Mercedes 2013 Annual Report Download - page 130

134
Risks and opportunities relating to the leasing and sales
financing business. In connection with the sale of vehicles,
Daimler also offers its customers a wide range of financing
possibilities – primarily leasing and financing the Group’s prod-
ucts. In connection with the stated risks for the development
of the used-vehicle market, in particular for the automotive divi-
sions, there is the risk that the prices realizable for used vehi-
cles at the end of leasing contracts are below their book values
(residual-value risk). In connection with the management of
vehicles returned at the end of leasing contracts, opportunities
also arise if the prices that can be obtained when the vehicles
are resold are above their carrying values, so that the resale
results in additional earnings. Another risk in the financial
services business consists of a borrower’s worsening credit-
worthiness, so that some or all of a receivable might not
be recoverable due to a customer’s insolvency (default risk or
credit risk). Daimler counteracts residual-value risks and
credit risks by means of appropriate market analyses, credit-
worthiness checks on the basis of standardized scoring
and rating methods, and the collateralization of receivables.
Another risk connected with the leasing and sales-financing
business is the possibility of increased refinancing costs due
to potential changes in interest rates. An adjustment of
credit conditions for customers in the leasing and sales-financing
business due to higher refinancing costs could reduce the
new business and contract volume of Daimler Financial Services,
also reducing the unit sales of the automotive divisions.
Risks and opportunities could also arise from of a lack of match-
ing maturities with our refinancing. The risk of mismatching
maturities is minimized by coordinating our refinancing with the
periods of financing agreements, from the perspective of
interest rates as well as liquidity. Any remaining risks of changes
in interest rates are managed with the application of derivative
financial instruments. Further information on credit risks and the
Group’s risk-minimizing actions is provided in E Note 32
of the Notes to the Consolidated Financial Statements.
Procurement market risks and opportunities. Procurement
market risks arise for the Group in particular from fluctuations
in prices of raw materials. The economy-related fall in raw
material prices in 2011 continued with increased volatility through
2012 and into the year 2013. On the basis of the more stable
development of the European Monetary Union and positive data
from the US economy and labor market, this trend slowly
reversed and then turned into a sideways movement of raw
material prices in the second half of 2013. Only small oppor-
tunities are anticipated in the raw material markets in view
of the situation of the world economy.
Given the intensive influence of institutional investors, which
is reflected in growing demand for commodity investments and
is thus increasing price volatility in the raw material markets,
the outlook for price developments remain uncertain. Vehicle
manufacturers are generally limited in their ability to pass
on the higher costs of commodities and other materials in higher
prices for their products because of the strong competitive
pressure in the international automotive markets. A drastic
increase in raw material prices would at least temporarily result
in a considerable reduction in economic growth.
Daimler continues to counteract procurement risks by
means of targeted commodity and supplier risk management.
The Group attempts to reduce its dependency on individual
materials in the context of commodity management, by making
appropriate technological progress for example. Daimler pro-
tects itself against the volatility of raw material prices by enter-
ing into long-term supply agreements, which make short-term
risks for material supplies and the effects of price fluctuations
more calculable. Furthermore, the Group makes use of deri-
vative price-hedging instruments for certain metals.
Supplier risk management aims to identify suppliers’ potential
financial difficulties at an early stage and to initiate suitable
countermeasures. Also after the recent crisis years, the situation
of some of our suppliers is still difficult due to the tough
competitive pressure. This has necessitated individual or joint
support actions by vehicle manufacturers to ensure their
own production and sales. In the context of supplier risk manage-
ment, regular reporting dates are set for suppliers depending
on our assessment of them, in which key performance indicators
are reported to Daimler and any required support actions
are decided upon.
Risks and opportunities related to the legal and political
framework. The risks and opportunities from the legal and
political framework have a considerable impact on Daimler’s
future business success. Regulations concerning vehicles’
emissions, fuel consumption and safety play a particularly
important role. Complying with these varied and often
diverging regulations all over the world requires strenuous
efforts on the part of the automotive industry. Daimler
expects to expend an even larger proportion of the research
and development budget to ensure the fulfillment of these
regulations. Many countries have already implemented stricter
regulations to reduce vehicles’ emissions and fuel con-
sumption, or are now doing so.
For example, new legislation in the United States on greenhouse
gases and fuel consumption stipulates that new car fleets
in the United States may only emit an average of 163 grams of
carbon dioxide per mile as of 2025 (approximately 100 grams
CO2 per kilometer). These new regulations will require an aver-
age annual reduction in CO2 emissions as of 2017 for cars
of 5% and for SUVs and pickups at first of 3.5% (this rather lower
rate applies until 2022). This will hit the German premium
manufacturers and thus also the Mercedes-Benz Cars division
harder than for example the US manufacturers. As a result of
strong demand for large, powerful engines in the United States
and Canada, financial penalties cannot be ruled out.