Mercedes 2015 Annual Report Download - page 136

B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 143
The assessment of market risks and opportunities is associ-
ated with assumptions and forecasts about the overall develop-
ment of markets in the various regions in which the Daimler
Group is active. The potential effects of the risks on the devel-
opment of the Daimler Group’s unit sales are included in
risk scenarios. The danger of worsening market developments
or changed market conditions, especially due to the partially
unstable macroeconomic environment and political or business
uncertainties, generally exists for all divisions of the Daimler
Group and can cause changes relating to the planned unit sales
and inventories. Differences between the divisions exist due
to variations in their regional focus of activities. The development
of the markets is continuously analyzed and monitored by the
divisions; if necessary, specific marketing and sales programs
are implemented. Clear strategies have been formulated for
each division in order to ensure profitable growth and efficiency
progress.
Existing uncertainties with regard to market developments
can also mean that the overall market or regional conditions for
the automotive industry might develop better than assumed
in the internal forecasts and the premises upon which the Group’s
target planning is based. Due to strong demand, in particular
for vehicles of various series of the Mercedes-Benz Cars division,
market opportunities are conceivable that could be utilized
by creating additional production capacities or increasing the
divisions’ production volumes. The possibility of higher unit
sales of vehicles exists in the Daimler Trucks segment as a result
of improved market developments or changed conditions in
the market. Further market opportunities have been identified
by the Mercedes-Benz Vans and Daimler Buses divisions.
However, the existing market opportunities of the divisions of
the Daimler Group can only be utilized if production and the
corresponding regional conditions can be focused accordingly
and gaps between demand and supply are recognized and
covered in good time. The measures that could be taken by the
Daimler Group to utilize potential opportunities include a
combination of local sales and marketing activities, central stra-
tegic product and capacity planning, and the adjustment
of production and cost structures to the changing conditions.
Some dealers and vehicle importers are in a difficult financial
situation. As a result, supporting actions may become neces-
sary to ensure the viability of such business partners. The sources
of the risks lay in the respective risk environments. Supporting
actions would negatively impact the profitability, cash flows and
financial position of the automotive segments. For this reason,
the financial situations of strategically relevant dealerships and
vehicle importers are continually monitored. Risks of this kind
exist for dealers and vehicle importers of the Mercedes-Benz
Cars, Daimler Trucks and Mercedes-Benz Vans divisions.
The Daimler Group’s successful product portfolio is one
of the factors behind the advantageous positioning compared
to the competitors. A possible increase in competition and
price pressure is another area of risk that affects all the auto-
motive segments. Aggressive pricing policies, the introduction
of new products by competitors or price pressure related to the
aftersales business could make it impossible to achieve the
targeted prices. This might result in lower revenue or could mean
that the effect of cost-reduction programs is not fully reflected
in earnings. The extent of such risks is oriented towards a divi-
sion’s sales volume. Depending on the volume of regional unit
sales, various measures are taken to support weaker markets.
They include the use of new sales channels, actions designed
to strengthen brand awareness and brand loyalty, and sales and
marketing campaigns. These measures can also be applied
to safeguard business in the area of aftersales. Daimler also
operates various programs to boost sales through the use
of financial incentives for customers. Corresponding measures
taken to support the segments’ unit sales would adversely
affect the projected revenue. Continuous monitoring of competi-
tors is carried out in order to recognize such risks at an early
stage. Opportunities can arise in this context if sales-promotion
activities already planned do not have to be applied in full.
Further risks and opportunities at Mercedes-Benz Cars and
Daimler Trucks relate to the development of the used vehicle
markets and thus to the residual values of the vehicles pro-
duced. As part of the established residual-value management
process, certain assumptions are made at the local and
corporate levels regarding the expected level of prices, on which
basis the cars returned in the leasing business are valued.
If general market developments lead to a negative or positive
deviation from the assumptions, there is a risk of lower residual
values or an opportunity of higher residual values of used cars.
Depending on the region and the current market situation, the
measures taken generally include continuous market monitoring
as well as, if required, price-setting strategies or sales pro-
motions designed to regulate vehicle inventories. The quality
of market forecasts is verified by periodic comparisons of
internal and external sources. If necessary, the set residual values
are adjusted and refined with regard to methods, processes
and systems for determining such values.
As the target achievement of the Daimler Financial Services
division is closely connected with the development of business
in the automotive divisions, the existing volume risks
and opportunities are also reflected in the Daimler Financial
Services segment. In this context, Daimler Financial Services
contributes towards marketing expenses, especially for adver-
tising campaigns.
The impact of the risks continues to be assessed as “high”.
Due to market volatility, the overall market risk increases to more
than €3 billion. The impact of opportunities has risen, due in
particular to market opportunities in the Mercedes-Benz Cars
segment.