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Mitsubishi Motors Takes Additional Steps to Achieve Revitalization Plan Targets

— 72.6 billion yen in additional cost savings earmarked to offset potential sales decline —

Tokyo, June 16, 2004  — Mitsubishi Motors Corporation (MMC) today outlined additional measures to its business revitalization plan announced on May 21 that focus on three areas: all-out cost cutting, restoring customer trust, and across-the-board compliance. The new measures are in response to a potential marked slump in domestic sales that has surfaced following the recent recall problems at MMC and Mitsubishi Fuso.

"Today's moves are aimed at avoiding risks that have surfaced since we announced our business revitalization plan on May 21. However, there are no changes to the main outline of our plan," said MMC Chairman, President and Chief Executive Officer Yoichiro Okazaki.

[ Presentation slides (PDF, 12 pages, 107KB) ]

All-out cost cutting measures

MMC forecasts that a decline in domestic sales could lead to an additional operating loss of 30 billion yen in both fiscal 2004 and fiscal 2005. To cover this loss, the company will take additional steps to cut costs by a further 34.4 billion yen in fiscal 2004 and 38.2 billion in fiscal 2005, for a total extra saving of 72.6 billion yen.

In leaving nothing untouched, MMC will also seek savings in labor costs. Labor costs in Japan will be cut by 14.1 billion yen in fiscal 2004 and 10.9 billion yen in fiscal 2005. For the coming two years, MMC plans to forgo paying retirement allowances to directors, cut executive remuneration packages by 25 to 50 percent, reduce managers' pay by 10 percent compared to 2003, and reduce the pay of rank-and-file employees by 5 percent compared to 2003.

In addition, the company plans to cancel employees' 2004 yearend bonus, accelerate headcount reductions, review employment policies, and revise down the pension rate from 4 percent to 1.5 percent.1

Overheads will be slashed by 15.3 billion yen (8 billion yen in Japan, 7.3 billion yen overseas) in fiscal 2004 and 20.3 billion (12 billion yen in Japan, 8.3 billion yen overseas) yen in fiscal 2005. In Japan, MMC will freeze all new IT-related projects other than those that address regulations, reduce advertising expenses, and drastically cut expenses at its head office and in research and development departments.

Overseas, meanwhile, the company will halve costs related to outsourcing, travel, and computer system expenses, while further cost reductions will come from limiting advertising to major models.

Cost reductions related to manufacturing and logistics will be put in place earlier than expected and beefed up for further savings of 5 billion yen in fiscal 2004 and 7 billion yen in fiscal 2005. MMC will cut costs for spare parts and supplies materials and will accelerate savings set out for indirect materials. The company also expects to see further savings through headcount reductions made possible by consolidating sub-line work, reduced packaging costs, and reassessing its outsourcing to save on export charges.

Restoring customer trust

MMC will seek to rebuild its domestic operations by restoring consumer trust. Through close communication with its customers to restore trust in the company and its products, MMC is offering a free 20-point inspection and oil change for all MMC vehicles. Now, to give new buyers peace of mind, the company is also offering a three-year full support program, which includes free inspections and 24-hour roadside service.

MMC also recently conducted a sweeping in-house probe into past "repair directives" dating back to December 1993 in an effort to ease the concern of its some six million users in Japan, ensure traffic safety, and rid itself of past problems and mistakes so as to pave the way for a self-revitalization of its business. As a result of the investigation, the company will submit 26 recalls to the Japanese Ministry of Land, Infrastructure and Transport for a total of 160,000 vehicles.

Across-the-board compliance: Plan on reforming corporate culture, ethics

In order to reform its corporate culture, MMC outlined three areas of top priority in its business revitalization plan: compliance, safety, and customers. The company also mapped out a new corporate structure geared to pushing through reform, centering on its Business Ethics Committee, Corporate Social Responsibility (CSR) Promotion Office, and Corporate Restructuring Committee.

Awareness of compliance issues is being raised throughout the company. Action that was not possible with the company's previous organization and human resources is now possible and this new structure will help ensure compliance across the board, which the company plans to report on regularly. MMC sees compliance as its most urgent task, one that must be enforced with resolve to ensure the survival of the company. The Corporate Restructuring Committee has already started work on pushing through reforms.

In placing compliance first, the company's compliance and communication functions will be brought together under the CSR Promotion Office, thereby improving the ability to gather and release information while implementing all measures uniformly throughout the company. Reporting directly to the board of directors, The Business Ethics Committee will monitor the activities of the CSR Promotion Office from an external perspective and offer proposals to the board.

The cycle of planning, implementing, and evaluating initiatives within the company will be completely overhauled to ensure compliance issues are upheld company wide and all executives, including the chairman and president, will be made to sign a compliance pledge that will act as a code of conduct.

The company has mapped out a schedule for compliance related initiatives through to the end of the year. In late June, the chairman and president will declare that complying with business ethic standards is the company's most urgent task and will ask all executives to sign a compliance pledge. In July, the organization, framework, and regulations for business ethics will be reworked.

Then, during July and August the company will run seminars on business ethics for all executives and employees. From August to September, each department will hold meetings to hash out problems related to business ethics and conduct surveys on how deep business ethics have penetrated their department. In the end of July, all employees will be asked to sign a compliance pledge. At the end of October, the Business Ethics Committee will study the extent to which business ethic standards have caught on in the company. Finally, in November the company will hammer out a plan for 2005 that promotes compliance with business ethic standards.

MMC will announce its schedule for detailed action to put top priority on safety and customers further down the track.

1 These measures require labor-management consultation

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