Turnaround trouble: Mitsubishi back on the skids

The Lancer: A bright spot -- clouded by a shortage
LOS ANGELES — Mitsubishi's once-promising U.S. comeback has ground to a halt.

For most of the decade, Mitsubishi has been in a deep funk in the United States. Then sales last year rose 8.8 percent to 128,993 — the first annual increase since 2002. But North America CEO Hiroshi Harunari's turnaround plan has hit the skids in 2008.

Sales were off 23.4 percent in the first half, after plunging 42.4 percent in June. And the one car in demand during the recent rise in fuel prices, the little Lancer, is in short supply.

Dealers complain that Harunari has focused too much on cutting costs. They say the brand suffers from slim product offerings, a paltry ad budget and prices that aren't competitive.

Mitsubishi executives say they remain committed to the U.S. market, but retailers are worried. The company recently closed two of its four field offices and cut 49 sales positions at its U.S. sales division, including the headquarters in Cypress, Calif., and the regional offices. The company also has eliminated many of the dealer ad associations.

Dealers have received some hopeful news: Mitsubishi Credit is expected to get back into the retail financing business, opening the door to higher-risk customers. But some distressed dealers say Mitsubishi does not have the money to pique interest in the product. And when they get people in the door, there's too little to choose from.

Both the mid-sized Galant sedan and Endeavor crossover are long in the tooth. The Endeavor went on sale in March 2003 and got a minor nose job for 2006 model year.

The Galant was last redesigned for the 2004 model year. The 2009 model went on sale in February with new front and rear sheet metal and restyled headlights and taillights. Dealers complained it looked too much like the old model.

And the Raider pickup, which is based on the Dodge Dakota, has been a sales disaster, with only 1,128 units sold this year.

"How can you sell more with so few cars?" asks Armen Avanessian, general manager at Glendale Mitsubishi in Glendale, Calif.

In June, sales were down year-over-year for all six nameplates: the Galant, Lancer, Raider, Endeavor, the small Outlander crossover and the sporty Eclipse coupe.

Short of Lancers

Supplies are dwindling for Mitsubishi's most fuel-efficient model, the Lancer, which gets 22 mpg in city driving and 30 on the highway.

"We will have a shortfall of Lancers," says Don Herring, chairman of the Mitsubishi dealer council and owner of three Mitsubishi dealerships in the Dallas area. "We're not going to have enough of them. Lancer is a dynamite product for us right now. We need it."

The Lancer got off to a fast start after its April 2007 redesign, then cooled off later in the year. When gasoline prices soared this spring, sales picked up, rising from 2,962 in April to 3,669 in May. But global demand for the Japan-built car, which is sold in several countries, has put the Lancer in short supply.

U.S. sales totaled 3,003 in June, down 8.9 percent from June 2007. Dealers have complained that Mitsubishi is sending many more Lancers to Russia.

One dealer, who asked not to be named, said the United States is scheduled to receive only 1,000 units in September and 1,000 in October.

"We don't have an exact number, but dealers are being told that they won't get an unlimited amount of Lancers," says Dan Kuhnert, executive vice president of sales and marketing at Mitsubishi Motors North America. "They won't see dramatic declines from three to four months ago. They just can't get what they want."

The 2009 Mitsubishi Galant got some new sheet metal and restyled headlights and taillights. But dealers say it looks too much like its predecessors.

Price problem

There's no shortage of Galants, but first-half sales were flat compared with last year. Avanessian, of Glendale Mitsubishi, says the sedan is priced too high.

"They've priced the Galant out of the market," he says. "Why would you buy a Galant when you can get a Camry or Accord at a better price?"

The base 2009 Galant, with an automatic transmission, is priced at $21,774 including shipping. The 2008 Honda Accord, redesigned for 2008, is $21,830 with shipping. The 2009 Toyota Camry is $20,630.

But dealers say they are encouraged that Mitsubishi Motors Credit of America Inc. is expected to finance retail loans again. The captive finance company curtailed retail lending after huge losses in 2003 and 2004. Mitsubishi Credit kept its wholesale dealer floorplanning business, but in July 2005, Merrill Lynch & Co. began funding 100 percent of the captive's retail vehicle loans, sold as Mitsubishi Credit.

Mitsubishi would not comment on the return of the credit company, but dealers expect it to happen.

"I would be surprised if they didn't make an announcement by early July," Herring says. "That would be a huge plus for the dealers. Merrill Lynch, to me, has no incentive to loan money to sell a Mitsubishi unless it makes total economic sense. But the factory always has an incentive to sell one more car."

Herring says he believes Mitsubishi Credit will accept higher-risk customers.

Dealers say a healthy captive finance company can help close more deals. According to Compete Inc., a Boston consulting firm, the average retail conversion rate for customers who walk into a Mitsubishi showroom was 9.6 percent from May 2007 through April 2008. That compares with 29 percent for Toyota, 26 percent for Nissan and 14 percent for Mazda.

"Dealers really want (Mitsubishi Credit) bad," says Joe Mitchell, owner of Biggers Mitsubishi in Elgin, Ill. "It will take the middleman out. With the manufacturer behind it, we can move more metal."

Empty pipeline

But dealers worry that there is not enough in Mitsubishi's pipeline. They say they have been told that an electric vehicle may come to the United States, plus diesel versions of existing models, but that no other all-new vehicles definitely are in the works. The company has hinted that the Concept-cX, a compact crossover shown at the Frankfurt auto show last fall, could replace the Endeavor.

Kuhnert says the United States has a strong lineup of four-cylinder vehicles. A four-cylinder Outlander was added for the 2008 model year. Currently, third-row seating is available only on the six-cylinder version. But for 2009, the third-seat model will be available with a four-cylinder.

Dealers get a sporty Ralliart Lancer trim line in September and a hatchback next spring. And Kuhnert says dealers "can get all of the four-cylinder Galants they need." The Galant is built at Mitsubishi's plant in Normal, Ill. The four-cylinder, which gets 20 mpg in the city and 27 on the highway, makes up 85 percent of Galant sales.

Lack of exposure

Dealers have complained that the company's estimated $150 million annual ad budget is too small.

"Exposure is the key for us," says Ted Terp, owner of Metro Mitsubishi near Minneapolis. "Our quality is second to none. We just need to get traffic through the door."

Kuhnert declined to discuss the ad budget. "Our short-term focus and the least expensive way to sell cars is to communicate with our existing owner base," he said. "We have to increase repeat buyers."

He says Mitsubishi's new ad agency, Traffic, of Hollywood, Calif., will help with interactive marketing.

"We will look more at interactive in the future," he says. "Our real challenge is steering Internet shoppers to our site." 

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