Substantially all of the Group’s revenues are generated in the automobile industry, which is highly competitive and encompasses the production and distribution of passenger cars, light commercial vehicles and the related components and production systems. The Group faces competition from other international passenger car and light commercial vehicle manufacturers and distributors and components suppliers in Europe, North and Latin America. These markets are highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered.
Competition, particularly in pricing, has increased significantly in the Group’s industry sector in recent yars. In addition, partly as a result of the contraction in demand for automobiles, global production capacity for the car industry significantly exceeds current demand. This overcapacity, combined with high levels of competition and weakness of major economies, could intensify pricing pressures.
Fiat has a relatively high proportion of fixed costs and may have significant limitations on the ability to reduce fixed costs by closing facilities and/or reducing labor expenses. Fiat’s competitors may respond to these conditions by attempting to make their vehicles more attractive or less expensive to customers by adding vehicle enhancements, providing subsidized financing or leasing programs, offering option package discounts, price rebates or other sales incentives, or by reducing vehicle prices in certain markets. In addition, manufacturers in countries which have lower production costs have announced that they intend to export lower-cost automobiles to established markets. These actions have had, and could continue to have, a negative impact on Fiat’s vehicle pricing, market share, and operating results. Offering desirable vehicles that appeal to customers can mitigate the risks of stiffer price competition, while offer of vehicles that are perceived to be less desirable (whether in terms of price, quality, styling, safety, or other attributes) can exacerbate these risks.
In the Automobiles business, sales to end customers are cyclical and subject to changes in the general condition of the economy, the readiness of end customers to buy and their ability to obtain financing and the possible introduction of measures by governments to stimulate demand. The sector is also subject to constant renewal of the product offering through frequent launches of new models. A negative trend in the automobiles business could have a material adverse impact on the business prospects, earnings and/or financial position of the Fiat Group.
Should the Group be unable to adapt effectively to external market conditions, this could have a material adverse effect on its business prospects, earnings and/or financial position.