TOKYO - For Hyundai Motor Co.'s Lee Hyun-Soon, vice president of engineering, it was a moment of astonishment - and pride.
A team of engineers and designers from Mitsubishi Motors Corp. had just finished reviewing the new Hyundai Equus. The luxury sedan, powered by a 4.5-liter gasoline direct-injection engine built under license from Mitsubishi, was being considered for sale in Japan under the Mitsubishi badge.
Lee expected the Mitsubishi team to insist on a long list of changes to make the car worthy of being labeled a Mitsubishi. They didn't.
All the Mitsubishi inspectors asked for was a minor tweaking of the car's taillights and alloy wheels. Beyond that, Hyundai's flagship sedan passed muster as a Mitsubishi luxury model.
About 30 per month are now being exported to Japan, where the car is sold as the replacement for the Mit-subishi Debonair.
'They only made two visits, and they signed off on the design,' Lee recalled in a recent interview.
That quick sign-off marked a milestone in relations between the two carmakers, which have shared equity and technical ties since the 1980s.
Relationship in reverse
After several years of reduced ties between Hyundai and Mitsubishi, as Hyundai relied less and less on Mitsubishi technology, the trend has reversed. 'Our talks on cooperation are increasing,' said Lee Chong-Goo, Hyundai president in charge of engineering, research and development.
Indeed, the relationship may be reversing.
Hyundai has carefully nurtured its product development skills. Ever since it began to license engine and other technologies from Mitsubishi in 1973, Hyundai's goal has been to wean itself away from its Japanese partner's technology. Only in recent years has Hyundai been able to brag about developing a car entirely on its own.
Now, under one scenario being considered by Mitsubishi, Hyundai would have a key role in developing all of Mitsubishi's future large sedans. This would reduce the cost of new-model development for both companies, improving their competitiveness on world markets.
For the financially troubled Mitsubishi, joint development could allow it to stay in some segments where it might otherwise have to retreat. It might even be the key to keeping open one of its assembly plants outside Japan.
'At this stage, we continue to discuss those areas which could be mutually beneficial,' said Mitsubishi President Katsuhiko Kawasoe. Mitsubishi Motors owns 6.7 percent of Hyundai, as does trading house Mitsubishi Corp.
Kawasoe's guarded phrasing is deliberate, for it is by no means certain that Mitsubishi will turn to Hyundai for large sedans.
Mitsubishi Managing Director Takashi Sonobe, who heads the carmaker's U.S. operations, is pro-moting an alternative plan: that large-car development be led by Mitsubishi's U.S. engineering staff.
Renewal through restructuring
One way or another, however, Mitsubishi's Japan-based engineers will not develop the company's new large sedans without assistance or cooperation from outside. That's the implication of Mitsubishi's current restructuring program, known as Renewal Mitsubishi 2001, or RM2001.
'If they follow their restructuring plan to the letter, they can't develop their large sedans on their own. So they may have to ask Hyundai to pick up some of the slack,' said Greg Ornatowski, Japan auto analyst at Standard & Poor's DRI Global Automotive Group in Tokyo.
RM2001 is designed to trim Mitsubishi's crippling debt of ¥1.77 trillion, or about $14.75 billion at current exchange rates, and thus put Mitsubishi back on a profitable footing. RM2001 states unequivocally that the carmaker will focus its new-model efforts on 'what are expected to be the growth segments of the market.' It identifies the segments as minicars, Pajero sport-utilities and so-called smart-utility wagons such as the recently launched Mirage Dingo.
Conspicuously absent from the list of targeted segments are commercial trucks and large sedans. Both segments have collapsed in Japan.
Medium- and heavy-duty truck sales plummeted in 1998 to their lowest level in more than 30 years amid weak sales at home and tumbling exports to Asia. Kawasoe has separated truck and passenger-car operations into separate profit-and-loss businesses, leading to speculation that Mitsubishi's truck business may be for sale.
Sedan sales, in particular luxury and near-luxury models, have shrunk steadily throughout the 1990s as customers shifted to minivans, station wagons, sport-utilities and other body styles in the so-called recreational vehicle segment.
At the same time, fleet sales suffered as companies cut spending to cope with Japan's worst recession since the end of World War II.
So it is no wonder Mitsubishi is rethinking its commitment to the large-sedan segment. With RM2001 aiming to cut Mitsubishi's lineup of 24 models (excluding minicars) to 15 or fewer, the limousine-style Debonair, for example, is a prime candidate for the ax. Mitsubishi sold a mere 531 Debonairs in 1998, down 41.5 percent from 1997.
Still, Mitsubishi Group vice presidents are used to being chauffeured around Tokyo in large black sedans bearing the Mitsubishi three-diamond logo. So Mitsubishi Motors cannot simply walk away from the segment.
One obvious possible replacement for the Debonair is the rebadged Equus from Hyundai. But how to replace the slightly smaller, Australian-built Diamante?
Mitsubishi sold only 8,000 Diamantes in Japan last year, down 47 percent. Sales outside Japan, principally in the United States, Europe and Australia, fell 24 percent from 1997, to 44,226.
If Mitsubishi were unable to rejuvenate the Diamante, the company would almost certainly have to consider closing its Australian factory.
So Mitsubishi wants to keep these sedans in its lineup but needs to develop them on the cheap. Enter Hyundai, perhaps as project leader.
For Hyundai, sharing the costs of development would be a boon. The large-sedan segment continues to grow in Korea, where traditional styling still predominates.
In Sonobe's view, however, the country that is the main market for a given vehicle should be given the lead engineering and design responsibility for that market.
Consider the Challenger sport-utility. Mitsubishi sold only 3,800 in Japan in 1998, compared with 38,439 in America, where it is called the Montero Sport. Therefore, Mitsubishi's American organization should have lead responsibility for the next-generation Montero Sport, according to Sonobe.
In Sonobe's view, U.S. engineers preparing the next Galant to be built in America could easily develop a platform that could be stretched sufficiently to do double duty for the Diamante. Thus, Mitsubishi's large-sedan future would be in American hands, not Korean.
Sonobe's argument assumes, though, that Mitsubishi's U.S. engineering staff is capable of juggling the demands of developing a new Montero Sport, Eclipse and Galant all roughly at the same time. Mitsubishi's American r&d capabilities, however, are not nearly as extensive as those of, say, the American arm of Honda Research & Development Co., much less those of Hyundai in Korea.
Now Hyundai may get a chance to turn the tables on its one-time patron. Doing so would be more than just a good business deal for Hyundai. It would be an affirmation of Hyundai's engineering prowess and a source of pride for the face-conscious Korean carmaker.
Staff Reporter Mark Rechtin in Los Angeles and Staff Correspondent Oles Gadacz in Seoul contributed to this report