Chrysler 2014 Annual Report Download - page 30

28 2014 | ANNUAL REPORT
Risk Factors
We face risks associated with increases in costs, disruptions of supply or shortages of raw materials.
We use a variety of raw materials in our 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
market conditions can affect our ability to manage our cost of sales over the short term. We seek to manage this
exposure, but we may not be successful in managing our exposure to these risks. Substantial increases in the prices
for raw materials would increase our operating costs and could reduce profitability if the increased costs cannot be
offset by changes in vehicle prices or countered by productivity gains. In particular, certain raw materials are sourced
from a limited number of suppliers and from a limited number of countries. We cannot guarantee that we 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 our control and the control of our suppliers. For instance, natural or man-made
disasters or civil unrest may have severe and unpredictable effects on the price of certain raw materials in the future.
As with raw materials, we are also at risk for supply disruption and shortages in parts and components for use in our
vehicles for many reasons including, but not limited to, tight credit markets or other financial distress, natural or man-
made disasters, or production difficulties. We will continue to work with suppliers to monitor potential disruptions and
shortages and to mitigate the effects of any emerging shortages on our production volumes and revenues.
However, there can be no assurances that these events will not have an adverse effect on our 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 our ability to achieve our 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 our financial condition and/or results of operations.
We are subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other market risks.
We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency
and interest rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of our
manufacturing activities and commercial activities, resulting in cash flows from sales being denominated in currencies
different from those connected to purchases or production activities.
We use various forms of financing to cover funding requirements for our industrial activities and for providing financing
to our dealers and customers. Moreover, liquidity for industrial activities is also principally invested in variable-rate
or short-term financial instruments. Our financial services businesses normally operate a matching policy to offset
the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, changes in
interest rates can affect net revenues, finance costs and margins.
We seek to manage risks associated with fluctuations in currency and interest rates through financial hedging
instruments. Despite such hedges being in place, fluctuations in currency or interest rates could have a material adverse
effect on our financial condition and results of operations. For example, the weakening of the Brazilian Real against the
Euro in 2014 impacted the results of operations of our LATAM segment. See Operating Results—Results of Operations.
Our financial services activities are also subject to the risk of insolvency of dealers and retail customers, as well as
unfavorable economic conditions in markets where these activities are carried out. Despite our efforts to mitigate such
risks through the credit approval policies applied to dealers and retail customers, there can be no assurances that we
will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.