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Smart move tough on Mitsubishi

Posted by: Ian Rowley on March 28, 2006

DaimlerChrysler’s decision to shake-up its Smart mini-car unit looks like creating another headache for execs at struggling Mitsubishi Motor. As predicted by Gail Edmondson (below), DaimlerChrysler announced its intention to shake up Smart on March 25. The bad news for the Japanese company is that as part of the restructuring DaimlerChrysler plans to end production of the Smart ForFour, 40,000 a year of which are currently made on an OEM basis by Mitsubishi at a plant in Holland.

While the DaimlerChrysler’s plan isn’t unexpected, according to a report in Tuesday’s Nihon Keizai Shimbun, Japan’s top business daily, the move may force struggling Mitsubishi to overhaul its whole European business. The Japanese automaker, which lost $4.7 billion last year, has a contract to make Smarts until 2010 and will demand compensation from its onetime number shareholder if the plan is executed. But even with a payout one concern will still be that NedCar, as the Dutch plant is known, will fall well short of capacity as soon as Smart production stops. The Nikkei reports that NedCar breaks even with annual production of about 120,000. In 2005, the plant fell someway short of that figure, producing 40,000 Smarts and around 70,000 of Mitsubishi’s own Colt. Now, with Smart production set to halt, Mitsubishi will have to consider transferring production from Japan or strike new OEM deals. All of which sounds like more work for Mitsubishi CEO Osamu Masuko at a time when he’s grappling to turn around Mitsubishi.

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