Not long ago, Mitsubishi Motors CEO Rolf Eckrodt and Nissan Motors (NSANY ) CEO Carlos Ghosn were seen as the kind of managers who could bring radical change to Japan Inc. Their jobs: to fix Mitsubishi and Nissan, midsize car companies with faded brands, awesome debt loads, and uncertain futures. Today, Nissan is one of the hottest carmakers on the planet, increasingly admired for its quality and design. Mitsubishi, left in the lurch by controlling investor DaimlerChrysler (DCX ), may be on its way to the minor leagues.
The contrast was underscored on Apr. 26, when Ghosn reported record profits for Nissan, while Eckrodt stepped down at Mitsubishi, which is expected to report a $660 million loss.
One failed. One triumphed. How come? The answer is a case study in corporate Japan's tendency to avoid unpleasant truths and shun radical solutions -- and a lesson in how important it is for outsiders to confront that tendency. It's something DaimlerChrysler Chairman Jürgen E. Schrempp and his team never figured out. Even more galling is the fact that Daimler actually took a close look at Nissan but was scared off by its $19 billion debt load. Mitsubishi seemed a safer bet.
FAST MOVES. What undid Mitsubishi was that very safety factor: the carmaker's strong partners inside the mighty Mitsubishi keiretsu. Although Mitsubishi Motors was spun off as an independent company in 1970, Daimler execs figured the deep-pocketed group, which included Bank of Tokyo-Mitsubishi, would help supply needed talent and capital. Instead, having such allies created a false sense of complacency.
In contrast, Nissan and its suppliers belonged to a far weaker keiretsu that couldn't afford to rescue anyone. "We were a collapsing company" when France's Renault took a controlling interest in 1999, recalls Ghosn. With Nissan plants running at a money-losing 51% of capacity, Ghosn acted quickly, shuttering five of them, reducing the workforce by 23,000, and shifting production of more models to the U.S. Nissan reported a $6.2 billion loss in 2000 but quickly returned to profitability. It now boasts the industry's best margins and bold new models such as the Titan pickup.
And Eckrodt? He was capable of the telling gesture. When he arrived in early 2001, after Daimler forked over $2.4 billion to acquire a 37% stake in Mitsubishi, one of his first acts was to give top executives fist-size chunks of the Berlin Wall, each emblazoned with the words "Leave no stone unturned."
NO BAD NEWS. Few at Mitsubishi would take that message to heart. By the end of 2003, Eckrodt had slashed Mitsubishi supplier costs by 15%, cut the workforce by 16%, doubled research and development spending from 2000 levels, and hired top-flight designers. Yet analysts say the Germans didn't push hard enough -- and should have taken full control of the company to overcome the resistance to change. Many investors wanted Eckrodt to close at least one assembly plant in Japan and another in Australia, phase out money-losing models at home, shift production of its Pajero sport-utility vehicle to China, and crack down on quality problems.
Eckrodt could never break other parts of the Mitsubishi culture. This was a company whose managers were so reluctant to relay bad news to higher-ups that they squelched complaints about quality defects for decades to avoid costly product recalls. Many Daimler critics also say its culture contributed to the failed turnaround: The push was always on for results, and few wanted to alert Stuttgart to major problems. Later, to help U.S. sales, Mitsubishi resorted to an ultragenerous financing campaign -- no money down and no payments for a year. The result was almost half a billion in bad loans.
In a parting statement, Eckrodt said Mitsubishi's future was bright. The Germans, however, are wondering what hit them. "It's an absolute disaster," a Daimler exec says of the company's $2 billion investment in Mitsubishi. "We can't sell it. It's worth nothing." Mitsubishi's keiretsu will probably bail it out, but it will remain a diminished force. The moral of the story: Turnarounds work in Japan -- but only if they're ruthless enough.
With Gail Edmondson in Frankfurt
Bremner is BusinessWeek's Tokyo bureau chief
http://www.businessweek.com/bwdaily/dnflash/apr2004/nf20040429_0881_db046.htm