Chrysler pulls plug on Mitsubishi

US-GERMAN carmaker DaimlerChrysler today pulled the plug on its loss-making Japanese affiliate Mitsubishi Motors.

DaimlerChrysler, which holds a 37% stake in Mitsubishi Motors, said it would not participate in a critical capital fund-raising to rescue the loss-making Asian group as it could not seal a deal with its other top shareholders.

DaimlerChrysler chief executive Jurgen Schrempp, who earlier this month vowed not to walk away from the ailing Japanese company, is under the cosh and was set to defend his dramatic U-turn today.

But the loss of Mitsubishi Motors will put a severe dent in Schrempp's plan to build a global chain of vehicle makers around its US and German core. Its main brands comprise Mercedes, Dodge, Jeep and Chrysler, and the absence of Mitsubishi will leave a major gap in Asia, among the world's fastest-growing vehicle markets.

The decision came after an extraordinary meeting of DaimlerChrysler's management and supervisory boards.

It surprised Mitsubishi Motors' other top shareholders, three other units of the Mitsubishi conglomerate. Between them they have a 23% stake.

Just weeks ago, Schrempp said: 'When there's a problem with the operating business, we don't change the strategy, we fix it.'

He added, however, that all options remained open for its relationship with Mitsubishi Motors.

At the same meeting on 7 April, Schrempp faced a barrage of calls to quit for his failure to deliver suitable returns and build a robust global business.

Despite the mounting pressure, the board has extended his contract until 2008.

Mitsubishi Motors, the fourth-largest carmaker in Japan and the only one losing money, has been rocked by falling global sales.

In the 12 months to March it made about 1.5m vehicles. Although European and domestic sales increased in the period, there was a far steeper decline in sales elsewhere, principally the US.

DaimlerChrysler's stake in Mitsubishi Motors has been classified as 'discontinued' and the company is looking for a buyer. 'This clearly means separation,' a DaimlerChrysler official told reporters.

Mitsubishi Motors' shares were suspended from trade in Japan today. 'Without financial support from Daimler Chrysler, Mitsubishi Motors' need for debt restructuring has heightened,' said ratings agency Standard & Poor's.