Cash back at MMAL

THE closure of the Mitsubishi Motors Australia Limited (MMAL) assembly plant in Adelaide and a surge in sales of imported vehicles has set the company up for record earnings in Australia at levels not envisaged even when Mitsubishi bought Chrysler’s operations in 1980.

While the latest result announced last week looks bleak – a loss of $355.5 million – the financial stability of the company is being turned around on the back of a 14.6 per cent surge in imported vehicle sales in the first half of this year courtesy of a strong Australian dollar.

The latest loss includes $290 million to cover the costs of closing down the Tonsley Park plant, including all redundancy payments, the repayments of government assistance, as well as months of trading in which the costs of the 380 were overwhelming the profits from imports.

Excluding the closure costs, MMAL lost $66 million in the year to April 2008, compared with $118 million in the previous year.

But a surge in sales of cars that make money rather than cars that burn cash is pouring dollars onto the bottom line and follows a 32 per cent jump in sales of highly profitable imported cars in 2007.

Left: Production at Tonsley Park and MMAL president and CEO Robert McEniry.

With only 30 to 40 380s left in the dealer network to sell, MMAL is now able to more fully share in the healthy profit margins being enjoyed by the likes of Toyota, Honda and Mazda, who are reporting record profits on their imported ranges.

In fact, it is expected that the operational losses of about $600 million made by MMAL in the five years to 2007 will now go above the line.

This turnaround puts MMAL in the position where it can start clawing back the $1.7 billion Mitsubishi Motors Corporation (MMC) in Japan sank into car manufacturing in Australia over the past 10 years.

That process has already started. MMAL president and CEO Robert McEniry told GoAuto last week that Australia was now one of the key markets for MMC internationally in terms of market share, volume and profit per unit.

He said that MMAL was profitable in each of the three months to June 30 this year and that becoming profitable in the first month of restructuring was “a pretty reasonable result”.

MMAL has also managed to address the concerning $149 million deficit in net current assets. This drew much attention in the previous year’s result suggesting that, had MMAL’s funding not been directly from MMC in Japan, the company might have been close to being insolvent. It now has a surplus of $3 million.

Some costs associated with the plant closure will persist in this year’s result. There are still 100 employees building spare parts for the 380 and this will continue until near the end of the year. The company is also locked into an electricity deal which it must pay even though it is not using as much power.

The process of selling the production equipment is under way. MMC has identified some equipment for its own plants and Grays Online has been appointed to handle other disposals.

The company is also working on the sale of the 176 acres of land which is only about 6km from the centre of Adelaide on the main north-south road, 20 minutes from the airport, with a railway branch line into the site which could be extended to a planned university and medical precinct already planned in the area.

MMAL has been working with KPMG and the South Australian government on the potential of the site with an emphasis on encouraging employment in the area. Companies expressing interest in the site are being referred to Colliers, which is developing concepts for using the site.

“We are not in a rush to sell,” Mr McEniry said. “We want to see the site used in the best possible way.” It is expected to be on the market by the first quarter of next year.

He said one concept was to work with the government to develop various precincts on the site that could be sold to various developers for different uses. This would maximise the value of the land over just selling as is to one developer.

Mr McEniry said that about half the workers at the Tonsley Park plant had been re-employed. Many other employees have taken time off of up to three months, many are undergoing re-training and yet others were long-standing employees who decided to retire.

Consultants employed by MMAL have conducted more than 3000 sessions to discuss financial planning and retraining.

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