Published on May 12th, 2016 | by Steve Hanley
Nissan Buys Controlling Interest In MItsubishi
Crippled by a recent fuel economy cheating scandal that goes back 25 years, Mitsubishi has fallen on hard economic times. Some industry analysts speculated it might go bankrupt soon or be taken over by another company. Yesterday, Nissan CEO Carlos Ghosn announced his company has purchased a controlling interest in Mitsubishi for $2.2 billion. The deal gives Nissan 34% of Mitsubishi stock and 4 seats on its board of directors.
Deals like this don’t happen overnight. The most recent scandal just came to light a short while ago. The news caused the company stock to plummet in value. Interestingly enough, the majority of the cars involved in that scandal are small, Kei class cars sold in the Japanese market as Nissans. It turns out Nissan originally alerted Japanese authorities to the falsified mileage tests. Now it gets to acquire controlling interest in Mitsubishi at a bargain basement price. The world is an interesting place, isn’t it?
Perhaps I am being too suspicious. According to a press release, “It represents a win-win,” Ghosn says “We believe in the potential of Mitsubishi Motors.” He said Nissan would “preserve and nourish” the Mitsubishi brand, adding that the agreement came together quickly because Mitsubishi was open and honest about the scale of its problems.
For his part, Mitsubishi CEO Osamu Masuko said his company needed the help and that a deeper partnership with Nissan was an “important pathway” to re-establishing trust in his company’s tarnished brand. “We had to do something quite daring. It is not an easy task to restore trust.”
The new arrangement has several positive aspects for Nissan. For one, the Kei class represents about 40% of the Japanese new-car market. Nissan had long ago abandoned it efforts to compete in that market segment, preferring to let Mitsubishi build its cars for it. Letting Mitsubishi fail would deny Nissan access to that lucrative part of the indigenous market. It will also help Nissan tap into Mitsubishi’s solid sales network in Southeast Asia. Nissan sales in that part of the world have been disappointing.
The new arrangement will also help Nissan achieve higher volume in an era when economies of scale is the new mantra. “Why spend twice? One development can be done and shared,” Ghosn said, stressing both companies could share work in areas such as pickups, electric cars, and autonomous vehicles.
Both companies have identified electric vehicles as critical to their future growth. Working together will allow them to pool their electric powertrain resources. “There’s an easy way to spin this positively,” said Kurt Sanger, lead auto analyst at Deutsche Securities Japan. “At the end, this is about much more than just minicars in Japan.”
For US customers, the association with Nissan may guarantee that the long-awaited Mitsubishi Outlander PHEV, which has set sales records in many foreign markets, will actually arrive as promised later this year.