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DaimlerChrysler to pull plug on Mitsubishi?

DaimlerChrysler AG said Thursday it will not proceed with a $6 billion-plus bailout of Mitsubishi Motors, leaving the future of the struggling Japanese automaker in doubt. The announcement is an about-face from reports last week that the German automaker would increase its stake from 37 percent to more than 50 percent by 2007 at a cost of $3.8 billion by buying up more stock as part of a broader bailout that involved Japanese creditors.

"In an extraordinary meeting on April 22, 2004, the Board of Management and the Supervisory Board of DaimlerChrysler have decided not to participate in a capital increase planned by Mitsubishi Motors Corporation (MMC) and to cease further financial support for MMC," said an official statement from DaimlerChrysler.

"This clearly means separation," a DaimlerChrysler spokesman told Reuters, adding that the 37-percent stake would be booked as discontinued business until a buyer could be found. The decision will be explained by DaimlerChrysler chairman Juergen Schrempp today.

On the minds of many in the U.S. is how a pullout from Mitsubishi will impact a joint four-cylinder "world engine" development program between Chrysler and Mitsubishi, as well as development of small and mid-size cars between the two companies. Chrysler executives have boasted about how much money they are saving in development and purchasing by combining with Mitsubishi. Wolfgang Bernhard, outgoing Chrysler chief operating officer who is about to take over as chief of Mercedes-Benz, said earlier this month that no action regarding Mitsubishi would derail those programs. But analysts have doubted that Mitsubishi can survive independently without DaimlerChrysler, and no other buyers have surfaced.

David Healy, an auto industry analyst with Burnham Securities, said that in "pulling the plug" on Mitsubishi it looked as if group board members had "finally rebelled against Schrempp's pouring money down that financial black hole." Shareholders have called for Schrempp's replacement. But the supervisory board has continued to back him despite acquisitions of Chrysler and Mitsubishi draining more than $40 billion in shareholder value since 1998. Mitsubishi expects to post a loss of $686 million for the year ended March 31. That would bring the company's losses over seven years to $3 billion. Mitsubishi sales in the USA, down 26 percent last year, have slid 19 percent so far this year.

DaimlerChrysler recently dispatched Andreas Renschler, former head of its Smart minicar division, to Mitsubishi to assemble a rescue plan. Renschler was expected to replace Mitsubishi CEO Rolf Eckrodt as early as this month. -Jim Burt

http://www.thecarconnection.com/index.asp?article=7065&sid=173&n=156
 
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