Mitsubishi plots return to profit

MITSUBISHI Motors Australia plans to return to profit in the 2006 financial year, the first full year the PS41 Magna replacement is on sale in Australia.

If this target is achieved it will be the first time MMAL has been in the black since 2001, when it reported a $16.1 million after-tax profit.

MMAL president and CEO Tom Phillips would not discuss specifics when he met with the press last week to reveal the ‘Better Built Better Backed’ campaign, but he did confirm the numbers were locked in as part of Mitsubishi’s global turnaround strategy.

"There’s a requirement under … the revitalisation plan and MMC as a corporation has committed to be back in profit in 2006 and we are part of that. We have got our numbers," he said.

Mr Phillips said those numbers were unlikely to be affected by further stringencies expected to be announced in Japan this month, the consequence of Mitsubishi Motors Corporation continuing to bleed red ink.

MMAL is already enduring plenty of pain with the closure of the Lonsdale engine plant and the cutting of jobs there and across the rest of the company.

The paucity of demand for Magna is also having an obvious impact on current income locally, with Tonsley Park running on a four-day week until Easter and an extended break planned over Christmas.

"We are not going to make money in 2005, certainly not this year either," said Mr Phillips.

"But that is all factored in and everyone is aware of our situation. You don’t make 1000 people redundant and make a profit at the same time … but as you go on the effect of those 1000 people going will come through on the bottom line.

"It’s a challenge alright, but we are assuming we will have a few new models from overseas as well, so it’s a whole mixture. We probably won’t be in the black enough to buy you a good drink, but we should be in the black."The PS41 Magna replacement will go on sale in October 2005, with sales of 30,000 per annum needed to achieve profitability.

That will have to be done without a wagon version, the deletion of the excellent all-wheel drive and no left-hand drive exports as the car is only slated to be built in right-hand drive.

The same applies to a four-cylinder option, something Mr Phillips has campaigned for, particularly as an export aid.

And Mr Phillips made it clear that none of those additions would be attainable until after PS41 is successfully on sale. Even more significantly, a second locally assembled model line depends very much on the performance of PS41 in the market.

"We don’t have anything else to build in the plant at this stage, just one car," Mr Phillips said.

"And at this stage we have every single resource we can muster focussed on getting this car (PS41) to market next October.

"And when we have done that successfully maybe we have got some of these other issues behind us and we can put some runs on the board, then we can go to Japan and put our hand out for something else. But at this stage just the one car."

---

‘Better Built Better Backed’ is designed to woo back consumer confidence from the current disastrous levels

---

Mr Phillips has consistently stated that Mitsubishi’s future as a manufacturer in Australia would be immeasurably safer and stronger with a second model line in place. In particular, he has targeted SUV product including the Pajero.

Back in 2002, then DaimlerChrysler-controlled Mitsubishi Motors Corporation announced a plan to build both short (PS41) and long wheelbase (PSL) sedans in Adelaide, the latter for export.

But that $1 billion plan was scrapped when Mitsubishi’s US market share collapsed in the wake of the triple zero credit fiasco and DCX decided against further financial investment in MMC earlier this year.

The investment in the Magna replacement was cut back to a still substantial $600 million for model development and a dramatic redevelopment of Tonsley Park. It is this investment around which the $9 million ‘Better Built Better Backed’ campaign has been centred.

While ‘Better Built Better Backed’ is designed to woo back consumer confidence from the current disastrous levels which show that more than 80 per cent of Australians believe the company will pull out of the Australian market not only as a manufacturer but in total, Mr Phillips conceded that the news out of Japan had to improve as well.

"The future of Mitsubishi Motors in Japan is obviously a major driver of concern about our future here," he said.

"You see almost without fail articles and stories are done about what is happening in Japan and it always comes back to: 'This may have an effect on what’s happening in Australia'."But he insists there are signs of an upturn in sales in Japan after a dreadful first half where sales were nearly cut in half. The company started advertising again in October after voluntarily pulling all ads mid-year out of respect during the recall scandal.

"I was up there two weeks ago and monitoring their showroom traffic. They know the results are that the previous weekend their showroom traffic was running at 99 per cent of the rate it was in 2003."Mr Phillips also said: In the US, where sales are down 39 per cent in the first half, the focus has shifted from mass marketing and fleet sales to attacking lower-volume but higher-profit niche segments. "This is good business I think. Certainly, there is short-term pain but it lays the foundation for a return to profits in the future."Despite the collapse of both markets, Mitsubishi’s worldwide sales are down "only" 16 per cent year-on-year, reflecting strong performances in Europe and Asia.

 Mitsubishi Motors Corporation is part of the Mitsubishi Group and, according to Forbes magazine data, the companies combined within the group would make it the world’s largest company in terms of assets. "Some might argue that MMC is the black sheep in the family, but it is part of the family," Mr Phillips said.