Mitsubishi Motors Corporation (MMC) has today announced its financial results for the year ended March 31, 2004, a forecast for results this year and a business revitalisation plan aimed at shoring up the company’s financial base and returning it to profitability.
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Operating results turned negative in fiscal 2003 with the company recording an operating loss of 96.9 billion yen (US$ 843 million, euro 745 million) compared to an operating profit of 84 billion yen the year before. While MMC saw its European operations turn positive for the first time ever, the overall negative result comes on the back of the drop in US unit sales, which was further compounded by higher incentive costs and high credit loss provisions taken by the company’s US captive financing unit Mitsubishi Motors Credit of America, Inc. (MMCA).
Ordinary income came to minus 110.3 billion yen (US$ 959 million, euro 848 million) compared to ordinary profit of 67.4 billion yen in fiscal 2002. Net income for the period declined to minus 215.4 billion yen (US$ 1.9 billion, euro 1.7 billion) from a net profit of 43.9 billion yen. A reversal of all US and Japan deferred tax assets led to a net loss in fiscal 2003 far below the previous forecast.
Despite growth in unit sales in Japan, Europe, and Asia/Rest of the World, the company saw consolidated net sales decline to 2.519 trillion yen (US$ 22 billion, euro 17 billion) from 2.736 trillion yen in fiscal 2002. MMC said that this is mainly due to a marked decrease in unit sales in the US as the company tightened its credit policy and faced an intensely competitive market.
Unit sales in Japan returned to growth for the first time in eight years, adding 5,000 units on year to total 359,000. European sales volume – boosted by strong sales in Eastern Europe – was 214,000 units, up 14,000 units on year, marking the first year-on-year increase in four years. A jump of 60,000 units in China to 151,000 units offset a decrease in volume in other parts of Asia/Rest of the World for a total of 681,000 units, a slight increase of 1,000 units compared to fiscal 2002.
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By GlobalDataNorth American volume, however, declined to 273,000 units from 343,000 the year before. This decline impacted total worldwide sales, which dropped by 50,000 units to 1.53 million.
Fiscal 2004 marks the start of MMC’s revitalisation plan, which calls for a number of restructuring measures and efforts to improve the company’s operations. While MMC plans to implement measures in fiscal 2004 to drastically reduce costs and reorganize part of its operations, the company expects only a limited effect for the year. Further, fiscal 2004 forecasts include a one-off loss the company expects to book for the period as a result of restructuring costs.
MMC expects for fiscal ’04, consolidated net sales of 2.25 trillion yen (US$ 21 billion, euro 18 billion), a decline of 269.4 billion yen; an operating loss of 120 billion yen (US$ 1.1 billion, euro 960 million), a 23.1 billion yen decline; an ordinary loss of 150 billion yen (US$ 1.4 billion, euro 1.2 billion), or a further 39.7 billion yen decline; and a 14.6 billion yen drop in net income to 230 billion yen (US$ 2.2 billion, euro 1.8 billion). These forecasts are based on foreign exchange assumptions of 105 yen/dollar and 125 yen/euro.
In terms of unit sales, MMC expects to see its total retail sales volume decline by 74,000 units to 1.453 million. By region, MMC expects volume in Europe to jump by 46,000 units to 260,000 thanks to the launch of the European Colt. In Japan, meanwhile, volume is expected to decrease 59,000 units to 300,000. North American volume is forecast to slip by 40,000 units to 233,000, while the company expects to sell 660,000 units in Asia/Rest of the World, or a decline of 21,000 units.
Speaking on the revitalization plan at a press conference in Tokyo this afternoon, MMC Chairman, President and CEO Yoichiro Okazaki said: “This plan is our last chance for survival as an automaker. Everyone in the Mitsubishi Motors group is determined to rally together and bring the company back to health through a self-supported revival.”
To shore up MMC’s financial standing, a capital enhancement of 450 billion yen will be carried out with 270 billion yen coming from Mitsubishi group companies, 10 billion yen from MMC’s strategic partner China Motor Corporation (CMC), and 170 billion yen from the market. Preferred shares totaling 140 billion yen will be issued to Mitsubishi Heavy Industries, Mitsubishi Corporation, The Bank of Tokyo-Mitsubishi, and other Mitsubishi group companies, while The Bank of Tokyo-Mitsubishi and Mitsubishi Trust & Banking Corporation will swap 130 billion yen of debt for equity. Funds procured from the market will come from plans to issue 70 billion yen1 in common stock to Phoenix Capital and 100 billion yen in preferred shares to J.P. Morgan Securities.
MMC will use 130 billion yen of the funds to pare debts and 320 billion yen will go towards revitalizing the company’s operations.
Okazaki also explained that the plan must achieve the minimum targets of pushing ordinary income into the black in fiscal 2005 and turning a net profit in fiscal 2006. The company’s financial targets for fiscal 2006 are: consolidated net sales of 2.49 trillion yen, operating profit of 120 billion yen, ordinary income of 100 billion yen, net profit of 70 billion yen, and a 4.8 percent operating profit margin. Other targets set out in the plan include
– An 85 billion yen savings in fixed cost by FY06.
– Reducing production capacity by 17 percent by FY06 and raising the overall capacity utilization rate to 97 percent
– Reducing indirect personnel by 30 percent by FY06 (from 26,400 at beginning of FY04 to 18,800 by end of FY06)
– Reducing the number of platforms from 15 to 6 by FY10
– 154 billion yen in savings for variable costs by FY06
– Reducing staff at Japanese headquarters by 30 percent
– Global sales volume of 1.7 million units by fiscal 2006
– Over 40 percent reduction in interest-bearing debts by FY06; debt-to-equity ratio below 2.5:1.
To reduce total production capacity by 17 percent, the company will finish production at its Okazaki plant in Japan to consolidate its three domestic assembly plants into two. MMC will also wind down operations at its engine manufacturing plant in Australia in 2005. However, today’s revitalization plan confirms MMC’s commitment to continue its manufacturing operations in Australia and the production of a new model in 2005.
In line with its target to slash variable costs by 154 billion yen by fiscal 2006, MMC intends to cut back material costs by 15 percent by stepping up initiatives in the Mitsubishi Cross-Functional Project (MXP), a company-wide project charged with cutting material costs across the board. MXP will also be introduced to offshore plants. Other moves include promoting global sourcing, reducing die costs, and increasing commonality of parts to keep the cost of indirect materials down.
To cut headquarters staff in Japan by 30 percent, MMC will shift its headquarters to Kyoto in order to make maximum use of its assets. This will make way for yearly savings of 2 billion yen.
MMC has also mapped out new product and regional strategies geared towards growth, with a renewed focus on China and a continued emphasis on revitalizing the North American market. The firm will launch a raft of new cars between fiscal 2004 and fiscal 2007 including 16 in Japan, 10 in Europe, 7 in North America, and 11 in China. The new cars will be steeped in “Mitsubishi Motors DNA,” which is best summed up by MMC’s SUVs-as typified by the Pajero-and the sporty, driver-oriented traits found in the Lancer Evolution. To clarify responsibility in product development, Product Executives will be elected for each product to oversee issues related to the whole lifecycle of their product from initial conception through development, production and sales.
In Japan, the plan aims for a renewed customer-centric sales approach. MMC will successively launch new “Mitsubishi Motors DNA” cars-4 in fiscal 2004 and 5 in fiscal 2005-focused on customer needs. Other steps include offering customers free inspections of their vehicle and 24-hour support, building relations with customers on a company wide basis, improving the company’s sales structure by refurbishing dealer outlets and using infrastructure laid out for information technologies.
MMC said that profitability in North America will be achieved by maintaining a balance between supply and demand. In particular, MMC will review an adjustment to production capacity at its Illinois plant, cut back on incentives and the ratio of fleet sales, and launch new and special edition cars: 3 models in fiscal 2005.
MMC will also review its captive financing company in the US. All possibilities, including the potential exit from the captive sales financing business, will be considered, keeping the interests and needs of dealers and customers first. No matter what option is selected, the need for adequate financing support in the North American market is recognized and seen as a top consideration in this evaluation. Other plans on the table include downsizing assets and looking into possible strategic alliances with external partners.
“Despite the recent problems we have faced in the US, North America remains a top priority for us. We are fully committed to getting our North American operations back on track to pave the way for future growth there,” Okazaki said.
MMC will also seek to expand opportunities for profit in the fast-growing Chinese market by investing further in its local partners to change the production and sales network over to the Mitsubishi brand.
A new strategic car for Asia will be launched to enhance the product lineup.
The company’s two engine and transmission joint ventures in China-Shenyang Aerospace Mitsubishi Motors Manufacturing Co., Ltd. and Harbin Dongan Automotive Engine Manufacturing Co., Ltd.-will become the main bases for supplying parts to other operations throughout Asia.
In fiscal 2008, MMC aims to have 500 Mitsubishi Motors dealers in China with annual sales of 220,000 units (310,000 units including local brands).
The number of executives will be cut from 51 to 37 and the number of departments slashed from 230 to 150 by the end of fiscal 2004.
MMC also said that DaimlerChrysler remains an important partner for MMC and the alliance will continue based on what is deemed economically viable for both companies. Ongoing projects such as the joint development and production of B-segment platforms, the joint development and production of the World Engine, joint development of C- and D-segment platforms, and the sourcing of a pickup truck from the Chrysler group will continue as planned. MMC’s basic stance towards future cooperative efforts will see the company prioritize projects based on how much they can contribute to achieving the targets set out in the business revitalization plan. MMC will pursue all possibilities for cooperation with other automakers on each project, centering mainly on DaimlerChrysler.
