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April 24, 2004

SA: Mitsubishi woes

The loss of local or regional news from the rationalisation of the corporate media means that little in Adelaide makes the national news. Despite the onward march of satellite dishes, broadband and cable that give us hundreds of digital channels, what happens in Adelaide will be increasingly seen as insignificant and irrelevant.

An exception is the Mitsubishi car plant in Adelaide which is hanging on a thread. The threat of closure is a national story that is written around the SA economy nosediving if the plant closed. Around 20,000 jobs directly and indirectly would be lost. It would be catastrophe. Its a gloom and doom story.

That is why the SA and federal Government have continued to subsidize the outdated Tonsley car plant in southern Adelaide. It was only in 2002 that they came up with a rescue package based on the development of 2 new models and 900 extra jobs that was designed to save the plant from closure. Part of the money in that rescue package was tied to the development of a global R&D Centre being established by Mitsubishi in Adelaide.

The Tonsley carplant and Lonsdale engine plant hang on a thread because Daimler-Chrysler has refused to pump more money into the ailing Mitsubishi Motor Corporation (MMC) faced with a steep drop in sales in the United States, ballooning losses and recalls.

Mitsubushi in Adelaide is full of spin about the wonderful job they are doing--leadership, training and flexible work practices a quality product etc etc) against all the odds. The reality is that their petrol-powered vehicle range (Magna, Lancer, Pajero) is tired and old. There has been significant underinvestment in new model development, both domestic and export sales have fallen, and the Magna has been heavily discounted. The plant has few robots, the product run is only 30,000, and little work has been done on new technologies such as petrol-electric hybrid cars.

So argued Peter Roberts in the Australian Financial Review (subscription required) last Thursday. It's a bleak account. The only good news is that a new model Magna is on the drawing board with a new export version.

Will they go ahead? Is it time to pull the plug? We need to ask these questions because the Mitsubishi Group, once the mightest of Japan's keiretsu in Japan Inc. is in serious economic trouble. The Mitsubishi Group is faced with a tremendous task of restructuring. So it is not just a question of having a good industry policy in Australia as it was in the early 1990s, since global economic forces now come into play.

DaimlerChrysler's strategy was to expand the automaker's reach in fast-growing Asian markets. Mitsubishi was to serve as a source of low- cost, small-car engineering for DaimlerChrysler's US unit, the Chrysler Group. .Another element of the strategy was to have Mitsubishi and South Korean auto maker Hyundai Motors collaborate, starting with a big global engine-making venture that was to provide engines for all three companies.

This story indicates that Daimler-Chrysler has finally abandoned MMC - in which its owns a controlling 37 per cent stake - stating it would not inject any more capital to help the company's reconstruction. Mitsubishi Motors Corp had been seeking a capital injection of as $9.94 billion as part of a plan to recover

Are Daimler-Chrysler pulling the plug? According to this report the refusal to invest didn't mean the German-American auto maker was prepared to abandon its 37 per cent stake in Mitsubishi. In Tokyo, Mitsubishi also said the announcement doesn't mean DaimlerChrysler.

However, shares in all the Mitsubishi group companies tumbled yesterday. The Mitsubishi Group is now on its own. Federal and state governments are powerless to ensure the survival of Mitsubishi's Australian operations. The three other members of the Mitsubishi group declared their "full support" for the struggling Mitsubishi Motors Corp.

The response from Mitsubishi in Adelaide is upbeat--as it always is. The reality is that a hugh shadow now falls over the future of Mitsubishi's South Australian operations.

Posted by Gary Sauer-Thompson at April 24, 2004 02:54 PM

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