Quotes of the Day

Every week for the past 10 years, one contestant on the Japanese TV game show Tokyo Friend Park 2 got a chance to win the grand prize—a Pajero sport utility vehicle made by Mitsubishi Motors—by tossing darts at a spinning wheel while audience members clapped and cheered an encouraging "Pa-je-ro! Pa-je-ro!" But when the taped program aired on June 17, the customary end-of-show ritual had undergone an important change. Instead of the "Pajero!" chant, producers had dubbed in a different cheer: "Ku-ru-ma! Ku-ru-ma!"—meaning simply "Car! Car!" Starting in July, the show is likely to replace the Pajero with another award entirely. "The prize is supposed to be this wonderful thing that makes everyone happy," says Shigeyuki Tsuruoka, the show's producer. "If we continued to present the Pajero, the audience would probably object."

Why would the Pajero, a popular SUV in Asia, suddenly become a booby prize? Because in recent months, Mitsubishi's former truck unit admitted to covering up a potentially lethal mechanical defect in its trucks; separately, Mitsubishi Motors launched a massive recall of its cars, including the Pajero, to fix defects that it had kept secret for more than a decade. As the scandal has widened, Japan's fifth largest carmaker has come to be seen as a case study of a self-serving corporation that systematically concealed safety problems to protect its brand. Mitsubishi's reputation has become so tarnished in Japan that industry executives and analysts now openly question its ability to stay in business. "The probability of survival is quite small," says Kunihiko Shiohara, a managing director at Goldman Sachs in Tokyo.

The scandal broke in March, when executives at Mitsubishi Fuso Truck and Bus, until last year a Mitsubishi Motors division, admitted after discussions with government regulators that a defect in wheel hubs on its heavy trucks could result in wheels suddenly coming off the vehicles. (Mitsubishi Fuso had previously maintained the problem was due to poor maintenance.) Later, the truck unit acknowledged it had hidden a problem with fractured clutch housings that could cause a transmission part to fall off vehicles. According to regulators, these two flaws are suspected to have caused or contributed to 73 accidents and two fatalities, including one in 2002 when a woman was killed by a wheel flying off a moving Mitsubishi truck. The truck unit says it is still investigating the accidents. But Mitsubishi Fuso has admitted an estimated 450,000 vehicles have defects that the company knew about but didn't report publicly.

Safety and reliability issues aren't confined to the truckmaker. In early June, Mitsubishi Motors dropped a new bombshell, announcing it would recall 155,000 cars in Japan to repair 26 mechanical defects it had failed to report since 1993, despite its obligation to do so under Japanese law. The bugs ranged from defective air bags to faulty hoses that caused breakdowns and included a glitch linked to at least two vehicle fires. Management also admitted issuing memos to dealers asking them to quietly fix these flaws if customers brought their cars in for other repairs. Shortly after the disclosures, police arrested former Mitsubishi Motors president Katsuhiko Kawasoe on charges of professional negligence for failing to report one of the potentially lethal truck defects.

The automaker's disregard for customer safety has turned consumers and bureaucrats alike against the company. Kazuya Akutsu, a 38-year-old systems engineer and member of a 600-strong Pajero fan club, says his parents, coworkers and friends are all pleading with him to replace his ride with something more respectable, but he is reluctant to do so. "I can't trust the company," Akutsu says, "but I like the car. At least the tires haven't come off." Others are less forgiving. Shoichi Nakagawa, Japan's Minister of Economy, Trade and Industry, recently said he was "speechless from disgust" over the company's "malicious" behavior. Public goodwill is dissipating at a critical juncture: Mitsubishi lost $1.9 billion in its 2003 fiscal year, and management is forecasting similarly dismal results for 2004 due to plummeting sales. Since April, its stock has fallen 50%.

To make matters worse, the company's international partner, DaimlerChrysler, has refused to provide it with new financial support. In April, DaimlerChrysler Chairman Jurgen Schrempp asked banks linked to Mitsubishi to forgive some of its $9 billion in debt as a precondition for the German-U.S. auto giant's participation in any bailout. But he was turned down. Soon after, Rolf Eckrodt, the DaimlerChrysler-appointed president of Mitsubishi Motors, resigned. DaimlerChrysler, which has already invested $3.5 billion in Mitsubishi's auto and truck businesses, says it has no intention of selling its 37% stake in Mitsubishi Motors—but, warns Standard & Poor's credit analyst Chizuko Satsukawa, DaimlerChrysler's refusal to offer more assistance certainly bodes ill "for the creditworthiness of Mitsubishi."

The beleaguered automaker has instead turned for help to sister companies within the Mitsubishi Group, one of Japan's most powerful business conglomerates. Mitsubishi affiliates have agreed to provide $2.5 billion by buying new stock and converting some debt to equity. Another $1.6 billion is coming from investment bank J.P. Morgan and Japan-based private equity fund Phoenix Capital, which will become Mitsubishi Motors' largest shareholder when the investment is complete.

Meanwhile, in April, the Mitsubishi Group dispatched a new CEO, Yoichiro Okazaki, from Mitsubishi Heavy Industries. He quickly announced a restructuring plan that includes cutting 22% of Mitsubishi Motors' 49,000 employees, the closure of a factory in Japan, a revitalized car line with 44 new models to be introduced over the next three years, and a focus on boosting sales in China. Okazaki has also promised to overhaul the corporate culture by forming a business-ethics committee consisting of lawyers, academics and other outsiders to monitor senior management.

Okazaki admits this is Mitsubishi's "last chance." Analysts say it may already be too late. Japan has 11 companies making cars and trucks, while the total market has shrunk by about a quarter since its 1990 peak. Mitsubishi's market share in passenger- and mini-cars has sunk to a meager 3.8%. The company "could disappear tomorrow, and no one would miss it," says John Harris, a Tokyo-based auto consultant.

Indeed, even otherwise stalwart supporters are wondering if the company, having persisted in a long history of deceptive behavior, now deserves to be hauled away to the scrapyard. Asks one executive at a Mitsubishi company participating in the bailout: "If they did something against society, why should we support them?" It's a question that even the most loyal Pajero drivers will be asking themselves when trade-in time rolls around.

• Michael Schuman | Tokyo
• A string of safety scandals has left a Japanese carmaker facing the scrap heap