Katsuhiko Kawasoe is ready to go for growth. After 18 months of restructuring Mitsubishi Motors Corp., the carmaker's president has unveiled an updated strategy, Heart-Beat 21, to restore profitability. Details are sketchy pending negotiations with partner DaimlerChrysler AG. However, the plan indicates where Kawasoe wants to take Mitsubishi.
In the short term, he will take the company further into the red. In the fiscal year that began April 1, Mitsubishi will take a one-time charge of $1.3 billion to cover underfunded pension liabilities. It does not get better any time soon. Plans to restore the dividend have been delayed to 2002, and respectable profits will not come until 2004.
Surprisingly, analysts like the plan. The losses imply that restructuring will continue, so they don't mind that Kawasoe failed to offer explicit deadlines. Analysts believe that plans to cut 1,000 salaried workers over the next four years will be followed by job cuts among production workers. Perhaps Mitsubishi could do this by combining five assembly lines at its Mizushima plant into three.
Several analysts agreed that Kawasoe must negotiate platform-sharing, combined purchasing plans and other details with DaimlerChrysler, before it knows how deep to cut. 'Labor is a big issue. Capacity is a big issue. But to discuss these things, they need a specific agreement with DaimlerChrysler,' said Takaki Nakanishi of Merrill Lynch Japan Ltd.
Officially, the plan includes a proposal to make greater use of DaimlerChrysler's financing operations in North America to sell Mitsubishis there. Unofficially, Mitsubishi executives hint at building a Mitsubishi-badge sport-utility in a USA Chrysler plant. DaimlerChrysler, eager to see Mitsubishi succeed, just might offer such assistance.
THE Z CAR
The centerpiece of Kawasoe's growth strategy is a new small car, code-named Z. It will go on the market in Japan in 2004, with European production to start the same year. Some European models would be badged as Mitsubishis and some as DaimlerChryslers. Add Asian sales, and Kawasoe predicts sales volumes of 400,000 to 600,000 cars. That is fine in theory, but competitors have targeted the same market with new products. 'It's not easy out there,' warned Howard Smith, auto analyst at ING Baring Securities Japan Ltd.
Heart-Beat 21 optimistically predicts record North American sales of 400,000 units by 2005. Moreover, it calls for Mitsubishi's share of Japan's minicar market to climb to 20 percent, up from 15 percent. And it assumes stronger sales will help Mitsubishi to revive debt-laden Japanese dealerships without closing many stores. Analysts worry about those rosy assumptions. 'Taken in isolation, the aims are all laudable and well thought out,' said ING Baring's Smith. 'But is it going to be too late?'
Kawasoe must focus on the car business, given the lack of winners in Mitsubishi's bloated product lineup. Kawasoe hopes higher sales will ease the problem. Do not bet on it. He will have more luck with plans to separate the mini-car business into a separate unit. Managers would get stock options based on performance. That should bring greater accountability. Kawasoe also must cut excess production capacity and jobs. Mitsubishi already has closed lines at its truck plants. Car plants are next. The carmaker has more than 79,000 employees worldwide, compared with 131,000 at Nissan. That ratio roughly matches the relative sales of the two carmakers, but Nissan plans to cut 21,000 jobs over four years, while Mitsubishi has announced the future elimination of only 1,000 jobs.
Some of those workers will end in dealerships. That is no help because waste and high debts in the sales network drag down the entire company. Eventually, Mitsubishi will have to slash its Japan sales operations, just as Nissan, Honda, Mazda and others are doing. Of course, that means DaimlerChrysler or Volvo could pick up some outlets in Japan if they wish.