For the automotive industry in particular, the uncertainty concerning the development of the economy in 2009 is reflected in the large fluctuation in expert predictions regarding sales volumes in 2009, which range from a 10% to a 25% decline in new car registrations throughout the world. If the bottom of this spectrum were to be reached, this would result in a dramatic under-utilization of our customers’ capacities. In view of the high fixed cost intensity of the industry, the insolvency of a customer or of one of its subsidiaries could then no longer be ruled out. A direct consequence of this would be doubtful accounts which are also not insurable due to the current situation. However, we are confronting this risk by means of effective debtor management. By contrast, the systemic risk also associated with the insolvency of a customer, and in particular of an automobile manufacturer, is difficult to predict and can therefore barely be protected against.

Falling production volumes generally pose sales risks in volume and monetary terms, as well as earnings. Such risks arise because although automotive manufacturers normally nominate at least one supplier for a certain vehicle, they do not commit themselves to a minimum purchase. We can fundamentally reduce these risks by making our production capacities more flexible and taking action to cut our fixed costs, for example. Growing installation rates to some extent compensate for these risks for some of the company’s key products in the automotive area. Furthermore, part of our strategy relies on generating a substantial percentage of sales outside the automotive industry in order to spread our risk across industries with different cycles. In order to be even better prepared for the foreseeable difficult environment in 2009, the Executive Board already decided at the end of 2008 to impose significant limits on the volume of investment and spending in the area of research and development in 2009 and furthermore to launch a comprehensive cost-cutting program.

Following the, in some cases significant, fall in the price of many key raw materials for Continental as a result of the financial and economic crisis, an increase in the price of oil or natural rubber of the kind often observed seasonally in previous years is unlikely. A prolonged low level of raw material prices could bring pressure on our prices, especially in the tire aftermarket, and is something that could entail a direct impact on the sales and earnings situation of the tire operations in particular.