Mitsubishi Motors Announces New $2.6 Billion Cash Injection

TOKYO January 28, 2005; Yuri Kageyama writing for the AP reported that Japanese automaker Mitsubishi Motors Corp. said Friday that companies in its Mitsubishi conglomerate will invest 270 billion yen ($2.62 billion) in additional capital to aid its turnaround.

With the additional investment, machinery maker Mitsubishi Heavy Industries will take manegerial control, the Tokyo-based automaker said. Other funds will come from a Mitsubishi bank and trading company.

Mitsubishi Motors Corp., which has been swamped with recall scandals and sagging sales and it has still not been able to get back on its feet after receiving nearly 500 billion yen ($5 billion) from the Mitsubishi group and other companies last year.

That bailout came after German partner DaimlerChrysler AG decided to stop financing Mitsubishi Motors.

Under the new plan, Mitsubishi Heavy raises its stake in the automaker, taking greater managerial control.

Mitsubishi Motors Chairman Yoichiro Okazaki, President Hideyasu Tagaya and Vice Chairman Koji Furukawa also resigned Friday to take responsibility for the failure of last year's revival plan.

Mitsubishi Heavy will replace Okazaki with its current chairman, Takashi Nishioka, the company said.

On Friday, Goldman Sachs cut its rating on Mitsubishi Heavy to "underperform," citing concerns about the impact of its new role in Mitsubishi Motors.

Mitsubishi Motors has struggled to fix its image and woo back buyers in one of the world's most competitive car markets since it acknowledged four years ago it was systematically hiding auto defects to avoid recalls for more than 20 years. The scandal resurfaced last year, although the company had promised to come clean in 2000.

Sales of Mitsubishi cars in Japan have nose-dived in recent months, falling by nearly 50 percent on an annual basis.

Some analysts are pessimistic about Mitsubishi Motors' chances for a strong comeback. Officials at the automaker called last year's reform plan their "last chance."

Koji Endo, auto analyst at Credit Suisse First Boston in Tokyo, said a more realistic solution for Mitsubishi Motors, also known as MMC, is to reduce and sell off businesses because it has little credibility left in the market.

"We do not believe that the plan has the potential to significantly increase MMC's short-term earnings even if all the measures are included," he said.

The scandals at Mitsubishi Motors began in the mid-1990s, including a sexual harassment lawsuit at its sole U.S. plant in Normal, Ill., and arrests of executives on criminal charges in Japan of paying off racketeers tied with gangsters.

Trials are ongoing of former executives charged in two fatal accidents suspected of being caused by hidden defects in truck wheels and clutch systems.

Mitsubishi Motors appeared to be making a comeback two years ago, posting solid profits under an alliance with DaimlerChrysler. But it has slid back into losses in the fiscal year ended March 2004 and is expecting hefty losses this fiscal year as well.