Mitsubishi running on empty

By ALASTAIR SLOANE motoring editor

Mitsubishi Motors Corporation is burdened with a multi-billion-dollar debt, plunging car sales and a spate of recalls - but the New Zealand arm of the company is looking on the bright side.

"It's very much business as usual," said John Leighton, the managing director of Mitsubishi Motors NZ, fourth on the 2004 sales list behind Toyota, Ford and Holden.

MMC partner DaimlerChrysler announced the other day that it would not pump any more money into the Japanese carmaker, which had reportedly planned to raise several billion dollars from shareholders to restructure its struggling business. DaimlerChrysler holds a 37 per cent stake in MMC, which has more than 43,000 workers worldwide.

The decision is the latest blow for MMC, whose sales in Japan have never recovered after it acknowledged four years ago that it had systematically hidden car defects for decades.

The company recalled millions of vehicles. The carmaker had already suffered losses as it struggled to compete with Japanese rivals Toyota and Honda.

MMC embarked on a revival plan and returned to profitability in fiscal 2002, but last year year suffered massive losses from buyers in North America with bad credit.

The recalls have continued despite DaimlerChrysler's efforts to upgrade quality.

Leighton said MMC was working on a survival plan with its bankers in Tokyo.

Leighton said he expected Mitsubishi Heavy Industries, which has a 15 per cent stake in the company, to help in its rescue.

"There is some confusion over funding, but MMC will work through that."

MMC executives have already said the Development Bank of Japan will help rescue the automaker.

Leighton said he believed MMC would shore up the future of MMC's Australian arm, Mitsubishi Motors Australia Ltd, which makes Diamante sedans for New Zealand.

All other models, except the Thailand-made Triton commercial, are imported from Japan.

"My personal reading of the situation is that MMAL will continue," said Leighton.

"It is well advanced in tooling up for new models. I cannot see that MMC will withdraw from its Australian operation. The Australian operation is all part of a global plan anyway," he said.

MMAL managing director Tom Phillips is confident the carmaker's two Adelaide plants will survive.

Closing the Adelaide plants would cause huge economic damage in Australia. Federal and state governments have invested in the plants' future.

A couple of years ago, MMAL faced problems. No new models had been signed off and its main model was nearing its use-by date.

MMC head office in Japan wanted Adelaide to be part of its global development, but it wanted investment from Australia to ensure the plants continued.

It got that in 2002. About $100 million from the South Australian and Federal governments was earmarked for development of the Diamante sedan replacement, due next year.

Under the Federal agreement, MMAL must set up a research and development centre and hire at least 300 automotive engineers and designers by next year to qualify for the financial package.

The carmaker was expected to work with Australian universities to encourage the development of automotive specialists.

In the past year or so MMAL has spent $43 million on a new large press and $250 million in a new automotive research centre.

Both are part of a $1 billion-plus investment programme for the production of two all-new models from 2005, which New Zealand is expected to get.

DaimlerChrysler's chief financial officer Manfred Gentz said a decision had not yet been made on what it will do with its 37 per cent stake in MMC.

The two carmakers will continue joint projects, he said. The companies are developing Chrysler's Sebring and Dodge Neon sedans and Smart's ForFour.

The Mitsubishi group of companies, major shareholders in the carmaker that make up a powerful conglomerate with roots in the 1800s, have said they will try to turn MMC around.

Mitsubishi Heavy Industries owns 15 per cent of the carmaker, trading company Mitsubishi Corp a 5 per cent stake, and Bank of Tokyo-Mitsubishi 3 per cent.

One report said the Mitsubishi group was likely to offer US$2.29 billion in cash to MMC. In exchange, the carmaker would issue new shares to them and sell some of its stake in Mitsubishi Fuso Truck and Bus. DaimlerChrysler owns 43 per cent of the truckmaker, and Mitsubishi Motors 42 per cent.

But a report from Japan says Mitsubishi Fuso is being investigated in the death of a pedestrian hit by a wheel that flew off one of its trucks in 2002.

Authorities are investigating dozens of wheel-separation accidents involving Mitsubishi trucks dating back more than a decade.

More than two years after the fatal accident, Mitsubishi Fuso last month announced plans to recall 220,000 trucks after acknowledging that a design flaw could cause the wheel hubs to crack.

Asian and American analysts say the truck business will likely survive as part of DaimlerChrysler because of its strength in the growing Asian market.