Mitsubishi Motors Corporation History
Sales: ¥3.20 trillion ($24.02 billion) (2002)
Stock Exchanges: Tokyo
NAIC: 336111 Automobile Manufacturing; 336112 Light Truck and Utility Vehicle Manufacturing
Mitsubishi Motors Corporation intends to grow as a global player and as a strong partner within the DaimlerChrysler-Mitsubishi Motors Corporation alliance. Cross-functional alliance teams are now working together at a global level. Mitsubishi Motors Corporation boasts a proud history of technological innovation. Although automobiles have become an established part of modern life, challenges still remain to boost their safety and eco-compatibility without sacrificing any of the benefits or convenience they offer. Mitsubishi Motors Corporation is developing a variety of technologies designed to improve the safety and environmental features of its products.
- Mitsubishi Motors Corporation is founded.
- Mitsubishi produces one million cars annually.
- Mitsubishi enters the U.S. market under its own brand name.
- Mitsubishi becomes a public company.
- Mitsubishi acquires Value Rent-A-Car.
- Mitsubishi forms partnership with DaimlerChrysler AG.
- Mitsubishi begins restructuring program.
Mitsubishi Motors Corporation is Japan's fourth largest car company, and manufactures and markets passenger cars and light commercial trucks in its domestic markets as well as in other Asian countries and North America. Its line of passenger cars includes the Diamante sedan, the Galant sedan, several mini-cars for the Japanese market, the hatchback Colt, and the Montero and Endeavor sport utility vehicles for North American consumers. Mitsubishi Motors also operates a financial services division that oversees lending and financing for its car sales. In large part to escape a crushing debt burden, though also to address declining sales, Mitsubishi Motor's parent company, the Mitsubishi Group, sold a 37 percent stake in Mitsubishi Motors to German auto giant DaimlerChrysler AG. (Mitsubishi Heavy Industries controls an additional 15 percent share of Mitsubishi Motors.) Mitsubishi Motors has embarked on a massive restructuring program instigated by DaimlerChrysler. As part of this program, Mitsubishi Motors spun off its truck business as Mitsubishi Fuso Truck and Bus Corp. in 2003.
Mitsubishi Motors was formed as a wholly owned subsidiary of Mitsubishi Heavy Industries (MHI) in 1970. MHI is the modern incarnation of Mitsubishi Shipbuilding Co. Ltd., which had begun manufacturing automobiles as early as 1917. As the sprawling network of companies under the Mitsubishi umbrella grew in the early part of the century, the Mitsubishi Internal Combustion Engine Co., Ltd. was established in 1920 to manufacture engines for airplanes. This company's name was changed to Mitsubishi Aircraft Co. in 1928. MHI was created in 1934 upon the merger of Mitsubishi Shipbuilding and Mitsubishi Aircraft. After the breakup of the Japanese conglomerates known as zaibatsu following World War II, use of the corporate name Mitsubishi was banned for several years. MHI was chopped into three regional sections with the names East Japan Heavy Industries, Central Japan Heavy Industries, and West Japan Heavy Industries. Eventually the forbidden name began to reappear, and in 1964 MHI was reintegrated out of its three fragments. By 1967, MHI's Motor Vehicle Division was producing about 75,000 cars a year. That division was spun off as an independent company in 1970, creating Mitsubishi Motors Corporation. Tomio Kubo, a successful engineer from MHI's aircraft operation, was placed in charge of the new company.
An important part of Kubo's early strategy was to build up the company's volume by emphasizing exports. This was to be done by making connections with well-established foreign companies. Mitsubishi's longstanding association with the Chrysler Corporation began the following year, when Chrysler purchased 15 percent of the company's stock. MHI retained the other 85 percent interest. By 1971, the company was producing 260,000 cars a year. Chrysler quickly began to market Mitsubishi-built cars in the United States. The most important of these was the subcompact sold in the United States as the Dodge Colt and Plymouth Arrow. At home in Japan, Mitsubishi concentrated on producing cars for special niche markets. Among the more successful of these models were the Lancer and the Celeste.
By 1973, annual production had reached 500,000 vehicles. That year, the Mitsubishi Motor Sale Financing Corporation was created to handle financing for the company's domestic sales. Although sales began to stall somewhat at that point due to the oil crisis, the introduction of the Galant in 1976 gave the company a welcome boost. As Mitsubishi's sales in the United States grew, friction began to arise between the company and its American affiliate Chrysler. Company officials felt that Chrysler demanded too much say in Mitsubishi decisions, and the idea of marketing its own cars in the United States gained support. By 1977, Mitsubishi had begun to set up its own collection of Colt dealerships across Europe. Tensions between Mitsubishi and Chrysler grew further around that time, as the two companies began competing head to head in the subcompact car market.
As U.S. automakers trended toward smaller cars, Chrysler unveiled the Omni hatchback, a model aimed at the same market as Mitsubishi's latest Colt model, sold in Japan as the Mirage. In spite of the disagreements, the two companies continued to cooperate, with Chrysler marketing Mitsubishi's cars in the United States and Mitsubishi contributing its advanced engineering knowhow to Chrysler. For 1978, Mitsubishi sold a total of 965,300 units, a 17 percent increase over the previous year. Of those, 534,600 were sold in Japan, a 20 percent increase.
The 1980s: Increasing Foreign Sales
Mitsubishi's annual production passed the one million mark in 1980. That year, Mitsubishi Motors teamed up with the Mitsubishi Corporation to purchase Chrysler Australia, subsequently renaming it Mitsubishi Motors Australia Ltd. By 1981, the company had captured 8 percent of the Japanese auto market, running neck and neck with Mazda behind industry leaders Toyota and Nissan. Mitsubishi entered the American automobile market under its own name for the first time in 1982. Three models were initially made available to American buyers, all of them fairly upscale: the Starion, a $12,000, turbo-charged sports car; the $7,000 Cordia sedan; and a family sedan called the Tredia, priced at around $6,500. Mitsubishi also began to sell small pickup trucks in the United States, offering vehicles under its own name identical to those already being sold by Chrysler. Under import restraints on Japanese cars, the 30,000 Mitsubishi vehicles sold in 1982 had to come out of Chrysler's annual allotment of around 120,000 cars. Seventy dealers in 22 U.S. markets sold the Mitsubishi line that year.
While the company was making its foray into the U.S. market, sales at home began to sag. In 1983 a new president, Toyoo Tate, was brought in to try to reverse this trend. Tate's early moves included personnel changes in the executive offices, along with a renewed push for more international alliances. One important new connection made was with South Korea's Hyundai Motor Co., of which Mitsubishi purchased a 7.5 percent interest. By 1984 the company's revenue had reached ¥1.17 trillion. During that year, Mitsubishi Motor Sales, a separate corporation that handled domestic auto sales, was absorbed into Mitsubishi Motors.
In 1985 Mitsubishi and Chrysler launched a joint venture called Diamond-Star Motors Corp., named after the corporate logos of the two companies. The twin central Illinois towns of Bloomington and Normal were chosen as the site of the Diamond-Star plant, which was to produce a line of subcompact cars using engines and transmissions imported from Mitsubishi's Japanese facilities. For Mitsubishi, the venture provided a guaranteed source of cars to sell in the United States, the largest automobile market in the world, regardless of any restrictive trade measures that might be enacted by either country involved. By 1987, the company was selling 67,000 cars a year in the United States.
Mitsubishi Motors went public in 1988, ending its status as the only one of Japan's 11 auto manufacturers to be privately held. To pave the way for the shift to public ownership, changes had to be made in the company's stock agreements with both MHI and Chrysler. MHI agreed to reduce its share to 25 percent, retaining its position as largest single stockholder. Chrysler meanwhile increased its holding to over 20 percent. The $470 million in capital raised by the 10 percent initial offering enabled Mitsubishi to pay off part of its debt as well as to expand its investments throughout southeast Asia, where by now it was operating in the Philippines, Malaysia, and Thailand.
Toward the end of the 1980s, Mitsubishi initiated a major push to beef up its presence in the U.S. market. While Japan's quotas allowed the company to export 193,000 cars a year to the United States, two-thirds of those cars were marketed by Chrysler in 1988. In 1989 Mitsubishi pumped its U.S. sales goal up to 130,000 cars, and attacked this goal from several angles. First the company made plans to increase its U.S. dealer network by 40 percent, up to 340 dealers. Mitsubishi also aired its first national television advertising campaign. The company also began to further exploit its relationship with Hyundai, importing the Precis, a carbon copy of Hyundai's popular Excel. Diamond-Star began to pay off with the production of the Eclipse, a sporty car sold by Chrysler as the Plymouth Laser. For 1989, Mitsubishi's worldwide production, including its overseas affiliates, reached 1.5 million units.
Hirokazu Nakamura became president of Mitsubishi in 1989 and steered the company in some promising directions. Sales of the company's sport utility vehicle (SUV), the Pajero, were bucking conventional wisdom by becoming popular even in the crowded streets of Japan. Although sales of SUVs and light trucks were booming in the United States, Japan's car manufacturers dismissed the idea that such a trend could occur in their own country. Nakamura, however, increased the budget for sport utility product development at Mitsubishi. His gamble paid off; Mitsubishi's wide line of four-wheel drive vehicles, ranging from the Pajero Mini to the large Delica Space Gear, rode a wave of SUV-buying in Japan in the early to mid-1990s. Narrowly following Toyota in SUV market share in Japan, Mitsubishi saw its overall domestic share rise to 11.6 percent in 1995.
U.S. and Southeast Asian Alliances in the 1990s
Nakamura also urged greater reliance on Mitsubishi's ties to southeast Asian companies and markets. Mitsubishi had entered the region in the 1970s by using the contacts of Mitsubishi Corporation, a trading company that was part of the informal Mitsubishi group of companies. By the mid-1990s, Mitsubishi Motors counted major alliances in Malaysia, South Korea, and Thailand. Proton, the joint venture between Mitsubishi and Malaysia, controlled 75 percent of the Malaysian market. Mitsubishi maintained a presence in South Korea with a 6.7 percent stake in Hyundai Motor Co. and supplied 50 percent of Taiwan's vans and trucks by sending kits to China Motor Corp. In addition, the company owned 48 percent of Thailand's MMC Sittipol, which produced Mitsubishi vehicles and exported parts to the Philippines, Malaysia, and Canada.
With almost 25 percent of the truck and car market in southeast Asia, the company soared along with the region's economy during the mid-1990s. In addition, by moving production to these countries, Mitsubishi lessened the negative effect of the rising yen. In 1995 the company moved its truck production from Japan to Thailand, which brought the percentage of its production in low-wage countries to 20 percent.
Mitsubishi's efforts in the United States continued during the early 1990s as well. In 1991 the company added a number of models to its line at a time when U.S. companies were delaying their new models and laying off workers due to sluggish sales. Among Mitsubishi's new products was the Diamante luxury sedan. The Diamante, with a price tag of $28,000, was the winner of that year's prestigious Japan's Car of the Year award. Part of Mitsubishi's strategy to increase its American market share was to target buyers who were already likely to purchase Japanese or European cars, and offer its vehicles at prices slightly lower than comparable cars in other companies' lines.
Mitsubishi gained another outlet for its cars in 1991 with the acquisition of Value Rent-A-Car. In addition, the company began producing two minivans that year, the Expo and the Expo LRV. Later in 1991, Mitsubishi bought out Chrysler's share of Diamond-Star for around $100 million, with Mitsubishi assuming all of Diamond-Star's debt. The two companies continued to split the operation's output. By this time, Chrysler's interest in Mitsubishi had fallen to about 11 percent. Of the 322,500 Mitsubishi-made vehicles sold in the United States in 1991, 187,500 were marketed under the company's own name. The year 1991 also brought the preliminary stages of a joint venture with Volvo Car Corporation and the government of the Netherlands to produce cars in that country. Mitsubishi and Volvo had equal shares in this venture.
Mitsubishi sold 176,900 vehicles in the United States in 1992, over 7 percent less than the company's 1990 peak. Although company profits declined somewhat for that year, Mitsubishi's performance was considerably better than that of its Japanese competitors, all of whom suffered dramatic drops in sales in the face of a weak global economy. Mitsubishi's results were aided by strong sales of its recreational models such as the Pajero, whose sales leaped by 52 percent in the first half of the fiscal year. With 10.7 percent of the domestic market in hand, Mitsubishi bucked another trend by spinning off a new model at a time when the other manufacturers were condensing their lines. Focusing on the lower end of the market, Mitsubishi unveiled a new two-door version of the Mirage, to be sold in Japan as the Mirage Asti. The Asti's price of about $8,500 was well below the company's previous bottom end, the $11,430 Mirage four-door sedan. For the fiscal year ending in March 1993, Mitsubishi's profits declined by 7.9 percent, a modest drop for one of the Japanese auto industry's worst years ever. Foreign exchange losses caused by a rapidly rising yen were blamed for much of the decline.
As all of the Japanese companies continued to lose market share in the United States in 1993, Mitsubishi attempted to gain a foothold in the family sedan market with the introduction of a newly redesigned Galant midsize sedan. The Galant was to be produced in the United States at the company's Normal, Illinois, plant, creating two advantages: assembling it in the United States avoided the inflated price tag the soaring yen would cause; and the Illinois plant, previously operating at only half of capacity, needed the work.
After decreasing its interest in Mitsubishi to less than 3 percent in 1992, Chrysler announced its decision in 1993 to sell off all of its remaining Mitsubishi shares on the open market. The two companies stated that they would nevertheless continue their close alliance, with Chrysler supplying engines and transmissions for Mitsubishi's Diamond-Star operation, and Mitsubishi marketing Chrysler products in Japan.
Challenges in the Late 1990s
Mitsubishi's image in North America was tarnished in the mid-1990s when two notable sexual harassment suits were brought against the company. The first suit, filed by 29 women in December 1994, accused Mitsubishi of fostering a climate of sexual harassment at its Normal, Illinois, plant. Then, in April 1996 the Equal Employment Opportunity Commission filed a class action suit on behalf of approximately 300 women who worked at the Normal plant. The company initially denied any problem at its plant but later hired former U.S. Labor Secretary Lynn Martin to recommend changes to its policies and practices. Mitsubishi settled the 1994 suit for $9.5 million in August 1997, and reached an agreement with the EEOC later that year as well.
The benefits Mitsubishi had seen because of its strong presence in southeast Asia reversed themselves in the late 1990s. The economic crisis in the region, which began in 1997, spelled big trouble for Mitsubishi. In September 1997 the company closed its Thai factory in response to a crash in the country's currency and the plummeting of consumer demand. The large truck plant, which had produced 8,700 trucks in 1996, was shut down indefinitely. In addition, Mitsubishi had little support from sales in Japan, which slowed considerably throughout 1997 and were affected by that country's own economic uncertainty into 1998. Other Japanese automakers, such as Toyota and Honda, bolstered their own slipping domestic sales with booming sales in the United States. However, with only a small percentage of the market in the United States, the impact of the turmoil in the Asian economies had a greater effect on Mitsubishi. The company reported the worst losses of its history in 1997 on plummeting sales. In addition, it lost both its rank as the third largest automaker in Japan and market share in its export markets, and its stock price fell precipitously, prompting the company to cancel its year-end dividend payment.
In November 1997, Mitsubishi tapped Katsuhiko Kawasoe to replace Takemune Kimura as company president. Kawasoe unveiled an aggressive restructuring program that aimed to cut costs by ¥350 billion in three years, reduce personnel by 1,400, and return the company to profitability in fiscal 1998. But while the program had some initial success--Mitsubishi's 1998 costs decreased ¥107 billion--the company's sales were still stagnant as the Japanese economy, like Asia's as a whole, continued to sputter. In 1999, Mitsubishi was forced once again to skip dividend payments. Its interest-bearing debt totaled ¥1.7 trillion.
New Obstacles and New Directions: 2000 and Beyond
In hopes of reversing its fortunes, Mitsubishi entered into a partnership with DaimlerChrysler in March 2000, creating the world's third largest vehicle maker, producing 6.5 million cars per year. The agreement gave DaimlerChrysler a 33.4 percent stake in Mitsubishi Motors, enough to give the German company effective control. In return, DaimlerChrysler pledged to maintain the Mitsubishi brand and preserve its workforce.
On the eve of the transaction, though, Mitsubishi faced a crisis. During a routine probe by the Japanese Transport Ministry, an official discovered in an employee's locker piles of customer complaints that should have been reported to the government. Mitsubishi asserted its innocence, but also launched a probe into the scope of the cover-up and recalled about 620,000 cars and trucks for several of the reasons identified in the concealed complaints. Additionally, it was later revealed that Mitsubishi had been hiding complaints and secretly repairing defective vehicles since 1977. Though none of these malfunctions resulted in any fatal accidents, a Tokyo court fined the company ¥4 million.
The debacle did not cause DaimlerChrysler to jettison its deal, but Mitsubishi's sales, particularly in Japan, slumped when the news became public. This loss of revenue was exacerbated by the tremendous cost of the recall, which totaled ¥5 billion--about 25 percent of the pretax profit that Mitsubishi had predicted for the year. With Mitsubishi's sales and stock price plunging, DaimlerChrysler renegotiated its deal, receiving more seats on Mitsubishi's board--including the position of chief operating officer--and paying less money for its stake.
The crisis also led to a shakeup of Mitsubishi's management. Takashi Sonobe replaced Kawasoe as company president. More dramatically, DaimlerChrysler veteran Rolf Eckrodt was named the new COO. Eckrodt had headed up the German company's Adtranz train unit, where he had presided over 3,000 job cuts and the closure of six production sites. Sonobe and Eckrodt soon applied these methods to Mitsubishi, calling for a 14 percent reduction in personnel (9,500 jobs worldwide), a 20 percent cut in auto production capacity, and a 15 percent cut in materials costs. Mitsubishi also spun off its automatic transmission unit and reacquired the 3.3 percent stake in the company that Volvo had held since 2000. Nonetheless, Mitsubishi continued to be plagued by recall issues. In February 2001, it recalled additional vehicles due to a damaged ball joint. By that time, the chaos at Mitsubishi, along with DaimlerChrysler's aggressive globalizing, had even begun eroding DaimlerChrysler's profits.
In 2002, Eckrodt took the helm of Mitsubishi and presided over additional changes. Most notable was the decision to spin off Mitsubishi's truck and bus division to create a new company in 2003. DaimlerChrysler acquired a 43 percent stake in this new entity, Mitsubishi Fuso Truck and Bus Corp. By further cementing its alliance with DaimlerChrysler--now in both passenger cars and commercial vehicles--Mitsubishi was banking on reducing material costs, leveraging common platforms, and minimizing its debt. Nevertheless, Mitsubishi continued to struggle. In July 2003, it revised its sales forecast downward for the first half of the fiscal year. Rather than seeing its anticipated ¥15 billion profit, Mitsubishi instead faced another loss. Sales in North America were sluggish and the company continued to struggle with costs and debt. In the viciously competitive global automotive industry, Mitsubishi faced the prospect of a turbulent future.
Principal Subsidiaries: Mitsubishi Motor Manufacturing of America, Inc.; Mitsubishi Motors Sales of America, Inc.; Mitsubishi Motors Credit of America, Inc.; Netherlands Car B.V.; Mitsubishi Motors Europe B.V.; Mitsubishi Motor Sales of Europe B.V.; Mitsubishi Motors Philippines Corporation; Mitsubishi Motors Australia Ltd.; Mitsubishi Automotive Techno-Metal Co., Ltd.; PABCO Co., Ltd.; Mitsubishi Automotive Techno-Service Co., Ltd.; Mitsubishi Automotive Engineering Co., Ltd.; Mitsubishi Automotive Logistics Co., Ltd.; Mitsubishi Auto Credit-Lease Corporation; Mitsubishi Fuso Bus and Truck Corp. (42%).
Principal Competitors:Honda Motor Company Limited; Nissan Motor Co., Ltd.; Toyota Motor Corporation; Ford Motor Company; General Motors Corporation; DaimlerChrysler AG.
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Source: International Directory of Company Histories, Vol. 57. St. James Press, 2004.