Mon, May 24, 2004 - Page 10 News List

Local aid to Mitsubishi raises concern

FINANCIAL SUPPORT Industry watchers warned that China Motor Corp's proposed aid package of 10 billion yen to the troubled Japanese automaker could backfire

By Lisa Wang  /  STAFF REPORTER

China Motor Corp's (中華汽車) decision to bail out the ailing Mitsubishi Motors Corp raised concern among industry watchers yesterday due to what they called the slim possibility of a turnaround for Japan's fourth-largest automaker.

"I hold a negative view on China Motor's move. There's risk in there. The investment could end up accomplishing nothing, because it will be a tough job for Mitsubishi's management to save the company," said Liu Che-wei (劉哲維), an auto analyst with Polaris Securities Co (寶來證券).

Mitsubishi currently holds a stake of about 14 percent in the Taoyuan-based commercial car maker, which relies heavily on the Japanese firm for technology support.

Raising eyebrows at China Motor's proposed aid package of ?10 billion (US$88 million), Liu warned that Mitsubishi could be a drag for the nation's second-largest automaker in the long term, if the restructuring plan falls through and results in higher levels of debt.

To reduce losses from its Asian units, DaimlerChrysler AG, which now holds a controlling 37 percent stake in Mitsubishi, refused to offer more financial support to the Tokyo-based company last month, Liu added.

China Motor announced on Friday that it would contribute ?10 billion to Mitsubishi as part of the troubled automaker's ?450 billion revival plan.

"The investment will deepen China Motor's three-decade-long partnership with Mitsubishi. It will bring closer cooperation with Mitsubishi in the fast-growing Chinese auto market," China Motor spokesman Hsu Li-min (許利民) told the Taipei Times yesterday.

Separately, China Motor formed a joint venture with DaimlerChrysler last year to produce sedans in China. The plant is scheduled to start operations next year with an annual output of 400,000 vehicles.

China Motor's decision is likely to trigger a mild sell-off today on doubts over the investment, although the financial support could win the smaller Taiwanese automaker a say in discussions over new car models, Liu predicted.

Stock prices of China Motor rebounded 2.95 percent, or NT$1.3, to NT$45.3 on the benchmark TAIEX on Friday. China Motor shares have plunged nearly 40 percent in the past two months.

"I'm slightly concerned about China Motor's decision to help Mitsubishi," said Tony Tsai (蔡東松), a director of Taiwan Ratings Corp (中華信評), a local arm of ratings agency Standard and Poor's.

"It will not damage companies like China Motor, which is flush with cash, but you can't bank on any return on the investment," Tsai said.

With the revival plan, Mitsubishi hopes to return to profitability in 2006 by expanding its auto sales around the world.

In the first quarter of this year, China Motor said earnings were flat at NT$1.98 billion, compared to NT$1.95 billion a year ago.

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