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Daimler Says It Won't Bail Out a Partner, Mitsubishi Motors **Updated 5/1**
- Thread starter NFS4
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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, J?rgen 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.
"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.
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, J?rgen 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.
"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.
loup garou
Lifer
Christ, who doesn't have a NYT subscription? Hand in your internet card.
Anyways, I say good. Hopefully less god-awfully fugly cars on the road. 😛
JulesMaximus
No Lifer
I guess Mitsubishi isn't the "Fastest Growing Japanese Car Company"...Hmm, I wonder what other marketing lies are being told? Like a Rock? That thing got a hemi? Built Ford tough? BHAHAHAHHAHAHAHHAHAHA!!!
The Stigenator
Lifer
hummm i like mitsu cars..
time for a fresh look at stuff.. and reorganise the structure.
time for a fresh look at stuff.. and reorganise the structure.
Chadder007
Diamond Member
Nissan pulled out of their mess....hopefully Mitsu can too.
Chadder007
Diamond Member
OMG OMG....BMW to buy Mitsu!!!
j/k
Vic
Elite Member
You don't understand. Mitsu put together financing offers to their customers that were so stupid, so foolishly risky, that no bank would do them and they were forced to underwrite it all themselves.
Basically, it involved giving loans with no down, no payments, and no interest for 12 months to young buyers with no credit or bad credit. These "buyers" drove Mitsu's cars around for a year for free and then, as soon as the first payment notice came, they gave the cars back (defaulted, i.e. voluntary repossession). To make matters worse, the high default rates killed the resale values on Mitsu's whole line, which already had a poor reputation for reliability, and otherwise good customers suddenly found themselves trapped in negative equity, and they involuntarily defaulted. It was like dominos.
Mitsu was warned. They did it anyway. Now they suffer their fate.
JulesMaximus
No Lifer
Hasn't GM been doing that for years?
BullyCanadian
Platinum Member
NOOOO what is to become of my Galant and its future? I love my Galant, great car,
Vic
Elite Member
Never.
GM might give you 0% interest and thousands in rebates, but you still have to start making payments on the 45th day after you buy the car.
And Mitsu's credit standards were low. We're talking 500's credit score and "bankruptcy ok" low. GM at least insists on 600's (and there's a world of difference between those 2 numbers, let me tell ya).
But the big issue was the no payments for a year. Even though they advertised no interest, it really was just like one of those furniture loans where it was only no interest if the loan was paid off in full in the first year. Otherwise, interest accrued like any other loan. Except in this case, the buyer wasn't making any payments. So the principal balance was increasing (this is known as "negative amortization"). And the buyer didn't put any money down on the car. At the end of that year, he owed a couple of thousand more than what he paid for it new. Except that it was now a used car that had depreciated several thousands. The customer was buried AND he had to start making payments. And being a Mitsu, he'd probably had reliability problems.
As you can probably see, it was a recipe for disaster.
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