Mitsubishi: what went wrong
-by Robert Wilson
So that’s it then. Not with a bang, indeed not even with much a of whimper. After 28 years Mitsubishi Motors Australia announced the end of production of the 380 in Adelaide, putting 930 employees out of work.
It was hardly a surprise, and there was little sense of shock, even from the unfortunate workers at the plant, who told television crews they knew something like this had to happen one day. The production line had, after all, been running at 35 cars a day, less than Holden across town could make in an hour.
Prophets of doom had been muttering about the closure of the Tonsley Park factory for close to 10 years. How did it come to this?
It’s important to remember that 10 years ago the future looked bright for Mitsubishi Australia, brighter, to be honest than it looks for the three remaining Australian car makers today. But the problems that led to the death of Tonsley Park also date from then.
In 1997 Mitsubishi Australia made 57,000 Magnas and luxury Veradas selling 41,000 locally and the rest overseas. In North America the Diamante, as it was known was a reasonably common sight in the suburbs, its bland styling blending in well to the US carscape. But it was in the late 1990s that the first of three crises hit Mitsubishi globally. The demise of the 380 can ultimately be traced to these.
The Asian financial crisis of 1997 hit Mitsubishi hard. The Japanese parent company was forced to cancel dividends in 1997 and 1999. Other projects, such as development and eventual replacement of the modestly successful sedan it was making in Australia also went on the back burner.
In March 2000 DaimlerChrysler bought a 34 per cent stake in Mitsubishi, effectively taking it over. It soon became evident that the Adelaide Mitsubishi plant was not high on the new management’s agenda.
At about this time Australian car journalists , perceiving a folksy conservatism in the car’s lack of development started using the word “cardigan” to describe the Magna. Mistubishi’s image, once that of an innovator, changed for the worse.
The second nail in the coffin was one of Japan’s largest corporate scandals. On two separate occasions Mitsubishi in Japan was forced to admit to systematically covering up known defects in its vehicles.
Four defects were first acknowledged in 2000, but in 2004 the company was forced to open its files on to 26 more going back as far as 1977. They included including failing brakes, fuel leaks and faulty clutches.
Almost one million vehicles had to be recalled, mostly trucks and buses made by Mitsubishi’s Fuso division but Mitsubishi was forced to call back 163,707 cars, mostly in Japan.
Defects were linked to 13 accidents resulting in injury, 26 accidents resulting in property damage, 74 vehicle fires – and two deaths.
Mitsubishi’s then president Katsuhiko Kawasoe resigned and was later arrested, along with 23 other employees who were also implicated.
There were never any questions over Adelaide-built Mitsubishis and no suggestion they had quality problems – the effect on Tonsley Park was more insidious. With head office in continual crisis in the years around the turn of the century there was little money or executive attention paid to new model or market development in the far-flung outpost of Adelaide.
The Magna’s once promising toehold in the US market was killed off by the third horseman of Mitsubishi Australia’s apocalypse.
In the Asian financial crisis, Mitsubishi suffered more than other Japanese car makers because of its lack of a large compensating US market. It attempted to compensate with an ill-advised sales campaign offering a zero-zero-zero finance offer – zero per cent down payment, zero per cent interest, and zero monthly payments for 12 months.
Sales leaped, but they weren’t really sales at all because at the end of the year’s grace period an alarming percentage of buyers defaulted, leaving Mitsubishi with an inventory with used vehicles for which it had not been paid and which were worth less than they cost to make. The result was a US$454 million loss in North America, but also an inestimable erosion of its image as US talk show hosts made cracks about hobos sleeping rough in brand-new Mitsubishis. The company ended up with zero credibility.
Sales of the Diamante , as the Magna was known in North America slumped and it was discontinued in 2004, replaced, ironically for Mitsubishi Australia, by the US-made Mitsubishi Galant – which would form the basis for the Magna’s replacement, not yet named 380. But, critically, the long wheelbase export version of the 380 was cancelled.
The 380 was under a cloud even when it was on the drawing board. The export-driven business model which had seemed so promising a few years earlier had dried up and the car was launched in October 2005, just at the time when Australian buyers were turning away from large passenger cars.
It was yet another irony because in the 380 Mitsubishi made a a car that felt large and solid in a way the Magna never had. Since the first four-cylinder model of 1985 the Magna had been perceived as a smaller, less substantial alternative to a traditional Australian sedan. Just as Mitsubishi got around to building a car that encapsulated that intangible feel, the large car market dived.
Australia had been through petrol price crises before but they had always happened in the context of a closed car market. Large car sales had stalled but because of import tariffs and quotas buyers did not rush to smaller cars the way they have done in the current wave of high petrol prices. It made things tough for all Australian makers, especially Mitsubishi. The 380 was built on a business case of about 30,000 sales a year – it never made half that volume.
British-based automotive industry consultant John Wormald is a regular visitor to Australia and observer of the local industry. He said the demise of Mitsubishi Australia was inevitable.
“They fought a long and very spirited rearguard action but 10,000 cars a year is simply not an economic proposition,’’ he said.
“It had to come to an end: they were trying to sustain the impossible.”
But Wormald does not blame Mitsubishi Australia for building a large sedan, despite the Australian market’s subsequent move away from them.
“I can’t fault that decision,” he said.
“At the time it was the only rational decision about what car to build in Australia. It doesn’t really make sense to build small cars in small volumes in Australia because it’s much more cost-effective to import.”
Despite the overwhelming economics Wormald says he feels sadness and respect for Mitsubishi’s Australian managers, engineers and workers.
“It’s easy to be smart after the event but this is no time for wise cracks,’’ the expert said.
The seeds of Mitsubishi Australia’s doom were sown a long time before this week’s bitter harvest. A factory with a global market was squeezed back into the Australian marketplace, just at the time when we lost our taste for large cars. The question for Australia’s three remaining car makers must be whether similar weeds are curling around their foundations.