Monday, October 31, 2005

Mitsubishi's turnaround hinges on new models, worker mindset

In the U.S., firm must lure more buyers to showrooms, improve Illinois plant productivity.

By Yuzo Yamaguchi / Autos Insider

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TOKYO -- Since Osamu Masuko took over as president of Mitsubishi Motors Corp. in January, he has thrown himself into the daunting task of reviving the struggling automaker. He is slashing millions of dollars in costs after cutting back on its sales estimates.

Now, the lean-and-mean approach he took seems to be working. In the fiscal first half through September, Mitsubishi's global sales beat its initial estimates. "I have confidence in achieving the target," said Masuko, a 30-year veteran of trading house Mitsubishi Corp., one of the Mitsubishi group companies that bailed out the automaker with a cash infusion.

His target: Sell 1.524 million vehicles globally in the year through March of 2008. That's up 14 percent from the year ended in March. Within three years, Masuko aims to transform a $4.1 billion loser into a $355 million generator.

But Masuko won't talk too optimistically about Mitsubishi's recovery from the brink. He emphasized that achieving the three-year goal requires special efforts in three markets: North America, China and Japan. The recovery "depends on those three markets," he said.

In the United States, where sales for the April-to-September period were short of its target, Mitsubishi needs to lure more customers into its showrooms with upcoming models. It also has to raise production at the Normal, Ill. plant to a breakeven point. Chinese sales for the six months met expectations but Mitsubishi will have to boost an awareness of the three-diamond badge. And at home, it still has to leap a hurdle: Regain customers' trust it lost on a recall scandal.

The outlook for Mitsubishi's U.S. operations is uncertain. U.S. sales in August rose 2.1 percent on the year, the first gain in two years. September sales dropped 2.5 percent, however, pushing sales for the first nine months down 27.7 percent.

"We don't know what happened (to September sales)," said Masuko. "We don't know if that's because of rising oil prices or interest rates or concern over the future."

Mitsubishi is betting that a string of new models will help to turn its North American operations around. In addition to the Eclipse and Raider, the Eclipse Spyder sports car will debut in January of next year and the Outlander will arrive there in September. And those models will be followed by the Lancer and Lancer Evolution.

"We're hinging our turnaround on the products," said Richard Gilligan, CEO of Mitsubishi Motors North America, a Cypress, Calif.-based sales unit. Mitsubishi's revival plan counts on those six new models to help bring North American sales to 218,000-a-year through March of 2008 - an increase of 25 percent from the most recent sales year.

The new models might not be enough for Mitsubishi to compete with its rivals, particularly Japanese ones. Honda Motor Co. and Nissan Motor Co. will launch compact cars as entry models next year. Honda builds the Fit in Japan to benefit from economies of scale and will ship the smaller car than the Civic to the U.S. market. To cut costs, Nissan will build the Versa below the Sentra in Mexico for the U.S. sale.

Mitsubishi could follow suit. "We'll have to work on a B-segment car if the market shifts to a small car," said Masuko. "I'm expecting demand for a B-segment car like our Colt to grow because of high oil prices." The company is reasearching the potential sales generated at specific price-points. By March, Masuko will decide whether Mitsubishi will go ahead with the Colt.

The automaker has made room to roll out new models, thanks to a $2.3 billion infusion from its group companies. Mitsubishi Heavy Industries, Ltd., a heavy machine maker, Mitsubishi Corp. and Bank of Tokyo Mitsubishi own about a third of stake in the automaker.

Raising annual production at the Normal, Ill. plant to a breakeven point of 120,000 is also part of a linchpin to get North American operations back to profits. Mitsubishi expects the Eclipse and Galant to be a driving force to reach that threshold line in 2006, together accounting for about 100,000 units. For this, it plans to export 15,000 Galants a year to Russia, Ukraine and the Middle-East countries, starting in June.

In China, Mitsubishi hopes to be localized more than now. By taking a 25 percent stake in South East Motor Corp. in Fuzhou -- a joint venture between two local companies -- the Japanese automaker wants to build vehicles there and sell them with the three diamond badge.

That would be a departure from Mitsubishi's OEM-focused strategy. Currently, it gives Chinese companies a technological supply to build Mitsubishi vehicles under their local brands.

In Japan, Mitsubishi is trying to ease concerns over a scandal involving recall cover-ups that date back to 2000. Last year, it offered free inspections covering 3.4 million cars. Now, Masuko has launched a grass-root sales campaign. On the company's internal Website, he sent all Mitsubishi employees a message: Roll up your sleeves to sell as many Mitsubishis as possible. Masuko himself asked his acquaintances to buy cars from his company.

Mitsubishi's recovery would depend on the mind-set of each of Mitsubishi employees. As Masuko puts it: "Everybody has to make efforts because the company is everyone's. Now we know what we have to do here."