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Mitsubishi sunk by canned LWB export car
MMAL reveals it needed to build at least 60,000 cars a year to remain viable
13 Feb 2008
MITSUBISHI Motors Australia Limited (MMAL) president Robert McEniry has made the stunning revelation that the company’s soon-to-be-closed Tonsley Park assembly plant would have needed to produce 60,000 vehicles a year to remain viable.
That is double the volume past and present Mitsubishi Australia management quoted as the “break even” figure leading up to, and following, the release of the 380 large sedan in October 2005.
At a press conference last Wednesday, a day after announcing the closure of Tonsley Park next month, GoAuto asked Mr McEniry about the production level MMAL would have needed for the 380 to be profitable.
His response? “About 60,000.”
Questioned further by GoAuto about whether that meant Mitsubishi’s Australian manufacturing operations were doomed from the onset of the 380’s launch, Mr McEniry said the original plan had been to produce 30,000 cars for Australia and 30,000 long-wheelbase models for export.
However, this export program was aborted early in 2004 and Mr McEniry told GoAuto as late as December 2005 that one car line and volume of “even 30,000” units was enough for the plant to remain viable. Last year, MMAL produced approximately 11,000 cars for sale in Australia and New Zealand.
The revelation that Mitsubishi would have needed to produce 60,000 vehicles a year at Tonsley Park reveals just how crucial securing a significant export program was to the future of Mitsubishi’s Australian operation.
It also highlights how devastating Mitsubishi Motor Corporation’s decision to scrap the long-wheelbase export model was for the Australian operation.
Mr McEniry said last week that his team had tried incredibly hard to secure additional production programs that would have included substantial exports.
From top: MMAL president Robert McEniry faces the media last year former president Tom Phillips Magna (Diamante) exports to Canada in 2003.
He revealed MMAL had identified a production program, which GoAuto believes featured a compact SUV, which could have secured the plant’s future. But that plan was turned down by MMC in Tokyo.
“There was one that got close in terms of what we could have done locally but it had an impact corporately and when you folded in the corporate impact it was a large one,” Mr McEniry said. “It was marginal. If you had put any stress testing on that particular case, you would say no, no, no, time out.”
Mr McEniry said the company looked at several possible production programs including light and heavy 4WDs and passenger cars, including a successor to the 380, but the sums did not add up. “They basically all ended up negative NVPs (net present values) which makes it tough,” he said.
Mr McEniry revealed he made a last-ditch attempt to have any program that could have kept the Australian plant operating revived in discussions with MMC in Japan, ironically, over the Australia Day long weekend of January 26-29.
Mr McEniry said he and MMC leadership had been “discussing all the final options that we had available to us and where that may lead, as it became more and more evident from that where we had to move and there being an acceptance of that within MMC”.
With all significant additional programs ruled out by MMC management, Mr McEniry returned to Australia to discuss the situation with the MMAL team.
“We agreed on a position (and) we decided that if it was going to happen, in the interests of the people, we moved quickly,” he said.
Mr McEniry said the decision to shut the Tonsley Park plant was made on Friday, February 1, and he informed the SA and Federal governments of the decision on the following Monday.
MMC backed the decision in a board meeting in Tokyo on Tuesday, February 5, the same day Mr McEniry told the Tonsley Plant workers and made the official announcement in Adelaide.
Last Wednesday, Mr McEniry went out of his way to explain the decision to close the Australian operation was made by Mitsubishi Australia and not MMC in Japan.
“I am not shirking away from the responsibility of our board to make that determination and the recommendation,” he said.
Even so, he admitted MMC would not have allowed the unprofitable Australian manufacturing operation to continue for much longer.
“They allowed a bit more time because they could see that we would get some recovery, but when it became obvious that you can’t take it (the cost of operation) down any further&hellip.”
Mr McEniry said he had done his best to take cost out of the Adelaide operation when he took over the top job on November 1, 2005, just after the launch of the 380.
“When I got there and looked at what was happening and laid down the plan for what we needed to do, they (MMC) supported that plan, which was a pretty tough plan,” he said.
Production levels were cut, as were staff levels, at Tonsley Park as part of the plan that aimed to reduce the losses while MMAL desperately sought a second model export program.
The flexibility of the Tonsley Park plant had been greatly increased in 2005 with significant infrastructure investment that included a state-of-the-art one-side body press.
Former MMAL president Tom Phillips told GoAuto in April 2005 that the company could produce anything: “We can build Hummers if we want to,” he said.
MMAL had been actively seeking production work for its rivals and GoAuto understands the company came close to sealing a deal to stamp panels for Holden, but it fell through.
Mr Phillips had said that selling its production capacity - understood to be 90,000 vehicles per annum when fully utilised - was a valid option, but told GoAuto that MMAL really needed to secure a second vehicle line in order to ensure the long-term viability of the Australian manufacturing business.
A core part of the 380 production plan had included a long-wheelbase model, codenamed PS41L, which could be built in left-hand drive and would be exported primarily to the US, but also markets like the Middle East and possibly even Russia.
Significant investment had been lost developing the long-wheelbase model and upgrading Mitsubishi’s production facilities in order to build it.
The meltdown of the Mitsubishi US operation in 2003, the result largely of a disastrous credit scheme, and a near collapse of Mitsubishi’s global operations, resulted in US exports of the Magna being called off and the cancellation of the long-wheelbase 380 program.
Because the long-wheelbase model was engineered for left-hand drive, the regular 380 sedan was only developed in right-hand drive, which meant its export potential was limited to small-volume markets such as New Zealand.
Mr McEniry last week outlined that MMAL could not have survived on US exports alone because of the exchange rates pressure that meant the company would have received around $14,000 less per vehicle now compared to 2002.
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