Chrysler 2014 Annual Report Download - page 19

2014 | ANNUAL REPORT 17
Risk Factors
We face a variety of risks in our business. The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties that we are unaware of or that we currently believe to be immaterial, may also
become important factors that affect us.
Risks Related to Our Business, Strategy and Operations
Our profitability depends on reaching certain minimum vehicle sales volumes. If our vehicle sales deteriorate,
particularly sales of our minivans, larger utility vehicles and pick-up trucks, our results of operations and financial
condition will suffer.
Our success requires us to achieve certain minimum vehicle sales volumes. As is typical for an automotive manufacturer,
we have significant fixed costs and, therefore, changes in vehicle sales volume can have a disproportionately large effect on
our profitability. For example, assuming constant pricing, mix and cost of sales per vehicle, that all results of operations were
attributable to vehicle shipments and that all other variables remain constant, a ten percent decrease in our 2014 vehicle
shipments would reduce our Earnings Before Interest and Taxes, or EBIT, by approximately 40 percent for 2014, without
accounting for actions and cost containment measures we may take in response to decreased vehicle sales.
Further, a shift in demand away from our minivans, larger utility vehicles and pick-up trucks in the U.S., Canada,
Mexico and Caribbean islands, or NAFTA, region towards passenger cars, whether in response to higher fuel prices
or other factors, could adversely affect our profitability in the NAFTA region. Our minivans, larger utility vehicles and
pick-up trucks accounted for approximately 44 percent of our total U.S. retail vehicle sales in 2014 (not including vans
and medium duty trucks) and the profitability of this portion of our portfolio is approximately 33 percent higher than
that of our overall U.S. retail portfolio on a weighted average basis. A shift in demand such that U.S. industry market
share for minivans, larger utility vehicles and pick-up trucks deteriorated by 10 percentage points and U.S. industry
market share for cars and smaller utility vehicles increased by 10 percentage points, whether in response to higher fuel
prices or other factors, holding other variables constant, including our market share of each vehicle segment, would
have reduced the Group’s EBIT by approximately 4 percent for 2014. This estimate does not take into account any
other changes in market conditions or actions that the Group may take in response to shifting consumer preferences,
including production and pricing changes.
Moreover, we tend to operate with negative working capital as we generally receive payments from vehicle sales
to dealers within a few days of shipment, whereas there is a lag between the time when parts and materials are
received from suppliers and when we pay for such parts and materials; therefore, if vehicle sales decline we will suffer
a significant negative impact on cash flow and liquidity as we continue to pay suppliers during a period in which
we receive reduced proceeds from vehicle sales. If vehicle sales do not increase, or if they were to fall short of our
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, our
financial condition and results of operations would be materially adversely affected.
Risk Factors