TOKYO/FRANKFURT -- DaimlerChrysler and Mitsubishi group companies will inject 200 billion yen ($1.9 billion) into Mitsubishi Motors Corp., a newspaper said on Tuesday, sending shares in the troubled Japanese auto maker up two percent.
Mitsubishi Motors, Japan's fourth-largest auto maker, and DaimlerChrysler, which owns a 37 percent stake in it, said nothing had been decided.
"As we have said before, there are discussions going on, but no decision has yet been made," a DaimlerChrysler spokesman said.
Mitsubishi Motors is expected to unveil a fund-raising plan in March, when it has scheduled an extraordinary shareholders' meeting. DaimlerChrysler Chief Financial Officer Manfred Gentz said last month the auto maker was considering a capital increase in its Japanese partner.
The Nihon Keizai business daily said on Tuesday that Mitsubishi Motors would issue preferred shares to the shareholders, including trading firm Mitsubishi Corp. The capital infusion would take place by March 31.
Mitsubishi Motors has been dogged by financial woes stemming from loose credit controls at its North American finance unit, forcing it to set aside a big extraordinary provision in what was meant to be the final year of three years of restructuring.
CONTINUING DRAIN
Analysts are worried that Mitsubishi Motors' ills will continue to drain its DaimlerChrysler's valuable resources.
"The survival of Mitsubishi Motors is key for Chrysler's revival startegy, and it remains to be seen if this is the last time Mitsubishi draws on its cash," said a German analyst.
The German automaker's situation contrasts with that of France's Renault, which has reaped huge benefits through its investment in Nissan Motor Co., now the world's most profitable volume carmaker.
Analysts expect DaimlerChrysler to miss its 2003 operating profit target of about five billion euros ($6.2 billion), excluding one-off effects, when it reports results on Wednesday.
DaimlerChrysler said last month it would buy an additional 22 percent in Mitsubishi Fuso Truck & Bus Co from Mitsubishi Motors for 52 billion yen to help shore up its partner's balance sheet.
"That wasn't going to be enough to develop new cars and to restructure its production and sales operations," Nikko Citigroup analyst Noriyuki Matsushima wrote in a memo.
"A capital boost through the (reported) third-party share allocation is going to be absolutely necessary for its survival."
SALES SLUMP
The Nihon Keizai said Mitsubishi Corp., Mitsubishi Heavy Industries Ltd. and Bank of Tokyo-Mitsubishi would provide a combined 70 billion yen, while DaimlerChrysler would extend another 70 billion yen. Other Mitsubishi group firms would provide the remaining 60 billion yen.
Mitsubishi Heavy will also send Managing Director Yoichiro Okazaki to become chairman of Mitsubishi Motors -- a post left vacant since the sudden death of Takashi Sonobe in late October.
The shareholders had initially planned a capital infusion of 100 billion yen but decided to raise the figure to cover the cost of developing new models for next year, the paper said.
Analysts said the cash would help Mitsubishi Motors keep its operations going, but business would be tough in the near term until new products begin to lift sales again. Even then, there is no guarantee that those cars will sell.
If the past year is any indication, the prospects look bleak.
In Mitsubishi Motors' crucial U.S. market, sales plunged 26 percent in 2003 as the auto maker put an end to its strategy of extending easy loans, many of which were never repaid.
Demand in Japan rose 3.4 percent last year, but that mainly reflected a dearth of new models in 2002.
Orders have fallen far below target for individual models in an intensely competitive market, leading to a 33 percent slide in domestic sales of full-size vehicles in January year-on-year.
Weak sales, coupled with the yen's sharp rise against the dollar in the past year, are expected to sap earnings.
For the year to March 31, Mitsubishi Motors has forecast a group net loss of 11 billion yen compared with a net profit of 37.36 billion yen last year.
