Mercedes 2015 Annual Report Download - page 137

144 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT
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 products. The resulting risks
for the Daimler Financial Services segment are mainly due
to borrowers’ worsening creditworthiness, so that receivables
might not be recoverable in whole or in part due to customers’
insolvency (default risk or credit risk). Daimler counteracts
credit risks by means of creditworthiness checks on the basis
of standardized scoring and rating methods and the collateral-
ization of receivables, as well as state-of-the-art risk man-
agement with a firm focus on monitoring both internal and macro-
economic leading indicators. Other risks associated with the
leasing and sales-financing business involve the possibility of
increased refinancing costs due to changes in interest rates
(interest-rate risk). An adjustment of credit conditions for cus-
tomers 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
also arise from a lack of matching maturities with refinancing.
The risk of mismatching maturities is minimized by coordinat-
ing the refinancing with the periods of financing agreements,
from the perspective of interest rates as well as liquidity. Any
remaining risks from changes in interest rates are managed
by the use of derivative financial instruments. Further information
on credit risks and the Group’s risk-minimizing actions is pro-
vided in E Note 32 of the Notes to the Consolidated Financial
Statements. With regard to the leasing business, the auto-
motive divisions also have a residual-value risk resulting from
the risks associated with the development of used-vehicle
prices. The extent of the risks and opportunities and the proba-
bility of occurrence of the risks relating to the leasing and
sales-financing business continue to be assessed as low.
Procurement market risks and opportunities
Procurement market risks arise for the automotive divisions
in particular from fluctuations in prices of raw materials.
There are also risks of capacity bottlenecks caused by supplier
delivery failures as well as risks of insufficient utilization of
production capacities at suppliers. In general, the possible impact
of risks related to the procurement market continues to be
assessed as “high”. The risk situation relating to the probability
of occurrence decreased slightly compared with the previous
year and is now assessed as “low”. As in the previous year, only
minor opportunities are anticipated in the raw-material markets.
Raw-material prices primarily remained constant with some
falls during 2015 and featured moderate volatility. The weaker
euro against the dollar at the beginning of the year had a major
impact on all raw materials priced in US dollars. Due to almost
completely unchanged macroeconomic conditions, price fluc-
tuations are expected with uncertain and uneven trends in
the near future. On the one hand, raw-material markets can be
strongly impacted by political crises and uncertainties – combined
with possible supply bottlenecks – as well as by volatile
demand for specific raw materials; this increases the risk from
raw-material prices for the individual automotive segments.
On the other hand, the automotive segments’ procurement oper-
ations profit from both the significantly lower dynamism of
Chinese industry and from the anticipated continuation of slightly
below-average growth of the world economy. Vehicle manu-
facturers are generally limited in their ability to pass on the higher
costs of commodities and other materials in the form of
higher prices for their products because of 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.
Supplier risk management aims to identify potential financial
difficulties for suppliers at an early stage and to initiate suitable
countermeasures. Even though the crisis of recent years is
over, the situation of some of the suppliers remains difficult
due to tough competitive pressure. This has necessitated
individual or joint support actions by vehicle manufacturers
to safeguard their production and sales. In the context of
supplier risk management, regular reporting dates are set for
suppliers for which we have received early warning signals
and made corresponding internal assessments. On these dates,
the suppliers report key performance indicators to Daimler
and decisions are made concerning any required support actions.
In connection with a further decrease in unit sales in major
emerging markets, the Daimler Trucks division in particular
is faced with the risk that Daimler will require a significantly
lower volume of components from suppliers than originally
planned. This would result in underutilization of production
capacities for the suppliers. If fixed costs were no longer
covered, there would be the risk of suppliers demanding com-
pensation payments.
Risks and opportunities related to the legal
and political framework
The risks and opportunities from the legal and political frame-
work also 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. In the future, we expect to spend an even
larger proportion of the research and development budget to
ensure the fulfillment of these regulations. The probability of risks’
occurrence has not changed compared with the previous
year and is assessed as “medium”; the assessment of possible
impact remains unchanged at “high”.