Mitsubishi Sells Company Stake To Nissan In Wake Of Scandal

Mitsubishi

Mitsubishi recently admitted it has falsified fuel efficiency ratings.

Scandal-ridden Mitsubishi Motors is going to sell 34 percent of its holdings to Nissan Motors amounting to a value of $2.2 billion.

The agreement puts Mitsubishi under the automotive group that has Nissan and France’s Renault at the core. The allied manufacturers have a combined production volume of about nine million vehicles a year at par with the industry’s top producers including Volkswagen, General Motors and Toyota.

The deal is similar to how Renault stepped in to save an ailing Nissan as it bought a large minority stake in the Japanese company. Carlos Ghosn is currently chairman of both companies after being sent to Japan to save Nissan.

“We have been there not a very long time ago,” according to Mr. Ghosn during a news conference Thursday. “We have the track record to make it work.”

Mitsubishi’s addition to the alliance would help the group save “billions” in shared development costs, purchasing and sales said Ghosn as all three companies are heavy investors in all-electric vehicle models. Nissan will also benefit from Mitsubishi’s strong market presence in Southeast Asia where it aims to increase its sales.

Ghosn is a staunch supporter of a loose alliance that they have between Nissan and Renault, preferring it over takeovers. He has said alliances enable the manufacturers to combine development efforts without having to deal with political and cultural differences that interfere with the smooth merging of companies.

Renault holds a 43 percent stake at Nissan and the Japanese car manufacturer holds 15 percent of nonvoting shares in Renault. Both companies have yet to experience devastating results of failed mergers like Daimler and Chrysler that split after a decade despite merging in the same year as Renault and Nissan.

Mitsubishi’s scandal could cost Nissan and expose the company to complications. Ghosn is confident that Mitsubishi’s problems are well understood and that the agreement would only push through after a full-diligence examination.

The problems created an opportunity for Nissan to buy into Mitsubishi relatively cheaply after share prices have been halved after the disclosure of the company’s fuel efficiency falsifications last month. Massive buy orders halted Mitsubishi trading on Thursday. Shareholder sentiment, turned positive as its indicative price increased 16 percent capping the daily limit. Nissan, however slipped 1.4 percent in trading.

The two Japanese automotive makers have cooperated in several areas including the development and sale of microcars with small engines. Nissan’s engineers were the ones who discovered the exaggerated numbers from Mitsubishi when they used unapproved mileage tests. Mitsubishi then admitted cheating on its numbers in Japan for about 25 years and that all domestic models have been affected.

Mitsubishi Chairman Osamu Masuko said: “This is an important step toward rebuilding trust and stabilizing our business,” referring to Nissan’s investment in their company.

According to Masuko, he and Ghosn had been in discussions previously regarding a partnership. The scandal appears to have fast tracked the talks; with Mitsubishi being comparatively small in the industry in need of resources to compete effectively.

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