agreement is in effect between the two com-
                               panies.
                                    Profit transfer agreements exist between AUDI AG and the principal German subsidiaries.


                               Additional disclosures pursuant to Section 289, Para. 4, of the German Commercial Code (HGB)
                               Along with the introduction of the German Takeover Directive Implementation Act on
                               July 14, 2006, Directive 2004/25/EC of the European Parliament and Council of April 21, 2004,
                               on takeover bids (“EU Takeover Directive”) has been implemented under German law.
                               Among other things, the law envisages changes to the German Commercial Code and ne-
                               cessitates additional particulars in the Management Report, which are provided below:


                               Capital structure
                               On December 31, 2007, the share capital of AUDI AG remained unchanged at €EUR
                               110,080,000 and comprised 43,000,000 no-par bearer shares. Each share represents a
                                                     €
                               mathematical share of EUR 2.56 of the issued capital.


                               Stockholders’ rights and obligations
                               Stockholders enjoy property and administrative rights.
                                  The property rights include, above all, the right to a share in the profit (Section 58,
                               Para. 4, of the German Stock Corporation Act [AktG]) and in the proceeds of liquidation (Sec-
                               tion 271 of the German Stock Corporation Act), as well as a subscription right to shares in
                               the event of capital increases (Section 186 of the German Stock Corporation Act).
                                  The administrative rights include the right to participate in the Annual General Meeting
                               and the right to speak, ask questions, table motions and exercise voting rights there. Stock-
                               holders may assert these rights, in particular, by means of a disclosure and avoidance ac-
                               tion.
234




                       Each share carries an entitlement to one vote at the Annual General Meeting. The Annual
                     General Meeting elects the members of the Supervisory Board to be appointed by it, as well
                     as the auditors; it decides, in particular, on the ratification of the acts of members of the
                     Board of Management and Supervisory Board, on amendments to the Articles of Incorpora-
                     tion and Bylaws, as well as on capital measures, on authorizations to acquire treasury
                     shares and, if necessary, on the conduct of a special audit, the dismissal of members of the
                     Supervisory Board within their term of office and on liquidation of the Company.
                        The Annual General Meeting normally adopts resolutions by a simple majority of votes
                     cast, unless a qualified majority is specified by statute.
                        A control and profit transfer agreement exists between AUDI AG and Volkswagen AG as
                     the controlling company. This agreement permits Volkswagen to issue instructions. The
                     profit after tax of AUDI AG is transferred to Volkswagen. Volkswagen AG is obliged to make
                     good any loss. Outside Audi stockholders receive a compensatory payment that is linked to
                     the dividend distributed on each Volkswagen share.


                     Composition of the Supervisory Board
                     The Supervisory Board comprises 20 members; half of them are representatives of the stock-
                     holders, elected by the Annual General Meeting. The other half of the Supervisory Board
                     members are employee representatives elected by the employees in accordance with the
                     German Codetermination Act. A total of seven of these employee representatives are em-
                     ployees of the Company; the remaining three Supervisory Board members are representa-
                     tives of the unions. The Chairman of the Supervisory Board, a stockholder representative
                     elected by the members of the Supervisory Board, ultimately has two votes on the Supervi-
                     sory Board in the event of a tie vote, pursuant to Section 13, Para. 3, of the Articles of Incor-
                     poration and Bylaws.


                     Statutory requirements and provisions under the Articles of Incorporation and Bylaws on
                     the appointment and dismissal of members of the Board of Management and on the
                     amendment of the Articles of Incorporation and Bylaws
                     The appointment and dismissal of members of the Board of Management are stipulated in
                     Sections 84 and 85 of the German Stock Corporation Act. Members of the Board of Man-
                     agement are accordingly appointed by the Supervisory Board for a period of no more than
                     five years. Reappointment or an extension of the term of office, in each case for no more
                     than five years, is permitted. Section 6 of the Articles of Incorporation and Bylaws further
                     stipulates that the number of members of the Board of Management is to be determined by
                     the Supervisory Board and that the Board of Management must comprise at least two per-
                     sons.


                     Key agreements by the parent company that are conditional on a change of control
                     following a takeover bid
                     AUDI AG has not reached any agreements that are conditional on a change of control follow-
                     ing a takeover bid. Nor has any compensation been agreed with members of the Board of
                     Management or employees in the event of a takeover bid.


Corporate steering   Strategy
                     The management of AUDI AG has set itself the target of establishing the Audi brand as the
                     most successful premium brand in the world by 2015. A comprehensive, detailed portfolio of
                     measures designed to achieve this goal was again drawn up in the 2007 fiscal year. All
                     activities stemming from this annual planning process reflect a quartet of strategic aims:
                                                                                                                       235




– Volume growth to 1.5 million vehicles
– Customer enthusiasm and image leader in emotion and quality
– Substantial rise in profitability
– Most attractive employer


Volume growth to 1.5 million vehicles
Audi plans to sell 1.5 million premium vehicles by the year 2015. In order to achieve this
ambitious goal, the Company sustained the swift pace of its long-term model initiative in
2007. Vehicles such as the Audi A5 Coupé, which made its market debut in the early part of
the year, the Audi R8 thoroughbred mid-engine sports car and the new Audi A4 Sedan
launched in the fall thrilled customers and trade journalists from all over the world. In 2008,
further new models such as the Audi A3 Cabriolet, Audi TTS Coupé and Roadster and the
Audi Q5 will extend the Company’s youthful, sporty product line. The market launch of the
new Audi A4 Avant will round out the glittering array of new products in 2008.
    At the same time, Audi is steadily increasing its engagement in car markets around the
world. The Audi sales organization in the important U.S. market was restructured and prepa-
rations were made for the nationwide launch of ultra-efficient diesel technology – a domain
in which Audi has enjoyed outstanding expertise for many years. In key growth markets
such as China and Russia, the Company extended its exclusive dealer and service network,
and laid the foundations for future success in India by kicking off local CKD assembly of the
Audi A6.
    Audi is planning to push its sales of premium vehicles above the one-million mark by as
early as 2008. The Brussels plant in Belgium was integrated into the Audi manufacturing
network in early 2007 in order to guarantee the necessary manufacturing capacity.


Customer enthusiasm and image leader in emotion and quality
The focus of all activities at Audi is on delivering innovative, sustainable solutions that fully
live up to customers’ high expectations, as well as on offering exciting products that create
an emotional bond between customer and brand. One example is the e model line that was
launched during the past fiscal year. Aside from their very impressive fuel efficiency and
emission values, these cars offer the standard of sportiness that Audi customers have come
to expect and are tangible evidence of the “Vorsprung durch Technik” that typifies the
brand. This ultra-efficient vehicle concept has been received with great enthusiasm by cus-
tomers.
    Audi again won numerous awards for vehicles in 2007. In one of the leading reader polls,
conducted by trade magazine auto motor und sport1), the Audi A3, Audi A6 and Audi Q7 all
earned the distinction of “Best Cars” in their respective categories. Four Audi models were
among the prizewinners in the “Auto Trophy 2007” awarded by trade magazine Auto Zei-
tung2): The Audi A3, Audi A4, Audi A6 and Audi R8. The brand with the four rings also en-
joyed notable success on the international stage. In China, the Company’s largest export
market, Audi came in at the top of the J.D. Power Asia Pacific Study3), which analyzes the
satisfaction of new car buyers, for the second year in a row. The Audi TT was proclaimed the
“2007 World Car Design of the Year” by a jury of renowned trade journalists from 22 coun-
tries.
    Numerous motor-racing successes once more underscored the brand’s sporting creden-
tials in 2007. Audi repeated the legendary triumph of its R10 TDI diesel-powered racing car




1)
     Issue 04/2007, p. 120 ff.
2)
     Issue 26/2007, p. 78 ff.
3)                                                                             SM
     J.D. Power Asia Pacific 2007 China Customer Satisfaction Index (CSI) Study , press release dated July 30, 2007.
236




                           in the Le Mans 24 Hours and racked up its fifth win in the German Touring Car Masters
                           (DTM) race series.


                           Substantial rise in profitability
                           Within the context of AUDI AG’s sustained rapid growth, its management is eager to steadily
                           improve the Company’s profitability in order to generate the necessary financial resources
                           for new, forward-looking capital investments. In addition to higher business volume, on-
                           going analysis and enhancement of all corporate processes play a major role in this respect.
                           Pioneering concepts such as the “Production Turntable” and modular toolkit systems in-
                           crease the synergy benefits, helping to implement new vehicle concepts more cost-
                           effectively. The Company is also using systematic investment management to make opti-
                           mum use of the available financial resources.


                           Most attractive employer
                           Audi’s ambitious growth will also continue to hinge upon committed, highly qualified em-
                           ployees. One of the Company’s core strategic aims is therefore to become an even more
                           attractive employer. The associated activities include creating a working environment in
                           which a highly motivated team can continually develop. In addition to flexible working hour
                           programs, the Company offers performance-based remuneration and pays out a variable
                           share of its profit as a means of acknowledging the hard work and dedication of its em-
                           ployees.
                              Both regular internal employee surveys and, for example, a survey conducted by the re-
                           nowned trendence Institute to identify the most popular employer in 20071) serve to confirm
                           just how successful these measures have been. In the latter survey, engineering students
                           ranked Audi second.
                              Audi plans further recruitments in the 2008 fiscal year.


                           System of remuneration for the Supervisory Board and Board of Management
                           Information on the system of remuneration for the Supervisory Board and Board of Man-
                           agement is provided in the Notes to the Financial Statements of AUDI AG under “Details of
                           the Supervisory Board and Board of Management.”


Research and development   In addition to their high build quality, AUDI AG’s premium vehicles are noted, first and fore-
                           most, for their innovative technological concepts. Numerous developments again reached
                           production maturity in 2007.
                               The total number of employees in the Research and Development area at AUDI AG aver-
                           aged 5,973 (5,717) over the year.


                           Technical innovations

                           Efficient sportiness: The Audi e models
                           The first ultra-efficient Audi e models made their successful market debut at the start of
                           2007. These vehicles achieve truly impressive fuel efficiency and low pollution emissions,
                           while at the same time delivering the sportiness customers have come to expect from Audi.
                           This was made possible by the use of cutting-edge technologies in the field of gasoline and
                           diesel direct injection, as well as by a comprehensive package of measures such as trans-
                           mission modifications, aerodynamic optimizations, driver assistance systems and ultra-
                           modern Audi lightweight construction.




                           1)
                                trendence Institute: The 2007 Graduates Barometer – Business and Engineering Edition, Berlin 2007
                                                                                                 237




   The Audi A8 2.8 FSI e, unveiled in the second half of 2007, for example, achieves average
fuel consumption of 8.3 liters of premium-grade fuel per 100 kilometers with an engine that
boasts a power output of 154 kW (210 hp). This equates to emissions of 199 g of CO2/km.
Over the course of the next few years, e models will be launched in all high-volume car lines.


Audi TDI with “ultra low emission system”
As one of the world leaders in the field of ultra-modern diesel technology, AUDI AG is her-
alding in a new era for this superior drive concept in launching the latest TDI generation.
The proven principle of direct diesel injection with turbocharging has been combined with
an array of innovative measures, such as the new piezo common rail system with 2,000-bar
injection pressure, further enhanced turbocharging and the world’s first use of combustion
chamber sensors, bringing a significant reduction in untreated engine emissions. In con-
junction with the secondary ultra low emission system that reduces nitrogen oxide emis-
sions by as much as 90 percent, the drive concept becomes a high-tech yet very economical
diesel. The engines that have been developed currently satisfy the most stringent exhaust
emissions in the world and already meet the 2014 limits under discussion for Europe. The
Audi Q7 and Audi A4 will be the first car lines to feature the 3.0 liter TDI engine with ultra
low emission system.


New 1.4 liter TFSI engine in the Audi A3
The new 1.4 liter TFSI engine is another highly efficient, high-performance addition to the
successful Audi A3 car line. The engine is based on the successful concept of FSI technology
with turbocharging and develops 92 kW (125 hp) with peak torque of 200 Nm. Accelerating
from 0 to 100 km/h in 9.6 seconds and with fuel consumption averaging 6.5 liters of pre-
mium fuel per 100 kilometers, the new 1.4 TFSI in the Audi A3 delivers impressive driving
enjoyment coupled with fuel efficiency and an emissions value of 154 g of CO2/km.


Several vehicles in one: Audi drive select
Audi drive select made its first appearance in a production model in the new Audi A4 Sedan.
This advanced system enables drivers to fully adapt the vehicle’s characteristics to their own
personal preferences.
   Specifically, this is achieved by simultaneously incorporating various technical compo-
nents with individually variable settings, such as engine management, automatic transmis-
sion, steering and shock absorbers. In addition to the three main modes of “comfort” for a
comfortable response, “auto” for a balanced response and “dynamic” for an emphatically
sporty response, an “individual” mode is available as an option. This enables a freely con-
figurable combination of settings for the vehicle’s individual components. Consequently,
Audi drive select offers the customer a high level of individuality, successfully combining
several vehicle philosophies into one.


Acoustic roof on the Audi A3 Cabriolet
A fully automatic acoustic roof was unveiled as an equipment option for the new Audi A3
Cabriolet. Thanks to the soft top’s further improved thermal insulation and soundproofing,
the noise level inside this vehicle at a speed of 140 km/h is a mere 1 dB(A) higher than in an
Audi A3 with conventional roof. The acoustic roof opens up a whole new dimension in driv-
ing and, powered by a high-performance mechanism, takes a mere nine seconds to open.
When folded up in a Z-pattern, it takes up only a small amount of room and leaves more
trunk space than a steel roof concept would. The use of a fabric soft top also preserves the
classic, timeless convertible silhouette.
238




                   Innovations for safety

                   LED technology
                   For several years now, AUDI AG has been working extremely successfully on refining LED
                   technology. This offers particular advantages by comparison with conventional concepts.
                   In addition to lower energy consumption and less wear, this form of illumination is closer to
                   natural daylight, produces better contrast and is easier on the eye.
                       AUDI AG, which had already featured the first all-LED headlights (low beams, high beams,
                   daytime running lights, turn signals) on a production car in the Audi R8, is now making use
                   of this innovative lighting concept in its new models. The new Audi A4 and Audi A3 Cabrio-
                   let, for example, are optionally available with LED daytime running lights. The white light-
                   emitting diodes accentuate the unique character of the brand with the four rings.


                   Comprehensive package of assistance systems for the midsize class
                   The new Audi A4 Sedan is the first midsize model to feature a comprehensive package of
                   assistance systems adapted directly from the full-size category. This vehicle can be option-
                   ally equipped with Audi side assist, which alerts the driver to other vehicles in the blind spot
                   when changing lanes. There is also an Audi lane assist feature to alert the driver should the
                   car drift out of lane. The optionally available adaptive cruise control (ACC) system regulates
                   the distance to a preceding vehicle detected by the radar sensor by means of controlled
                   braking and acceleration. If the vehicle in front brakes abruptly, Audi braking guard is acti-
                   vated. This system initially warns the driver by means of visible and audible signals and
                   then, if need be, briefly but forcefully applies the brakes to prompt the driver to brake the
                   car if necessary.


Employee matters   Workforce


                                                                                            2007            2006


                     AUDI AG, average for the year                                        44,698           44,701
                     of which:
                        Ingolstadt plant                                                  31,369           31,276
                        Neckarsulm plant                                                  13,329           13,425



                   Despite the sharp rise in vehicle sales, the workforce of AUDI AG at its two locations in
                   Ingolstadt and Neckarsulm remained on a par with the previous year at 44,698 (44,701).
                      The proportion of severely handicapped individuals at AUDI AG edged up to 5.4 (5.2) per-
                   cent at year end. Audi furthermore exercises social responsibility in regularly awarding con-
                   tracts to “Lebenshilfe” workshops for the handicapped in the Ingolstadt and Neckarsulm
                   regions. These workshops assemble gear lever trims, shock absorbers and other compo-
                   nents.
                                                                                                 239




Compatibility of job and family
Audi attaches high priority to the compatibility of job and family. The Company gives new
parents taking parental leave a seven-year guarantee of reemployment. To smooth the way
for integration after parental leave, Audi offers the “Job&Child” program. This enables par-
ents to maintain contact with the Company during parental leave, taking part in further
training and other measures.


New record ratings for industrial safety
Premium-segment vehicles can only be manufactured efficiently and economically with the
aid of ultra-modern production facilities. Innovative manufacturing methods are the key to
turning out high-quality products. At the same time, this requires that complex processes be
handled. Alongside the ongoing quest to maximize productivity, safety at the workplace
ranks as one of the overriding concerns here. Audi therefore builds aspects of industrial
safety into its processes as early as the planning stage.
   The results are clearly evident: The rate of “reportable” accidents per million hours
worked at Audi is almost 50 percent lower than the average for the automotive industry.
   An Industrial Safety Award is given each year in recognition of exceptional achievements
by management and the workforce. In June 2007, the Board of Management and the General
Works Council presented awards and certificates in the three categories of “Accident-Free
Working,” “Progress in Reducing Accident Numbers” and “Industrial Safety Initiative.”
   Labor and management at Audi have concluded a company agreement on industrial
safety. Its purpose is to ensure that industrial safety is always understood as a joint, all-
encompassing task. This principle applies to production operations as well as to the entire
value chain.


Employee profit-sharing
The success of a company is simultaneously also a reflection of what all employees have
contributed. AUDI AG has therefore been allocating a variable share of profits to its em-
ployees for many years. The previous profit-sharing arrangements were extended in 2005
when the agreement called “Audi’s Future – Performance, Success, Sharing” went into
effect. The additional bonus is tied directly to the Audi Group’s operating result and thus
reflects the performance of the Company itself. Together with the previous profit share,
AUDI AG employees received an average performance-based bonus of EUR 3,700 in 2007 for
the preceding fiscal year.


Efficient suggestions award program
The ongoing enhancement of products and working processes is one of the main pillars of
Audi’s huge success. The Company-wide suggestions award program is playing an increas-
ingly pivotal role here – with a dual effect: It helps the Company become more efficient
while at the same time increasing employee motivation by putting their suggestions into
practice and awarding bonus payments.
    The total amount saved thanks to employee suggestions reached a new record level of
around EUR 60 million in 2007. The number of suggestions assessed as having particular
merit (i.e. producing potential savings of over EUR 20,000) was higher than ever last year, as
were the actual savings per implemented suggestion. The participation rate showed a
marked increase by comparison with the year before.
    In July 2007, the German Institute of Management awarded AUDI AG its prize for the best
suggestions award program in the car industry for the fourth time in a row.
240




                  Handling demographic change
                  AUDI AG’s strategic aim is to become the most successful automobile manufacturer in the
                  premium segment. As it progresses along that path, the average age of the workforce at
                  AUDI AG will rise to around 45 over the next five years due to demographic change. By then,
                  some 5,400 employees engaged in direct manufacturing activities – one in four – will be
                  over 50 years of age. Some time ago, the Company therefore seized the initiative to develop
                  an appropriate response to this development.
                      The interdisciplinary Audi Demographics Project seeks to shape the working conditions
                  for an aging workforce in such a way that, for example, persons over 60 years of age will still
                  be capable of performing such tasks as vehicle assembly. Audi is conducting a “Workplace
                  Structural Analysis” of its production operations. Each individual workplace is being ana-
                  lyzed and assessed in terms of physical strain potential. On the basis of these findings, ways
                  of further reducing this physical strain at the workplace are then identified and imple-
                  mented in order to make that workplace equally suited for employees of all ages.
                      This subject area also encompasses the development of age-appropriate working hour
                  models, including both models for the individual’s working life as well as special part-time
                  arrangements. Representative employee surveys are used as a basis for future working hour
                  arrangements.
                      Another area covered by the Demographics Project is preventive healthcare: “Healthy Liv-
                  ing and Working.” The Audi Checkup is an important preventive healthcare instrument. This
                  comprehensive, voluntary health exam is offered free of charge to all employees and is
                  available during working hours. The checkup involves various tests, the results of which are
                  then discussed in detail between doctor and patient.
                     The elimination of government subsidies for partial early retirement creates further key
                  task areas which call for expert handling of demographic change. The Demographics Project
                  includes a communication campaign entitled “my way” that seeks to raise awareness of
                  aging and personal initiative. It highlights the principle that most aspects of aging are not a
                  matter of fate and that individuals have some degree of influence over everything from
                  personal fitness and lifestyle to financial planning for retirement.


Audi in society   Research partnerships
                  An automobile manufacturer that has embraced “Vorsprung durch Technik” needs to main-
                  tain thriving contacts with the research world. The first systematic partnership with universi-
                  ties was forged through the INI.TUM project, a successful partnership with the Technical
                  University of Munich that was launched in 2003. Since then, other partnership projects have
                  been put in place with the Universities of Stuttgart and Karlsruhe, the Ingolstadt University
                  of Applied Science, the Friedrich-Alexander University of Erlangen-Nuremberg and the
                  Ludwig-Maximilians University of Munich.
                     There were two objectives in selecting the university-level partners: The partners at the
                  universities needed to have a very good reputation for their research and teaching. And the
                  researchers had to be prepared to come from the major cities to Audi’s locations. These
                  requirements ensure that young researchers gain new insights into the way industry uses
                  research findings and also enhance the cities and towns that are home to Audi’s operations.
                  As of late 2007, 22 projects under the auspices of these institutes were already up and run-
                  ning, with a further 63 in the pipeline. The Audi university institutes have produced 17 inven-
                  tions to date.
                     The five universities with which AUDI AG collaborates have received commendation un-
                  der the German government’s Initiative for Excellence program – a fitting tribute to the high
                  standards of these research partners.
                                                                                                                        241




                        Location-specific partnerships
                        A company of Audi’s caliber bears responsibility for more than just its employees. Audi also
                        seeks to foster education and non-profit organizations.
                            AUDI AG has joined forces with the City of Ingolstadt, other major companies and the
                        districts of Pfaffenhofen, Neuburg-Schrobenhausen and Eichstätt in founding an association
                        named the “Regional Management Initiative for the Ingolstadt Region.” The goal is to har-
                        monize efforts to promote the entire region around Ingolstadt, where the Company head-
                        quarters are located. The association aims to improve the quality of life in the region, pro-
                        mote research and education, and create more jobs. This region already has one of the
                        highest employment rates in Germany. The core aims of the initiative additionally include
                        nurturing and developing the landscape and cultural life.
                            Audi also actively supports the “European Metropolitan Region of Munich,” where indus-
                        try has joined forces with political, educational, cultural and administrative bodies in an
                        effort to improve development prospects throughout southern Bavaria.


Environmental aspects   Environmental mission statement
                        As a globally operating company, AUDI AG actively embraces social responsibility. This in-
                        cludes, in particular, the principle of sustainable management, which forms an integral part
                        of Audi’s strategy. In addition to prevention measures such as efficient resources manage-
                        ment, the Company is contributing to major advances in protecting the environment
                        through its many pioneering technological innovations, and proudly bears the European
                        Union’s symbol of environmental excellence.
                           On the basis of these ongoing efforts to reconcile economics with ecology, customers
                        can rest assured that conservation of resources ranks right alongside durability, quality and
                        safety as a core aspect in the development and production of every Audi vehicle.


                        High standard of location-based environmental protection
                        AUDI AG is a pioneer in location-based and company-wide environmental protection.
                           In addition to organizational measures within its environmental management systems,
                        pollution at all locations is being steadily reduced with the aid of pioneering technologies.
                        Regular internal reviews and external auditing of all manufacturing plants help to monitor
                        the progress of these efforts.
                           AUDI AG’s locations have been accredited in accordance with the EU Eco-Management
                        and Audit Scheme (EMAS). In 1995, the Company became the first premium-segment car-
                        maker to be awarded this prestigious certification for its Neckarsulm location. The Ingol-
                        stadt plant followed two years later.


                        Conserving energy and reducing emissions
                        Environmental protection at the production locations places particular emphasis on con-
                        serving energy and reducing emissions to protect the climate.
                            Steadily improving the energy efficiency of manufacturing facilities will play a major role
                        in achieving this goal. Another measure involves gradually increasing the proportion of rail
                        freight. Audi is also working on comprehensive logistical processes, such as optimizing
                        truck capacity utilization, in order to reduce essential transportation trips to a minimum.
                            Natural gas, district heating, heat recovery systems and a modern cogeneration plant are
                        just some of the many important examples of how this issue is being addressed.
242




         Emissions of organic compounds can be further reduced by the use of modern plant en-
      gineering and efficient painting techniques, such as the use of water-based paints. AUDI AG
      has, for example, reduced emissions of organic compounds at the paint shop in Ingolstadt
      by around 38 percent since 1998.


      Comprehensive measures for enhancing the fuel efficiency of Audi models
      Audi already has an established reputation among premium manufacturers thanks to its
      comprehensive strategy for reducing fuel consumption and emissions across the entire
      fleet. These efforts will continue in the future, without altering the decidedly sporty charac-
      ter of the brand. Simultaneous action will be taken in four specific areas:

      –   Optimizing gasoline and diesel engines
      –   Alternative drive systems and fuels
      –   Improvements to the total vehicle
      –   Maximizing the contribution by and for the driver


      Optimizing gasoline and diesel engines
      Gasoline and diesel engines will remain the bedrock of vehicle drive systems in the coming
      years. Further optimization of these drive concepts is therefore crucial. Audi has once again
      demonstrated its immense expertise in the field of ultra-efficient internal combustion en-
      gines through such developments as the progressive TFSI and TDI technologies.
         Audi will be putting the ultra low emission system for diesel engines into production ve-
      hicles in the U.S. and Europe in the future. The levels of nitrogen oxides in emissions from
      modern diesel engines, which are already very low, will then be largely eliminated by con-
      trolled injection of an aqueous ammonia solution into the exhaust system. This highly effi-
      cient diesel engine will make Audi the first manufacturer ever to comply with the world’s
      strictest emission standard (LEV II BIN 5) in California and achieve the EU6 limits that are
      currently under discussion for 2014.
          Measures for gasoline engines include such technological innovations as the Audi
      valvelift system, which has already been used in production in the Audi A6 2.8 FSI since the
      fall of 2006. Controlled valve lift further boosts the torque and power output of the gasoline
      engine, while appreciably improving fuel efficiency. The fuel consumption of the A6 2.8 FSI,
      for example, has been cut by one liter of premium-grade fuel per 100 kilometers.


      Alternative drive systems and fuels
      Over the medium term, alternative drive systems and fuels will replace classic drive con-
      cepts. Optimum ecological and economical implementation of these innovations is a major
      challenge.
          Such systems include the Audi Q7 hybrid, which was presented to a select audience of
      industry specialists in August 2007 at exclusive driving events – the Audi TechDays – as well
      as innovative concepts for ethanol and natural gas engines that may be made available
      beginning in 2009, demand permitting.
          The widespread introduction of virtually CO2-neutral alternative fuels is also in prepara-
      tion through existing partnerships with fuel manufacturers. These modern, waste-based
      fuels do not pose competition to food production and satisfy all performance requirements
      of modern engines.
                                                                                                243




Improvements to the total vehicle
Audi views improvements to the total vehicle as a further important means of improving
efficiency. These include various thermo-management measures that enable the engine and
transmission to reach the most fuel-efficient operating temperature faster, along with brak-
ing energy recovery, which will be making its appearance in Audi vehicles in the future.
    Audi unveiled this type of concept in the new Audi A4 at the Frankfurt Motor Show (IAA)
in September 2007. The concept also featured Automatic Start/Stop, which switches off the
engine while the car is waiting at traffic lights, thereby reducing off-load consumption to
zero without in any way diminishing ride comfort. The concept car exhibited, an Audi A4 2.0
TDI developing 105 kW (143 hp), achieves CO2 emissions of less than 130 g/km, for example.


Maximizing the contribution by and for the driver
A vehicle’s fuel efficiency and emissions are influenced by individual driving style by as
much as 30 percent. For many years, Audi has therefore been offering Audi Economy Train-
ing courses, to instruct drivers in the most relevant methods of more efficient fuel use. In-
formative assistance systems that provide the driver with comprehensive information to
promote fuel-efficient driving have also been exhibited at shows and other events.
   At the Shanghai Motor Show, Audi presented the Audi Cross Coupé quattro concept car
with the specially configured Audi drive select featuring an “efficiency” driving program in
addition to the “sport” and “dynamic” driving modes. This new mode modifies the engine
map and shift point to produce an ultra-economical driving style. Unless otherwise required,
the concept car’s system additionally deactivates especially energy-hungry components
such as the air conditioning compressor. The system also uses navigation route data and
the radar-based adaptive cruise control system to achieve substantial fuel savings.

Audi intends to use the above measures, combined in the modular efficiency toolkit, to cut
the vehicle fleet’s CO2 emissions by 20 percent by 2012.
   The new generation of the Audi A4 Sedan offers impressive proof of how much has al-
ready been achieved; its CO2 emissions have been cut by 15 percent, while its performance
has simultaneously risen by 14 percent.
    In launching the e models at the start of 2007, Audi has also been able to provide a par-
ticularly attractive form of travel that combines resource conservation with dynamism. The
first such model to appear was the Audi A3 1.9 TDI e, launched in January 2007, with an
output of 77 kW (105 hp) and CO2 emissions of 119 g/km.


Audi vehicles already satisfy the forthcoming EU recycling directive
AUDI AG is the first and only volume car manufacturer whose current models already satisfy
EU Directive 2005/64/EC on the recyclability and recoverability of motor vehicles, which will
take effect in 2010. By then, new vehicles must be 85 percent recyclable and up to 95 per-
cent recoverable. The engineers who design the vehicles built by the brand with the four
rings select recoverable materials. Every model is therefore subjected to exhaustive recy-
cling tests and material analyses before its market launch.

Further information on environmental aspects can be found on the Internet at
www.audi.com/environmental-protection and on the Group portal at
www.volkswagen-sustainability.com.
244




Economic environment   Global economic situation
                       In 2007, vigorous economic growth worldwide was sustained at almost the same level as the
                       year before. The powerhouses of growth were principally the national economies in emerg-
                       ing countries in Asia, Latin America and Central and Eastern Europe, which experienced very
                       dynamic expansion. In the industrialized nations, the crisis prompted by the U.S. subprime
                       mortgage market clouded the economic climate on international financial markets in the
                       second half of the year.
                          There was a sharp slowdown in economic growth in the U.S. in 2007. Growth in gross
                       domestic product was down as well year on year, at 2.2 (2.9) percent. This was prompted by
                       slower growth in consumer spending in the wake of the financial crisis on the one hand and
                       weakened investment activity, particularly in private-sector housing, on the other.
                          The economy in Western Europe maintained the steady progress of the previous year.
                       The economy in the euro zone was thus able to grow by 2.6 (2.8) percent. Its development
                       was driven primarily by corporate investment and consumer spending, which benefited
                       from the continuing improvement in the labor market. The UK once again enjoyed stable
                       economic growth of 3.1 (2.9) percent.
                          The German economy remained buoyant, if slightly less so than the year before. Eco-
                       nomic growth was, however, down year on year at 2.5 (2.9) percent. The mainstays of the
                       economy were corporate investment and exports which, despite the strength of the euro,
                       reached a new record level. The sharp rise in energy prices and in particular the VAT rate
                       hike at the start of 2007 impeded economic progress. Consumer spending was down mark-
                       edly as a result, especially during the first few months of the year. Bolstered by the rise in
                       employment, consumer spending recovered somewhat as the year progressed, but did not
                       quite reach the previous year’s level.
                           The national economies in Central and Eastern Europe enjoyed continuing vigorous
                       growth in 2007. In Russia, gross domestic product rose by 7.8 (6.7) percent. Exports bene-
                       fited from the sharp rise in energy and raw materials prices during the course of the year.
                           Economic growth in Latin American countries was again strong. The principal factors
                       here were the sharp rise in world market prices for raw materials and food, which boosted
                       the value of exports from this region.
                           The emerging countries of Asia continued to experience dynamic economic growth. The
                       pulse rate of the economy rose yet again in China. The growth rate for gross domestic prod-
                       uct, for example, was up slightly over the previous year’s high figure at 11.4 (11.1) percent.
                       The Indian economy, too, maintained a strong rate of expansion, growing by 8.8 (9.4) per-
                       cent. In contrast, Japan’s economic progress remained moderate with GDP growth reaching
                       1.9 (2.4) percent.


                       International car market
                       Global demand for cars in 2007 was supported to a considerable extent by sustained strong
                       economic growth in emerging countries. Economic dynamism in Asia, Latin America and
                       Central and Eastern Europe was the main factor behind the 4.2 percent rise in vehicle sales
                       worldwide to 58.4 million passenger cars. By contrast, the markets in the U.S. and Japan
                       contracted. The overall market for passenger cars in Western Europe reached only the level
                       seen the year before, due in particular to the sharp decrease in new registrations in Ger-
                       many.
                          Disregarding the German market, the car market in Western Europe exhibited an upward
                       trend in 2007. Total new registrations were up 3.1 percent year on year, at 11.7 million pas-
                       senger cars. Prompted by the payment of a disposal bonus for end-of-life vehicles, which
                       favored the compact car segment in particular, the Italian car market made distinctly posi-
                       tive progress, posting growth of 6.8 percent. Of the remaining key high-volume markets, the
                       UK and France reported growth of 2.5 and 3.2 percent respectively, while 1.2 percent fewer
                       new vehicles were registered in Spain.
                                                                                                 245




   Economic growth in the countries of Central and Eastern Europe gained further momen-
tum by comparison with 2006, with new registrations rising by 30.2 percent to a total of 4.2
million vehicles. In Russia, the already booming car market exhibited especially strong
growth in response to the economic upturn, increasing by 37.5 percent to 2.3 million pas-
senger cars in the period under review.
    In the United States, the market remained tight due to the intensive use of sales incen-
tives. The ongoing real estate crisis and high fuel prices had a negative impact on vehicle
sales. With 16.1 million registrations of new passenger cars, the car market overall showed a
year-on-year decrease of 2.5 percent.
    In contrast, the upward trend on car markets in South America accelerated. In Brazil,
passenger car sales rose by 26.9 percent to almost 2.0 million vehicles, while new registra-
tions in Argentina were up 28.9 percent to 402,000 passenger cars.
    The Asia-Pacific region again witnessed a dynamic market for cars in 2007. Unit sales
there totaled 14.3 million passenger cars, representing an increase of 7.8 percent. As in
previous years, the driving force behind this growth was China, which achieved an above-
average growth rate of 22.2 percent, bringing it to second place behind the U.S. with an
overall market volume of 5.1 million passenger cars sold. The Indian car market, too, main-
tained its dynamic progress, with growth of 16.0 percent, bringing total vehicle sales to
around 1.2 million units. In contrast, registrations of new cars in Japan fell by 5.2 percent to
4.4 million vehicles.


The German car market
In the first few months of 2007, the German car market was strongly influenced by con-
sumers moving their purchases of cars into 2006 in order to avoid the rise in the VAT rate on
January 1, 2007. The situation on the car market improved only marginally as the year pro-
gressed due to continuing reticence on the part of consumers. Registrations of new pas-
senger cars in Germany reached around 3.1 million units by year end, down 9.2 percent from
the year before. The economic recovery in Germany therefore had no impact on the car
market.
   Demand for more fuel-efficient diesel models rose as a result of further fuel price in-
creases over the course of the year. The percentage of overall registrations accounted for by
diesel models gained 3.4 percentage points, to 47.7 percent.
  German-built vehicles proved to be very popular on international markets, as a result of
which high passenger car exports over-compensated for weak domestic demand. In the year
under review, exports of passenger cars totaling 4.3 million units bettered the previous
year’s record figure by 10.6 percent. The countries of Western Europe were the most impor-
tant sales region, accounting for 2.6 million passenger cars, an increase of 10.7 percent. The
strong euro and difficult market conditions had a negative effect on exports to the U.S. in
2007. German manufacturers were nevertheless able to nearly equal the previous year’s
export volume, with attractive new models helping them to a total of 551,000 passenger
cars.
   Bolstered by high export demand, German car manufacturers built 5.7 million cars in
2007, a year-on-year increase of 5.8 percent and therefore a new record total. The number of
German-brand cars built abroad was up 10.4 percent over the previous year, at 5.2 million
units.
246




                     Management’s overall assessment
                     The economic environment for the automotive industry in 2007 revealed sharp contrasts.
                     Strong global economic growth sparked a rise in passenger car sales in many markets, in
                     particular in emerging countries such as China and India. At the same time, however, car
                     sales in the major volume markets of the U.S., Japan and Germany became divorced from
                     general economic progress and experienced a downturn. Competition intensified even fur-
                     ther as a result. Cost pressure also grew following energy and raw materials price increases.
                         In order to safeguard and strengthen its long-term competitiveness, AUDI AG continually
                     strives to improve its own productivity. Thanks to the steady refinement of its product,
                     process and cost management activities, the Company was very well equipped to handle the
                     more difficult conditions encountered in the year under review.
                         AUDI AG responded to heightened competitiveness in the automotive sector with exten-
                     sive measures designed to further enhance the appeal and quality of its products and ser-
                     vice. In addition, Audi made substantial efforts to establish a foothold in emerging markets
                     in order to seize opportunities for growth there. This paved the way for high-quality and
                     sustained growth in keeping with Audi’s strategy.
                         The new records established in 2007 for production output, unit sales, revenue and, of
                     course, profitability are impressive proof of how effective these measures were.


Course of business   Procurement
                     AUDI AG’s Purchasing Division has set itself the goal of establishing long-term bonds with
                     top-performing suppliers worldwide. In addition to the overall economic picture, the selec-
                     tion criteria of reliability, quality, innovativeness, service and price are particularly relevant.
                     In order to make optimal use of any joint synergy potential, this process is handled in close
                     consultation with VW Group Sourcing.
                                                                              €
                        The cost of materials for AUDI AG in 2007 amounted to EUR 18,504 (17,314) million. This
                     includes all raw materials and consumables used, as well as purchased goods and services.
                         The persistently high price levels for raw materials and energy again presented
                     AUDI AG’s Purchasing Division with major challenges in 2007. Financial impact on profitabil-
                     ity was nevertheless largely cushioned by close cooperation with suppliers and the exist-
                     ence of long-term price agreements.
                         Sourcing will gain increasing strategic importance with the sharp rise in manufacturing
                     volume and the growing trend toward model derivatization. In order to preempt the chal-
                     lenges of the future, partnerships with suppliers have been further intensified. Suppliers are
                     being involved in product development early on, so that economically advantageous solu-
                     tions can be identified together. Both ecological and purely economic aspects are taken into
                     account. For example, attention is paid to the recyclability of the materials used.
                         The AUDI AG Supplier Meetings are an important tool for interfacing with the supply in-
                     dustry. They provide a platform for informal exchanges and networking. Various events,
                     such as “TechShows,” provide companies with an opportunity to demonstrate how effective
                     and innovative they are.
                       The extended Web-based supplier platform additionally assures swift, ongoing commu-
                     nication, lastingly enhancing the efficiency of sourcing processes on both sides.
                                                                                                 247




Production
In the past fiscal year AUDI AG increased vehicle production by 2.3 percent to 921,534
(900,410) units, the highest figure in the Company’s history.

Vehicle production by model



                                                                       2007              2006


  Audi A3                                                            70,744          69,805
  Audi A3 Sportback                                                 160,171         159,581
  Audi A3 Cabriolet                                                     216                 8
  Audi A4 Sedan                                                     156,281         165,139
  Audi A4 Avant                                                     129,805         142,027
  Audi A4 Cabriolet                                                  23,641          27,735
  Audi RS 4 Sedan                                                     2,401              4,384
  Audi RS 4 Avant                                                     2,191              2,666
  Audi RS 4 Cabriolet                                                   700               589
  Audi A5 Coupé                                                      25,554               487
  Audi Q5                                                               162                 –
  Audi A6 Sedan                                                     157,645         150,901
  Audi A6 Avant                                                      71,945          70,430
  Audi A6 allroad quattro                                            16,340          11,838
  Audi RS 6                                                              35                 –
  Audi Q7                                                            77,396          72,188
  Audi A8                                                            22,182          22,468
  Audi R8                                                             4,125               164
  AUDI AG total                                                     921,534         900,410



528,310 (537,039) vehicles were built at the Ingolstadt plant during the past fiscal year. In
addition to the successful production launch of the new Audi A4 Sedan, the new Audi A5
Coupé went into volume production in preparation for a sliding market launch.
   The number of vehicles manufactured at the Company’s second German plant in Neckar-
sulm rose by 6.2 percent to 279,184 (262,851). Under the “Production Turntable” project,
production of the new Audi A4 Sedan began last year in tandem with the Ingolstadt plant.


Expansion of Audi production network
The manufacturing plant in Brussels, Belgium, and its workforce of around 2,100 people
were integrated into the Audi production network in May 2007. This created vital additional
capacity for meeting the strategic aim of building more than 1.5 million premium vehicles in
the year 2015. The Audi A3 Sportback is built at the Belgian plant, together with the VW Polo
on behalf of Volkswagen AG. The new Audi A1 is due to go into production there beginning
in 2009.


The “Production Turntable” concept
In order to further boost efficiency, AUDI AG implements the Production Turntable concept
for its two highest-volume car lines, the Audi A4 and Audi A3. In addition to being built at
the Ingolstadt plant, the new Audi A4 Sedan is also manufactured in Neckarsulm and the
Audi A3 Sportback at the Belgian plant in Brussels. Audi can thus respond flexibly to fluc-
tuating demand and make optimal use of the available capacity at its locations. The Produc-
tion Turntable principle plays a key role in assuring long-term job security.
248




      Production ramp-up in India
      In the fall of 2007, AUDI AG began assembly of the Audi A6 in Aurangabad in western India.
      This model is delivered to an exclusive zone of the Skoda Auto India Private Ltd. plant in the
      form of parts sets (CKD), where it is assembled to AUDI AG quality standards. Audi is using
      these local manufacturing operations to step up its involvement in this emerging market,
      where it plans to invest some EUR 30 million over the next few years. CKD assembly of the
      new Audi A4 will follow toward the end of the current fiscal year.


      Unit sales and distribution
      AUDI AG achieved its twelfth record-breaking year in succession last year, with vehicle sales
      up by 6.5 percent to 964,151 (905,188) units.

      Audi vehicle sales – largest markets



                                             Vehicle sales   Year-on-year   2007 market    Year-on-year
                                                     2007     percentage          share,    percentage
                                                                  change        percent      change in
                                                                                                 overall
                                                                                                market


        Audi worldwide                            964,151             6.5
        Germany                                   254,014           – 1.5            7.9           – 9.2
        China (including Hong Kong)               101,996            24.8            2.0           22.2
        United Kingdom                            100,712            17.1            4.2            2.5
        USA                                        93,506             3.8            0.6           – 2.5
        Italy                                      59,123             0.2            2.4            6.8
        Spain                                      58,850             7.9            3.7           – 1.2
        France                                     47,540             4.4            2.3            3.2
        Belgium                                    26,663             0.6            4.8           – 0.3
        Netherlands                                16,734           – 4.8            3.1            4.5
        Austria                                    15,860           – 7.3            5.3           – 3.4
        Switzerland                                15,599            11.8            5.6            5.7
        Sweden                                     15,477             6.1            4.9            8.5
        Japan                                      15,152             1.2            0.3           – 5.2
        Russia                                     15,007            49.3            0.6           37.5
        South Africa                               12,150           – 7.3            2.8           – 9.7



      In Germany, its home market, the brand with the four rings further increased its market
      share, selling 254,014 (257,792) vehicles. Despite the pressure placed on sales by the VAT
      rate hike on January 1, 2007, continued stiff competition and the model changeover affect-
      ing the Audi A4 Sedan in November 2007, market share grew to an excellent 7.9 (7.6) per-
      cent. This represents the highest market share in the history of the Company as a premium
      manufacturer.
         Audi also enjoyed notable success on major export markets. Vehicle sales in Western
      Europe (excluding Germany) grew by 6.1 percent to 396,393 (373,588) units. Sales pro-
      gressed particularly well in the UK (up 17.1 percent), Spain (up 7.9 percent), France (up 4.4
      percent) and Switzerland (up 11.8 percent).
                                                                                                249




  In China (including Hong Kong), Audi continued its unabated growth and remains the
undisputed leader in the premium segment. Sales rose by 24.8 percent to 101,996 (81,708)
Audi models, taking the Company over the 100,000-car mark in China for the very first time.
Asia’s biggest car market has thus become the most important export market for the brand
with the four rings. Audi is involved in numerous sponsoring activities in culture and sport
in China, with a view toward further consolidating its strong image there. Audi vehicles, for
example, will capture the limelight at this summer’s Olympic Games in Beijing in their ca-
pacity as “Official Premium Cars.”
    Audi sales rose again in the intensely competitive U.S. market, thus bucking the overall
market trend. Sales reached 93,506 (90,116) vehicles, representing a year-on-year improve-
ment of 3.8 percent. In an effort to sustain this positive momentum, Audi is stepping up
measures aimed at optimizing its service and dealer network. In addition, the Company is
preparing a diesel initiative in the United States. New TDI engines featuring the ultra low
emission system are to be brought to market. They are notable for their high efficiency cou-
pled with low fuel consumption and emissions.
    Audi also posted significant growth rates in the relatively new markets of Central and
Eastern Europe. In Russia, the region’s most important growth market, the brand succeeded
in increasing vehicle sales by an outstanding 49.3 percent to 15,007 (10,050) premium vehi-
cles.

Vehicle sales by model



                                                                       2007            2006


  Audi A3                                                            71,701          73,678
  Audi A3 Sportback                                                 159,148         161,886
  Audi TT Coupé                                                      38,745          16,753
  Audi TT Roadster                                                   13,026           2,745
  Audi A4 Sedan                                                     157,258         162,239
  Audi A4 Avant                                                     136,135         142,302
  Audi A4 Cabriolet                                                  23,819          27,410
  Audi RS 4 Sedan                                                     2,408           4,375
  Audi RS 4 Avant                                                     2,193           2,661
  Audi RS 4 Cabriolet                                                   704             585
  Audi A5 Coupé                                                      18,553             232
  Audi A6 Sedan                                                     149,026         148,227
  Audi A6 Avant                                                      69,567          76,556
  Audi A6 allroad quattro                                            15,622           9,799
  Audi Q7                                                            81,775          52,771
  Audi A8                                                            21,362          22,601
  Audi R8                                                             2,952             108
  AUDI AG total*                                                    964,151         905,188

* including internal vehicles for launch purposes


Sales of the Audi A3 and Audi A3 Sportback totaled 230,849 (235,564) units in the past fiscal
year, matching the previous year’s outstanding level. In addition, Audi unveiled its first
open-top version in the premium compact category to the public in November 2007. The
new Audi A3 Cabriolet embodies supreme driving enjoyment and will be available with a
choice of four powerful four-cylinder gasoline and diesel engines featuring progressive TFSI
and TDI technology right from market launch in April 2008.
250




         The new Audi TT Roadster made its debut in the spring of 2007. This sporty two-seater
      retains the unique styling of its predecessor and, like the Audi TT Coupé, offers particularly
      dynamic handling. A total of 51,771 (19,498) Coupés and Roadsters were handed over to
      customers last year. The ultra-sporty Audi TTS Coupé and Roadster versions will be appear-
      ing on the market in early summer 2008.
          Distribution of the new Audi A4 Sedan started in November 2007. Equipped with a huge
      array of technological innovations, new efficient powertrain versions and a unique design,
      this model sets the benchmark in the midsize category. The new Audi A4 Avant will follow in
      the first half of the current year. Despite the model changeover, demand for models in the
      Audi A4 car line (Sedan, Avant and Cabriolet) remained satisfyingly high at 317,212 (331,951)
      units.
          The Audi A5 Coupé, which made a very successful market entry in June 2007, acquired
      two further powertrain versions in September. The 3.2 FSI quattro with manual transmission
      develops 195 kW (265 hp). The 1.8 TFSI entry-level model with an output of 125 kW (170 hp)
      is a notably efficient version. The total number of Audi A5 Coupés delivered to customers
      had already reached 18,553 (232) by the end of December.
          The Audi A6 car line repeated its huge success from the year before, with sales totaling
      234,215 (234,582) vehicles. The development of demand for the Audi A6 allroad quattro was
      particularly pleasing, rising by an impressive 59.4 percent. The new Audi RS 6 Avant will
      begin appearing on markets this April. This high-performance model is outfitted with a
      newly developed 10-cylinder engine featuring FSI direct fuel injection and twin turbo-
      chargers, quattro permanent all-wheel drive and sports suspension with Dynamic Ride Con-
      trol. It is thrillingly and uncompromisingly sporty, yet eminently suitable for everyday use.
         In the premium SUV segment, the Audi Q7 maintained its impressive growth in 2007,
      with unit sales reaching 81,775 (52,771) vehicles. A version incorporating a 4.2 liter TDI en-
      gine, currently the most powerful diesel SUV in the world, appeared last March.
         The multiple award-winning Audi A8 car line was systematically refined last year. A more
      precise driving feel, an even better ride and acoustic comfort, as well as subtle enhance-
      ments to its design and interior underscore the exceptional status of the sportiest sedan in
      the luxury category. There is also a particularly efficient version available in the form of the
      new Audi A8 2.8 FSI e, which achieves average emissions of 199 g of CO2/km with a power
      output of 154 kW (210 hp). Even though the model facelift did not appear on the market until
      the third quarter of 2007, sales of this luxury sedan reached the previous year’s excellent
      level at 21,362 (22,601) units.
         Demand for the Audi R8 mid-engine sports car that was brought to market in early 2007
      exceeded all expectations. By December, customers had already accepted deliveries of 2,952
      (108) of these emotion-packed models that are the very embodiment of Audi’s “Vorsprung
      durch Technik” thanks to their innumerable technological innovations.


      Qualification initiative for Audi dealers
      During the past fiscal year, the first 40 Audi dealerships completed the qualification pro-
      gram launched by AUDI AG in 2006.
         This modular program examines all areas of an Audi dealer’s business and then develops
      customized measures hand in hand with the dealer. The focus is on aspects that include
      economic efficiency, customer satisfaction and the quality of repairs and services. Even
      after successfully completing the implementation phase, all dealerships continue to receive
      long-term backup to ensure that improvements are maintained long-term. Initial assess-
      ments indicated that the improvements in the above focal areas were as high as 50 percent.
                                                                                                                       251




                          Around 180 Audi dealers are currently participating in the qualification program in Ger-
                        many, with the total expected to reach 400 by 2009. An additional 475 dealers in European
                        countries are expected to join by 2010. By the end of 2008, AUDI AG will have invested some
                        EUR€ 50 million in its comprehensive qualification program and thus in the efficiency of the
                        dealer network as well.


Financial performance

                        AUDI AG grew its revenue in the 2007 fiscal year by an impressive 6.6 percent to EUR 27,693
                        (25,974) million, the highest total ever in its lengthy history.
                            Vehicle business played a significant role in the Company’s huge success by generating
                        revenue amounting to EUR 24,605 (23,323) million. The revenue mainstay was the Audi A4
                        car line, which made very healthy progress over the year as a whole, despite the changeover
                        to the new sedan version in the second half. Revenue from sales of the Audi A3, A6 and A8
                        models outpaced the previous year’s outstanding level, serving as tangible evidence of the
                        strong appeal of the brand with the four rings. The new Audi A5 Coupé and the TT car line,
                        including the new Audi TT Roadster that made its market debut at the start of 2007, pro-
                        vided ample impetus for growth. The huge success of the Audi R8 mid-engine sports car
                        from the moment it was launched in April exceeded all expectations. Revenue from sales of
                        the Audi Q7 once again rose impressively in the period under review, making this vehicle a
                        major source of growth for the Audi brand.
                            The cost of sales for AUDI AG rose by 6.2 percent in the period under review to
                        EUR 24,424 (22,998) million as a result of the higher sales volume. Further productivity gains,
                        improved processes and optimized material costs were the main reasons for the dispropor-
                        tionately low rise in cost of sales relative to revenue.
                           Overall, AUDI AG therefore enjoyed a notable increase in gross profit of 9.9 percent to
                        EUR 3,270 (2,976) million.
                           The 11.8 percent rise in distribution costs to EUR 1,826 (1,634) million was substantially
                        attributable to expenses incurred in entering new markets. Administrative expenses of €
                        EUR 138 (132) million were again on a par with previous years. The rise in other operating
                        result of EUR 278 million stemmed predominantly from higher income from the settlement
                        of foreign currency hedges.
                            The higher investment result of EUR 264 (101) million came principally from the markedly
                        higher profit transferred by quattro GmbH.
                            Thanks to the 31.9 percent improvement in the result from ordinary activities to
                        EUR 2,606 (1,975) million, the company posted the highest result in its history, a fitting
                        manifestation of its healthy, sustained growth.
                            The balance after deduction of taxes amounted to EUR 1,412 (€856) million, representing a
                        sharp year-on-year rise of 65.0 percent.
                            AUDI AG’s highly profitable growth is also reflected in the key return metrics. The rate of
                        return before tax, for instance, rose from 7.6 percent to an excellent 9.4 percent. The rate of
                        return after tax rose from 3.3 percent to 5.1 percent.
252




Net worth

                     The balance sheet total of AUDI AG rose by 9.8 percent over the past fiscal year to
                     EUR 15,116 (13,766) million.
                         Fixed assets increased by 10.9 percent to EUR 5,494 (4,955) million. This rise was
                     prompted, above all, by investments in property, plant and equipment and by the higher
                     level of securities. Capital investments of EUR 1,636 (1,121) million showed a year-on-year
                     rise of 45.9 percent. The emphasis here was on broadening the product portfolio.
                         Current assets (including deferrals) rose by 9.2 percent to EUR 9,622 (8,811) million in
                     2007, in particular as a result of an increase in receivables and in cash and cash equivalents.
                         The growth in equity (including special items with an equity portion) of 21.1 percent to
                     EUR 2,449 (2,022) million was attributable to the capital injection of EUR 428 million by
                     Volkswagen AG. The equity ratio for AUDI AG was therefore 16.2 (14.7) percent.
                         Liabilities rose to EUR 12,666 (11,744) million as a result of the higher provisions. This to-
                     tal includes a virtually unchanged level of liabilities amounting to EUR 5,596 (5,594) million.


Financial position

                     AUDI AG boosted its cash flow from operating activities by 5.8 percent in the 2007 fiscal year
                     to EUR 3,220 (3,044) million. The increase was prompted by the improved result and the
                     systematic optimization of working capital. Cash flow from investing activities was up on the
                     previous year at EUR 1,891 (1,663) million. The priorities in the 2007 fiscal year were product
                     investments for the new Audi A4 Sedan, the Audi A5 Coupé and the Audi A3 Cabriolet, as
                     well as preparations for volume production of the Audi Q5. As in the previous year, cash
                     flow from operating activities covered the cash used in investing activities in full. This fact is
                     further evidence of the Company’s financial strength.
                        Net liquidity as of December 31, 2007, was EUR 5,197 (3,927) million, an increase of 32.3
                     percent over the previous year.

                     Cash flow statement



                       €EUR million                                                            2007             2006


                       Cash flow from operating activities                                     3,220            3,044
                       Cash flow from investing activities                                   – 1,891          – 1,663
                       Net cash flow                                                           1,329            1,381
                       Cash flow from financing activities                                   – 1,538             294


                       Net liquidity                                                           5,197            3,927
                                                                                                                                253




Report on post-balance sheet date events

                              There were no reportable events of material significance after December 31, 2007.


Risk report

AUDI AG’s risk                The goal of AUDI AG’s risk management system is to minimize or, if possible, avoid the
management system             wide-ranging risks associated with entrepreneurial activity in order to safeguard the Com-
                              pany against potential losses and against risks to it as a going concern. Entrepreneurial
                              risks are deliberately taken only where they are moderate and commensurate with the an-
                              ticipated benefit from that business activity.
                                  A Company-wide risk management and early warning system is in place at AUDI AG to
                              actively monitor and steer risks. This covers AUDI AG and all subsidiaries from which signifi-
                              cant risks that could threaten the parent company as a going concern could spread.
                                  The tasks of risk management at AUDI AG are organized decentrally at the corporate divi-
                              sions and subsidiaries. Integration into existing business processes helps to promptly iden-
                              tify any risk-prone developments. All task areas as well as reporting and documenting obli-
                              gations for risk management are clearly defined and regularly monitored to verify that the
                              details on record are up to date.
                                  Potential risks are identified through the risk management procedures, based on defined
                              spheres of responsibility. The same applies to compiling and implementing appropriate
                              methods of steering and supervision, as well as to ongoing monitoring of the effectiveness
                              of the measures taken to achieve the objectives.
                                  Probabilities are estimated for all individual risks. The anticipated potential losses from
                              them are also quantified. The lost profit contribution and the costs incurred serve as the
                              metric for this purpose.
                                  The Board of Management and the Supervisory Board are regularly informed of all sig-
                              nificant risks to AUDI AG.

                              AUDI AG encounters the key risks listed below within the context of its business activities.
                              The individual risks described relate to the planning horizon of 2008 through 2010:


Economic and                  As a globally active company, AUDI AG is highly dependent on international economic con-
industry risks                ditions. This is particularly true with respect to the important sales markets of Europe, the
                              U.S., China and Japan. Although general economic developments in these regions are posi-
                              tive on the whole, car markets reflect this situation to only a limited extent. Furthermore, a
                              possible weakening of the global economy could have an adverse effect on consumer be-
                              havior in the automotive sector. Another risk is posed by persistently high or rising costs for
                              energy and raw materials. In addition to having financial implications for sourcing and
                              manufacturing, they may lead to consumer reticence.
                                  The premium segment in which the Audi brand is positioned is generally less susceptible
                              to the negative impact of cyclical fluctuations. Here too, however, a risk to sales from a cool-
                              ing-down of the general economy and a resulting downturn in the market cannot be entirely
                              excluded.
                                  As a company with worldwide operations, AUDI AG generates a large proportion of its
                              revenue in foreign currency. This revenue is exposed to risks from exchange rate fluctua-
                              tions that can adversely affect net profit. In addition to the pound sterling and the Japanese
                              yen, the euro can also fluctuate against the U.S. dollar in particular.
254




                         The automotive industry is marked by increasingly aggressive predatory competition, in
                       which sales incentives are becoming more and more widespread. This might result in price
                       erosion and could inflate marketing costs in AUDI AG’s key sales markets, with a corre-
                       spondingly detrimental effect on earnings.
                           Negative pricing practices by competitors that Audi might be obliged to match could also
                       have an adverse effect on the Company’s revenue and earnings performance.
                           AUDI AG’s far-reaching model initiative means that it is entering numerous new product
                       segments. In spite of meticulous planning and the use of market studies from the very start
                       of the product development process, it is not possible to anticipate every facet of the mar-
                       ket’s response. Furthermore, market acceptance of new generations of well-established car
                       lines might not meet expectations.
                           Future changes to the political and statutory environment and potential new legislation
                       relating to vehicle safety, fuel efficiency or pollution emissions remain risk factors. The cur-
                       rent debate on CO2 emissions could have an adverse effect on the image of the automotive
                       industry.

                       AUDI AG counters economic and industry risks with anticipatory measures and takes poten-
                       tial negative developments into account as early as the planning stage. The Company also
                       uses appropriate instruments to protect itself to an economically meaningful extent, and
                       regularly examines the economic environment for new and changing risks.


Risks from operating   There are diverse risks associated with AUDI AG’s operating activities that could substan-
activities             tially undermine its financial position and financial performance.
                           These include critical occurrences such as major fires and explosions that could damage
                       or destroy assets and also cause considerable consequential losses by hindering the pro-
                       duction process. Production problems could take the form of disruptions to the energy sup-
                       ply and technical disruptions, in particular to information technology. Although such occur-
                       rences harbor considerable potential losses, their probability is viewed as relatively low. In
                       addition, adequate insurance coverage has been taken out on an economically meaningful
                       scope and preventive measures, such as fire protection systems, installed. The high flexibil-
                       ity of the Audi production network also reduces risk.
                           The manufacturing process might also be hampered by supply delays or non-delivery as
                       a result of tool breakage, losses from natural disasters and strikes at suppliers or in the
                       transportation sector. A rise in the number of crises at suppliers, in some cases leading to
                       their insolvency, has furthermore been observed. In addition to taking out appropriate in-
                       surance coverage, AUDI AG implements a detailed supplier selection, monitoring and steer-
                       ing process to limit any risks to its financial performance early on.
                           The increasingly close ties between automotive manufacturers and the supply industry
                       bring with them the potential for both economic benefits and growing interdependence.
                       The exclusive use of innovative technologies by suppliers with global operations is lending
                       momentum to this trend. AUDI AG counters the resulting risks, for example, by defining
                       appropriate contractual terms and retaining title over tools used by third-party companies.
                           The complex product development process for new vehicles and components entails di-
                       verse potential risks, such as delays, essential changes to the product at short notice and
                       the loss of expertise as a result of the involvement of third-party service providers.
                                                                                                                                255




                               As a manufacturer of premium-segment vehicles, AUDI AG has installed extensive, effi-
                            cient quality management procedures. Nevertheless, it is impossible to entirely rule out
                            potential product liability risks. These could result in significant financial losses to the Com-
                            pany, in addition to harming its image.
                               Infringement of statutory regulations may occur in the course of operating activities.
                            These risks are limited by Company-wide procedures and ongoing monitoring of changes in
                            the law.
                               The growing electronic networking of processes within AUDI AG presents potential in-
                            formation and IT risks. In addition to the risk of failure of key systems controlling business
                            processes, financial performance could be adversely affected by unauthorized access, de-
                            struction and misuse, as well as by a heterogeneous system landscape. These risks are ap-
                            propriately cushioned by the implementation of Company-wide procedures, high security
                            standards and targeted communication with employees.


Financial risks             The financial risks resulting from AUDI AG’s business activities comprise market price risks
                            (exchange rate, interest rate and commodity price risks), creditworthiness risks and liquidity
                            risks.
                                Foreign exchange risks, relating in particular to the U.S. dollar, the pound sterling and
                            the Japanese yen, are also of particular relevance to AUDI AG in view of its worldwide sales
                            markets.
                                AUDI AG actively steers financial risks by intensively observing the market and imple-
                            menting appropriate hedging instruments. Derivative financial instruments are employed
                            for hedging purposes. The hedging transactions are concluded via Volkswagen AG with
                            national and international banks of top-grade creditworthiness. AUDI AG draws up a regu-
                            larly updated liquidity projection with daily, weekly and monthly horizons in order to steer
                            the liquidity risk.


Overall assessment of the   There have been no substantial changes in AUDI AG’s risk position by comparison with the
risk position               year before.
                               The risks described harbor the potential to significantly undermine AUDI AG’s financial
                            position and financial performance. On the basis of all known facts and circumstances,
                            however, no risks currently exist that could endanger the Company’s survival in the foresee-
                            able future.
256




Report on expected developments


Anticipated development of   General economic situation
the economic environment     AUDI AG believes that the global economy will slow down in 2008, following multiple pe-
                             riods of strong growth. The principal determining factor here is the prospect of a rapid slow-
                             down in the U.S. economy, outweighing robust economic growth in numerous developing
                             and emerging countries. The sustained high level of crude oil and raw materials prices will
                             also have a dampening effect.
                                In the United States, the continuing crisis in the real estate market will put a damper on
                             consumer spending. This will go hand in hand with increasingly restrictive lending practices
                             on the part of the banks, resulting in reduced private-sector investment activity. Economic
                             growth for the year as a whole is therefore expected to weaken even further.
                                In the euro zone, the economy will cool down somewhat in 2008, but the stable upward
                             trend will be sustained. AUDI AG expects to see a further decline in economic growth in
                             Germany. The dynamism of exports and capital expenditures will probably ease off. On the
                             other hand, however, consumer spending is likely to be stronger and make a larger contri-
                             bution to economic growth than in 2007, not least due to the continued upward trend of
                             employment, coupled with higher collective-bargaining settlements and lower inflation than
                             the year before.
                                The rate of economic expansion will remain high in many countries throughout Latin
                             America as well as Central and Eastern Europe. Most notably in Russia, the rapid upward
                             trend will continue thanks to the strong exports of the country’s energy producers.
                                 The Chinese economy will be dampened somewhat in 2008 as a result of the weakening
                             of the U.S. economy and the corresponding downturn in exports to the U.S. Its economic
                             dynamism will, however, remain at a high level, with GDP growth likely to remain in the
                             double-digit range. Continued vigorous economic expansion is expected in India. The Japa-
                             nese economy will again expand at only a very modest rate in 2008.


                             The car industry
                             AUDI AG anticipates a renewed increase in global demand for automobiles of over 2 percent
                             in 2008 to around 60 million passenger cars. Principal growth hotspots will be the emerging
                             markets of China, India and Russia.
                                 The general market environment will remain difficult in Germany. The forecast rise in
                             consumer spending will induce only a slight improvement in sales figures. AUDI AG expects
                             to see an increase in the volume of new registrations in the German market of just under 2
                             percent to around 3.2 million passenger cars.
                                 AUDI AG expects registrations of new cars in Western Europe (excluding Germany) to de-
                             cline to 11.4 million vehicles. Dwindling sales figures in Italy will be the main factor at work
                             here.
                                In the countries of Central and Eastern Europe, on the other hand, the market will remain
                             dynamic, although the growth rate will be down slightly from the previous year. AUDI AG is
                             forecasting growth of over 9 percent for the Russian automobile market to nearly 2.6 million
                             passenger cars.
                                A further deterioration in the U.S. car market is expected in 2008. The overall market vol-
                             ume of 16 million units sold will probably slip below the previous year’s total due to the
                             weakening of consumer spending.
                                                                                                                              257




                              The Asia-Pacific region will again enjoy strong growth in demand in 2008. The Chinese
                           car market, in particular, will continue to expand and should reach nearly 6 million units − a
                           growth rate of 17 percent. The rate of growth forecast for India is even higher at around
                           19 percent, bringing the total to 1.4 million passenger cars. In contrast, new registrations in
                           Japan will rise only marginally to just under 4.5 million passenger cars.


Anticipated developments   Increasingly intensive competition within the automotive industry and the ailing health of
at AUDI AG                 the economy will again pose major challenges for AUDI AG in 2008. An even greater effort
                           will therefore be required to repeat the economic successes of the past. Management is
                           nevertheless convinced that AUDI AG will be able to build on the outstanding results for
                           2007 and post positive overall results for its business activities in the 2008 fiscal year.


                           Anticipated development of vehicle sales
                           AUDI AG will sustain growth in vehicle sales in 2008 and plans to improve significantly on
                           the previous year’s record figure by selling more than 1 million Audi vehicles.
                               A large number of new models and derivatives, as well as those products with an estab-
                           lished market presence, should aid the brand in accessing new customer segments and
                           giving its appeal a long-term boost.
                               In its home market of Germany, the highest-volume market for Audi vehicles, the brand
                           with the four rings is striving to improve its market performance. Audi believes that it is well
                           equipped for further success in We