Six years ago everyone was saying that Nissan Corporation was going to go under. They lacked product and a clear vision and a leader of substance. Today they are a formidable opponent with Carlos Ghosn at the helm and have announced a collaboration with another company that is in about the same situation that Nissan used to be; Mitsubishi Motor Company.
Mitsubishi Motor Company’s President is Rich Gilligan. Their Vice President is Dave Schembri, 52. Gilligan, 62 years old on September 11, is spearheading a product reorganization and a company reinvention. Gilligan’s current contract is up in April 2007.
More than most automotive Presidents, Carlos Ghosn has to know what it feels like to get a nod from a company that is doing well when your company isn’t. Ghosn made the decision to redesign the Otti, an existing Mitsubishi minicar. Mitsubishi will develop the car in the Mizushima factory. The minicar will be sold by Nissan through their own car dealers in the Japanese market under the Nissan brand.
Nissan doesn’t have a minicar and doesn’t have the extra production line to build it. A minicar typically has an engine displacement of 660 cubic centimeters or less. They are referred to as an A-segment or B segment which suggests a wheelbase of no more than a certain size.
According to Gilligan, this allowed Nissan to pay down some of its debt, play in a new segment, and increase Nissan’s share of the Japanese market. The International Herald Tribune reported that Mitsubishi probably increased it’s operating profit by 4.5 billion yen after selling the models to Nissan.
Globally, it’s a strategic move on Mitsubishi’s part. Mitsubishi has been floundering. There have been accusations of hidden defects in Japan and missteps in marketing in the United States. Combine that with defaults on loans and Mitsubishi has been hurting. Conversely, it’s an interesting nod from Nissan to Mitsubishi and to the rest of the world. Mitsubishi has the production capacity to build the minicar. If Nissan had picked another company to produce their minicar it probably wouldn’t have surprised anyone as much as the fact that they did pick Mitsubishi to produce the minicar.
J.D. Power just awarded Mitsubishi the silver award for quality on the Outlander that was built in the Mizushima factory. In 2002 the Lancer received a bronze award for quality in its segment. The Lancer is also built at the Mizushima factory.
Even though Mitsubishi’s sales numbers have gone down, their J.D. Powers numbers for quality have improved steadily, according to Schembri.
Mitsubishi’s Automotive Lease Guide (ALG) numbers, numbers that represent a residual value for a car, have gone up as well. Many people factor in resale value when purchasing a car. When they go to sell their vehicle they want to get at least what they still owe on it and at best a good down payment for their next vehicle. Mitsubishi’s ALG numbers have risen 9-11 points on most of their vehicles, giving them a better resale value.
Gilligan explained one of the ways they were able to bring the numbers up was by taking the fleet numbers down. “In 2003 Mitsubishi’s fleet sales were thirty percent of our total sales. We had to take our fleet cars to the open auction because there were so many the dealers didn’t want to buy them all.” Gilligan went on to explain that if one’s resale vehicle price is lower than what they owe than they will be upside down in their next loan. “No one wants to stay with a brand where you owe more than it’s worth”. Gilligan says for 2005 Mitsubishi’s sales should be 150,000 with only eighteen percent of their sales as fleet.
Mitsubishi is also collaborating on a new 4 cylinder engine with Hyundai and DaimlerChrysler that is being built in Dundee, Michigan. Mitsubishi says they will start buying and putting those engines in their 2008 model year vehicles. Currently, their engines are built in Japan. This will free up sourcing for their North American Free Trade Agreement (NAFTA) requirements.
“If a vehicle doesn’t meet the NAFTA requirement of 62 percent of their vehicle sourced in North America each vehicle will cost somewhere between $800-$1,000 more per vehicle. Since Mitsubishi’s engine was sourcing around 28 percent this left Mitsubishi with about 72 percent to play with. Mitsubishi was sourcing around 68 percent, which didn’t leave much of a cushion.” According to Gilligan, “this precludes you from sourcing from the Philippines, Thailand, or China”.
Gilligan and Schembri have been with Mitsubishi about the same amount of time. Gilligan’s strong suit is Industrial Engineering and Manufacturing and Schembri’s is sales and marketing. Gilligan credit’s Schembri with the “gas comes standard” incentive program that General Motors just started offering on their vehicles. Mitsubishi’s is for a full year of gas-free while GM’s is for $500 and can be combined with another incentive.
Gilligan comes off as a man who knows this will be his last stint at an automotive company. It seems as though he is seen by many in the Mizushima factory and in Mitsubishi as a grandfatherly type who now only wants to leave his last post with the legacy of leaving it in the best position he possibly can.
Schembri seems to understand his position and what his next position could be if everything he and Gilligan are striving for does come to the past. Schembri pays homage to Gilligan for his intelligence and for letting Schembri implement his plans and for giving Schembri credit in the public for those plans.
There have been no formal announcements of Schembri succeeding Gilligan. The only logical conclusion says that Gilligan and Schembri might have some agreement that it is part of their plan. But follow the two for a day at the Mizushima factory. Ask them both questions separately and listen to their answers. You get the feeling that they both have an understanding of where the other wants Mitsubishi to go and that both are on the same page.
But not now, the two still have a lot of work to do.