Mitsubishi Motors to Supply Peugeot With Sport Utility Vehicles

TOKYO February 4, 2005; Yuri Kageyama writing for the AP reported that Mitsubishi Motors Corp. announced an agreement on Friday to supply 30,000 sport utility vehicles a year to PSA Peugeot Citroen, in a small victory for the cash-bleeding, scandal-tarnished Japanese automaker.

Mitsubishi Motors had promised a deal with Peugeot in recent weeks as it scrambled to fight nose-diving sales and mounting expenses after DaimlerChrysler AG decided last year to halt all additional financing.

The terms of the deal with Peugeot were not disclosed. It calls for Mitsubishi Motors to supply the SUVs, which will go on sale in Europe starting in 2007, with Peugeot's diesel engines, a Mitsubishi Motors official said. A preliminary agreement has been signed and a final deal is expected within several months, she said.

Last month, Mitsubishi Motors said it is receiving a fresh cash infusion of 270 billion yen (US$2.6 billion; euro2 billion) from its affiliated companies, as well as additional borrowing of more than 200 billion yen (US$1.9 billion; euro1.5 billion) -- barely eight months after an earlier massive bailout of nearly 500 billion yen (US$4.8 billion; euro3.7 billion) from group companies and other investors.

The automaker's three top executives have resigned to take responsibility for last year's failed revival effort, although they were in office barely a year.

The Mitsubishi group, which includes a machinery maker, a major bank and a trading company, raised its stake in Mitsubishi Motors to a combined 34 percent from about 15 percent with the latest cash infusion.

But Mitsubishi Motors is forecasting a massive loss of 472 billion yen (US$4.5 billion; euro3.5 billion) -- almost twice as much as it estimated last November -- for the fiscal year ending March 31. It expects to remain in the red in the following fiscal year and doesn't expect to return to profitability until the year ending in March 2007.

On Friday, international ratings agency Fitch lowered its outlook for Mitsubishi Heavy Industries Ltd., the main Mitsubishi group company, to negative from stable, citing worries about its commitment of money and management resources to help the automaker.

Fitch Ratings noted that Mitsubishi Heavy Chairman Takashi Nishioka will be doubling as Mitsubishi Motors chairman at a time when Mitsubishi Heavy is facing its own challenges. The closer ties with Mitsubishi Motors "reflect a higher level of risk tolerance than previously envisaged," it said in a statement.

Four years ago, Mitsubishi Motors acknowledged it had been systematically hiding auto defects for more than 20 years. Cover-ups resurfaced last year, although it had promised to come clean in 2000.

In the last decade, the automaker also faced a sexual harassment lawsuit at its U.S. plant in Normal, Illinois, and the arrests of executives in Japan on charges of paying off racketeers with ties to gangsters.

Sales of Mitsubishi vehicles in Japan have plunged in recent years, dropping 41.5 percent in 2004 from the previous year. Sales have also been hurt in North America, where the automaker suffered deep losses for extending excessive credit.

In addition to the deal with Peugeot, Mitsubishi Motors has also said it will produce tiny cars for Nissan to be sold under the Nissan brand.