Tariffs ‘a bump in the road’ for Mitsubishi

Mitsubishi COO Trevor Mann points to key vehicles such as the Eclipse Cross and Outlander as reasons for his optimism.

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TOKYO — The threat of U.S. tariffs couldn’t come at a worse time for Mitsubishi, a struggling brand that has just begun a long-awaited recovery in the U.S.

But COO Trevor Mann insists Mitsubishi is well placed to weather a trade storm.

“In the short term,” he says, “I would see it as a bump in the road.”

U.S. growth plays a key role in Mitsubishi Motors Corp.’s plans, even though the company shuttered its only U.S. auto plant in 2016. Now, as a pure import player, the Japanese carmaker is more exposed than ever to a tariff broadside.

So why the optimism, with the auto industry fretting the possibility of a 25 percent duty? Mitsubishi has several things going for it, Mann said. It starts with a new wave of product due around 2020.

The improvements will include the next generation of the top-selling Outlander crossover and other vehicles that incorporate platforms and engines from Mitsubishi’s alliance partners Renault and Nissan. Mann said the redesigns will boost brand appeal and help shield sales from tariffs.

After 2020, Mann added, Mitsubishi may also start thinking about localizing U.S. production again. A U.S. manufacturing footprint would help insulate the brand from long-term tariff damage.

Until then, a short-term tariff impact should be mitigated by the fact that the U.S. contributes only 10 percent of Mitsubishi’s worldwide sales — and even less to profits.

“It’s not going to be a corporate disaster for us,” Mann said of tariffs. “The impact on us would be less than on many other brands. It’s a bump in the road that we’re going to have to repair.”

Mitsubishi was working to fix its U.S. business long before the talk of tariffs, Mann said.

Despite the small U.S. presence, Mitsubishi has prioritized North America as a “focus” market in its midterm business plan.

Mitsubishi hopes to lift North American sales 23 percent to 190,000 vehicles in the fiscal year ending March 31, 2020. That outpaces the global target of 18 percent growth to 1.3 million.

The U.S. recovery is off to a good start. Sales surged 23 percent to 77,277 vehicles through July.

“Mitsubishi was a bit of a sleeping giant. As a brand, we have great potential,” said Mann, who was dispatched to Mitsubishi from Nissan after Nissan’s 2016 acquisition of a controlling stake. “I think we’re demonstrating that we’re waking up.”

Mann has concentrated on strengthening Mitsubishi’s U.S. retail network. The first step was listening to dealers’ suggestions and identifying fixes.

There were plenty.

A major request has been to increase the supply of a centralized inventory. Dealers said they were spending too much time having to swap vehicles among themselves when supply ran short.

Mitsubishi also has been working with dealers and its U.S. sales financing partner Ally to streamline the loan process. Also underway is a review of the automaker’s incentive program, Mann said.

“We were not communicating properly with them,” he said of U.S. dealers. “We started to re-engage. If you can’t talk with people, you can’t find out what the issues are. If you can’t find out what the issues are, you can’t fix them.”

Mitsubishi had 353 U.S. outlets at the end of June and wants 10 more by the end of next March.

Localizing production

Dealers will get another boost from next-generation products built through alliance synergies. Those vehicles will start to generate volumes that may warrant localized production, Mann said.

Mitsubishi needs annual U.S. volume of 70,000 to 80,000 for a single nameplate to justify local output, Mann said. But a vehicle such as the Outlander, one of Mitsubishi’s best-sellers worldwide, might squeak by on less, especially if it shares underpinnings with Nissan.

“When we start to get more effective models, which are fresher and more fit for market, then I think this is the time when we can start to get the kind of critical mass we need,” he said.

Mann said Mitsubishi will re-examine localized production regardless of tariffs.

If Mitsubishi were to resume building vehicles in the U.S., it would likely be in conjunction with Nissan, possibly through an expansion of a Nissan assembly site.

“It would probably be unlikely that we’d build a factory of our own,” Mann said.

Leaning on Nissan’s U.S. factory network would be one hedge against tariffs. But Mann said there are other possible workarounds, such as tapping Renault-Samsung production in South Korea, which — at least for the time being — has a free-trade agreement with the U.S.

Mann’s upbeat assessment comes as Mitsubishi’s global recovery gathers speed. The carmaker this month reported a 36 percent jump in operating profit on rising sales in every key market, and because of robust cost savings from working with Nissan and Renault. Worldwide retail sales grew 21 percent to 292,000 vehicles in the fiscal first quarter ended June 30.

Operating profit for the quarter advanced to ¥28.1 billion ($253.9 million) from $186.1 million a year earlier, the company reported.

Parent company net income increased 23 percent to $254.8 million in the April-June period, from $207.8 million in the previous fiscal year.

The healthy results were buoyed by the introduction of new vehicles such as the Eclipse Cross and Outlander PHEV crossovers in the United States, and the Xpander multipurpose vehicle in Southeast Asia.

The upswing underscored the V-shaped recovery CEO Osamu Masuko has pursued in the wake of a 2016 fuel economy scandal and Mitsubishi’s ensuing tie-up with former rival Nissan.

Cost cutting

Stepped-up cost cutting also helped bolster profits in the quarter. Mitsubishi has been aggressively cutting operating costs, partly through joint purchasing, logistics and other synergies with Renault and Nissan.

The new synergy lifted results by $85.8 million in the quarter, accounting for about a third of operating income, CFO Koji Ikeya said while announcing the financial results.

Mitsubishi and Nissan have opened a joint training center in the Philippines and a joint national distribution center in Australia. Mitsubishi has said it will use Renault’s sales financing subsidiary in the Netherlands. It is already using Nissan’s sales financing in markets such as Canada, Australia, New Zealand and Thailand.

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