Can Mitsubishi remain in the passenger-car market?

2y ago

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One thing about creating and running Autocade is that you gain an appreciation for corporate history. Recently, I wrote about Fiat, and the troubles the company is in; it wasn’t that long ago that Fiat was the designers’ darling, the company known for creating incredibly stylish vehicles for all its brands and showing how you could use Italian flair to generate sales.

That was the 1990s; by the turn of the century, Fiat had lost some of its mojo, and by the time I got to Milano in the early 2000s, the taxi ranks had plenty of German and French cars. Once upon a time, they would have been nearly exclusively Italian. Today, a lot of Fiat’s range is either made by, or on platforms shared with, Ford, GM, Chrysler (which it now owns), Peugeot, Mitsubishi and Mazda. Sharing platforms isn’t a sin, but a necessity, but Fiat seems to have taken it to a new level, looking like a OEM brand whose logo is freely slapped on others’ products.

Mitsubishi is the other car company to find itself in trouble this year. The company admitted that it had lied about the fuel economy figures for its kei cars, the micro-cars that it sells predominantly in Japan.

It wasn’t as troublesome as Volkswagen’s defeat device which fooled the US EPA, running differently when it knew the engine was being tested. Mitsubishi kept things simple, and overinflated tyre pressures.

It would have got away with it, too, if it weren’t for Nissan, a company to which Mitsubishi supplied, under an OEM deal, kei cars. The customer started to ask questions and tested the cars for itself.

Mitsubishi eK, one of the models that the company supplied to Nissan under an OEM deal in Japan.

Mitsubishi had supplied 468,000 cars to Nissan, all of which are affected. It had only sold 157,000 under its own marque. Production of the cars, from the eK range, and the OEM equivalent for Nissan, the Dayz, was suspended, while Mitsubishi’s shares plunged 15 per cent on the news that week.

Sankei, the Japanese newspaper, believes that Mitsubishi used the wrong test method on the I-MIEV electric car, RVR (ASX), Outlander, and Pajero, which are exported.

You have to wonder what the corporate culture must be like for these matters to recur so regularly. But then, collectively, people tend to forget very rapidly, and companies like Volkswagen and Mitsubishi must bank on these.

VW isn’t the first to cheat the EPA—US car makers have attempted less sophisticated defeat devices in the latter half of the 20th century—though it has had a chequered past. Just over 10 years ago, there was a scandal involving VW colluding with a union leader to keep wage demands down, and a few low-level employees took the rap. Go back to the 1980s and the company found itself in a foreign exchange scandal. But these were known mainly among specialist circles, principally those following car industry news.

Mitsubishi’s scandals, meanwhile, were more severe in terms of the headlines generated. Last decade, when the media called Mitsubishi Japan’s fourth-largest car maker—these days they call it the sixth—the company was implicated in a cover-up over the safety of its vehicles. Japanese authorities raided the company in 2004, and revealed that Mitsubishi Motors Corp. hid defects that affected 800,000 vehicles, and had done so since 1977. Nearly a million vehicles were recalled. Affected vehicles were sold domestically as well as in Europe and Asia. Top execs were arrested that time, including the company president, although it was hard under Japanese law to punish Mitsubishi severely. There was no disincentive to conducting business as usual. The company was ultimately bailed out by its parent, the giant Mitsubishi Group, when it found itself facing potential bankruptcy.

People were killed as a result of Mitsubishi’s cover-ups, and at the time it was considered one of the biggest corporate scandals in Japan.

Go back a bit further and Mitsubishi Materials Corp., a related company, had used slave labour in World War II, including US troops—something the company did not apologize for till 2015, even though the Japanese government itself had issued apologies in 2009 and 2010. While it was a first among Japanese corporations, and US POWs got what they had long awaited, descendants of Chinese slave labourers still have a lawsuit pending against a connected Mitsubishi subsidiary.

The other major difference between Volkswagen and Mitsubishi is that the Japanese marque is relatively weak in terms of covering its market segments. It’s SUV- and truck-heavy, and its kei cars had sold well (till now), but it has little in the passenger car segments, which it had once fielded strongly. The Mirage (and the booted Attrage) and the Galant Fortis (exported as the Lancer to many markets) are what’s left: the latter is now nine years old, though still fairly competitive, and in desperate need of replacement. Its only other car is its Taiwan-only Colt Plus, still selling there as an entry-level model despite having been withdrawn from every other market. In the big-car segments, Mitsubishi is actually supplied by Nissan in Japan, but doesn’t make its own any more. ‘Sixth-largest’ is shorthand for third-smallest, at least among the big Japanese car companies.

Mitsubishi had looked set to quit the C-segment (Galant Fortis) since neither Renault nor Nissan, which it had approached, wanted a tie-up. Since the scandal broke, Renault–Nissan eventually bought into the ailing car-maker (34 per cent) for a discounted price, so the Galant Fortis may yet become something on the Mégane–Sylphy platform. How this will pan out is anyone’s guess.

Because, most seriously, Mitsubishi hasn’t completely recovered from its earlier scandal.

It is within living memory, and the timing and nature of the latest one, tying so closely to what rocked Volkswagen, ensured that it would get global press again, even if the bulk of the affected cars were only sold domestically. And when consumers see a pattern, they begin wondering if there’s a toxic corporate culture at play here.

We’re too connected in 2016 not to know, and while Mitsubishi will potentially survive thanks to Nissan, it does face the prospect of shrinking car sales—and sooner or later one will have to question whether the company will stay in the passenger-car business. Isuzu exited in the 1990s, focusing on SUVs, pick-ups and heavy trucks, forced by an economic downturn. Since Mitsubishi’s own portfolio is looking similarly weighted, it wouldn’t surprise me if it chose to follow suit, its brand too tarnished, with too little brand equity, to continue.

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