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More bloodletting at Mitsubishi

Turning the corner: Mitsubishi's new revitalisation plan includes wide-ranging measures to restore profitability and both customer and public trust in the brand by March 2008.

Mitsubishi announces new executive team and measures to restore profit

Mitsubishi logo2 Feb 2005

MITSUBISHI Motors Corporation will sell fewer vehicles and lose even more money than it expected this financial year, according to a new revitalisation plan announced last Friday.

The Mitsubishi Motors Revitalisation Plan supersedes the Business Revitalisation Plan revealed on May 21, 2004, and returns a 34 per cent controlling share in MMC to the three major companies within the Mitsubishi group.

It also forecasts a fiscal 2004 sales volume of 1,337,000 vehicles – a decrease of 63,000 vehicles on the sales estimate it released with its half-year results in November, and 190,000 down on the previous year.

As a result, the new plan forecasts a net loss of 472 billion yen – significantly more than the ¥240 billion loss forecast in November – largely due to falling sales in the US and Australia.

In a frank, 2200-word statement issued on January 28, MMC said: “Although it will be difficult for the company to return to profitability before the end of fiscal 2005, it will do so in fiscal 2006, and in fiscal 2007 will achieve a record net income for the term of ¥41 billion.”

To achieve this, the new revitalisation plan includes wide-ranging measures, including a new executive line-up, to restore profitability and both customer and public trust in the brand by March 2008, the end of fiscal year 2007.

Chiefly, it involves borrowing a further ¥270 billion – the second large-scale loan to be announced by MMC in eight months – and raising a similar amount through the issue of shares.

MMC says the resulting ¥490 billion of extra funding (excluding a ¥50 billion debt-for-equity swap) will be allocated for maximum effect in R&D and capital investment.

Mitsubishi Motors Australia director of business and corporate strategy Paul Stevenson told GoAuto the new business plan would have little impact on MMAL.

“The big part of this is that the other Mitsubishi group companies are back in the driving seat,” he said.

“They’ve got their 34 per cent share and a controlling interest of the company again.

“Within that, MMC becomes a full affiliate of Mitsubishi Heavy Industries to send a clear message globally, and especially to financial markets, that there’s no way known they’re going to let MMC go under.

“It’s now got the full backing of the big companies in the Mitsubishi group and from our perspective the hope is that all the negative speculation about MMC’s future will start going away.”

Mr Stevenson said Mitsubishi’s Australian operations would be unaffected by the latest announcement, which aimed to “get all of the bad news out for this financial year to start next financial year with a clean slate”.

He said MMAL’s financials would be “pretty ugly” this fiscal year before returning to profit in fiscal year 2005.

“MMC’s requirement is for us to get back to break-even and try to reverse the negative results of this year,” Mr Stevenson said.

“To be honest, since 2001 we’ve been dreading the last two years of Magna sales because it’s been out there so long. On top of that came the DC (DaimlerChrysler) pullout and Lonsdale plant closure. Last year was just damage control.”

Mr Stevenson said the abandonment of MMAL’s long-wheelbase US Diamante export program had impacted on the company’s financial position, but it had been wrongly reported that it received a $200 million bailout to cover those costs.

“The whole PS (Magna replacement) project involved two models. A large investment was made for the second model in terms of capacity and R&D, and we had hoped to amortise that investment over the model’s life,” he said.

“What MMC and Mitsubishi US have done is to depreciate it in one lump sum via an accounting standard that allows you to write things off this way.”

He said expressions of interest for the purchase of the Lonsdale engine plant, which closed last year due to a global over-capacity problem, closed on Monday.

“At last count there were 26 many and varied expressions of interest – companies from all over the world, some wanting the land, others bits and pieces and some wanting full control of the foundry,” he said.

“We will work with the government in evaluating each of them – some of which are yet to inspect the facility -– and it will be a joint decision, but at the end of the day it’s our property and we want to maximise our return.”

Changes at the top

MITSUBISHI’S revitalisation plan released last week included a new executive line-up, headed by Mitsubishi Heavy Industries chairman Takashi Nishioka.

 center imagePICTURED: Takashi Nishioka (left) and Osamu Masuko. Mr Nishioka becomes chairman and CEO of Mitsubishi Motors Corp, while MMC’s managing director in charge of overseas operations Osamu Masuko – with whom Mitsubishi Australia boss Tom Phillips has forged an important new relationship in recent months – becomes president and chief operating officer.

Mr Masuko maintains responsibility for overseas operations.

Other members of the executive include: Hiizu Ichikawa, managing director - CFO Akira Kijima managing director - head of product operations and Fujio Cho, managing director - head of domestic operations. Non-executive board members include Rudiger Grube, Mikio Sasaki and Yasushi Ando.

MMC’s top three executives have resigned: chairman and CEO, Yoichiro Okazaki (a former director at Mitsubishi Heavy, who was appointed MMC chairman last April) president and COO Hideyasu Tagaya and vice-chairman Koji Furukawa.

Revitalisation plan

KEY aspects of Mitsubishi Motors Corporation’s revitalisation plan announced last week are:
  • Return to profitability in fiscal year 2006 (net income of ¥8 billion).

  • Establish “sustainable profitability” in fiscal year 2007 (net income of ¥41 billion).

  • Achieve reduced sales volume targets of 1.5 million vehicles in fiscal year 2007, recovering to 2003 fiscal year levels.

  • Trim back the number of low-volume models produced for individual markets and concentrate resources on highly competitive global market models to raise development and production efficiencies.

  • Significantly increase the number of new model launches compared with the past four years to expand earning opportunities.

  • Rationalise the production capacity and size of sales networks in the US, Australia and Japan.

  • Actively pursue strategic tie-up opportunities with other car-makers, including the recently announced 36,000-unit mini car deal with Nissan, and formalise an agreement with PSA Peugeot Citroen to produce an all-new SUV.

  • Introduce a free inspection campaign in Japan.

  • Introduce a new management structure, increase new model launches and cut back fleet sales dependence in the US.

  • Strengthen model line-up, management and sales structures to grow sales in Europe.

  • Expand operations in China by boosting capital tie-ups with local companies, increasing the sales network, using joint-ventures to make China a “major engine production hub in Asia” and establish an R&D centre.

  • Increase sales and production capacity in Thailand.

  • Establish a sales structure in Malaysia and reorganise Indonesian operations.

  • Achieve original headcount reduction targets by organisational changes, increased work process efficiencies, rationalisation of work processes and natural attrition in personnel.

  • Maintain the 15 per cent reduction in material costs as called for in the Business Revitalisation Plan.

  • Make a capital enhancement of ¥270 billion through the issue of new common and preferred shares (Mitsubishi Heavy Industries, ¥50 billion Mitsubishi Corporation, ¥70 billion The Bank of Tokyo-Mitsubishi, ¥150 billion – of which ¥50 billion in a debt-for-equity swap).

  • Raise a total of ¥270 billion in funding, ¥240 billion of which will be through new borrowing.

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