Mercedes 2009 Annual Report Download - page 109

Management Report |Risk Report |105
A sustained reduction in economic growth in China would also
be strategically relevant for Daimler. This would have a significant
impact on the world economy, with negative effects on Daimler’s
activities. Furthermore, potential economic crises in other emerg-
ing markets where the Group has important production facilities
could also be of particular relevance. Crises in emerging markets
where Daimler is active solely in a sales function would result in
more limited risk potential, however.
We see an additional major risk in the development of raw-
material prices. If, in the present situation of high volatility, prices
were to rise sharply once again and depart even further from
fundamentally justified levels, the assumed global economic out-
look would be jeopardized. This would result in a negative impact
on growth, especially in those countries that import large volumes
of raw materials. However, falling raw-material prices imply sub-
stantial risks for the economic growth of raw-material exporting
emerging markets.
Risks for market access and the global networking of the Group’s
facilities could arise as a result of a weakening of international
free trade in favor of regional trade blocks or the emergence of
protectionist tendencies. Such tendencies increased noticeably
again during the recession. Also a rise in bilateral free-trade agree-
ments outside the European Union could also affect Daimler’s
position in key foreign markets.
Finally, the world economy could be negatively affected by a
lasting deterioration in consumer and investor confidence and
by sustained deflationary tendencies, but also by inflationary
tendencies. Such developments could be triggered not only by the
financial market problems, but also by geopolitical and military
instability.
Industry and business risks
General market risks. The global economic and financial crisis
led to substantial falls in demand for automobiles and com-
mercial vehicles in 2009. State scrappage incentives alleviated
the slump in demand for cars somewhat, but Daimler profited
from these actions only to a very limited extent. There is a danger,
however, that the discontinuation of this fiscal support will lead
to significant falls in unit sales in the coming years. Customers
have meanwhile become used to a certain level of sales sup-
porting actions. Such additional financing offers and price incen-
tives could have a negative impact on earnings in the coming
years. Competitive pressure in the automotive markets, which
was already a significant factor, has therefore intensified. In
many markets, customers’ heightened sensitivity to the issue
of vehicles’ environmental friendliness and high fuel prices
have boosted demand for smaller, more fuel-efficient automobiles.
In order to enhance the attractiveness of less fuel-efficient
vehicles, additional measures could become necessary with an
adverse effect on profitability. These additional actions would
not only reduce revenues in the new-vehicle business, but would
also lead to lower price levels on used-vehicle markets and thus
to falling residual values for leased vehicles. A shift in the model
mix towards smaller vehicles with lower margins would also
place an additional burden on Daimler’s financial position, cash
flows and profitability.
Excess capacities and intense competition in the automotive
industry are putting increasing pressure on prices and could
necessitate further reductions in costs. For example, some US
automobile manufacturers have received state financial sup-
port or have achieved a lower cost base as a result of statutory
reorganization processes; this has allowed those manufactur-
ers to sell their vehicles at more favorable prices and to improve
their profitability.
As a reaction to the significant drop in demand, Daimler initiated
comprehensive measures to reduce and optimize its production
of cars and commercial vehicles. The Group has also achieved
significant savings by agreeing with employee representatives
on temporary adjustments of cost structures. However, should
the automotive market crisis last longer than expected or actually
worsen, steps might have to be taken to adjust production
volumes and improve our efficiency, with negative effects on
prof itability and liquidity. Should we not succeed in effectively
adapting our production and cost structures to changing condi-
tions
, this might also result in negative effects on our profitability