Is it a drive for growth or a drive for death?

“Drive for Growth.” It’s Mitsubishi latest plan to effectively turn the company around following its fuel economy scandal of yesteryear. The basic concept is to increase sales by 30 percent while at the same time increasing profit margin by six percent and research and development spending by ¥600 billion. This would, according to Mitsubishi push annual sales up to 1.3 mill units and revenue as high as ¥2.5 trillion. And, it plans to do so by strategic market expansion and by improving overall operating efficiency. For starters, Mitsubishi will work on improving U.S. dealerships while increasing the number of dealers in China by 110,000 to 220,000 total.

The big news here is that Mitsubishi is announcing that it will launch 11 new models over the next three years, with six of them being completely new models. The remaining five will be major updates to current vehicles on the market. By the end of 2020, Mitsubishi expects 70 of its sales volume to come from its SUVs, 4WD vehicles, and plug-in hybrid vehicles. There’s also word that there will be electrified solutions across the “core model range” which includes an EV kei car in the year 2020. So, in other words, Mitsubishi is going to spend a ton of money on R&D, even more money building and optimizing dealerships, and somehow manage to grow its bottom line. It sounds really good on paper, but will it actually work? Well, I have a few thoughts on that, so keep reading to find out.

This Could be the Beginning of the End

Make it or Break It: Mitsubishi Positions Itself for a Comeback
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The basic concept is to increase sales by 30 percent while at the same time increasing profit margin by six percent and research and development spending by ¥600 billion

Mitsubishi has had a pretty tough time lately. The whole fuel economy scandal turned out to be a company-wide failure with fault going to more people that you can count on four hands. Low-level management had it wrong, corporate management had it wrong, employees were discouraged from expressing concern or challenging authority even if it was right to do so, and different divisions had no unity. The worst part of it all, however, was everyone’s inability to accept fuel economy shortfalls, and without a way to make it better, numbers got padded. In short, the entire situation was a massive disaster just waiting to come down on someone’s head, and come down it did.

Now, we’re looking at a brand that was so busy cheating its way into government approval that it let a car like the Lancer die an undeserving and unwarranted death after being seriously neglected more than a decade. The EVO program is also dead along, which pretty much brought an end to anything cool that came out of Mitsubishi’s stable. And, to top things off, the brand is slandering the Eclipse name by using it for a freaking crossover/SUV instead of a sports coupe like it should. To make matters even worse, there are rumors that the EVO program could come back as a program limited to SUVs.

Oh… poor, poor, Mitsubishi. What are you thinking? This brand needs some serious management changes, and some young blood injected into its core. Jumping onto the SUV bandwagon, Mitsubishi’s new primary focus, is too little, too late, and now the brand is going to pour all this money into developing what I only assume will by 6 new SUVs because lord knows that trend is never going to die off – NOT!. So what’s going to happen? Well, I have a feeling that the brand is going to bring a bunch of new SUVs and Crossovers to the market and by the time its new push for a comeback is over, so will be the SUV craze.

Make it or Break It: Mitsubishi Positions Itself for a Comeback
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This brand needs some serious management changes, and some young blood injected into its core

I’ve been predicting the end to the SUV craze for a while now and, while I could be wrong, I have a feeling that Electric cars are going to be the next big thing. Sure, we’ll get all-electric SUVs, but their sheer weight will be a bit of a problem for a while until we can really improve our battery technology – or at least bring solar charging onboard in a big way. So, even if Mitsubishi does end up with a lineup full of SUVs that it can’t sell, with any luck the EVO SUV models could provide some leverage as long as they are done right (sporty and plenty of power) and if it continues its push for PHEV and ventures into true EV vehicles.

Unfortunately, one just has to be skeptical at this point, because it really seems like the shot callers over at Mitsubishi aren’t sure about what they are doing. And, while all of their “Drive for Growth” strategy sounds good on paper, I’m afraid it’s not going to be anywhere near as easy as it sounds. But, we shall see. What do you guys think? Is Mitsubishi finally on the right path? Does it need some younger blood? Hit us up with your thoughts in the comments section below.

References

Mitsubishi Launches One Last Special Edition as the Lancer Heads to the Guillotine Exterior High Resolution
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Read more Mitsubishi news.

Press release

Mitsubishi Motors launches ’DRIVE FOR GROWTH’ plan to increase volumes, revenues and profitability

• Three-year plan targets more than 30% increase in unit sales and revenues
• Operating profit margin to reach 6% or more
• Capital expenditure and R&D investment to increase to more than 600 billion yen over the three-year period
• Product renewal to accelerate with launch of six new models including Eclipse Cross SUV
• Market expansion planned in ASEAN, US and China

Tokyo, Japan (October 18, 2017) – Mitsubishi Motors today launched "Drive for Growth," a three-year strategic plan to deliver sustained and profitable growth, targeting an increase of more than 30% in both annual unit sales to 1.3 million vehicles and in revenues to 2.5 trillion yen.

Under the plan, Mitsubishi Motors aims to achieve an operating profit margin of 6% or more by the end of fiscal 2019, up from 0.3% in fiscal 2016. The plan combines a product renewal program with targeted market expansion and operating efficiency improvements.

Osamu Masuko, Mitsubishi Motors chief executive, said: "Drive for Growth is a new roadmap for Mitsubishi Motors. We will rebuild trust in our company as our highest priority, successfully launch new vehicles, and achieve a V-shaped financial recovery. These will be the foundations for our future sustainable growth, which will involve increased capital expenditure and product development spending."

The Drive for Growth plan involves a 60% increase in annual capital expenditure to 137 billion yen in fiscal 2019 – lifting spending as a proportion of sales to 5.5% a year. R&D expenses will rise by 50% to 133 billion yen over the same period. In total, this will amount to more than 600 billion yen in investments. Even with these increases, Mitsubishi Motors will maintain financial discipline and generate positive free cash flow during the period. The company intends to establish a competitive dividend policy comparable to those of other Japanese automotive manufacturers.

As part of its investment drive, Mitsubishi Motors plans to strengthen its four-wheel drive SUVs and pick-ups, and to launch 11 models including the XPANDER and Eclipse Cross. The product renewal program will coincide with a market expansion drive in the ASEAN region, Oceania, United States, China and Japan.

Mr. Masuko said: "This is an ambitious program to maximize our strengths in growing product segments, especially four-wheel drive, and to pursue growth in markets where our brand has strong potential, particularly the ASEAN region. This growth program will also involve an efficient and disciplined operating structure as we continue to manage costs."
Under Drive for Growth, Mitsubishi Motors is targeting a market share of 10% in ASEAN. Sales activities will be reinforced in the US. The company’s presence in China will be strengthened with the introduction of models such as the Outlander and Eclipse Cross. And the company will invest in its sales network and product portfolio to return to profitability in Japan by the end of the plan.

The strategic plan is based on three strategic initiatives:

1. Product renewal: During the period of the plan, Mitsubishi Motors will launch 11 new models, of which six will be entirely new model changes – averaging two each year – while the remainder will be important updates of existing vehicles. By the end of the plan, the company expects its five best-selling global models consisting of SUV, 4WD, and plug-in hybrid electric vehicles (PHEV) to account for 70% of total sales volume. Reflecting the shift to lower emission models, the company also announced that it plans to provide electrified solutions across its core model range including an EV kei car from 2020.

2. Focus on core markets to drive revenue growth: This year’s opening of a new assembly plant in Indonesia, and the recent launch of the XPANDER multi-purpose vehicle, will drive the growth of the ASEAN business, the group’s largest and most profitable operation. ASEAN volumes are expected to rise from 206,000 units a year to 310,000 units a year in 2019. Mitsubishi Motors will also launch new models to assist the turnaround of its important mini-car business in Japan. In the US, the company will improve its dealership networks, targeting a 30% increase in unit sales to 130,000 units in fiscal 2019. In China, Mitsubishi Motors will double the number of dealerships and more than double sales to 220,000 units in fiscal 2019.

3. Cost Optimization: Mitsubishi Motors will tightly manage production costs, with a target to reduce monozukuri costs by 1.3% per year, in spite of large investments in R&D. Alongside cost management, the company will benefit from growing synergies from its membership of the Renault-Nissan-Mitsubishi alliance. Mitsubishi Motors is seeking synergies totalling more than 100 billion yen over the course of the plan, with the bulk of these to come from efficiencies in procurement and costs avoided in R&D.

Mitsubishi Motors will contribute its expertise in PHEV technology, its capabilities in SUVs and pick-ups, and market strengths in the ASEAN region to the wider synergy program of the Alliance, which aims to double annualized synergies to more than 10 billion euros by the end of 2022.

"We are refreshing our product line-up, investing in R&D and targeting core market growth," added Mr Masuko. "Drive for Growth will enable us to continue the transformation of the company over the next three years."

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