From a friend of mine that works for Ford:
Mitsubishi Struggles With Loss of Face
By Mack Chrysler
WardsAuto.com, Aug 9 2004
Beset by executive arrests, spreading scandals, recalls of hundreds of thousands of vehicles, slumping sales and mounting losses, the auto making arm of the powerful Mitsubishi Group may be doomed.
Mitsubishi Motors Corp., until recently Japan's fourth-largest vehicle maker, now is on a ¥496 billion ($4.5 billion) life-support system.
Industry experts in Tokyo figure the company's survival likely depends on how long Mitsubishi Group companies, the source of most the financial backing so far, are willing and able to prop up the automotive arm. (See related story: New Mitsubishi Scandal Results in More Cost Cuts)
Japanese car buyers, rapidly losing their taste for Mitsubishi cars, trucks and buses, are not expected to offer much help to the ailing auto maker. Sales of passenger cars (not counting minivehicles) plunged 56% in May and 64% in June and still are headed down.
In the U.S., MMC’s largest market, car sales were down 48% in June. Production at the Normal, IL, is set to be slashed by up to a third of installed capacity.
What is turning customers away from MMC dealerships in droves is a shock wave of confessions from former senior company executives that they falsified reports and concealed vehicular defects from authorities and the public for more than 20 years to avoid expensive and embarrassing recalls.
Another source of buyer discontent is difficult to measure. The Japanese traditionally have attached more importance to shame than sin and may be unwilling to forget-and-forgive MMC’s betrayal of public trust.
The auto maker already was deeply troubled in mid-2000 when DaimlerChrysler AG found so many things wrong after buying a 34% stake that the original purchase price was cut by 10% to $1.9 billion.
The following April, however, DC increased its ownership share to 37.3% by investing $300 million more, not realizing far worse remained hidden.
This spring, after a DC-designed revival plan failed to deliver, the German auto maker abruptly declined to put any more money into the struggling company. This crisis was exacerbated by more revelations and recalls. The cover-ups reportedly date back to1983 in what one angry DC executive calls "a culture of corporate concealment."
They involve a dramatic range of defects in everything from engines, fuel tanks and oil hoses to axle shafts, brakes and turn signals – causing at least 61 fires and numerous accidents.
To make matters worse, Mitsubishi Fuso Truck & Bus Co. Ltd. has been seriously infected by the epidemic of defects as well. Faulty clutch parts and axle hubs have caused dozens of accidents in recent years, including two fatalities, and led to the recall this year of more than 350,000 vehicles.
Seven former Fuso executives were arrested in May followed by six former MMC executives in June for systematically hiding defects.
Consequently, Japan's Ministry of Land, Infrastructure and Transport has ceased buying Mitsubishi vehicles and several prefectural and municipal governments have followed suit. (See related story: Japan May Order Mitsu Fuso Vehicles Off Road)
Although the problems are far from resolved, it already is apparent one of the biggest losers in the corporate fiasco is DaimlerChrysler.
Trucks, even more than cars, were the missing link in DC's expansion plans for Asian markets and, after Fuso was spun off in January 2003, the German auto maker ended up spending $1.25 billion for 65% of the truck operation, leaving MMC a minority shareholder, with only 20%.
These days, in the wake of the revelations, Fuso sales are slumping in
Japan, and it is not yet clear how much damage will be done in Southeast Asia, where the company leads the market with 52% of heavy-truck sales.
The cost of all the truck and car recalls has not been revealed nor, given the bit-by-bit way in which defects have been uncovered, is there any guarantee the epidemic is over. A new road hazard already is visible.
Insurance companies are reviewing accident records involving Mitsubishi vehicles and are poised to launch lawsuits if defective parts are found responsible.
The clouds overhanging the company continue to darken. A second revival plan, cobbled together in May, was barely one month old when new MMC CEO Yoichiro Okazaki announced a revised version he called "our last chance at survival as an auto maker."
A laundry list of additional measures in the revision include new cost cuts of ¥72.6 billion ($660 million) over the next two years designed among other things to reduce research and development expenditures and lower advertising budgets.
And to help restore trust, new cars will be sold with a 3-year, full-support program that includes 24-hour roadside service. Existing owners get a free 20-item inspection and oil change.
However, the trade-in value of Mitsubishi vehicles has plummeted to about 20% that of comparable rival products, according to one estimate, putting a damper on the sale of new and used vehicles.
And Tokyo analysts report no convincing evidence the ingrained culture of concealment has been abandoned.
"There has been a secretive atmosphere in Mitsubishi going back 40 years,” says Koji Endo, director and head of Equity Research, Credit Suisse First Boston Securities (Japan). “This kind of culture cannot be destroyed overnight. It will be extremely difficult for Mitsubishi
Motors to restore faith in its products."
Agrees Kunihiko Shiohara, managing director and senior analyst, Goldman Sachs (Japan): "It will be hard for MMC to win back consumer confidence and difficult for the company to turn around."
Industry experts in Tokyo foresee a loss of ¥300 billion ($2.7 billion) for MMC in the current fiscal year, which ends next March 31, following a loss of ¥215 billion ($1.95 billion) last year.
The second and final installment in the ¥496 billion ($4.5 billion) bailout was delivered in mid-July.
Shiohara notes that "in reality, most of the bailout money has come from The Bank of Tokyo-Mitsubishi, Mitsubishi Corp., Mitsubishi Heavy Industries and Mitsubishi-related companies."
He says Phoenix Capital, a turnaround fund that supplied ¥74 billion ($668 million), making it MMC’s largest shareholder with a 33% stake, is headed by a former Mitsubishi banker. The big exception is JPMorgan Chase, which paid ¥126 billion ($1.14 billion) for convertible preferred stock.
No one knows for sure whether the new investments will be enough to rescue the stricken auto maker or how much more will be needed or whether a turnaround is even possible.
The infusion of new money has decreased DC's ownership share in MMC to 25% and further dilution is possible. The German auto maker originally paid ¥400 ($4) a share for 500 million shares now worth around ¥110 ($1). Also in jeopardy is the $1.25 billion investment in the truck-making affiliate.
Shiohara concludes: "Mitsubishi Fuso's turnaround may be as difficult as Mitsubishi Motors’."
The biggest loser, of course, is MMC, its reputation in ruins and living on what may be borrowed time. Beset by executive arrests, spreading scandals, hundreds of thousands of recalls, slumping sales and mounting losses, the auto making arm of the powerful Mitsubishi Group may be doomed.
An alliance or partnership with another major auto maker might help if a candidate can be found. "The problem," says Endo, "is nobody seems to be interested. The situation at Mitsubishi Motors is probably worse now than before the revival plan was disclosed."
In mid-June, Standard & Poor’s reduced its rating on MMC bonds to junk status and questioned the company's viability. "It is increasingly unclear whether pending operational and financial restructuring measures will be sufficient to ensure MMC's survival," says S&P credit analyst Chizuko Satsukawa.
And she is not alone. "The Mitsubishi Group currently has no choice. (It) must be supported," says Shiohara, noting the depth and duration of that support will depend in large measure on the profitability of Group companies, in particular The Bank of Tokyo-Mitsubishi, one of the strongest in Japan.
But if the injuries are fatal, as many believe, there are limits to how long the crippled company can be kept alive.
Positive side effects are possible. Corporate accountability, independent directors and activist shareholders still are a novelty in Japan and the MMC scandals may help accelerate change.
An association of 1,160 employee Japanese pension funds with $73 billion in assets is campaigning against the appointment of tame directors and the award of over-generous executive retirement bonuses. The group is creating a special kitty to invest in 50 “good governance companies.”
____________________________________________________________________________________
[img=left]http://img.villagephotos.com/p/2002-2/11882/a2andme2.gif[/img=left]
2001 A2 TDI SE Crystal Blue with Open Sky, 6CD Symphony II, BOSE upgrade, DIS and HALF a winterpack!
iPAQ 3970 with Sat-Nav sleeve, rear cupholders, luggage net and floppy wiper!
http://www.a2oc.net/pic_show.asp?picid=1572&type=1 On www.A2OC.net pictures UK160 to UK183
Mitsubishi Struggles With Loss of Face
By Mack Chrysler
WardsAuto.com, Aug 9 2004
Beset by executive arrests, spreading scandals, recalls of hundreds of thousands of vehicles, slumping sales and mounting losses, the auto making arm of the powerful Mitsubishi Group may be doomed.
Mitsubishi Motors Corp., until recently Japan's fourth-largest vehicle maker, now is on a ¥496 billion ($4.5 billion) life-support system.
Industry experts in Tokyo figure the company's survival likely depends on how long Mitsubishi Group companies, the source of most the financial backing so far, are willing and able to prop up the automotive arm. (See related story: New Mitsubishi Scandal Results in More Cost Cuts)
Japanese car buyers, rapidly losing their taste for Mitsubishi cars, trucks and buses, are not expected to offer much help to the ailing auto maker. Sales of passenger cars (not counting minivehicles) plunged 56% in May and 64% in June and still are headed down.
In the U.S., MMC’s largest market, car sales were down 48% in June. Production at the Normal, IL, is set to be slashed by up to a third of installed capacity.
What is turning customers away from MMC dealerships in droves is a shock wave of confessions from former senior company executives that they falsified reports and concealed vehicular defects from authorities and the public for more than 20 years to avoid expensive and embarrassing recalls.
Another source of buyer discontent is difficult to measure. The Japanese traditionally have attached more importance to shame than sin and may be unwilling to forget-and-forgive MMC’s betrayal of public trust.
The auto maker already was deeply troubled in mid-2000 when DaimlerChrysler AG found so many things wrong after buying a 34% stake that the original purchase price was cut by 10% to $1.9 billion.
The following April, however, DC increased its ownership share to 37.3% by investing $300 million more, not realizing far worse remained hidden.
This spring, after a DC-designed revival plan failed to deliver, the German auto maker abruptly declined to put any more money into the struggling company. This crisis was exacerbated by more revelations and recalls. The cover-ups reportedly date back to1983 in what one angry DC executive calls "a culture of corporate concealment."
They involve a dramatic range of defects in everything from engines, fuel tanks and oil hoses to axle shafts, brakes and turn signals – causing at least 61 fires and numerous accidents.
To make matters worse, Mitsubishi Fuso Truck & Bus Co. Ltd. has been seriously infected by the epidemic of defects as well. Faulty clutch parts and axle hubs have caused dozens of accidents in recent years, including two fatalities, and led to the recall this year of more than 350,000 vehicles.
Seven former Fuso executives were arrested in May followed by six former MMC executives in June for systematically hiding defects.
Consequently, Japan's Ministry of Land, Infrastructure and Transport has ceased buying Mitsubishi vehicles and several prefectural and municipal governments have followed suit. (See related story: Japan May Order Mitsu Fuso Vehicles Off Road)
Although the problems are far from resolved, it already is apparent one of the biggest losers in the corporate fiasco is DaimlerChrysler.
Trucks, even more than cars, were the missing link in DC's expansion plans for Asian markets and, after Fuso was spun off in January 2003, the German auto maker ended up spending $1.25 billion for 65% of the truck operation, leaving MMC a minority shareholder, with only 20%.
These days, in the wake of the revelations, Fuso sales are slumping in
Japan, and it is not yet clear how much damage will be done in Southeast Asia, where the company leads the market with 52% of heavy-truck sales.
The cost of all the truck and car recalls has not been revealed nor, given the bit-by-bit way in which defects have been uncovered, is there any guarantee the epidemic is over. A new road hazard already is visible.
Insurance companies are reviewing accident records involving Mitsubishi vehicles and are poised to launch lawsuits if defective parts are found responsible.
The clouds overhanging the company continue to darken. A second revival plan, cobbled together in May, was barely one month old when new MMC CEO Yoichiro Okazaki announced a revised version he called "our last chance at survival as an auto maker."
A laundry list of additional measures in the revision include new cost cuts of ¥72.6 billion ($660 million) over the next two years designed among other things to reduce research and development expenditures and lower advertising budgets.
And to help restore trust, new cars will be sold with a 3-year, full-support program that includes 24-hour roadside service. Existing owners get a free 20-item inspection and oil change.
However, the trade-in value of Mitsubishi vehicles has plummeted to about 20% that of comparable rival products, according to one estimate, putting a damper on the sale of new and used vehicles.
And Tokyo analysts report no convincing evidence the ingrained culture of concealment has been abandoned.
"There has been a secretive atmosphere in Mitsubishi going back 40 years,” says Koji Endo, director and head of Equity Research, Credit Suisse First Boston Securities (Japan). “This kind of culture cannot be destroyed overnight. It will be extremely difficult for Mitsubishi
Motors to restore faith in its products."
Agrees Kunihiko Shiohara, managing director and senior analyst, Goldman Sachs (Japan): "It will be hard for MMC to win back consumer confidence and difficult for the company to turn around."
Industry experts in Tokyo foresee a loss of ¥300 billion ($2.7 billion) for MMC in the current fiscal year, which ends next March 31, following a loss of ¥215 billion ($1.95 billion) last year.
The second and final installment in the ¥496 billion ($4.5 billion) bailout was delivered in mid-July.
Shiohara notes that "in reality, most of the bailout money has come from The Bank of Tokyo-Mitsubishi, Mitsubishi Corp., Mitsubishi Heavy Industries and Mitsubishi-related companies."
He says Phoenix Capital, a turnaround fund that supplied ¥74 billion ($668 million), making it MMC’s largest shareholder with a 33% stake, is headed by a former Mitsubishi banker. The big exception is JPMorgan Chase, which paid ¥126 billion ($1.14 billion) for convertible preferred stock.
No one knows for sure whether the new investments will be enough to rescue the stricken auto maker or how much more will be needed or whether a turnaround is even possible.
The infusion of new money has decreased DC's ownership share in MMC to 25% and further dilution is possible. The German auto maker originally paid ¥400 ($4) a share for 500 million shares now worth around ¥110 ($1). Also in jeopardy is the $1.25 billion investment in the truck-making affiliate.
Shiohara concludes: "Mitsubishi Fuso's turnaround may be as difficult as Mitsubishi Motors’."
The biggest loser, of course, is MMC, its reputation in ruins and living on what may be borrowed time. Beset by executive arrests, spreading scandals, hundreds of thousands of recalls, slumping sales and mounting losses, the auto making arm of the powerful Mitsubishi Group may be doomed.
An alliance or partnership with another major auto maker might help if a candidate can be found. "The problem," says Endo, "is nobody seems to be interested. The situation at Mitsubishi Motors is probably worse now than before the revival plan was disclosed."
In mid-June, Standard & Poor’s reduced its rating on MMC bonds to junk status and questioned the company's viability. "It is increasingly unclear whether pending operational and financial restructuring measures will be sufficient to ensure MMC's survival," says S&P credit analyst Chizuko Satsukawa.
And she is not alone. "The Mitsubishi Group currently has no choice. (It) must be supported," says Shiohara, noting the depth and duration of that support will depend in large measure on the profitability of Group companies, in particular The Bank of Tokyo-Mitsubishi, one of the strongest in Japan.
But if the injuries are fatal, as many believe, there are limits to how long the crippled company can be kept alive.
Positive side effects are possible. Corporate accountability, independent directors and activist shareholders still are a novelty in Japan and the MMC scandals may help accelerate change.
An association of 1,160 employee Japanese pension funds with $73 billion in assets is campaigning against the appointment of tame directors and the award of over-generous executive retirement bonuses. The group is creating a special kitty to invest in 50 “good governance companies.”
____________________________________________________________________________________
[img=left]http://img.villagephotos.com/p/2002-2/11882/a2andme2.gif[/img=left]
2001 A2 TDI SE Crystal Blue with Open Sky, 6CD Symphony II, BOSE upgrade, DIS and HALF a winterpack!
iPAQ 3970 with Sat-Nav sleeve, rear cupholders, luggage net and floppy wiper!
http://www.a2oc.net/pic_show.asp?picid=1572&type=1 On www.A2OC.net pictures UK160 to UK183
