Mitsubishi Wrestling With Strong Yen, But Still Expects to See Profits

TOKYO – Like other Japanese auto makers today, Mitsubishi is only guardedly optimistic as 2012 gets under way.

“The strong yen is our biggest headache,” Mitsubishi President Osamu Masuko says in an interview with WardsAuto. “Truly, with the Japanese economy sluggish and the fiscal situation not good, it doesn’t make sense that the yen, and the yen alone, is so strong.

“That said, we’re doing everything possible to bring down costs, including making greater use of imported components. But without changing our model mix, we can’t make profits through exports.”

However, this does not mean Mitsubishi can’t and won’t make profits.

Even though the yen has been hovering around $1:¥76-78 for months and briefly dipped to a record high of $1:¥75.95 on Aug. 19, the auto maker still is projecting a ¥50 billion ($649 million) operating profit for fiscal 2011 ending March 31.

While Masuko has yet to offer an earnings forecast for fiscal 2012, he expects the auto maker to meet its fiscal 2013 operating-profit target of  ¥90 billion ($1.2 billion) announced last April along with the rollout of its “Jump 2013” midterm business plan.

Reaching ¥90 billion in earnings, the second-highest total in Mitsubishi’s history, assumes global sales of ¥2.5 trillion ($32.5 billion), up from ¥1.8 trillion ($23.6 billion) projected this year.

 “Since we formulated Jump 2013, the environment surrounding our business has changed dramatically,” Masuko says. “Nevertheless, we are sticking to our profit targets.”

A month-long production halt last spring after the massive earthquake and tsunami hit northeastern Japan was followed by a nearly month-long shutdown in October of Mitsubishi’s Thailand operation, caused by the country’s severe flooding. This put the auto maker behind its global production and sales targets for fiscal 2011, but only slightly.

When Mitsubishi closes its books in March, results likely will surpass last year's totals. Through November, global sales were slightly more than 1 million units, down just 2.9% from fiscal 2010, and at the current pace will approach 1.6 million for this fiscal year.

Mitsubishi weathered last year’s natural disasters better than most other Japanese auto makers and was ahead of them in restoring operations to normal levels.

“I instructed production workers to use whatever inventories were available and plan their production schedule day-by-day,” says Masuko. “It wasn't perfect. They like certainty in the supply chain. But I felt it was better to keep our plants running, even if the production schedule was irregular, than to shut them down.”

And it worked. "Once we resumed production, it became almost an obsession with our line workers not to let our plants stop,” he says. “And they didn't. We were back at 90% levels by early June, less than three months after the March 11 quake.

"We followed the same approach in Thailand seven months later."

Asked whether Japan will have to change its lean-production system, Masuko says, "No way. I think the biggest story about March 11, at least from the auto industry's perspective, is how quickly and well auto makers reacted."

To reduce exchange-rate exposure, Mitsubishi is opening a new plant in Laemchabang, its third in Thailand, where the remodeled Mirage compact car will be launched in March.

In conjunction with that launch, the auto maker has begun a new strategic game plan, “ASEAN Challenge 12,” to almost double its market share in the 10-member Association of Southeast Asian Nations to 12% by 2015, up from 6.5% at present.

“We want to focus our resources on Asia, the fastest-growing market, rather than Europe, where we anticipate difficulties in reaching our growth targets,” Masuko says.

In 2013, Mitsubishi plans to introduce a Chinese version of the remodeled Mirage, to be assembled in China by a new joint venture with Guangzhou Automobile Group.

Later this year, production of the Outlander Sport cross/utility vehiclewill begin at the auto maker’s sole North American plant in Normal, IL. The compact CUV, sold as the RVR in Japan and ASX elsewhere in the world, currently is exported to the U.S. from Mitsubishi’s Okazaki plant in Aichi prefecture.

Shifting production to the U.S. is another move to reduce exchange-rate exposure and an important part of a global production shuffle planned or under way by the auto maker.

Through the first 11 months of 2011, Mitsubishi built fewer than 35,142 units at the Normal plant, well below its annual capacity of 240,000. Production there of the Eclipse and Eclipse Spyder roadster and Endeavor CUV have been discontinued, and the Galant large car will be phased out with the Outlander Sport launch.

In Europe, the auto maker will end output of the compact Colt at its NedCar plant in the Netherlands in 2013 but will continue to produce the Outlander.

Elsewhere, Mitsubishi is in process of doubling capacity at its Catalao plant in Brazil to more than 100,000 units a year. The first new model made there was the Pajero Dakar, an SUV, launched last year. In the pipeline is a sedan, reportedly based on the Lancer, and at least one other unspecified model.

More local component sourcing for Outlander production is planned in a $600 million JVplant with PSA Peugeot Citroen in Kaluga, located 112 miles (180 km) southwest of Moscow, where several Peugeot and Citroen models and the Outlander are built.

If Mitsubishi meets its Jump 2013 targets, overseas production will grow to 850,000 units this fiscal year, up from 522,100 last year. Most of the growth will come from B- and C-segment vehicles that no longer can be exported from Japan profitably.

The auto maker will need to build 1.6 million vehicles globally, 55% in overseas plants, up from 47% today, to reach the new targets.

To improve its cost structure in Japan, Mitsubishi joined forces with Nissan last June to develop and manufacture 0.66L minivehicles for the domestic market. The new venture, dubbed NMKV, will produce minis at Mitsubishi’s Mizushima plant, but no timeframe has yet been disclosed for the first joint model.

The auto maker currently builds three models, the Pajero Mini, Town Box and ek Wagon for Nissan on an OE basis that are sold as the Nissan Kix, Clipper Rio and Otti.

Minicars and trucks accounted for more than one-third of new vehicles sold in Japan in fiscal 2010 – a total 1.6 million from all manufacturers. Some 62% of Mitsubishi's annual deliveries in the market are minis and 7% of its Japanese production, or about 40,000 units, are minis for Nissan.

Longer term, especially if the yen stays at high levels, Masuko believes Mitsubishi will have to switch gradually to what he calls “added-value” cars, namely all-electric vehicles and plug-in hybrid-electric vehicles.

The auto maker took an early lead in the global EV race by launching the i-MiEV electric car in July 2009, and it plans to roll out seven new models, both EVs and PHEVs, by fiscal 2015.

According to the launch schedule, the Minicab-MiEV commercial van, which went on sale in December as Mitsubishi’s second EV, will be followed by the introduction of a plug-in SUV based on the PX-MiEV II between January and March next year.

The PX-MiEV II, likely to be sold as the Outlander Plug-In Hybrid, was displayed at the Tokyo Show in December.

Also in the pipeline are a second PHEV and third EV in fiscal 2013, and a fourth EV and two more plug-ins in fiscal 2014 and fiscal 2015, respectively.

Mitsubishi has lowered its fiscal 2011 EV sales forecast to 21,000 units, down from an earlier 25,000-unit target, due to the impact of the March 2011 earthquake and tsunami that affected i-MiEV production more than that of other models. But Masuko stands by the auto maker’s sales forecast of 50,000 units in fiscal 2012, ending March 31, 2013.

Mitsubishi officials estimate EVs and plug-in hybrids will account for 5% of the auto maker’s sales in 2015 and 20% in 2020. That would amount to an estimated 300,000 units in 2020, including an unspecified number built for PSA.

The new Mitsubishi Minicab-MiEV, available with two battery options – a 10.5-kWh and 16-kWh unit – lists for ¥1.73 million and ¥2.04 million ($22,500 and $26,500), respectively, after Japan’s green-car subsidy kicks in.

The 10.5-kWh version earns a subsidy of ¥660,000 ($8,735), while the larger 16-kWh model qualifies for a subsidy of ¥930,000 ($12,120).

Masuko says the cost of the Minicab-MiEV’s 16-kWh lithium battery, supplied by Toshiba, has fallen below ¥1 million ($13,000), half the price of the GS Yuasa battery fitted in the i-MiEV launched in 2009. He declines to disclose the exact price.

Will the strong yen eventually hit EV and PHEVs’ margins? “Eventually,” he admits. “But we still have room to reduce the costs of batteries and motors by increasing volume, giving us scale merit, and we expect further technical innovation.”