Mitsubishi 1999 Annual Report Download - page 13

On the analyst's couch
11
and financial base so that we can make a profit on sales of
80,000 in Japan and 70,000 overseas.
Q: Tie–ups in the motor industry, until recentry, have usu-
ally been limited in scope, but all of a sudden, in the space
of six months, we have seen a major change in this.
A: From a business angle, the pursuit of scale is certainly
meaningful up to a certain extent. Ours, in particular, is an in-
dustry of scale, so I do not reject the pursuit of scale per se. In
terms of manufacturing cost, however, the benefits of scale
disappear at a fairly low volume. But it is a
different story when we look at develop-
ment cost. A five-fold difference in volume
means a five-fold difference in recovering
that cost. That's why auto makers try to do
as much OEM as possible.
Q: It looks pretty certain that the burden
of development costs will increase in fu-
ture.
A: As development costs escalate, particu-
larly in the fields of safety and environmen-
tal technology, companies will find it increasingly difficult to
shoulder them on their own. This would be a good reason for a
company to consider a merger or acquisition, I suppose, but I
see no sense in the M&A approach solely for the pursuit of
scale. Companies must be able to share development costs.
Today, we are at technological cross-roads and there will be
auto makers who are unable to develop particular technolo-
gies. Again, this would present a good opportunity for entering
an alliance, but I do not go along with the argument that M&A
is the sine qua non for survival or success.
Q: You are reported as saying that you are willing to con-
sider any collaborative association so long as it presents a
win-win solution.
A: My view is that tie-ups, of any form, should be on a solid
business basis, regardless of who the other party is. Should the
parties wish to expand a particular area of business, and it's
something that requires a major investment of money, then
surely it is simply normal business practice for them both to
put money into it. In the area of trucks, we already have em-
barked upon an operational alliance with Volvo and if things
go well we would certainly look at expanding it further.
Q: If you manage to go on reducing your interest-bearing
liabilities at the current rate, perhaps you won't need to
think in terms of M&A?
A: I don't think we will. Were we suddenly required to pay off
our ¥2 trillion borrowings by tomorrow, then we would have
to turn somewhere for help. But we are not in that situation
and so we have no intention of seeking help.
Q: Moody's currently rates Mitsubishi
Motors' debt Baa3. Do you foresee any
further downgrading?
A: I believe we will see a change in our rat-
ing when we publish our business results for
fiscal 1998. I don't know how Moody's ar-
rive at their rating, but since the results will
show there has been no upset or deteriora-
tion in our plans and forecasts, that
RM2001 is right on track, I can think of no
reason for a further downgrading. While the other Japanese
manufacturers have all reported a deterioration in results and a
falling short of targets, Mitsubishi Motors' RM2001 manage-
ment plan is right on track–to the extent that we are thinking
of bringing our targets forward. A good look at just how much
progress we have made, will show that our shares actually of-
fer a good investment opportunity. I believe that investors will
focus upon how we are shaping up for 1999 and beyond.
Q: Is there any way that Mitsubishi Motors can make a lot
of money overnight?
A: The automobile business is all about percentages. If you
get it right, the pluckings can be huge. If you stick to the ba-
sics and offer a good product at the right price, then the money
is there to be made. We have put some fast-selling products on
the market since I became president and we must keep the mo-
mentum going. To date, we've been putting runners on second
base a lot, but we want some homers too. We have to get to
the plate more frequently, and start piling up the hits.