TOKYO - Fears of a drastic restructuring led by Jurgen Schrempp may be enough to spoil an alliance between DaimlerChrysler and Mitsubishi Motors.
Parent company Mitsubishi Group is worried about a 'Carlos Ghosn-style' reorganization if DCX takes control of the Japanese carmaker.
Sources say that DCX and Mitsubishi Motors are in talks that could lead to a partnership. But the negotiations are still in the early stages.
The two companies could be a good match. DaimlerChrysler would get:
A large stake in the Japanese and other Asian markets.
A maker of cars with engines as small as 660cc.
Half ownership of NedCar's small-car plant.
Mitsubishi would get:
A parent with vast resources to help pay its debts.
Strong management unafraid to make the tough decisions its current parents have been reluctant to approve. But the key to whether DaimlerChrysler buys a stake in Mitsubishi Motors may lie not with either carmaker, however, but with Mitsubishi Heavy Industries Ltd. (MHI) and the rest of the Mitsubishi Group.
MHI owns 23.8 percent of Mitsubishi Motors, making it the carmaker's largest shareholder by far. Altogether, the 28 companies in the Mitsubishi Group own 48.3 percent of Mitsubishi Motors, enough to make or break a deal.
DCX Chairman Schrempp is unlikely to accept anything less than a controlling stake of 33.4 percent in Mitsubishi Motors. It remains to be seen whether MHI and the rest of the Mitsubishi Group would accept ceding control.
As suppliers to Mitsubishi Motors of everything from chemicals to electronics, the group would not be happy to see DaimlerChrysler apply some of the same tough measures that former Renault executive Carlos Ghosn has prescribed for Nissan, such as price cuts to suppliers and a halving of Nissan's supply base.
Those fears are 'not relevant,' countered Noriyuki Matsushima, director of equity research at Nikko Salomon Smith Barney Ltd. 'Mitsubishi Motors is going to have to pursue cost reduction regardless' of whether DaimlerChrysler buys a stake, he argued.
Mitsubishi Motors President Katsuhiko Kawasoe flew to Malaysia late last week in a not-so-subtle reminder to Schrempp, the DaimlerChrysler chairman, as to why DCX should buy a stake in Mitsubishi.
In Kuala Lumpur, Kawasoe joined officials of Perusahaan Otomobil Nasional Bhd. (Proton) to announce plans to develop two new models. Mitsubishi owns 8 percent of Proton, Malaysia's dominant carmaker. That stake is symbolic of Mitsubishi's strong position in the growing markets of Asia - perhaps the key reason why Mitsubishi is attractive to DaimlerChrysler.
Besides a 10 percent share of its home Japanese market in 1999, Mitsubishi held a 9 percent share of the four largest Southeast Asian markets of Malaysia, Thailand, Indonesia and the Philippines. In addition, Proton held a commanding 23 percent share in those four nations, larger even than Toyota Motor Corp.'s 20 percent, based primarily on derivatives of Mitsubishi models.
DCX wants to raise its revenues from Asia, expected to be one of the world's fastest-growing car markets, to 25 percent from about 3 percent last year.
Another part of Mitsubishi's appeal is its lineup of small cars and minivehicles, which are cars and trucks with engines smaller than 660cc, plus its NedCar plant in the Netherlands which it jointly owns with Ford's Volvo Car Corp.
That would close the small-car gap in DaimlerChrysler's lineup. DaimlerChrysler recently killed its Java small-car project (see story, Page 30), but has not yet come up with an alternative small-car strategy.
For its part, Mitsubishi needs cash. It is struggling under debts of 1.75 trillion yen, or about $16.4 billion at current exchange rates, as of September 30.
By some measure, Mitsubishi is in worse shape than Nissan. At the end of March 1999, the most recent period for which group results are available, Mitsubishi's debt-to-equity ratio stood at 250 percent, well above Nissan's 143 percent.