Unravelling Ties
Despite DaimlerChrysler's involvement, debts at Mitsubishi continued to accumulate. A torporous economy in Japan dragged down the company's domestic performance in 2003, while the same year the after effects of a disastrous credit scheme in the U.S. saw Mitsubishi Motors North America suffer a US$454 million loss. By 2004 the automaker owed ¥1.14 trillion, and a ¥700 billion rescue plan was put to shareholders in April. Other companies within the keiretsu of Mitsubishi which owned 23 percent of MMC were committed to the plan, and the Japan Development Bank had also been approached for support.
However, at DaimlerChrysler there was dissent against the idea of further investment; only weeks before Schrempp had endured calls for his resignation from shareholders. In the face of this and his the boardroom's opposition, DCX refused to pledge further funds, and formally stated that it would no longer financially support its partner. Japan's finance minister, Nobuteru Ishihara, commented that the decision "could affect the future of the company", while corporate analysts were more forthright, calling it "a disaster" and claiming that " will vanish if it continues this way."
An alternative rescue package was formulated by May 2004, involving a ¥450 billion investment in newly issued stock by U.S. bank JPMorgan Chase, Tokyo-based private investment fund Phoenix Capital and other Mitsubishi Group companies. The deal was announced as MMC reported a loss for the year of ¥215 billion. Further negotiations, and the involvement of the China Motor Corporation, boosted this figure to ¥546 billion by June, in return for 11,000 redundancies and cuts to corporate pensions, salaries and bonuses. As a result of the new investment, DaimlerChrysler's own stake was diluted.
Profitability remained out of reach for Mitsubishi, and enlarged losses in 2005 were forecast by the company. The company's stock price slid 41 percent in 2004 to approximately one quarter the value of when DaimlerChrysler first became involved.
Read more about this topic: Daimler Chrysler-Mitsubishi Alliance
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