Mitsubishi Zips Past The Scrap Heap

Smart marketing, new models, and cost cuts could avert a financial meltdown

Free gas -- that's one way to fill up a showroom. And that's just the come-on Mitsubishi Motors Corp. has been using in the U.S. since late September. Buy a Mitsubishi, get free gas for a year. "It has energized the entire dealer organization," says Dave Schembri, an executive vice-president at Mitsubishi Motors' U.S. subsidiary in Cypress, Calif.

Gas Comes Standard (the name of the Mitsubishi promotion) is one of the latest signs of life at a carmaker long left for dead. Although much smaller than General Motors Corp. (GM ) or Ford Motor Corp. (F ), Japan's Mitsubishi, with annual sales of $18.5 billion, can match those big companies disaster for disaster. Sales in the U.S. and Japan, its two key markets, plummeted 30% in 2004 and the company posted a $4.7 billion loss for the year ended in March. That was more than its earnings for the past 15 years combined. Zero hit models meant zero profits. A meltdown seemed imminent as Mitsubishi burned through cash reserves and partner DaimlerChrysler (DCX ) cut off fresh funds and reduced its stake from 37% to 12.9%.

By the time Osamu Masuko, a 30-year veteran of trading house Mitsubishi Corp., took over as president of Mitsubishi Motors in January, many pundits were preparing its obituary. But the carmaker may be slowly edging back from the brink. "We know what measures we need to take to improve the company," says Masuko.

The auto maker has moved quickly to rebuild under its new management. In May, it rolled out the 3.8-liter, $20,000 Eclipse sports coupe, a muscle car with a sleek, arching shape and V6 engine that has generated much-needed buzz. August sales in the U.S. rose 2.1% on the year -- the biggest jump in two years. Back in Japan, sales leaped 23.5% in August after Mitsubishi began offering free inspections covering 3.4 million cars earlier this year. That was designed to address fears growing out of a scandal involving recall cover-ups that dates back to 2000. All this has helped the company's share price shoot up 146% this year -- most of that in the past six weeks.

Despite all the good news, Mitsubishi is expected to post a half-year loss of $637 million in November, much better than the enormous loss of a year before but still pretty scary. Yet Masuko pledges to return to the black in the second half and limit the full year loss to $560 million on a sharp recovery in sales. Not only is the Eclipse hot, Masuko points out, but sales are expected to be strong for other new models such as a new midsize SUV called the Outlander. That 2.4-liter vehicle goes on sale Oct. 17 in Japan and is due out in late 2006 in the U.S. The company also plans to slash costs 15% by early 2007 and has already trimmed 6,500 jobs over the past year.


Mitsubishi has some breathing room to refocus thanks to a $2.6 billion lifeline thrown to the company in January by other members of the Mitsubishi keiretsujunkyard. With that backing, Masuko has set the stage for repositioning Mitsubishi toward performance-oriented sedans, midsize SUVs, and trucks like the $19,180 Raider pickup, launched in September in the U.S. That six-seater, the only imported pickup in its class with an optional V8 engine, marks Mitsubishi's return to midsize trucks after a 10-year absence.

Masuko predicts Mitsubishi will be making a profit by the end of next year. But can it compete in the long term with rivals such as Honda Motor and Toyota Motor Corp. (TM )? "Mitsubishi has a lot of work to do to keep up with those [two]," says George Brue, general sales manager at Rick Case Mitsubishi in Roswell, Ga. But free gas should help.

By Ian Rowley in Tokyo and Christopher Palmeri in Los Angeles, with Rishi Chhatwal in Atlanta

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