Chrysler 2008 Annual Report Download - page 23

requirements related to debt maturity and planned investments
with cash flow from operations, liquidity on hand, renewal or
refinancing of existing bank loans and/or facilities and possible
recourse to capital markets.
Even under current circumstances, the Group expects to
maintain adequate capacity to generate cash from its operating
activities. Actions taken to reduce production volumes should
enable a return to inventory levels compatible with current
sales volumes and to reverse, at least partially, the working
capital absorption experienced in the second half of 2008.
Nevertheless, a further significant and unexpected drop off in
volumes could have a negative impact on cash-generating
capacity from operating activities.
It is the Group’s policy to maintain liquidity in demand or
short-term deposits and readily negotiable money market
instruments, splitting such investments over an appropriate
number of counterparties, primarily banking institutions, with
the principal purpose of having investments which are suitably
liquid. Counterparties are selected according to their
creditworthiness, reliability and the quality of service provided.
However, in consideration of the current financial crisis,
conditions in the bank or money markets which might
negatively affect normal financial transactions cannot be
excluded.
Finally, although the Group has the continued support of bank
counterparties and the financial markets for the refinancing of
its debt, it could have a requirement for additional funding in
unfavourable market conditions, with limited availability of
certain sources of financing and an increase in the related costs.
Risks associated with the Group’s credit ratings
The ability to access the capital markets or other forms of
financing and the related costs are dependent, amongst other
things, on the Group’s credit ratings. Fiat is currently rated
investment grade with a Baa3 “Under Review for Possible
Downgrade” from Moody’s Investors Service, BBB- with Rating
Watch Negative from Fitch Ratings and BBB- with CreditWatch
Negative from Standard & Poor’s Rating Services. Any
downgrade by the rating agencies could limit the Group’s
ability to access the capital markets and increase its cost of
capital, having an adverse effect on the Group’s earnings and
financial position.
Risks associated with fluctuations in currency
and interest rates
The Fiat Group, which operates in various markets worldwide,
is naturally exposed to market risks stemming from
fluctuations in currency and interest rates. Its exposure to
currency risk is mainly connected to the geographic
distribution of its manufacturing and sales activities, which
result in cash flows from its export activities being
denominated in currencies different from those connected to
its production activities. In particular, the Group is mainly
exposed to net exports from the euro zone to other currency
areas (principally the U.S. dollar and the British pound) and to
exports from Poland to the euro zone.
The Fiat Group uses various forms of financing to cover the
borrowing requirements of its industrial activities and
financing offered to customers and dealers. Changes in interest
rates can increase or reduce the cost of financing or interest
margins of the financial services companies.
Consistent with its risk management policies, the Fiat Group
seeks to manage risks associated with fluctuations in currency
and interest rates through the use of financial hedging
instruments. Despite these hedging transactions, sudden
fluctuations in currency or interest rates could have an adverse
effect on the Group’s earnings and financial position.
Risks associated with the policy of targeted
industrial alliances
The Group has a policy of seeking opportunities for joint
ventures and industrial alliances in order to optimise its capital
commitments and reduce risk. There can be no assurance that
the Group will succeed in securing such opportunities or that
transactions entered into will be devoid of administrative,
technical, political or financial difficulties. Neither can there be
any assurance that such transactions will succeed in producing
the expected benefits.
Report on Operations Main Risks and Uncertainties to which Fiat S.p.A. and the Group are exposed22