As well as acting as an umbrella firm for its four constituent brands (Audi, Horch, DKW, Wanderer), Auto Union is widely known for its racing team (Auto Union Rennabteilung, based at Horch works in Zwickau/Saxony). The Silver Arrows of the two German teams (Mercedes-Benz and Auto Union) dominated not only GP car racing from 1934 onwards but set records that would take decades to beat, such as the fastest speed ever attained on a public road (at 432.7 km/h (268.9 mph), unbroken as of 2013). After being reduced to near ruin in the aftermath of World War II, Auto Union was re-founded in Ingolstadt, Bavaria in 1949, ultimately evolving into the modern day Audi company following its takeover by Volkswagen in 1964 and later merger with NSU Motorenwerke in 1969.
In 1930 the Saxony Regional Bank, which had financed Rasmussen's business expansion in the 1920s, installed Richard Bruhn on the board of Audiwerke AG, and there followed a brutal pruning and rationalization of the various auto-businesses that Rasmussen had accumulated. The outcome was the founding in Summer 1932 of Auto Union AG with just four component businesses, being Zschopauer Motorenwerke with its brand DKW, Audi, Horch and the car producing piece of Wanderer, brought together under the umbrella of single shareholder company Auto Union. Although all four brands continued to sell cars under their own names and brands, the technological development became more centralized, with some Audi models employing engines by Horch or Wanderer.
German racing driver Hans Stuck Sr. had met Hitler before he became Chancellor, and not being able to gain a seat at Mercedes, accepted the invitation of Rosenberger to join him, von Oertzen, and Porsche in approaching the Chancellor. In a meeting in the Reich Chancellory, Hitler agreed with Porsche that for the glory of Germany, it would be better for two companies to develop the project, resulting in Hitler agreeing to pay 40,000 for the country's best racing car of 1934, as well as an annual stipend of 250,000 RM (20,000) each for Mercedes and Auto Union. (In time, this would climb to 250,000.) This highly annoyed Mercedes, who had already developed their Mercedes-Benz W25, which nevertheless was gratified, its racing program having financial difficulties since 1931. It resulted in a heated exchange both on and off the racing track between the two companies until World War II.
The cars used supercharged piston engines; eventually producing almost 550 hp (410 kW; 560 PS), designed to provide optimum torque at low engine speeds. Rosemeyer would later drive one around the Nurburgring in a single gear, to prove the engine was flexible enough to do it. The fuel tank was located in the centre of the car, directly behind the driver (who would be placed well towards the front), so the car's front-rear weight distribution would remain unchanged as fuel was used – exactly the same location used in modern open-wheel racing cars, and for the same reason. The chassis tubes were initially used as water carriers from the radiator to the engine, but this was eventually abandoned after they often sprung small leaks.
The buildup and onset of World War II encouraged the development and production of special vehicles for military purposes in the 1930s. Auto Union became an important supplier of vehicles to Germany's armed forces. Following the outbreak of war, civilian production was interrupted in May 1940. After this, the company produced exclusively for military purposes.