Mitsubishi 2010 Annual Report Download - page 35

Business-related Risks
Risks that may affect the business results, financial position
and other aspects of the MMC Group are outlined as follows:
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 MMC uses in promotions reduce
the selling price of new vehicles. It is possible that the use of
incentives will lower resale values in the used car market and
residual values evaluated for 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 MMC
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 74.5% of the consolidated
sales of MMC for the period. MMC endeavors to minimize
the risk involved in foreign currency receivables and payables
through foreign currency derivative contracts. However, fluc-
tuations 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 12.1%
for North America, 18.6% for Europe, and 43.8% for Asia and
other regions. There is a possibility that changes in the socio-
economic situation in Japan or any of these regions will
impact MMC results.
Effect of interest rate fluctuations
The balance of MMC’s consolidated interest-bearing debt
stood at ¥392.7 billion at the end of March 2010. 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 MMC’s manufac-
turing costs and resulting in an impact on MMC results.
Natural and other disasters
The MMC Group 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, may result
in lengthy halts in operations, etc. and thus have an impact
on MMC results.
Changes in laws and regulations
MMC abides by laws and regulations regarding the environ-
ment, 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.
33
MITSUBISHI MOTORS CORPORATION Annual Report 2010