In a big market such as Europe or the United States, a variety of automakers can make good money. In a smaller market such as Australia, a second-tier manufacturer must grow - or else.
Consider the plight of Mitsubishi Motors Australia Ltd., the smallest of that country's four auto manufacturers. Last year, Mitsubishi's Australian operation lost nearly $61 million. Sales fell 17 percent to 67,141 units, as the company dropped far behind rivals GM Holden, Ford and Toyota. A year ago, Mitsubishi President Katsuhiko Kawasoe issued a tough warning to the company's Australian unit, noting the Adelaide assembly plant's future was in doubt. His comments, reported in the Australian press, had an immediate and disastrous effect on sales. According to Mitsubishi Australia Chairman Norio Takehara, the company lost an estimated 7,000 sales as as a result.
At one point, Mitsubishi was forced to store 8,000 Magna and Verada V-6 sedans and wagons in a field near the assembly plant. Worse yet, Mitsubishi had no luck selling the export version of the Verada, known as the Diamante in Japan and North America. Stagnant sales in Japan also limited exports of the Australian company's V-6 engine and castings, built at the Lonsdale plant near Adelaide.
The irony is that the Magna and Verada are widely acknowledged to be among the best Australian-built cars. But uncertainty about Mitsubishi's future depressed the models' resale values. Business and government fleet buyers, who buy the majority of Australian-built cars, looked elsewhere for vehicles with more predictable resale values. Kawasoe has given Mitsubishi Australia until year end to show that it can make a profit. Otherwise, Mitsubishi again will consider shutting down Adelaide.
Despite his tough talk, Kawasoe has not starved the Australian operation. In February, Mitsubishi finally approved a $285 million plan to develop the successor to the Magna/Verada series. The next-generation models will go into production in 2005. This was a triumph of sorts for Mike Quinn, the Australian operation's previous managing director. Quinn had spent many months lobbying Japan. A quiet, steely-eyed and determined man, the 60-year-old had been with the company since he was 16, working in the mailroom of what was then Chrysler Australia Ltd. The prospect of battles over the Australian operation's future played a role in his decision to retire in February.
When Chrysler Australia was sold for $46 million to Mitsubishi in 1980, Quinn and the work force stayed. They already had been making small cars for Mitsubishi license as well as the big six-cylinder and V-8-powered rear-wheel-drive Valiant. Mitsubishi dumped the big cars and launched its own lineup of smaller front-wheel-drive cars, which proved highly popular in Australia. Only Ford and General Motors still produce rear-wheel-drive cars in Australia. But the Adelaide plant is operating at less than half of its capacity; the plant must boost output and improve productivity.
Mitsubishi is trying to boost productivity by trimming its work force. Last year, the company cut its work force to 4,150 employees from 4,700. An additional 600 workers will leave this year under a voluntary layoff plan for salaried employees. The company's Australian sales are consistently a distant fourth among the four local producers. Last year, it built only about 46,574 vehicles. Company officials have said the optimum annual production capacity would be 75,000 units, but they do not expect to reach that figure. Instead, Mitsubishi is slashing the plant's production costs to bring its break-even point to 30,000 units.
The company had hoped to keep the plant busy by boosting exports. But Mitsubishi exported only 9,976 Diamantes last year, falling short of its original target of 15,000 units. Now, the company's goals are more modest. Mitsubishi hopes to export 10,000 vehicles this year and the same number in 2001. The wagon version was exported to Japan but was superseded by the Japan-built Legnum. And rather than make Australia the sole global production site for the Diamante, as Mitsubishi did for the Strada pickup built in Thailand, it chose to build Diamantes in Japan as well. That erased what could have been a major export market for Mitsubishi Australia.
Mitsubishi is trying to boost sales at a time when the Australian market is unusually unpredictable. On July 1, the government phased out a 22 percent wholesale sales tax on vehicles. Although it was replaced by a 'goods and services' tax, retail car prices were expected to drop 6 percent. In the first six months of the year, car sales dropped as customers waited for the planned tax cut. To prop up sales, automakers discounted prices ahead of the planned tax cut. Despite all of this, Mitsubishi's marketing department sold most of its inventory and is making efforts to stimulate interest in its products.
Despite the uncertainty, Mitsubishi hopes to sell 80,000 cars and trucks in Australia, a figure that includes imports as well as locally produced vehicles. Overall, Mitsubishi expects industry sales in Australia to total 764,000 vehicles this year, a figure that is in line with other estimates. If so, that would mean Mitsubishi would account for roughly 10 percent of the market.
The company's new alliance with DaimlerChrysler might help it make better use of its underused assembly plant, which is an efficient, modern factory. In Australia, buyers have shown a strong preference for sport-utilities. While car sales have contracted, sales of the Toyota RAV4, Honda CR-V and Subaru Forester have risen. DaimlerChrysler imports Jeeps from the United States and Austria. An Asian assembly plant for Jeep might make more sense than a plant that produces the next-generation Magna and Verada. With the debut of the next Magna and Verada planned in 2005, Mitsubishi and DaimlerChrysler still have time to make a decision.
Because of the Australian market's limited size, one might expect rival automakers to hope for a shutdown of Mitsubishi's Adelaide assembly plant. But a Mitsubishi shutdown actually could hurt other manufacturers. If Mitsubishi were to close, it would reduce production volumes for many component suppliers. Some would suffer financial distress, which inevitably would lead to higher costs for the remaining carmakers. Australia's government is equally reluctant to see Mitsubishi shut down production. Because of the country's 8 percent unemployment rate, there is considerable government support for keeping Mitsubishi's operation going. Whether the global strategists at DaimlerChrysler see it the same way is another matter.
You can e-mail Tony Davis at [email protected]