Chrysler 2011 Annual Report Download - page 46

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economic trends. Given the difficulty in predicting the magnitude and duration of economic cycles, there can be no assurances as
to future trends in the demand for or supply of products sold by the Group in any of the markets in which it operates.
Additionally, even in the absence of slow growth or recession, other economic circumstances – such as increases in energy prices,
fluctuations in prices of raw materials or contractions in infrastructure spending – could have negative consequences for the industry
in which the Group operates and, together with the other factors referred to previously, could have a material adverse effect on the
Group’s business prospects, earnings and/or financial position.
Risk associated with the high level of competition and cyclicality of the automobile industry
Substantially all of the Group’s revenues are generated in the automobile industry, which is highly competitive and encompasses
the production and distribution of passenger cars, light commercial vehicles and the related components and production systems.
The Group faces competition from other international passenger car and light commercial vehicle manufacturers and distributors
and components suppliers in Europe, North and Latin America. These markets are highly competitive in terms of product quality,
innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered.
Competition, particularly in pricing, has increased significantly in the Group’s industry sector in recent years. In addition, partly as
a result of the contraction in demand for automobiles, global production capacity for the car industry significantly exceeds current
demand. This overcapacity, combined with high levels of competition and weakness of major economies, could intensify pricing
pressures.
Fiat has a relatively high proportion of fixed costs and may have significant limitations on the ability to reduce fixed costs by
closing facilities and/or reducing labor expenses. Fiat’s competitors may respond to these conditions by attempting to make their
vehicles more attractive or less expensive to customers by adding vehicle enhancements, providing subsidized financing or leasing
programs, offering option package discounts, price rebates or other sales incentives, or by reducing vehicle prices in certain
markets. In addition, manufacturers in countries which have lower production costs have announced that they intend to export
lower-cost automobiles to established markets. These actions have had, and could continue to have, a negative impact on Fiat’s
vehicle pricing, market share, and operating results. Offering desirable vehicles that appeal to customers can mitigate the risks of
stiffer price competition, while offer of vehicles that are perceived to be less desirable (whether in terms of price, quality, styling,
safety, or other attributes) can exacerbate these risks.
In the Automobiles business, sales to end customers are cyclical and subject to changes in the general condition of the economy,
the readiness of end customers to buy and their ability to obtain financing and the possible introduction of measures by governments
to stimulate demand. The sector is also subject to constant renewal of the product offering through frequent launches of new
models. A negative trend in the automobiles business could have a material adverse impact on the business prospects, earnings
and/or financial position of the Fiat Group.
Should the Group be unable to adapt effectively to external market conditions, this could have a material adverse effect on its
business prospects, earnings and/or financial position.
Risks associated with the ability to offer innovative products
The success of the Group’s businesses depends, among other things, on their ability to maintain or increase their share in existing
markets and/or to expand into new markets through the development of innovative, high-quality products that provide adequate
profitability. In particular, a failure to develop and offer innovative products that compare favorably to those of the Group’s principal
competitors in terms of price, quality, functionality and features, or delays in bringing strategic new models to market, could result
in reduced market share, having material adverse effects on the Group’s business prospects, earnings and/or financial position.
Risks associated with the policy of targeted industrial alliances
The Group has engaged in the past, and may engage in the future, in significant corporate transactions such as mergers, acquisitions,
joint ventures and restructurings, the success of which is difficult to predict. There can be no assurance that any such significant
corporate transaction which might occur in the future will not encounter administrative, technical, industrial, operational, regulatory,
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