An Ailing Mitsubishi Motors Seeks Buyer for U.S. Operation
By NORIHIKO SHIROUZU and JATHON SAPSFORD
Staff Reporters of THE WALL STREET JOURNAL
Struggling Japanese car maker Mitsubishi Motors Corp. is quietly seeking a buyer for its U.S. operations, a move that may well signal the company's intent to exit the world's largest car market, people familiar with the matter said.
Mitsubishi Motors's new president, Osamu Masuko, traveled to Detroit in January to begin talks with potential buyers during the North American International Auto Show, they said. He was accompanied by Yasushi Ando, head of Tokyo-based investment and workout fund Phoenix Capital Co., which holds a 21.2% stake in Mitsubishi Motors, these people said.
During their trip to Detroit, Messrs. Masuko and Ando met privately with several industry executives, including representatives from U.S. private equity fund Ripplewood Holdings LLC and the Austrian unit of parts supplier Magna International Inc. that assembles vehicles under contract from different auto makers, people familiar with the matter said.
Mitsubishi is interested in discussing a sale of its Normal, Ill., plant as well as its North American sales unit that is based in Southern California, these people said. The key asset of the sales arm is the relationships Mitsubishi has with about 600 dealerships across the U.S. Those could be valuable to other car makers that are expanding in the U.S. but need more dealers to continue growth. Auto makers in that situation include Hyundai Motor Co. and Kia Motors Corp., both of South Korea.
Mitsubishi representatives confirmed Messrs. Masuko and Ando attended the Detroit auto show, but wouldn't comment on any meetings, adding only that Mitsubishi has "no plans to withdraw from the North American market." (Ed: yeah, right)
If Mitsubishi Motors does pull out of the U.S., it would be the first major overseas car maker to do so in more than a decade. The late 1980s and early '90s saw the departure of French car makers PSA Peugeot-Citröen SA and Renault SA as well as Japan's Daihatsu Motor Co.
Mitsubishi has been in crisis for over a year. Its global sales plummeted because of a highly publicized product recall in Japan and a weak sales strategy in the U.S. Last year its U.S. sales plunged to 161,609 cars and trucks, from 256,810 in 2003, prompting Mitsubishi to lay off about 1,000 workers at the Normal plant, or about 40% of the factory's work force.
Selling off its weak U.S. operations has been an option that many critics say the Japanese car maker should consider. But it may have trouble attracting a buyer. The U.S. sales arm ran up losses after giving loans to many young consumers who had poor credit histories and later defaulted on the payments.
The image of the Normal plant was also tarnished in high profile discrimination and sexual harassment suit filed in 1994 by some women employees. But more important for potential buyers is that its unionized workers command wages of $26 an hour or more, not including benefits. Those figures make the plant uncompetitive in a global era in which car makers are increasingly able to produce in low-wage markets from China to Mexico.
Mitsubishi Motors is part of the larger Japanese entity called Mitsubishi. People involved in the recent auto negotiations say that certain key members of the Mitsubishi group of companies, notably those at the Bank of Tokyo Mitsubishi, a major shareholder in Mitsubishi Motors, are growing impatient with the lack of progress in the car company. Executives at the bank, these people say, are under pressure from regulators who are growing nervous about the bank's exposure to the struggling car maker. Bank of Tokyo Mitsubishi declined to comment.
Representatives of Ripplewood declined to comment for this article. People familiar with the matter said Ripplewood didn't show much interest in Mitsubishi's operations.
Magna Steyr, an Austrian unit of Magna International that assembles vehicles for several car makers including DaimlerChrysler AG, BMW AG and Volkswagen AG, is potentially interested in building up a similar business of contract auto manufacturing in North America.
Magna's president, Mark Hogan, reached by phone, said he was told that a meeting had been arranged between Messrs. Masuko and Ando and representatives from the part supplier's Austrian unit, but he didn't know whether it actually took place. Mr. Hogan added the chances of Magna Steyr buying the Mitsubishi Motors plant were "a long shot at best," saying Magna Steyr would face a huge challenge bringing its business model to North America because auto makers here suffer from overcapacity.
"We would have to get a book of business from three or four [auto makers] that would allow us to fully utilize their capacity before we even consider buying the plant," he said.
Mitsubishi Motors's discussions with potential buyers of its U.S. operations are part of an effort to sharpen the focus of the company and end massive losses, according to people familiar with the company's strategy. Sales in crucial markets are falling faster than the company can cut costs. Mitsubishi Motors said in January that its losses for the fiscal year ending March 31 will reach 472 billion yen, or about $4.5 billion.
The start of talks to sell the Normal plant highlights the surfeit of production capacity in the auto industry. North American auto plants produce about 15.8 million vehicles a year -- but have the capacity to build 22 million. As a result, car makers are under intense pressure to boost sales to keep their plants filled -- even though auto sales are near record highs and the American economy is relatively strong.
The company still has relatively strong operations in Asia, and shows little sign of winding those down. Taiwan's China Motor Corp. said its mainland Chinese joint venture, Southeast Motor Corp., will start selling Mitsubishi-branded cars to Chinese consumers in July. Mitsubishi Motors holds a 15% stake in China Motor
By NORIHIKO SHIROUZU and JATHON SAPSFORD
Staff Reporters of THE WALL STREET JOURNAL
Struggling Japanese car maker Mitsubishi Motors Corp. is quietly seeking a buyer for its U.S. operations, a move that may well signal the company's intent to exit the world's largest car market, people familiar with the matter said.
Mitsubishi Motors's new president, Osamu Masuko, traveled to Detroit in January to begin talks with potential buyers during the North American International Auto Show, they said. He was accompanied by Yasushi Ando, head of Tokyo-based investment and workout fund Phoenix Capital Co., which holds a 21.2% stake in Mitsubishi Motors, these people said.
During their trip to Detroit, Messrs. Masuko and Ando met privately with several industry executives, including representatives from U.S. private equity fund Ripplewood Holdings LLC and the Austrian unit of parts supplier Magna International Inc. that assembles vehicles under contract from different auto makers, people familiar with the matter said.
Mitsubishi is interested in discussing a sale of its Normal, Ill., plant as well as its North American sales unit that is based in Southern California, these people said. The key asset of the sales arm is the relationships Mitsubishi has with about 600 dealerships across the U.S. Those could be valuable to other car makers that are expanding in the U.S. but need more dealers to continue growth. Auto makers in that situation include Hyundai Motor Co. and Kia Motors Corp., both of South Korea.
Mitsubishi representatives confirmed Messrs. Masuko and Ando attended the Detroit auto show, but wouldn't comment on any meetings, adding only that Mitsubishi has "no plans to withdraw from the North American market." (Ed: yeah, right)
If Mitsubishi Motors does pull out of the U.S., it would be the first major overseas car maker to do so in more than a decade. The late 1980s and early '90s saw the departure of French car makers PSA Peugeot-Citröen SA and Renault SA as well as Japan's Daihatsu Motor Co.
Mitsubishi has been in crisis for over a year. Its global sales plummeted because of a highly publicized product recall in Japan and a weak sales strategy in the U.S. Last year its U.S. sales plunged to 161,609 cars and trucks, from 256,810 in 2003, prompting Mitsubishi to lay off about 1,000 workers at the Normal plant, or about 40% of the factory's work force.
Selling off its weak U.S. operations has been an option that many critics say the Japanese car maker should consider. But it may have trouble attracting a buyer. The U.S. sales arm ran up losses after giving loans to many young consumers who had poor credit histories and later defaulted on the payments.
The image of the Normal plant was also tarnished in high profile discrimination and sexual harassment suit filed in 1994 by some women employees. But more important for potential buyers is that its unionized workers command wages of $26 an hour or more, not including benefits. Those figures make the plant uncompetitive in a global era in which car makers are increasingly able to produce in low-wage markets from China to Mexico.
Mitsubishi Motors is part of the larger Japanese entity called Mitsubishi. People involved in the recent auto negotiations say that certain key members of the Mitsubishi group of companies, notably those at the Bank of Tokyo Mitsubishi, a major shareholder in Mitsubishi Motors, are growing impatient with the lack of progress in the car company. Executives at the bank, these people say, are under pressure from regulators who are growing nervous about the bank's exposure to the struggling car maker. Bank of Tokyo Mitsubishi declined to comment.
Representatives of Ripplewood declined to comment for this article. People familiar with the matter said Ripplewood didn't show much interest in Mitsubishi's operations.
Magna Steyr, an Austrian unit of Magna International that assembles vehicles for several car makers including DaimlerChrysler AG, BMW AG and Volkswagen AG, is potentially interested in building up a similar business of contract auto manufacturing in North America.
Magna's president, Mark Hogan, reached by phone, said he was told that a meeting had been arranged between Messrs. Masuko and Ando and representatives from the part supplier's Austrian unit, but he didn't know whether it actually took place. Mr. Hogan added the chances of Magna Steyr buying the Mitsubishi Motors plant were "a long shot at best," saying Magna Steyr would face a huge challenge bringing its business model to North America because auto makers here suffer from overcapacity.
"We would have to get a book of business from three or four [auto makers] that would allow us to fully utilize their capacity before we even consider buying the plant," he said.
Mitsubishi Motors's discussions with potential buyers of its U.S. operations are part of an effort to sharpen the focus of the company and end massive losses, according to people familiar with the company's strategy. Sales in crucial markets are falling faster than the company can cut costs. Mitsubishi Motors said in January that its losses for the fiscal year ending March 31 will reach 472 billion yen, or about $4.5 billion.
The start of talks to sell the Normal plant highlights the surfeit of production capacity in the auto industry. North American auto plants produce about 15.8 million vehicles a year -- but have the capacity to build 22 million. As a result, car makers are under intense pressure to boost sales to keep their plants filled -- even though auto sales are near record highs and the American economy is relatively strong.
The company still has relatively strong operations in Asia, and shows little sign of winding those down. Taiwan's China Motor Corp. said its mainland Chinese joint venture, Southeast Motor Corp., will start selling Mitsubishi-branded cars to Chinese consumers in July. Mitsubishi Motors holds a 15% stake in China Motor
