Mercedes 2009 Annual Report Download - page 110

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and cash flows. The successful implementation of the repo-
sitioning of our subsidiaries Daimler Trucks North America and
Mitsubishi Truck and Bus Corporation is another important step
to secure the long-term profitability of Daimler Trucks.
The financial position of dealerships and importers is increas-
ingly jeopardizing by falling demand for vehicles combined with
higher refinancing costs and significantly more difficult access to
credit due to the financial market crisis. Supportive measures
taken by the Group already had an adverse effect on our earnings
in 2009; any additional measures would worsen the Group’s
financial position, cash flows and profitability.
Risks related to the leasing and sales-financing business.
Daimler’s financial services business primarily comprises the
provision of financing and leasing for the Group’s products. In
particular, this business involves the risk that the prices real-
izable for used vehicles at the end of leasing contracts are below
their book values (residual-value risk). Another inherent risk is
that some of the receivables due in the financial services busi-
ness might not be recoverable due to customer default (credit
risk). Other risks connected with the leasing and sales-financing
business are the possibilities of increased refinancing costs
and of changes in interest rates. Downgrades in ratings agencies’
assessments of Daimler’s creditworthiness would have a nega-
tive impact on the Group’s cost of borrowed capital and thus also
on the business outlook for Daimler Financial Services. A result-
ing adjustment of credit conditions for customers in the leasing
and sales-financing business could reduce the new business and
contract volume of Daimler Financial Services, thus also reducing
the unit sales of the automotive divisions. Daimler counteracts
residual-value and credit risks by means of appropriate market
analyses and creditworthiness checks. Derivative financial
instruments are used to hedge against the risk of changes in inter-
est rates. Further information on credit risks and the Group’s
risk-minimizing actions is provided in Note 30 of the Notes to the
Consolidated Financial Statements.
Production and technology risks. In order to achieve the
targeted levels of prices, factors such as brand image, design
and product quality are becoming increasingly important, as
well as additional technical features resulting from our innovative
research and development. Convincing solutions, for example
supporting accident-free driving or further improving our vehicles’
fuel consumption and emissions as with as diesel-hybrid tech-
nology, are of key importance for safe and sustainable mobility.
Because these solutions generally require higher advance
expenditure and greater technical complexity, there is an increas-
ing challenge to realize efficiency improvements while simul-
taneously fulfilling Daimler’s own quality standards. If we fail to
perform this task optimally, this could negatively affect the
Group’s future profitability.
Product quality has a major influence on a customer’s decision
to
buy a passenger car or commercial vehicle. At the same time,
technical complexity continues to grow as a result of additional
features, for example for the fulfillment of various emission and
fuel-economy regulations, increasing the danger of vehicle
mal
functions. Technical problems could lead to recall and repair
campaigns, or could even necessitate new development work.
Furthermore, deteriorating product quality can lead to higher war-
ranty and goodwill costs.