Company-specific risks and opportunities

The following section deals with the company-specific risks and opportunities of the Daimler Group. A quantification of these risks and opportunities is shown in table B.60.

 

B.60 Company-specific risks and opportunities

Risk category Probability of occurrence Impact Opportunity category Impact
         
Production and technology risks Low High Production and technology opportunities
Information technology risks Low Medium Information technology opportunities
Personnel risks Medium High Personnel opportunities
Risks related to equity interests and joint ventures Medium Medium Opportunities related to equity interests and joint ventures Low

 

Production and technology risks and opportunities

Key success factors for achieving the desired level of prices for the products of the Daimler Group, and hence for the achievement of corporate goals, are the brand image, design and quality of the products – and thus their acceptance by customers – as well as technical features based on innovative research and development. Convincing solutions, which for example promote accident-free driving or further improve our vehicles’ fuel consumption and emissions (e.g. diesel-hybrid or electric vehicles), are of key importance for safe and sustainable mobility. Due to growing technical complexity, continually rising requirements in terms of emissions, fuel consumption and safety, and the Daimler Group’s goal of meeting and steadily raising its quality standards, product development and manufacturing in the various automotive divisions are subject to production and technology risks.

Innovation and technology opportunities for the progressive and future-oriented design of the product range flow into the strategic product planning of the automotive divisions. In the context of a continuous process, checks are regularly carried out as to whether the level of production can be increased by means of shift work, the worldwide production network, investment projects or more flexible production facilities. In order to safeguard the long-term future orientation of the Daimler Group’s production facilities with regard to the diversity of the product portfolio and in order to develop additional production capacities to allow Daimler to grasp the opportunities that are presented, continuous modernization, expansion, construction and restructuring are carried out at the locations of the Daimler Group and its joint ventures and joint operations. The execution of modernization actions and the launch of new products are generally connected with high investments. Guidelines or delays in the ramp-up phase of a new model or in connection with a product’s lifecycle can lead to a short-term reduction in production volumes. In order to achieve a very high level of quality, which is one of the key factors for a customer’s decision to buy a product of the Daimler Group, it is necessary to make investments in new products and technologies that sometimes exceed the originally planned scope. This cost overrun would then reduce the anticipated earnings from the launch of a new model series or product generation. Those automotive segments are affected which are currently launching new products or planning to do so, or carrying out related production expansions and modifications, in some cases in conformance with specific regional conditions. In particular, the creation and expansion of production capacities in the Chinese market is connected with risks due to the uncertain market development. The establishment of efficient production processes serves to manage quality risks there. Furthermore, dependencies between contractual partners and possible changes in the conditions in China must be included in the local decision-making process.

In principle, there is also a danger that due to infrastructure problems, the failure of production equipment or a production plant or in the external supply of energy, it might not be possible to maintain the planned level of production, and that would consequently generate costs. Such risks mainly exist for the Mercedes-Benz Cars segment. The production equipment is regularly maintained and as a precaution, spare parts are held available for the production plants that might be at risk.

Insufficient availability of vehicle components at the right time and difficulties or interruptions in the supply chain, possibly caused by regional restrictions, can lead to bottlenecks. In order to avoid such bottleneck situations, priority is given to foresighted capacity planning. In addition, supply chains and the availability and quality of products are continuously monitored within the context of managing the entire value chain. The ongoing modernization of the production plants, supplier management and other monitoring activities help to prevent risks in this area.

Warranty and goodwill claims can arise when the quality of the products of the automotive divisions does not meet customers’ expectations, when a regulation is not fully complied with, or when support is not provided in the required form in connection with product problems and product care. The Daimler Group works continually and intensively to maintain product quality at a very high level, even given the growing product complexity, in order to avoid the danger of making corrections to end products and in order to supply customers with the best possible products. Furthermore, processes are implemented at the Daimler Group to regularly obtain customers’ opinions on the support provided so that our service and customer satisfaction can be continuously improved.

Production and technology risks continue to have a low probability of occurrence due to preventive measures. However, because of the continually high number of new product launches, the potential impact of such risks remains at the same level.

Information and technology risks and opportunities

The digitization strategy that is systematically pursued at Daimler offers new possibilities for enhancing customer benefits and enterprise value. However, it includes risks from the increasing dependency of products and business processes on IT. In addition, specific risks exist due to the use and availability of new technologies in connection with digitization, which for example can affect the products, their use or the operational business. It is still essential for a global company like Daimler that information is maintained and exchanged in real time, comprehensively and correctly. Appropriately secure IT systems and a reliable IT infrastructure must be used in order to protect information. Risks that could result in the interruption of business processes due to the failure of IT systems or which could cause the loss or corruption of data are therefore identified and evaluated over the entire lifecycles of applications and IT systems. Daimler has defined suitable measures for risk avoidance and limitation of damage. These measures are continually adapted to changing circumstances. For example, the Group minimizes potential interruptions of operating routines in the data centers by means of mirrored data sets, decentralized data storage, outsourced archiving, high-availability computers and appropriate emergency plans. An IT-security operations center coordinates potential danger from cyber crime and hacker attacks. Daimler utilizes various preventive and corrective measures in order to meet the growing demands placed on the confidentiality, integrity and availability of data. Necessary precautions are taken also for the protection of the products and services of the Daimler Group. Despite all the precautionary measures taken, Daimler cannot completely rule out the possibility that IT disturbances will arise and have a negative impact on the Group’s business processes. The impact and probability of occurrence of IT risks remain unchanged compared to the prior year.

Personnel risks and opportunities

Daimler’s success is highly dependent on its employees and their expertise. With their ideas and suggestions, they are involved in their respective activities and working processes and thus contribute considerably every day to improvements and innovations.

To support this process, the Daimler Group has established an ideas management system through which employees can submit ideas and suggestions for improvements. The processing of the information received by this system and the integration of ideas in an assessment process carried out by experts and persons in charge of the respective processes is supported by the established IT system “idee.com”. This is intended to ensure the systematic and sustained promotion of employees’ ideas and suggestions for improvement.

Furthermore, workgroups create processes and instruments to produce new business ideas and to establish inter-departmental cooperation. In this context, an online community exists in the area of business innovation to which suggestions for discussions can be submitted, which all employees can assess and develop further.

Competition for highly qualified staff and management is still very intense in the industry and the regions in which we operate. The future success of the Daimler Group also depends on the magnitude to which we succeed over the long term in recruiting, integrating and retaining specialist employees. The established human resources instruments take such personnel risks into consideration, while contributing toward the recruitment and retention of staff with high potential and expertise and ensuring transparency with regard to the resources of the Daimler Group. One focus of human resources management is the targeted personnel development and further training of the workforce. Employees benefit for example from the range of courses offered by the Daimler Corporate Academy and from the transparency created by a uniform worldwide performance and potential management system. Due to demographic developments, the Group has to cope with changes relating to an aging workforce and has to secure a sufficient number of qualified young persons with the potential to become the next generation of highly skilled specialists and executives. We address this issue by taking appropriate measures in the area of generation management. If this risk materializes, depending on the size of the personnel shortage, an impact is to be expected on the Group’s activities and thus also on the earnings of the Daimler Group. Further risks exist in the context of collective bargaining negotiations concerning wages and general conditions. There is no segment-specific assessment of the human resources risk because the described risks are not related to any specific business segment, but are valid for all segments. The category of personnel risks is unchanged compared with the previous year with regard to their impact and probability of occurrence.

Risks and opportunities related to associated companies, joint ventures and joint operations

Cooperation with partners in associated companies, joint ventures and joint operations and other types of partnerships is of key importance for Daimler. Along with ensuring better access to growth markets and new technologies, equity interests and joint ventures help us exploit synergies and improve cost structures and thus enable us to successfully respond to competitive pressures in the automotive industry.

Daimler generally bears a proportionate share of the risks and opportunities of its associated companies, joint ventures and joint operations. The possible risks include negative financial developments and delays in setting up development and production structures in equity interests and joint ventures, which can negatively impact the achievement of growth targets in the affected segments. The related risks and opportunities are allocated to the respective risk and opportunity category in the Management Report. The remeasurement of an associated company, joint venture or joint operation can result in risks and opportunities relating to the corresponding carrying value for the segment to which it is allocated. A disposal or the business situation of an associated company, joint venture or joint operation can also cause financial obligations or expected revenue might not materialize. Risks from associated companies, joint ventures and joint operations exist in the Mercedes-Benz Cars, Daimler Trucks and Mercedes-Benz Vans segments, as well as in the associated companies, joint ventures and joint operations directly allocated to the Group. All associated companies, joint ventures and joint operations are subject to a continuous monitoring process so that they can be promptly supported if required and their profitability can be ensured. The recoverable value of investments is also continually monitored. Due to current developments in worldwide equity markets, the probability of occurrence of these risks has increased compared to the previous year from “low” to “medium”.

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