Production risks relating to demand
The global recession that started to emerge in the third and fourth quarters of 2008 and the related shifts in global demand for passenger cars led to fluctuations in the volumes of specific models. We do not expect any substantial change in this situation in 2009. Furthermore, changes in demand for special features or components lead to an increased risk of delivery bottlenecks. We counter this risk using flexible capacity management at our vehicle and component factories, and especially with the aid of our turntable concept, and through timely support by external suppliers. Flexible working time models provide additional opportunities to adjust production in line with current market demand.
Risks arising from changes in demand
Consumer demand depends not only on real factors such as disposable income, but also to a significant extent on psychological factors that are impossible to plan for. A combination of higher fuel prices and the uncertainty surrounding future CO2 emission taxation may lead to unexpected consumer reluctance to purchase vehicles, which may be further exacerbated by media reports. The current financial crisis is also having significant effects on global economic development and, accordingly, on the whole automotive sector. After a certain time lag, all the world’s automotive markets are now seeing what is in some cases a dramatic downward trend – a development that has also affected the Volkswagen Group. This is particularly the case in saturated markets such as North America and Western Europe, where demand has plummeted as a result of owners keeping their vehicles for longer periods. We are attempting to counter this consumer reluctance to purchase vehicles by offering attractive new models and by maintaining an intense customer focus. Nevertheless, it is not possible at this time to know how long this crisis will last nor how extensive it will be. This applies all the more since state incentives (for instance, incentives for replacing old cars with more fuel-efficient ones) are expected in some countries, which will have a positive impact on the demand for cars.
Moreover, the implementation of a CO2-based vehicle tax in the European countries and a renewed rise in oil prices could lead to a switch in demand towards smaller segments and smaller engines, with a resulting detrimental effect on the Group’s financial results.
We are countering these risks by developing fuel-efficient vehicles and alternative fuels as part of our fuel and drivetrain strategy.
In the rapidly expanding markets of Asia and Eastern Europe, risks can also arise due to government intervention in the form of lending restrictions and tax increases having an adverse effect on private consumption.
Dependence on fleet customer business
In fiscal year 2008, the percentage of all registrations accounted for by commercial fleet customers rose to 12%. At the same time we increased our market share slightly to 44.7%. Thanks to its lower dependence on the macroeconomic environment, our fleet customer business helped stabilize business in Germany. The availability throughout the entire year of the Golf Variant and the launch of the new Golf and Audi A4 Avant as key fleet vehicles are particular worthy of note.
As in the past, the fleet customer business is experiencing increasing concentration and internationalization. Owing to its extensive product range and target group-oriented customer care, the Volkswagen Group succeeded in extending its market leadership in Europe. Market share in 2008 in the five main European markets was approximately 24.0% (previous year: 23.8%). Default risks are not concentrated on individual corporate customers.
At cost-driven fleet operators, the CO2 issue could have a disproportionate effect in the fleet customer business because of the shorter fleet ownership period. A trend towards downsizing is evident that parallels the trend in the private customer business.