100 YEAR CLUB: Mitsubishi Motors, Part 02

In Part 01 of our Mitsubishi Motors retrospective we covered the beginnings of the vast Mitsubishi empire, in which the car company is just a small part. In fact, until 1970 the Mitsubishi Motors we know today only existed as a loose collection of car-making factories and engineers within its massive parent company, Mitsubishi Heavy Industries, which is itself a part of the colossal Mitsubishi Group that operates in banking, construction, and energy sectors, among others.

It’s so big that the managers didn’t even really want to deal with running the car company, so they created MMC to unite the businesses with the plan of selling to Chrysler and letting them manage the whole thing. 

Better Late Than Never

What seemed like a win-win soon turned sour, and as with so many automotive fortunes, the dual oil crises of 1973 and 1979 turned the tides. After the shortages, makers of small cars like Mitsubishi saw their stars rising just as Chrysler’s, already the weakest of the Big Three, plummeted.

In 1981, with a tsunami of demand for imported cars creating an anti-Japanese backlash, Tokyo instituted a Voluntary Export Restriction of 1.68 million cars a year to the US. President Reagan signed off, and the cap was set. As the fifth largest automaker in Japan at the time, MMC’s slice of the pie was a meager 120,000 cars, and most of them didn’t even wear the Mitsubishi name.

As part of the Chrysler deal, Mitsubishi could only sell 30,000 cars a year in the US under its own name. Even with the VER, rivals like Toyota and Nissan were enjoying record sales. Left out of the party, Mitsubishi sought its fortunes elsewhere. It bought a 10 percent share of Hyundai and gave technical assistance develop its first car, the Pony. It helped Malaysia establish Proton. It aggressively marketed across southeast Asia, where it remains one of the most popular marques today. It bought Chrysler’s entire Australian manufacturing presence at fire sale prices and began building cars there locally.

Still, as our editor at large Ricky Silverio is fond of saying, if can’t make it in America, you get no respect outside of America. On December 8, 1981, Mitsubishi Motors officially began selling cars under its own name in the US.

Chrysler didn’t like that one bit, but from Mitsubishi’s perspective, if Chrysler went out of business — which it was constantly in danger of — Mitsubishi would have lost its lifeline to the US market.

It wasn’t easy. Most of its rivals had a two-decade head start in dealer franchising and brand recognition. Honda was already in the process of building a US factory. By 1985, according to the New York Times, Mitsubishi had only 88 dealerships in the US. Toyota and Nissan had more than 1,000 each.

Despite the shaky relationship with Chrysler, Mitsubishi continued to supply it with engines and cars, from the Mirage-based Colt to the Starion-based Conquest. However, the VER meant that both companies were fighting against each other for the same pool of allowable sales. The solution was Diamond Star Motors, a $600 million Chrysler-Mitsubishi joint venture plant based in Illinois.

The name was taken from a combination of Mitsubishi’s triple-diamond logo and Chrysler’s Pentastar. Construction began in April 1986 and was completed by March 1988, just in time for the new Mitsubishi Eclipse/Eagle Talon/Plymouth Laser. While the sports coupe was easily the most famous of the DSM cars, models as varied as the Mirage (aka Eagle Summit), Galant, and Dodge Avenger/Chrysler Sebring were all built there.

Amazingly, the partnership lasted only three years, as Chrysler was facing another one of its perpetual dalliances with bankruptcy. It sold off all its shares of MMC, as well as its stake in Diamond Star Motors. Mitsubishi regained its independence but the two companies still collaborated on a per-contract basis on a variety of vehicles.

With the debut of the Eclipse, Mitsubishi entered its golden era. The tuner favorite was quickly followed by the Starion replacement, the GTO/3000GT sports car. The Pajero began an unprecedented streak of domination in the Paris-Dakar Rally. The Lancer Evolution came into being and launched a quarter century of WRC-based fanaticism.

Mitsubishi even weathered the bursting of the Japanese asset price bubble in the 90s on the strength of its momentum and strong SUV-heavy lineup. Things were so good that widely circulated rumors began swirling that Mitsubishi was plotting a hostile takeover of Honda.

Reversal of Fortune

Unfortunately, the 1997 Asian financial crisis and the subsequent collapse of many southeast Asian economies was too much for Mitsubishi to bear. Remember, it had been very active in Thailand, Malaysia, and South Korea — three countries that were particularly hard hit.

Desperate for cash, Mitsubishi once again sought a corporate partner. Ironically, MMC found itself once again in cahoots with an old bedfellow as it signed a deal with DaimlerChrysler, which had formed between Mercedes-Benz’s parent company and Chrysler in 1998. This time, it was a 37.5 percent buyout, a controlling share. The deal was signed in March 2000.

Not two months later, authorities in Japan kicked down the door of Mitsubishi headquarters in a raid, exposing a locker room stashed full of documents proving a decades-long defect coverup. The conspiracy dated back over 30 years, to 1977, involving parts as wide ranging as fuel tanks and axles, and affecting everything from Mirages to Debonairs to Fuso trucks. Several resulting deaths were reported, but Mitsubishi representatives had visited repair shops across Japan to silently fix the problems without notifying the authorities for fear of recalls.

Over the next few months, Mitsubishi was forced to recall 900,000 vehicles, while many government agencies put a freeze on the purchase of Mitsubishi vehicles. Domestic sales dropped over 50 percent, and stock plummeted 30 percent. It was one of the biggest scandals in Japanese corporate history.

The bad luck continued to roll in. A year later, Mitsubishi was forced to recall another 1.5 million cars, this time about two-thirds of them in the US market. Sales sank further, and MMC was forced to slash nearly 10,000 jobs (15 percent of its employees).

While all this was going on, Mitsubishi’s US sales arm was digging a hole that would pretty much seal the company’s fate. Those who were alive and shopping for a car around Y2K may remember that even in the face of its massive financial woes, Mitsubishi ran a barrage of ads touting itself as the “fastest growing brand in America.”  This was ostensibly true, but that’s because starting in 1999, in an effort to boost sales, Mitsubishi began offering an ill-conceived 0-0-0 deal, which translated to zero percent financing, zero interest, and zero payments for anywhere from 12 to 16 months.

The offer did indeed give Mitsubishi a much-needed sales boost — initially. As the “free car” period reached its end and the first payments came due, many buyers simply defaulted, leaving Mitsubishi with a heap of used cars that never had a single dime paid towards their manufacturing costs. By 2003, it is estimated the program cost the company $454 million.

Modern Day

By then, DaimlerChyrsler was experiencing hardships of its own and teetered on the brink of divorce. MMC was sold in 2005, back to various Mitsubishi Group companies. Though no longer beholden to other corporate overlords, the damage had been done. The company was in dire straits, and despite a few highlights — Lancer Evolution X, a half-new Pajero — a dearth of profits had sent MMC into a downward spiral. No money, no new products. No new products, no money.

2009 was a record low for Mitsubishi, with sales of fewer than 40,000 cars in the US. With much of its product line stagnating and no successors in place, Mitsubishi made a dramatic move. In 2011, it announced it would refocus all its R&D efforts to the burgeoning electric car market. The fate of the Eclipse, Lancer Evolution, and even most of its more pedestrian cars were sealed.

What remained were a couple of crossover models, but as luck would have it, the market for that particular segment would explode in the coming years. As a result, the Outlander and its variants have kept sales on a steady, if slow, climb. In November 2015, Mitsubishi closed the former Diamond Star Motors plant, which hadn’t been operating at full capacity in years.

Then, in 2016, history appeared to repeat itself as Mitsubishi found itself embroiled in another scandal. This time, it was cheating at fuel economy test with several of its kei car models. Mitsubishi had over-inflated the cars’ tires to achieve higher mileage. It was Nissan, who sells rebadged versions of the cars, who reported Mitsubishi to the authorities.

Stock fell 43 percent and new car orders in Japan were slashed by half. While Mitsubishi was pulling all its advertising in disgrace, Nissan swooped up a 34 percent stake. The takeover was completed October 2016.

We don’t yet know how this new chapter in Mitsubishi Motors history will end. It is probably safe to say that the Pajero is dead. Rumor has it that it will share a platform with the next Nissan Patrol. The Lancer is not poised for a comeback but the Eclipse is, if in name only. The triple diamond emblem still carries a lot of weight throughout Asia and in some parts of Europe, and Nissan has promised to keep the Mitsubishi name alive in the US, for now.

A Link to the Past

In 1972, during the good times of the Chrysler deal, Mitsubishi Motors of Japan built a replica of the Model A based on a Mitsubishi Jeep chassis. Made possible by extensive historical research by automotive journalist Eizo Ikeda and Japanese automotive historian Heitatsu Igarashi, it was a labor-of-love tribute to Mitsubishi and the nascent days of the Japanese motoring industry. Sadly, the same could not be said for the car commissioned for its 100th anniversary.

Then, in 1989, Sonauto, the French importer of Mitsubishi cars, created a replica of the company’s second car, the PX-33. Built on a long-wheelbase Pajero chassis, Sonauto actually campaigned it in the 1989 Paris-Dakar Rally.

These examples, along with the legions of Eclipse, Starion, GTO and Lancer loyalists, prove that through the years, Mitsubishi did have dedicated and passionate people within the company that could create lasting and beloved works, even despite all the corporate missteps. A century is a long run for any company and, if anything, loyalists to the Triple Diamond Clan should be proud of that run. It’s both a miracle and a tragedy that MMC operated with in the machinery of the Mitsubishi Group.

As for the future, those enthusiasts probably shouldn’t hold their breaths right now, but at after 100 years of fortunes and failures, at least there’s nowhere to go but up.

Some images courtesy of Mitsubishi.

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7 Responses to 100 YEAR CLUB: Mitsubishi Motors, Part 02

  1. voytko240 said:

    The DSM plant had a major scandal over systemic sexual harassment that ended in a large settlement. It never seemed to recover after that.

  2. Dave Yuan said:

    Amazing. Their history is quite a saga, very unique from that of other car makers. I’ve always been a fan of Mitsubishi. Growing up in the ’80s, their cars seemed so edgy and high-tech, and I loved so many of them. It’s easy to be dismissive and judgmental of them by the norm of other companies, but taken into context they remain fascinating. Also, it’s kinda awesome that they don’t give a crap about any of this, and it’s all just a drop in the bucket for MHI. Yet despite that, they still made all these super cool products mostly for just being Japanese during a very special time. I remain a Mitsubishi fan. Great history, Ben!

    • Ben Hsu said:

      Thanks, Dave. Despite Mitsubishi Group being one of the largest companies in Japan, writing this article has given me more appreciation of Mitsubishi Motors as an underdog. I do hope they can pull out of their tailspin.

  3. NimeshEVOII said:

    It is sad that the company killed and its prominent machines like Evolution and Pajero were the brand careers, it all about poor management and leadership that culprit the company deteriorated. I guess still there are niche markets where Mitsubishi can penetrate and regain the honor specially by Lancer Evo or similar sports categories and trucks

  4. Jason Ward said:

    FWD, that was the sealing fate for MMAL (Mitsubishi Motors Australia Limited)
    Following the 15% buy out in 1971 we started seeing Chrysler and Valiant badged Mitsubishis, beginning with the Galant and expanding to include the Lancer.
    In 1980 Mitsubishi gained control and we saw the Chrysler and Valiant badges fall away to be replaced with Mitsubishi but we kept ties with the Japanese market and were producing Australian built versions of the Galant (badged Sigma).
    A major upgrade came about in 1985 with the release of the Australian designed and built Mitsubishi Magna, this was effectively a widened 5th Gen Galant, 65mm or 2.5in wider, but importantly it was the end of the RWD family sized car for MMAL.
    The Sigma (4th Gen Galant) lived on in wagon form until 1987 but that was it for rear wheel drive family cars, something Australians seem to need in their vehicular diet.
    This form was followed by a re-jigged 5th Gen Galant/Sigma, built in Australia and badged as a Magna in 1991.
    1994 saw a new body, based on the 2nd Gen Diamante, built here and badged Magna.
    In 2005 we saw the brilliant Mitsubishi 380, MMAL spent over A$600 million developing the 380, which was based on a 9th Gen Galant and what they ended up with was a 9th Gen Galant with 380 badges.
    The 20 years following the demise of the RWD Mitsubishi in Australia were hard for MMAL, with each massive investment in new models failing until they cried enough was enough. March 2008 saw the cease of production for MMAL and a lot of heavy hearts.
    In the following 10 years Australia has lost all vehicle production to the memory banks, Toyota was next, followed by Ford Australia with late 2017 seeing the production line stopped for good for General Motors Holden.
    Interesting side note, MMAL only ever produced 4 door sedans and wagons with all 2 doors (2nd and 3rd Gen Galant, Starion and Cordia) fully imported from Japan.

  5. Hans van Balkom said:

    Interessing story,my family and myself love Mitsubishi,and owning on one moment 5 cars of Mitsubishi-make.
    a Colt for mine youngest daughter,a Colt for mine oldest daughter, the familycar is a Spacerunner and two hobbycars, a Galant-Sigma of the year 1977 and the last one is a Sigma 3.0 V6.
    The familycar, the Spacerunner, we bought it new! and we drive it still today!
    After 22 years it has 402000 km on ODO,with the same engine, clutch,gearbox.
    This car will always have a special place in our heart, wich never let us down in al these years!

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