Scandal-Tainted Japanese Automaker Mitsubishi Demands Damages From Former Executives

Snides Remarks; Are the Japanese once again showing the world the way it will be? Finally an element in a Risk Reward senerio that has been missing up till now. Let me know what you think, msnide@theautochannel.com.

TOKYO March 30, 2005; Yuri Kageyama writing for the AP reported that Japanese automaker Mitsubishi Motors Corp. said Wednesday it is demanding damages of up to 1.3 billion yen (US$12 million; euro9 million) from seven former executives for their responsibility in a recurring scandal over hidden auto defects.

The penalty for the former management, including several former presidents, was disclosed in a report on an investigation by Mitsubishi Motors that was submitted to the government Wednesday. The investigation included outside lawyers.

Mitsubishi Motors has seen its sales plunge after acknowledging in 2000 that it had systematically concealed auto defects for decades. Last year, Mitsubishi Motors disclosed that it failed to come clean five years ago and had more hidden defects.

Among the defects are those suspected in two fatal 2002 accidents -- a clutch system that could cause brake failures and a faulty hub that could cause a truck wheel to fall off.

Osamu Masuko, appointed president this year after a string of predecessors resigned in disgrace, said the payment from the former management will be decided through negotiations and will not develop into a lawsuit.

The maximum amount equals their retirement pay, he said. The charges include failing to carry out recalls, managerial responsibility in the cover-up and improper handling of the cover-up after it surfaced.

The company will also demand that 10 other senior managers in quality control, sales and research at the Tokyo-based automaker return at least part of their retirement pay, totaling 350 million yen (US$3 million; euro2 million).

Masuko said it had been a hard decision to penalize the former management. Among the seven are Katsuhiko Kawasoe, who resigned as president in 2000 when the scandal surfaced, and Takashi Usami, former chairman of the Mitsubishi truck division.

Kawasoe and Usami are on trial on charges of professional negligence in one of the fatal accidents. They have pleaded innocent.

Masuko said the report was meant to show that Mitsubishi Motors had broken with its past.

"The mind-set of the company has changed," he told reporters at the ministry. "I will do my utmost to make sure there is no third time."

The company handed out copies of a 30-page report that outlined the cover-up.

For decades, Mitsubishi Motors kept a two-tier record of driver complaints which continued after the database was computerized in the 1990s, the report said.

The company also quietly fixed problems without announcing recalls. Responsibilities were not defined, and many decision-makers long forgot about drivers' safety, according to the report. And after the concealed defects became massive over the years, everyone became afraid to speak up, it said.

Money-losing Mitsubishi Motors had been trying to turn itself around under an alliance with DaimlerChrysler AG of Germany when the scandal hit five years ago.

Last year, DaimlerChrysler abandoned monetary support for Mitsubishi Motors, and the automaker received a bailout from the Mitsubishi group companies, a Japanese conglomerate that includes a bank, trading company and machinery maker.

On Tuesday, Mitsubishi Motors' former truck unit, which is now 85 percent owned by DaimlerChrysler, acknowledged it had delayed in reporting defects -- even under new management sent in by DaimlerChrysler two years ago.

Masuko noted Mitsubishi Motors is the only loser among booming Japanese automakers, such as Toyota Motor Corp. and Honda Motor Co.

"The fault lies with us," he said. "And we don't have time."

Lee Peart, auto analyst with Global Insight consulting group, believes Mitsubishi Motors' recovery will be slow as sales continue to falter in Japan and North America because of its tainted brand image.

"Further aid plans will be required this year, along with more drastic restructuring measures, if Mitsubishi's recovery fails to take hold," he said in a report released Tuesday.

Mitsubishi Motors is expecting losses of 472 billion yen (US$4.4 billion; euro3.4 billion) for the fiscal year ending March 31.