Inigo S. Roces / Inigo S. Roces, Mitsubishi, Nissan | November 25, 2016 08:39
MMC Chairman on the Nissan Alliance, Duterte and the Philippines
There's no question that Mitsubishi Motors has had a storied past. Weathering several recalls and scandals, it is not without its triumphs, be it in motor sports or motor vehicle sales. Yet the recent acquisition of the Nissan group of majority shares of Mitsubishi has led many to wonder what the future holds for the three diamonds. We chat with its Chairman and CEO, Osamu Masuko, about the new road it is forging as a member of the Nissan-Renault Alliance, his opinion on President Duterte, and operations in the Philippines.
Inigo Roces: Mitsubishi joining the Nissan Renault Alliance has made the headlines some weeks ago. Can you tell us what this means for Mitsubishi?
Osamu Masuko: On Oct 20, Nissan became our main shareholder with a 34% stake of equity investment. With this, Mitsubishi officially became a member of the global Nissan-Renault Alliance. This alliance has the basic spirit of respecting each others' brand, history, and management autonomy. Even with Nissan on board, the brand, marketing and management will be kept separate, as in the past.
We will keep producing cars that will look and feel like a Mitsubishi.
On the other hand, we aim for greater synergy impact in the field of purchasing, vehicle platforms, development of advanced technology, joint plant utilization, and financial services. It's colloaboration and competition. It's contradicting but they will go hand in hand together. We are separate from Nissan and run the business independently.
IR: Will this alliance help Mitsubishi regain its footing after its most recent scandal?
OM: In the past, we did more than we could. Now we can do business which matches our capability as a company. I think it is important to understand our capability and resource level. With that, I think we can produce cars with qualities that can be used by our customers safely.
In Japan, we caused this fuel efficiency issue for many cars. That was the result of us trying to do too much compared to what we can actually do. When that happens, we cause trouble to customers. I think we need to handle this sincerely. Now we are strong in ASEAN, but we don't know for how long if we do something wrong. Now regaining trust is the problem.
IR: Joint vehicle platform development is what has gotten most enthusiasts excited about the new alliance. What kinds of platforms will these be?
OM: If we can commonize any of the platforms, we would like to pursue that option and centralize procurement, and developing new technologies with as much cooperation as possible. Now, the synergy is just with Nissan, but it can be expanded with Renault in the future.
We're looking at connected cars and autonomous driving. As information technology advances, the car should cope with the advancement. A platform is not just a structure. It should be ready to accept these technologies. That's what we should develop moving forward. That should allow us to take on more technologies and that's the direction we're going.
On top of that, it's about how to ensure Mitsubishi's uniqueness. That's what we should look into for the customers. That's our task going forward. It's not about sharing but how to make ourselves unique in spite of a shared platform.
Developing a new architecture alone is hard for us, resource-wise and cost-wise. I think this is a big trend. The cars will change. But how, specifically, it's hard to say.
IR: Isn't change a constant in the auto industry?
OM: The auto industry today is at a major turning point. There are new technologies like autonomous driving, connected car, and artificial intelligence. The competition used to be Toyota, Nissan and BMW. Now, we need to compete with companies outside the auto industry, like Google, Apple, Tesla, and even Dyson. Auto manufacturers need to take on this challenge.
It is so hard for one manufacturer to do it alone. We need to form a group to cope with those challenges. We have to take on the challenge with new tech and have to compete with new competitors. That's the situation now. Today it is very hard for a single manufacturer to survive alone, especially a small one like Mitsubishi.
That's why we decided to form an alliance with Nissan. With the alliance, the competition will be between the manufacturers with production numbers in 10M units annually. These companies have resources to pursue these technologies. We want to be a member of that to take on these technologies.
IR: Yet established car companies like yours have been developing these technologies for some time now. Shouldn't you have the advantage of experience against these new competitors?
OM: The existing auto manufacturers may seem like they have these advantages, but the concept of cars constantly changes. Google thinks that a car without a steering wheel will be the ultimate car. That idea could be a game changer, in a sense. Now, we dont necessarily have the advantage. Our previous safety standards, these won't apply to the new generation of cars. Because cars are being developed with more artificial intelligence, there's a chance that cars as we know them will drastically change.
IR: Of course, these smart cars will still have to be propelled by something, and in that aspect, you have some expertise, particularly electric vehicles.
OM: Electric vehicles (EVs) will be the ultimate solution for gasoline, diesel and fossil fuels. Back in 2009, we became mass producer of EVs with the i-MIEV. Nissan, almost at the same time, launched their Leaf EV. Toyota had a similar concept but with a fuel cell. A few days ago, Toyota said they would like to start production of EVs by 2020. EV is now getting attention. That means we will have more intense competition. Euro manufacturers will also spend in developing EVs. The big challenge is the battery. We use Lithium Ion. Tesla uses Panasonic's in serial connection. The player with the most efficient solution to EVs will take an advantageous position. If we combine our expertise with Nissan's expertise, we could create an unbeatable entity.
IR: How will the Nissan-Renault alliance affect operations in ASEAN?
OM: Nissan is strong in North America and China. Renault is strong in Europe and Latin America. Mitsubishi is strong in ASEAN. It is easy for each of us to complement and support each other. Nissan is curious of our activities in ASEAN. We need to learn how Nissan does business in North America and China. I think we have opportunities to use Renault's expertise in Europe — a market where they are strong. These different companies have different areas where they are strong at. So these are opportunities where we can have synergies and be an even more global company.
IR: What are the indicators that Mitsubishi is doing well in ASEAN?
OM: In ASEAN, Mitsubishi has high market share and high brand image. We have operated in ASEAN for nearly 50 years and it's a big reason why we enjoy a high reputation. In Thailand, we have a big plant and export from there. In Indonesia, we have completed construction of a factory and, next year, will start full capacity production. And in the Philippines, we will start the production of the Mirage G4 next year, with capacity to 50,000 units.
The Philippines has a population of 100M. The average age of Filipinos is much younger compared to Japan and is very stable politically and economically. This indicates room for economic growth and a continued demand for an auto industry. That's why we decided to start in the Philippines. In the future, the cars produced there can be exported outside. We would like to consider that.
IR: You mentioned our country is very stable politically and economically. Do you have confidence in Duterte and his administration?
OM: He attended our ceremony to sign our participation in the Comprehensive Automotive Resurgence Strategy (CARS) program in October 26 and I met him in person. Before I saw him, the Japanese media told me he is a very tough person. But in person he is very nice. He mentioned the contribution to the Philippine economy we created through local production expansion.
MMPC first started investment of about Php4.3B implementing the expansion of the passenger car production line and new stamping plant in Santa Rosa. Production of the Mirage G4 will start in January 2017, followed by the Mirage and the new stamping plant to be completed in January 2018. We want to further expand production capacity in the future and make further investments.
Politically and economically, the Philippines is very stable compared to its neighbors. Even with the change of the president, we don't see a change in the stability of the political and economic aspects.
This CARS program started with the previous administration and now you have Duterte. Some things should be continued through administrations. I don't think the new administration will change this automotive policy. And for the Philippines to be competitive in ASEAN, I hope the government will continue this policy.
IR: Lately, however, there's been talks of taxing new vehicles, and more schemes to prohibit people from using their cars. Will this be detrimental to the Philippine auto industry?
OM: I don't think this tax increase is finalized. This would go against our plans. Maybe a tax benefit on small sized cars could raise the economy. Not simply raising tax on the cars. I hope the government will come up with creative solutions to grow the industry. If the tax is higher, it is harder to sell cars. It is hard to grow the industry in that situation.The auto industry is far-reaching. Employment-wise, it is needed for each country to have this industry.
Different governments have different approaches. In Thailand, when a car is approved as an 'eco car,' they have a tax benefit. The government gives some tax incentive. For a certain period of time, it reduces or charges no corporate taxes for the companies.
Some of these measures are good so long as they fit the market situation of the Philippines. The Philippines is a passenger car market. So for compact passenger cars with good fuel economy, the government should provide support. That should be a good measure. If the volume goes up, then you can export and earn in foreign currency. The Philippines will have more opportunities to earn outside the country. You need to have a long term vision.
Growing the auto industry and making it the key industry of the country requries the government to have a clear vision to make that happen. Thailand and Malaysia have that. Indonesia now realized they are behind the other countries and changed. The Philippines now has a CARS program. Increasing vehicle tax, from our side, I don't think it will help.
IR: What should the government do to keep the positive growth of the auto industry going?
OM: Now, the automotive volume is low. At just 370,000 units a year, that means you can grow. I think it will be over 500,000 in 2020. Then you have a population of 100M people. Usually, we can foresee, you should have 2M units in total demand. That means we need 6 times more cars than today. In Thailand, we sold 1M for a smaller population. If we import most of the cars to meet the demand of 2M units, that would be a big disadvantage for the Philippines. It is definitely better for the country to produce its own.
Under the circumstances, by producing cars in the Philippines, it is hard to reduce cost because the demand is not as high. So we asked the Philippine government to provide some incentive so we can discover the benefits of producing cars in the country. It was realized with the CARS program. That's the starting point. If we can get more parts suppliers in the Philippines and produce more, the CARS program will have more significance. So now that the Phil. government has done this much, it is our responsibility to deliver.
For the industry to be robust, we need a high volume. If the industry produces more, you can reduce cost and create more jobs. Parts suppliers will follow and come into the country. Tax revenue will increase as a result. Having more cars produces a very big ripple effect.
That is why many governments and countries are competing to develop their auto industries. It can create a challenge to established players. The Philippine government should do it fairly. If they don't do that, they will lose to the competition in ASEAN. If you reach a certain scale, the industry can stand alone without support from the government. Until that time, the auto industry will need support.
You should be more confident about your own country. Compared to Japan, you have a much brighter future. Investing in this country is quite natural for our company.