Mercedes 2003 Annual Report Download - page 106
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Please find page 106 of the 2003 Mercedes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Financial Reporting |Overview | Analysis of the Financial Situation | Statement by the Board of Management | Independent Auditors’ Report | Financial Statements
Economic risks. After the first half of the year 2003 featured
global uncertainty among investors and consumers, largely due to
the crisis in Iraq and the SARS lung disease, there was a moderate
economic revival in the second half. However, at the same time it
became clear that the global economy was still unstable and that
the crisis of confidence had not yet been completely resolved.
Uncertainty still exists regarding the strength of the economic
upswing expected for 2004, especially in Western Europe and
South America. The economic risks for the earnings situation at
DaimlerChrysler are therefore almost undiminished.
The biggest risks for the world economy are a renewed global
crisis of confidence, for example triggered by terrorist activities or
a stock market collapse, and a sustained drop in domestic demand
in the Unites States. The latter could occur as a result of
consumers becoming less willing to spend, or of measures taken
to reduce the massive US current account deficit combined
with a drastic decline in the value of the US dollar. Disappointing
economic developments in the European Union, particularly
in Germany, hold considerable risk potential due to the ongoing
underlying structural causes and the region’s importance as
a sales market. The situation of the Japanese economy is similar:
although it developed substantially better than expected in 2003, it
has still not overcome its structural problems. A further economic
downturn in Japan could have a significant impact not only on the
earnings trend of the Group’s important strategic alliance partners,
Mitsubishi Motors Corporation and Mitsubishi Fuso Truck and Bus
Corporation, but due to possible negative transfer effects in the
Asian emerging markets, also on the Group’s strategic expansion
plans in this region.
Risks with regard to free market access being restricted in the
case of a possible retreat from multilateral trade liberalization in
favor of more protective trade practices could also make the
Group’s globalization strategy more difficult to implement.
A more regionally limited risk potential is to be seen in lasting
crises in individual emerging markets. However, a severe decrease
in economic growth in China, which currently has the most
dynamic automotive market in the world, would be of particular
relevance to the Group’s strategy. This decrease would not only
drastically affect the other Asian economies due to China’s
increasing international integration in the areas of commerce and
investment, but would also entail a noticeable decline in economic
growth worldwide.
Industry- and company-specific risks. A continuation of weak
overall economic developments and restrained consumer demand
could also have an impact on the automobile industry. This would
primarily affect sales in the European Union and the NAFTA region.
In the United States, which is still the engine of the global
economy, high competitive pressure in the automobile market in
recent years has led to a diversification of financing offers and
price incentives, which also created a lasting pressure on the
prices of used vehicles. Continued weak economic growth in the
United States could mean that such discount financing and price
incentives remain necessary at similar or even higher levels. The
practice of offering discount financing and price incentives is
increasingly apparent also in Western Europe. DaimlerChrysler is
counteracting this trend by offering innovative products and
services along the entire value chain. In addition, individual
customer needs are increasingly being met by extending our
product range.
Legal and political frameworks are additional significant factors
for DaimlerChrysler’s future success, particularly conditions
affecting emissions, fuel economy and energy prices. The Group
monitors developments in these fields and attempts to anticipate
future developments in the product planning process.
The key success factors for the DaimlerChrysler Group are its
products and a range of related services. Innovation in research
and development and the achievement of efficiency improvements
to maintain competitiveness, while fulfilling the highest demands
on quality, are essential for this success. DaimlerChrysler reduces
procurement risks by taking targeted measures in the field of
commodity and supplier risk management. Production risks are
adequately safeguarded. As a result of keen competition for
qualified specialists and managers and the strategic orientation of
the Group, recruiting and retaining employees in the engineering
professions and for employment in Asia is essential. Other
operating risks, such as risks relating to information technology,
play a less important role.
DaimlerChrysler’s services business consists mainly of providing
financing and leasing for the Group’s products, insurance policies
and other services in the fields of fleet management and
telematics. The segment’s international business orientation and
its capital needs are exposed to credit, exchange rate and interest
rate risks. DaimlerChrysler counteracts these risks through
appropriate market analyses and with the use of derivative
financial instruments. The DaimlerChrysler Bank’s increased risk
exposure with its expanded range of products has no significant
effect on the Group.
Through its participation in the development of an electronic toll
collection system for certain commercial vehicles in Germany, the
DaimlerChrysler Group is exposed to a number of risks which
might adversely affect its operating results and financial condition.
The system is being developed by the operating company, Toll
Collect GmbH (“Toll Collect”), in which DaimlerChrysler held a 45%
equity interest at the balance sheet date and for which Daimler-
Chrysler accounts in its consolidated financial statements using
the equity method. These risks primarily consist of the further
delay of the system start and the possibility of additional
contractual penalties as well as revenue lost due to the delay in