Key points in the new plan outlined in a 2200-word statement from Mitsubishi Motors Corporation today include:
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– Putting customers first and recovering their trust after a series of recall cover-up scandals, mostly in Japan. The new plan “puts customers first in all areas”, from marketing to after-sales services.
– New measures to improve product quality.
– A new business strategy including sales plans that reflect “downside risks” (an obvious reference to the US market where numerous customers defaulted on loans made to ‘subprime’ buyers to boost car sales volume).
– Promotion of operational tie-ups with other auto makers such as the recently announced deals with Nissan and Peugeot.
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By GlobalDataRationalisation of production capacity and sales network size in the key (US, Australian and Japanese markets.
– Strengthening of financial standing and a capital boost (most measures have already been announced).
– Boosting the effectiveness of a new management team
– Thorough analysis and follow-up of all aspects of the plan.
MMC said that, since publishing its initial revitalisation plan last May, it has concentrated on implementing the measures set out in the plan to regain customer and public trust and improve profitability.
It specifically concentrated on extensive investigations into past recall problems and used the findings to complete filing of ‘post-market measures’ with Japan’s ministry of land, infrastructure and transport on September 28 last year, “as well as to make substantial progress in its efforts to reform corporate culture”.
Despite these achievements, Mitsubishi said, “the company’s inability to respond adequately to past recall problems has delayed the hoped-for restoration of consumer and public trust and has seriously impacted sales.
“This in turn, has highlighted the problem of over-capacity that has lurked beneath the surface over recent years. In addition, concerns have deepened about delays in the recovery of operations and about the financial health of the company. As a result of being forced to use funds earmarked for the revitalisation programme in the repayment of interest-bearing debt, the company now finds itself short of funds.”
“To break out of this situation and successfully revitalise itself, the company, while continuing its efforts to regain customer and public trust, finds itself in a situation that requires additional measures to improve profitability.”
One key measure was ‘corporate culture reform initiatives’. Mitsubishi has already formed a CSR Promotion Office to implementation of a wide range of measures designed to enhance compliance and a Business Ethics Committee, made up of specialists and leaders in their fields from outside the company.
“An internal seminar programme has enabled each employee to acquire a deeper understanding of business ethics principles [and] employees have now submitted written pledges to fully observe and practice compliance,” MMC said.
The automaker will also implement measures intended to reform its internal corporate culture such – such as “personnel evaluation reflecting a ‘customer first’ practice”.
The current investigation by a panel of external lawyers into past recall problems will be completed by the end of the fiscal year. The company will then decide on disciplinary action and measures to prevent any recurrence.
New products
Mitsubishi Motors plans to continue its involvement in motor sport events such as the Dakar rally and the World Rally Championship, saying that the technology and know-how enables it to improve its production cars.
However, under the new plan, MMC will reduce the number of low-volume models produced for individual markets and concentrate on “highly competitive global market” models to raise development and production efficiencies.
The new plan will see a major increase in the number of new model launches compared with the last four years. “The company will expand earning opportunities by aggressively introducing new models in all regions,” MMC said.
Strategic alliances
MMC will also “actively pursue” strategic tie-up opportunities with other automakers, such as the recently announced expansion to the supply of minicars on an OEM basis to Nissan Motor (36,000 units annually). The company is also in final negotiations with Peugeot-Citroen Group regarding the OEM supply of passenger cars and expects to sign a contract in early February.
The company is also looking at other tie-ups which involve an expanded range of models supplied on an OEM basis, component supply partnering, joint distribution arrangements and joint procurement.
Regional strategy
MMC will work with its sales companies to regain the trust of customers with additional measures that follow on from the free inspection campaign covering 3.4 million owners. The company will also restructure its sales network and will drive to maximise after-sales services.
North America remains a vital core market for the automaker and MMC plans to rebuild its brand there with the introduction of a new management structure, new models and by reducing its dependence on fleet sales. It is also introducing asset impairment accounting principles to deal with excess plant capacity and is raising capacity utilisation by expanding exports of US-built cars.
The company is also eyeing the captive financing unit that sparked the problems in the company’s North American operations. It is currently reducing its exposure to loan default risks by selling off a portion of its financing asset holding to Merrill Lynch and also plans to establish a new joint venture company with Merrill Lynch for the purpose of creating competitive and attractive consumer financing programmes.
In Europe, MMC will boost sales with a stronger model line and will also strengthen its management and sales structures.
Seeing China as a core market, MMC is already “aggressively exploiting” the Mitsubishi brand there and expanding its operating base in China. In addition to expanding the range of Mitsubishi brand models available by boosting capital tie-ups with local companies, the company is also pushing ahead with efforts to establish and expand its sales network. It is looking at using its engine joint ventures in the country to make China a major engine production hub in Asia, and is going to establish R&D facilities in the country to reflect local market needs.
MMC also plans to strengthen operations in ASEAN markets. These include strengthening sales in Thailand, establishing sales structures in Malaysia and reorganiSing its operations in Indonesia. The company is also strengthening its production base by boosting capacity in Thailand, which serves as an export hub to global markets, primarily with the L200 pickup truck line.
In Australia, the company is closing its engine plant and “downsizing” its assembly plant. It is also introducing asset impairment accounting principles in order to address surplus plant capacity.
MMC said its “headcount trimming” programme is on target as the result of organisational changes, increased efficiencies, rationalization of work processes and natural attrition and is working on further efficiency improvements.
Material costs
Considering falling sales volumes and sharp rises in raw material costs, the new MMC plan aims to reduce material costs by 90 billion yen on a cumulative basis by fiscal 2006 over fiscal 2003 levels. This target has been revised downward but maintains the 15% reduction called for in the May business revitalisation plan.
Capital increase
With the full-support of three Mitsubishi group companies, during the current fiscal year the company will make a capital enhancement of 270 billion yen through the issue of new common and preferred shares [Mitsubishi Heavy Industries, 50 billion yen; Mitsubishi Corporation, 70 billion yen; The Bank of Tokyo-Mitsubishi, 150 billion yen (of which 50 billion yen in a debt-for-equity swap)].
The capital increase will bring the combined holding of the three Mitsubishi group companies in the company to 34%. Because this will also bring MHI’s holding up to 15%, the company expects to become an equity method affiliate of MHI in fiscal 2005.
Borrowing
MMC plans to raise a total of 270 billion yen in funding, mostly through new borrowing. New loans are expected to account for 240 billion yen of this total. The remaining 30 billion yen will be raised either from the purchase of MMC business assets or through a further capital increase by Mitsubishi Corporation.
MMC plans return to profit in 2006
