Daimler Says It Won't Bail Out a Partner, Mitsubishi Motors

Daimler Says It Won't Bail Out a Partner, Mitsubishi Motors
By DANNY HAKIM

Published: April 23, 2004


DETROIT, April 22 - DaimlerChrysler will not bail out its struggling partner, Mitsubishi Motors, putting a cloud over the Japanese automaker's future.

DaimlerChrysler, the largest shareholder in Mitsubishi Motors, with a 37 percent stake, said in a brief statement released in Germany late Thursday that it had decided not to pump cash into the company to keep it solvent.

The development is a serious setback to the strategy of DaimlerChrysler's chief executive, Jürgen Schrempp, to create a global automotive giant. And it could be a major blow to the recovery strategy of the Chrysler Group, one of the traditional Big Three domestic automakers. A central element of Mr. Schrempp's plan was to cut costs by having Chrysler and Mitsubishi develop vehicles jointly, including small- and midsize cars and pickup trucks.

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"We wanted to combine, to a large extent, engineering of Chrysler with Mitsubishi Motors," Mr. Schrempp said in December, testifying in a lawsuit over the terms of the 1998 combination of DaimlerBenz and Chrysler. He added that sharing development processes at the two companies "means a tremendous cost effect, positive cost effect for Chrysler."

David Healy, an analyst at Burnham Securities, said Thursday that Mitsubishi and Chrysler were far along in developing new cars together. "I suspect it would be difficult, expensive and time consuming to untangle that relationship," Mr. Healy said. Referring to Chrysler, he said, "If they had to do it alone, it would mean a higher initial investment, higher overhead and higher tooling costs. So it reduces the profit potential, or increases the loss potential for those vehicles."

The decision not to prop up Mitsubishi was reached Thursday at a special meeting of DaimlerChrysler's executives, led by Mr. Schrempp, and its supervisory board at its headquarters in Stuttgart, Germany.

"Substantial financial resources are required to guarantee a sustainable financial recovery," Daimler said in its statement, adding that those resources would not be coming from Daimler.

[Mitsubishi Motors said in a statement early Friday in Japan that it had been informed of DaimlerChrysler's decision, but that DaimlerChrysler had not indicated to Mitsubishi that it intended to change its current holdings.

["Mitsubishi Motors is currently evaluating the situation," the company said in the statement, declining further comment.]

A major shake-up of Mitsubishi's' management has been expected since early this year, when Andreas Renschler, the head of DaimlerChrysler's Smart car subsidiary and one of Mr. Schrempp's top lieutenants, was sent to Tokyo to draft a new turnaround plan for Mitsubishi.

But DaimlerChrysler's move to distance itself from Mitsubishi Motors surprised Mitsubishi executives in Tokyo, who had been expecting Mr. Renschler to succeed Rolf Eckrodt, their current chief executive. Mr. Eckrodt was sent from Stuttgart four years ago to lead Mitsubishi Motors when DaimlerChrysler first took a major stake. A close associate of Mr. Eckrodt said that he had been planning to retire.

The Mitsubishi Corporation, a trading company, and other companies in the Mitsubishi Group together own more than a quarter of Mitsubishi Motors. Over the last few months, Mr. Renschler and other DaimlerChrysler executives have been negotiating with the Mitsubishi Group and with lenders over a bailout plan. The future of Mitsubishi Motors now depends on the Mitsubishi Group, but it is not clear whether it is willing to shoulder the necessary investment alone. Estimates of the amount of new money being discussed range from 200 billion yen to 800 billion yen ($1.8 billion to $7.3 billion). Mitsubishi Motors badly needs the money to develop new models and arrest a sharp slide in sales in the United States.

The company's American operations have been posting huge losses, in part because its strategy of increasing sales by offering easy credit terms to young buyers backfired when many customers defaulted on their car loans. The problems forced Mitsubishi Motors to widen its forecast net loss for the year that ended March 31 to 72 billion yen from 11 billion yen.

Mitsubishi's vehicle sales in the United States fell 25 percent last year and by another 19 percent in the first three months of 2004.

Mr. Eckrodt's efforts to turn Mitsubishi around in the last three years have been severely hampered by a string of recalls in Japan and subsequent questions about the quality of the company's vehicles.

Recently, an affiliate, Mitsubishi Fuso Truck and Bus, had announced a recall after a series of accidents caused by wheels flying off moving vehicles. In one widely reported case, a young woman was struck and killed by a runaway truck wheel. Mitsubishi Fuso was a division of Mitsubishi Motors in 2002, when the accidents occurred; it later sold much of its stake to DaimlerChrysler, which owns 65 percent of the truckmaker.

Mitsubishi's image was badly tarnished in Japan in the summer of 2000 when it acknowledged that it had hidden problems with its vehicles to avoid costly recalls.


Todd Zaun, in Tokyo, contributed reporting for this article.

Well, thats kind of stupid of DaimlerChryslers part don't you think?

In a way its kinda stupid, in another, that's a large amount of money to bail out Mitsu, especially with its lineup of cars and trucks not looking so promising (the galant doesn't seem like its selling well vs competition from Toyota, Nissan and Honda), Most people would opt to buy an american SUV or Toyota before even looking at the Mitsu. So it would say that their future isn't exactly secure. But you never know, Nissan was going down the tubes as was Mazda before they were bailed out, now Nissan is doing pretty damn well, and Mazda is doing what Ford expected so...

Yea.. but Nissan had help from Renault and like you said Mazda had help from Ford. If Daimler Chrysler doesn't help.. Mitsubishi may not make it to be as independent and strong as BMW.. They'd need a really strong product.. like the EVO.. and would have to cut some fat.. like the montero sport.

agreed, I couldn't think of who helped out Nissan--I knew it was a french company. At any rate though if you look at how much Nissan and Mazda needed the bailout, vs the amount of $$$ needed to bail out Mitsu, there's a huge difference. It'd be crazy if one of the other Japanese automakers decided to a joint venture with Mitsu--can you imagine what a mitsu/toyota car would look like (ie performance aspects of mitsu with toyota engines) or what if Subaru helped bail out Mitsu--the next evo or WRX would be downright digusting, not to mention what could be done for eclipses and the like--and much cheaper since you could pool the companies resources (larger parts bin).