It's the Dealers, Stupid!

Finbarr O'Neill, CEO and chairman of the beleaguered Mitsubishi Motors North America (MMNA) cites a simple law of the automotive industry: “At the end of the day, it's about profitable dealers. It's not rocket science. If you have profitable dealers, you have to screw up a lot on the factory side not to succeed.”

O'Neill, speaking to a Society of Automotive Analysts gathering in Troy, MI, says he's trying to convince Mitsubishi's 630 U.S. dealers, many of whom have become skeptical of the troubled brand, that he's determined to recover lost sales, market share and profits.

“We have to communicate to dealers that unless they're profitable, we can't be,” says O'Neill, who oversaw Hyundai Motor America's comeback as its CEO before becoming head of MMNA a year ago. “Dealers work in a tremendously difficult environment. Anyone who thinks it's easy should try it.”

It's particularly difficult when sales have fallen from 345,922 units in 2002 to 257,501 in 2003 to 113,429 in the first six months of this year. That reflects a market share drop from 2.1% to 1.1%

Mitsubishi dealers, burdened by slow sales and excess inventories, started losing money in early 2003, says O'Neill. “They became disengaged.” They lost interest in the brand, cut advertising and turned more to other franchises in their portfolios, he laments.

O'Neill faced a similar woe in 1999 when he became CEO of Hyundai America, after serving 14 years as its general legal counsel — not the usual career path for an auto executive.

He solved the disengaged Hyundai dealer problem by meeting with local dealer groups and individual dealers. He's trying to do the same now at Mitsubishi.

“We're getting out there and talking to dealers one to one,” he says. “We're getting integrated with our dealer councils. We need to have them in on decisions, so they're not thinking they're outside the door while decisions are being made inside.”

He adds: “We're trying to rebuild our retail business one car at a time. There are guys with more splendid answers than that, but that's how you do it. We're making progress. I can see it and I can feel it viscerally with dealer attitudes.”

Sales in 2002 were at an all-time high for MMNA. But the situation wasn't as great as it looked. Back then, Mitsubishi was enticing customers with its now infamous “0-0-0” plan: no money down, no interest on loans and deferred payments for a year.

O'Neill, who inherited the mess of that costly give-away and pulled the plug on it in October, says it might have worked were it implemented properly and limited to credit-worthy customers.

But instead it drew a lot of high-risk buyers with checkered credit histories. Many of them defaulted on their loans. Repossessions soared.

“We got in the situation of chasing volume,” says O'Neill.

He's trying to pump up the deflated brand enough that it attracts consumers interested in an exciting quality vehicle, not a deal they can't refuse.

“We've got to change the psychology of the dealers on the sales floor,” he says. “The first question should not be, ‘What do you want to pay?’ It should be about the product.”

The company has launched a new “Best Backed Car in the World” 5-year/60,000-mile bumper-to-bumper limited warranty. It's similar to a generous warranty Hyundai introduced when O'Neill became its CEO.

He also wants to open up the brand's demographics. Previous Mitsubishi ad campaigns, featuring 20-somethings bopping to techno music, aimed at the youth market. But the ads tacitly told adults, “these cars are for your kids,” says O'Neill. “It was self-limiting demographics because even though there are a lot of people under 25, the truth is it's a narrow customer base.”

Look for MMNA to broaden its target market. Look for the brand to move its advertising from network television (“one of the most inefficient ways to get a brand out there,” says O'Neill) to a media mix, especially cable TV.

But don't look for Mitsubishi to spur sales with overly generous rebates and loan deals again.

“We're not going to incentivize the hell out of products,” O'Neill vows.

Steve Finlay is editor of Ward's Dealer Business. He can be reached at [email protected]