Mitsubishi President Steps Down

T O K Y O, Sept. 8, 2000 -- German-U.S. automakerDaimlerChrysler tightened its grip on scandal-hit MitsubishiMotors today by dispatching a key troubleshooter toJapan in a prelude to a potential takeover in three years time.

Taking advantage of Mitsubishi’s woes over a consumercomplaint cover-up, the world’s number three carmaker agreed tosend senior executives to its Japanese partner with the task ofoverhauling its operations.

They will be headed by Rolf Eckrodt, the tough boss ofDaimlerChrysler’s unit Adtranz, who will become chief operatingofficer at Mitsubishi Motors (MMC), the world’s tenthbiggest car firm.

Their alliance focuses on small cars, but industry sourcesindicated DaimlerChrysler’s interest in MMC’s commercial vehicle business could put it on a collision course with Volvo, which isdue to take a 20 percent stake in Mitsubishi’s truck unit.

Stake Stays the SameContrary to some expectations, DaimlerChrysler did notincrease its 34 percent stake in Mitsubishi Motors, but itrenenegotiated its price down to $1.9 billion from $2.1 billion.

Unlike German rival BMW AG, which lost billions of dollarsand put its independence at risk by taking over Britain’s ailingRover Cars, DaimlerChrysler made clear a takeover was an optiononly when Mitsubishi was back on track.

“DaimlerChrysler AG is entitled to increase its stake inMitsubishi Motors Corporation after a period of three yearswithout limitation,” it said in a statement.

DaimlerChrysler also avoided consolidating its troubledpartner so that its balance sheet is not burdened withMitsubishi’s 1.47 trillion yen ($13.95 billion) debt.

Analysts welcomed the move, noting that the German-U.S.group managed to strengthen its foothold in Asia at a relativelylow risk while gaining the freedom to launch a completetakeover.

“For DaimlerChrysler, this gives a completely new complexionto the situation. The price reduction was not a big issue,”Schroder Salomon Smith Barney analyst John Lawson said.

“What was missing before was a way to move forward andhopefully, this [the option to take full control] will give themthat,” he said.

Mitsubishi Faces ChargesThe deal was announced as Japanese authorities said theywould press criminal charges against Mitsubishi, which admittedlast month it had systematically covered up customer complaintsfor over 20 years.

In response, Mitsubishi’s President and Chief ExecutiveKatsuhiko Kawasoe said today he would resign, takingresponsibility for the embarrassing affair.

He will stay on the board, to be expanded to 11 members,while Takashi Sonobe, head of the carmaker’s internationaloperations, will become chief executive.

Sonobe brushed aside the idea that the arrival of Eckrodtcould be compared to the appointment of Renault manager CarlosGhosn at Japanese rival Nissan Motor, where he launched adrastic three-year restructuring program.

“I will be responsible for strategy, product development andfinance over the long term. The Chief Operating Officer will bein charge of day-to-day operations and will report to the CEO,”he said in Tokyo.

“Staying independent is important and we managed to do thatby keeping DaimlerChrysler’s stake at 34 percent,” he added.

DaimlerChrysler Calls the ShotsBut DaimlerChrysler made clear it expects Mitsubishi toallow the foreign contingent to play a key part in the company’soverhaul. It will become its biggest shareholder, followed byMitsubishi group companies with a 33 percent stake.

“After constructive and fruitful discussions MitsubishiMotors Corporation and DaimlerChrysler AG mutually agreed thatDaimlerChrysler AG will increase its influence in MitsubishiMotors Corporation,” DaimlerChrysler said.

“Changes have been agreed to the organization and managementof Mitsubishi Motors that will ensure the recovery of thecompany’s reputation,” it said.

Analysts say Sonobe also has a track-record of toughdecision-making and turnaround successes during his time atMitsubishi’s North American operations.

Erik Burgold, auto sector analyst at BHF-Bank in Frankfurt,said it was not yet clear how much operational controlDaimlerChrysler will be able to wrest from Mitsubishi MotorsCorp’s parent firm.

“In my view, the problem still exists that Mitsubishi Motorsis integrated into the supplier structure of Mitsubishi HeavyIndustries and the question is how far they can break up thesupplier structure,” he said.

Truck Tussle?Another question puzzling analysts is the future ofMitsubishi’s commercial vehicle operation in which rival Volvohas a five percent stake.

DaimlerChrysler, the world’s number one in heavy trucks,said it would honor Mitsubishi’s agreement with Volvo — whichwants to boost its stake in the trucks unit above 20 percent itis due to take next year.

But industry sources said Daimler would oppose any suchmove, setting the scene for a tussle with the Swedes over theattractive business. Daimler’s 34 percent stake allows them toblock any decision regarding capital increases.

Volvo said changes in an alliance between DaimlerChryslerand Mitsubishi would not weaken its own deal with MMC butadmitted it made its own tie with the Japanese company moredifficult.

“Our position has not weakened because of this [new deal].They are adding an operative boss for the car division, whichconfirms what MMC has said and that is that the car and truckdivisions must be separate,” AB Volvo spokesman Mats Edenborgtold Reuters.

Eleven months ago Volvo, the world’s second biggest truckmaker, and Mitsubishi took small stakes in each other and agreedthat Volvo would acquire one-fifth of MMC’s prized truck and busunit when it is sold next July.