Mitsubishi Motors (MMC) operating income rose 135.3bn yen from loss to a 6.8bn yen surplus in financial year 2005, suggesting the automaker, long mired in recall scandals in Japan and problems with bad loans in the United States, may be turning the corner at last.

This was the company's first full-year operating income since fiscal 2002, MMC noted in a statement. The result was more than 20bn yen better than the forecasted loss of 14bn yen and returned to the black a year earlier than the target set out in the revitalisation plan announced on 28 January last year.

MMC cited reasons such as better retail unit volumes/model profitability mix, and the weaker yen complemented by other favourable factors including lower sales promotion costs, advertising costs in the US and Europe in particular; lower warranty expenses in Japan; lower depreciation costs as a result of asset impairment charges taken in the US and Australia during the previous year; and the non-recurrence of one-time charges resulting from the sales of sales-finance receivables in the company's US financial services subsidiary.

In recent years, Mitsubishi has suffered in the US from the results of a sales promotion that delivered cars to 'sub-prime' customers (those with lower credit scores) and a consequent higher than normal default rate on the loans, affecting MMC's bottom line. The company was also hit in its native Japan by allegations of a cover-up of vehicle defects.

For fiscal 2005, MMC still posted an ordinary loss of 17.8bn yen, but this was, however, a year-on-year improvement of 161.4bn yen.

The net loss of 92.2bn yen was an improvement of 382.6bn yen year on year.

MMC said the smaller ordinary loss stems was mainly due to the improvement in operating earnings together with improved earnings at affiliates and the non-recurrence of costs associated with the issuance of new shares booked as non-operating expenses last year.

For the net loss for the period, the booking as extraordinary losses of asset impairment accounting charges in Japan and the booking of additional asset impairment charges, and of restructuring costs, in the US and Australia where a recovery in sales is expected to take more time.

Mitsubishi has had a disappointing time in Australia of late. The new locally-built 380, based on the US-made Galant, has failed to meet initial sales targets, likely due to the large sedan's launch in V6-only form at the same time as rising fuel prices are encouraging Australians to choose smaller, more economical vehicles.

Additional valuable export volume to the US also ended with the model changeover from the previous Diamante/Magna line.

Mitsubishi Motors' consolidated sales for fiscal 2005 were  2,120.1bn yen, virtually the same as last year's 2,122.6bn yen (down 2.5bn yen, 0.1%). The decrease in sales mainly reflects lower volumes in North America and Europe that were not completely offset by increased revenues in Japan from the introduction of new models.

Global vehicle sales reached 1,344,000 vehicles, a 2.4% increase of 31,000 on the 1,313,000 sold last year, the first year-on-year increase since fiscal 2002.

In Japan, MMC sold 257,000 vehicles, up 13.2% or 30,000 units, reflecting strong sales of the new Outlander crossover and i city car models introduced in the second half of the year. The crossover reaches most other major markets this calendar year.

In North America, sales declined 18,000 or 10.3% to 156,000 vehicles. Sales grew steadily in Mexico and Puerto Rico but failed to counter the slow performance in the United States.

In response to the weak recovery in the US market, MMC reshuffled management there last January. It said that, and a new system encompassing sales, product development, and production, is bringing local operations in closer contact with headquarters in Japan, making quicker responses to changes in market conditions possible.

"Recent new dealer support policies are bringing sales higher, and the true recovery is beginning," the company said.

Europe sales rose to 10.8% to 267,000 vehicles, helped by strong sales in Russia, (up over 50%) and in the large volume markets of Germany and the UK.

In Asia and other regions, MMC sold 664,000 vehicles, a 1.0% decline or 7,000 fewer than last year. Firm growth in Thailand, Latin America, the Middle East, and Africa was more than offset by a drop in sales in Malaysia, where the government is promoting sales of domestically produced vehicles, and in Indonesia with its sluggish economy.

Looking ahead to fiscal 2006, MMC said that it hopes its recently launched new models will help achieve the revitalisation plan target of increasing global sales volume by 5% over fiscal 2005 to 1,408,000 units.

Regional forecasts are Japan: 302,000 vehicles, up 18% over the previous year; North America: 181,000 vehicles (+16%); Europe: 271,000 vehicles, ("slight increase"); Asia and other regions: 654,000, ("slight decrease).

Total sales have been forecast up 5% to 2,230.0bn yen with operating income up 36.2bn yen to 43.0bn yen.

The increase is expected to come from a rise in unit volume/model profitability mix stemming from the introduction of new models; reduced sales promotion spending; reductions in material costs; and cut backs in general administrative expenses.
Also contributing to the improvement will be the beneficial effects of booking asset impairment charges and restructuring implemented in fiscal 2005.

Mitsubishi Motors has forecast an ordinary profit of 21.0bn yen, a year-on-year improvement of 38.8bn yen, and a full-year net profit of 8bn yen, an improvement of 100.2bn yen.

Graeme Roberts