Bilia’s business operations are associated with risks. Bilia can influence certain factors, while others are beyond the Group’s control. But the ambition is to identify threats and possibilities at an early stage so that steps can be taken quickly to avoid problems.
Market trend
Demand for Bilia’s products and services is influenced by fluctuations in the business cycle. In recessionary periods, some customers choose to put off their car purchases. Factors that influence the market trend include the labour market situation, stock market performance, the ability of the customers to obtain financing, interest rates and fuel prices. The positioning of Bilia as a service company stabilises earnings. Collaboration with Volvofinans Bank AB and similar car financing companies is positive for Bilia and stabilises earnings, since a portion of the financial profit is realised over several years. The Service Business is less cyclical than the Vehicle Business, since cars require service and repairs regardless of the state of the economy. However, a deep recession will also affect the Service Business to some extent.
Representation
Bilia’s core business consists of distribution and servicing of cars and transport vehicles in Sweden, Norway and Denmark. Contractual terms with the manufacturers who have authorised Bilia as their representative are based on the EU’s Block Exemption for the motor vehicle industry and equivalent national regulations. The current rules, which entered into force on 1 October 2003, are aimed at putting the consumer first and encouraging greater competition in the distribution and aftermarket segment. This has been favourable for Bilia, which has, within the framework of applicable agreements with the manufacturers, systematically looked for ways to exploit its size and strong market position to gain business advantages, for example in connection with purchasing and by seeking multi-brand representation. In 2008, the European Commission initiated an evaluation of the market effects of the current Block Exemption. In December 2009, the Commission presented a proposal to the effect that the portion of the Block Exemption that regulates new car sales be extended to May 2013 and the portion of the Block Exemption that regulates the aftermarket be replaced with a new Block Exemption effective from 1 June 2010. Changes in the regulatory framework could lead to changes in the competitive situation for Bilia. There is always a risk that a manufacturer or a general agent will decide to revoke the authorisation and cancel the agreements, or, in the prevailing tough market situation, even become insolvent, creating uncertainties on the market.
Competitiveness of the products
Bilia is dependent on the ability of the Group’s business partners to develop competitive products. Volvo, the single most important business partner for Bilia, will launch new S60 and V60 models in 2010. All suppliers have developed and will develop new products with an environmental profile and fuel-efficient engines. Volvo has launched a new series of green cars designated DRIVe. The cars feature both low emissions and low fuel consumption. The V70 DRIVe was introduced in 2009, and a gas-powered V70 is being launched at the beginning of 2010.
Ford has been well established with ethanol-powered models and is now also introducing the fuel-efficient ECOnetic models.
Renault is focusing on electric cars, and Bilia expects to be able to start selling both cars and transport vehicles that are fully electric-powered in 2011. Sales will start in Denmark. The new Mégane has been well received.
Hyundai has changed its model range rapidly, and Bilia now has a good range of green cars from this manufacturer as well. The new ix35, a little SUV, will come out in the spring.
BMW’s EfficientDynamics range has attracted great attention, and BMW has succeeded in combining a premium brand strategy with an environmental profile. New X1 and 5 GT models were launched in 2009. In 2010, a brand new 5 series will be launched with sedan models in the spring and touring models in the autumn.
Development of own services
To maintain and strengthen its competitiveness, Bilia must develop services that appeal to the customers. Bilia’s ability to develop new services also helps strengthen the suppliers’ brands. This development work requires resources. Bilia is confident that the Group has the size, structure and financial strength that are required to remain in the forefront of service development.
Key persons
In order to continue developing as a service company and thereby achieve growth and profitability, Bilia must be able to attract and develop skilled employees, both management and other staff. Bilia is an employer that encourages personal advancement by offering employees interesting work duties, individualised training programmes, bonus programmes and personal involvement in the development of the Group. There is no guarantee that Bilia will succeed in the future in recruiting or keeping the people they need to run and develop the company.
For financial risks see Note 30 “Financial risks and risk management”.