Nissan split would be a blow to Mitsu

TOKYO — Rumor that Nissan is eyeing unwinding its controlling stake in Mitsubishi Motors Corp. comes at a delicate moment for the junior partner of the three-way alliance with Renault.

Mitsubishi is mired in red ink and just embarked on a joint strategy with Nissan and Renault to carve up international markets in a scheme that greatly reduces its global footprint.

And any unwinding could cut loose the smaller player — which sells just a fifth of Nissan's worldwide volume — at a time when industry wisdom holds that consolidation is a key to success.

Executives at both companies scurried to do damage control after Bloomberg News reported this month that Nissan was exploring ways to sell all or part of its controlling 34 percent stake in Mitsubishi. Nissan bought the stake in 2016 under a deal brokered by then-Nissan Chairman Carlos Ghosn and his counterpart at Mitsubishi, Osamu Masuko.

Both men are now gone. Ghosn was arrested in 2018, indicted in Japan on various financial misconduct charges and drummed out of the industry. Masuko died of heart failure in August.

According to the Bloomberg report, which cited unnamed sources, Nissan is pondering a sell-off partly to generate cash as it tries to dig itself out of two straight years of losses. The report said lingering question marks were who would buy the stake and whether Nissan could stomach a huge loss on the sale.

Bloomberg said Nissan's Mitsubishi holding is currently worth $950 million — less than half of what it paid.

Even if Nissan pared back capital ties, it wouldn't necessarily mean an end to strategic cooperation between the companies on such projects as minicars for Japan and platform-sharing.

But Mitsubishi and Nissan immediately came out to squash speculation of a breakup.

Nissan COO Ashwani Gupta said his company is "absolutely not" in talks to divest.

Nissan issued a statement saying, "Contrary to the assertions in the articles, there are no plans to change the capital structure with Mitsubishi." And Mitsubishi echoed with its own release, insisting, "There are no discussions to review our capital relationship, and we refrain from further comments. We will continue to collaborate within the Alliance."

Speculation of a split comes just as Mitsubishi and Nissan appear to be moving closer.

In a sign of the new order, Mitsubishi Motors North America has moved its U.S. headquarters from Southern California to Franklin, Tenn., to be near Nissan's regional headquarters.

Under the new leader-follower strategy created by the three-partner alliance, Mitsubishi has put its faith in its working relationship not only with Nissan, but also with Renault, which itself has a controlling 43 percent stake in Nissan.

In deference to Renault, Mitsubishi CEO Takao Kato is poised to pull out of Europe, with no plans to introduce new models there. And Mitsubishi will largely take a back seat to Nissan in China and Japan. Mitsubishi has abandoned any pretense to global conquest and will focus instead on the company's Southeast Asia stronghold under a new "Small but Beautiful" strategy.

Speaking in late October, before the Bloomberg report, Nissan CEO Makoto Uchida talked up the partnership with Mitsubishi, saying both companies were in deep discussions seeking further synergies beyond their cooperation in minicars, electrified vehicles and Southeast Asia.

But he drew a blank when it came to ideas for cooperating in North America.

"Right now, we are not discussing much. We say it this way — for a Mitsubishi plan, they need to build their own strategy in the U.S.," Uchida said. "If they think they want support from Nissan, then of course, we can support. So each brand has to build their own strategy. That comes first."

While Nissan is bracing for its biggest-ever operating loss this fiscal year, Mitsubishi is also in bad shape. As rival Japanese automakers such as Toyota, Subaru and Honda showed signs of improved business in the July-September quarter, Mitsubishi slumped to an operating loss. The company was alone among those peers in not lifting its full-year forecast.

Speaking at Mitsubishi's financial results announcement Nov. 4, COO Yoichiro Yatabe said Mitsubishi was focused on improving U.S. profitability by dialing back fleet sales.

"Until last year, even though our profitability was low, we shipped a large number of vehicles for fleet sales in order to keep the overall volume," Yatabe said. "But this year, we have decided to curb the sales volume for fleet considerably in light of recovering our profitability. As a result, our overall sales volume has been declining compared with last year."

Mitsubishi has also worked to cut U.S. inventories by half from 2019 levels, he said.

Mitsubishi's U.S. sales cratered 24 percent to 72,617 vehicles in the first nine months of 2020, in an industry down 18 percent. Market share stood at just 0.7 percent. Though, in a ray of hope, sales of the Outlander crossover climbed 60 percent in the July-September quarter.

For the fiscal year ending March 31, 2021, Mitsubishi forecasts an operating loss of ¥140 billion ($1.3 billion), after squeaking by on a slim operating profit last fiscal year. The company's net loss is forecast to swell to $3.35 billion from a net loss of $240.2 million in the fiscal ended March 31, 2020.

Global sales are expected to fall 27 percent to 824,000 vehicles in the current fiscal year, driven down by an expected 30 percent decline in the U.S. to 80,000 vehicles.

Mitsubishi's midterm goal is to chop global fixed costs 20 percent through the fiscal year ending March 31, 2022. Doing so, it hopes, should restore a thin profit in the next fiscal year and put Mitsubishi on a path for operating profit margin of 2.3 percent in the fiscal year ending March 31, 2023, and of 6 percent in the year ending March 31, 2026.

Naoto Okamura contributed to this report.