Carchs Holdings Co.,Ltd.

An economic downturn or slump in Japan or other major countries could lead to decreased consumer demand, deferred purchases, and a shift toward lower-priced segments. In addition, geopolitical risks such as the situation in Russia-Ukraine and the Middle East could also affect business performance. Since revenue from used automobile sales accounts for the majority of the Group's total revenue, a decline in demand poses a risk of directly leading to deteriorating business performance.

The Group operates in Asia, Oceania, and other regions including Japan and South Korea, and must comply with the laws of each country, including model-year regulations and emissions regulations. If a violation of laws or regulations occurs, in addition to reputational damage, there is a possibility of strict penalties and regulatory action or litigation involving substantial damages. There is also a risk that changes in laws and regulations or their interpretation could increase the cost of building a compliance framework.

The core used automobile business is subject to a variety of legal regulations, including the secondhand dealer license required under the Secondhand Articles Dealers Act, as well as regulations related to automobile registration, insurance, taxation, and recycling fees. If these regulations are amended or abolished, or if new legal regulations are established in the future, restrictions may arise in business operations, potentially affecting performance. There is also concern about increased costs of responding to changes in the regulatory environment.

The Group operates service maintenance shops after obtaining certification and designation as authorized/designated factories under the Road Transport Vehicle Act; however, amendments to this Act or guidance from Land Transport Bureaus could affect business operations. Although authorization has been obtained except for some shops with attached factories, if a response to tightened regulations is required, additional costs or operational restrictions may arise.

The Group conducts overseas vehicle sales transactions primarily denominated in U.S. dollars, and fluctuations in foreign exchange rates, such as yen appreciation or depreciation, could directly affect earnings. The securities report does not explicitly disclose specific countermeasures such as foreign exchange hedging, and exposure to foreign exchange risk continues. As the export ratio increases, the impact of this risk is expected to expand.

The Group's main business model is the "purchase and direct sales" model, in which vehicles are purchased directly from general users and sold directly, with revenue from the sale of self-procured vehicles accounting for the majority of total revenue. If the used car market contracts sharply, this could significantly affect business performance through a decrease in procurement volume and a decline in selling prices. The business model's high dependence on market conditions constitutes a structural risk factor.

While the Group has implemented crisis management measures such as emergency response manuals in preparation for natural disasters such as fires and earthquakes, if a large-scale disaster exceeding expectations occurs, business locations may be forced to close or suspend operations. Because the business model relies on physical locations such as large showrooms, damage to these locations directly leads to the loss of sales opportunities. It is also recognized that there are limits to the effectiveness of such countermeasures.

Although the Group implements appropriate system management and security measures, if an information leak occurs, it could affect business performance due to a loss of trust from customers and the market. Unauthorized access or other incidents causing system outages pose a risk of disrupting sales and purchasing operations. Given the nature of the used car sales business, which holds a large amount of customer personal information, the importance of information management is high.

Employee turnover and intensifying competition for hiring could make it difficult to maintain the workforce, posing a risk of hindering the human resource development and skills transfer necessary for sustainable growth. In addition, if inadequate labor management leads to employee health issues, this could also affect business performance. While the Group is promoting work-life balance and developing various education and human resource management systems, intensifying competition in the labor market remains a challenge.