Nissan Motor Co. and Mitsubishi Motors Corp. said they’re in talks, including for a possible capital tie-up, amid a fuel-economy ratings scandal that’s battered one of Japan’s smallest automakers.

The companies confirmed discussions in separate statements to the Tokyo Stock Exchange, saying no decision has been made. Nissan and Mitsubishi Motors said they’ll discuss the matter at scheduled board meetings Thursday.

Nissan is seeking a 33 percent stake in Mitsubishi Motors, people familiar with the matter said. The talks are in preliminary stages, and other companies -- including Beijing-based BAIC Motor Corp. -- are also examining the possibility of buying a stake in the automaker, said one of the people, who asked not to be identified because the talks are private. The stake has a market value of about $1.5 billion.

Mitsubishi Motors has admitted to manipulating fuel economy data of four minicar models, two of which are supplied to Nissan, and improperly testing other Japan models since 1991. The scandal has exposed the extent of Nissan’s dependence on its joint venture partner for Japan sales. After suspending deliveries of the affected models for the last two weeks of April, Nissan reported a 51 percent plunge in its monthly minicar sales.

“There is a logic to Mitsubishi Motors needing a partner, since they clearly don’t have the engineering resources to be a player in a world where technology is moving so quickly,” said Maryann Keller, an independent auto analyst in Stamford, Connecticut. “They’ve always been an also-ran in major markets like the U.S. But they actually have a decent business in Southeast Asia, so they have some attractive assets.”

The Tokyo Stock Exchange suspended trading of Mitsubishi Motors shares following reports of a potential sale. Mitsubishi Motors will probably issue new shares to sell to Nissan in a private placement, the Nikkei newspaper said.

Mitsubishi Motors shares have fallen 43 percent since April 19, closing Wednesday in Tokyo at 495 yen. Its U.S. shares jumped 16 percent to $5.14 on Wednesday. Nissan’s shares fell 1.8 percent to 984.7 yen as of 9:16 a.m. in Tokyo trading.

Nissan investors may have to wait to see further terms of the deal to discern the risk of potential scandal costs, said Joe Phillippi, principal of AutoTrends Consulting.

“There has to be an extraordinary number of provisos in there to handle any and all potential liability” related to the fuel-economy scandal, Phillippi said of Nissan’s offer. “I think they probably baked a lot of that into the bid price.”

Mitsubishi Motors said Wednesday that nine more models including a sport utility vehicle may not have been properly tested as its scandal spreads beyond the initial batch of minicars. After first revealing it had overstated the fuel economy of its minicars by as much as 10 percent, Mitsubishi Motors’ minicar deliveries declined 45 percent in April and its total sales in Japan fell 15 percent.

Nissan wasn’t involved in setting the fuel-economy targets for the minicars in question, Mitsubishi Motors President Tetsuro Aikawa told reporters during a briefing Wednesday. Mitsubishi Motors had raised the fuel-economy targets five times for the minicar models to 29.2 kilometers/liter from 26.4 km/l in a bid to outperform the competition.

Mitsubishi Motors hasn’t sought support from Mitsubishi group companies, Chief Executive Officer Osamu Masuko said Wednesday in Tokyo. The company should be able to handle compensation with its own resources, he said.

Mitsubishi Heavy Industries Ltd., the biggest shareholder of Mitsubishi Motors, will refrain from commenting until its group company peer and Nissan make an official announcement, said Shuichi Takano, a spokesman.

Source:
courtesy of BLOOMBERG

by Craig Trudell, Masatsugu Horie & Yuki Hagiwara

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