Ferdinand Piëch, responsible on Audi's Board of Management since August 1975 for Technical Development, had given himself the objective to upgrade the position of the Audi brand in the market through the introduction of innovative technology. Far-sighted, bold, competent, and with a team of dedicated specialists able to turn his visions into reality, Piëch was aiming for success.

In February 1977 he was contacted by his chassis engineer Jörg Bensinger who, following winter driving tests in Finland with the 75-bhp Iltis offroader, was deeply impressed by the superior traction and convincing handling of this long-legged offroad vehicle. The other test cars and prototypes on the trip, all of them more powerful midrange saloons, had been left trailing in Bensinger's dust. His Iltis led the pack effortlessly; overtaking it was out of the question.

Bensinger was immediately thrilled by the idea of implementing a comparable drive concept featuring a far higher standard of motoring comfort in the midrange segment. After all, it was Audi's strategic target to join the topmost brands in the market.

Together with Walter Treser, at the time Audi's Director of Pre-Development, Bensinger advised Piëch to start appropriate tests with the Audi 80.

Unlike the chassis engineer, however, Audi's Board of Management was looking at a much more sophisticated and, indeed, ambitious solution: the idea was to build a high-power sports coupé with permanent all-wheel drive and the ability to leave the competition behind under all conditions both in motorsport and on the road.

Piëch was fully aware of the potential offered by four-wheel drive. After all, his grandfather Ferdinand Porsche had already examined this technology in detail, even building four-wheel-drive vehicles such as a towing vehicle for the Austrian Army, the famous Lohner electric car with four motors on the wheel hubs, and, as his final development along these lines, a Cisitalia racing car.

This clearly set the starting point for a challenging and even delicate project. "Delicate" because Bensinger and his team had not even received an official development brief. Using their existing budget and components, and under substantial time pressure, they were obliged to quickly compile new data and information, and to make clear-cut, meaningful recommendations.

The new development was based on the Iltis's drive concept, the original idea being to introduce the new drive technology in a homologation model first intended to prove its merits in rally racing.

Soon, however, the hand-picked members of the development group operating under maximum secrecy realised that the objective they had been given would not remain their only challenge in giving Audi's advertising slogan of "Vorsprung durch Technik" or a new meaning and new qualities.

The Iltis's components were implanted into a red two-door Audi 80 and the test car referred to within the company as the "A1" (standing for "All-Wheel-Drive 1") was ready to go. The position of the engine and gearbox remained basically unchanged, with Hans Nedvidek, the man who had already built gearboxes for Grand Prix legends such as Stirling Moss and Juan Manuel Fangio, taking care of power transmission to the rear axle. He connected the propeller shaft to the driveshaft of the gearbox, as on the Iltis, initially leaving out a centre differential and therefore again taking the same approach as on the Iltis offroader.

The live rear axle, in turn, was replaced at the back of the car by a second front axle featuring the same differential housing as on the Iltis (but leaned down accordingly) and fitted the other way round. This was all to begin with.

A 160 bhp turbocharged engine planned later for the Audi 200 served in the first phase of testing to provide the right kind of performance.

In September 1977 Project A1 received the official green light from Audi's Board of Management, bearing the usual identification code within the Company: EA 262 - Development Code 262 - and just two months later the concept for series production was ready to go and the trend-setting prototype was cleared for road testing.

Always remaining in good spirits, the Development Team kept all emerging technical challenges and possible drawbacks carefully under control. But these factors alone were not enough to give the concept the final go-ahead required for series production: With Audi being a development and production company within the Volkswagen Group, VW held sole responsibility for Marketing and Sales and VW therefore had to examine and, ultimately, approve all development projects. So this is where the final decision was taken on the market potentials of each new product with all its features. To avoid endangering the ambitious project in the Boardroom at VW's Group Headquarters, Audi invited decision-makers to tyre tests at Turracher Höhe in January 1978. This was an important place for all German car makers at the time, Turracher Höhe being the steepest road in Europe and most certainly being snowbound at this time of the year. Ideal conditions for the upcoming demonstration of all-wheel drive offering outstanding qualities and abilities in a midrange car.

But although Dr. Werner P. Schmidt, the Board Member for Sales, and Edgar von Schenk, responsible for Marketing, were certainly impressed, they could not really imagine who on earth would want to buy "400 of these things". Convinced beyond the slightest doubt of his "baby's" chances for success in the market, however, Jörg Bensiger spontaneously suggested that he himself would take care of quattro sales, after Professor Ernst Fiala, the VW Group's Board Member for Development, and Toni Schmücker, VW's Chairman of the Board, had given the project their go-ahead.

Fiala decided to "hijack" the A1 to Vienna for a weekend, giving it to his wife to try the car out in city traffic - her complaint afterwards being that the car "jumped around quite a lot" when parking and in tight bends. So together with the urgent recommendation to "put a central differential into that thing", Fiala gave Audi the green light for continuing its development project.

Easily said - but to solve the problem Audi needed the ingenuity of gearbox expert Hans Nedvidek and his ally Franz Tengler. Always good for a new idea, these two skilful engineers fitted the differential of an Audi 80 behind the transmission, driving this centre differential by a hollow transmission shaft and guiding the drivetrain to the front axle differential through this hollow shaft. The next step was to fit a propeller shaft at the rear end of the centre differential, serving to convey the power of the engine to the differential on the rear axle.

So the first configuration ready for standard production was in place. And after a short test on a wet field just outside Audi's Plant, Chairman of the Board Toni Schmücker approved a budget of DM 3 million for ongoing development of the car's high-speed all-wheel-drive system.