Risks arising from changes in demand
As a result of the diesel issue, the Volkswagen Group may experience decreases in demand, possibly exacerbated by media reports. When dealing with the issue, our highest priority is to provide customers with solutions, both from a technical perspective and in financial matters. In addition, we are pressing ahead with the systematic clarification of the misconduct in the Company.
Consumer demand is shaped not only by real factors such as disposable income, but also by psychological factors that cannot be planned for. Unexpected buyer reluctance, possibly further exacerbated by press reports, could stem from households’ worries about the future economic situation, for example. This is particularly the case in saturated automotive markets such as Western Europe, where demand could drop as a result of owners holding on to their vehicles for longer. In the reporting period, it became evident that the effects of the eurozone debt crisis have not yet been overcome. Some automotive markets, particularly in Southern Europe, were able to further recover from their record lows, however, and exhibited positive growth rates. We are countering this buyer reluctance with our attractive range of models and systematic customer orientation.
A combination of buyer reluctance as a result of the crisis and increases in some vehicle taxes based on CO2 emissions – as is already the case in some European countries – is driving a shift in demand towards smaller segments and engines in individual markets. We counter the risk that such a shift will negatively impact the Volkswagen Group’s earnings by constantly developing new, fuel-efficient vehicles and alternative drive technologies, based on our drivetrain and fuel strategy.
Automotive markets around the world are exposed to risks from government intervention such as tax increases, which curb private consumption or from protectionist tendencies.
Commercial vehicles are capital goods: even minor changes in growth rates or growth forecasts can significantly affect transport requirements and thus demand. The production fluctuations arising as a result require a high degree of flexibility from manufacturers. Although production volumes are significantly lower, the complexity of the trucks and buses range in fact significantly exceeds the already very high complexity of the passenger cars’ range. The priorities for commercial vehicle customers are total cost of ownership, vehicle reliability and the service provided.
MAN Power Engineering’s two-stroke engines are produced exclusively by licensees, particularly in South Korea, China and Japan. Due to volatile demand in new ship construction and heavy investment by some licensees, there is excess capacity in the market for marine engines, resulting in risks ranging from a decline in license revenues through to bad debt losses. There is also a risk that market share will be lost as a result of Chinese state-owned licensees merging with competitors. We address these risks by constantly monitoring the markets and working closely together with all licensees. This also includes receivables management in order to safeguard our license revenues.
Dependence on fleet customer business
The fleet customer business is generally more stable than the business with retail customers. The clarification of the CO2 issue and implementation of technical solutions for the diesel issue helped to ensure that there were no significant declines in volumes for the Volkswagen Group’s fleet customer business in 2016. Only the Volkswagen Passenger Cars brand in Europe saw slight losses. The shrinking market in Brazil led to a fall in volume in that country.
The fleet customer business continues to be characterized by increasing concentration and internationalization. The Volkswagen Group is well positioned with its broad portfolio of products and drive systems, as well as its target-group-focused customer care. There is no concentration of default risks at individual fleet customers or markets.