The vehicle, a combination minivan, sport-utility and station wagon, was supposed to pump energy into slumping sales and help the company reclaim the lead it held in the first half of the 1990s in crossover models.
But the Airtrek is having trouble. In August, the second full month after its June 20 launch, sales in Japan totaled 1,005 - far below the monthly target of 5,000 set by Mitsubishi COO Rolf Eckrodt.
Missing targets does not bode well for Mitsubishi's Turnaround Plan. If Mitsubishi's comeback falters, that could jeopardize restructuring at the Chrysler unit of DaimlerChrysler AG, which plans to join Mitsubishi in platform sharing to slash its own costs.
DaimlerChrysler owns a controlling 34 percent of Mitsubishi.
"It raises questions about the judgment of management to set that kind of target," said Clive Wiggins, Tokyo-based auto analyst for Commerzbank Securities (Japan) Ltd.
Weak sales are not limited to the Airtrek. In Japan, Mitsubishi is dogged by loss of customer trust after a recall scandal last summer in which the carmaker admitted a policy of falsifying quality reports to the government for more than 20 years. Mitsubishi's sales have fallen 10 percent to 25 percent in 10 of the last 12 months.
'We've reached the bottom'Mitsubishi vehicle sales are down 17.1 percent through August this year in a home market that has risen 0.6 percent. Last year, Mitsubishi fell 7.1 percent while the market gained 1.7 percent.
"I think we've reached the bottom right now" for sales, Eckrodt said. "The Turnaround Plan is on track."
But Eckrodt did not minimize the task of regaining consumer faith.
"To regain trust is a very difficult issue. Normally, all news is multiplied by 11 if it's bad, and by three only if it's nice. So it's hard work."
Mitsubishi's plan includes advertising campaigns that stress new management and a "Quality Gates" approach to inspecting a car before launch, a method borrowed from Mercedes-Benz.
Eckrodt was upbeat about reviving sales in Japan. Leading the revival, he said, will be a minivehicle that is "the benchmark in safety standards for a minicar."
Whether or not Japan sales recover, most Tokyo analysts believe the Turnaround Plan will proceed, with Mitsubishi suffering two weak years and then posting a strong rebound.
Most analysts say Mitsubishi will reach its target of 15 percent savings on materials by April 2004. And supplier cost cuts should be easy; 99 percent of its suppliers are in Japan, which is gripped by the worst deflation in the world. Compounding the problem, Japan's wholesale prices fell 0.8 percent in July, according to the central bank.
Worries about the restructuring center on two points:
1. Will the U.S. market soften more than anticipated?
2. Will Japanese consumers shun the tarnished Mitsubishi brand longer than expected?
U.S. still sales 'high spot'Even before Sept. 11, Mitsubishi's car and light-truck sales in the United States were down 3.6 percent in the first eight months of 2001, to 206,369. That was better than the overall market, though, which was down 4.9 percent.
Lower volumes can be a sign of a heightened focus on profits. For example, Nissan Motor Co. President Carlos Ghosn said, "We've been managing for profitability, not market share," in the United States, where combined Nissan and Infiniti sales in the first eight months fell 9.5 percent to 467,316.
Mitsubishi's lower sales in the United States are in part because of reduced leasing incentives. But a June Consumer Reports story that said the Montero Limited is prone to rolling over didn't help.
"There's no doubt the United States business is still the high spot in the overall global market for Mitsubishi," said Howard Smith, Tokyo-based auto analyst for ING Baring Securities (Japan) Ltd.
"They are very dependent on keeping that American market growing. For a relatively weak brand like Mitsubishi in the U.S. market, pressure on incentives is only going to get worse. I don't see large improvements in profitability in the U.S. market over the next two years," Smith said.
He cited figures from market researcher Autodata that showed Mitsubishi was spending more on incentives in the United States than the U.S. arms of Toyota, Honda, Nissan, Mazda or Subaru.
A critical question for Mitsubishi is: How quickly can it bring the Airtrek to the United States?
"It's going to be a big seller in the U.S.," said William Nestuk, Tokyo-based auto analyst for WestLB Securities Pacific Ltd. "They see it as a Forester," the highly successful all-wheel-drive wagon from Subaru that appeals to those who don't want the heft or feel of a trucklike sport-utility.
Mitsubishi plans to launch the Airtrek in America in 2002 - before, Nestuk says, a new generation of the Forester arrives.
Falling sales in Japan and the United States could hurt Mitsubishi and Chrysler restructuring efforts.
Weak Mitsubishi sales, for example, would reduce the number of total sales to come from any platform sharing by the two makers.
Already, projected volumes from combining the Chrysler Neon and Mitsubishi Dion onto a single platform are lower than those projected from combining similar-sized platforms at Nissan Motor Co. and Renault SA.
Lower volumes could mean suppliers would be less willing to offer hefty discounts on parts prices, because those suppliers would see fewer benefits from economies of scale.
Sales predictions off base?Within the company, though, the outlook is rosy.
Mitsubishi Motors lost ¥278.1 billion, or $2.3 billion at current exchange rates, on a consolidated or group net basis in the fiscal year that ended March 31. That compares with a loss of $194 million a year earlier. North America was the only region to post an operating profit in the past fiscal year: $280 million.
The carmaker is projecting a return to breakeven for the full current fiscal year.
Mitsubishi forecasts that its unit sales worldwide will rise 7.3 percent in the fiscal year to March 31, 2002 - to 1,550,000, even though it is cutting exports to Europe. Yet the U.S. market is softening, and Mitsubishi's Japan sales continue to fall.
Mitsubishi's forecast, made last May, is for its Japan sales to rise 8.5 percent this fiscal year. "What are they thinking?" Wiggins said.
Such forecasts have undermined Mitsubishi's and Eckrodt's credibility because they implied a Pollyannaish attitude toward Mitsubishi's future, when a hard-eyed realism was more fitting for a company in the midst of restructuring.
The Airtrek epitomizes the issue. Few analysts thought Mitsubishi would be able to sell 5,000 Airtreks a month, but they said Eckrodt was adamant in defending the target.
"The Airtrek problem was twofold," said Commerzbank's Wiggins. "First, there is a continuing disillusionment with the brand. Second, it was unrealistic to think they'd sell that kind of volume - 5,000 a month - when the segment leader, the Nissan X-Trail, sells 3,000 to 4,000 with twice as many showrooms."
Said Stephen Usher, Tokyo-based auto analyst at J.P. Morgan Securities Asia Pte. Ltd.: "It's no surprise that the Airtrek is not making its initial targets given the level of cynicism facing the company in the domestic market." But, he said, "We expect that over the next three or six months, the Airtrek will pick up word of mouth."
That is Eckrodt's position as well.
Because the Airtrek is a synthesis of three segments, it has to draw customers gradually from each of those segments, he said.
Making a different approachIn addition, Eckrodt said: "The customer has to drive that car. It's not a case where better showroom traffic will lead customers to buy the car based on its design. So we have to approach the customer differently. We have to invite him to drive the car."
Mitsubishi has encouraged dealers to order two cars for customer test drives, rather than the usual one, and has contracted with a car rental company to offer consumers a chance to rent the Airtrek for two days free of charge.
Airtrek sales "are increasing at the moment," Eckrodt said, predicting that volumes will grow.
Still, Mitsubishi ranks fifth in Japan in total sales, behind Toyota, Nissan, Honda and Suzuki. Mitsubishi's 2000 sales of 543,880 were far behind Honda's 765,437, and the gap is widening.
"I think it's inevitable that Mitsubishi gets punished by Japanese consumers for the scandal of last year," said J.P. Morgan's Usher.
"But in the event that Mitsubishi comes up with some attractive new product of high quality, and pays more attention to the consumer as they've been saying, they will regain that trust," he said.
Said Wiggins, "People over time do forget. I think the problem now is the Mitsubishi brand will fall below people's radar screens. It'll be more of a passive thing than a negative thing."