Mitsubishi Motors on Thursday slashed its half-year and full-year earnings outlook, battered by special loss charges at its North American finance unit and weak sales in the US market, Reuters reported.

Unveiling numbers that surprised and worried analysts, Japan’s fourth-largest car maker said it would fall deep into the red for the half-year, forecasting a group net loss of 80 billion yen ($US673.7 million) for the April-September period, after earlier projecting a profit of 10 billion yen, Reuters added.

The news agency said problems at its North American finance unit continue to plague Mitsubishi which said it would have to book a 50 billion yen extraordinary provision.

For the full year, Mitsubishi, 37% owned by DaimlerChrysler, cut its group net forecast to 10 billion yen from 40 billion yen, Reuters said.

But analysts told Reuters that Mitsubishi’s full-year projections still appeared overly optimistic as the restructuring company appeared to have entered a vicious cycle in the US market, its main earnings pillar.

Reuters noted that Mitsubishi has embarked on a wholesale revision of the way it does business in the United States, concentrating on credit-worthy clients and stepping up debt-collection efforts.

“In moving to more creditworthy customers, they have seen vehicle sales fall. Because sales have slumped, they have had to bump up sales incentives and cut back on inventories,” Credit Suisse First Boston auto analyst Koji Endo told the news agency.

“Their full-year numbers still look optimistic as it’s not clear where the profit is going to come from in the second half of the business year,” he reportedly added.

Reuters said Mitsubishi slashed its operating profit outlook for the full year to 60 billion yen from 90 billion yen, with brutal price competition and hefty sales incentives from US car makers expected to take their toll. It also cut its retail sales estimate for North America in the current business year to 340,000 vehicles from 370,000, the report added.

However, Reuters said the expected sales decline was not evident in first-quarter numbers released earlier on Thursday, with Mitsubishi reporting group sales rose 3.5% as strong gains in Asia offset a fall in the US market.

Group sales came to 607 billion yen for the April-June period compared with 586 billion yen a year earlier. The results came as little surprise as sales volumes are announced monthly, Reuters added.

Reuters said Mitsubishi also announced it would invest $A230 million ($US152 million) in a new Australian research centre over five years to help develop Mitsubishi vehicles for world markets, including two new models due for release after 2005.

The investment announcement fulfilled the company’s promise last year to build an R&D centre in South Australia and spend $A900 million upgrading its car plant there, Reuters noted.