Daimler Annual Report 2011 - Alle jaarverslagen

China has become increasingly important as a sales market
for Daimler in recent years. In view of the declining dynamism
of the world economy and the resulting drop in demand for
exports, China is facing the challenge of repositioning its domestic
economy: away from its dependence on investment and
exports and towards stronger domestic demand. We generally
assume that there will be a controlled deceleration of
Chinese economic expansion, but another global recession
would increase the risk of a “hard landing,” i.e., an abrupt
slump in growth. But dangers exist for China’s economy also
from within the country. Discussions about a possible credit
or real-estate bubble have intensified due to the major stimulus
program of recent years. In view of this credit boom, there
is a risk of an increase in non-recoverable debt, especially for
state-owned banks. It is true that the Chinese authorities
have been attempting to dampen credit growth by means of
monetary policy and administrative measures for about a
year now, but prices are still rising. A sudden correction of
real-estate prices would have serious consequences. In addition
to a possible bank crisis, the construction industry as a key
growth driver of the Chinese economy would come under
massive pressure. Furthermore, private households would suffer
from the related asset losses. Together with a continuation
of high or even rising inflation, the danger of social unrest in
China would increase sharply. As China is the world’s secondlargest
economy and increasingly has the role of global growth
engine, contributing to economic growth in many regions
due to its immense demand for goods and raw materials, such
unrest would have far-reaching consequences for the world
economy.
We see an additional risk in the development of raw-material
prices. If prices were to rise sharply and depart from fundamentally
justified levels, the assumed global economic outlook
would be jeopardized. In recent months, raw-material markets
have already eliminated part of the specu lative excess, but with
a continuation of expansive monetary policy there is still a
danger of speculative bubbles. If such a bubble were to burst,
that would dampen growth considerably, particularly in those
countries that export raw materials. High supply risks exist with
regard to some special raw materials such as rare earths –
in particular due to the concen tration of global mining in a small
number of countries.
Risks for market access and the global networking of the Group’s
facilities could arise as a result of weakening of international
free trade in favor of regional trade blocks or the emergence
of protectionist tendencies. The latter could occur
in particular due to competitive devaluation resulting from
insufficient adjustment of exchange rates and an increase
in speculative capital movements. In addition, new barriers to
trade such as higher import duties could hinder the business
activities of multinational companies like Daimler. An increase
in bilateral free-trade agreements outside the European
Union could also affect Daimler’s position in key foreign markets.
Recent geopolitical unrest, as occurred in the Near East and
North Africa in 2011, has made it clear that such events can
also have an impact on the development of the world economy.
Even if the unrest is regionally limited, indirect effects such
as higher oil and raw-material prices could have the effect of
dampening global growth.
Industry and business risks
General market risks. As explained in the previous sections,
there are considerable economic 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 competitive pressure in the automotive
markets becomes even tougher, possibly due to further worsening
of global economic developments, 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. In order to
enhance the attractiveness of less fuel-efficient vehicles, additional
actions might become necessary with a negative
impact on earnings. This, together with the 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 auto ­
motive markets, it is essential for us to continually and successfully
adapt our production and cost structures to changing
conditions. If we fail to do so, this would affect the Group’s
competitiveness and could once again require cost-intensive
restructuring actions.
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 individual or joint supporting actions by the vehicle
manufacturers, which would have a negative impact on Daimler’s
profitability, cash flows and financial position.
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