Mitsubishi Motors Struggles Could Affect Several Companies

John Birchard
May 17, 2004

The April decision by the governing board of DaimlerChrysler to cut off any further money for the struggling Japanese automaker Mitsubishi Motors will affect the future of several companies.

The surprise announcement by the board leaves Mitsubishi's future hanging in the balance. And it leaves DaimlerChrysler chairman Juergen Schrempp's Asian strategy in tatters.

The executive editor of Automotive News, Edward Lapham, says Mitsubishi will probably not go out of business, at least right away. "Mitsubishi has never been more than a second- or third-tier automaker, even in the very best years. And it's had some difficulties now that threaten it," he says. "And, certainly, without the financial prop from DaimlerChrysler, it makes things a lot more difficult."

Virginia Commonwealth University economics professor George Hoffer says the origin of Mitsubishi's dilemma goes way back. "Mitsubishi's problem in large part today is because they never established a unique identity, unlike virtually every other Japanese manufacturer. The product has never really been a bad product," he says. "The problem is, while they've been here since the earliest Japanese manufacturers, their identity doesn't start until fifteen, sixteen years later."

Automotive News' Edward Lapham says the Chrysler group is dependent on the Japanese automaker - and would be in worse trouble without it. "For the short term, absolutely, they need the product. They've been relying on Mitsubishi for the small and mid-sized passenger cars, especially."

The Chrysler group declined to comment, but in a statement it said all existing projects involving Mitsubishi and themselves - including a joint four-cylinder gasoline engine, a variety of shared cars and pickup trucks and joint sales and licensing activities - would "continue as planned".

"They can talk about the relationship with Mitsubishi, but you know Mitsubishi needs to be a healthy company," says Mr. Lapham. "It's still part of the Mitsubishi Group and I don't think they [the group] are going to let the motor company fade away, at least not immediately - but they do need investment."

Many industry observers interpret the DaimlerChrysler board's refusal to send more money to Mitsubishi as a rejection of chairman Juergen Schrempp's Asia strategy, which Edward Lapham describes as a "three-legged stool". "You need a leg in Asia, a leg in North America and a leg in Europe. And when Daimler bought Chrysler, they had two-thirds of a stool made," he says. "They still need something in Asia. And they had the equity stake in Mitsubishi and they had a pretty good relationship with Hyundai as well. Hyundai was part of the extended family. But that seems to have ended as well."

Now the rumor is circulating that South Korea's Hyundai may be the financial savior for Mitsubishi. Automotive News executive editor Lapham says the Koreans "are on a roll" and just might be the one. "They are considering expanding their line-up of vehicles, including maybe a pickup truck and even some luxury vehicles on the order of what Toyota did with Lexus and Nissan did with Infiniti, and they want to become a full-line manufacturer," he says.

Economics professor George Hoffer professes optimism about Mitsubishi's future - if they can get the money they need. "The product has not been their downfall. It's been other things," he says. "And so, potentially, I think this is a relatively quick turnaround."

But, as this is being written, nothing is clear about the days ahead for either company. Perhaps the headlines in Edward Lapham's publication sum it up best: "Chaos at DaimlerChrysler" and "Mitsubishi faces doubts about future". Stay tuned for the next chapter.

Some information for this report provided by AP, AFP.