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What Were They Thinking!

Mitsubishi Motors has been temporarily rescued from oblivion by the members of its zaibatsu who could not tolerate the public humiliation of the great name of Mitsubishi being associated with a bankruptcy or worse.

Executives of the Mitsubishi group companies justified their decision to flush another few billion down the sewer by telling the world that they had to consider the social costs of job losses making them, somehow, more sensitive to the human condition than managers in the west.

The arrogance of that justification is almost more flabbergasting than the amount of money they just dumped down a hole when it will neither solve Mitsubishi’s problems nor protect Mitsubishi worker’s jobs for very long. The lessons of Nissan and Carlos Ghosn, the foreigner who broke with Japanese traditions to actually fix the company and create and secure jobs, were lost on the Mitsubishi crowd who decided that hope for a miracle was a business strategy.

Mitsubishi’s problems are so deep seated that the Japanese public has lost confidence in the auto company’s products after revelations of decades of hiding defects that put former managers in jail. Even if they had a great car or two it might not matter since the reputation of the brand has been destroyed by the old guard.

Fiat is another car company not long for the world. It can continue to burn through cash with no chance of a turnaround because, like Mitsubishi, Fiat is becoming irrelevant to car buyers around the world, including in its home market. Did GM not understand that Fiat’s market share was going to be devoured by Toyota, Honda and the Koreans since trade restrictions had been lifted months before the deal? Fiat might get some billions from GM to ransom its put, but that money can’t last long and it can’t fix Fiat’s problems. The idea that Fiat will be turned around in 2007 is, to be charitable, unrealistic.

In the meantime, GM is bleeding market share in key markets with no chance of making up for these losses with profits from China. China will follow the same course as every other major market. It already has too much capacity, prices are falling, and Japanese cars will gain share at GM and Volkswagen’s expense. GM can’t solve its own problems let alone take on Fiat’s.

The fact that GM got itself into this predicament less than four years before they wrote off the first $2 billion in Fiat is a stunning indictment of its management. That these executives saw no risk in promising to buy a company that hadn’t had a successful product in decades boggles the mind. Fiat didn’t start to fall apart after GM threw $2.4 billion away on a 20 percent stake, Fiat’s problems have been chronicled for decades. Could the allure of joint component purchasing really have been so compelling that it overshadowed the risk of having to take over “fix it again Tony.”

Whatever happens between GM and Fiat will cost GM money. Even if the company doesn’t have to pay Fiat a penny, the joint efforts between the two companies will dissolve into nothing and it will cost GM real cash to rebuild for itself what is now being handled jointly. Ironically, both Mitsubishi and Fiat have something in common. Juergen Schremp, playing his global bingo game, made an offer to buy Fiat outright and invested billions in Mitsubishi before a few brave managers convinced the Board of Directors to reject further cash infusions. In Schremp’s mind the combination of Fiat, Chrysler and Mitsubishi would be the cornerstones of a global empire.

Underlying the Mitsubishi cash infusion is probably the hope that Schremp might somehow be lured back to the table or that Peugeot might have a Ghosn clone to send its way as well as corporate suicidal tendencies. But for Fiat management there is certainly no chance of a rescue other than by the Italian government.

This is, after all, not the 1990s when every dying auto company could expect to have bidders swarming over it as they pursued strategies of global domination. I recall that Daewoo got at least one and probably several multi billion dollar bids to acquire it. These companies, including Ford, were saved by circumstances that eventually allowed GM to selectively purchase Daewoo assets, making it the best deal GM’s done in many years. It’s difficult to predict when Mitsubishi and Fiat will follow the Daewoo path, but follow it they will.

Maryann Keller is a veteran auto industry analyst and author of the books “Rude Awakening: The Rise, Fall and Struggle to Recover at General Motors” and “Collision: GM, Toyota and Volkswagen and the Race to Own the 21st Century.”

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Tue. July 23rd, 2024

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