Chrysler 2013 Annual Report Download - page 31

30 Report on Operations Main Risks and Uncertainties to which Fiat S.p.A.
and its Subsidiaries are Exposed
Main Risks and Uncertainties to which Fiat S.p.A.
and its Subsidiaries are Exposed
Fiat S.p.A. and its subsidiaries (which include Chrysler since June 2011) face a variety of risks in their business. The risks and uncertainties
described below are not the only ones facing the Fiat Group. Additional risks and uncertainties that the Fiat Group is unaware of or that it
currently believes to be immaterial, may also become important factors that affect it. If any of the following events occur, the Fiat Group
business, financial condition and results of operations could be materially and adversely affected.
1. The Group’s profitability depends on reaching certain minimum vehicle sales volumes. If vehicle sales deteriorate, the Group’s
results of operations and financial condition will suffer
The Group’s success requires it to achieve certain minimum vehicle sales volumes. As is typical for an automobile manufacturer, the Group has
significant fixed costs and, therefore, changes in vehicle sales volume can have a disproportionately large effect on profitability. Moreover, the
Group tends to operate with negative working capital and the Group generally receives payments from vehicle sales to dealers within a few
days of shipment from the assembly plants, whereas there is a lag between the time when parts and materials are received from suppliers and
when the Group pays for such parts and materials; therefore, if vehicle sales decline the Group will suffer a significant negative impact on cash
flow and liquidity as the Group continues to pay suppliers during a period in which it receives reduced proceeds from vehicle sales. If vehicle
sales do not increase, or if they were to fall short of assumptions, due to financial crisis, renewed recessionary conditions, changes in consumer
confidence, geopolitical events, inability to produce sufficient quantities of certain vehicles, limited access to financing or other factors, the
Group’s financial condition and results of operations would be materially adversely affected.
2. The businesses of the Group are affected by global financial markets and general economic and other conditions over which
it has no control
The Group’s earnings and financial position may be influenced by various macroeconomic factors — including changes in gross domestic
product, the level of consumer and business confidence, changes in interest rates for or availability of consumer and business credit, energy
prices, the cost of commodities or other raw materials and the rate of unemployment — within the various countries in which it operates.
Beginning in 2008, global financial markets have experienced severe disruptions, resulting in a material deterioration of the global economy.
The global economic recession in 2008 and 2009, which affected most regions and business sectors, resulted in a sharp decline in demand
for automobiles. Although more recently the Group has seen signs of recovery in certain regions, the overall global economic outlook remains
uncertain.
In Europe, in particular, despite measures taken by several governments and monetary authorities to provide financial assistance to certain
Eurozone countries and to avoid default on sovereign debt obligations, concerns persist regarding the debt burden of several countries. These
concerns, along with the significant fiscal adjustments carried out in several countries, intended to manage actual or perceived sovereign credit
risk, have led to further pressure on economic growth and to new periods of recession. These ongoing concerns could have a detrimental
impact on the global economic recovery, as well as on the financial condition of European institutions, which could result in greater volatility,
reduced liquidity, widening of credit spreads and lack of price transparency in credit markets. In addition, widespread austerity measures in
many countries in which the Group operates could continue to adversely affect consumer confidence, purchasing power and spending, which
could adversely affect the Group’s financial condition and results of operations.