Mercedes 2012 Annual Report Download - page 123

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In order to counteract the global growth slowdown and the
various associated risks, the large central banks, especially
in Europe and the United States, have continued or even
expanded their unconventional monetary policies with nearly
no limitations on duration or extent. The enormous volumes
of liquidity provided by those policy actions have the potential
to significantly raise inflation expectations in the medium term,
with corresponding medium-term risks for price stability.
Furthermore, the spread of available liquidity could be increas-
ingly reflected in the development of raw-material prices.
When market players in search of high-yield investments increas-
ingly invest in raw materials, prices worldwide could increase
at a higher rate than is fundamentally justified. This would lead
to a massive burden for consumers and manufacturing com-
panies; on the other hand, a bursting of the ensuing speculative
bubbles would have a drastic impact on global economic
activity, especially in countries that export raw materials. And
the effects of expansive monetary policy on global currency
exchange rates also involve considerable risks.
Excessive liquidity also results in speculative capital movements,
which have led to unwanted exchange-rate developments
in some countries, such as the appreciation of the Japanese yen
and of the Brazilian real. If these developments continue
this year, there is a danger that individual countries will attempt
to defend their competitiveness in the world’s markets
by resorting to interventionist and protectionist actions.
This could culminate in competitive devaluation or a “currency
war.” Daimler’s position in key foreign markets could also
be affected by an increase in bilateral free-trade agreements
outside the European Union.
Industry and business risks
General market risks. The situation of the world economy
has become significantly more uncertain and subject to volatil-
ities, leading to risks for the development of demand for motor
vehicles. And competitive pressure in the automotive markets
is as high as ever. Customers have meanwhile become used
to a certain level of sales-supporting actions. If this competi-
tive pressure in the automotive markets becomes even tougher,
possibly due to further worsening of global economic develop-
ments, it could lead to the increased application of sales-
promoting financing offers and other incentives. That would not
only reduce revenues in the new-vehicle business, but would
also lead to lower price levels in used-vehicle markets and thus
to falling residual values. In many markets, a shift in demand
towards smaller, more fuel efficient vehicles is apparent; this
is the result of customers’ significantly increased sensitivity
to vehicles’ environmental friendliness and the development
of fuel prices. A further shift in the model mix towards smaller
vehicles with lower margins would place an additional burden
on the Group’s financial position, cash flows and profitability.
Due to the competitive pressure in automotive markets,
it is essential for us to continually and successfully adapt
our production and cost structures to changing conditions.
We continually analyze our competitiveness. Clear strategies
have been formulated for all divisions. Each division consistently
pursues the goal of growing profitably and increasing its
efficiency.
The recent crisis years have also led to a worsening of the
financial situation of some suppliers, dealerships and
vehicle importers. For this reason, it is still not possible to rule
out supporting actions, which would have a negative impact
on Daimler’s profitability, cash flows and financial position.
Risks 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. This business
involves the risk that the prices realizable for used vehicles at
the end of leasing contracts are below their book values
(residual-value risk). An additional risk is that some of the receiv-
ables due in the financial services business might not be
recoverable due to customer default (credit risk). 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, thus also
reducing the unit sales of the automotive divisions. In addition,
risks could arise from of a lack of matching maturities with
our refinancing. Daimler counteracts residual-value risk and
credit risk by means of appropriate market analyses, credit-
worthiness checks on the basis of standardized scoring and
rating methods, and the collateralization of receivables.
Fixed-rate and variable-rate derivative financial instruments are
used to hedge against the risk of changes in interest rates.
The risk of mismatching maturities is minimized by coordinating
our refinancing with the periods of financing agreements.
Further information on credit risks and the Group’s risk-
minimizing actions is provided in E Note 31 of the Notes
to the Consolidated Financial Statements.