Mitsubishi Motors Future: Summer Guest Post #1

This post was written May 12, 2014 by Anton Reed '14 for Economics 244. The Prof edited it and appended comments by others in the class.

I will revise and reblog the best posts of my students over the coming weeks.

In April, when they released their FY2013 annual results, MMC (Mitsubishi Motors Corp) reported record profits. Don't get too excited.

Mitsubishi Motors' North American operations are struggling; MMC sells far less than any other Asian car company in North America. The next smallest, Mazda, sold almost three and a half times as many vehicles in April 2014. Only six firms sold fewer cars, and of those only Volvo is not a niche luxury marque. (The other five, in decline order of sales, are Jaguar/Land-Rover, Porsche, Tesla, Maserati and Ferrari.)

There are positive signs, with April sales up 46.6% over 2013 and year to date sales up 29%. Only Maserati had a larger increase, but they sold 753 vehicles last year, so that shift represents only a few additional cars. On the other hand, among manufacturers building cars for mainstream customers, Mitsubishi sells the least, so its percentage increase likewise represents only a modest absolute change. Nevertheless Mitsubishi has been improving its North American operation, with net sales up 53% from 2012 to 2013.

Such sales however mean that MMC's Illinois plant – begun in 1988 as Diamond-Star during the era when Chrysler was a major shareholder – continues to operate in the red. Whether or not Mitsubishi will be able to mount a comeback from the brink of essentially complete failure in North America will depend heavily on the continued expansion of their share and the overall vehicle market. Summer sales are expected to be substantial enough to grow the car market in 2014 over 2013, but that increase won't be enough to float MMC. Mitsubishi will likely see its sales cannibalized by the other automakers and go the way Suzuki, Isuzu and Daihatsu, Japanese firms that have completely withdrawn from North America.

Sources: www.motorintelligence.com and www.mitsubishicars.com. Sales graph on right added by the Prof.

STUDENT COMMENTS / DiSCUSSION

Louis Ike · 
I do not see Mitsubishi making much of a resurgence in sales here in North America. The number of dealerships around any one geographic location is much lower than its competitors, and this only mimics the pattern of low sales volume. The cars that Mitsubishi is currently making, to put it simply, do not fit the consumer preferences of the modern North American. In my opinion, Mitsubishi needs a serious rebranding because its public image is one of cheap, ugly, and obsolete vehicles.

Jier Qiu · 
I think an important reason that Mitsubishi is making profit right now is their new Mirage, which is a reliable, affordable, and fuel-friendly vehicle. I am personally very fond of the brand because their good designs. Although it is pretty easy to get an operating profit from cutting backs and fewer newe investments, I still think Mitsu has the potential to compete in light vehicle sector in the future with Mirage as a good start. They also need to deal with their dealership issue in North America.

the prof · 
Isn’t it the weak yen? It was ¥75 per dollar, now it’s ¥101 / US$. That’s a huge benefit to exporters.


Kade Kenlon · 
It would be interesting to know on the pie chart what percentage of the market that the Asian car companies control. Not only would it put the Mitsubishi market share in perspective, but it would tell you what the potential is for Asian cars. The higher the percentage of Asian cars controlling the market, the better chance Mitsubishi has to succeed. Mitsubishi would have a much easier time overtaking another asian car company rather than an American car, mainly because the Asian cars share the same concept, they are meant to be appliances.

the prof · 
At one time "Asian" might have mattered. As Toshi Amino [retired VP Honda Mfg of America] noted at our lunch table in Ohio, the Marysville plant ranked equal or higher in quality on internal audits than Sayama in Japan, but in the early years [1980s] American consumers wanted a “Made in Japan” vehicle.

Now however do consumers even know (much less care!) that MMC is a “Japanese” company? Or that the vehicle was made inside NAFTA, or imported from Japan / Korea / Europe? It’s an empirical question, and the surveys I've seen suggest consumers no longer care about national identity and import status, though "Munroney sticker" legislation mandates manufactures provide those details on the window sticker found on all new cars.
 
See my thoughts on MMC here: Mitsubishi Motors: going, going … gone?

Google's Autonomous Car: Don't Drink the Kool-aid

Google's senior executives are busily touting the wonders of autonomous vehicles. There's the technological marvel, at least in the eyes of Silicon Valley. There are the economic benefits - no more congestion, no more accidents. Wonder of wonders! – and great for the Google empire, and for its stock price.

The PR machine is a marvel to behold, and the gullibility of the audience – well, it's Google! Is their part in this really that much of a marvel? Will economic benefits be as great as they claim? Will they even be a player in future vehicle technologies? Their PR machine is not paid to probe such issues, much less point out that alternative technologies may bring almost all of these benefits more quickly and at a very modest cost.

First, the core innovations necessary for an autonomous vehicle are already on the road, the result of decades-long engineering efforts alongside which Google's investment and expertise pale in comparison. Blindspot detection, lane departure warnings, backup "assist" (outside the US that is surely called a safety feature) and adaptive cruise control are all necessary for an autonomous car. Now some of these aren't cheap, but they're falling in price. So we don't have to await an entirely new generation of vehicles to begin reaping the benefits. Crucial to Google's vision is that these are all partial solutions. However, I am not at all convinced that what Google offers will be a sufficiently big increment to offset the additional costs of full autonomy. Nor is it at all obvious that Google will have any role short of autonomy – their presence is not needed for these existing tools.

Second, Google's is not the only approach. In particular, connected vehicle technologies promise most of the benefits at a far lower price point and with a faster rollout. Such systems are inexpensive because they can use the copious computing power already in car, while the hardware consists of inexpensive RFID transponders (though not as inexpensive as the tags retailers use to deter shoplifting). The pieces of such systems are now being tested on the road, with a large test facility – the Michigan Mobility Transformation Center – an artificial cityscape – under construction in Ann Arbor, adjacent to the University of Michigan Transportation Research Institute. Such systems don't require the panoply of sensorts of an autonomous vehicle. Indeed the core components could be sold as an aftermarket item, albeit with lower functionality. Such connectivity could be rolled out in the course of years.

In contrast autonomy will require decades. First "real" vehicles need to be out in sufficient numbers to overcome regulatory fears and start the path to consumer acceptance. I can't see that happening before 2020, given the lead time for vehicle development when new systems are involved. It's not just that the hardware and software have to be integrated into existing vehicles, it's also that test procedures need to be developed for both the hardware and the software. Then production capacity has to be ramped up, while successive generations of vehicles are designed. That's another 10 years. And then the fleet will gradually turn over; with the average age of vehicles now over 11 years, that's another decade for half of all vehicles to be autonomous. We're thus looking at 2040. A combination of aftermarket and designed-in RFID systems could be on every vehicle by 2025, offering varying levels of collision avoidance and traffic flow smoothing.

Google likes to trumpet the elimination of accidents and the end of congestion. Perhaps. However, the restructuring of where people live versus where they work is a process that will take decades; in many cities, particularly in the US, the housing stock is widely dispersed, and so we really won't be able to get rid of all those cars, another claimed benefit of autonomy. Will connected vehicles deliver all of the same benefits? No, at least not initially; any aftermarket device could only offer warnings, nor take over steering and braking. Still, the price point and the time horizon are quite different from the drink Google wants us to imbibe.

Will there be a role for autonomous vehicles? Certainly truck trains are one application, and off-road uses in mining and construction. The Department of Defense is surely a potential customer. Don't look to these to drive Google's stock valuation, or you will have drunk the Kool-aid.

Call for Entries: 2014-15 PACE Supplier Innovation Competition

Time for suppliers to apply for the 2014-15PACE COMPETITION! (Links to PACE web site)