Official: Mitsubishi Oz to close its Adelaide factory

AFTER years of speculation, Mitsubishi Motors Corporation (MMC) today announced the closure of its Australian subsidiary's Adelaide factory by the end of March, and the loss of at least 930 jobs there, following the failure of its homegrown 380 large sedan to attract enough buyers and company losses of $1.5 billion over the past decade.

The announcement was made at 4.30pm local time via a live media webcast, after Mitsubishi Motors Australia Limited (MMAL) president and CEO Rob McEniry broke the news to staff at Tonsley Park.

Mr McEniry cited the decline in large-car sales in Australia, the nation's relatively small market, the need for exports and unfavourable exchange rates as Mitsubishi's decision, which he said was made finally only late this morning, to “pursue a full import strategy”.

“In determining a future strategy for Mitsubishi in Australia, these are the bigger issues that we’ve had to address: ongoing significant losses, declining large-car market, the need for exports, the high exchange rates and structural changes to the consumer buying habits,” Mr McEniry said.

“Australia is a very important market for us and we will continue with our full and expanding range of imported vehicles as a significant and major player in the Australian market.

“However, it is an inescapable fact that there is now a deepening trend away from large cars.”

Top to bottom: Mitsubishi chief Rob McEniry, Tonsley park manufacturing plant in Adelaide and the Mitsubishi 380 sedan.

Mr McEniry said the final decision for Mitsubishi to build the 380 was made in late 2001, well before a massive 37 per cent decline in large cars was experienced in 2005 and 2006. He said the hoped-for major recovery led by the Toyota Aurion and Holden’s VE Commodore also failed to eventuate, with consumer preferences and buying habits running deeper than expected.

“This is obviously a major concern for the future viability for our large car, the 380, and its manufacturing in Australia,” Mr McEniry said. “More pressing, however, is the commercial reality that it does not make economic sense to carry on with such losses in the Australian manufacturing operation for us.”

The former Holden marketing executive, who replaced Tom Phillips in September 2005 (just weeks prior to the 380 reaching the showrooms), continued his predecessor’s quest to find another vehicle, or a new export program, to ensure the continued viability of its Australian manufacturing operations.

“Over the years we have undertaken a multitude of studies for manufacturing every conceivable model and/or export market – studies on export markets for large cars, studies on building a smaller car, studies on building SUVs both light and heavy, studies on diesel engines, alternate engines, a second car line, and many other opportunities,” Mr McEniry said.

“In the past few months, all of these studies have been reviewed one more time in absolute exhaustive detail to see if any of these were remotely viable in the current and forecast market and economic conditions. Unfortunately, none of them were.”

Mr McEniry said the strengthening of the Australian dollar, particularly against the US greenback, also ended any chance of securing a new export program.

“A solution to these challenges of declining volume and ongoing losses clearly had to be found,” Mr McEniry said. “Although Australians for the first time bought over one million cars in this market last year, this is still a relatively small market in global terms.

“This means that for viable manufacturing volumes of any type of car, we need exports. However, we also face particular issues with exporting cars from Australia. And the biggest of these issues is exchange rates.”

Mr McEniry cited the deal struck to export a stretched version of the previous-generation Magna to the US as a Diamante, which was approved in 2002 and, based on a A58c exchange rate, would see MMAL receive about $A41,000 for each car. By 2004, the revenue per car (based on A88c to the US dollar) was down to $A20,000 – and the program was aborted.

“That particular project would not have been approved at these exchange rates, and had it not been cancelled in 2004 it would have been a highly unprofitable project for us now.”

Mr McEniry said that Mitsubishi remained committed to its imported vehicle business in Australia, where its foreign-built model have met with soaring success over the past 18 months, and that Mitsubishi will launch seven new models this year.

He emphasised that because Mitsubishi-built vehicles accounted for just two per cent of all locally-manufactured vehicles last year, its factory's closure would have “little or no impact” on the automotive industry that supplies Australia's three remaining car-makers. He said two companies were exclusive suppliers to Mitsubishi and that up to a further 280 jobs could go.

“There are some doomsayers suggesting that the actions we have taken will have a far more significant impact – (but) the total number of vehicles we build here in South Australia, as a per cent, of the total annual vehicles built in this country, is two per cent,” Mr McEniry said.

“I would add that that relatively flows through then at the same rate on local purchases from our supplier network.

“As a relatively minor vehicle manufacturing player, we believe the cessation of production will have little or no impact on the local industry overall. Furthermore, there are no suppliers that are completely reliant on our business for survival, although two do have dedicated facilities at Tonsley Park for our production purposes.

“With this final decision made only late this morning, our priority now shifts to ensuring the welfare of our employees and other business partners, and reassuring our customers.”

Mr McEniry said Mitsubishi would repay a $35 million SA government grant received at the start of the 380's development program in 2002, but stressed that MMAL “has not been a government welfare case, nor propped up by government funding”, which he said was a “chronic misconception”.

But he admitted that tax-payers money would not have saved Tonsley Park anyway. “Given the magnitude of the challenge, government assistance is not the answer to maintaining manufacturing at Tonsley Park, and this has not been sought by the company.” Mr McEniry said.

The MMAL boss said employees would receive “very favourable separation packages” (the final details of which are yet to be determined with unions), as well as on-site counselling and job-seeking, and financial advice for “those wishing not to retire”.

He said Mitsubishi would continue to support its 200-strong dealer network and customers. Indeed, owners of Magna and 380 vehicles still in their new-car warranty will receive a 12-month extension over the current 5/10-year full/powertrain warranty, to a six-year bumper-to-bumper warranty.

“This clearly demonstrates our ongoing support for this multi-award winning car,” Mr McEniry said. “Mitsubishi is now focused on further growth in the Australian market.

“We have a comprehensive model range - Lancer, Colt, Grandis, Pajero, Outlander, Triton and Express Van, which today comprise nearly 90 per cent of our annual sales – with more new products to come, confirming our long-term presence and growth aspirations in the Australian car market,” he said.

He said the only 380 to continue to be produced until Tonsley Park is closed will be a special value pack, and that a future use for the Adelaide site, including the “industry-best” Lonsdale engine plant closed in 2005, had yet to be decided.

Finally, in announcing what he described as “an extremely difficult” decision blamed exclusively on the changing needs of new-car buyers, Mr McEniry acknowledged the support from both sides of state and federal politics and praised the new Labor government's Green Car policy and its initiative to bring forward the car industry review.

“This has been a very difficult decision. We have a deep appreciation of the commitment and loyalty of our workforce, suppliers and other business partners who have given the plant a proven track record of flexibility, cost efficiency and excellent quality control,” Mr McEniry said.

Mr McEniry said: “Over the last 10 years, MMC has gone beyond the call of duty in supporting manufacturing in Australia through major capital investment, in addition to covering significant operating losses. Having persevered for so long, it is simply not rational to contemplate continuing such losses. To invest in further models for local production can not be justified.”

Speculation about the future of Mitsubishi's South Australian manufacturing facility has made front-page news for some time, damaging the brand's reputation and leading Tom Phillips to famously say of the source of the leaks: "I have seen the enemy and he is within."Mr McEniry was forced to deny fresh media allegations that emerged on the eve of last year's Melbourne motor show, and at the 2007 Sydney motor show in October he said MMAL had been working with head office regarding the possible manufacture of a mid-size crossover vehicle for both Australian and export consumption. At the time, he said Mitsubishi's Australian manufacturing future would be decided early this year.

But as late as yesterday a Bloomberg report cited three unnamed company officials as saying the plant would be closed as early as March because of slow sales.

VFACTS statistics show that Mitsubishi's Australian production has fallen from a high of 41,000 cars in 1997 to 10,942 last year. Last year’s result was down 11.9 per cent on the previous year.

The Japanese car-maker's decision comes after 11th-hour lobbying by the federal and South Australian governments to shore-up the factory's future.

South Australia premier Mike Rann yesterday spoke with MMC president Osamu Masuko, warning the company that an early move to close the plant would be a breach of earlier agreements if Mitsubishi did not maintain production in Australia until 2010, according to BusinessDay.

Mr Rann said that “any decision will be solely a commercial decision, based on the viability of local manufacturing, as part of a global restructure of the company”.

“In talks today (Monday), I’ve reiterated the state and federal governments’ longstanding support which was accepted on condition of Mitsubishi maintaining production until the end of 2010, and our expectation that agreement would be adhered to,” he said.

“In recent years, the support for Mitsubishi has included the South Australian government providing a $35 million loan in support for the development of the 380 model, as well as substantial support to assist workers following the closure of the Lonsdale engine plant.

“I’ve been assured by senior Mitsubishi management today that there is nothing additional that either the Australian or the South Australian government can do to influence (Tuesday’s) decision.”

Late today the Federal Chamber of Automotive Industries issued a statement saying the withdrawal of Mitsubishi from Australian manufacturing “is of concern and regret to the entire motor industry”.

“Mitsubishi's manufacturing operations in Adelaide has made a significant contribution to the Australian economy and to the community over more than 27 years,” said FCAI chief executive Andrew McKellar.

The VACC said MMAL's announcement sends a powerful message to the federal government about tariffs.

"The announced closure of Mitsubishi's Australian manufacturing operation puts the writing on the wall: Australia's local car manufacturing industry cannot absorb further tariff reductions," said VACC executive director, David Purchase.

"That Toyota Australia has also made its views clear that further tariff reductions would threaten its local manufacturing operations, makes a strong case for an extension of the current tariff regime.

"Our strong currency is depressing export earnings at the same time as making imports cheaper. We ask that the government abandon the planned reduction in tariffs on imported cars, scheduled to occur in 2010, that will take them from the current 10 per cent down to five per cent.

"To reduce tariffs further would be a double blow to this sector and a retrograde step for Australia," said Mr Purchase.

The Mitsubishi sales story

AFTER a peak of 41,008 Australian-built Magnas and Veradas in 1997, Mitsubishi’s local-car sales slipped to the mid-20,000s and stayed there for a few years until 2004 when sales slipped to 15,968 on the back of the poorly received TL model.

There was more pain to come with the all-new 380 failing to avert the downward trend after its introduction in 2005. Sales of the 380 dropped to 12,423 in 2006 and slipped further to 10,942 last year.

Rumours suggesting Mitsubishi would close its Adelaide operations have circled for more than a decade.

A $1 billion investment by Mitsubishi Motors Corporation in 2002 for research and development and plant upgrades put a temporary halt to the stories that claimed Mitsubishi was about to pull out – but not for long.

MMAL faced the threat of imminent closure in 2004 after a restructuring of MMC’s global operations was carried out in order to save the struggling Japanese car-maker. The result was a decision to close the Lonsdale engine plant in Adelaide, which saw 650 workers lose their jobs. Tonsley Plant was granted a stay of execution.

One of the highest profile stories that predicted the end of Mitsubishi production in Australia was aired on the ABC just prior to the 2006 Australian International Motor Show in Sydney.

The ABC’s investigative unit claimed it had uncovered a secret plan, called Project Phoenix, which would see Mitsubishi Australia quickly close its Adelaide factory. Tired of constant speculation of the closure that was no doubt hurting sales, Mr McEniry attacked the ABC report.

He said Project Phoenix was a redundant plan that had been developed in-house, along with several others, as part of a wide-ranging investigation looking at the best way forward for the company. He added that it was a flawed plan and had subsequently been rejected by the MMAL board.

“Our statement to the media yesterday reaffirmed this our letter to the employees and dealers say it again – no plans, no decisions,” he said at the time. “I do not know how many times we have to say it.”

Mr McEniry hinted at the impact the constant rumours were having on Mitsubishi’s Australian operations. He pledged the company was here to stay, but added that it “becomes very hard when you keep being beaten over the head”.

Having said that, there was a poignant moment at the press conference today when Mr McEniry conceded that “March 2008” was indeed one of the dates specified for closure of Tonsley Park on the Project Phoenix document.

Other contributors: MARTON PETTENDY and TERRY MARTIN.