Mercedes 2002 Annual Report Download - page 84

78 |Analysis of the Financial Situation
4. Risk Report
Integrated risk management system
Within the framework of their global activities and as a result
of the increasingly intense competition in all markets, the
business units of the DaimlerChrysler Group are exposed to
a great number of risks, which are inextricably linked with
corporate business. Effective management and control instru-
ments, combined within a uniform risk management system
which is continuously improved, are deployed for the early
detection, evaluation and management of risks.
The risk management system is an integral part of the
overall planning, control and reporting process in all relevant
legal units and central functions. It is aimed at the systematic
detection, assessment, controlling and documentation of
risks. Taking defined risk categories into account, risks are
identified by management of the business units and segments
and the key associated companies and assessed with respect
to the likelihood of occurrence and the possible extent of
damage. The communication and reporting of relevant risks is
controlled by value limits set by management. Within the
framework of risk management, measures are developed and
initiated as required to avoid, reduce and prevent risks. The
key risks are monitored in the framework of risk monitoring.
The aim of the Group’s risk management system is to
enable corporate management to identify key risks at an early
stage and initiate counter measures. Compliance with uniform
Group guidelines, as defined in a risk management manual
applicable for the entire Group, is checked by the internal
audit department. In addition, external auditors test the early
risk detection system integrated into the risk management
system for its fundamental suitability for early detection of
developments that could jeopardize the continued existence
of the company.
Risks from overall economic development
Following a short phase of recovery, the global economy again
lost a great deal of momentum in the current year. The eco-
nomic outlook for 2003 as a whole has also deteriorated per-
ceptibly since the anticipated upturn did not fully materialize
and was later and weaker than expected. Consequently, the
economic risks for the earnings situation at DaimlerChrysler
grew during the same period.
Possible triggers of an unfavorable economic development
could be a sustained drop in consumption in the United States,
associated with a corresponding downturn of the most impor-
tant growth engine for the global economy, as well as the pos-
sible negative consequences of an escalation of military action
in Iraq either in terms of duration and/or scope.
The ongoing structural problems of the Japanese economy
hold further risk potential, both with respect to the signifi-
cance of Japan as a market and because of the increased
investment at Mitsubishi Motors. The possible negative effects
of a Japanese economic recession on the developing countries
of Asia could likewise negatively influence the joint investment
with Hyundai Motor Company.
A geographically restricted risk potential exists in connec-
tion with the ongoing crises in individual developing countries
(South America, Asia, Eastern Europe).
Industry- and company-specific risks
The weak overall economic development and stagnating mar-
kets are increasingly affecting the automobile industry. Strong
competitive pressures are reducing earnings and increasing
the nature and extent of discount financing offers. Sales incen-
tives in the new vehicle business in turn affect the price level
in the used vehicle business. In addition to industry-specific
market developments, unit sales also depend on general politi-
cal conditions. Conditions relating to emissions, fuel economy
and energy prices affect growth in various product segments
and therefore also the profitability of the company.
Innovative products and services provided by the company
are the key success factors for the DaimlerChrysler Group.
This success is decisively influenced by research activities and
the development of new products, the timely execution of
product launches and the achievement of defined efficiency
improvement objectives while at the same time maintaining
quality. Any quality reductions could result in increased war-
ranty liabilities and damage the Group’s image, which could
negatively impact unit sales. The successful continuation
of the turnaround programs initiated at Chrysler Group, in the
Freightliner, Sterling and Thomas Built Buses business unit,
and at Mitsubishi Motors is decisive for the profitability
of DaimlerChrysler. Against the background of the strategic
orientation of the Group, recruiting and expanding manage-
ment potential in the engineering professions and for employ-
ment in Asia is essential. Other operating risks, such as risks
relating to information technology, play a less important role.