DaimlerChrysler Bites Into Mitsubishi

German-American automaker DaimlerChrysler AG, seeking a foothold in Asia, said Monday it would acquire 34 percent of Japan's Mitsubishi Motor Corp. for an alliance that would create the world's third-largest automaker.

In a statement issued before the stock market opening in Frankfurt, DaimlerChrysler said its chairman, Juergen Schrempp, and Mitsubishi president Katsuhiko Kawasoe had signed a letter of intent in Stuttgart to form an alliance regarding the design, development, production and distribution of passenger cars and light commercial vehicles. The final contracts will be signed within the next few months.

DaimlerChrysler said it would pay $2 billion for the stake through a capital increase, and that DaimlerChrysler would take regular seats on Mitsubishi's board "in line with the equity participation ... to be part of the decision making process at Mitsubishi."

The deal will help the German-American automaker toward one of its goals: increasing group sales in the fast-growing Asian market.

The announcement caps days of intense speculation over the details of the pact.

The deal apparently gives DaimlerChrysler control over Japan's fourth-biggest automaker, which is deeply in debt and needs a cash infusion.

The Detroit News reported Monday that the deal gives DaimlerChrysler veto rights over management decisions and as many as three seats on Mitsubishi's board.

Whatever the details, one thing was certain: The move would represent a major commitment by DaimlerChrysler to the Asian market.

"It lays the groundwork for them to develop a much more competitive position," said Howard Smith, auto analyst with ING Barings Securities (Japan) Ltd. in Tokyo. "Asia is going to be the goose that lays the golden egg ... at some point."

The deal will also help Mitsubishi get out of its mounting financial difficulties. The company has a crippling $16.4 billion in debt, and the highest debt-to-equity ratio in the Japanese car industry.

Japan's auto industry has been one of the hardest hit by the country's prolonged economic downturn, and several carmakers have sought foreign partners. In the biggest deal, Renault SA of France bought a 36.8 percent stake in Japan's debt-ridden Nissan Motor Co. in May 1999.

And DaimlerChrysler itself is a creation of the trend in the global auto industry toward consolidation. The Stuttgart-based Daimler-Benz bought out American automaker Chrysler Corp. in 1998.

But the company has been relatively late in the race to Asia.

Ford bought a controlling stake in Japanese automaker Mazda in 1996. General Motors owns stakes in Isuzu Motors Ltd., Suzuki Motor Corp. and has plans to take a 20 percent chunk of Fuji Heavy Industries Ltd., the maker of Subaru cars.

Despite its crumbling finances, Mitsubishi is an attractive catch for several reasons.

One is its strength is smaller cars. The Germany newsmagazie Der Spiegel reported over the weekend that DaimlerChrysler planned to use Mitsubishi Motor Corp.'s Dutch plant to expand its struggling mini-car line.

That was expected to help strengthen the company's position in the fast-growing Asian market as well as help the Mercedes manufacturer meet fleet fuel-efficiency targets with the European Union.

Mitsubishi also has become a pioneer in gasoline direct injection technology, but has failed to exploit its leadership. DaimlerChrysler, with its vast resources, could put that know-how to use, Smith said.

It was doubtful, however, that Mitsubishi alone would provide the German-American company with sufficient punch, at least immediately, to guarantee a strong presence in Asia.

"They're going to have to develop both a product and a brand to sell in Asia," said Smith. "And I'm not sure that Mitsubishi offers them that right now."