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DaimlerChrysler Withdraws Financial Support from Mitsubishi Motors - 2004-04-23

Japan's fourth largest automaker is having a financial lifeline cut. DaimlerChrysler says it will not give ailing Mitsubishi Motors any more money. There is also speculation that the German-American company plans to sell its stake in the Japanese automaker.

The announcement from DaimlerChrysler, the largest shareholder in Mitsubishi Motors, is a stunning blow for the struggling Japanese automaker, which is believed to need billions of dollars in fresh capital to survive.

The German-American carmaker on Thursday decided not to participate in a capital increase planned by Mitsubishi Motors and to halt its financial support for the company. That throws its reconstruction plans into disarray.

Some media reports say DaimlerChrysler also plans to sell its 37 percent stake in the company, which is Japan's only unprofitable carmaker.

The announcement comes just a week before Mitsubishi Motors was expected to ask shareholders to approve a bailout of nearly $6.5 billion.

Japan's Transport Minister Nobuteru Ishihara on Friday said the pullout by DaimlerChrysler "threatens the existence of Mitsubishi Motors."

Mr. Ishihara says he is ordering sections of the ministry to collect information to determine what action the government might take.

Some companies in the Mitsubishi conglomerate - including one of Japan's largest banks - say they will continue to support the carmaker. Some analysts speculate that Japan's government also might step in to help bail out the company.

Mitsubishi Motors says it is evaluating its situation and will make a public response to the DaimlerChrysler decision soon.

Trade Minister Shoichi Nakagawa is putting the best face on the announcement, which surprised the industry and the government.

Mr. Nakagawa says he expects the Mitsubishi Group, as a major shareholder of Mitsubishi Motors, will work out measures to save the company.

The Tokyo Stock Exchange suspended trading in Mitsubishi Motors' shares after the news. Shares in the automaker had been up about 45 percent so far this year, but plunged eight percent Friday morning before trading was halted.

Mitsubishi Motors' image has been declining at home and aboard. The company recalled two million vehicles in 2000 and 2001. There has not been a major revamp of any of its models since late 2002.

Sales last year fell 26 percent in the U.S. market while competitors such as Toyota and Honda continued to increase their market share to record levels in North America.

DaimlerChrysler bought its stake in Mitsubishi Motors more than three years ago as part of a plan to expand in Asia and become a dominant global carmaker.

Industry analysts say the decision to bail out of the Japanese company will increase calls for DaimlerChrysler's chief executive officer to step down.