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Mitsubishi Moves into High Gear


To launch its latest model in Japan--the Colt subcompact--Mitsubishi Motors Corp. invited hundreds of loyal customers to enjoy free food and drinks in a Tokyo hotel ballroom festooned with silver and blue balloons. Anyone who signed up for a new car got a gift box with a baseball cap, a teddy bear, and an electric blue scarf--and the chance to pose for a photo with Rolf Eckrodt, president of Mitsubishi Motors.

As a scoreboard tallied up the number of cars sold--by the end of the day it read 1,302--Eckrodt pumped his fist in the air and told the crowd: "This will have a very strong impact on the 65,000 people working for Mitsubishi Motors." Then, ever the salesman, he added: "Don't forget to sign the contract, by the way."

Eckrodt's hard sell signals the Colt's crucial role in turning Mitsubishi around. Japan's fourth-largest carmaker has been a headache for DaimlerChrysler since it bought a controlling stake three years ago and installed Mercedes-Benz veteran Eckrodt as troubleshooter-in-chief. Just after DaimlerChrysler took over, Mitsubishi admitted hiding defects that led to the recall of 2 million vehicles. In the past two years it has rolled out only three new models, and has seen its Japanese market share collapse to 5.8% last year from 11.4% in 1995. In 2000 and 2001, Mitsubishi racked up a total of $2.5 billion in losses.

But Eckrodt has spent the past two years shifting the company into higher gear. He has dismembered Mitsubishi's keiretsu--or corporate family--of cosseted parts makers and now encourages bids from outsiders. He cut 12,000 jobs--15% of Mitsubishi's staff. And he started piggybacking on DaimlerChrysler's marketing and manufacturing strengths. The new Colt shares 65% of its parts with the next-generation DaimlerChrysler Smart Car and costs about 30% less to make than the model it replaced, Eckrodt says.

Now, the Japanese company is no longer a drag on DaimlerChrysler's results. Mitsubishi expects to report profits of $316.7 million on sales of $28.3 billion for the year ending in March, vs. earnings of $93.8 million on $26.7 billion in revenues last year. The bottom line improvement has helped Mitsubishi's share price climb 15% in the past three months, to a recent $2.27. But that's still 33% below the carmaker's 12-month high last May, due to investor concerns that strong U.S. sales may sputter in the uncertain economy. So persuading Japanese consumers to pay $8,700-$12,500 for the Colt is crucial: Eckrodt wants a revival in Japanese sales to offset any softness in the U.S.

To underscore the changes, Mitsubishi is playing up the car's "German-Japanese" roots in ads. And as part of his pitch, the 60-year-old Eckrodt sent out hundreds of letters with his signature asking longtime customers in Japan to check out the new Colt. His letters were part of an aggressive promotional effort that boosted the car's first-month sales to more than 15,000--double the company's target--despite tough competition from such top sellers as Honda Motor Co.'s Fit and Nissan Motor Co.'s March.

The pug-nosed, 1.5-liter Colt (an updated version of the Colt once exported to U.S. as a Dodge) has earned high marks for styling from the Japanese auto press. Its aerodynamic body and smart, roomy layout--it has a bench seat in front, virtually unheard of in subcompacts--has lured straying customers back into the fold. "I like the interior--especially the bench seat," says Machiharu Shibayama, 27, as she sweeps her green-tinged bangs from her face. "Besides, my family has always bought Mitsubishi." She, too, signed on for one of the cars at the launch event.

Mitsubishi needs that kind of loyalty. Even if demand for the Colt holds firm in Japan, the auto maker doesn't expect to break even there until 2005. And Mitsubishi is still haunted by a reputation for poor quality. Last year, nine models in Japan were recalled to fix faulty parts. That spotty record calls into question the effectiveness of the "quality gates" DaimlerChrysler added to Mitsubishi's plants. The gates--where supervisors run through a quality checklist at various stages of production--were one of the first changes ordered by the Germans. Eckrodt is well aware of ongoing "problems on the quality side," which he says are a top priority.

To win back customers, Mitsubishi is also betting on better design. By 2005, it hopes to have at least six new models in Japan, each with distinct styling aimed at wooing younger, urban drivers. The first will be the Grandis, a minivan due out in May. "We're trying to be serious but fun," says senior executive officer Olivier Boulay, Mitsubishi's design chief. To make sure the Grandis appeals to its target audience, Mitsubishi dispatched designers from its R&D center in rural Okazaki to Tokyo for several weeks. There they met with young people and soaked up big-city ambience before heading back to their workshops.

Mitsubishi has already captured the imagination of post-baby boomers in the U.S. Some 16.4% of its buyers are under age 25, the youngest of any auto maker, according to J.D. Power & Associates research. That could give Mitsubishi a leg up on the competition if those buyers stay loyal. To keep them coming back for more, it's rolling out new products tailored to the U.S. market, including the Endeavor sport-utility vehicle due in February. "We appeal to those who want something a little more edgy than Honda and Toyota," says Pierre Gagnon, president and CEO of Mitsubishi Motors North America. The company expects to sell 600,000 cars in North America by 2007, 66% more than last year--and may even build a new U.S. factory.

Others, though, are targeting the same piece of the market. At a base price of $15,499, the 2.4-liter Hyundai Sonata sedan, for instance, represents a strong challenge to the comparable Mitsubishi Galant, listed at $17,767. At the same time, Honda and Toyota Motor Corp. are rolling out products with cutting-edge technologies such as gas-electric hybrid engines that cash-poor Mitsubishi can't afford. Worse, Mitsubishi's younger demographic makes it especially vulnerable in a softening economy since younger buyers are the first to hold off on big-ticket purchases when cash is tight.

DaimlerChrysler can breathe a sigh of relief after a rocky two years with Mitsubishi. But Eckrodt needs to keep the turnaround going. Don't be surprised to see him showing up in more Mitsubishi showrooms, with his salesman's hearty handshake and steady smile. Buy one of his cars and he might even drop you a thank-you note. By Chester Dawson in Tokyo, with Katie Kerwin in Detroit


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