A CEO's personal touch to rev up Mitsubishi North America
From today's Wall Street Journal:
A CEO's Personal Touch
Revs Up Mitsubishi in U.S.
By AMY CHOZICK
July 10, 2007; Page B1
TOKYO -- When Hiroshi Harunari took over as chief executive of Mitsubishi Motors Corp.'s struggling North American operation in January 2006, morale among dealers and employees was at an all-time low.
The car maker as a whole had lost more than $2 billion a year earlier and had been losing money in the U.S. for three consecutive years. The unit had gone through three chiefs in four years, and its partner, Daimler Chrysler AG, had sold its stake in Mitsubishi in 2005. Many predicted it was a matter of time before Mitsubishi pulled out of the competitive North American market.
Mr. Harunari embarked on a cross-country pilgrimage to win back dealers' trust. In the first two months on the job, the earnest Japanese executive visited 139 Mitsubishi dealerships in 29 states. He didn't propose any sweeping changes, but focused on listening to dealers' long lists of grievances, and assured them that Mitsubishi was committed to the U.S. market. He then took steps to address such basic problems as slow delivery of parts from suppliers. "I knew the situation was bad," says Mr. Harunari, 59 years old, formerly the head of overseas operations based in Tokyo.
He also had an additional challenge because the dealers he had to woo aren't employees, but independent small-business owners who need to make a profit to stay in business. "I had to show I was ready to pick up the chestnut," he says, citing an old Japanese proverb that says you should try to pick up a chestnut out of a burning flame -- in other words, embrace a big challenge.
So far, Mr. Harunari's personal touch seems to be working. In a surprise turnaround, Japan's No. 4 car maker by sales volume swung back to a full-year operating profit of $5 million in North America in the fiscal year ended March 31. Sales in the U.S. in that period, led by the new Lancer sedan and Outlander sports utility vehicle, reached 124,000 vehicles, an 8% increase from the previous year, reversing a four-year drop. Sales per dealer increased by as much as 21% compared with a year earlier, indicating that dealers were encouraged to order more cars from Mitsubishi.
Don Herring Sr., owner of three Mitsubishi dealerships in Dallas, had doubts about Mitsubishi's future before Mr. Harunari dropped by -- on at least three occasions -- and "just asked us what we thought," he says. Mr. Herring says the personal visits indicated the company was sincere about trying to make a comeback. He recently remodeled one of his five-acre lots and converted a 30,000-square-foot former Circuit City store into another giant Mitsubishi showroom.
While case studies abound of charismatic chief executives announcing ambitious goals to jump-start a company, Mr. Harunari has invigorated Mitsubishi in the U.S. by focusing on good old-fashioned bonding with people in the trenches. This "inverted pyramid" style of management is a growing trend in corporations, says Paul Rogers, the London-based head of the global-organization practice for U.S. consulting firm Bain & Co. Top executives are realizing that getting to know the frontline can build employee loyalty and "loyal customers are driven by loyal employees," Mr. Rogers says. Mitsubishi's turnaround poses an added threat to other Asian rivals, such as Japan's Nissan Motor Co., which saw its sales drop last year in the key U.S. market. It also adds more competition to Detroit's Big Three, which have been reporting heavy losses.
Mitsubishi's challenge isn't over yet. Even with stronger sales, the company holds less than 1% of the U.S. market share. And at a time when the overall demand for cars in the U.S. is showing signs of slowing, competition is heating up, both from higher-end models by Toyota Motor Corp. and Honda Motor Co., and from lower-priced cars by Hyundai Motor Co.
What's more, Mitsubishi's results were helped in the latest fiscal year by the weak yen, which increases the value of overseas earnings when converted into Japanese currency. The company forecasts that the yen will be much stronger this year, causing a slight drop in operating profit in North America in the year ending March 31, 2008, despite a rise in sales volume. Analysts have said, however, that the yen has been much weaker so far than the company's estimates.
Unlike many top executives in Japanese car companies, Mr. Harunari, who likes to read German science-fiction novels in his spare time, didn't spend his whole career at Mitsubishi Motors. He worked for over 25 years at trading house Mitsubishi Corp., another company that is part of the umbrella Mitsubishi Group. The trading house was among several companies in the group that rushed to $3 billion bailout of the car company after DaimlerChrysler sold its remaining shares in Mitsubishi.
Mitsubishi Motors equipped Mr. Harunari with a sweeping revitalization plan. After racking up bad consumer loans by targeting young drivers with poor credit records, the company switched to older, more financially secure drivers with new models like the Lancer. Mitsubishi also tied up with Merrill Lynch & Co. in the U.S. to fund its loans to car buyers, rather than finance its own loans.
But Mr. Harunari felt his biggest task was to win back the disgruntled dealers who felt alienated by the string of management changes and persistent rumors that Mitsubishi was pulling out of the U.S. While he had never lived in the U.S., he made a point of driving himself to many of the dealerships. On a recent trip to Texas, he flew to Dallas, then drove a borrowed Outlander to visit dealers in San Antonio, Austin and Waco. "Visiting a dealer's place of business is like visiting their home," says Mr. Harunari. It shows "we appreciate them."
To underscore Mitsubishi's intention to remain in the U.S. market, Mitsubishi launched in April last year a 25th anniversary advertising campaign. "It's been 25 years since we made our first mark in America. The next 25 years begins today!" said the ads, which ran in print and on television. To show dealers his responsiveness, Mr. Harunari launched a "Dealer Co-Op" program that gives individual dealers financial assistance with local marketing efforts, such as sponsoring local charity events or running ads in a community newspaper.
Mike Graeber, owner of a Mitsubishi dealership in San Bernardino, Calif., says the co-op program was something nationwide dealers had been pushing for but that no one else had responded to. "We finally feel like our voices and concerns are going to senior management," Mr. Graeber says.
Back in his office in Cypress, Calif., Mr. Harunari gets to work at 7 a.m. to respond to 200 emails from employees and dealers before 9 a.m., often about new problems cropping up. "Frustration can build up like a volcano," he says. "My job is to settle it before it explodes."
Mr. Harunari says that for now, he is keeping his goals modest. He would like the company to capture 1% to 2% of the U.S. market share this year, up from about 0.8% in 2006.
"If I said we're going to sell like Toyota, everyone would laugh," Mr. Harunari says. "We're just aiming for satisfied customers."
