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Mitsubishi Takes a Spill on China's Rough Roads

As if Mitsubishi needs any more trouble. The beleaguered Japanese auto maker is under attack in China for dragging its feet in dealing with allegations of a dangerous brake defect in two of its sport-utility models. Even though the country has a reputation for a shaky legal system, consumers have wielded China's Consumer Law with a vengeance against Mitsubishi. Daily press exposes excoriate the company for its callousness and continue to dig up new customer complaints.

The first claims of brake failure in Mitsubishi's Pajero V31 and V33 SUVs came to light last September from drivers on the rugged roads in China's vast western regions. The problem seemed exclusive to imported models. Mitsubishi investigated the complaints and offered to repair the problem, but did not issue a nationwide recall of the 72,000 imported Pajeros on the nation's roads.

STORM OF CRITICISM. After a late-December accident in which a woman driving a Pajero went into a coma, the drumbeat began. The Chinese press jumped on the story, accusing the carmaker of failing to fully compensate the victim and investigating charges of inadequate repairs. On Feb. 9, China's State Administration for Entry-Exit Inspection & Quarantine banned all Pajero imports. The country's Consumer Assn. also lined up against Mitsubishi, demanding that the company fully compensate Pajero owners for all direct losses, as required by the Consumer Law.

On Feb. 28, Mitsubishi issued a recall and promised to fully compensate Chinese consumers. The V31 and V33 are now out of production, and "the sales performance of the new model V73 is not affected by this recall," declares Hideaki Anraku, general manager of Mitsubishi's Beijing office. Nevertheless, a public-relations representative at the office admits privately that "the accidents must have ruined our sales."

Mitsubishi has had its share of problems with customer service. Last July, after admitting to sitting on almost 20 years worth of customer complaints in Japan, the company was forced to recall 800,000 cars for repairs. Mitsubishi's Beijing office says it wasn't aware of any braking problems with the Pajero until the first complaint in September. DaimlerChrysler, maker of Mercedes-Benz and a 34%-owner of Mitsubishi, seems to have lost patience. In late February, Rolf Eckrodt, DaimlerChrysler chief operating officer, said Mitsubishi would begin using the same quality-control system as DaimlerChrysler.

TAINTED GOODS. But even being treated like a Mercedes owner may not convince Chinese consumers to buy a Mitsubishi SUV. "Before the accidents happened, I had a dream that once I was wealthy enough, I would buy myself a Mitsubishi cross-country car. But now, no matter how rich I am, I don't want to buy a Mitsubishi any more," says 42-year-old Ding Ou, a translator at Shanghai Volkswagen and owner of a Volkswagen Santana sedan. "Its good reputation has been destroyed by the accidents."

Although Mitsubishi says it doesn't have hard figures on the recall's total cost, each replacement part in the defective Pajeros costs $18. To date, 3,000 cars have been repaired. The China recall comes on the heels of one affecting more than 1 million vehicles in the U.S. and Japan, which is estimated to cost some $143 million.

That's money Mitsubishi can ill afford. It forecasts an operating loss of around $1.2 billion for the fiscal year ending in March and will spend up to $1.3 billion on a restructuring. Mitsubishi promises to break even for the fiscal year beginning in April.

PAST GLORY. Alas for the company, Pajeros were considered a good buy in China before the brake-failure allegations. "If you consider it comprehensively, [the Pajero] is cheaper than the Toyota Land Cruiser, and its quality better than locally made SUVs," says Yale Zhang, a Beijing-based analyst at Automotive Asia Resources. An engineer at Shanghai's Pan-Asia Technical Automobile Center, a joint venture between General Motors and the Shanghai Automobile Corp., says Mitsubishi SUVs had good reputations. He pinned the problem on road-testing conditions -- not severe enough to match China's rugged roads.

Mitsubishi turned out 11,000 domestically made Pajeros in 2000. Production goals are set at 15,000 in 2001. The company still hopes to retain its top spot in locally made SUV sales in China and is doing its "utmost to regain customers' trust and confidence in Mitsubishi," a spokesperson says. But no one is taking bets on whether skeptical Chinese consumers will be won over. By Alysha Webb in Shanghai

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