Chrysler 2013 Annual Report Download - page 35

34 Report on Operations Main Risks and Uncertainties to which Fiat S.p.A.
and its Subsidiaries are Exposed
or enter into settlements of lawsuits and claims that could have a material adverse effect on its results of operations in any particular period.
In addition, while the Group maintains insurance coverage with respect to certain claims, it may not be able to obtain such insurance on
acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims.
10. The Group may be exposed to shortfalls in Chrysler’s pension plans
Chrysler’s defined benefit plans are currently underfunded and its pension funding obligations may increase significantly if the investment
performance of plan assets does not keep pace with benefit payment obligations. Mandatory funding obligations may increase because of
lower than anticipated returns on plan assets, whether as a result of overall weak market performance or particular investment decisions,
changes in the level of interest rates used to determine required funding levels, changes in the level of benefits provided for by the plans, or any
changes in applicable law related to funding requirements. Chrysler’s defined benefit plans currently hold significant investments in equity and
fixed income securities, as well as investments in less liquid instruments such as private equity, real estate and certain hedge funds. Due to
the complexity and magnitude of certain investments, additional risks may exist, including significant changes in investment policy, insufficient
market capacity to complete a particular investment strategy and an inherent divergence in objectives between the ability to manage risk in the
short term and the ability to quickly rebalance illiquid and long-term investments.
To determine the appropriate level of funding and contributions to its defined benefit plans, as well as the investment strategy for the plans,
Chrysler is required to make various assumptions, including an expected rate of return on plan assets and a discount rate used to measure
the obligations under defined benefit pension plans. Interest rate increases generally will result in a decline in the value of investments in fixed
income securities and the present value of the obligations. Conversely, interest rate decreases will increase the value of investments in fixed
income securities and the present value of the obligations.
Any reduction in investment returns or the value of plan assets, or any increase in the present value of obligations, may increase pension
expenses and required contributions and, as a result, could constrain liquidity and materially adversely affect Chrysler’s financial condition and
results of operations. If Chrysler fails to make required minimum funding contributions, it could be subjected to reportable event disclosure to
the Pension Benefit Guaranty Corporation(1), as well as interest and excise taxes calculated based upon the amount of any funding deficiency.
With Fiat’s ownership in Chrysler now exceeding 80%, Fiat may become subject to certain US legal requirements making it secondarily
responsible for a funding shortfall in certain of Chrysler’s pension plans in the event these pension plans were terminated and Chrysler were
to be insolvent.
11. The Group may not be able to provide adequate access to financing for its dealers and retail customers
The Group’s dealers enter into wholesale financing arrangements to purchase vehicles to hold in inventory and retail customers use a variety
of finance and lease programs to acquire vehicles.
Unlike many of its competitors, the Group does not own and operate its own finance company dedicated solely to its operations. Instead it
has elected to partner with specialized financing services providers through joint ventures and commercial agreements. The Group’s lack of
a captive finance company may increase the risk that dealers and retail customers will not have access to sufficient financing on acceptable
terms which may adversely affect the Group’s vehicle sales in the future. Furthermore, many of the Group’s competitors are better able to
implement financing programs designed to maximize vehicle sales in a manner that optimizes profitability for them and their captive finance
companies on an aggregate basis. Since the Group’s ability to compete depends on access to appropriate sources of financing for dealers
and retail customers, its lack of a captive finance company could adversely affect its results of operations.
(1) The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income
Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private-sector defined benefit pension plans.