Katsuhiko kawasoe did not look like a man who is under the gun. Mitsubishi Motors Corp.'s president strode into the first floor showroom of his corporate headquarters for photographers, greeted his visitors and looked relaxed as he posed next to a car. Yet, Kawasoe's future was hanging in the balance. At the time, he was wrapping up the details of Heart-Beat 21, his latest effort to return Mitsubishi to profitability. His previous plan, called Renewal Mitsubishi 2001, had failed to insulate the company from a downturn in the Japanese market. In part, that plan had not worked because of Mitsubishi's lack of urgency.
This time, however, Kawasoe had a prosperous ally, DaimlerChrysler AG. In April, Kawasoe signed an historic alliance giving DaimlerChrysler a controlling 34 percent of Mitsubishi's shares for $2 billion. In the wake of that deal, Kawasoe remains confident that he can meet his deadline for recovery. 'It's very much on the way,' he said.
It had better be. Mitsubishi's independence and Kawasoe's job are riding on the success of that restructuring effort. 'The question is how much time is left for Kawasoe,' said Takaki Nakanishi, auto analyst for Merrill Lynch Japan Ltd. 'DaimlerChrysler is not going to be generous.' DaimlerChrysler Chairman Juergen Schrempp has vowed to honor Mitsubishi's independence, but his domineering personality looms over the alliance. If Kawasoe's turnaround falls short, 'Neutron Juergen' could use that as an excuse to grab control.
Kawasoe does not intend to give Schrempp that opening. Through a combination of the original restructuring plan and the new Heart-Beat 21 growth plan - plus a lot of luck - Kawasoe should be able to retain control. To be sure, Mitsubishi's recovery is not assured. The company still has too much debt. In Japan, it has too much production capacity, too many employees and too many unprofitable dealerships. Moreover, the new recovery plan implicitly admits that Mitsubishi's European operations will lose money until 2004.
Still, Kawasoe has shown that he can maneuver in tight spots and deal adroitly with gaijin, or foreigners. In weeks to come, he will need those skills to use Mitsubishi's strengths - small cars and a strong presence in the growth markets of Southeast Asia - to get what he needs from his two foreign partners, DaimlerChrysler and truckmaker AB Volvo. He also must convince Mitsubishi's union to accept production cuts. Can he do it?
'To be honest, I think he's the best they've got,' said Howard K. Smith, auto analyst for ING Baring Securities (Japan) Ltd. in Tokyo. He called Kawasoe 'noticeably better' than past Mitsubishi presidents.
A forthright speaker who tackles problems head on, Kawasoe became president in late 1997 after a scandal over payments to racketeers forced his predecessor to step aside. He took the reins just as Mitsubishi's slide turned critical.
In his first New Year's message to the troops, Kawasoe warned that 1998 was going to be a 'make or break' year. Employees were not used to such blunt talk from management. When his message was reported in Automotive News, workers at the company's factory in Normal, Illinois, phoned headquarters in Tokyo to ask if the reporter had misinterpreted Kawasoe's Japanese. As it turned out, the quote came from the company's own official translation of Kawasoe's message. He also quickly settled a sexual-discrimination lawsuit against the Illinois plant, ending a festering public-relations disaster.
Kawasoe moved quickly to improve ties with investors. In previous years, the carmaker had resisted calls to give investors a full financial accounting. For example, Mitsubishi had withheld a complete list of its consolidated subsidiaries. So Kawasoe installed a new head of investor relations and began meeting regularly with journalists. At a conference with analysts after the release of Mitsubishi's poor financial results for 1998, he answered all questions and disclosed financial details that the company had considered top secret. The analysts gave him an ovation.
Although he is not arrogant, Kawasoe is self-assured with foreigners. That is a trait not often seen among Japanese executives. At a press conference in Frankfurt announcing the alliance with DaimlerChrysler, Kawasoe downplayed the cultural differences between the two concerns, saying, 'The only difference is, we are tall or short guys.' Few Japanese are sufficiently at ease to joke in English - especially about their height.
During his negotiations with Schremmp, Kawasoe said, he realized he could make a deal with Schrempp when DaimlerChrysler agreed to use a Mitsubishi car as the platform for a four-seat Smart car. DaimlerChrysler needs that vehicle to meet European fuel-economy targets. That was an issue in which DaimlerChrysler was the supplicant - not Mitsubishi. The implication: Kawasoe was willing to sign a deal only if he had some leverage over the outcome. However, Kawasoe seemed to have limited leverage with Mitsubishi Heavy Industries Ltd., the carmaker's hidebound former majority shareholder.
A former chairman of Mitsubishi Heavy Industries once said the pursuit of profits was not a suitable goal. Instead, he argued, manufacturers should seek to raise employment, output and market share.
Confronted with such entrenched attitudes, Kawasoe decided to avoid open warfare. When he announced his recovery plan in November 1998, he outlined only his future profit targets. Six months later, he finally explained how he meant to meet those goals. In pre-Carlos Ghosn Japan, the plan was considered 'very aggressive,' said Koji Endo, auto analyst for Credit Suisse First Boston Securities (Japan) Ltd. in Tokyo. 'Compared to previous Nissan plans, it was very ambitious.' Kawasoe had proposed to cut dealers, reduce debt, trim the model lineup and close plants. Those were tactics that Ghosn later endorsed at Nissan, 'but Mitsubishi was way ahead,' Endo said.
Unfortunately, the plan suffered from a split personality. It called for immediate reforms in overseas operations. Mitsubishi quickly cut staffs in North America and Thailand, which returned to profitability within a year. In Japan, however, the pace was more leisurely. Deadlines were set for two, three and sometimes four years in the future. With such forgiving deadlines, Kawasoe could not dodge two threats: a strong yen and a collapsing market for trucks. The yen rapidly rose 30 percent against the dollar, meaning that Mitsubishi would make lower profits on each vehicle sold abroad.
TRUCK SALES PLUNGE
To make matters worse, truck exports plummeted during the Asian financial crisis, while Japan's lingering recession hurt domestic truck sales. Meanwhile, a wave of bankruptcies in Japan's small-business sector slashed sales of light commercial vehicles by 19 percent in 1998, plus an additional 3 percent in 1999. Those were Japan's worst years for truck sales in two decades, according to Standard & Poor's Global Automotive Group. Meanwhile, sales of heavy duty trucks reached 34-year lows. In the first six months of fiscal 1999, Mitsubishi's sales of trucks weighing more than 1.5 tons collapsed 25 percent.
'Had it not been for the yen-dollar rate, and the extreme weakness in the truck market in Japan, we'd have been giving him quite high marks,' said ING Baring's Smith. 'He took more costs out of the system than the plan called for.'
Eventually, Mitsubishi decided to spin off its truck and bus business into a new venture to be 20 percent owned by Swedish truckmaker AB Volvo. As part of the deal, Volvo also bought a 5 percent stake in the parent Mitsubishi Motors, giving Kawasoe more cash to fund his turnaround plan. The deals with Volvo and DaimlerChrysler were driven by Mitsubishi's urgent need for help. Indeed, when an executive who has worked for a major Japanese automaker as well as DaimlerChrysler was asked what he thought Mitsubishi got from the pact with DaimlerChrysler, the first benefit he listed was 'survival.' Mitsubishi desperately needed cash. As of Sept. 30, the company was struggling under debts of $16.4 billion. By some measures, Mitsubishi is in worse shape than Nissan. Last year, Mitsubishi's debt-to-equity ratio stood at 250 percent, well exceeding Nissan's 143 percent.
The origins of the company's woes lie in its earlier success - and overconfidence. Mitsubishi had been the best-performing carmaker in Japan in the first half of the 1990s, thanks to the popularity of its truck-based minivans and sport-utilities. But Mitsubishi confused luck with good management. While it was patting itself on the back, rivals led by Honda Motor Co. unveiled car-based minivans and sport-utilities, stealing away Mitsubishi's sales.
Overseas, the Asian crisis hurt Mitsubishi badly, as did an ill-planned sales expansion in the United States. Net income slid from 29.5 billion yen, or about $281 million, in 1992 to a loss of $970 million in 1998.
Now, Mitsubishi is trying to recover in a still-slack Japanese economy. Ghosn's hard-nosed revival plan for Nissan raises expectations for Mitsubishi, said HSBC Securities Japan Ltd.'s auto analyst Christopher Richter. 'We are probably past some of the leisurely pace and low pain of restructuring,' he said. Kawasoe completed details of Heart-Beat 21 before three DaimlerChrysler executives joined Mitsubishi's board. That makes it Mitsubishi's last pre-merger recovery plan. Kawasoe is determined to push it to the limit so that he can continue to stride into Mitsubishi's headquarters - and keep the carmaker's true headquarters in Tokyo.
You can e-mail Staff Reporter James B. Treece at [email protected]