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Mitsubishi Motors- Chrysler connection
1970s
Part of Kubo's expansion strategy was to increase exports by forging alliances with well-established foreign companies. Therefore, in 1971 MHI sold US automotive giant Chrysler a 15% share in the new company. Thanks to this deal, Chrysler began selling rebadged Galants in the United States as Dodge Colts, pushing MMC's annual production beyond 250,000 vehicles.
By 1977, a network of "Colt" distribution and sales dealerships had been established across Europe, as Mitsubishi sought to begin selling vehicles directly. Annual production had by now grown from 500,000 vehicles in 1973 to 965,000 in 1978. However, this expansion was beginning to cause friction; Chrysler saw their overseas markets for subcompacts as being directly encroached by their Japanese partners, while MMC felt the Americans were demanding too much say in their corporate decisions.
Mitsubishi Motors in the 1980s
Mitsubishi finally achieved annual production of one million cars in 1980, but by this time its ally was not so healthy; As part of its battle to avoid bankruptcy, Chrysler was forced to sell its Australian manufacturing division to MMC that year. The new Japanese owners renamed it Mitsubishi Motors Australia Ltd (MMAL), and since then it has stood as the largest car production facility in the country outside of Ford and General Motors. It currently builds the Mitsubishi 380, as well as importing Chryslers and Jeeps from the US. However, recent troubles in this market, coupled with its parent company's financial difficulties, have put its long-term future in jeopardy.
In 1982, the Mitsubishi brand was introduced to the American market for the first time. The Tredia sedan, and the Cordia and Starion coupés, were initially sold through 70 dealers in 22 states, with an allocation of 30,000 vehicles between them. This quota, restricted by mutual agreement between the two countries' governments, had to be included among the 120,000 cars earmarked for Chrysler. Toward the end of the 1980s, as MMC initiated a major push to increase its US presence, it aired its first national television advertising campaign, and made plans to increase its dealer network to 340 dealers. By 1989, Mitsubishi's worldwide production, including its overseas affiliates, reached 1.5 million units.
Despite the ongoing tensions between Chrysler and Mitsubishi, they agreed to unite in a vehicle manufacturing operation in Normal, Illinois. The 50/50 venture provided a way to circumvent the voluntary import restrictions, while providing a new line of compact and subcompact cars for Chrysler. Diamond Star Motors (DSM) - from the parent companies' logos: three diamonds (Mitsubishi) and a pentastar (Chrysler) - was incorporated in October 1985, and in April 1986 ground was broken on a 1.9 million square-foot (177,000 m²) production facility. In 1987, the company was selling 67,000 cars a year in the United States, but when the plant was completed in March 1988 it offered an annual capacity of 240,000 vehicles. Initially, three platform-sharing compact 2+2 coupés were released, the Mitsubishi Eclipse, Eagle Talon and Plymouth Laser, with other models being introduced in subsequent years.
In 1991, Chrysler sold its equity stake to its partner, and from then on they continued to share components and manufacturing on a contractual basis only. DSM was officially renamed to Mitsubishi Motor Manufacturing of America, Inc. (MMNA) on July 1st, 1995.
Mitsubishi Motors 1988 IPO
Mitsubishi Motors went public in 1988, ending its status as the only one of Japan's eleven auto manufacturers to be privately held. Mitsubishi Heavy Industries agreed to reduce its share to 25%, retaining its position as largest single stockholder. Chrysler meanwhile increased its holding to over 20%. The capital raised by this initial offering enabled Mitsubishi to pay off part of its debts, as well as to expand its investments throughout south-east Asia where it was by now operating in the Philippines, Malaysia, and Thailand.
Hirokazu Nakamura became president of Mitsubishi in 1989 and steered the company in some promising directions. Sales of the company's new Mitsubishi Pajero were bucking conventional wisdom by becoming popular even in the crowded streets of Japan. Although sales of SUVs and light trucks were booming in the United States, Japan's car manufacturers dismissed the idea that such a trend could occur in their own country. Nakamura, however, increased the budget for sport utility product development, and his gamble paid off; Mitsubishi's wide line of four-wheel drive vehicles, ranging from the Pajero Mini to the large Delica Space Gear, rode a wave of SUV-buying in Japan in the early to mid-1990s. Narrowly following Toyota in the SUV market in Japan, Mitsubishi saw its overall domestic share rise to 11.6% in 1995.
After decreasing its interest in Mitsubishi to less than 3% in 1992, Chrysler announced its decision to sell off all of its remaining Mitsubishi shares on the open market in 1993. The two companies stated that they would nevertheless continue their close alliance, with Chrysler supplying engines and transmissions for DSM, and Mitsubishi marketing Chrysler products in Japan.
Mitsubishi Motors Recent troubles
Sexual harassment suits
Mitsubishi's image in North America was tarnished when two notable lawsuits were brought against the company. The first, filed by 29 women in December 1994, accused the company of fostering a climate of sexual harassment at its Normal, Illinois plant. Then, in April 1996 the Equal Employment Opportunity Commission (EEOC) filed a class action suit on behalf of approximately 300 other women who worked at the plant. Mitsubishi initially denied any problems at its plant but later hired former US Labor Secretary Lynn Martin to recommend changes to its policies and practices. The 1994 suit was settled for US$9.5 million in August 1997, and reached an agreement with the EEOC later that year as well.
Asian economic downturn
The benefits Mitsubishi had seen because of its strong presence in south-east Asia reversed themselves as a result of the economic crisis in the region which began in 1997. In September of that year the company closed its Thai factory in response to a crash in the country's currency and plummeting consumer demand. The large truck plant, which had produced 8,700 trucks in 1996, was shut down indefinitely. In addition, Mitsubishi had little support from sales in Japan, which slowed considerably throughout 1997 and were affected by that country's own economic uncertainty into 1998. Other Japanese automakers, such as Toyota and Honda, bolstered their own slipping domestic sales with success in the United States. However, with a comparatively small percentage of the American market, the impact of the turmoil in the Asian economy had a greater effect on Mitsubishi, and the company's 1997 losses were the worst in its history. In addition, it lost both its rank as the third largest automaker in Japan to Mazda, and market share overseas. Its stock price fell precipitously, prompting the company to cancel its year-end dividend payment.
In November 1997, Mitsubishi hired Katsuhiko Kawasoe to replace Takemune Kimura as company president. Kawasoe unveiled an aggressive restructuring program that aimed to cut costs by ¥350 billion in three years, reduce personnel by 1,400, and return the company to profitability by 1998. But while the program had some initial success, the company's sales were still stagnant as the Asian economy continued to sputter. In 1999, Mitsubishi was forced once again to skip dividend payments. Its interest-bearing debt totalled ¥1.7 trillion.
Vehicle defect cover-up
In possibly the biggest scandal to ever hit the Japanese auto industry, Mitsubishi was twice forced to admit to systematically covering up problems in its vehicles. Four defects were first publicized in 2000, but in 2004 it confessed to 26 more going back as far as 1977, including failing brakes, fuel leaks and malfunctioning clutches. The effect on the company was catastrophic, forcing it to recall 163,707 cars (156,433 in Japan and 7,274 overseas) for free repair.[6] Further recalls by Fuso truck & bus brought the total number of vehicles requiring repair to almost one million. The scandal led to the resignation of Kawasoe and his subsequent arrest, along with 23 other employees who were also implicated.[7]
0--0--0
In an effort to boost sales in the US at the start of the decade, Mitsubishi began offering a "0--0--0" finance offer ~ 0% down, 0% interest, and US$0 monthly payments (all repayments deferred for 12 months). Initially, sales leapt, but at the end of the year's 'grace period' numerous credit-risky buyers defaulted, leaving Mitsubishi with used vehicles for which they'd received no money and which were now worth less than they cost to manufacture. The company's American credit operation, MMCA, was eventually forced to make a US$454 million provision against its 2003 accounts as a result of these losses.
DaimlerChrysler debacle
Two years after the merger of Daimler and Chrysler, the US-German conglomerate paid US$1.9 billion for a controlling 34% of MMC in an effort to create a "Welt AG" (global automaker). The price reflected a US$200 million discount on the originally agreed figure, caused by the public disclosure of the defect cover-up scandal. In March 2001 it increased this to 37.3% when it acquired Volvo's stake in MMC's truck-making operations, further boosting Mercedes' share of a market it already dominated. However, boardroom wrangles at DCX prevented them offering financial assistance as Mitsubishi attempted to reduce its crippling debts.[9] When a US$4 billion rescue package was agreed with Tokyo-based Phoenix Capital in May 2004, DCX's stake was reduced to 23%, and further recapitalisations subsequently diluted the holding to 12.4%. Finally, on 11th November 2005, the remaining stock was sold for for US$1.1 billion ~ an US$800 million loss in five years.[10] Three days later the buyer, investment bank Goldman Sachs sold the shares on for US$80 million profit.[11]
New major stockholder Phoenix Capital followed suit the following month, selling all but 50 million of its 575 million shares to JPMorgan on 9th December 2005. Once again, the investment bank offloaded their purchase within a few days for tens of millions in profit. In both cases, the eventual buyers were part of the Mitsubishi keiretsu, returning MMC to Japanese ownership once more. However, whether this improves its chances of long-term survival is still unknown.
The current president, Osamu Masuko, is hoping for a return to the black in the 2006 financial year and a reversal of the worldwide decline in sales. The company reported its first profitable quarter in the third quarter of 2005 after eleven successive losses, thanks in part to a weaker yen, and reduced charges to cut bad loans and write down asset values. After a starvation of new investment caused by their cashflow crises, the company introduced the Mitsubishi i keicar, its first new model in 29 months. A new generation Outlander/Airtrek will be introduced in the USA to compete in the popular XUV market niche, joining the new Eclipse, Lancer and Lancer Evolution X in its most critical territory.
Meanwhile, slow-selling vehicles like the Diamante, Lancer Sportback station wagon, Montero Sport and US-market Montero have all been discontinued. Purchase projections for the Mitsubishi/Hyundai/Chrysler Global Engine Manufacturing Alliance engines have been scaled back. 10,000 jobs have been shed to cut costs, with 3,400 workers at its Australian plant and other loss-making operations still under threat. Meanwhile, new export markets for the Eclipse and Galant in Russia, Ukraine and the Middle East are being explored, in an effort to improve production at its US plant.[12] Mitsubishi has also been active in OEM production of cars for Nissan, and announced a partnership with PSA Peugeot Citroën in July 2005 to manufacture an SUV. The company's global target is 1,524,000 sales by the end of the 2007 fiscal year.
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