26. Other provisions

Changes in Other provisions are as follows:

(€ million)At
31 December
2012
ChargeUtilizationRelease to
income
Translation
differences
Changes in
the scope of
consolidation
and other changes 
At
31 December
2013
Warranty provision 3,617 1,962 (1,720) (13) (194) 4 3,656
Restructuring provision 261 41 (90) (21) (2) 2 191
Investment provision 13 - - - (2) 1 12
Other risks 4,899 8,279 (7,507) (217) (222) 4 5,236
Total Other provisions 8,79 10,282 (9,317) (251) (420) 11 9,095

The effect of discounting these provisions is €21 million in 2013.

The warranty provision represents the best estimate of commitments given by the Group for contractual, legal, or constructive obligations arising from product warranties given for a specified period of time beginning at the date of sale to the end customer. This estimate is principally based on assumptions regarding the lifetime warranty costs of each vehicle and each model year of that vehicle line, as well as historical claims experience for vehicles. The Group establishes provisions for product warranty obligations when the related sale is recognized. Warranty provisions also include management’s best estimate of the costs that are expected to be incurred in connection with product defects that could result in a general recall of vehicles, which are estimated by making an assessment of the historical occurrence of defects on a case-by-case basis and are accrued when a reliable estimate of the amount of the obligation can be made.

The restructuring provision at 31 December 2013 consists of termination benefits of €106 million (€194 million at 31 December 2012) payable to employees in connection with restructuring plans, manufacturing rationalization costs of €15 million (€21 million at 31 December 2012) and other costs of €70 million (€46 million at 31 December 2012). These provisions are related to car mass-market operations for €94 million, Components €28 million and Other activities €69 million.

The provision for other risks represents the amounts provided by the individual companies of the Group in connection mainly with contractual and commercial risks and disputes. Details of this item are as follows:

(€ million)At 31 December 2013At 31 December 2012
Sales incentives 2,993 2,622
Legal proceedings and other disputes 545 528
Commercial risks 371 393
Environmental risks 29 36
Indemnities  62 62
Other reserves for risk and charges 1,236 1,258
Total Other risks 5,236 4,899

A description of these follows:

  • Sales incentives that are offered on a contractual basis to the Group’s dealer networks, primarily on the basis of a specific cumulative level of sales transactions during a certain period. The provision also includes sales cash incentives provided to retail customers.
  • Legal proceedings and other disputes, this provision represents management’s best estimate of the liability to be recognized by the Group with regard to legal proceedings arising in the ordinary course of business with dealers, customers, suppliers or regulators (such as contractual or patent disputes), legal proceedings involving claims with active and former employees and Legal proceedings involving different tax authorities.

None of these provisions is individually significant. Each Group company recognizes a provision for legal proceedings when it is deemed probable that the proceedings will result in an outflow of resources. In determining their best estimate of the liability, each Group company evaluates their legal proceedings on a case-by-case basis to estimate the probable losses that typically arise from events of the type giving rise to the liability. Their estimate takes into account, as applicable, the views of legal counsel and other experts, the experience of the Group and others in similar situations and the Group’s intentions with regard to further action in each proceeding. Group’s consolidated provision combines these individual provisions established by each of the Group’s companies.

  • Commercial risks arising in connection with the sale of products and services such as maintenance contracts. An accrual is recorded when the expected costs to complete the services under these contracts exceed the revenues expected to be realized.
  • Environmental risks, this provision represents best estimate of the Group’s probable environmental obligations. Amounts included in the estimate comprise direct costs to be incurred by the Group in connection with environmental obligations associated with current or formerly owned facilities and sites. This provision also includes costs related to claims on environmental matters.
  • Indemnities estimated by the Group in connection with divestitures. These liabilities primarily arise from indemnities relating to contingent liabilities in existence at the time of the sale, as well as those covering any possible breach of the representations and warranties provided in the contract and, in certain instances, environmental or tax matters. These provisions were determined estimating the amount of the expected outflow of resources, taking into consideration the relevant level of probability of occurrence.
  • Other risk and charges, this provision includes, among others, the estimated product liability costs arising from personal injuries alleged to be the result of product defects. The valuation of the reserve is actuarially determined on an annual basis based on, among other factors, the number of vehicles sold and product liability claims incurred.