Commentary: Did Mitsubishi Get The Best Of Daimler?

When news first leaked several months ago that Mitsubishi Motors Corp. was in talks with DaimlerChrysler, most observers expected Jurgen E. Schrempp to drive a brutal bargain. Despite early assurances that the German auto maker's takeover of Chrysler Corp. would be a merger of equals, the DaimlerChrysler CEO quickly moved to consolidate power over Detroit. And if Ford Motor Co.'s takeover of Mazda Motor Corp. and Renault's purchase of Nissan Motor Co. were any guide, Mitsubishi's managers and workers would soon be in for the culture shock of their lives.

Yet when the two companies unveiled their deal at a Tokyo press conference on Mar. 28, Mitsubishi Motors President Katsuhiko Kawasoe sounded far from defeated. Indeed, he seemed giddy.

LOST SHARE. And why not? If the outlines of the deal as presented are true, Mitsubishi got the better end of it. The company sold a 34% stake to Schrempp for $2.1 billion. But so far, Mitsubishi is hanging on to management control. Even though the carmaker has steadily lost market share in Japan and badly navigated Asia's downturn, Kawasoe and his team remain firmly in charge. DaimlerChrysler will appoint just three of the company's 10 board members, even though it will be the biggest single shareholder and own as much as the combined holdings of Mitsubishi Group companies. "We are not going to be swallowed up by DaimlerChrysler," Kawasoe declared. "It's not as if one party is buying up another." In fact, he said, Mitsubishi Motor will "essentially remain an independently managed company." On top of this, Daimler doesn't get any of Mitsubishi's prized truck business.

Consider what else Kawasoe wins. The cash injection gives his company a desperately needed new lease on life. Although Mitsubishi's small, fuel-efficient passenger cars are now performing well in the U.S., its contract to produce Dodge Avengers and Chrysler Sebrings for DaimlerChrysler in Normal, Ill., was set to expire in five years. Now, Mitsubishi is no longer in any danger of losing that lucrative job, and its role as a U.S. manufacturer could expand substantially. Some analysts believe DaimlerChrysler could rely on Mitsubishi for all of its small cars in North America so that it can concentrate on its line of Mercedes luxury cars and Chrysler minivans, sport-utility vehicles, and pickup trucks.

How did Kawasoe stumble upon such good fortune? By playing Schrempp shrewdly. First, he knew that DaimlerChrysler had grown desperate for an Asian foothold and had ample resources to overpay for such a stake. Last spring, the Germans walked away from a potential deal with hemorrhaging Nissan Motor, Japan's No. 2 auto maker, leaving it for Renault. General Motors Corp., meanwhile, negotiated a tie-up with Fuji Heavy Industries Ltd., maker of Subaru cars. Asia's other players are either fiercely independent, like Honda Motor Co. and Hyundai, or even more problematic--like Daewoo. That left Mitsubishi, Japan's No. 4.

Schrempp also may have decided it makes little sense to subject Mitsubishi to the same painful overhaul that Renault is administering to Nissan. The $2.1 billion purchase price is small change to $151 billion DaimlerChrysler and well worth it if the deal puts it ahead of Toyota Motor Corp. in the race for No. 3 in global market share. Even if Mitsubishi continues to bleed red ink, its small-car knowhow and network of Asian factories and dealers fill key gaps in DaimlerChrysler's lineup.

PLAYING THE HEAVY. There's also a chance that Schrempp is learning to tread more softly. The heavy-handed way in which German management established control of Chrysler caused worker morale to plunge, prompted an exodus of manufacturing and engineering talent, and generated a public outcry in Detroit. To repair the damage, Schrempp has been trying to establish more autonomy at Chrysler.

Of course, Schrempp could still end up playing the heavy. The agreement has not yet spelled out sales or cost-reduction targets for Mitsubishi. If these goals can't be achieved, Schrempp could well have the perfect pretext for forcing Kawasoe out. To hold on to their jobs, it is still up to Mitsubishi's managers to turn things around. If they don't, Schrempp may well regret not resolving the tough issues at the outset. But for now, Kawasoe can only be thankful that he has another chance.