BMW 2001 Annual Report Download - page 28

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27
Specific industry risks
The end-of life vehicle directive of the European
Union must be incorporated into national law by
April 2002 at the latest. The BMW Group has set up
provisions in the balance sheet to cover the obliga-
tions relating to the risk of collection, treatment and
recovery of all end-of life vehicles sold by the BMW
Group to date.
Fuel prices are influenced to a large degree by
market factors and governmental tax policies. This
and the constant need to reduce fleet consumption
set high demands on engine and product develop-
ment.
The current amendment proposal from the EU
Commission, dated February 2002, to the Block
Exemption regulations represents a risk for the
sales distribution system and market position of the
BMW Group. The high quality, safety and environ-
mental standards of the BMW Group could be af-
fected by the proposed changes.
Operating risks
Risks arising from loss of production are insured
up to economically reasonable levels. In addition, the
high degree of flexibility of the Groups production
network and working time models also help to re-
duce operating risks.
Close cooperation between manufacturers and
suppliers is normal in the automotive sector and
whilst this provides economic benefits, it also cre-
ates a degree of mutual dependence. Some suppli-
ers have become very important for the BMW
Group. Delivery delays, cancellations or poor quality
can lead to production stoppages and thus have a
negative impact on performance. The BMW Group
mitigates this risk by means of extensive selection,
monitoring and management procedures in its deal-
ings with suppliers. Before selection for example,
audits are made of the technical competence and fi-
nancial strength of potential suppliers.
Risk from sales financing
A major part of financing and lease business with-
in the Financial Services segment is refinanced on
the capital markets. The excellent credit-standing of
the BMW Group, reflected in the first-class short-
term ratings given by Moodys (P-1) and Standard&
Poors (A-1), and held for many years, has a stabilis-
ing effect.
Risks from interest rate changes to which the
BMW Group is exposed are mitigated by matching
maturities and by the use of derivative financial in-
struments.
As a consequence of the increasing penetration
rate achieved in the lease business, the BMW Group
faces an increased residual value risk on vehicles
which are returned to the Group at the end of lease
contracts. Provisions are recognised to cover these
risks.
Legal risks
The BMW Group is not involved in any court or ar-
bitration proceedings which could have a significant
impact on the economic position of the Group.
Like all enterprises, the BMW Group is exposed to
the risk of warranty claims. Adequate provisions
have been recognised in the balance sheet to cover
such claims. Part of the risk, especially that relating
to the American market, has been insured up to
economically acceptable levels. The high quality of
BMW Group products, underpinned by regular quali-
ty audits and on-going improvement measures,
helps to reduce this risk.
Personnel risk
As one of the most attractive employers in the world,
the BMW Group has a strong position in the intense
competition for qualified technical and management
staff. A high level of employee satisfaction and a low
level of employee fluctuation also help to minimise
the risk of know-how drift.