BMW 2002 Annual Report Download - page 28

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have a negative impact on the business development
of the BMW Group.
Specific industry risks
 In 2002, the EU end-of life vehicle directive was
enacted into law in all countries of the European
Union, coming into force in Germany on 1 July 2002.
The BMW Group has recognised provisions in the
balance sheet to cover the obligations relating to
the risk of collection, treatment and recovery of all
end-of life vehicles sold by the BMW Group to date.
Provisions are also being recognised on an on-going
basis for new vehicles sold, i.e. vehicles sold after
1July 2002. In addition, the BMW Group is well pre-
pared to recover end-of life vehicles as a result of its
activities in vehicle recycling and the progress made
in Design for Recycling.
 The change in fuel prices, partly affected by the
market and partly by governmental tax policies, and
the requirement to reduce the fleet fuel consumption
and CO2emissions set high demands on engine
and product development.
 The tax changes proposed by the German Govern-
ment, in particular the tax treatment of company cars,
could have a negative impact on car sales of the
BMW Group in Germany.
 The decision of the EU Commission relating to
the new Block Exemption Regulation for the sales
distribution of motor vehicles will require substantial
legal and structural changes to the current sales
distribution system. The BMW Group has initiated
measures, including the restructuring of sales distri-
bution networks, in order to both counter the risks
for sales and brand positioning and to avoid any pos-
sible negative impact on the high quality, safety and
environmental standards of the BMW Group.
Operating risks
 Risks arising from loss of production are insured
up to economically reasonable levels. In addition,
the high degree of flexibility of the BMW Groups
production network and working time models also
help to reduce operating risks.
 Close cooperation between manufacturers and
suppliers is normal in the automotive sector and
whilst this provides economic benefits, it also creates
a degree of mutual dependence. Some suppliers
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 profitability. 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,
the technical competence and financial strength of
potential suppliers are appraised.
Risk from sales financing
 A major part of the financing and leasing business
within the Financial Services segment is refinanced
on the capital markets. The excellent credit-standing
of the BMW Group, reflected in the long-standing
first-class short-term ratings issued by Moodys (P-1)
and Standard&Poors (A-1), allows the BMW Group
to obtain competitive conditions.
 Liquidity and interest rate change risks to which
the BMW Group is exposed are mitigated by match-
ing maturities and by the use of derivative financial
instruments. Interest rate change risks are managed
using a value-at-risk approach. In addition, sensitivity
analyses are prepared on an on-going basis to meas-
ure
the potential impact of interest rate changes on
earnings.