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Industry Report: DaimlerChrysler to No Longer Fund Debt-Laden Mitsubishi Motors

MMC Stock Plunges while DCX Shares Rise at News of Potential Separation

Whether DaimlerChryslers Thursday announcement that it may be severing ties with troubled Japanese automaker Mitsubishi Motors is a ploy to motivate the other shareholders involved to cooperate in its restructuring plans, or a realization that its core brands, Mercedes-Benz and Chrysler, need and deserve more attention and money, cant be said for sure. Either way, it will be devastating news to Mitsubishi.

DaimlerChrysler bought a controlling 37 percent stake in Mitsubishi Motors over three years ago in an effort to increase its presence in Asia and resultantly become a true global automaker, but the scandal ridden Tokyo-based

DaimlerChryslers announcement that it will be severing ties with troubled automaker Mitsubishi Motors will surely be devastating for the Japanese company. (Photo: Alexandra Straub, American Auto Press)

manufacturer was the only Japanese brand not to make a profit last year in its domestic market, and furthermore suffered tremendous losses due to increased incentives and therefore lower profits in the competitive North American market, combined with a poorly managed credit arm.

Why DaimlerChryslers seemingly sudden change

Bluff or not, according to a DaimlerChrysler spokesman, "This clearly means separation." (Photo: Trevor Hofmann, American Auto Press)

of heart, after speculation was rampant that the Stuttgart-based automaker was to increase its stake to over 50 percent and work more directly with Mitsubishi in future product architecture and component sharing? DCX stated it pulled out of the "cooperative" rescue plan because it could not agree on an acceptable deal with Mitsubishi Motors other shareholders. DCX added that it would not provide any further financial support to Mitsubishi as well.

Again, is it a bluff to cause all parties

Mitsubishi executives were reportedly stunned at DaimlerChryslers announcement, as the companies were reportedly in the midst of talks over a revival plan. (Photo: Trevor Hofmann, American Auto Press)

to see the DCX way? If it is, its a highly convincing poker play. According to a DaimlerChrysler spokesman, "This clearly means separation."

On Friday DaimlerChrysler chief financial officer Manfred Gentz stated that the company "may" classify its 37 percent Mitsubishi Motors stake from "equity" to "available for sale." If this is so, DCXs portion will be booked as discontinued business until a buyer can be found.

Mitsubishi Motors Corporation (MMC), along with its other investors being Mitsubishi Heavy Industries

DaimlerChrysler was reportedly considering selling its 10 percent stake in the successful Hyundai Motor Co. in order to bail out Mitsubishi (Hyundai Elantra GT shown). (Photo: Trevor Hofmann, American Auto Press)

(15 percent), Mitsubishi Corporation (5 percent), and The Bank of Tokyo-Mitsubishi (3 percent), were reportedly stunned at DaimlerChryslers announcement as the companies were reportedly in the midst of talks over a revival plan. MMC and its ownership group, not including DCX, stated on Friday that they would work together to develop a new mid-term business plan with an aim to revitalize MMCs operations. While saying in a statement that the companies will continue to do their "utmost" to turn Mitsubishi Motors around, no announcement of a direct infusion of cash was made.

Heading up Mitsubishi Motors business revitalization team will be Yoichiro Okazaki, managing

With interest-bearing debt soaring close to $10.5 billion U.S. dollars Mitsubishi Motors faces its most perilous challenge yet. (Photo: Shawn Pisio, American Auto Press)

director at Mitsubishi Heavy Industries, stating that the group will have a finished plan within one month.

DaimlerChrysler arrived at its decision after an extraordinary meeting of its supervisory and management boards on Thursday, at which time sources say the automaker was looking at divesting its 10 percent stake in the highly successful South Korean automaker Hyundai Motor Co., Koreas largest, estimated to be worth $1 billion, in order to pay for the Mitsubishi rescue project.

Previous to DaimlerChryslers announcement, Mitsubishi was expected to present details of its 700 billion yen ($6.39 billion) restructuring plan to its shareholder group on April 30.

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