Chrysler 2013 Annual Report Download - page 39

38 Report on Operations Main Risks and Uncertainties to which Fiat S.p.A.
and its Subsidiaries are Exposed
increase the use of alternative fuels, such as natural gas, by continuing to offer a complete range of dual-fuel passenger cars and commercial
vehicles. Additionally, it plans to continue developing alternative propulsion systems, particularly for vehicles driven in urban areas (such as the
zero-emission Fiat 500e).
In many cases, technological and cost barriers limit the mass-market potential of sustainable natural gas and in particular electric vehicles.
In some other cases the technologies that the Group plans to employ are not yet commercially practical and depend on significant future
technological advances by the Group and by suppliers. There can be no assurance that these advances will occur in a timely or feasible
way, that the funds that the Group has budgeted for these purposes will be adequate, or that it will be able to establish its right to these
technologies. Further, the Group’s competitors and others are pursuing similar technologies and other competing technologies and there can
be no assurance that they will not acquire similar or superior technologies sooner than it does or on an exclusive basis or at a significant price
advantage.
22. The Group depends on its relationships with suppliers
The Group purchases raw materials and components from a large number of suppliers and depends on services and products provided
by companies outside the Group. Close collaboration between a manufacturer and its suppliers is common in the automotive industry and
although this offers economic benefits in terms of cost reduction, it also means that the Group depends 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 financial condition and results of operations.
23. Risks associated with increases in costs, disruptions of supply or shortages of raw materials
The Group 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, as well as energy. 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. The Group seeks to manage this exposure, but it
may not be successful in hedging its exposure to 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 cannot 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 the Group’s control and the control of its suppliers. For instance, natural disasters or civil unrest 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 for many
reasons including, but not limited to tight credit markets or other financial distress, natural or man-made disasters, or production difficulties.
The Group will continue to work with suppliers to monitor potential shortages and to mitigate the effects of any emerging shortages on its
production volumes and revenues; however, there can be no assurances that these events will not have an adverse effect on its production in
the future, and any such effect may be material.
Any interruption in the supply or any increase in the cost of raw materials, parts, components and systems could negatively impact the Group’s
ability to achieve its vehicle sales objectives and profitability. Long-term interruptions in supply of raw materials, parts, components and systems
may result in a material impact on vehicle production, vehicle sales objectives, and profitability. Cost increases which cannot be recouped
through increases in vehicle prices, or countered by productivity gains, may result in a material impact on the Group’s financial condition and
results of operations.