Mercedes 2004 Annual Report Download - page 43

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The Group’s risk management system enables corporate
management to identify key risks at an early stage and to initiate
suitable countermeasures. By carrying out targeted audits, the
Internal Audit department monitors compliance with the statuto-
ry framework and the Group’s internal guidelines as defined
in the Risk Management Manual, and if required, initiates appro-
priate action. In addition, the auditor tests the system for the
early detection of risks that is integrated into the risk management
system in terms of its fundamental suitability for the early
recognition of developments that could jeopardize the continued
existence of the company.
Economic risks
2004 was a year of strong growth for the world economy, although
there was still a significant degree of uncertainty regarding future
economic developments. A key indicator of this uncertainty is
the sustained increase in the price of gold, which is normally only
in such high demand as a safe investment in times of crisis. By the
middle of 2004, the rate of global expansion had already weak-
ened. Against the backdrop of high raw material prices, the United
States’ enormous current account deficit, and the sustained appre-
ciation of the euro, doubts have also increased as to whether the
soft landing of the world economy with a return to long-term
growth rates, as expected by most economists, will actually take
place. DaimlerChrysler’s assets, finances and earnings are thus
exposed to additional substantial economic risks. Due to the high
importance of the United States for the world economy, an isolated
massive slowdown of economic expansion in the US would also
have negative consequences.
The biggest individual risk for the world economy must be seen
in a continuation of the high oil price, or even further increases, as
well as in the enormous deficit of the United States. Worldwide
growth could be dampened by 0.5 to 1.0 percentage point if the
oil price remains above the mark of US $45 per barrel for much
longer. With a long-term rise in the price of oil above US $55 per
barrel, some economies could even slip into a recession.
If a correction of the US current account deficit would take place
with a drastic devaluation of the US dollar, this could, in com-
bination with rising interest rates, lead to significantly lower global
growth.
The disappointing economic development of the European Union,
especially in Germany, has a considerable risk potential due to
the region’s importance as a sales market for DaimlerChrysler.
The situation of the Japanese economy is similar: although it
expanded much faster than expected in 2004, its structural prob-
lems are far from solved. A renewed weakening of the Japanese
economy would not only reduce the Group’s exports to Japan, but
would also put a substantial burden on the earnings trend of our
subsidiary Mitsubishi Fuso Truck and Bus Corporation. In addi-
tion, another economic downturn in Japan could have a negative
impact on the emerging markets of Asia. The Group’s strategic
expansion plans in Asia would be negatively affected by such a
development.
A marked reduction in growth rates in China would also be
strategically relevant for the Group, as this is currently the most
dynamic automobile market in the world and has enormous
potential for the future. In view of China’s economic power and
the sharp increase in the flows of international trade and invest-
ment with China, such a slump would not only have serious con-
sequences for the whole of the Asian continent, but could also
cause significant growth losses for the world economy, with neg-
ative effects on DaimlerChrysler’s projects. Potential economic
crises in the emerging markets in which the Group has produc-
tion facilities could also be of particular relevance. Crises in
emerging markets where the Group is solely active in a sales
function, however, would result in a more limited risk exposure.
Risks for market access and the global networking of the Group’s
facilities could arise as a result of a significant delay in multi-
lateral trade liberalization, and in particular due to the weakening
of the World Trade Organization in favor of regional trade blocks
or a return to protectionist tendencies.