Daimler Won’t Invest More in Mitsubishi

DaimlerChrysler said Thursday that it wouldn’t provide any more funds for its Mitsubishi Motors Corp. affiliate, a week before Japan’s only unprofitable carmaker planned to outline a $6.4-billion revival package.

The board of DaimlerChrysler, the world’s fifth-biggest automaker, “decided not to participate in a capital increase planned by Mitsubishi Motors Corp. and to cease further financial support,” the Stuttgart, Germany-based company said in a statement to the Frankfurt Stock Exchange.

DaimlerChrysler and Mitsubishi Motors were discussing a plan to sell new shares for Japan’s fourth-biggest carmaker, trim its model range and overhaul management, according to executives from both companies. The withdrawal by DaimlerChrysler, which owns 37% of Mitsubishi Motors, may threaten cooperation between the two carmakers, analysts said.

“Where this leaves the alliance between the companies is up in the air,” David Healy, an analyst at New York-based Burnham Securities, said in an interview. “It’s a surprise. I was fully expecting them to throw good money after bad.”

Mitsubishi’s North American operation is based in Cypress. The company’s sales slumped 26% in the U.S. last year, after it tightened lending policies in response to rising defaults by customers.

“Mitsubishi Motors is a walking disaster, and simply putting more money into it is not the answer,” said Alex Muromcew, who helps manage $600 million in global stocks at San Francisco-based Loomis Sayles & Co. “I think it is a smart move by DaimlerChrysler.”

Reeling from losses generated by a disastrous strategy of offering cheap car loans in the U.S., Mitsubishi is expecting a net loss of about $657 million for the 12 months to March 31.

The decision to end financial support came after an unusual meeting of the DaimlerChrysler supervisory and management boards Thursday.

Before the announcement, sources said DaimlerChrysler had discussed selling its 10% stake in South Korea’s largest carmaker, Hyundai Motor Co., worth about $1 billion, to help fund the Mitsubishi rescue.

“This could be the end for Mitsubishi if nobody else injects fresh capital,” one industry source said.

DaimlerChrysler bought the stake in Mitsubishi more than three years ago with a view to expanding its presence in Asia. It has since worked to establish closer production ties between the Japanese firm and its other problem child, U.S. automaker Chrysler, to cut costs.

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Bloomberg News and Reuters were used in compiling this report.