Once the also-ran of Japanese automakers, Mitsubishi Motor Sales of America is riding high.
The Cypress-based unit of Japan’s Mitsubishi Motors Corp. last year set a company record by selling 261,000 cars in the U.S. This year, Mitsubishi is on its way to breaking the 300,000 mark. Sales are up 33.7% for the first five months of 2000, and the company says it’s ahead of schedule for its annual sales goal of 400,000 cars by 2005.
While Mitsubishi remains relatively small, the sales growth is a much-needed boost. Just two years ago, Mitsubishi was a mess.
Mitsubishi, which opened shop in the U.S. in 1983, had been a chronic money loser. From 1989 to 1998, the U.S. unit logged year after year of red ink as it struggled to connect with car buyers more familiar with Toyota Motor Corp., Honda Motor Co. and other rivals.
So what’s behind the turnaround? Analysts and company officials credit Pierre Gagnon, an ebullient French Canadian and former rising star at General Motors Corp.’s Saturn division. Gagnon came on board in 1997 as executive vice president and chief operating officer, replacing Richard Recchia, who helped launch Mitsubishi in the U.S. and who became vice chairman after years at the helm.
In the past three years, Gagnon has gotten under the hood at Mitsubishi. He’s overseen a marketing makeover and centralized U.S. operations in Cypress. In the past year, he’s cut Mitsubishi’s workforce by 300 people to 1,100 by consolidating and shutting down offices.
Along the way, he’s erased 1997’s $350 million in losses at the U.S. unit and replaced it with a $50 million profit last year.
Mitsubishi’s turnaround is due to “good products, good press and very aggressive incentives,” said George Peterson, of Auto Pacific Inc., a Santa Ana-based auto research firm.
Marketing Moves
Gagnon has played a key role. His biggest impact has been on marketing, the primary job of Mitsubishi’s U.S. unit. One of his first tasks was to enlist Mitsubishi dealers in all of the company’s marketing by putting together a national advisory board of Mitsubishi executives and dealers.
Then Gagnon turned his attention to Mitsubishi’s often-inconsistent advertising efforts. The company went without advertising for months at a time and was using various agencies.
“With all the money we were spending, we were not getting the bang,” Gagnon said.
Mitsubishi had one national ad firm and four different agencies representing various groups of dealers. Then there were smaller firms for Mitsubishi’s Internet, Hispanic and direct-mail campaigns. Gagnon fired them all and handed the work over to the Santa Monica office of New York-based Deutsch Inc.
“We put all our eggs in one basket,” Gagnon said.
The move resulted in Mitsubishi adopting one brand image for all its advertising as well as its “Wake up and Drive” catch phrase.
Since 1997, Mitsubishi’s brand awareness has grown 20%, according to Gagnon. “In a market that huge, that’s hard to do,” he said.
A new emphasis on quality and customer satisfaction,something Gagnon learned at Saturn,also has generated results. In 1997, Mitsubishi ranked No. 21 out of 33 automakers in a national dealer satisfaction survey. In the 1999 survey, it moved to No. 9.
As the Mitsubishi brand has gained strength, Gagnon has cut back on wheeling and dealing. Back in 1997, Mitsubishi was spending $150 more than the industry average on incentives such as rebates and cash-back offers to customers. Now Mitsubishi is below the industry average by $150, according to the company.
“Incentive spending goes down when you have a strong brand,” said Mitsubishi spokesman Kim Custer.
Demand-Driven Strategy
The reduction in incentives also reflects a change in thinking at Mitsubishi. It used to be that Mitsubishi offered deals on cars because of the low profile of its brand and a production model in Japan that cranked out more cars than U.S. dealers could sell. Mitsubishi Motor Corp. produced a certain amount of cars every year and then expected the marketing and sales arm to find customers for them. Now Mitsubishi looks to demand to drive production.
To gauge demand, Gagnon deployed an Internet-based ordering system called Order-To-Delivery, which made it easier for Mitsubishi to predict how many cars were in demand. The program eliminated the number of cars that sit in a port or in the warehouses.
“We had 45,000 cars sitting in ports,” Custer said. “Now they get unloaded and have a place to go.”
The program reduced the average age of the vehicles from 161 days to 31 days.
“When they sit, they don’t get any better,” Gagnon said.
Warranty Claims Down
There have been other gains, too. Total warranty expenses dropped 49% today vs. a year ago, which Gagnon said is due to the company producing a better product. The company brought in JD Power & Associates to evaluate its manufacturing processes and make recommendations. Mitsubishi also tightened rules on warranty expenditures.
On the Internet, Mitsubishi has redesigned its Web site so customers can start the buying process on line and continue the process while in the dealership.
Mitsubishi is following in the footsteps of other Japanese automakers by tailoring products to the U.S. market. The company is looking to bring more operations over from Japan. Its $1.4 billion Project America program will bring the engineering, design and manufacturing operations of the Galant, Eclipse and Montero models to the U.S. Mitsubishi also plans to build these three cars specifically for the North American market, Custer said.
The new generation of the cars will be bigger and have a stronger drive train, something Gagnon said appeals more to Americans.
The cars will be built in Mitsubishi’s Normal, Ill., plant, starting in 2003. Mitsubishi will introduce one customer U.S. model per year beginning with the successor to the Montero Sport.
Challenges Remain
But Mitsubishi has its challenges. Tokyo-based Mitsubishi Motors last month reported a $219 million loss for the fiscal year ended March 31, in part because of weak sales. The loss marked the second deficit in the past three years for Mitsubishi.
The struggling Japanese automaker recently sold a 34% stake to DaimlerChrysler AG, giving the German-U.S. automaker veto power in board decisions. Analysts are looking for clues about how much control and input DaimlerChrysler will have in the wake of poor results at Mitsubishi.
Gagnon is optimistic about the alliance. He said DaimlerChrysler wanted to team with Mitsubishi for its smaller car technology and its presence in Asia.
“It is a great opportunity for us. We’re really a great partner for them,” Gagnon said.
But nothing has come out of the agreement yet. “The jury is still out till what impact the DaimlerChrysler deal will have on them,” analyst Peterson said.
