Mitsubishi Motors Corporation Sputtering

Within the past week, the prestigious Mitsubishi Motors Corporation (MMC) announced that its vehicle sales for fiscal year 2003 shrunk by more than 33% in Japan and more than 50% in North America. Concurrently, MMC announced its plan to cut 11,000 jobs from the global workforce and to close two manufacturing plants, an engine factory in Australia and a car plant in Okazaki, Japan. To attempt to downplay the significance of these announcements by MMC would be disingenuous. The company's recent performance has been more than dismal and some have even suggested that MMC is trending toward collapse.

Naturally, one has to wonder how could a prestigious multinational corporation with a successful history be failing so miserably. The answer is an amalgam of inept, fraudulent, and, possibly, criminal decision-making. One incident, in particular, prompted MMC's performance to slope dramatically downward.

On Jan. 10, 2002, a wheel came off the hub of a Mitsubishi Motors trailer truck in Yokohama and hit a 29-year-old woman, killing her and injuring her two children.

The tragedy was blamed on inadequate maintenance by MMC. However, this is contrary to an internal MMC review which found that many similar failures had occurred, suggesting a generic defect in manufacturing. In fact, data showed that Mitsubishi hubs cracked despite the degree of abrasion, indicating they were inadequate to support the wheels. Instead of issuing a recall to inspect and correct the defect, MMC management allegedly compiled a false report to hide the defect. As a result,

Police arrested seven former senior Mitsubishi Motors Corp. officials Thursday for alleged professional negligence resulting in death and injury and the filing of false reports to authorities on vehicle defects related to a fatal truck accident in Yokohama in 2002.

It should be noted that MMC finally decided to recall trucks and buses for defective wheel hubs in March 2004, more than 12 years after the first reported failure in January 1992.

Compounding the negative publicity from hiding wheel hub defects and delaying their recall, MMC's reputation and sales had already suffered from a similar scandal in 2000 when it was discovered that the company for almost 30 years had been concealing customer complaints about vehicle faults that required recalls. In a nutshell, the public knew that MMC was selling a flawed product, hiding the deficiencies, and failing to correct the problems. So, naturally, sales plummeted.

Besides being responsible for poor sales, MMC's reputation has been soured to the extent that the company is also having great difficulty finding investment capital to implement its restructuring plan. DaimlerChrysler AG, MMC's biggest shareholder, nixed a plan to help fund a bailout and, subsequently, Standard & Poor's had MMC's credit rating lowered to CCC minus which is nine levels below investment grade.

In summary, Mitsubishi Motors Corp. is closing manufacturing plants and laying off over 22% of its workforce. Sales figures are dismal, expensive recalls are ongoing, seven former company officials have been arrested, and no investment capital has been forthcoming to help the company restructure. If you currently own stock in Mitsubishi, it may be prudent to consider selling it.