Chrysler 2011 Annual Report Download - page 48

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Risks associated with relationships with employees and suppliers
In many countries where the Group operates, Group employees are protected by various laws and/or collective labor agreements
that guarantee them, through local and national representatives, the right of consultation on specific matters, including downsizing
or closure of production units and reductions in personnel. The laws and/or collective labor agreements applicable to the Group
could impair its flexibility in reshaping and/or strategically repositioning its business activities. The Group’s ability to reduce personnel
or implement other permanent or temporary redundancy measures may be subject to government approvals and the agreement of
the labor unions. Industrial action by employees could have an adverse impact on the Group’s business activities.
Furthermore, the Group purchases raw materials and components from a large number of suppliers and relies on services and
products provided by companies outside the Group. Some of these companies are highly unionized. Close collaboration between a
manufacturer and its suppliers is common in the industries in which the Group operates and although this offers economic benefits
in terms of cost reduction, it also means that the Group is reliant on its suppliers and is exposed to the possibility that difficulties,
including those of a financial nature, experienced by those suppliers (whether caused by internal or external factors) could have a
material adverse effect on the Group’s business prospects, earnings and/or financial position.
Risk associated with increase in costs, disruption of supply or shortage of raw materials
Fiat uses a variety of raw materials in its business including steel, aluminum, lead, resin and copper, and precious metals such as
platinum, palladium and rhodium. The prices for these raw materials fluctuate and at times in recent periods, these commodity
prices have increased significantly in response to changing market conditions. Fiat seeks to manage this exposure, but it may not
be successful in hedging these risks. Substantial increases in the prices for raw materials would increase the Group’s operating
costs and could reduce profitability if the increased costs will not be offset by changes in vehicle prices. In addition, certain raw
materials are sourced only from a limited number of suppliers and from a limited number of countries. The Group cannot guarantee
that it will be able to maintain arrangements with these suppliers that assure access to these raw materials, and in some cases this
access may be affected by factors outside of Group’s control and the control of its suppliers. For instance, the recent earthquake
and tsunami in Japan have negatively affected commodity markets, and any similar event may have severe and unpredictable effects
on the price of certain raw materials in the future. As with raw materials, the Group is also at risk for supply disruption and shortages
in parts and components for use in its vehicles.
Any interruption in the supply or any increase in the cost of raw materials, parts and components could negatively impact Group’s
ability to achieve growth in vehicle sales and improved profitability.
Risks associated with environmental and other government regulation
The Group’s products and activities are subject to numerous environmental laws and regulations (local, national and international)
which are becoming increasingly stringent in many countries in which it operates (particularly in the European Union). Such regulations
govern, among other things, products – with requirements relating to emissions of polluting gases, reduced fuel consumption and
safety becoming increasingly strict – and industrial plants – with requirements for emissions, treatment of waste and water and
prohibitions on soil contamination. In order to comply with such laws and regulations, the Group employs considerable resources
and expects it will continue to incur substantial costs in the future.
In addition, government initiatives to stimulate consumer demand for products sold by the Group, such as changes in tax treatment
or purchase incentives for new vehicles, can substantially influence the timing and level of revenues. The size and duration of such
government measures are unpredictable and outside of the Group’s control. Any adverse change in government policy relating to
those measures could have material adverse effects on the Group’s business prospects, earnings and/or financial position.
Risks associated with management
The Group’s success is largely dependent on the ability of its senior executives and other members of management to effectively
manage the Group and individual areas of business. The loss of any senior executive, manager or other key employees without an
adequate replacement or the inability to attract, retain and incentivize senior executive managers, other key employees or new qualified
personnel could therefore have a material adverse effect on the Group’s business prospects, earnings and/or financial position.
Report on Operations