Mitsubishi Motors Corporation's (MMC) recent woes are a perfect example of how a strong brand can spiral into disaster. Much of its troubles appear self-inflicted, and point to an organisation out of touch with its key stakeholders.
The facts themselves do not make for pretty reading. At press time, police had arrested ex-MMC chief Katsuhiko Kawazoe on suspicion of professional negligence. The suspicions stem from a fatal accident in 2002, when a Mitsubishi truck defect caused the death of a 39-year-old driver. Authorities believe that Kawazoe and other executives at the car company were aware some Mitsubishi trucks had clutch problems that could cause serious accidents.
Instead of recalling the trucks, however, MMC tried to cover up the defects.
Police had earlier visited the offices of Mitsubishi Fuso Truck & Bus (MFTB), an MMC subsidiary, in which DaimlerChrysler owns the majority share of 37 per cent. Police were hunting for evidence that MFTB knowingly made false statements about defective wheel hubs, alleging a cover-up that caused another fatal crash. Six MFTB executives were arrested, including ex-chairman Takashi Usami.
MFTB responded by announcing 93 structural defects in its vehicles, dating back to 1992. That led to a global recall of its vehicles, including 112,000 in Japan alone. This is not the first time that MMC has become embroiled in this kind of trouble - in 2000, the company was successfully prosecuted for filing false reports, after an ex-employee revealed that MMC had illegally failed to disclose customer complaints for over two decades. Over two million vehicles were recalled.
On the financial front, meanwhile, matters have reached crisis levels.
MMC sales have plunged 56 per cent from a year earlier, and its stock price is in freefall. MMC reported a loss of US$2 billion for 2003, and is expected to lose the same amount this year. DaimlerChrysler, in addition, refused to participate in any financial rescue package - effectively signalling a damning vote of 'no confidence'. The German carmaker is also believed to be considering legal action for the decline in value of its MFTB stake.
DIAGNOSIS
Ross Rowbury, Senior managing director, RAP Japan
To many Japanese, the three-diamond logo of the Mitsubishi group represents a brand that goes a lot further than an automobile manufacturer, a bank, or a trading company. It represents something that is uniquely weaved into the modernisation and economic development of Japan and is regarded as the alter-ego of the Japanese economic system itself.
This unique position meant that the double shock of suspicion that Mitsubishi Motors Corporation and its subsidiary truck division had been involved in the manufacturing of defective products that eventually caused death, and also in suspected organisational cover-ups stretching over a decade, have had a deep scarring impact on not only the automobile manufacturer itself, but also the broader Mitsubishi group, and possibly extending to Japan Inc itself.
While the company's individual model brands, such as Lancer and Pajero, had widespread popular support, many Japanese have interpreted MMCs problems as resulting from an elitist corporate culture that led management to believe that it was in some way above the law and the need to answer to consumers. Even the withdrawal of DaimlerChrysler is seen to be rooted in the company's lack of willingness to change and adapt to the times.
James R. Weeks, President and chief executive, Gavin Anderson & Co Japan
For over a century, the Mitsubishi name has stood as a proud symbol of Japanese industrial might. The post-war Mitsubishi group expanded to encompass industrial equipment, automobiles, electronics, trading, banking and a host of other activities. The Mitsubishi brand, and the ubiquitous three-diamond logo, provided an umbrella promise of product quality and reliability.
That promise has been drastically diluted by the sins of one Mitsubishi group member - Mitsubishi Motors Corporation (MMC). After a series of revelations of cover-ups of vehicle defects, the corporate reputation is in tatters. Lead shareholder Daimler Chrysler has walked away from further investments. Mitsubishi Fuso and MMC executives have been arrested or indicted on charges of failing to recall defective vehicles. Customers are defecting in droves. The very future of the company is in doubt.
And what was the root cause of this disaster? Let's be clear, the cause was not quality problems. Many companies with worse quality problems have avoided such disasters and have survived and thrived. The root cause was an institutionalised arrogance that created a corporate culture of lying to the outside world. The company deceived the Japanese Government, its customers, and other external constituencies. Today, it is paying the price.
TREATMENT
Rowbury's remedy
- A PR campaign to reposition senior management of the company as 'ordinary people' who are highly responsive to the needs of consumers.
- The appointment of an independent corporate ombudsman function that is transparent and has an auditing capability to ensure manufacturing and operational functions comply with the law
- A below-the-line campaign that strengthens the positioning of the company's product brands as solid, reliable automobiles for the ordinary man in the street.
Weeks' prescription
- The overwhelming need is to restore credibility to the organisation, and this will require a radical overhaul of the company culture, involving decisive actions rather than words and gestures. Polite bows from yet more grey-suited executives will not win over a sceptical public.
- MMC must conduct a review of company practices, and create a reformed culture which prizes transparency over secrecy. This will require new and untarnished leadership. To stop the bleeding, it will be necessary to shed more blood.
DIARY OF DISASTERS 2004
March: Mitsubishi Fuso Truck & Bus (MFTB) admits design defect; 112,000 trucks recalled in Japan.
April: MMC announces fiscal loss of US$2 billion. 37 per cent shareholder DaimlerChrysler refuses MMC financial aid.
May: Mitsubishi group announces US$4m rescue package. MFTB admits cover-up of wheel-hub defect. Recalls 170,000 vehicles due to clutch defect.
June: MMC announces yearly plunge in sales of 56 per cent. MFTB discloses an additional 93 vehicle defects dating back to 1992; sparks global recall of 347,000 vehicles. Six MFTB executives arrested for cover-up, which caused one fatal accident. Ex-MMC chief Katsuhiko Kawazoe arrested for cover-up of defects causing another fatal crash.