Audi 2012 Annual Report Download - page 191

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Industry risks
The growing challenges that the entire automotive industry faces are reflected both in the varied
and volatile development of markets and in rising regulatory and technological requirements.
There is particular pressure to reduce vehicle emissions and fuel consumption. The steady tight-
ening of CO2 limits worldwide and growing environmental awareness among consumers are also
raising the bar. This could prompt a permanent shift in demand towards smaller cars in individual
markets. Our response to that challenge is to keep reducing fuel consumption and emissions
across our product portfolio. The launch of compact, efficient vehicles such as the Audi A1 and
the new models of the A3 family are important in this respect because they diversify the product
range. At the same time as improving conventional drive technologies, the Company is investi-
gating alternative fuels and new drive concepts. By systematically pursuing its hybridization and
electrification strategy, the Audi Group aims to satisfy customer demand for a sustainable form
of mobility.
The automotive industry is showing signs of intensifying competition such as in the form of sales
promotional measures. The prices of direct competitors and the increased use of sales incentives
can fundamentally lead to price erosion or inflated marketing costs. Such a trend in the industry
would also adversely affect the Audi Group and correspondingly reduce its revenue and profit.
Risks from operating activities
Through its operating activities the Audi Group is exposed to a wide range of risks that could affect
its net worth, financial position and financial performance.
These include, for example, unforeseeable events giving rise to losses such as explosions and
major fires which could destroy or damage the Company’s assets, and also cause serious disrup-
tion to production processes. Production operations can furthermore be disrupted by power
supply failures or technical failures, in particular of IT systems. Although these risks fundamen-
tally harbor considerable potential for losses, their probability is viewed as low. To reduce such
risks we have implemented various preventive measures within the Company, such as fire pro-
tection systems, emergency plans and company fire departments. Adequate insurance coverage
has additionally been taken out. The high flexibility of the Audi production network, which makes
it possible to move production capacity to other locations, additionally reduces the risk.
Lasting disruption to the production process could also be caused by delayed delivery or non-
delivery as a result of tool breakage, losses from natural disasters and strikes at suppliers or in the
transportation sector. Financial difficulties encountered by suppliers and dealers could under-
mine the value creation process for the Company. The Audi Group takes this risk into account in
its choice of partners. Appropriate control and monitoring processes are put in place to oversee
such partnerships.
Within the automotive industry there is close collaboration between manufacturers and suppliers,
extending to the research and development sphere and other strategically significant sections of
the value chain. In addition to creating economic advantages, such partnership-based cooperation
brings growing mutual dependence especially where its purpose is the development of innovative
technologies. The Audi Group has taken effective action to address this risk by defining appropriate
contractual terms and retaining title over tools used by third-party companies.
As an innovative premium carmaker, we are continually extending our portfolio of products and
services and bringing new technologies such as assistance or safety systems and innovative drive
concepts to production maturity. It is not always possible to guarantee the market success of