Chrysler 2013 Annual Report Download - page 33

32 Report on Operations Main Risks and Uncertainties to which Fiat S.p.A.
and its Subsidiaries are Exposed
Competition, particularly in pricing, has increased significantly in the Group’s industry in recent years. In addition, partly as a result of lower
growth in demand for automobiles, global automobile production capacity significantly exceeds current demand. This overcapacity, combined
with high levels of competition and weakness of major economies, has intensified and may further intensify pricing pressures.
The Group’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, or by reducing vehicle prices whether directly of by
offering option package discounts, price rebates or other sales incentives 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 the Group’s vehicle pricing, market share, and operating results.
In the automotive 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, as well as the possible introduction of measures by governments to stimulate
demand. The automotive industry is also subject to the constant renewal of product offerings through frequent launches of new models. A
negative trend in the automobiles business or the Group’s inability to adapt effectively to external market conditions could have a material
adverse impact on the financial condition and results of operations of the Group.
5. The Group may be unsuccessful in efforts to expand the international reach of some of its brands that the Group believes have
global appeal and reach
The Group’s growth strategies include significant investments designed to expand several brands believed to have global appeal into new
markets. That includes pursuing extension of the Jeep brand into Asia and Latin America and reintroduction of the Alfa Romeo brand into North
America. This will require significant investments in production facilities and in distribution networks in these markets. If the Group is unable to
introduce vehicles that appeal to consumers in these markets and achieve its brand expansion strategies, the Group may be unable to earn
a sufficient return on these investments and this could have a material adverse impact on the financial condition and results of operations of
the Group.
6. Fiat’s current credit rating is below investment grade and any further deterioration may significantly affect the Group’s funding
and prospects
The Group’s ability to access the capital markets or other forms of financing and the related costs depend, among other things, on the Group’s
credit ratings. Following downgrades by the major rating agencies, Fiat is currently rated below investment grade. The rating agencies review
these ratings regularly and, accordingly, new ratings may be assigned to Fiat during 2014. It is not currently possible to predict the timing or
outcome of any ratings review. Any downgrade may increase the Group’s cost of capital and potentially limit its access to sources of financing,
with a consequent material adverse effect on the Group’s business prospects, earnings and financial position.
In addition, the ratings agencies separately review and rate Chrysler on a stand-alone basis and it is possible that Fiat’s credit ratings may not
benefit from any improvements in Chrysler’s credit ratings or that a deterioration in Chrysler’s credit ratings could result in a negative rating
review of Fiat.