Risks arising from changes in demand

As a result of the emissions issue – possibly exacerbated by media reports – the Volkswagen Group may possibly experience decreases in demand. 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 media 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. Several 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.

Commercial vehicles are capital goods: in an economic upturn, the need for transport and thus the demand rises sharply, whereas in economically difficult times demand falls just as sharply. 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 overall running costs, vehicle reliability and the service provided.

MAN Power Engineering’s two-stroke engines are produced exclusively by licensees, particularly in 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, working closely together with licensees and carefully managing business relationships with them. This also includes receivables management in order to safeguard our license revenues.

Dependence on fleet customer business

The percentage of total registrations in Germany accounted for by fleet customers rose to 14.1 (13.3)% in fiscal year 2015. The Volkswagen Group’s share of this customer segment rose to 48.5 (48.4)%. Registrations by fleet customers in Europe were 11.3% higher in total than in the previous year; the Group’s share of this was 28.9 (29.2)%.

The fleet customer business is generally more stable than the business with retail customers. In light of the emissions issue, many fleet customers reacted with concern. There was, however, no reported impact on new vehicle registrations in fleet customer business in 2015. With clarification of the CO2 issue and the technical solutions within the scope of the diesel issue, we also expect no significant volume decreases for the fleet customer business of the Volkswagen Group in 2016.

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.