Yeah, you can be certain that they will take a swipe of your credit card, to cover THEIR exposure to loss or damage. Just like a hotel would for a free hotel night.
The issues of auto insurance are complicated, and affected by the renter's home auto insurance (and state - my state used to put new customers in the Assigned Risk Pool, at high expense, because the insurance companies were protesting low annual increase approvals.) I've noticed that Expedia-type companies try to get you to bundle CDW with your rental, and then you discover that the CDW is in fact provided by Expedia - so you'd have to prove to the rental company that you had sufficient coverage anyway.
I hope you get the VW you want. I wouldn't bet on it at FRA in the summer! Or during a convention week in Frankfurt.
You have your travel plans. I'll mention that when we have a car, we often book charmless Business Hotels at the edge of town, to facilitate easy in and out for daytrips. Actually, once near Frankfurt, we stayed at a (luxury) castle-hotel in Kronberg, so that we could take the S-Bahn right in for our one downtown day in Frankfurt.
There are a lot of nice things to see on the route you describe besides car factories. For a technocrat, there's even the Zeiss museum. And we loved the UNSECO Dessau-Worlitz Gartenreich. Erfurt is really nice, too. But Quedlinburg is even better. I admit we did a drive-by of a BWM assembly plant, but that's only because it was designed by Zaha Hadid.