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April 27, 2004
Mitsubushi: a mess
The latest Mitsubishi news is not good for SA. Despite all the huffing and puffing from the Rann Government about making Mitsubishi's exit from SA as expensive as it could, the SA & federal Government have little say in the matter. They stand on the sidelines with the door firmly closed.
It would appear that the survival of Mitsubishi Motors is now in the hands of the parent conglomerate after DaimlerChrysler refused to put in any more capital into what was once seen as an easy entree into the Asian market. Why should they? Mitsubishi had to recall 2 million faulty cars in 2000, has continued to rack up huge losses, and its sales and market share have continued to decline in the US. Mitsubishi Motors is a liability for DaimlerChrysler's strategy to build a global car company
Mitsubishi Motors is in a bad way, with an uncompetitive product, poor credit ratings and damaged brand name. It is clearly a loser from the gradual deregulation of the Japanese economy and its opening to the global economy. Toyata, in contrast, is a winner.
These considerations make the Mitsubishi's Australian operations precarious. Apparently, DaimlerChrysler's earlier rescue plan had involved the closure of the Australian plant. Keeping them going made no sense in terms of their global strategy and entry into Asia.
With the withdrawal of capital injection from DaimlerChrysler, any rescue plan for Mitsubishi Motors will now dependson a bailout from the parent conglomerate. Mitsubishi Heavy Industries, Mitsubishi Corporation and the Bank of Tokyo-Mitsubishi have offered financial support. They say they plan to actively work with Mitsubishi Motors Corporation on a new mid-term business plan within a month. Would not that business plan involve closing down the Australian operations?
Lenore Taylor and Brendan Pearson in the Australian Financial Review(subscription required) say that bailing out Mitsubishi Motors involves restructuring, since Mitsubishi Motors is around one trillion dollars in debt. Where is that money going to come from?
And even if the hugh capital inflow ($9.7 billion) could be found, would Mitsubishi earn money in the future ? Do the company's prospects justify such a highup-front capital investment? DaimlerChrysler decided no: saving Mitsubishi Motors would cost too much money.
So the best that SA can hope is for is a phrased run down of the Australian manufacturing plant, following the completion of the new Magna model rollout. So Mitsubishi goes the way of Nisson, and withdraws from manufacturing in Australia.
As James Roberts comments in the Australian Financial Review (subscription required) the key problem is that the company is unable to survive in the competitive US market. Nor does it have a medium to long-term investment strategy.
Posted by Gary Sauer-Thompson at April 27, 2004 12:43 PM
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Comments
I think you mean that Mitsubishi group are a trillion yen in debt, not dollars. That is still an awful lot of money. I've written up my own views here, although they aren't that different to yours.
Posted by: Adelaide Pundit at April 27, 2004 04:27 PM
Thanks.
I'll change dollars to yen. Yes, it is an awful lot of money.
Posted by: Gary Sauer-Thompson at April 27, 2004 07:35 PM