Mitsubishi 2008 Annual Report Download - page 47

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annual report 2008 mitsubishi motors corporation
Business-related Risks
Risks related to the company’s operations and financial status are
as follows:
Forward-looking statements are based on the judgment of the
MMC Group as of the end of fiscal year 2007.
Leasing, financial services and sales incentives
Overcapacity in the auto industry, and fierce competition, especially
price competition in the North American market, has led to the
necessity of sales incentives in sales promotion efforts.
The sales incentives the company uses in promotions reduce
the selling price of new vehicles. It is possible that the use of
incentives will lower residual values, which will affect both residual
values in the used car market and that of vehicles returned at the
end of leases. If vehicle residual values decrease, there could be a
negative impact on future business performance. The decline in
residual values could also put downward pressure on car and lease
assets held as collateral in the sales-finance unit.
Issuance of common and preferred shares and effect on
share price
In June and July 2004, March 2005, and January 2006 the company
issued several classes of convertible preferred shares. The
conversion of all Class B shares, series 1 – 3 (issued July 2004), has
already been completed, but the possible conversion of the
remaining Class A & G shares to common shares in the future will
dilute the value of existing common shares, and thus possibly
influence the market price of common shares.
Effect of foreign exchange rate fluctuations
Overseas sales accounted for 81.8% of the consolidated sales of
MMC for the period. The company endeavors to minimize the risk
involved in foreign currency receivables and payables through
foreign currency derivative contracts. However, fluctuations in the
foreign exchange markets still may have an impact on MMC results.
Effect of socioeconomic situations
The breakdown of the above ratio for overseas sales is 15.0% for
North America, 34.7% for Europe, and 32.1% for Asia and other
areas. There is a possibility that changes in the socioeconomic
situation in Japan or any of these regions will impact MMC results.
Effect of interest rate fluctuations on borrowings
The balance of MMC’s consolidated interest-bearing liabilities
stood at ¥353.9 billion at the end of March 2008. There is a
possibility that fluctuations in interest rates on borrowings resulting
from a change in financial market conditions in the future will
impact MMC results.
Effect of fluctuations in materials prices
The MMC group purchases materials and finished parts and
components from many partners. Increased demand and other
changes in market conditions may cause materials and components
prices to increase, thus raising the company’s manufacturing costs
and resulting in an impact on MMC results.
Natural and other disasters
The company maintains production and other facilities in many
parts of the world. The occurrence of a major natural or other
disaster, such as an earthquake or typhoon, or accidents such as fire,
may result in large operational halts, etc. and thus have an impact on
MMC results.
Changes in laws and regulations
MMC abides by laws and regulations regarding the environment,
product safety, etc. in its various markets of operation. If any laws
and regulations were to be changed, or new rules issued, costs
associated with implementing these changes would have an impact
on MMC results.