Mitsubishi Motors has cash to weather mileage scandal, but brand battered, again

Fri Apr 29, 2016 7:48am EDT
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By Naomi Tajitsu

TOKYO (Reuters) - Mitsubishi Motors' (MMC) (7211.T: Quote) market value and Japanese orders have halved since it admitted last week to rigging fuel economy tests, but with more than $4 billion in cash and low debt, the automaker should contain the potential damages.

The scope of its cheating also now seems more limited than at first feared, improving the prospects that one of Japan's smaller automakers can survive a third scandal in recent years.

That history of scandals though, could put its longer term survival at risk given the latest battering to its branding. In 2004, it was saved from collapse by other Mitsubishi companies.

"The firm has repeated the same kind of wrongdoing, so the situation is not good," said a government source who didn't want to be named due to the sensitivity of the issue.

The survival of companies like MMC highlights the difficulty of shaking out weak players in a cut-throat industry if management avoids tough decisions to downsize, merge or liquidate, industry observers say.

"This creates an environment where inertia is the norm, which allows automakers which may otherwise disappear to continue to survive for decades," said James Chao, Asia-Pacific managing director of research at IHS Automotive in Shanghai.

WEAK DEMAND   Continued...

The company logo of Mitsubishi Motors is seen at its headquarters in Tokyo, Japan, April 27, 2016.  REUTERS/Thomas Peter/File Photo