Opinion

Why Nissan Bought Controlling Interest in Mitsubishi

Access to the deep pockets of Mitsu's parent company and a potent arsenal of technology are the potential prizes

Well, there goes that cat’s ninth life, sums up reaction here in Tokyo to the April 19 news that Mitsubishi Motors Corp. (MMC) had falsified fuel economy stats on minicars sold in Japan. Given a scandal-scarred history, no one was shocked to see Mitsubishi fingered. And in light of Volkswagen’s towering inferno, few doubted the blow could be fatal. The one eyebrow-raiser was that MMC’s sin had been outed by Nissan after it tested Mitsubishi-built Nissan minicars that revealed the discrepancies.

Mitsubishi was a scrawny beast even before this latest blow, having reeled from crisis to scandal over 20 years. Asia’s financial crisis slammed Mitsubishi’s key business in the Southeast Asian region in 1997, and Mitsubishi Motors had barely recovered by 2000 when a series of defect cover-ups precipitated the end of an alliance with DaimlerChrysler and forced a bailout by the Mitsubishi Group. Apart from Southeast Asia, Mitsubishi Motors is an also-ran everywhere, with no serious presence in either the U.S. or China. Even in the profit-starved domestic market it’s well back in the pack. Lacking the quirky genius of Mazda or Subaru, it has produced few iconic models that inspire brand loyalty. But MMC has always had one thing Mazda and Subaru have never had: access to the very deep pockets of Japan’s giant Mitsubishi Group. Until now.

The timing of this latest scandal was somewhat curious: three weeks into a new fiscal year and just before Japan shut down for “Golden Week” holidays at the end of April. So all went quiet a week after the news dropped, leaving Japan’s industry watchers to speculate over what might come next.

2017 Mitsubishi Outlander PHEV front three quarter 02

One obvious observation was that the Mitsubishi Group must be fed up with having its brand repeatedly tarnished and by having to continually bail out its weakest member. But who would step in to pick up the pieces? Few saw Nissan as an obvious candidate because CEO Carlos Ghosn must be furious after finding MMC’s mess sticking to his shoe.

Who else was out there? China’s automakers might have seen it as a tasty prospect, but few thought the Mitsubishi Group could stomach selling out to the Chinese. Given its success with Jaguar Land Rover, India’s Tata was more likely, but whom does it have to lead a turnaround? The other possibility was France’s PSA, makers of Peugeot and Citroen. Not only does PSA have an existing Russia joint venture with MMC, but top exec Carlos Tavares was among the original Renault boarding party that Ghosn took to Nissan in 1999. So my own bet was on Tavares.

Wrong. On May 12, four days after the holidays ended in Japan, Nissan announced it would spend $2.2 billion to buy 34 percent of MMC (a level that ensures control in Japan, same as Ford had in Mazda). Via the customary web of cross-holdings, this leaves Mitsubishi Group companies with a 22 percent stake in the ailing automaker.

Very shrewd move by Ghosn. Three weeks after outing its cheating on fuel economy, Nissan picked up a controlling stake in MMC at half price once its share value plummeted. But even considering the bargain-basement deal, what value did Ghosn get with this mangy cat? Analysts were left scratching their heads.

Yes, there are purchasing synergies to reap, and the Southeast Asia business is significant. Beyond that, Nissan picks up disciplined regiments of line engineers, just down the street from Toyota in Nagoya. They might not come with epoch-making technology, but MMC engineers are capable of swarming the myriad issues involved in developing a new model. Historically Japan’s key advantage, such capability is increasingly in short supply as baby boomers retire.

Still, the real potential value lies in the one edge MMC always had over Mazda and Subaru: the deep pockets of the Mitsubishi Group, which include Mitsubishi Corp., Bank of Tokyo Mitsubishi-UFJ, Tokyo Marine Insurance, Mitsubishi Heavy Industries, Mitsubishi Electric, Mitsubishi Materials, and NYK Line (shipping)—to name just a few. Successors to the zaibatsu conglomerate that dominated Japanese industry until U.S. occupation authorities broke it up after 1945, the Mitsubishi companies are held together by a web of cross-shareholdings (not unlike the Renault-Nissan Alliance) and weekly coordination meetings. Together, they have immense capital and annual revenue of more than $250 billion.

Beyond mere money, Group members such as Mitsubishi Heavy Industries and Mitsubishi Electric have immense technological power that could benefit Nissan in the race to develop advanced batteries and next-generation materials.

We’re left to wonder if the way this shotgun marriage unfolded left Mitsubishi Group stakeholders feeling the sting of buckshot in their backsides. But there has been little indication of that. No outraged editorials in the media. No antitrust threats from government bureaucrats. So it would seem that the Mitsubishi clan is just happy to see an unruly daughter married off.

The question now is the dowry. Ghosn may just come away from the altar with much deeper pockets and a potent arsenal of Mitsubishi technology.

John R. Harris is a Canadian freelance writer living in Japan, where he has spent 30 years observing the auto industry.