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S&P Lowers Mitsubishi Motors Rating to 'BBpi'

19 June 1998

S&P Lowers Mitsubishi Motors Rating to 'BBpi'

    TOKYO, June 19 -- Standard & Poor's today lowered its rating
based on public information, or 'pi' rating, of Mitsubishi Motors Corp. to
double-'Bpi' from triple-'Bpi'. The downgrade reflects the difficult prospects
the company faces in its core domestic and Southeast Asian automobile markets,
its eroding competitive position in the domestic market, and expectations that
the company's financial profile will remain weak.
    Mitsubishi Motors' market share has declined over the past few years. The
company's business profile is likely to continue deteriorating in the next few
years, as automobile sales are expected to remain soft industrywide, sparking
greater competition among automakers. Mitsubishi Motors is not well positioned
to cope with a more challenging business environment, given both its limited
planned product introductions and its substantial exposure to the commercial
vehicle segment, which faces a sharper fall in demand than the passenger car
segment.
    The company's sales network and cost position are not as competitive as
those of leading domestic players. In addition, limited financial resources
constrain Mitsubishi Motors' operating flexibility, such as the option of
using marketing incentives. Moreover, the company's relatively high exposure
to Southeast Asian markets poses a concern, as demand in the region is
unlikely to recover within the next few years. Although Mitsubishi Motors has
begun to implement a new three-year plan to improve its product development
capability, cost position, and operating efficiency, the company may be hard-
pressed to restore profitability in the near term.
    Mitsubishi Motors incurred a net loss of Y101.8 billion (about US$727
million) for the year ended March 1998, compared with a net profit of Y11.6
billion in the previous year. Financial performance is expected to remain
weak, at least for the near term. Despite the company's cost-reduction
efforts, earnings and cash flow will be adversely affected by the business
environment and resulting low production levels. The company plans to cut
total debt by Y300 billion over the three-year period to March 2001, by
halving capital expenditures, reducing inventories, and selling off fixed
assets. However, such measures will yield only a slight improvement to the
capital structure. Even if the measures are carried out successfully, total
debt to capital is expected to stay high at around 80%. Still, financial
flexibility is adequate, given Mitsubishi Motors' close relationship with the
Bank of Tokyo-Mitsubishi Ltd. (A/Stable/A-1), Standard & Poor's said.
-- CreditWire