Mitsubishi to Bet on a New Small Car

By Yoshio Takahashi - Wall Street Journal

TOKYO—Mitsubishi Motors Corp. plans to embark on a major sales offensive, producing a new, low-priced small car at new factories in Thailand and possibly China that will be positioned to sell in global markets, the auto maker's top executive said Tuesday.

Japan's sixth biggest car maker by volume is targeting annual sales of 400,000 to 500,000 for the new model, which will be powered by a three-cylinder, one-liter engine and priced under one million yen ($10,906).

The new car is central to the company's effort to penetrate emerging markets, where it has so far been left behind, and to revive sales in some other major markets.

"Demand is strong for small, fuel-efficient, low-priced cars among middle-income families in emerging markets," said Osamu Masuko, president of Mitsubishi Motors, in an interview, "

In developed countries, consumers are buying smaller vehicles in response to environmental and energy issues," he added

The sales target for the new model is ambitious, far outstripping the 110,000 units that each of Mitsubishi's top three models sold in the fiscal year ended in March.

With the new mass-market model, the Japanese auto maker seeks to lift global sales to 1.5 million vehicles "as early as possible," Mr. Masuko said. That would be 56% more than the 960,000 that Mitsubishi sold world-wide in the last business year.

The Tokyo-based company, which last year became the world's first major auto maker to sell a mass-produced electric car, intends to build a new factory in Thailand. That plant will be close to the company's current factory there, Mr. Masuko said. Mitsubishi plans to start producing the new small-car model by the end of March 2012, the president said.

Mitsubishi Motors currently makes the Triton and L200 Stradapickup-truck models and the Lancersedan at its plant in Laem Chabang.

The car maker seeks to churn out 250,000 of the new small car a year in Thailand, producing 200,000 at the new plant and 50,000 at its existing factory.

Mr. Masuko said that investment to build the plant hasn't been finalized. But when asked whether it would cost as much as 20 billion to 30 billion yen, he said "it would cost that much."

In addition to the new factory in Thailand, the president said, the company is looking to open a plant in China, India or Brazil to produce the car.

"We would probably have to have one in China, as it's a huge market," he said.

The president expects the small car to raise the efficiency of the company's production operations and the number of customer visits to dealers, thereby spurring sales of other models.

Through this ripple effect, the president hopes Mitsubishi will eventually reach the industry's top operating-profit margin of 7% to 8%. If Mitsubishi achieves that, its profitability will have improved significantly from the 1% posted in the most recent fiscal year.

As part of its efforts to raise profitability, the car maker is also working on improving operations at its U.S. plant.

That factory, which is located in Illinois, had a low operating rate of about 20% in the business year ended in March.

This fiscal year, the company is planning to increase the production at the factory to 35,000 units, up from 23,000 in the prior fiscal year. But the rate will remain low, at about 30%, in the current business year.

"The trouble at the Illinois plant is that we produce aging models," Mr. Masuko said. "So we have to change the models we produce there."

The president said that Mitsubishi is going to decide within the next few months which existing model it will begin producing at the U.S. factory. It currently produces the Galant sedan, Eclipse sports car and Endeavor sport-utility vehicle there.

"We'll try to revitalize our operations in America," he said.

Write to Yoshio Takahashi at yoshio.takahashi@dowjones.com

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