It’s going to be fun seeing Ghosn standing in front of a Mitsubishi instead of a Nissan or Renault. The empire, aka Alliance, grows larger. But is it stronger?
Nissan Motor will buy 37% of Mitsubishi Motors for $2.2 billion the companies said today in Yokohama and Tokyo, Japan. This requires a new MMC stock share issue. Call it a “one barrel of a two-barrel shotgun wedding.” This is a giant roll of the dice with Carlos Ghosn betting on numerous “come” lines.
The move represents a bailout for Mitsubishi Motors, currently enmeshed in a costly – and expanding – fuel economy cheating scandal going back to 1991. The deliberate illegal certification of its tiny kei-cars (kei jidōsha, aka microcars) in Japan started the image-damaging problem when Nissan discovered false ratings on the DAYZ model kei-cars Mitsubishi supplied to it. The Mitsubishi admission this week that there could be problems with all nine models it produces in Japan compounds the problems for the beleaguered automaker.
Sister companies at the giant Mitsubishi Heavy Industries conglomerate showed a -10% decline in revenues for Fiscal Year 2015 are unable to bailout the auto company because of pressure from investors. It’s likely securities regulators are closely watching and working the issue behind the scenes. The strength of the Japanese Yen and chaos in global commodity markets are hurting the performance of the entire group. The automotive performance is not broken out. However, the Machinery Group of MHI during FY 2016 had earnings of 62.2 billion Yen, down almost 33% at – 29.1 billion Yen Y-O-Y. The steep drop came from a decrease in motor vehicle sales in Asia, and one- losses in the shipbuilding business.
The group bailed out Mitsubishi Motors at the turn of the 21st century after it was revealed that executives were covering up safety problems. Mitsubishi Motors has been in decline ever since.
The “strategic alliance” will extend an existing partnership between Nissan and MMC, under which the two companies have jointly collaborated for the past five years.Nissan just announced for FY 2015 that Operating Profit rose more than 34% to $6.6 billion (793.3 billion yen). This is a modest 6.5% margin on net revenues that reached $101.4 billion (12.19 trillion yen) for the period. Globally, Nissan sold 5.42 million vehicles in the period, a 2% rise year-on-year.
Carlos Ghosn, chief executive and president of Nissan, claimed, “This is a breakthrough transaction and a win-win for both Nissan and Mitsubishi Motors. It creates a dynamic new force in the automotive industry that will cooperate intensively and generate sizeable synergies. We will be the largest shareholder of MMC, respecting their brand, their history and boosting their growth prospects. We will support MMC as they address their challenges and welcome them as the newest member of our enlarged Alliance family.”
A large question that remains is now what is FCA CEO Sergio Marchionne is going to do in his thus far fruitless pursuit of a corporate merger that cashed challenged Fiat Chrysler desperately needs. This deal was untenable from the FCA point of view because it doesn’t have the money to buy into Mitsubishi.
