Mitsubishi Motors and Diamond-Star Motors
In 1870, Yataro Iwasaki, an independently-minded young entrepreneur who had been working for the Tosa clan, chose to take his future in his own hands and founded Tsukumo Shokai, a shipping company established to take advantage of Japan’s re-emergence onto the world stage after over two hundred years of isolation.
When, in 1871, Japan’s feudal clan system was permanently abolished, Tsukomo Shokai acquired ships at a rapid pace, and in 1873, Iwasaki renamed it. He chose a company crest and name based on the Iwasaki familial crest of three overlapping diamonds, and the Tosa Clan crest of three concentric oak leaves, and adopted the name “Mitsubishi”, meaning “Three Diamonds.” The new crest evolved into the Mitsubishi logo, three concentrically joined diamonds, which is still in use today.
Mitsubishi’s business prospered, and the company, during the 1870s and 1880s, expanded into other fields, including mining, railroads, and foreign exchange. It became so successful, in fact, that its competitors complained to the Japanese government that Mitsubishi had an unfair advantage, and in 1882, Mitsubishi was ordered to divest itself of all its non-shipping related businesses. But little change occurred.
Mitsubishi continued to expand, and was soon involved in industrial engineering, steel and oil production, and chemical research. And it was inevitable, by 1917, as World War I was keeping the Americans and Europeans busy, that Mitsubishi would enter the global automotive market.
Mitsubishi Heavy Industries, in that year, introduced the Mitsubishi Model-A, which was one of Japan’s first passenger vehicles. Completely handmade, the seven-seat Model A sedan was modeled after the Italian Fiat Tipo 3, the first automobile to incorporate a universal joint transmission. But the Model A could not complete in price with the mass-produced vehicles being built in America and Europe. Only twenty-two were made before Mitsubishi abandoned the effort in 1921. Mitsubishi’s first truck, the T1 protoptype, appeared in 1918, and successfully negotiated a 1,000 kilometer (620 mile) government-sponsored endurance test.
Over the next decades, Mitsubishi continued to experiment with automotive innovations, and in 1931, they introduced the first Japanese-designed diesel engine, the 450 AR, for use in motor vehicles. That was followed, in 1934, by Japan’s first commercial bus, the B46, the largest bus of its day, and the foundation of the Fuso Bus line. The 1930s, in fact, were responsible for many of Mitsubishi’s innovations: Japan’s first four-wheel drive automobile, diesel buses, and, in 1936, the TD45 diesel truck.
But in the late 1930s Japan began ramping up to go to war, and most of Mitsubishi’s efforts were directed toward building ships and aircraft. By the time the war finally ended, Japan’s industrial base was almost completely destroyed, and the victorious Allies ordered that Mitsubishi Heavy Industries be broken up into three smaller companies.
All three companies continued an involvement with Mitsubishi’s automotive development programs, and it wasn’t long before Mitsubishi introduced its new and desperately-needed Mizushima, a 1946 three-wheeled cargo vehicle perfect for short-distance hauling. Almost simultaneously, the “Silver Pigeon” scooter appeared, answering the need for highly efficient personal transportation.
Because of the fuel shortage which continued to plague Japan throughout the 1950s, Mitsubishi continued to direct its efforts at building commercial transportation, and with foresight created the B1 Bus, which could run on either gasoline or alternative fuel, and in 1947, Mitsubishi’s first electric bus.
Mitsubishi, in the 1950s, also introduced Japan’s first trucks with air suspension systems and tilt-cabs. But by the 1960s Japan had come through its post-war struggles, and its work force was experiencing enough prosperity that they began demanding their own family automobiles. Mitsubishi did not disappoint, and in 1960 the Macau Grand Prix class winner Mitsubishi 500 came to market. The 1962 micro-compact Minica, both economical and dependable, with four seats and an air-cooled two-stroke engine, and the somewhat larger Colt 600, were next. Mitsubishi added a sporty model in 1965 with the Colt 800 fastback.
But it was not until 1969 that Mitsubishi went beyond the family economy class of cars with its Colt Galant sedan. The aerodynamically designed “dynawedge” shape and Saturn series motor made the Galant a cutting-edge addition to the Japanese automotive market, and with the continuing developments in Mitsubishi’s commercial bus and truck divisions, made the company a player to be reckoned with in the industry.
In 1970, Mitsubishi Heavy Industries’ motor vehicle operation was spun off under the name of Mitsubishi Motor Corporation--MMC. In 1972, when a Galant won Australia’s long-distance Southern Cross rally while the world’s automotive press looked on, and a Mitsubishi Lancer, one of its newly introduced models, won the same event for the next two years, Mitsubishi’s global reputation soared. MMC, seizing the moment, established a network of international distributors, just in time to meet the demands of consumers who wanted cars which could offer both high performance and fuel efficiency following the 1973 oil crisis.
While Mitsubishi was successful in building innovative cars, however, profitability was another story. In 1971, Chrysler acquired a chunk of the company, with the long-term mutual plan of acquiring MMC outright; from 1983 to 1987 (when Lee Iaccoca announced his intention to sell all Mitsubishi assets), Chrysler’s product planner, Burton Bouwkamp, was on the Mitsubishi Motors Board of Directors. He wrote:
Both Mitsubishi and Chrysler were looking for partners and found each other. Lynn Townsend (Chrysler VP of International and later President) wanted Chrysler to be a world wide company and Mitsubishi Heavy Industries (MHI) wanted someone to teach its automotive subsidiary, Mitsubishi Motors Corporation (MMC) how to make money in the car business. MMC was a wholly owned subsidiary of MHI and had seldom - if ever - returned a profit to the parent company. (Read much more about Burton Bouwkamp’s experiences with Mitsubishi)
In 1980, Mitsubishi captured a major asset, Chrysler’s former Australian operations - all of them. Chrysler had already been selling Mitsubishis in Australia under the name Chrysler Sigma, but was mainly involved in bringing over European Chryslers and building locally-redesigned Valiants. Mitsubishi had purchased a half-interest in the operations in 1978, and completed the buyout in 1980. The Chrysler engineers who had converted pedestrian Valiants into exciting Chargers and Pacers (and, of course, local-production Valiants), and who had developed a powerful straight-six engine to power their local creations, now worked on the Sigma, enlarging it to form the Mitsubishi Magna, or, as it was sold around the world, the Diamonte.
During the 1980s, MMC continued to build on its reputation by sponsoring international competitions. The Mitsubishi Pajero, MMC’s unique off-road vehicle, was seen by a global audience at the 1984 Sarajevo Olympics and the 1987 Zagreb Universiade games, and when it won the 1985 Paris-Dakar Paris Rally, became a world-wide bestseller.
Chrysler sold its interest in DSM to Mitsubishi in 1991 and its equity stake in MMC in 1993, and in 1995 DSM’s name was changed to Mitsubishi Motor Manufacturing of America. While sales of the Pajero had been surprisingly successful in Japan, the economic 1997 downturn in Southeast Asia forced MMC to close its Thailand factory, and when the Japanese economy also began a slide in 1998, Mitsubishi’s market share began to plummet. Its U.S. operations were not significant enough to pick up the slack, and its 1997 losses were the greatest it had ever experienced — partly because it had fed its American growth with many low-quality loans to younger buyers who could not afford the payments.
As MMC’s stock price collapsed, the company replaced its president, Takemune Kimura with Katsuhiko Kawasoe, who began a restructuring program. Even so, its debt, by 1999, was over 1.7 trillion yen.
MMC’s reputation suffered a crippling blow when, in 2000 and in 2004, the company had to admit to covering up vehicular defects from as far back as 1977, and recall over 160,000 vehicles for free repair. When the Fuso commercial line also required a recall, the total of vehicles rose to over a million. Kawasoe and twenty-three other employees were eventually arrested, but three of them have since been acquitted.
DaimlerChrysler briefly held a controlling interest in MMC, and sent German executives to slash and burn Mitsubishi’s domestic operations, greatly reducing the number of vehicles and platforms sold. The issue of whether to buy more of Mitsubishi led to the ouster of Juergen Schrempp from the leadership spot of DaimlerChrysler, putting Dieter Zetsche in his place, but leaving him with a board seat. JP Morgan finally sold a controlling stake to members of the Mitsubishi keiretsu in 2005, leaving MMC’s fate once again in Japanese hands — and possibly saving the life of the company.
One result of the temporary stay of Mitsubishi in the DaimlerChrysler realm was the use of Mitsubishi platforms - basic sets of dimensions - and joint MMC/Chrysler engineering for the Dodge Caliber/Jeep Compass/Jeep Patriot, Mitsubishi Galant, and Chrysler Sebring/Dodge Avenger. The two also share four-cylinder engines with Hyundai as a result of another attempt by Daimler to forge a world automaker.
MMC’s current president, Osamu Masuko, has overseen the introduction of MMC’s first new model in over two years, the kei car. He instituted strong cost-cutting measures, and in 2005 saw the company experience its first profitable quarter in nearly three years. His goal is to have MMC sell 1,525,000 vehicles in 2005.
Chrysler Corporation was, despite popular belief, quite aware of its shortage of small cars in the 1960s and 1970s; the company tried bringing over “captive imports” from its European subsidiaries (Rootes Group and SIMCA), but the most popular car in France failed without trace in the United States and Canada.
In 1971, a still-successful Chrysler purchased a 15% stake in Mitsubishi Motors (MMC), and began importing some of MMC’s models to sell as the Plymouth and Dodge Colt compacts, and Dodge Ram 50 pickup. The intent was to eventually purchase Mitsubishi outright, but a series of unfortunate decisions and events over the years – including the 1973 and 1978 oil crises - brought about Chrysler’s fall from prosperity. The acquisition of Mitsubishi fell by the wayside as the cash disappeared.
The oil crises had another effect – making the fortunes of the Japanese automakers in the United States. The Japanese had been selling in very limited numbers for years, with Toyota first showing up in the 1950s, but they were definitely niche players until 1973. Starting just after the arrival of the first Chrysler answers to the imports – the import-based Horizon in 1979 and the Reliant in 1981 – Japanese automakers began to build or buy assembly plants in the United States, partly to avoid voluntary import quotas. Honda, Nissan, Mazda, and Toyota gained production plants inside the U.S., run with Japanese management practices. Along the way, Mitsubishi, unsure of Chrysler’s long term viabilitiy as a reseller of their cars, chose to introduce their own brand in the United States, competing directly against the Mitsubishis with Plymouth and Dodge nameplates.
Though the buyout of Mitsubishi Motors by Chrysler died when Chrysler itself neared bankruptcy, the companies were still ready and willing to collaborate; and their marriage as Diamond Star Motors produced some remarkable offspring. And marriage it was; the October 7, 1985 selection of the Diamond-Star Motors Plant site was sealed with the blessing of a Shinto priest, and the commingling of Japanese soil and the prairie earth of Normal, Illinois.
Diamond-Star Motors, using Japanese automotive technologies and team production methods, combined with American marketing expertise, was bred for success. The State of Illinois, with its $83.3 million offer of tax incentives to ensure the DSM plant would be inside its borders, was eager to help. The fledgling company appeared to have a bright future.
Chrysler had put up 50% of the $650 million necessary to build the Diamond-Star manufacturing plant, but was willing, in order to compete with the other Japanese carmakers establishing themselves in the U.S., to turn the management of the facility over to Mitsubishi.
Prior to deciding to invest in Diamond-Star, Chrysler had done a thorough study of the reasons for Honda’s success. They focused on Honda’s relationship with its parts suppliers. Honda took a team approach its vehicle development, and those teams included engineers from each of a vehicle’s prospective parts suppliers. The engineers had complete responsibility for the design and production of their specific vehicle component. This was a concept foreign to Chrysler, which had traditionally designed every part of its automobiles and then found suppliers to build them. Honda’s technique worked because they were able to determine which potential suppliers could be counted on for a reliable supply of well-made, economical parts. Chrysler was stuck with getting bids from at least three suppliers before they could commit to ordering, and price took precedence over quality. Their relationships with their suppliers were naturally strained.
Glenn Gardner, a Chrysler engineer, was assigned to Diamond-Star as Chrysler’s senior representative to experience for himself the Mitsubishi way of doing things, so that he could apply them to later Chrysler projects.
Chrysler took its lessons in Japanese- team-style management seriously. The company arranged for plant managers from all over the country to be flown into Normal on a regular basis. They viewed for themselves the Mitsubishi way of adapting, while its cars were being designed, the production machines and assembly methods to suit those designs. Exposure to this approach gave Chrysler’s plant managers an alternative to the modus operandi of having the designers’, plants’, and workers’ roles disconnected during the car building process. Understanding Mitsubishi’s techniques was crucial for Chrysler to succeed in its own cost-cutting measures as it recovered from the disaster of the 1970s.
At the Diamond-Star Plant, all the workers were grouped in “cells’ of four to of eight members, and each member of the group had to learn all of the jobs assigned to that cell. The practice helped eliminate boredom, and made sure the plant could operate smoothly even in cases of absenteeism.
The Diamond-Star Plant, when it opened, had 1250 workers and 470 robots assembling its vehicles; and the number of workers eventually increased to 2900. The most technologically advanced plant of its kind, the Normal facility was capable of turning out 240,000 vehicles annually.
The first Diamond-Star models, appearing in 1989, were the same basic car marketed under different names, with different bodies, tuning, and packages: the Mitsubishi Eclipse, Plymouth Laser, and Eagle Talon. (Chrysler had bought AMC in 1987.) The three cars were so successful that DSM could barely keep up with the demand, and DSM began to be noticed. DSM later saw the Dodge Avenger and Stratus coupes, and the Chrysler Sebring coupe - all essentially Mitsubishi Eclipses.
In 1991, less two years after DSM began production, Chrysler again found itself in dire financial straits; rather than give up their investment in a series of new models that would bring about a rennaissance (not just at Chrysler, but in small cars and big pickups) and in the massive Chrysler Technical Center being built in Auburn Hills, the corporation looked for less central assets to sell. Mitsubishi was reported by Time to have offered Chrysler between $200 and $300 million in exchange for more control over DSM. After the deal was concluded, Mitsubishi continued to manufacture the Chrysler vehicles under contract; but the original Diamond-Star joint venture had become a wholly owned Mitsubishi subsidiary.
In 1993, Chrysler, riding a wave of good publicity with the new LH cars, sold its remaining Mitsubishi stock, severing the economic ties between the companies, and announced a goal of ending its habit of reselling Mitsubishis and using Mitsubishi engines. Indeed, after the Neon came out, Mitsubishi used Neon engines in the base Eclipse (BMW also considered it for the 3-series, dropping the plan when American owners objected). Mitsubishi continued to market Chrysler products outside the U.S.
The Diamond-Star Motors experiment officially ended on July 1, 1995, when Mitsubishi changed the company’s name to Mitsubishi Motor Manufacturing of America. It still builds the Eclipse, including the Eclipse Spyder convertibles, and the related Endeavor SUV and Galant sedan. Mitsubishi continues to have the issues with profitability which led it to tie up with Chrysler, and Chrysler, for its part, was given to Daimler-Benz, which reversed the fortunes of the expanding corporation.