Mitsubishi: Falling Further Behind

New models face fierce rivals, and a fuzzy brand image makes them a tough sell

It's tough being the savior of a company that may be beyond salvation. Just ask Finbarr J. O'Neill, the auto executive who turned around Hyundai Motor Co.'s U.S. business. Sixteen months ago, O'Neill was picked to work similar magic at Mitsubishi Motors Corp.'s (MMNA ) North American unit. He started quickly, scrapping the easy financing terms that created big credit problems for Mitsubishi, putting the brakes on the bulk sales to rental car companies that reduced resale values, and eliminating the youth-oriented TV ads that looked more like music videos than car commercials.

Unfortunately, while the moves may have been necessary, they accelerated Mitsubishi's slide. U.S. sales fell 37% in 2004, to 161,000 cars and trucks, the worst performance of a major auto maker. And on Jan. 3, O'Neill, 52, abruptly quit and took the helm of Reynolds & Reynolds Co. (REY ), which provides software and services to car dealers.

Mitsubishi soon announced a new CEO, Rich Gilligan, its well-respected head of U.S. manufacturing. But he is widely seen as a placeholder until the parent names a permanent U.S. chief. And with sales sliding, the brand eroding, and a dearth of sure-fire models, it is increasingly unclear that anyone can save the U.S. unit. "It's tough to market Mitsubishi," says O'Neill's predecessor, Pierre Gagnon. "They're stuck between the high-quality image of Toyota (TM ) and Honda (HMC ) and the value of the Korean brands."

Mitsubishi had hoped O'Neill would do for it what he did for Hyundai. During his five years as Hyundai's U.S. CEO, O'Neill persuaded his Korean bosses to get serious about quality and bring out the Santa Fe, a popular SUV designed for the U.S. market. To build confidence in the brand, O'Neill introduced a 10-year power-train warranty. Sales tripled during his tenure, to 350,000 units a year.

O'Neill's efforts to engineer a similar feat at Mitsubishi didn't pan out. Last year he introduced the slogan "Best backed cars in the world," with extended warranties and free maintenance. But where Hyundai's quality improved, Mitsubishi's problems continued.

That, and a confused brand image, hurt O'Neill's efforts to lure more upscale buyers. In the late '90s, Mitsubishi had gone after the youth market, using deep discounts as bait. It wound up attracting lots of lower-income buyers who defaulted on their loans. So O'Neill began targeting middle-class families. He was hoping a redesign of the Galant family sedan would help bring them in. The problem wasn't the car. According to Automotive Marketing Consultants Inc., it braked even better and accelerated faster than the Honda Accord and Toyota Camry. But that wasn't enough to get buyers to budge from those better-known brands. O'Neill acknowledges the benefits were "not successfully communicated" to buyers and says he'd considered switching ad agencies.


It didn't help that practically since O'Neill took over, there was turmoil at the top. Six months after he joined the company, DaimlerChrysler (DCX ), having already plowed $3.5 billion into Mitsubishi, balked at putting in more. Not long after that, Mitsubishi Group put together a $4.7 billion bailout, displacing Daimler as the majority shareholder. Suddenly O'Neill, who had seen Mitsubishi as a stepping stone to a job at DaimlerChrysler, was now dealing with new Japanese bosses who were pushing for faster results. It wasn't long, O'Neill says, before he was considering his options.

Can Mitsubishi claw its way back in an industry with too many players? It's debuting two new models this month at the North American International Auto Show in Detroit: a redesigned Eclipse sports car and a pickup called the Raider, partly designed in Southern California. But both segments are crowded. And without the models or the marketing to set itself apart, Mitsubishi's troubles are only likely to get worse.

By Christopher Palmeri in Los Angeles, with Chester Dawson in Tokyo, and David Kiley in New York

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