Can Car­los Ghosn’s cost-cut­ting tac­tics also save Mit­subishi?

▶ Car­los Ghosn, the auto in­dus­try’s su­per­hero, is try­ing to save Mit­subishi Mo­tors ▶ “There’s a huge re­ward if we are suc­cess­ful”

Bloomberg Businessweek (North America) - - Contents - Kae Inoue and Ma Jie

When Car­los Ghosn was brought in to res­cue loss-rid­den Re­nault in 1996, it took him only a year to turn the French car­maker around. The 20 bil­lion French francs of ex­pense cuts he im­posed earned him the nick­name Le Cost Killer. Three years later, Ghosn was sent to re­vive Re­nault part­ner Nis­san Mo­tor, which had been un­prof­itable in seven of the pre­vi­ous eight years and was the most in­debted car­maker in the world. By fis­cal 2003 it had be­come the globe’s most prof­itable ma­jor au­tomaker. His re­vival of Nis­san re­mains one of the in­dus­try’s ex­tra­or­di­nary suc­cess sto­ries. Ghosn even be­came the sub­ject of a comic book se­ries that reached 300,000 Ja­panese read­ers in monthly in­stall­ments in 2001.

Now he’s be­ing called in to play su­per­hero again, as part of Nis­san’s agree­ment in May to pay $2.2 bil­lion for a con­trol­ling stake in Mit­subishi Mo­tors, which saw its shares plunge 40 per­cent af­ter a scan­dal broke in April. The peri­patetic Ghosn— he’s chief ex­ec­u­tive of­fi­cer of both Yoko­hama-based Nis­san and France-head­quar­tered Re­nault—will need to quickly clean up Mit­subishi’s im­age, which has been tainted by the com­pany’s re­cent ad­mis­sion that for more than two decades it used im­proper fuel- econ­omy test­ing meth­ods and since 2011 has over­stated the fuel ef­fi­ciency of its mini­cars sold in Ja­pan. He’ll also likely have to get out his scis­sors again, to elim­i­nate over­lap in pur­chas­ing and ve­hi­cle de­vel­op­ment.

An em­bat­tled Mit­subishi faces big scan­dal-re­lated costs in Ja­pan. Pro­duc­tion losses, penal­ties, and com­pen­sa­tion to cus­tomers could to­tal as much as 376 bil­lion yen ($3.4 bil­lion), es­ti­mates Gold­man Sachs an­a­lyst Kota Yuzawa. Yet it isn’t in as bad fi­nan­cial shape as Re­nault and Nis­san were when Ghosn ar­rived to res­cue them in the 1990s. Mit­subishi had about 450 bil­lion yen in net cash as of

March 31 and has been prof­itable for seven years.

So if Ghosn can squelch the fu­el­ef­fi­ciency scan­dal and put in place cost cuts that re­store in­vestors’ faith in the com­pany’s fu­ture, Nis­san stands to get a healthy re­turn on its Mit­subishi stock—and pro­tect the steady sup­ply of mini­cars Mit­subishi builds for sale un­der the Nis­san name.

“I don’t think we can say what’s com­ing is much more dif­fi­cult than what we have seen,” says Ghosn. “It’s go­ing to be chal­leng­ing. There’s a huge re­ward if we are suc­cess­ful.”

A Re­nault-nis­san-mit­subishi al­liance— which would cre­ate the world’s fourth­largest au­to­mo­tive group—could yield big sav­ings by com­bin­ing parts and ma­te­ri­als pur­chas­ing, shar­ing pow­er­trains, and jointly de­vel­op­ing minive­hi­cles, ac­cord­ing to Credit Suisse an­a­lyst Masahiro Akita. “If you lay out ev­ery­thing that’s known cur­rently, the deal could rep­re­sent quite a smart de­ci­sion,” says Thomas Glendin­ning, an auto an­a­lyst at BMI Re­search.

Mit­subishi and Nis­san set up their minicar ven­ture in 2011 and have been look­ing to strengthen ties, Ghosn says; the fuel- econ­omy scan­dal just ac­cel­er­ated the talks. He lists com­mon ve­hi­cle plat­forms, shared elec­tric- car tech­nolo­gies, and fi­nan­cial- ser­vices ven­tures among the ar­eas in which Nis­san and Mit­subishi can co­op­er­ate more. He’s also send­ing Nis­san man­agers to run ve­hi­cle de­vel­op­ment at Mit­subishi.

What Ghosn wants most from the tieup may be more ex­po­sure to fast­grow­ing South­east Asia, where Nis­san trails Toy­ota Mo­tor, Honda Mo­tor, and even the much smaller Mit­subishi. Af­ter clos­ing plants in Europe and the U.S., Mit­subishi is fo­cus­ing on ex­pan­sion in South­east Asia, where its pop­u­lar Tri­ton pickup and Pa­jero SUV help it sell twice as many ve­hi­cles as it does in Ja­pan. It has said the mileage scan­dal didn’t oc­cur there.

“They as­sured me that there are no prob­lems out­side Ja­pan,” says Ghosn. “These are peo­ple we trust—we have been work­ing with them for four years, and they never told us some­thing which was com­pletely out of whack.”

Nis­san, whose en­gi­neers were the whistle­blow­ers who ini­tially no­ticed dis­crep­an­cies in the fuel econ­omy of mini­cars sup­plied by Mit­subishi, will have to help its new part­ner over­come the cri­sis first. In­ves­ti­ga­tions into Mit­subishi’s over­stat­ing of mileage are still un­der way, and the com­pany re­cently found that mod­els other than mini­cars were also im­prop­erly tested in Ja­pan. Mit­subishi Pres­i­dent Tet­suro Aikawa has said he’ll step down af­ter a share­holder meet­ing in June.

Mit­subishi could burn through its cash quickly, says Koji Endo, an an­a­lyst at Ad­vanced Re­search Ja­pan. That’s be­cause Endo ex­pects sales of Mit­subishi ve­hi­cles to fall in Ja­pan as news of the scan­dal spreads—its minicar sales fell 45 per­cent in April— and li­a­bil­i­ties re­gard­ing the mileage mis­state­ments to be large. In the worst case, says Endo, Ghosn may even have to shut down Mit­subishi’s Ja­panese op­er­a­tions and rely solely on its healthy busi­ness in South­east Asia.

Un­der Nis­san’s agree­ment with Mit­subishi, Ghosn has a year to com­plete the in­vest­ment deal. Yet BMI Re­search’s Glendin­ning says even that might not be enough time to carry out a thor­ough in­ves­ti­ga­tion and “pin­point all of the mis­con­duct by the cor­po­rate man­age­ment.”

Ghosn says Nis­san won’t be “jump­ing into a black box” and will be able to con­firm all the facts be­fore com­plet­ing the Mit­subishi in­vest­ment deal within four months. If some­how Mit­subishi doesn’t con­firm its num­bers and pro­jec­tions, he says, it’s a rea­son to “stop what­ever we are en­gag­ing.”

If things go as planned, an­a­lysts ex­pect a re­peat of the very non-Ja­panese man­age­ment style— fast-paced, sharp-pen­ciled— Ghosn is known for. “He is a dif­fer­ent an­i­mal,” says Ed­win Merner, pres­i­dent of At­lantis In­vest­ment Re­search in Tokyo. “He sees things in a very ob­jec­tive way.” Mit­subishi is about to learn that first­hand.

The bot­tom line Nis­san is try­ing to re­vive Mit­subishi Mo­tors, whose stock fell 40 per­cent in April af­ter it ad­mit­ted over­stat­ing mileage of its mini­cars.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.