According to reports in the Japanese media, DaimlerChrysler is to make a $6.67 billion capital injection into Mitsubishi Motors. It is also reportedly planning to raise its stake in Mitsubishi Motors to more than 50% in the next two years. However, these latest attempts to rescue the company from huge losses will probably meet with some resistance from domestic shareholders.

In the wake of reports that DaimlerChrysler may inject capital into Mitsubishi Motors, shares in the beleaguered Japanese automaker rose 7.45% to reach Y346 at Tuesday lunchtime. Mitsubishi Motors is refusing to comment officially on news of DaimlerChrysler’s move until after a meeting on April 30 when it hopes to unveil details of the restructuring. Mitsubishi will have to make a strategic decision in the next few weeks as it is facing debts of Y1.1 trillion.

Earlier reports had suggested that DaimlerChrysler would bring a new chief executive for Mitsubishi and move some Japanese manufacturing operations to other parts of Asia, possibly China. However a $6.67 billion investment is considerably greater than the $4.8 billion analysts were previously predicting.

According to Japanese newspaper the Sankei Shimbun, Mitsubishi Motors may become a subsidiary of DaimlerChrysler within the next two years. DaimlerChrysler apparently hopes to raise its stake in the struggling Japanese vehicle manufacturer from 36.97% to more than 50%. However, for the time being, the German manufacturer will not increase its existing stake in Mitsubishi Motors so as not to turn the group profit into a negative.

The original turnaround plan for the struggling manufacturer was based on collaborations with DaimlerChrysler, particularly in product and engineering development to ensure cost savings. But the fortunes of the Japanese manufacturer have not improved. The company is expected to announce a consolidated net loss of Y72 billion for the year ended 2003. A major reason for this significant loss is the lack of new product launches, which are much needed to help boost sales.

Mitsubishi’s new strategy could be based on re-focusing on a niche market such as small cars. However, the main barrier to restructuring could be the reaching of an agreement with DaimlerChrysler. It is likely that some domestic shareholders will be reluctant to implement the changes suggested by the German manufacturer, nor will they be happy with DaimlerChrysler’s plans to shift Japanese production offshore.

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