Headache for Mitsubishi

Mixed messages are being reported on the future of a 3500-worker Adelaide assembly plant, reports ALASTAIR SLOANE.

Mitsubishi's South Australian assembly plant, which builds the Diamante range of cars for New Zealand, will be restructured as the carmaker struggles with falling sales and increasing costs.

But Mitsubishi New Zealand denies the Adelaide operation will close, an outcome given much publicity in Australia last week.

Marketing manager Mike Alexander said: "MMAL (Mitsubishi Motors of Australia Ltd) are fully aware they have to restructure in terms of reducing costs to more themselves more competitive. But that is nothing more than what they have to do normally. It is business as usual, par for the course in the motor industry worldwide.

"There is no decision or discussion regarding any plant closure. It is purely speculation in terms of reducing costs. MMAL is confident they can continue to reduce costs and be competitive."

Comments in the United States last week by Katsuhiko Kawasoe, the president of Mitsubishi Motors, revealed the extent of Japan's concerns with its Adelaide operation.

Kawasoe told the Detroit motoring industry publication Automotive News: "This is a terrible problem for me ... It makes my head ache ... Although I hate to shock our Australian employees it will be necessary to drastically restructure."

Adelaide builds Magna and Verada models, rebadged in New Zealand as the Diamante. Mitsubishi New Zealand imports three Diamante V6 sedans - Super Saloon, Advance and Sport - from Adelaide and is about to add two station wagons, the Elite and Advance.

If Adelaide closed, Mitsubishi New Zealand would import its cars directly from Japan, as Honda and Nissan were forced to do after the introduction of zero tariffs in New Zealand.

Kawasoe said he had been misunderstood. He told the Sydney Morning Herald: "The Australian plant will continue to manufacture into the future. We are undertaking a study into the replacement Magna, although we have not yet reached a conclusion on which option we will choose."

Significantly, said the newspaper, Kawasoe's statement did not stipulate what Mitsubishi would "continue to manufacture" - the company also builds engines in Adelaide.

Kawasoe told Automotive News that recently lowered tariffs (Australia is gradually reducing tariffs) meant that the Adelaide plant could no longer compete with cars and parts imported from Japan.

Kawasoe had discussed in America how Nissan had increased its business in Australia by importing vehicles after closing its plant in Melbourne in 1992.

He expressed the belief to Automotive News that "Nissan has shown you don't need to locally source to participate in the Australian market."

Sales of Magna models in Australia this year are down 28 per cent and the viability of building cars in Adelaide is now openly questioned by Mitsubishi in Japan. The decline in sales has been blamed on Mitsubishi's failure to keep the Magna-Diamante fresh.

The recent facelifted range is refined, with good engine performance and low road noise but, unlike its Holden, Ford and Toyota competitors, there have been no design changes to the car since 1996. This hasn't affected sales in New Zealand, however, where aggressive pricing has kept the Diamante in front of buyers.

One cost-cutting measure is already in place: Mitsubishi in New Zealand and Australia are sharing advertising budgets. Previously, both countries largely produced their own material.

They are also waiting on a decision from Japan to approve a replacement model for the Magna-Diamante, based on extensive modifications to the existing car.

Japan would need to invest $400 million in the new model. "This decision hasn't being made," said Alexander. "Where the car will come from and what it's going to be will be made at the end of the year."

The Australian Government knew that Mitsubishi was considering its future. So did industry leaders, who acknowledge that there have to be big changes made for the plant and its 3500 workers to survive.

The future of Mitsubishi's role as a car-assembler in Australia and a supplier to New Zealand now rests largely on the replacement for the Magna-Diamante.