Mitsubishi’s testing scandal charge cuts profit by 19%

Tokyo / Bloomberg

Mitsubishi Motors Corp. booked a 19.1 billion yen ($174 million) charge to reflect losses related to its fuel economy testing scandal, which reduced profit last fiscal year by 19 percent and prompted a shake-up in top management.
The Japanese automaker said it earned 72.6 billion yen for the fiscal year ended in March, rather than the 89.1 billion yen initially reported last month. Chairman Osamu Masuko will add the role of president, replacing Tetsuro Aikawa, who said last week he’d resign. A former executive for Nissan Motor Co., which signed an agreement Wednesday to buy a 34 percent stake in Mitsubishi Motors, will head the development unit that manipulated fuel economy data and used test methods out of compliance with Japan law for 25 years.
The charge adds clarity to the extent of the costs of Mitsubishi Motors’ fuel economy data scandal as the company moves forward with selling a stake to Nissan for about $2.16 billion. Aikawa, 62, is poised to step down after Mitsubishi Motors said management created an environment for fraud, adding to disclosures that the company tested nine models improperly and overstated the ratings of four minicars by as much as 15 percent.
Compensation Costs
The charge takes into account an estimation of costs to compensate customers who purchased cars that underperform their fuel economy ratings, said Shinji Akiyama, a Mitsubishi Motors spokesman. It also factors in costs of repaying the government for tax rebates that the vehicles shouldn’t have been eligible for, he said.
Compensation to Nissan, which Mitsubishi Motors supplied with faulty minicars, and to dealers whose sales have taken a hit from the scandal, don’t factor in the charge, Akiyama said.
Mitsuhiko Yamashita, a former head of research and development for Nissan who retired from the company’s board last year, will become the head of Mitsubishi Motors’ development unit effective June 24.
As part of Nissan’s investment and strategic alliance with Mitsubishi Motors, the two agreed to share assets including wind tunnels and other testing facilities, as well as assembly plants and intellectual property. Nissan is prohibited from transferring the shares it’s acquiring to a third party outside Mitsubishi group companies for three years, according to a statement.
Nissan plans to complete its due diligence of Mitsubishi Motors in August and close the deal in October. The investment is contingent on the conclusions of Mitsubishi Motors’ probe into fuel economy data fraud.