MITSUBISHI MOTORS CORPORATION
Annual Report 2007
Year ended March 31, 2007

Mitsubishi Group Philosophy—Three Corporate Principles

Corporate Responsibility toSociety “Shoki Hoko”

Integrity and Fairness“Shoji Komei”

Strive to enrich society, bothmaterially and spiritually, while
contributing towards the preservation of the global environment.

Maintain principles of transparency
and openness, conducting businesswith integrity and fairness.

International Understanding through Trade“Ritsugyo Boeki”
Expand business, based on an allencompassing global perspective.

Contents
Mitsubishi Motors Corporate Philosophy _____________________ 1
Consolidated Financial Summary ___________________________ 2
Progress in the Mitsubishi Motors Revitalization Plan _________ 3
To Our Shareholders and Stakeholders ______________________ 4
Interview With President Osamu Masuko ____________________ 6
Progress in the First Two Years of
the Mitsubishi Motors Revitalization Plan _________________ 14
Product Development ____________________________________ 16
Technology Development _________________________________ 18
Regional Topics Japan ___________________________________ 20
North America ___________________________ 22
Europe __________________________________ 24
Asia, ASEAN and Other Regions ____________ 26
Quality ________________________________________________ 30
Corporate Governance ___________________________________ 32
Compliance ____________________________________________ 35
Report by Business Ethics Committee _____________________ 36
Environmental Activities _________________________________ 38
Motor Sports ___________________________________________ 40
Organization Structure ___________________________________ 41
Executives _____________________________________________ 42
Financial Section _______________________________________ 43
Consolidated Subsidiaries and Affiliates ____________________ 84
Investor Information _____________________________________ 86

04

On the CoverLaunched first in the North American
market in March 2007, the new Lancer isbased on the product concept of creating a
global sporty sedan that delivers high andwell-balanced levels of safety, comfort andenvironmental performance. In August, thismodel made its debut in Japan as the GalantFortis, and has been followed by successive roll-outs worldwide.
The new Lancer offers quality handlingand response, as well as the kind of driving
experience that defines the Mitsubishi
Motors brand. Its balanced, sophisticatedand sharp design immediately identifies it
as a Mitsubishi Motors sedan and expresses
a feeling of purposefulness and stability.

Forward-looking Statements
This annual report contains forward-looking
statements about Mitsubishi Motors
Corporation’s plans, strategies, beliefs andperformance. These forward-looking statements are based on current expectations,estimates, forecasts and projections about
the industries in which Mitsubishi Motors
Corporation (MMC) operates, as well as
management’s beliefs and assumptions.
These expectations, estimates, forecasts andprojections are subject to a number of risks
and uncertainties that may cause actual results to differ materially from those projected.
Mitsubishi Motors Corporation, therefore,
cautions readers not to place undue relianceon forward-looking statements. Furthermore,
Mitsubishi Motors Corporation undertakes noobligation to update any forward-looking
statements as a result of new information,
future events or other developments.

Mitsubishi Motors Corporate Philosophy

Mitsubishi Motors Corporate Philosophy“We are committed to providing the utmost driving pleasureand safety for our valued customers and our community.
On these commitments we will never compromise.
This is the Mitsubishi Motors way.”

Customer-centric approach
Mitsubishi Motors will give the highest priority to earning the satisfaction of its customers,
and by doing so, become a company that enjoys the trust and confidence of the community at large. To this end, Mitsubishi Motors will strive its utmost to tackle environmental
issues, to raise the level of passenger and road safety and to address other issues ofconcern to car owners and the general public.

A clear direction for the development and manufacturing of Mitsubishi
Motors vehicles
Mitsubishi Motors will manufacture cars that deliver superior driving performance andsuperior levels of safety and durability to give peace of mind to those who use them, andto provide “utmost driving pleasure” and “reassuring safety” to customers.

Going the extra mile
Mitsubishi Motors will pay close attention to even the smallest details in the belief that
this approach will lead customers to discover new value in their cars, giving them a richer
and more rewarding driving experience.

Importance of continuity
Mitsubishi Motors will continue to manufacture distinctive cars with the passion andconviction to overcome all challenges.

1

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Consolidated Financial Summary
For the years ended March 31,

In millions of yen

In thousands of
U.S. dollars

FY2002

FY2003

FY2004

FY2005

FY2006

FY2006¥3,884,874¥2,519,449¥2,122,626¥2,120,068¥2,202,869$18,660,475

82,761(96,852)(128,544)

6,783

40,237

340,849

minority interest

42,206(77,173)(460,906)(82,745)

23,104

195,714

Net income (loss)

37,361(215,424)(474,785)(92,166)

8,745

74,081

In yenIn U.S. dollars

For the year:
Net sales
Operating income (loss)
Income (loss) before income taxes andPer share data:
Net income (loss) per share: Basic
Diluted¥25.35¥(145.22)¥(194.36)¥(19.75)

¥1.59

$0.01

23.43

–

–

–

0.96

0.01

–

–

–

–

–

–

In millions of yen

In thousands of
U.S. dollars

Cash dividends

At year-end:
Total assets
Total net assets¥2,425,352¥2,029,035¥1,589,286¥1,557,570¥1,778,693$15,067,288

280,294

29,972

324,782

268,678

308,304

2,611,640

Notes: 1. U.S. dollar amounts in the accompanying consolidated financial statements are converted, solely for convenience, at a rate of ¥118.05=U.S.$1.00, theexchange rate prevailing on March 31, 2007.
2. In fiscal year 2002, due to a change of accounting period at consolidated overseas subsidiaries, with fiscal year-end date moving from December 31
to March 31, 15-month figures for overseas subsidiaries have been incorporated.
3. The assets and liabilities of truck and bus operations are not reflected in each account because these operations were spun off and subsequently
became an equity-method affiliate of MMC on March 14, 2003. Furthermore, all remaining shares held by MMC had been transferred to otherparties by the end of March 2005.

Net Sales

Operating Income (Loss)Net Income (Loss)(¥ billion)(¥ billion)(¥ billion)

4,000

90

100

60

0

30

3,000

-100

0
2,000

-200

-30
-60

1,000

-300

-90
-400

-120
0

-150
02

03

04
Actual2

05

06

07 (FY)
Plan

-500
02

03

04
Actual05

06

07 (FY)
Plan

02

03

04
Actual05

06

07 (FY)
Plan

Consolidated Financial Summary / Progress in the Mitsubishi Motors Revitalization Plan

Progress in the Mitsubishi Motors Revitalization PlanThousand units
FY2005 (Actual)

FY2006 (Actual)

FY2007 (Target)*1

Retail Sales

1,344

1,230

1,323

Japan

257

247

250

North America

156

164

176

Europe

267

282

316

Asia and Other Regions

664

537

581
In billions of yen

Performance
Net sales¥2,120.1¥2,202.9¥2,430.0

Japan

504.1

506.0

580.0

North America

415.7

423.6

440.0

Europe

586.2

662.8

730.0

Asia and Other Regions

614.1

610.5

680.0

Operating income (loss)
Japan

6.8

40.2

51.0

(55.3)(43.8)(20.0)

North America

(7.2)

0.6

(14.0)

Europe

24.4

42.6

43.0

Asia and Other Regions

44.9

40.8

42.0

(92.2)

8.7

20.0

Net income (loss)
Balance Sheet
Cash and bank deposits

259.0

358.1

–

1,557.6

1,778.7–

Interest-bearing debt

447.8

503.8

–

Total net assets*2

281.3

308.3

–

Total assets

Cash Flow(46.8)

116.4

Cash flow from operating activities

54.4

162.3

–

Cash flow from investing activities(84.8)(46.0)–Cash flow from financing activities(19.0)(11.3)

–

2.6

11.3

–

Effect of exchange rate changes on cash and cash equivalents*1 Fiscal year 2007 targets as per April 26, 2007 announcement.
*2 Following revision of the Corporate Law in Japan, effective from fiscal year 2006 the “Stockholders’ Equity” section of the balance sheet has been replaced with “Net Assets”
to more appropriately reflect a company’s financial position, including its ability to satisfy its financial obligations. Under this revision, “Assets” and “Liabilities” on thebalance sheet represent accounts with the characteristics of either assets or liabilities, respectively, while “Net Assets” represents all other items, i.e. the difference between
the two. Figures as of March 31, 2006 have been adjusted to conform with the “Net Assets” presentation of the balance sheet.

Total Assets

Retail Sales(¥ billion)(Thousand units)

2,500

2,000

2,000

1,500

1,500
1,000
1,000

 OEM
500

500
0

0
02

03

04

Actual05

06 (FY)

02

03

04
Actual05

06

07 (FY)
Plan(Nissan Motor Co., Ltd.,PSA Peugeot Citroën) Asia and Other Regions
 Europe North America
 Japan3

MITSUBISHI MOTORS CORPORATION Annual Report 2007

To Our Shareholders and Stakeholders
Under the three-year Mitsubishi Motors Revitalization Plan unveiled on January 28, 2005
and covering fiscal years 2005 to 2007, all corporate officers and employees of the MMC
group have been working as one to regain customer trust and improve earnings.
We are delighted to report that MMC achieved its goal of restoring net profitability infiscal year 2006, the plan’s second year. Measures such as launching new models, strengthening sales capabilities, enhancing productivity, and cutting costs across the Company
have been behind this improvement. In these and other ways, we are seeing MMC’s revitalization gain stronger momentum by the day.

4

Takashi Nishioka

Osamu Masuko

Chairman of the Board

President

To Our Shareholders and Stakeholders

The main points of MMC’s performance in fiscal
year 2006 were as follows:
1. Net Profitability Restored
In fiscal year 2006, MMC reported worldwide sales
volume of 1,230,000 vehicles, down 8.5% year on
year. Despite this, net sales increased 3.9% to¥2,202.9 billion, mainly underpinned by a bettermodel mix and the favorable impact of a weakeryen. Helped partly by the benefits of improved profitability in North American sales financing operations and a concerted cost-cutting drive by all
corporate officers and employees, MMC reported
profitability at all levels. Operating income rose
¥33.4 billion year on year to ¥40.2 billion and net
income improved ¥100.9 billion to ¥8.7 billion.
This was the first time in four fiscal years that MMC
has recorded a net profit.

2. High Capacity Utilization at Domestic Production Facilities
In December 2006, MMC transferred some production of the Outlander model from the Mizushima
Plant to the Okazaki Plant in response to strong salesof this model. With this move, the Okazaki Plant
resumed two-shift production for the first time in 32
months. In addition, two-shift production at consolidated subsidiary Pajero Manufacturing Co., Ltd. commenced in October 2006 following the launch of the
new Pajero and Delica D:5 models. All MMC domestic production facilities now have high capacity utilization, including the Mizushima Plant, where
capacity utilization rates have remained high. This
trend is expected to continue in fiscal year 2007.

3. Continued Creation of Attractive Automobiles
Under the Mitsubishi Motors Revitalization Plan, MMC
has actively brought to market many global strategic
vehicles, including the Outlander, Triton (L200),
Pajero and Lancer models.
Moreover, in the Japanese market, the i minicar
has received some 20 prestigious awards. Notably,
the i, which went on sale in January 2006, wasnamed the RJC Car of the Year 2007. This model
was also ranked as the most appealing mini-car
model in Japan in the 2006 Japan Mini-Car Automotive Performance, Execution and Layout (APEAL)
Study and took first place in a tie in the 2006 Japan
Mini-Car Initial Quality Study (IQS); both on research by J.D. Power Asia Pacific, Inc. The i has
thus garnered a strong market response.
Following the launch of the 4WD Delica D:5 inJanuary 2007 in Japan, MMC rolled out a 2WD version of this model in May. And August 2007 saw thelaunch of the Galant Fortis (Lancer in overseas markets), our first new sedan in seven years in Japan.
Starting with the all-new Lancer Evolution highperformance 4WD sedan, MMC will continue to create attractive automobiles that have the signaturefeatures of Mitsubishi-brand vehicles, as it works
to enhance the image of the Mitsubishi Motors
brand in markets around the world.
In fiscal year 2007, the final year of the
Mitsubishi Motors Revitalization Plan, MMC will
work to achieve the plan’s goal of building solid
profitability. To this end, while carefully monitoring changes in a challenging operating climate, wewill work to ensure that we steadily enhance ouroperations. We are projecting worldwide sales
volume of 1,323,000 vehicles in fiscal year 2007,
an approximate 7% increase from fiscal year 2006,
based on the roll-out of global strategic models inmarkets worldwide. We are working to continue expanding earnings by increasing retail sales and also
by actively increasing OEM supply volumes. Furthermore, in the Japanese market, where overall
demand remains weak, we are rebuilding our sales
networks through such measures as consolidating
sales companies over large areas and will implement profitability-focused sales strategies.
We will formulate our mid-term management plan
during fiscal year 2007. The next plan is positioned
as a stage for establishing a foundation for sustainable growth in the future. We have already begun
considering goals for each business and various initiatives to achieve them. All corporate officers andemployees will roll up their sleeves to put thefinishing touches on the Mitsubishi Motors Revitalization Plan, so that we can move on to the nextstage of growth with renewed confidence when announcing the next plan.
September 2007

Takashi Nishioka
Chairman of the Board

Osamu Masuko
President

5

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Interview With President Osamu Masuko
Progress and Future Direction of the Mitsubishi Motors
Revitalization Plan
Fiscal year 2006 marked the end of the second year of the Mitsubishi Motors
Revitalization Plan announced in January 2005. In this section, President Masuko
shares his perspective on the past two years at the helm of MMC and his ambitions
for the future as MMC enters the final year of the plan.

Q1. First, please tell us about conditions infiscal year 2006.
drove up costs substantially. We have seen a particularly strong surge in prices of the non-ferrous
metals essential to the production of automobile
components, such as copper, aluminum, and lead,
not to mention steel. Because these materials aremostly imported into Japan, the weaker yen further
inflated materials costs.
Looking at sales by region, there were both posi-

A. One significant accomplishment in fiscal year

6

tives and negatives. We need to pursue policies that
fit market characteristics and the condition of our busi-

2006 was to report profitability at all levels: operat-

ness in each market. In markets that include manying income, ordinary income and net income. Achiev-

resource-rich countries and regions, such as Russia,

ing net profitability in the plan’s second year was a

the Ukraine, Central and Eastern Europe, the Middle

major goal of the plan, so it’s a satisfying outcome.

East and Latin America, demand for automobiles was

But we must keep in mind that profitability in a single

much greater than expected. In addition, sales bot-fiscal year is just a milestone. It is important to care-

tomed out in fiscal year 2006 in the North American

fully examine this outcome and apply what we learn

market, where we have been trying to normalize sales,

to future business activities. Fiscal year 2006 madeand we are seeing signs of recovery in our operations

us realize just how difficult it is to accurately antici-

in this region. On the other hand, growth in China

pate market conditions.

and the ASEAN markets does not promise to be as

MMC conducts business worldwide. We mustlarge as we first expected when we formulated thetherefore analyze changes that could affect the global

Mitsubishi Motors Revitalization Plan. However, we

economy and their impact on each of our markets.

will move forward in these regions through sales ini-

Based on this analysis, we must gauge the impact

tiatives that put the strong reputation of the Mitsubishion our businesses and carefully consider our nextMotors brand front and center. One remaining issue

strategy. For example, exchange rate movements andis the Japanese market. Japan’s mature market norising prices of crude oil and other resources are

longer offers any prospects for expansion. We areclosely linked in a complex manner. The yen’s de-therefore shifting the emphasis of our management

preciation worked in favor of our sales. However, thepolicy from unit sales to profitability, as we continue

weaker yen led to higher raw materials prices, andto monitor conditions carefully.

Interview With President Osamu Masuko

Q2. What have you achieved over the past two years
under the Mitsubishi Motors Revitalization Plan?
A. One success has been the development of new

scandal of 2004. Today this experience motivatesmodels on schedule and the rollout of attractive new

all employees to work with a shared sense of tension

models in line with the Mitsubishi Motors Revitaliza-

and urgency. I have seen significant progress overtion Plan. Particularly noteworthy were the Outlander

the past two years particularly in our focus on built-

and i models, which have won high marks. We havein quality, increasing response speeds on productclearly seen MMC win the support of numerous cus-

issues and enhancing service from the customer’s

tomers, and this has greatly encouraged MMC em-

perspective. However, winning back customer con-ployees. Furthermore, the new Lancer model, which

fidence is an ongoing process. I feel that we still

was launched first in North America in March 2007,

need to more properly identify customer needs andhas made a strong start. I have high hopes for thisreflect them in products and the development as-model to fuel our comeback in the North American

pects of our operations.

market. Another achievement of the plan has been

As a senior executive, I believe it is crucial to

the success of so-called global strategic models, in-continuously build on the first two years of the Re-

cluding not only the models I just mentioned, but

vitalization Plan. The auto industry is fiercely com-also the new Pajero and Triton (L200), which is pro-petitive, and management must constantly share a

duced in Thailand and exported to more than 140

strong sense of urgency with employees as we con-countries, including European nations.

tinue to tackle challenges.

The change in the mindset of employees has been
just as significant. MMC employees faced extremely
painful and trying circumstances during the recall

7

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Q3. Conversely, what issues still remain?

A. For starters, I feel that we have yet to fully
rationalize some aspects of our business operations,although we have generally made significant progresson this front under the plan. Overcapacity in production on a company-wide level is one issue.
However, I believe the decision to continue production at the Okazaki Plant, where we had planned
to stop production, was correct, although this decision will not in itself reduce overcapacity in production. By transferring part of Outlander production
from the Mizushima Plant to the Okazaki Plant, wewere able to flexibly respond to a potential production shortfall in domestically produced vehicles relative to demand. The Okazaki Plant now has higher
capacity utilization as an Outlander production facility. Similarly, higher capacity utilization wasachieved at Pajero Manufacturing Co., Ltd., in response to strong sales of the newly launched Pajero
and Delica D:5 models. Also, I’m pleased to see that
overall capacity utilization rates remain high at theMizushima Plant, where capacity utilization has
always been high, and at our plant in Thailand, whichis responsible for Triton (L200) production.
However, the Illinois Plant in the U.S. still remains
in one-shift production, despite having begun exportsof the Galant model. Capacity utilization remains low
at Netherlands Car B.V. (NedCar) in Europe following the termination of smart forfour production inJune 2006, and at our plant in Australia. In regards
to these production facilities, I want to further optimize our global production network in the next midterm management plan.
Improving operations in the Japanese market isanother pressing issue. We have been trying to do
so in many ways over the past two years. However,
the market has a high level of saturation and is experiencing slower growth in overall demand. Japan’s
8

aging society with fewer births is partly responsible.
I also believe that the younger generations’ waninginterest in automobiles is another significant factor.
Against this backdrop, as the overall domestic market
continues to contract in year-on-year terms, I don’t
believe it will be easy to enhance business prospects
by merely pursuing our existing strategy of improving market share through attractive products and services. It is imperative for us to pursue a strategy thatassumes further contraction in demand. For example,
we must further reorganize and rebuild our sales anddistribution networks so that they match the size ofthe market. So far in fiscal year 2007 we have rebuilt our sales networks. By July 2007, MMC had
integrated its 29 consolidated sales companies nationwide into five companies. In regards to its autoparts sales network, MMC also integrated its nine
auto-parts sales companies into three companies.
Through these measures, MMC has simultaneously
reinforced sales capabilities and fundamentally revamped its business structure. In conjunction withrebuilding its sales network, MMC plans to carry out
a dealership renovation and relocation program. We
also plan to increase the number of mega-dealerswith more floor space in order to attract customers
spread out over larger areas.
Furthermore, in Japan, we adopted a sales policyof emphasizing profitability over unit volume. Basedon this policy, in fiscal year 2007, we aim to improve profitability by enhancing the ratio of new registered vehicles*1 to total retail sales through thelaunch of new models. These include the Delica D:5model and the all-new sedans Galant Fortis*2 andLancer Evolution X.
*1 Models other than minicars*2 Export model name: Lancer, Lancer EX

Lancer Evolution X

Interview With President Osamu Masuko

Q4. What are your future growth strategies foroverseas markets?
A. We will continue to actively expand business in

In India, MMC has so far developed businessmarkets where we can demonstrate MMC’s strengths.

mainly through the local production of Mitsubishi

MMC currently enjoys extremely strong sales invehicles by local partners. Going forward, we willgrowing markets, mainly Russia and the Ukraine.

actively roll out finished vehicles from Japan andOther markets with strong sales are Central and

Thailand as a means of augmenting our model

Eastern Europe, the Middle East and Brazil. Theselineup. In June 2007, we launched the new Montero

markets will collectively drive global economic(Pajero) in India. We aim to have the Outlander andgrowth, and are projected to continue to grow forother core models successively follow suit.

some time yet. We therefore intend to focus on increasing sales further in each market.
I believe that one major asset of MMC is its steadily

In Brazil, there is growing demand for flex-fuelvehicles (FFVs) that run on gasoline, ethanol orvarious combinations of these fuels. In July 2007,

expanding retail sales in Russia and the Ukraine,

the locally produced Pajero TR4 Flex FFV went onunderpinned by a strong reputation in each market

sale. This model became Brazil’s first true 4WD FFV.

testified by the fact that its products have received
Car of the Year*3 and other awards. Efforts in thesemarkets will remain focused on deepening ties withlocal partners and actively rolling out mainstay models
such as the Outlander and the new Lancer.

*3 The Lancer model received the Car of the Year Award for 2006
(C Segment; compact car) in Russia for the second straight year,
winning in a popular vote held by five well-known magazines in Russia.
In the Ukraine, the Colt CZ3 won the Car of the Year Award for 2006
(best small car segment) in a vote held by several of the country’s
automobile magazines.

In China, our three priority businesses are local
production, imports of finished vehicles from Japan,
and engine production. Efforts are also focused on
stepping up the adoption of locally produced,
Mitsubishi Motors-brand vehicles, mainly by increasing investments in local companies. In addition to

Pajero production at Hunan Changfeng Motor Co.,
Ltd. (CFA), full-scale production of Mitsubishi-brandvehicles including Galant began at South East
(Fujian) Motor Co., Ltd. (SEM).
Lancer has won Car of the Year in Russia for two years running

Colt CZ3

9

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Q5. So you don’t expect much growth outside thesegrowing markets then?
year 2006, having increased for the first time in fivefiscal years during the past fiscal year. Measures tonormalize fleet sales and reduce large sales incentives are beginning to produce results. Furthermore,favorable sales in the U.S. have been fueled by efforts to rebuild trust with dealerships, implement
efficient marketing activities, and conduct steadyadvertising campaigns, not to mention strong salesof the new Lancer model. With the new Outlander

A. Mature markets do not promise the same large

and Lancer models also performing well in Canada,

growth as the BRIC*4 countries and other newly

MMC’s overall performance is improving in North

industrializing countries. However, there is much that

America. Our remaining priorities in the U.S. are to

we should—and must—do to open up more businessgrow retail sales of locally produced vehicles andopportunities in mature markets. For example, inboost the productivity of local production facilities.

Western Europe, MMC has been supplying SUVs to

Of the vehicles produced at the Illinois Plant, the

PSA Peugeot Citroën since May 2007. The projected

sporty Eclipse coupe has been selling well, but sales

supply of 30,000 vehicles in the first fiscal year isof the mainstay Galant and Endeavor models haveexpected to make a large earnings contribution.

been less than satisfactory. Going forward, we hope

In the U.S., total automobile demand has been
declining year on year. Restoring sales growth in theto regain momentum by launching special editionsof locally produced vehicles.

world’s largest auto market has been a priority for
MMC. In this challenging environment, we believethat our U.S. retail sales finally bottomed out in fiscal

Lancer (North American specification)

10*4 Four countries (Brazil, Russia, India and China) experiencing rapid
economic development.

EclipseInterview With President Osamu Masuko

Q6. Developing products that respond to global environmental issues is seen as a precondition for survival in
the automobile industry. What actions is MMC taking
on this front?
A. Our top priority is to press ahead with the de-Turning to engines, MMC and Mitsubishi Heavy

velopment of the MiEV (Mitsubishi innovative ElectricIndustries, Ltd. are jointly developing 2-liter class

Vehicle). This next-generation electric vehicle is thenext-generation diesel engines. Plans call for bring-embodiment of the ultimate eco-friendly vehicle—

ing forward mass production by one year to the start

one that emits no CO2 whatsoever while in use.

of 2009 in order to successively launch these

Driving tests of the i MiEV research vehicle, which

engines in various markets beginning with Europe,is based on the i minicar, are already under way fol-where there is strong demand.

lowing delivery of this vehicle to several domestic

With regard to the aforementioned FFV launchedelectric power companies. Meanwhile, we are alsoin Brazil, we are accelerating development activi-

carrying out joint research into rapid recharging sys-

ties with the aim of putting an FFV on the U.S.

tems and in other fields. Furthermore, MMC has

market by the end of 2009.

decided to join forces with Mitsubishi Corporation
and GS Yuasa Corporation, which is strong in large
lithium-ion batteries, to establish a three-way joint
venture to manufacture lithium-ion batteries for use
in electric vehicles. Steady progress is being madetoward our goal of bringing the i MiEV model to theJapanese market by 2010. We also plan to roll out
this vehicle in target markets worldwide. In doing
so, I’m confident that we can contribute to society
with our technology and products.

i MiEV

Handover ceremony for the i MiEV research vehicle to TEPCO

Press conference announcing joint venture with GS Yuasa Corporationand Mitsubishi Corporation

11

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Q7. What is your vision for MMC after the Mitsubishi
Motors Revitalization Plan?
Looking at the global auto industry, MMC does
not have an advantage in terms of size. For a company of our size to prevail in this fiercely competitive industry, it is crucial for us to provide high levelsof quality and customer satisfaction through distinctive technologies and products. I’m convinced that
MMC has the strengths to succeed as a global
automaker, based on its proven technological capabilities, excellent personnel and more. We currently

A. First, I want to continue to implement manage-

do not have any equity-based alliances in mind, but

ment reforms on an expanded scale. We must pur-

we intend to actively form “win-win” alliances onsue continuous structural reforms as we respond one

the level of individual projects.

by one to the issues we couldn’t address during theWhat we need now is a stronger determination to

Revitalization Plan. Other issues, such as improving

prevail against the competition in markets around

quality, strengthening compliance and dealing withthe world. I want to see MMC become an automakerenvironmental issues, are perennial themes. At thethat provides the utmost driving pleasure and safety

same time, we must have the flexibility to respondfor our valued customers and builds environmentallyproperly to ever-changing market requirements infriendly automobiles at the world’s highest levels.

each country.
On the other hand, I believe our mid-term management plan will start from a stronger base than
before. Looking back, the Mitsubishi Motors Revitalization Plan was formulated at a time when the company faced extremely dire circumstances. In thissense, the plan was premised on limited funds andother constraints on management resources. Moreover, because our priority was to resolve quality andother urgent issues, it was difficult to plan from a
broader, longer-term perspective. By achieving thefinal-year targets of the Mitsubishi Motors Revitalization Plan, we hope to formulate a new plan that envisions sustained growth underpinned by the strong
foundation we have built over the past three years.

12Interview With President Osamu Masuko

Top Management(As of June 30, 2007)

1. Takashi Nishioka
Chairman of the Board

10

8
3

6
1

2. Osamu Masuko

7

5
2

9

11

President
Chief Business Ethics Officer

4

3. Heki Kasugai
Executive Vice President
In Charge of Corporate Planning,
Product Strategy, Environment
Affairs & Corporate Affairs Group
Headquarters

7. Norio Aoki
Managing Director
In Charge of Procurement Group
Headquarters

8. Hiroshi Harunari
Managing Director
President & CEO–Mitsubishi Motors
North America, Inc.

9. Tetsuro Aikawa
Managing Director
In Charge of Product Development
Group Headquarters

4. Hiizu Ichikawa
Managing Director
In Charge of Finance Group
Headquarters

5. Fujio ChoManaging Director
In Charge of Domestic Sales
Promotion Group Headquarters

6. Makoto Maeda
Managing Director
In Charge of Production Group
Headquarters

10. Mitsuo Hashimoto
Managing Director
In Charge of Quality Affairs &Technical Aftersales Service Group
Headquarters

11. Kazuyuki Kikuchi
Managing Director
In Charge of Overseas Operations
Group Headquarters
Corporate General Manager of
Oceania, Latin America, Middle
East and Africa Office

13

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Progress in the First Two Years of
the Mitsubishi Motors Revitalization Plan
Under the Mitsubishi Motors Revitalization Plan, the company aims to rapidly revitalize its
business based on two priorities: restoring trust and improving earnings. The company has
steadily implemented each of the plan’s initiatives, and is pleased to report that it restored
net profitability as planned in fiscal year 2006, the second year of the plan. This is theoutcome of a concerted effort by all corporate officers and employees of the MMC Group to
restore trust in Mitsubishi Motors from a customer-first perspective and improve all aspectsof the business, from development to production and sales.
MMC’s specific achievements over the past two years were as follows:Global Model Roll-outs Based on New-generation Platform

Outlander (North American specification)

MMC has been introducing global models based on a common newgeneration platform in various markets. The first roll-out was of the
Outlander in Japan in fiscal year 2005, followed in fiscal year 2006
by models for North America, Australia, Europe, and China. MMC began
supplying new SUV models based on the Outlander to PSA Peugeot
Citroën in fiscal year 2007 as scheduled.
In March 2007, MMC launched a new sedan* that shares the same
platform as the Outlander first in North America. The company plans
to follow up with roll-outs in Europe, Japan, and other regions.
In addition, there are two other models based on the same platform: the Delica D:5, which went on sale in Japan in January 2007,
and the Lancer Evolution, a new-generation high-performance 4WD
sedan to be launched in Japan from fall 2007.
*Sold as the Lancer overseas and Galant Fortis in Japan

High Capacity Utilization Rates at Domestic Production
Facilities
In December 2006, MMC transferred part of Outlander production at
the Mizushima Plant to the Okazaki Plant. Since April 2004, theOkazaki Plant had been carrying out one-shift production, and at one
point, we had decided to stop mass production there. However, withthe start of Outlander production, the Okazaki Plant moved to twoshift production for the first time in 32 months, becoming once again
a major production base for MMC. Furthermore, at consolidated subsidiary Pajero Manufacturing Co., Ltd. two-shift production began in
October 2006 following the start of production of the new Pajero and
Delica D:5 models. Likewise, capacity utilization remains high at theMizushima Plant following the start of production of the new Lancer
model. Currently, all domestic production facilities have high overall
capacity utilization rates, and this high capacity utilization is expected
to continue in fiscal year 2007.

14

Production line at Mizushima Plant

Progress in the First Two Years of the Mitsubishi Motors Revitalization Plan

Launch of “i ” Minicar
Launched in January 2006 in Japan, the new i minicar has received
wide acclaim from all quarters of the market. The minicar’s successhas greatly accelerated our pace of recovery.
By employing a rear midship layout, where the engine is mounted
toward the rear of the vehicle, MMC was able to achieve three major
breakthroughs in this minicar: combining innovative design and comfortable interior space; all-directional impact safety; and combining agile
handling and a quality ride. These features have won the i multiple
awards since its launch. The i also ranked highest in appeal to minicar owners in Japan and tied for first place in mini-car initial quality inJapan in studies conducted by J.D. Power Asia Pacific, Inc., an international organization specializing in customer satisfaction studies.*

CAR OF THE YEAR 2007

CAR OF THE YEAR JAPAN 2006-2007“Most Advanced Technology” Special Achievement Award* Source: J.D. Power Asia Pacific 2006 Japan Mini-Car Initial Quality StudySM and J.D.
Power Asia Pacific 2006 Japan Mini-Car Automotive Performance, Execution and Layout StudySM. Studies based on a total of 3,164 responses from owners of new passenger mini-cars whose ownership is from the first two to seven months. Initial quality ismeasured based on problems experienced by owners, and owner satisfaction is measured about their vehicle’s performance and design. www.jdpower.co.jp

Good Design Grand Prize 2006

2006 Most
Appealing
Mini-Car *2006 Best Mini-Car
in Initial Quality
in a Tie *Progress With New-generation Electric Vehicle
Developmenti MiEV layout

MMC is pressing forward with the development of the Mitsubishi innovative Electric Vehicle (MiEV), with the aim of bringing this newgeneration electric vehicle to market by 2010. As part of thedevelopment process, the company has produced the i MiEV researchvehicle. Based on the i minicar, this research vehicle is fitted withhigh-performance lithium-ion batteries and a compact and lightweightmotor. Since November 2006, the company has been conducting joint
research with electric power companies. Tokyo Electric Power Co.,
Ltd. and Kyushu Electric Power Co., Ltd. each received one researchvehicle in March 2007; Chugoku Electric Power Co., Ltd. also received
one in June 2007. MMC is now testing performance under actual driving conditions and conducting fleet monitoring to verify the marketability of the vehicle.

Promoting Our OEM Strategy
MMC is actively pursuing an OEM strategy to diversify its earnings
streams and to make more effective use of its production facilities. In
2003, MMC began producing the Minicab, a commercial minicar, for
Nissan Motor Co., Ltd., and added the eK Wagon, another minicar, in2005. The company also signed an agreement with Nissan Motors in
April 2007 to expand the range of models that MMC would supply on
an OEM basis.
Starting in fiscal year 2007, MMC has been producing new SUV
models for PSA Peugeot Citroën. Total shipments of approximately
30,000 units are planned for this fiscal year. Based on our strong
collaborative framework with PSA Peugeot Citroën, we already havean agreement to source PSA Peugeot Citroën diesel engines for use in
our SUV models.

eK Wagon

15

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Product Development
Accelerating Expansion of Global Models

two other models based on the Outlander platform:

Under the Mitsubishi Motors Revitalization Plan,

the Delica D:5, which is the latest model in the

MMC is expanding sales of global models based on

Delica series and went on sale in Japan in January

a common new-generation platform. The first such

2007, and the Lancer Evolution new-generation high-model, the Outlander, has been highly popular in

performance 4WD sedan to be launched in Japan invarious markets around the world. It was launched

the fall of 2007.

in Japan in fiscal year 2005, followed in fiscal year

* Sold as Lancer in overseas markets

2006 by accelerated initiatives to expand sales globally through roll-outs in North America, Europe,
Australia, and China. In fiscal year 2007, the Com-

Progress With Environmentally Friendly
Technology

pany began production of a new SUV based on the

One of MMC’s top product development priorities is

Outlander for PSA Peugeot Citroën. This move isto develop environmentally friendly technologies sogeared to promoting the global development of thethat people can live in harmony with nature and leave

Outlander model without relying only on expandinga healthy natural environment for future generations.

sales regions. The Company expects to supply ap-

Fuel-efficient, new-generation clean diesel en-

proximately 30,000 units of this new SUV to PSA

gines are seen as a promising means of mitigating

Peugeot Citroën in fiscal year 2007.

global warming. Joint development of these engines

In March 2007, the new Lancer sedan, whichby MMC and Mitsubishi Heavy Industries, Ltd. isshares the same platform as the Outlander, went on

already under way. Plans call for bringing thesesale first in North America. After the launch of thisengines to market one year earlier than scheduled

model in Japan in August as the Galant Fortis *, plans

in 2009. Beginning in Europe, where demand forcall for the launch of this model in Europe and otherclean diesel engines is growing, we will successively

regions in fiscal year 2007. In addition, there arelaunch these engines in other markets.

Global expansion of new-generation platforms

Galant Fortis*
Outlander

New-generation
platform
Lancer Evolution* Lancer in overseas markets

16

Delica D:5

Product Development

MMC is also developing flex-fuel vehicles (FFVs)

highly popular for its unique design, and began joint

in response to the use of increasingly diverse fuels

research into this vehicle with Japanese electricworldwide. In July 2007, MMC rolled out an FFV in

power companies in November 2006. Based on theBrazil that runs on gasoline, ethanol or any combi-

use of these vehicles by electric power companies,

nation of the two. Development of an FFV for the

MMC is gathering and analyzing driving data, verify-

U.S. market is also under way, with the aim of aing compatibility with rapid recharging infrastruc-roll-out within fiscal year 2009. In the future, MMC

ture, and conducting other research aimed atalso plans to successively introduce FFVs in otherpromoting future uptake of electric vehicles.

markets where there is strong demand.

In May 2007, MMC began concrete discussions

By 2010, MMC also plans to roll out thewith GS Yuasa Corporation and Mitsubishi Corpo-

Mitsubishi innovative Electric Vehicle (MiEV). Thisration on establishing a joint venture to manufac-

new-generation electric vehicle is the ultimate eco-ture large capacity and high performancefriendly vehicle—one that emits no CO2 emissions

lithium-ion batteries that can be used in electricwhatsoever while in use. MMC developed the i MiEV

vehicles. The partners aim to establish the joint

research vehicle based on the i minicar, a model

venture within 2007.

i MiEV (Joint research vehicle with various electric power companies)

The Pajero TR4 Flex, a flex-fuel vehicle (FFV), launched in Brazil

17

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Technology Development
New Vehicle Dynamics Control Technologies S-AWC and Twin Clutch SST
The Ultimate Vehicle Dynamics Control Technologies
That Realize Our Corporate Philosophy

In line with its corporate philosophy, MMC is pursuing priority R&D activities reflecting the three aspects of the company’s vehicle strategy: utmost
driving pleasure, reassuring safety, and responsibility to the environment.

Utmost driving
pleasure

True to this philosophy, MMC has developed many
distinctive automobiles, including the Outlander
SUV, which offers sporty driving performance em-

Intuitive driving performance

Swift gear shifting

bodying driving pleasure and safety; the Pajero epitomizes safety; and the Delica D:5 incorporates SUV
functionality into a minivan and ensures safety. In

Outstanding stability

Corporate
Philosophy

High efficiency andgood mileage

terms of responsibility to the environment, MMC iscurrently developing clean diesel engines and the i

MiEV electric vehicle, while launching a flex-fuelvehicle (FFV) based on the Pajero iO in Brazil that

ReassuringsafetyResponsibility to
the environment

can run on any mixture of ethanol and gasoline.

Active Yaw Control
Active Center Differential

Realizing intuitive handling and outstanding stability by reflecting driver intentions in real time; reading and maximizing drive torque and braking force
at each wheel using an electronic control system
Features• Integration of ACD, AYC, Sport ABS and active stability
control (ASC) based on an 4WD system to maximize
drive torque and braking force at each wheel.
• Sensors detect steering angle, braking pressure, fore, aft,and lateral acceleration, yaw rate and other factors to precisely grasp driver intentions and driving conditions.

Active Stability Control

Anti-lock Brake System

18Technology Development

Against this backdrop, MMC unveiled two new

TC-SST will feature in the Lancer Evolution, new-technologies in July 2007. The first is Super All

generation high-performance 4WD sedan due to be

Wheel Control (S-AWC), one of the world’s first in-launched from the fall of 2007. Plans call for widely

tegrated vehicle dynamics control technologies topromoting TC-SST as a key environmentally friendly

control drive torque at each wheel. S-AWC was de-technology in combination with clean diesel engines.

veloped to allow drivers to safely and intuitively control their vehicles in any weather or road condition.
S-AWC realizes both driving pleasure and safety at
the highest levels.
The second is Twin Clutch Sports Shift Transmission (TC-SST) technology. This enables an ideal,
highly efficient automated manual transmission thatuses two clutches and hydraulic controls to smoothlyand swiftly shift gears while boosting mileage.
Enshrined in TC-SST are two of MMC’s goals: driving pleasure and responsibility to the environment.

Lancer Evolution

Combining the economy and enjoyment of a manualtransmission with the easy driving characteristics ofan automatic transmission
Features• TC-SST lets drivers shift gears without using a clutch
pedal.
• Enables swift and smooth gear shifting through the
adoption of a double wet-clutch mechanism.
• Returns better fuel mileage than an automatic transmission by realizing power transmission efficiencies on
par with ordinary manual transmissions.

19

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Regional Topics
Japan

Initiatives in Fiscal Year 2007

In the Mitsubishi Motors Revitalization Plan, thecompany positions Japan as one of its most important markets. Ongoing efforts are being made to
restore and strengthen the Mitsubishi Motors brand.
These include rolling out attractive new models, increasing sales volume by reinforcing the sales capabilities of distributors and providing high-quality
services, and actively conducting sales promotions.

Overview of Fiscal Year 2006
Retail sales in the Japanese market totaled
247,000 units in fiscal year 2006, decreasing
3.9% year on year. In a challenging domestic climate where automobile demand fell 4.3% from theprevious fiscal year, MMC steadily improved its
performance, delivering higher year-on-year salesin Japan for 19 consecutive months throughNovember 2006. Supporting this performance was
the launch of the new eK series in September 2006
and the new Pajero model the following month.
However, due to increasingly challenging market
conditions in Japan, total sales for the full fiscal
year were largely on par with the drop in total domestic automobile demand. Despite these circumstances, the Delica D:5 model launched in January
2007 made a strong start, posting cumulative salesof 9,188 units through March 31, 2007, nearly
double the targeted sales for the same period.
As a result, Japanese sales in fiscal year 2006
rose 0.4% year on year to ¥506.0 billion. However,while there was an improvement of ¥11.5 billion
from the previous fiscal year, an operating loss of¥43.8 billion was recorded.

In fiscal year 2007, MMC is targeting Japaneseretail sales of 250,000 units. This target is basedon the launch of two new sedan models and special editions of current models. The sales volume
target is only slightly higher than the previous fiscal year. Amid increasingly challenging market conditions, this reflects a large shift in our sales policy
from increasing sales volume to an emphasis on
profitability. The FY2007 policy has three priorities: increase profits from new vehicles by enhancing the ratio of registered vehicles to total sales;
accelerate the rebuilding of our sales network; andreinforce after-sales services.

•Sales Strategies Focused on Profitability
In fiscal year 2007, MMC will launch two new sedan
models: the Galant Fortis and Lancer Evolution X.
We will actively approach customers currently driving Mitsubishi-brand sedans, as we continue to conduct the Mitsubishi Mitekara Campaign. Linked with
the MMC corporate Web site, this campaign is designed to win over a broader range of customers.
Through these and other initiatives, we aim to encourage more customers to visit MMC dealerships.
In the run-up to the launch of these new sedans,
MMC rolled out two new special editions of the popular 4WD Delica D:5 model in May 2007. These werethe 2WD C2, and the ROADEST version featuring
an aero body kit. Our goal is to make the Delica D:5
a long-selling model along with the Pajero andOutlander in the SUV category, where MMC is strong.
This move reinforces our lineup of registered vehicles
in both the SUV and sedan categories as we work toincrease the ratio of registered vehicles in our total
sales volume in Japan.

Net Sales

Operating Loss

Retail Sales(¥ billion)(¥ billion)(Thousand units)

600

0

300

500

–20

250

400

200
–40

300

150
–60

200

100
–80

100
0

50

–100
04

05

06

07
Plan*

(FY)

0
04

05

06

07

(FY)

04

05

Plan*

*MMC revised targets for fiscal year 2007 when it released fiscal year 2006 full-year financial results on April 26, 2007.

20

06

07
Plan*

(FY)

Regional Topics—Japan

Furthermore, we will also deepen work on our program to strengthen sales capabilities at sales companies, and enhance customer satisfaction.
This program provides a training regimen for enhancing the sales capabilities of dealerships, consisting of six main categories: new cars, pre-owned cars,
services, insurance, management, and customer databases. MMC will build a value chain focused on
customer relationship management by enhancing thequality and volume of sales activities through theseand other meticulous training programs.
MMC ranked second among Japanese automakers
and fourth overall in the 2006 Japan Sales Satisfaction Index (SSI)*1 Study conducted by J.D. Power
Asia Pacific, Inc., its highest ranking ever. Furthermore, MMC advanced to tie for first place among
Japanese automakers and was equal second overall
in the 2006 Japan Customer Service Index (CSI)*2
Study. In fiscal year 2007, we will continue to aim
for the highest level of customer satisfaction in theauto industry.
*1 Study measures satisfaction with the dealership at the time ofa new vehicle purchase among customers who are one to six
months into the ownership period.
*2 Study measures customers’ evaluations of their dealer service
experience during the first 13 to 18 months of a new vehicle
ownership.

•Accelerating Efforts to Rebuild the Sales
Network
For MMC, fiscal year 2007 is the year for laying thefoundation for restoring profitability in its operationsin Japan as quickly as possible. Our priority is torebuild our sales network so that we can be profitable even with sales of only 250,000 units. By July
2007, MMC had combined its 29 consolidated sales
companies*1 into 5 companies covering broader areas.
By grouping sales companies into five areas throughout Japan: (1) Hokkaido, (2) Tohoku and Northern
Kanto, (3) Tokyo and Koshinetsu, (4) Chubu, and(5) Kinki, Chugoku, Shikoku and Kyushu; we will
streamline management, expedite decision-making
and reinforce sales capabilities.
Similarly, in July 2007, MMC organized its nine
auto-parts sales companies*1 into three companies
covering broader areas.
In conjunction with rebuilding its sales networkin fiscal year 2007, MMC plans to conduct its largest dealership renovation program ever: 91
dealerships nationwide. Efforts will also be focusedon actively relocating dealerships. In this regard, weare currently taking a closer look at developing core
dealerships on larger sites in order to attract customers spread out over larger areas.
*1 As of March 31, 2007

•Reinforcing the After-sales Service
Business
To generate steady profits at sales companies, MMC
will not only increase sales of new cars but also reinforce the after-sales service business, which includes maintenance, vehicle inspections andcheck-ups. Specifically, MMC will continue to offer
the Hearty Plus Program, a package of maintenanceand inspection services, to customers purchasing
new vehicles. MMC will also continue the Mitsubishi
Maintenance Fair to encourage customers to bring
their Mitsubishi vehicles to Mitsubishi dealerships
for various services. This campaign is held on a nationwide scale before Japan’s extended holidays inthe summer and winter, and also monthly by somesales companies on a voluntary basis.
As we encourage customers to bring their vehicles
to dealerships, we will actively promote sales of automotive parts and supplies such as tires, batteries
and engine oil; and enhance the quality of services
by offering quick vehicle inspections. In these andother ways, we aim to increase earnings in Japan.

Models sold in Japan

Delica D:5 ROADEST

Galant Fortis

21

MITSUBISHI MOTORS CORPORATION Annual Report 2007

North America

in five fiscal years after falling consecutively since
fiscal year 2002. This improvement reflected aWith annual demand of around 16 million units,
the huge U.S. market assumes the same importancemajor drive to normalize sales and the roll-out of
new models.
The active launch of new models was hugely suc-

as Japan in the Mitsubishi Motors Revitalization
Plan. In January 2006, MMC appointed a new management team at Mitsubishi Motors North America,
Inc. (MMNA) and also dispatched management
personnel from Japan to put in place an organizational structure that is responsive and strongly
linked to Head Office in both production and sales.
Since fiscal year 2004, MMNA has focused on nor-

cessful. One of those models was the new Eclipse

Spyder, which went on sale in the U.S. market in
April 2006. This was followed in November 2006
by launching the new Outlander into the expanding
compact SUV segment. In March 2007, the new

Lancer was rolled out in the North American market
first, before any of MMC’s other markets.
Fiscal year 2006 marked the 25th anniversary of

malizing sales by reducing sales incentives to appropriate levels, lowering the ratio of fleet sales, andpromoting inventory management, in order to correct
its past sales policy of emphasizing sales volume.
These sales policies have been steadily producing results. In addition, since fiscal year 2006, MMC has
been taking initiatives such as strengthening sales
support programs and nurturing sales capabilities,
with a view to forging stronger relationships of trustwith sales companies. As the second phase of these
initiatives, we are now focusing on developing a stronger brand based on the launch of new products poised

Mitsubishi Motors’ entry into the U.S. market. The
Company capitalized on this opportunity to implement
an ambitious sales promotion and advertising drivein conjunction with a 25th Anniversary Campaign.
MMC drove home its strong commitment to U.S. operations backed by the full resources of the company,
sending a clear message to customers, dealerships
and employees that would deepen their understanding of our resolve. Furthermore, top management
visited dealerships in each region and held a seriesof discussions on sales improvement initiatives, andpresented necessary support measures such as sales

to become future mainstay models.

training programs and new incentive plans. These
visits helped to improve communication with

Overview of Fiscal Year 2006
Retail sales in the North American market* totaled

dealerships and further raise their motivation.
Overall, net sales in North America increased

164,000 units in fiscal year 2006, increasing 5.1%
year on year. Retail sales increased for the first time

1.9% year on year to ¥423.6 billion. Operating

Net Sales

Operating Income (Loss)

Retail Sales(¥ billion)(¥ billion)(Thousand units)

500

20

200

0

400

150

–20
300

–40

200

–60

100
–80
100

50

–100

0

–120
04

05

06

07
Plan*

(FY)

0
04

05

06

07

(FY)

04

05

Plan*

*MMC revised targets for fiscal year 2007 when it released fiscal year 2006 full-year financial results on April 26, 2007.

22

06

07
Plan*

(FY)

Regional Topics—North America

income improved ¥7.8 billion to a profit of ¥0.6 bil-

we aim to more efficiently increase customer traffic

lion. Improved profitability in U.S. financial services

at dealerships and achieve other goals. Through these

operations substantially lifted earnings.

and other measures, we seek to grow retail sales by*Includes Canada, Mexico and Puerto Ricostrengthening sales support for dealerships.

Initiatives in Fiscal Year 2007

ing steady growth in sales in North America. Despite

In fiscal year 2007, MMC is targeting retail salesa slight drop in total automobile demand in the U.S.,

of 176,000 units. This target is based on the launch

MMC reported steady year-on-year growth of 21%

of new models and a stronger Mitsubishi brand,in cumulative retail sales from January to June 2007.

underpinned by ongoing efforts to strengthen theBoth the new Outlander and Lancer models have

From the outset of 2007, MMC has been record-

been strong sellers in Canada as well. Retail sales

sales capabilities of dealerships.
In fiscal year 2006, the new Outlander and Lancer
models went on sale. This was followed by the start

have increased by a substantial 52% year on year
as a result.

of a full-scale sales drive for the new Lancer model

Meanwhile, MMC continues to implement cost re-in April 2007. Supported by a strong customer re-ductions at the Illinois Plant, its U.S. manufactur-

sponse to this product’s features, the new Lancer

ing base. At the same time, we will more actively

has made a particularly strong start. MMC intends

develop the export business launched in July 2006

to accelerate the pace of sales of this model through-with the aim of increasing capacity utilization. Efforts

out fiscal year 2007. Furthermore, in the second

to grow exports are focused on opening up new ex-

half of fiscal 2007, MMC will roll out the new Lancer

port markets such as Latin America, and boosting

Evolution, the culmination of all of its cutting-edge

exports that have already commenced to Russia andtechnologies, in a move that will reinforce thethe Middle East.
In fiscal year 2007, MMC is targeting exports of

Mitsubishi brand.
Active sales promotion and advertising are alsoplanned. By significantly increasing targeted media

approximately 10,000 units, up around 20% fromthe previous fiscal year.

exposure for mainstay models in primary markets,

Models sold in North America

Outlander

Lancer23

MITSUBISHI MOTORS CORPORATION Annual Report 2007

EuropeAs a result, in fiscal year 2006, sales in Europe
increased 13.1% year on year to ¥662.8 billion and

Mitsubishi vehicles have won high marks in Euro-

operating income rose ¥18.2 billion to ¥42.6 billion.
Diesel engines are in strong demand in Europe,

pean markets for their attractiveness and performance and MMC’s strong track record in motor sports
events such as the Dakar Rally. With sales volume
steadily growing in rapidly expanding Russia, theUkraine, and Central and Eastern Europe, MMC hasestablished a stable revenue structure across thewhere there is considerable public interest in reducing CO2 emissions. Currently, MMC procures a family of 2-liter class or smaller diesel engines fromexternal sources. However, MMC and Mitsubishi
Heavy Industries, Ltd. are jointly developing 2-literclass next-generation clean diesel engines. With de-entire European market.

velopment progressing steadily, we plan to bring forward mass production by one year to begin supplying

Overview of Fiscal Year 2006
In fiscal year 2006, retail sales in Europe totaled
282,000 units, an increase of 5.6% year on year.
By country, steady growth in retail sales in Russia and the Ukraine helped to lift overall retail sales
throughout Europe, making up for falling retail salesin Germany and the U.K. In Russia, retail sales morethan tripled to approximately 70,000 units in fiscal
year 2006, marking extremely fast growth in three
years from about 20,000 units in fiscal year 2003.
Sales were also up sharply in the Ukraine, doublingfrom the previous fiscal year to 16,000 units in fis-these engines in Europe first from early 2009, inorder to meet projected growth in the region.

Initiatives in Fiscal Year 2007
In fiscal year 2007, MMC is targeting European
retail sales of 316,000 units. This target is basedon sales of a strengthened lineup of SUV models
such as the new Outlander and Pajero, which moved
into full swing in the second half of fiscal year
2006, the launch of the new Lancer sedan andstronger overall sales activities in this area.
The new Outlander went on sale in Europe incal year 2006.
By model, the compact Lancer sedan has continued to achieve strong sales. The successive roll-outof the Thai-built L200 (Triton) one-ton pickup truck,followed by the new Outlander and Pajero (Montero
or Shogun in some markets) SUVs in the second half,

February 2007, and sales of this model are steadily
growing. By expanding sales of an enhanced SUV
model lineup, including the new Pajero and L200

(Triton), we aim to strengthen our presence in theEuropean market.

also made substantial contributions to sales.

Net Sales

Operating Income

Retail Sales(¥ billion)(¥ billion)(Thousand units)

800

50

400

40

600

300

30
400

200
20

200

100

10

0

0
04

05

06

07
Plan*

(FY)

0
04

05

06

07

(FY)

04

05

Plan*

*MMC revised targets for fiscal year 2007 when it released fiscal year 2006 full-year financial results on April 26, 2007.

24

06

07
Plan*

(FY)

Regional Topics—Europe

Furthermore, MMC aims to win support from asales subsidiary overseeing Europe, had been respon-broad range of customers for the new Lancer sedan

sible for management of sales activities in the West-due for launch in fall 2007.

ern European and Russian markets. Furthermore,

The Lancer has been a best-selling imported

MMC will take various initiatives to expand sales,model, particularly in Russia. The Lancer model

including dispatching more MMC employees to local

received the Car of the Year Award for 2005 andpositions.

2006 (C Segment) in Russia. These awards are run

In the second half of fiscal year 2007, MMC willby five well-known Russian magazines. In 2007,

adopt a sales system that directly links Head Office

the new Lancer went on sale in Russia before otherto local distributors in the Ukraine. As in Russia, we

major European countries and has made a strong

will consider dispatching staff to local positions.

start in terms of sales.

MMC has also been received well by Ukrainian customers. Mitsubishi was ranked the country’s No.1

Strengthening Sales Systems in Russia
and the Ukraine

imported-vehicle brand in terms of retail sales of

MMC will expand sales further in the fast-growing

Brand of the Year 2007 by a survey of consumers in

Russian and Ukraine markets by strengthening

the Ukraine.

marketing and sales systems under the direct con-imported vehicles in 2006. MMC was also named

In the expanding markets of Russia and the
Ukraine, MMC is targeting a year-on-year increase

trol of Head Office in Japan.
In the Russian market, MMC has been expand-of more than 30% in retail sales during fiscal year

ing sales in concert with local distributors since2007 based on the strong brand image it has estab-

1992. Integrated brand-building initiatives by local

lished.

distributors, including substantial investments in aftising, have enhanced the Mitsubishi Motors brandBusiness Alliance With PSA Peugeot
Citroën

image during the country’s recent economic growthIn fiscal year 2007, MMC began the OEM supply

spurt. In 2006, MMC received the Super Brandof two new SUV models based on the Outlander toAward, highlighting its status as the No.1 brand in

PSA Peugeot Citroën. With a projected 30,000

the Russian automobile industry. Going forward,

units to be supplied in fiscal year 2007, MMC ex-

MMC will continue to build even stronger ties withpects this alliance to make a substantial contribu-

local partners. In order to conduct marketing andtion to earnings.

ter-sales services and sales promotions and adver-

product planning to better satisfy customer needs

MMC has a strong collaborative framework within the rapidly growing Russian market, MMC has

PSA Peugeot Citroën. An agreement is already inadopted a sales structure in fiscal year 2007 thatplace to source PSA Peugeot Citroën diesel engines

directly links Head Office and local distributors. Pre-for use in our SUV models.

viously, Mitsubishi Motors Europe B.V. (MME), a

Models sold in Europe

LancerPajero25

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Asia, ASEAN and Other Regions

provement from the first to second halves of the fiscal year. In the Middle East, monthly retail sales in

MMC has a long history in Asia, including the ASEAN
region. This presence has engendered trust in the
Mitsubishi Motors brand in these markets. We intend
to preserve our early-mover advantage in these regions
by continuing to actively roll out new models and bybuilding stronger relationships of trust with local
distributors and production companies. MMC also
aims to enhance its brand image in Australia, as wellas markets with strong growth potential, such as Latin

the United Arab Emirates (UAE) continued to reachnew records, and in Saudi Arabia, sales were up 86%
year on year in November 2006. Retail sales in Brazil also reached a record high in July 2006. As aresult, retail sales in Latin America, the Middle East,
and Africa increased 35,000 units, or 20% year on
year. There was a slight upturn in retail sales in Australia on contributions from sales of imported finished vehicles.
Net sales in fiscal year 2006 decreased 0.6% toAmerica, the Middle East, and Africa.

¥610.5 billion, while operating income fell 9.1% to¥40.8 billion. In fiscal year 2007, MMC is targeting

Overview of Fiscal Year 2006
In the past fiscal year, retail sales volume in Asia,
ASEAN and other regions decreased 19.2% year on
year to 537,000 units. Approximately half of thisdecline reflected a drop in shipments to Malaysia-

total retail sales of 581,000 units, an increase of
44,000 units, on expectations of growth in North Asia,
which includes China, and the fast-growing markets
of Latin America, the Middle East, and Africa.

based Proton Holdings Bhd. However, with year-onyear differences in quarterly results graduallyshrinking, the quarterly trend shows that sales arestabilizing.
By region, amid lower overall demand and escalating competition, the ASEAN region remained
weak, with retail sales in this region dropping 92,000
units year on year. Meanwhile, in North Asia (China
and Taiwan), although full-year sales volume
decreased by 69,000 units, there were signs of im-

Net Sales

Operating Income

Retail Sales(¥ billion)(¥ billion)(Thousand units)

800

80

800

600

60

600

400

40

400

200

20

200

0

0
04

05

06

07
Plan*

(FY)

0
04

05

06

07

(FY)

04

05

Plan*

*MMC revised targets for fiscal year 2007 when it released fiscal year 2006 full-year financial results on April 26, 2007.

26

06

07
Plan*

(FY)

Regional Topics—Asia, ASEAN and Other Regions

North Asia (China and Taiwan)

To complement Mitsubishi-brand vehicles pro-

China’s automobile market is projected to experi-

duced by South East (Fujian) Motor, MMC strength-

ence further growth supported by further progressened sales of imported finished vehicles from Japan,

in motorization, despite having already surpassed

including the Lancer Evolution IX and the newan annual sales volume of more than 7 million

Outlander. As a result, Mitsubishi-brand vehicles ac-

vehicles. Reinforcing sales in China is therefore acounted for nearly 40% of the Company’s sales

priority for MMC.

volume in the Chinese market in fiscal year 2006,

In April 2006, MMC commissioned a new R&D

up from 20% in the previous fiscal year. Moreover,Center in Shanghai with the establishment of wholly

sales volume is heading towards recovery, increas-

owned subsidiary Lingfa Car Technical Consulting

ing from 37,000 units in the first half of the fiscal(Shanghai) Ltd. Its current focus is on conducting

year to 53,000 units in the second half.

quality assurance for locally produced parts and swiftly

To establish sales of imported finished vehicles

responding to legislative trends and customer needs.

from Japan in China as a new earnings stream along

Looking ahead, Lingfa Car Technical Consultingwith locally produced vehicles, MMC plans to launch(Shanghai) will construct an R&D framework and serve

two new SUV models at the end of 2007, with theas a support base for development work carried out

aim of doubling sales of imported finished vehicles

by local companies in which MMC has invested.

to 11,000 units compared with fiscal year 2006.

In September 2006, the Company completed

Additionally, MMC continues to support local pro-

procedures for taking a direct equity interest in Southduction operations, including through the develop-

East (Fujian) Motor Co., Ltd. (SEM), which is key toment and expansion of the dealership network, which

production and sales of Mitsubishi-brand vehicles

is aimed at growing sales of Mitsubishi-brandin China. Subsequently, South East (Fujian) Motorvehicles by South East (Fujian) Motor.

began production and sales of the Lancer, the firstmid-sized sedan in China with a Mitsubishi badge,
and the Space Wagon minivan (Chariot Grandis). The
upper-class sedan Galant was brought to market in
December 2006 as part of a move to expand thelineup of Mitsubishi-brand vehicles in China.

Models sold in Asia, ASEAN and other regions

Galant (made by SEM)Space Wagon (made by SEM)

27

MITSUBISHI MOTORS CORPORATION Annual Report 2007

ASEAN

Other Regions

The ASEAN region’s auto market represents only

In the rapidly growing markets of Latin America, thearound 3% of the global auto market but is a strate-

Middle East and Africa, MMC achieved substantial

gic market for MMC, accounting for 11% of thesales growth again in fiscal year 2006. The roll-out

Company’s total sales volume. Market conditions areof the new Pajero in February 2007 will be followed

expected to remain challenging in fiscal year 2007.

by the new Lancer in August and the new Outlander

Under these conditions, MMC is working to main-in September. Meanwhile, the Company is working

tain and expand production of the Triton (L200) one-

to further boost sales of the Triton (L200) one-ton

ton pickup truck in Thailand, which plays a vital role

pickup truck. In the expanding Brazilian market, inas an export hub for the Company. In fiscal year

July 2007, the Company began selling a flex-fuel2006, total annual production capacity in Thailand

vehicle (FFV) that can run on gasoline, ethanol, andwas ramped up by around 20,000 units to 200,000

various combinations of these fuels.

units. Since it first started exporting in the second

In Australia, MMC has adopted a production

half of the 1980s, Mitsubishi Motors (Thailand) Co.,system commensurate with retail sales levels, andLtd. (MMTh) has exported a total of more than 1

is implementing continuous cost-cutting measures.

million vehicles from Thailand through June 2007.

Meanwhile, the Company is also focusing on sales

In August 2006, the Company began sales ofof imported finished vehicles. MMC will work toimported finished Montero (Pajero) vehicles to theboost retail sales in the Australian market bygrowing Indian market. Local business partner

launching the new Lancer in October 2007, in ad-

Hindustan Motors Limited is responsible for sales.

dition to promoting sales of the three new SUV

We aim to strengthen our presence in the Indianmodels (the Triton, Pajero and Outlander) launchedmarket by continuing to expand the range ofin fiscal year 2006.

Mitsubishi-brand models.

Models sold in Asia, ASEAN and other regions

Triton (L200) (made in Thailand)28

380 (made in Australia)

Regional Topics—Asia, ASEAN and Other Regions

3

6

Operations in North Asia and ASEAN Region
5

4
1
2
18

7

Local production (vehicles)
Local production (engines/transmissions)
Import and sales of finished vehicles(regional sales company)

8
9

10
11

15

14

17

16

13

12

(As of August 31, 2007)
Country/
Region

China

Name

MMC’s Equity
Interest (%)

Major Products and Models

Brand Hunan Changfeng Motor Co., Ltd. (CFA)

14.59%

Pajero (Montero)

Mitsubishi brands

Liebao (old Pajero), Liebao Feiteng (Pajero iO)

Local brands

 South East (Fujian) Motor Co., Ltd. (SEM)

25%

Galant, Lancer, Spacewagon (Chariot Grandis)

Mitsubishi brands

Delica, Freeca, Veryca

Local brands

 Hafei Motor Co., Ltd. (HHMC)
 Mitsubishi Corporation (Shanghai) Co., Ltd. (SSL)0%

Sigma (Dingo)

Local brands

0%Grandis, Outlander, Lancer Evolution

Mitsubishi brands

25%

2.0- and 2.4-liter engines

 Shenyang Aerospace Mitsubishi Motors Engine
Manufacturing Co., Ltd. (SAME) Harbin Dongan Automotive Engine Manufacturing Co., Ltd. (DAE)

–

15.3%

1.3- and 2.0-liter engines, transmissions

TaiwanChina Motor Corporation (CMC)

13.97%

Galant, Lancer, Zinger, Savrin (Chariot Grandis),Colt plus
VerycaLocal brands

ThailandMitsubishi Motors (Thailand) Co., Ltd. (MMTh)

99.8%

Triton, Strada, Lancer, Spacewagon (Grandis)

Mitsubishi brands

MMTH Engine Co., Ltd. (MEC)

99.8%

The
Philippines
Indonesia

Mitsubishi Motors Philippines Corporation (MMPC)
Asian Transmission Corporation (ATC) P.T. Krama Yudha Tiga Berlian Motors (KTB)
 P.T. Mitsubishi Krama Yudha Motors and Manufacturing (MKM)

84.71%
0%Engines
Adventure, Delica, Pajero (Montero)
Transmissions
Colt T120SS, L300–
Mitsubishi brands–
Mitsubishi brands

32.3%

Engines, parts–0%

Lancer, Triton

Mitsubishi brands

25%Grandis, Pajero (Montero)

Mitsubishi brands

0%i, Colt, Colt plus, Lancer, Grandis,
Outlander, Pajero (Montero), L200

Mitsubishi brands

 GHK Motors Sdn Bhd (GHK)0%Colt plus, Lancer, Grandis,
Outlander, Pajero (Montero), L200, L300

Mitsubishi brands

 Hindustan Motors Limited (HML)0%

Lancer, Pajero, Montero

Mitsubishi brands

Vietnam Mitsubishi Motors Malaysia Sdn Bhd (MMM) Vina Star Motors Corporation (VSM)

Singapore Cycle & Carriage Automotive Pte Ltd. (CCA)

Brunei
India

Malaysia

51%–
Mitsubishi brands■ Local production (vehicles) ■ Local production (engines/transmissions) ■ Import and sales of finished vehicles (regional sales company)

29

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Quality
Measures to improve quality are a top priority of the

Quality Affairs and Technical Aftersales Service

Mitsubishi Motors Revitalization Plan. Strict risk

Group Headquarters incorporate the development ofmanagement and quality check activities are being

parts and supplies and their delivery to sales com-

implemented at the product development and pro-panies and repair shops as a part of after-sales ser-duction stages. Meanwhile, we are developing struc-vices into its structure.

tures that enable us to rapidly obtain feedback on

Furthermore, in October 2006, MMC completed

vehicle issues and customer complaints. This allows

the nationwide deployment of a new quality man-

us to adopt effective post-market measures and re-agement information system called SQM (Strategic

spond swiftly to quality issues.

Quality Management) at sales companies. SQM isdesigned to accelerate quality improvements by shar-

Rapidly Incorporating Customer Views
Into Quality

ing customer feedback on vehicle issues with sales

In October 2006, MMC conducted some structuralused to analyze data related to vehicle issues, andreforms to improve quality. The company consoli-

expediting statistical analyses in investigating thedated all operations regarding after-sales services into

causes of these issues. By integrating the manage-

the Quality Affairs & Technical After-sales Service

ment of all services and quality information, includ-Group Headquarters to build a framework which

ing repairs and guarantees, MMC will be able towould make after-sales responsible for quality issues,

analyze volumes of data, while giving sales compa-

and customer feedback.

nies access to information on best service practices,companies in real time, augmenting the database

MMC aims to respond more effectively and rap-

improving the accuracy of repair estimates and much

idly to the following priorities: decision-making on

more. In this manner, significant benefits can bepost-market measures; communicating extensively

expected from the integrated management of suchwith customers about replacements and repairs of

information in terms of enhancing and standardiz-

their vehicles’ parts; and reflecting customer quality

ing the quality of service nationwide.

needs in product development.
Maintaining the quality of parts and supplies inthe distribution stage is also essential for offeringhigh-quality after-sales services. To this end, theObjectives and aims of new quality management
information system

Technology andreliability (Accuracy)

Improve accuracy of information tomaintain and raise product quality

Repair speed(Responsiveness)

Product/
service issues

Customer satisfaction
Optimize repair work andcustomer response30

Quicken response by obtaining
and analyzing information on
product issues fasterQuality

Furthermore, in 2007, MMC is extending the SQM

of development processes and other trends. There-

system to overseas distributors to step up the exten-

fore, it is also imperative to promote quality improve-

sive collection and analysis of customer information

ment activities in cooperation with our suppliers.

from overseas.

Moreover, to meet the customers’ rising expectations
on cars, beyond the basic functions of driving, turn-

Aiming for Further Quality Improvements

ing and braking, automakers must make extra efforts

In 2001, MMC introduced MMDS (Mitsubishi Motors

in terms of better instruments, better paint finishes

Development System), a comprehensive quality man-and much more. The product liability of automakers

agement system designed to ensure and continuallyis also rapidly expanding in scope. The main focus ofenhance quality at each stage, from product devel-

MMDS has so far been to broadly cover all conceiv-

opment to production and sales. Under MMDS, MMC

able risks. Going forward, MMDS will further empha-

has established quality standards that must be met

size quality improvement in line with constantly

at each of seven “quality gates.” Efforts will now focus

shifting customer needs.

on continually upgrading those quality standards.
Under the Mitsubishi Motors Revitalization Plan,

With regard to quality control in the context of

MMC has successively launched new models. With

the Mitsubishi Motors Revitalization Plan, MMC has

every new model, MMC has received fewer post-sales

been trying to identify every conceivable issue andcustomer complaints regarding quality. We view thismake far-reaching improvements with respect toachievement as a direct result of MMDS. Also high-each, with the overriding goal of regaining the trust

lighting the benefits of our quality improvement ini-of customers as quickly as possible. MMC has worked

tiatives, the i minicar tied for first place in the 2006

in particular to establish internal procedures in which

Japan Mini-Car Initial Quality Study (IQS) conductedmarket measures such as recalls are transparent andby J.D. Power Asia Pacific, Inc.*

can be executed quickly.

MMC will pursue further improvements in quality

In these changing times, quality control require-

control at the product development and production

ments are becoming increasingly sophisticated bystages. This is imperative because the product devel-

the day. MMC will thus continue to enhance quality

opment and production industries are undergoing

improvement measures.

changes every day, brought about by the digitization* Refer to page 15 for source.

MMDS (Mitsubishi Motors Development System)
Start of development

Design approvalMarket launch

Product
development flow
Requests from
customers

Producct
planniing

Product

F concept

Designconce
eptSpecification

E targets

Designspecifications
ation

Approval ofPrototypeype
testingg

Validation of

D final specification C prototype
model

Completion
ion ofdevelopment
me

Qualityy
verification
atio

Completion of

B development

Sales andretailing

Customers

Approval of volume production

A (Final Quality Approval Committee)

Follow-up for six

Z months after launch

Quality Gate

31

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Corporate GovernanceFundamental Approach to Corporate
Governance
MMC is taking three key measures to strengthen
corporate governance: ensure legal and regulatorycompliance, improve transparency through frequent
disclosure of information to stakeholders, and clarify
management responsibilities.

1. Corporate Governance Framework(1) Governance Institutions
The Board of Directors and Board of Statutory Auditors audit and oversee business execution. MMC has
also sought to improve and strengthen the corporate governance framework beyond statutory requirements through moves such as the introduction of an
executive officer system and appointment of advisory committees.
The Board of Directors has 13 members, two ofwhom are outside directors. The Board is responsible for making decisions concerning importantmanagement issues and overseeing business execution. The adoption of the executive officer system inJune 2000 clarified the separation of the roles andresponsibilities of directors and executive officers.
Managing directors meetings, which are attended by
18 members (including directors, executive officers
and statutory auditors), are held every two weeks to
expedite decision-making within the company.

MMC’s Corporate Governance Framework(As of June 30, 2007)
Shareholders’ Meetings
Report and advise

ReportAccounting Auditors
ReportAccounting
audit

Board of Statutory
Auditors(5 members, of which
3 are outside auditors)

Business Revitalization
Monitoring Committee

Board of Directors(13 members, of which
2 are outside directors)
Audit and report

Report and advise

Business Ethics
Committee

Audit and report

Chairman
GuidanceandadvicePresident
Managing Directors’Meetings(18 members)

Quality Affairs Office
Each department

Executive Vice President(Revitalization Promotion Officer)
Quality audit

CSR Promotion OfficeInternal audit
Internal audit

Subsidiaries andaffiliates(in Japan and overseas)

32

The Board of Statutory Auditors has five members, three of whom are outside auditors. Statutory
auditors attend meetings of the Board of Directors,
the managing directors meetings and other key
forums. They audit the operations of MMC and its
subsidiaries based on business reports received fromdirectors, reviews of key internal business documents, and interviews with the internal auditing
groups and independent auditors.
Separate from the auditing functions of the statutory auditors, to strengthen the company’s “selfcleansing” activities MMC has also established two
departments within the CSR Promotion Office, theQuality Audit Department and the Internal Audit
Department. Independent from other business functions, these groups conduct internal audits from an
objective perspective.
The Quality Audit Department, which had four
employees at the end of June 2007, monitors allprocesses that are carried out within the Quality
Affairs Office. It does so to ensure compliance withlaws and regulations worldwide related to the development and production of automobiles, including
Japanese road safety and transportation laws. The
department reports its findings to senior management and also reports to the Business Ethics
Committee twice per year.
The Internal Audit Department, which had 14
employees at the end of June 2007, conducts
regular company-wide audits to check the appropriateness of business processes, including thoseof subsidiaries and affiliates in Japan and overseas.
These audits aim to verify the execution status of
all internal control systems, including complianceand risk management. The results of internal audits
are reported to senior management of MMC and ofits subsidiaries and affiliates, along with proposals
for improvement.
In fiscal year 2006, MMC completed the establishment of a global internal audit system with internal auditing functions within all major overseas
subsidiaries. MMC continues to work to strengtheninternal audit systems and governance structures forthe overall company while taking into account specific characteristics of overseas markets and regional
differences in regulatory approach.
Advisory committees that report to the Board of
Directors supplement the internal governancestructures. In June 2004, MMC set up the BusinessCorporate Governance

Ethics Committee, which is made up of outside
experts in various fields. As part of efforts to fostera more strongly compliance-oriented internal
mindset, this committee provides MMC with directions and advice on ethics-related matters from anexternal perspective.
The Business Revitalization Monitoring Committee is another important advisory body to the Board.
Its responsibility is to monitor progress against theaims of the Mitsubishi Motors Revitalization Plan.
Established in April 2005, this committee is composed of external experts and representatives ofmajor shareholders.

(2) Internal Control Systems
Internal control systems are reviewed to respond toany changes in the domestic or overseas environment. MMC aims to strengthen governance structures further and is continually working on system
improvements and upgrades to ensure compliancewith laws and regulations and to promote proper,
effective, and efficient business administration.
With regard to improving the reliability of financial reporting, the Internal Controls Promotion Committee was established in March 2006 to coordinate
efforts to plan and develop new systems that will
facilitate management’s evaluation of the effectiveness of internal controls for financial reporting. Theseevaluations are scheduled to become mandatory in
the near future. Separately, MMC also initiatedmoves to strengthen corporate governance by establishing management systems for various functionsof subsidiaries and affiliates to clarify the functionsof each company.
In May 2006, in line with the statutory requirements of new Japanese corporate laws, the Board of
Directors approved a basic policy on the construction of internal control systems.

Compliance• Full legal and regulatory compliance and observance of business ethics, based on internal regulations such as the “Corporate Ethics ComplianceFirst” declaration and business ethics guidelines.
• Establishment of an internal reporting system.
Application of systems to investigate any information received and to take necessary measures torectify and prevent any recurrence of identified
problems.
• Establishment of the Business Ethics Committee.

Risk management• Specification and application of clear rules for
management reporting based on criteria set by
the Board of Directors and at managing directors
meetings.
• Development of company-wide risk management
systems centered on risk management promotion
departments.
• Appointment of risk management officers in each
operational group.
• Development of emergency response capabilities
to react to unforeseen contingencies, including
emergency communication and contact systems.

Compliance Promotion Structure
Board of Directors

Report and advise

Business Ethics Committee (Made Up of Outside Experts)

Guidance
and advice

Chairman
Direction andsupervision

President

Report andconsult

Managing Director, Corporate
General Manager
Reportandconsult

Thorough compliancewith business ethics

CSR Promotion OfficeCompliance Department

Thorough compliancewith business ethics

Department Manager= Code Leader
Consult on
ethicalissuesThorough compliancewith business ethics

Help Line
External Attorneys

Directives
forinitiatives

Compliance Officer
ReportChief Business Ethics Officer (CBEO)

Help Line/EmployeeCounseling OfficeConsult on
ethical issues

Employees with MMC Employment Agreements

Variousconsultations

Various consultations
Employees of Subsidiaries and Dealers,
Temporary Employees, Former Employees

33

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Efficient organizational function andoperational execution• Promotion of task execution based on specificgoals established by each division in line withcompany-wide business plans.
• Clarification of leadership through appointment ofsenior managers at operational divisions to director level. Maintenance and improvement of management efficiency through regular confirmation
by MMC directors of status of operations under
their watch. Achievement of business goals.
• Integration of command hierarchies to expedite
decision-making processes. Efficient execution of
directorial duties through improved internal communications and the development of systems tofacilitate efficient organizational function and operational execution.

Information management and storage• Appropriate management of important information
related to key decisions and execution of duties(including minutes of the General Meeting of
Shareholders and meetings of the Board of Directors, business plans, investment plans, and product plans).
• Maintenance and proper operation of information
security controls.

Ensuring the proper execution of groupwide business operations• Clarification of responsibilities and authority for
subsidiaries and affiliates through the establishmentof clear rules governing the management of suchcompanies by the corresponding parent company
division with primary supervisory responsibility.
• Ensure the proper execution of group-wide business
operations through formulation of rules governing
the supervision of subsidiaries’ management cycles,
together with regular monitoring and evaluation.

• Precautions taken to ensure the independence ofstatutory auditors’ staff, including consulting thestatutory auditors prior to implementing any personnel changes at the office and having the statutory auditors conduct personnel evaluations of staff
members.

2. Cooperation Between Statutory Auditors,
Internal Audit Departments andIndependent Auditors
To strengthen cooperation, the statutory auditors
regularly exchange information with independent
auditors and MMC’s internal audit departments, theInternal Audit Department and the Quality Audit
Department.
In fiscal year 2006, the statutory auditors held atotal of 15 meetings with independent auditors to hearpresentations on auditing systems, related plans andthe status of financial audits. These meetings also
provided an opportunity for the statutory auditors to
explain the status of their audits and related plans.
Meetings were held with the Internal Audit Department during the year to discuss the results of monthly
internal audits of MMC and its subsidiaries aroundthe world. The statutory auditors provided feedbackon the status of their auditing activities to the Internal Audit Department at these meetings, which werealso attended by independent auditors to facilitate theeffective exchange of information. In addition, quarterly meetings held with the Quality Audit Department
focused on the results of quality assurance audits.

3. Relationships With Outside Directors andStatutory Auditors (as of June 30, 2007)
No conflicts of interest exist between MMC and anyof the outside directors or statutory auditors.
Outsidedirectors

Statutory auditors• Attendance at all important meetings (including
Board of Directors and managing directors meetings). Regular exchanges of views with the president of MMC. Links with internal auditing groups
and independent auditors. Proper decision-making oversight and efficient audit operations.
• Establishment of the Office of Statutory Auditors
and assignment of dedicated staff.

34

Outsidestatutory
auditors

Mikio
Sasaki

Chairman, Mitsubishi
Corporation(main MMC shareholder)

Hidetoshi
YajimaChairman, Shimadzu
Corporation(MMC business partner)

Shigemitsu
Miki

Chairman, The Bank ofTokyo-Mitsubishi UFJ, Ltd.
(major MMC shareholder)

HiroshiKanManaging Director,
Mitsubishi Heavy Industries, Ltd.
(main MMC shareholder)

Yukio
OkamotoRepresentative Director,
Okamoto Associates (no trading
relationship at present)Compliance

Compliance
To restore society’s trust in the company and be recognized as an enterprise with integrity, MMC believes
it is essential to ensure that all staff members thoroughly comply with business ethics.

Development of an Organizational Frameworkfor Promoting Business Ethics
In June 2004, MMC established the CSR Promotion Office to ensure thorough compliance and promote a new corporate culture, while restructuring
the compliance framework (refer to page 33). MMC
has strengthened the organization to ensure thatawareness of compliance spreads to every single
employee. The company appointed 18 complianceofficers (as of fiscal year 2006) at each department
to ensure compliance, under the direction of the
Chief Business Ethics Officer (CBEO), and appointed
department managers as code leaders in each department under the compliance officers.

Initiatives to Implement Compliance
In fiscal year 2006, under the theme of “Shiftingfrom a passive to proactive, self-reliant mindset”
MMC continued to implement existing company-wide
compliance measures and promoted autonomous initiatives by individual staff members.
• Awareness-Raising Activities
MMC held training sessions three times during theyear for compliance officers and code leaders, whoplay a central role in the observance of businessethics, with a total of 816 people taking part.
Meetings are held three times a year in each workplace at which familiar business ethics problems are
examined, and solutions reached through discussion.
These meetings provide a good opportunity toenhance ethical awareness and improve communication through discussion using actual examples.
• Establishment and Dissemination of Regulations
MMC is giving priority to its internal reporting
system in order to create a highly transparent workplace environment that is not conducive to scandals and promotes their early detection as well as
self-correction. MMC has already established the
Employee Counseling Office and external counseling channels through outside attorneys. In April
2006, in line with the enforcement of the
Whistleblower Protection Act, MMC establishedoperational criteria related to the internal reporting system, as well as internal regulations, including those prohibiting the disadvantageous
treatment of whistleblowers. In fiscal year 2006,
there were 113 consultations. Furthermore, tocreate a framework that facilitates internal reporting, MMC is endeavoring to disseminate regulatory information within the company by holding
briefings, including information in the company
newsletter, and adopting other measures.
In April 2007, MMC fully revised its “Business
Ethics of Mitsubishi Motors Corporation”—MMC’s
corporate ethics standards—to turn them into morepractical guidelines for informing employees’ actions.
We distributed this booklet to all staff members, andby making use of it on a daily basis, we aim to ensure
thorough compliance with business ethics.
• Activities to Spread Compliance among MMC
Group Companies
MMC believes that restoring trust in the company
requires a concerted effort by the entire MMC
Group. To this end, domestic Group companies(including exclusive dealers) have taken the leadin carrying out initiatives since fiscal year 2005.
In fiscal year 2006, almost all companies completed the establishment of systems to ensurecompliance with business ethics. They regularly
conduct training on resolving corporate ethics
problems and the development of precedents.
In addition, major overseas affiliated companies have evaluated the status of their compliancesystems and activities. Going forward, they will establish concrete systems to promote compliance.
• Other Initiatives
To prevent past errors such as the regrettable recall problems from being forgotten over time, January 10 and October 19 have been designated“Safety Pledge Days,” since two fatal accidents
occurred on those days involving large trucks
manufactured by Mitsubishi Fuso, a former MMC
division. All employees observe a moment ofsilence on these days, and the previously mentioned meetings to review business ethics problems are held around these times.
MMC reports on the status of these activities
to the Business Ethics Committee, which acts as
an advisory body to the Board of Directors and ismade up of external experts. MMC directors receive objective, common-sense guidance and advice regarding these matters. In fiscal year 2007,
MMC will continue to further develop the initiatives adopted in fiscal year 2006, based on thetheme of “From revitalization, to the future.”
MMC is firmly committed to continuing measures to establish, further strengthen and promotecompliance.

35

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Report by Business Ethics Committee

In October 2006, the Board of Directors of MMC consulted theBusiness Ethics Committee, which comprises only external experts, with regard to MMC’s activities toward restoring trust in
the company and requested their evaluation and proposals. MMC
received a report on the committee’s findings concerning thisissue on May 21, 2007.
The full content of the report (Japanese only) can be viewed
on MMC’s Web site*1 and is summarized in the Social and Environmental Report 2007*2.
The following is a brief description of the main points of theBusiness Ethics Committee’s report.
*1 MMC Business Ethics Committee Web site (Japanese only)
http://www.mitsubishi-motors.co.jp/social/ethics_com/index.html*2 MMC Social and Environmental Report 2007
http://www.mitsubishi-motors.com/corporate/environment/report/e/index.html

Structure of the Report
The report contains an accounting of the events that
led up to the formation of the Business Ethics
Committee during the unprecedented management

36

crisis faced by MMC in 2004, conditions at the timeof formation of the committee, and the Company’s
activities to restore trust so far. The committee provides their current evaluation of these activities andmakes 13 policy recommendations based on theirevaluation (shown in table to the right). The committee did this to further support the revitalization
drive in its role as an external advisor to MMC. In
the final chapter, the committee reiterates the points
it wishes to emphasize based on the impressions ofcommittee members garnered from their committee
activities up to now.

Evaluation of Company in Report
The report generally gives high marks to MMC activities in this regard. For example, looking back on measures that MMC has taken so far, the report concludes
that earnest and steady progress has been made in
activities to restore trust in the company, based on
the unwavering stance of top executives, concludingthat the initial stage has been accomplished.

Report by Business Ethics Committee

From left

Nobuyuki Yamamoto, Committee Member
Lecturer, Toin University of Yokohama
Compliance Research Center; Director,
Compliance Research Center Co., Ltd.; former
Counselor to the Industrial Bank of Japan, Ltd.

Konoe Kawagishi, Committee Member
Former member of the Securities andExchange Surveillance Commission; former
Vice Chairman of the Editorial Committee atthe Yomiuri Shimbun newspaper

Noboru Matsuda, Committee Chairman
Lawyer; former Governor of the Deposit
Insurance Corporation of Japan; former seniorpublic prosecutor

Kazuko Miyamoto, Committee Member
Director, Japan Consumers’ Association;
former Professor at Kawamura Gakuen
Women’s University; Supreme Advisor to the
Nippon Association of Consumer Specialists

Thirteen Policy Recommendations in Business Ethics Committee
Report (Index)
1. Compliance First(1) Breaking down the closed, hierarchical corporate culture(2) Business ethics compliance promotion system(3) Developing compliance commitment in employees
2. Safety First(1) Strengthening the system to ensure no recall cover-ups(2) Safety and reliability standards(3) External views included in malfunction investigation system(4) Improving evaluation capabilities for design quality(5) Addressing the issue of quality of procured components(6) Addressing the issue of quality of embedded software
3. Customer First(1) Prompt disclosure of malfunctions(2) Proactive approach to society (general consumers)
4. Business Ethics Organizational and System Issues(1) Directors in charge of business ethics(2) Future issues for Business Ethics Committee members

Takahiro Fujimoto, Committee Member
Professor, Graduate School of Economics at
the University of Tokyo; Executive Director of
the University of Tokyo Manufacturing
Management Research Center

Kazuo Mura, Committee Member
Lawyer, Professor of Graduate School of Law,
Kokugakuin University; former Managing
Director of the Resolution and Collection
Corporation

Nevertheless, the report points out the following:“The job of restoring trust in MMC is still only half
complete, given reactions within and outside of thecompany. Restoring trust and spreading and establishing compliance, which are at the root of restoring trust, have yet to be accomplished. It is stillnecessary to stay fully committed to activities to restore trust, and MMC must not neglect that fact or
let its efforts wane.”

Points of Emphasis Offered as a Conclusion
The Company received two additional propositions
on how to avoid a second crisis. MMC recognizes
these additional propositions as guidance that all
employees, from senior management to employees,
should constantly keep in mind.
• Points to consider in crisis response
It is crisis response—the extent to which one canminimize impact once risks materialize—that determines the true value of establishing compliance.
It is vital to ensure the accuracy and speed withwhich information is communicated to the top
executives. It is also crucial for senior management to have the sensibility to clearly perceive thechanges that society demands of the company, andto make accurate decisions and take swift action.
• Shared sense of crisis
MMC’s efforts to ensure its revitalization are bearing fruit. However, the company should recognize
the fact that the crisis has not passed but is ongoing, and it must not relax its efforts. In terms ofcompliance as well, we believe that all directors
and employees need to share a sense of crisis in
feeling that the company has its back against thewall after the two scandals, and that MMC must
continue working to steadily entrench and perpetuate this sense of crisis. Efforts to establish andmaintain compliance must be a constant.

Response to Report
Based on this report, MMC will further bolster andpromote measures aimed at establishing compliance.

37

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Environmental Activities
Responsibility to the Environment
Driving pleasure, Safety and Environmental Responsibility: These are the concepts that MMC aims to build
into the cars it manufactures. MMC has long been committed to driving performance and ability—the essential
qualities that make cars attractive—as well as safety and durability to give drivers confidence. In addition tothis traditional focus, MMC adopts Environmental Responsibility as one of the most important themes forcorporate management and car manufacturing; so that we may harmoniously coexist with the environment
and pass on a bountiful natural environment to future generations.

Environmental Policy
MMC formulated an Environmental Policy in 1999 that

Mitsubishi Motors Environment Initiative
Program (EIP) 2010clarifies measures for protecting the environment within

In July 2006, MMC formulated and announced athe context of management of the company.

new environmental plan called the Mitsubishi Motors
Environment Initiative Program (EIP) 2010, running

Mitsubishi Motors Corporation
Environmental Policy

through fiscal year 2010. EIP 2010 carries on fromthe Environmental Sustainability Plan, which ended
in fiscal year 2005. By executing EIP 2010, we will

Basic Guidelines
Mitsubishi Motors recognizes that protection of the global
environment is a priority for humanity and as such makes
the following pledges:
1. Taking a global perspective, MMC is committed to harnessing all its resources to achieve continuous reductions in the environmental impact of all its corporate
activities, spanning development, procurement, production, sales, and after-sales servicing of vehicles.
2. As a good corporate citizen, MMC is committed to taking actions that protect the environment at the level of
local communities and of society as a whole.

be working to both promote our co-existence withthe environment and achieve further corporate revitalization and growth, with the aim of fulfilling our
responsibility to help build a sustainable society.
In fiscal year 2006, the first year of the new plan,
MMC addressed several new priorities. Overall progresswith the plan and our achievements were largely inline with expectations.
Please see the following page for an overview
of the plan’s details, objectives, and fiscal year

Behavioral Standards
1. MMC will endeavor to protect the environment by forecasting and assessing the environmental impact of thecompany’s products at all stages in their life cycle.
Priority is given to the following areas:• Prevention of global warming by reducing emissionsof greenhouse gases• Prevention of pollution by restricting emissions of substances harmful to the environment• Reduction of waste and maximizing efficient use ofresources by promoting conservation and recycling

2006 initiatives.
For further details on Mitsubishi Motors’ environmental activities, please refer to our corporate Web
site and our Social and Environmental Report 2007at the URLs below:

2. MMC will endeavor to improve our environmental management practices as part of ongoing efforts to improvethe environment.
3. MMC will comply with environmental regulations andagreements, and will work to protect the environment
by establishing voluntary management targets.
4. MMC will encourage our affiliates and suppliers, bothin Japan and abroad, to cooperate in working to protect
the environment
5. MMC will actively disclose environment-related information and will seek the understanding of local communities and of society at large.

38

Mitsubishi Motors Social and Environmental Report 2007
http://www.mitsubishi-motors.com/corporate/environment/
report/e/index.html
Mitsubishi Motors Environmental Web site
http://www.mitsubishi-motors.com/corporate/environment/e/
index.html

Environmental Activities

Mitsubishi Motors Environment Initiative Program 2010—Goals and Overview of Fiscal 2006 Results—
Environmental Management
Category

Build up global environmental
management framework

Collaboration with suppliers
Establish DfE promotionalorganization
Expanding and improving training/
increasing awareness andinformation disclosure
Expanding and improving social
contribution activities andenvironmental activities

Activities and Goals (Target deadline is 2010 unless otherwise specified)Fiscal 2006 Results• Expand environmental management system to cover non-production
subsidiaries and affiliates, including overseas companies.
• Promote acquisition of EA21 environmental management certification
for domestic sales companies.
• Promote acquisition of ISO 14001 and other environmental
management certification by suppliers.
• Establish LCA data collection system at domestic production bases.
• Establish system to collect LCA data from suppliers.
• Raise environmental awareness throughout MMC Group.
• Continuously expand and improve information disclosure through social andenvironmental reports, website, etc.
• Expansion of lecture program at elementary schools.

Established environmental
management guidelines
Two sales companies obtained EA21
certification on a trial basis
Certification acquired by 97% of suppliers
Data collection methods investigated—Employees enrolled in “Team Minus 6%” program
Environment-related website revamped
Hands-on lessons offered at 24 schools

Prevention of Global Warming
Category

Activities and Goals (Target deadline is 2010 unless otherwise specified)Fiscal 2006 Results

Improve automobile fuel economy• Progressively enhance fuel economy by incorporating low-fuel consumption
technology into new vehicles.
Japan: Achieve domestic fuel economy standard targets for 2010 in all
vehicle categories ahead of schedule by 2007.
Development of next generation of• Develop and commercialize next-generation clean diesel engines.
low-fuel consumption core technologies • Develop and commercialize next-generation high-efficiency transmissions.
Compatibility with diverse energy sources • Develop and launch biofuel compatible vehicles.
Development and practical• Develop and practically apply “Green Plastic” derived from proprietary
application of plant-based resin
vegetable-oil based resin.
Development of air conditioners• Develop and practically apply air conditioners using substitute refrigerants
using refrigerants with low
instead of HFC-134a.
global-warming factors
Reduction in CO2 emissions from• Total CO2 emissions from production: At least 20% lower than fiscal 1990.
production and logistics• CO2 emissions per unit shipped from logistics: Annual reduction of at least 1%.

Roll out more new generation gasoline engines
Met target in 2,000kg vehicle category
for the first time
Developing for commercialization
Developing for commercialization
Launched in Brazil in July 2007
Mass production technology due to be developed
In-vehicle assessment of air conditioners
using refrigerants with low global-warming
factors completed
Progressing toward achievement of 2010 targets
Establish a system to assess results andpursue further reductions

Prevention of Environmental Pollution
Category

Development of next-generationelectric vehicles
Promoting propagation of
low emission vehicles
Reduction of VOCs in cabins

Strengthen management andreduce use of substances withan adverse impact on theenvironment used in products
Reduce use of environmentally
impacting substances in production(VOCs, PRTR)

Activities and Goals (Target deadline is 2010 unless otherwise specified)Fiscal 2006 Results• Target R&D with a view to launching a next-generation electric vehicle
based on the minicar platform by 2010.
• Raise most registered passenger automobiles to the “four-star” level by 2010
• Step-by-step achievement of the JAMA voluntary cabin VOC emission
standards ahead of target deadline of April 2007, starting with
the introduction of new fiscal 2006 models.
• Improve management of information on adverse-impact substances used incomponents and materials.
• Achieve early elimination of use of restricted adverse-impact substances,such as hexavalent chromium.
• Convert to lead-free solder.
• Reduction of VOC emission unit use by at least 30% compared with fiscal 2000.
• Reduce emissions and transfers of PRTR-listed substances.
• Promote proper disposal of waste containing PCBs.
• Prevention of asbestos-caused damage to people’s health.

Commenced joint research with electric
power companies
Launched new “four-star” vehicles in linewith plan
All vehicles launched in fiscal 2006 met targets

Compiled additional hazardous substance data
for new models
Completed elimination of hexavalent chromiumin vehicles for European market—
Achieved 12% year-on-year reduction;
progress in line with plan
Limited emissions in order of priority
Drew up a long-term disposal plan
Measures progressed in line with plan

Recycling and Resource Conservation
Category

Automobile recycling

Development and increased
application of 3R technology

Activities and Goals (Target deadline is 2010 unless otherwise specified)• Japan: Early achievement of fiscal 2015 statutory minimum ASR recycling
rate of 70%. Promote total recycling.
(End of fiscal 2009: total recycling rate of at least 20%).
• Europe: Build ELV recovery systems. Respond to recyclability directives.
• Increase ease of removing wire harness types of motors.
• Use more parts made from recycled materials.

3R in context of production process

EA21: EcoAction21
DfE: Design for Environment
LCA: Life Cycle Assessment• Maintain zero emissions of landfill waste at all manufacturing sites.
• Maintain a waste recycling rate of at least 98%.
• Reduce emissions of such by-products as metal scrap and waste casting
sand (reduce ratio of emissions to net sales by 1.7% in fiscal 2006
compared with fiscal 2001).
• Reduction of water use through efficient recycling (5% reduction
compared with fiscal 2000).
VOC: Volatile Organic Compounds“four-star”: Denotes 75% reduction in emissions compared
to official fiscal 2005 standards

Fiscal 2006 Results

Achieved 70% recycling rate for ASR

Almost completed building systems tailored to
the needs of each country
Drew up guidelines on methods for assessing
ease of removal
Increased from 23 recycled parts in fiscal
2005 to 40 in fiscal 2006
Maintained zero landfill waste since fiscal 2002
Maintained since fiscal 2001
Achieved ratio of 112 tons/¥ billion(18% reduction since fiscal 2001)
Achieved since fiscal 2001
PRTR: Pollutant Release and Transfer Register
PCBs: Polychlorinated biphenyls
ASR: Automobile Shredder Residue

39

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Motor Sports

Motor Sports

For more than 40 years, MMC has continuously
embraced the challenges of various motor sports
events, including the Dakar Rally, and has built up
an impressive track record crowned with many
victories. Our performance in motor sports has received significant recognition, especially in Europe,and has fostered strong customer confidence in
Mitsubishi vehicles.
For MMC, motor sports are a proving ground thatgive it the opportunity to push its vehicles to the limit
in pursuit of superior drivability, durability and safety,
and to feed back the technology and expertisederived from these activities into its product development and manufacturing operations. At the sametime, motor sports embody elements of the Mitsubishi
Motors corporate philosophy, realizing “utmost driving pleasure” and “reassuring safety.” For example,
Mitsubishi Motors SUVs such as the Pajero andOutlander feature all wheel control (AWC) systems, atechnology concept developed on the front lines ofmotor sports. Taking this technology to an even higher
level, the all-new Lancer Evolution high-performance
4WD sedan—due for release starting in the fall of
2007—will feature Super All Wheel Control (S-AWC)
technology, an advanced vehicle dynamics control
system that regulates drive torque and braking force
at each wheel to realize superior cornering performance. This breakthrough will realize a driving experience that more faithfully reflects drivers’ intentions
and creates outstanding vehicle stability.

The Mitsubishi Motors team claimed overall victory in the 2007 Dakar Rally

40

2007: Dakar Rally—MMC Achieves 7thConsecutive Win and 12th Overall Victory—
A First in Dakar Rally History
The 2007 Dakar Rally marked the 25th time MMC
has participated in this event since its first entry in
1983. In 2007, Stéphane Peterhansel of France(Mitsubishi Pajero Evolution) finished the 16-day,roughly 8,000 kilometer-long rally in first place in
45 hours, 53 minutes and 37 seconds. With thisvictory, the Mitsubishi Motors team surpassed therecord it had previously set for the Dakar Rally,
achieving its 7th consecutive and 12th overall win.
Stéphane Peterhansel scored his third overall win
in the Dakar Rally, and Luc Alphand of France(Mitsubishi Pajero Evolution), the winner of lastyear’s Dakar Rally, came in second place. Drivers
from the Mitsubishi Motors team thus claimed both
first and second place for the first time in two years.
In addition, Mitsubishi Motors team members Hiroshi
Masuoka and Juan Nani Roma completed the rally
in 5th and 13th place overall, respectively. These
performances testify to the Mitsubishi Motors team’s
enduring strengths in teamwork, technologies, andthe determination to succeed.
New Delica D:5 Completes Dakar Rally
MMC deployed the new Delica D:5, which was due
for its commercial launch at the end of January 2007,as a support vehicle for the Mitsubishi Motors teamin the 2007 Dakar Rally. Fully loaded with crew andequipment, the Delica D:5 completed the journey from
Lisbon, Portugal to Dakar over stretches of rugged dirt
and desert terrain without incurring any trouble.

Delica D:5 acted as a support vehicle in the event

Organization Structure

Organization Structure(As of July 1, 2007)

Business Ethics
Committee

CSR Headquarters

Finance Group
Headquarters
Business
Revitalization
Monitoring Committee

CSR Promotion OfficeControlling & Accounting OfficeFinance Office
Corporate Planning Office

Executive
Vice
President

Corporate Planning,
Product Strategy,
Environment Affairs &Corporate Affairs Group
Headquarters

Product Strategy Office
Product Executives (PX); Product Development Officer
Corporate Affairs Office
Cost Reduction Activity Promoting Office

Shareholders
meetings

Board ofDirectors

Chairman

Product Development
Group Headquarters

President

Development Engineering Office
Design Office
Production Engineering Office

Board of
Statutory
Auditors

Production Control Office

Managing
Directors
meetings

Production Group
Headquarters

Nagoya Plant
Mizushima Plant
Powertrain Plant

Procurement Group
Headquarters
Quality Affairs &Technical Aftersales
Service Group
Headquarters

Procurement Office

Quality Affairs Office
Aftersales Service Office
Domestic Sales Innovation Office

Domestic Sales
Promotion Group
Headquarters

Domestic Sales Promotion Planning Office
Domestic Sales Office
Overseas Business Management Office
Europe Office

Overseas Operations
Group Headquarters

North Asia Office
Asia & ASEAN Office
Oceania, Latin America, Middle East and Africa Office41

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Executives

Executives(As of June 30, 2007)

Members of
the Board

Takashi Nishioka*

Osamu Masuko*

Heki Kasugai*

Hiizu Ichikawa*

Chairman of the Board

President
Chief Business Ethics Officer

Executive Vice President
In Charge of Corporate Planning,
Product Strategy, Environment
Affairs & Corporate Affairs
Group Headquarters

Managing Director
In Charge of Finance Group
Headquarters

Fujio Cho

Makoto Maeda

Norio Aoki

Hiroshi Harunari

Managing Director
In Charge of Domestic Sales
Promotion Group Headquarters

Managing Director
In Charge of Production
Group Headquarters

Managing Director
In Charge of Procurement
Group Headquarters

Managing Director
President & CEO–Mitsubishi
Motors North America, Inc.

* Representative Director

Tetsuro Aikawa

Mitsuo Hashimoto

Kazuyuki Kikuchi

Mikio Sasaki

Hidetoshi Yajima

Managing Director
In Charge of ProductDevelopment Group
Headquarters

Managing Director
In Charge of Quality Affairs& Technical Aftersales
Service Group Headquarters

Managing Director
In Charge of Overseas
Operations Group Headquarters
Corporate General Manager of
Oceania, Latin America,
Middle East and Africa OfficeDirector(Non-Executive Director)

Director(Non-Executive Director)

Statutory
Auditors

Norihide Ujita

Kenji Egawa

Shigemitsu Miki

Hiroshi Kan

Yukio Okamoto

Statutory Auditor(Full-time)

Statutory Auditor(Full-time)

Statutory Auditor(Outside Statutory Auditor)

Statutory Auditor(Outside Statutory Auditor)

Statutory Auditor(Outside Statutory Auditor)

Executive
Officers

Shuichi Aoto

Katsuo Terao

Yoshikazu Nakamura

Masao Ohmichi

Kazuya Matsushita

Senior Executive Officer
Corporate General Manager
of Controlling & Accounting
OfficeSenior Executive Officer
Corporate General Manager ofDomestic Sales Office andCorporate General Manager ofDomestic Sales Innovation Office

Executive Officer
Corporate General Manager
of CSR Promotion Office

Executive Officer
Assistant to President andVice Corporate General Manager
of CSR Promotion Office

Executive Officer
Corporate General Manager
of Finance Office andGeneral Manager of Financial
Planning Department

Shuma Uchino

Shinichi Kurihara

Keizo Fuchita

Seiichi Ohta

Akinori Nakanishi

Executive Officer
Corporate General Manager
of Corporate Planning
OfficeExecutive Officer
Corporate General Manager
of Product Strategy Office

Executive Officer
Corporate General Manager
of Corporate Affairs Officeand General Manager of Risk
Management Promotion
Team and Chief Information
Security Officer

Executive Officer
Corporate General Manager
of Development
Engineering Office andGeneral Manager of Cost
Reduction Activity
Promoting Office

Executive Officer
Corporate General Manager
of Design Office

Hiroshi Kuroda

Osamu Matsumoto

Shuzo Muramoto

Hisayoshi Kumai

Yoichi Yokozawa

Executive Officer
Corporate General Manager
of Production Engineering
OfficeExecutive Officer
Plant General Manager ofMizushima Plant

Executive Officer
Plant General Manager ofPowertrain Plant

Executive Officer
Corporate General Manager
of Domestic Sales Promotion
Planning Office

Executive Officer
Corporate General Managerof Overseas Business
Management Office

Toshifumi Sudo

Michiro Imai

Makoto Ochi

Shiro Futaki

Executive Officer
Corporate General Manager
of Europe Office

Executive Officer
President–Mitsubishi
Motors Thailand Co., Ltd.

Executive Officer
Chairman and Chief
Executive Officer–
Netherlands Car B.V.

Executive Officer
President & Chief Executive
Officer, Manufacturing–
Mitsubishi Motors North
America Inc.

42

Role of the Finance Group Headquarters

Financial Section
Contents

Role of the Finance Group Headquarters / Financial Results and Discussion /Business-related Risks _______________________________________________________________ 43
Consolidated Balance Sheets _________________________________________________________ 48
Consolidated Statements of Operations _________________________________________________ 50
Consolidated Statements of Changes in Net Assets _______________________________________ 51
Consolidated Statements of Cash Flows ________________________________________________ 52
Notes to Consolidated Financial Statements _____________________________________________ 53
Report of Independent Auditors _______________________________________________________ 83

Role of the Finance Group Headquarters
The second fiscal year of the Mitsubishi Motors Revitalization Plan ended on March 31, 2007. In addition to weaksales in Japan, North Asia, and the ASEAN region, costs were higher for non-ferrous metals, petrochemicals, andother raw materials. However, as a result of successive efforts to reduce costs Company-wide and favorable currency
movements, we achieved our goal of restoring net profitability. In fiscal year 2007, the final year of the Mitsubishi
Motors Revitalization Plan, we are reinforcing our earnings structure to build solid profitability. In this context, thefinance group has two major roles to play:
First, it is the group’s job to steer the company along the most direct road toward complete recovery. This involves
carefully monitoring quantitative financial data on MMC’s performance to analyze progress with various initiatives,
and to assure that results are being achieved in all aspects of the plan. By ascertaining quickly the financial status
of MMC’s entire operations and keeping a close eye on current and future earnings prospects, the finance groupaims to prevent the company from straying off the path to restoring profitability as set out in the revitalization plan.
MMC’s business environment is changing at a more rapid, dynamic pace than originally anticipated in terms of
economic conditions in various countries, as well as factors such as crude oil and raw materials prices, foreignexchange markets, and interest rates. In this business environment, based on a precise analysis and understandingof the course charted so far, the group must quickly steer MMC around various obstacles as measures to reach goals
are accelerated. Through objective self-assessment of the Company’s true capabilities on a daily basis, the groupalso spotlights medium-term weaknesses and challenges.
Second, the finance group is focused on the vital task of securing the funds required for the revitalization
process. These funds are principally the capital needed to develop the new models that promise to be the main
driver of restored profitability. The revitalization plan calls for ¥490.0 billion in additional funding over three years.
At the end of fiscal year 2005, MMC had already raised ¥348.0 billion, mainly through share allocations and credit
provided by a government-affiliated financial institution. In fiscal year 2006, against the backdrop of its improving
creditworthiness, MMC resumed the procurement of new funds from private-sector financial institutions, raising a
total of ¥78 billion, including a syndicated loan totaling ¥56 billion from 31 participating financial institutions in
November 2006.
Looking ahead, while monitoring cash flow trends on a consolidated basis, the group will continue to raise thefunds required through closer communication with various market participants and partner financial institutions.
(¥ billion)

Progress on Fund Procurement Plan Announced on January 28, 2005
Three-Year Fund Procurement Plan

Funds Procured in First Two Years of Plan

• Equity capital increases (excluding debt-equity swaps)

220.0• Equity capital increases

250.0• Asset divestitures or equity capital increases

30.0• Borrowings, bond issues, and other sources

176.0• Borrowings and other sources

240.0

Total

490.0

Total

426.0

In the next three years, starting from April 2008, one major management priority is to identify a way to normalize
the company’s irregular capital structure. To this end, the company intends to steadily put the finishing touches on
the Mitsubishi Motors Revitalization Plan and take the next step to enhance profitability well into the future.

43

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Financial Results and Discussion
Operational Review
In fiscal year 2006, the Japanese economy was expected to continue to expand, surpassing the late 1960s
Izanagi Boom, which had been Japan’s longest period of post-war economic expansion. However, the pace ofgrowth was generally weak. The global economy was strong, but there were increased concerns about overheating in the Chinese economy and the direction of the U.S. economy, where the housing market is in acorrection phase. In these market conditions, the MMC Group faced weak aggregate demand in Japan and theASEAN region, as well as other challenges, including sharp increases in the prices of raw materials such asaluminum, precious metals, and copper. However, the weaker yen worked in favor of the company’s results.
Under the prevailing business environment, domestic sales of minicars increased 4.2% over fiscal year
2005 to 2.03 million units, surpassing the two million mark for the first time, and rising for the fourth straight
year. However, domestic sales of registered vehicles declined 8.3% to 3.587 million units, decreasing for the
fourth straight year.

Results of Operations
In fiscal year 2006, consolidated net sales were ¥2,202.9 billion, a 3.9% increase from the previous fiscal
year. This increase in sales reflected a weaker yen and better model mix, despite lower retail sales and a dropin OEM supply volumes following the termination of smart forfour production.
MMC posted operating income of ¥40.2 billion, an increase of ¥33.4 billion from the previous year. Key
factors of this increase were as follows: a contribution of ¥2.0 billion from improving sales volumes and themodel mix, ¥20.4 billion due to favorable exchange rate movements, and ¥33.2 billion due to stronger
profitability in the U.S. sales finance business and benefits from cost reductions. The major negative factors
were a ¥2.7 billion increase in selling expenses in the U.S. and elsewhere and a ¥19.5 billion adverse impact
from sharply higher raw materials prices.
For non-operating income (loss), MMC reported a loss of ¥21.7 billion, an improvement of ¥2.9 billion
from the previous fiscal year.
In other gain (loss), the main positive factors were a liquidation gain of ¥13.9 billion on the termination ofa real estate trust and a ¥5.0 billion gain on sales of investments in securities. The main negative factors werea ¥7.5 billion impairment loss related to the consolidation of captive sales companies over large areas inJapan and ¥3.1 billion in restructuring expenses. Partly due to large impairment losses and restructuring
losses recorded in the previous fiscal year, other gains (losses) improved significantly year on year.
As a result, net income improved ¥100.9 billion from the previous fiscal year to a profit of ¥8.7 billion in
fiscal year 2006.

Segment Analysis<Business Segment Information>
MMC and its consolidated subsidiaries divide operations into two business segments: Automobiles and Financial Services.
■ Automobiles
In fiscal year 2006, sales in the automobile business rose 3.5% year on year to ¥2,154.7 billion. MMC
recorded operating income of ¥17.7 billion, a ¥23.8 billion improvement over the previous fiscal year. Fiscal
year 2006 saw strong sales in Africa, the Middle East, and Latin America, as well as Europe, which was driven
by Russia, the Ukraine and other growth markets. However, demand on the whole was weak in Japan, Asia andthe ASEAN region. Consequently, retail sales declined 114,000 units, or 8.5%, to 1,230,000 units.
■ Financial Services
In domestic automotive finance operations, under a basic agreement related to the reorganization and spinoff of the former Mitsubishi Auto Credit-Lease Corporation (MCL) in March 2006, MMC and Diamond Lease
Co., Ltd. established MMC Diamond Finance Corporation as a joint venture. In February 2007, MMC Diamond
Finance Corporation began Mitsubishi Motors-related finance operations, including automotive credit andrental car operations. In conjunction with this restructuring, in March 2007, the auto leasing business wasturned over to Mitsubishi Auto Leasing Corporation, a joint venture between Mitsubishi Corporation andDiamond Lease Co., Ltd.
44

Financial Results and Discussion

In the U.S., Mitsubishi Motors Credit of America, Inc. (MMCA) conducts auto leasing, sales financing, andrelated operations.
In fiscal year 2006, revenues from financial services increased 22.4% year on year to ¥47.9 billion. MMC
reported operating income of ¥22.3 billion from the segment, an improvement of ¥11.9 billion from theprevious fiscal year. This improvement was mainly due to structural enhancements in U.S. financial services
operations, resulting in a reduction of reserve burden for sales finance receivables.
<Geographical Segment Information>
The geographical segment analysis provided in this section is based on the results aggregated by the region of
the wholesaler and end user. Accordingly, figures differ from the ‘Geographic Segment Information’ section
provided in the Notes to Consolidated Financial Statements. Figures in this section correspond to the sales
figures reported in the ‘Overseas Sales’ section in the Notes to Consolidated Financial Statements.
■ Japan
In Japan, retail sales declined 10,000 units, or 3.9% year on year, to 247,000 units in fiscal year 2006.
Sales in Japan had increased for the 19 consecutive months between May 2005 and November 2006.
Supporting this performance were strong starts for the new Pajero and Delica D:5, which were launched in
October 2006 and January 2007, respectively. However, market conditions remained challenging. Total
domestic demand was down 4.3% year on year, particularly for registered vehicles, for which demand dropped
8.3% year on year. Against this backdrop, although sales of Mitsubishi minicars in Japan were mostly thesame as the previous fiscal year, this was insufficient to make up for the decline in sales of registeredvehicles. Consequently, in Japan, sales increased 0.4% to ¥506.0 billion. The operating loss was ¥43.8
billion, an improvement of ¥11.5 billion from the previous fiscal year, reflecting policies aimed at curtailinglow-margin transactions and the release of the new Pajero and Delica D:5, both of which are high-marginmodels, amid a decline in retail sales.
■ North America
In the U.S., the world’s largest automobile market, the Company aggressively introduced new models, including the new Eclipse Spyder in April 2006, the new Outlander, in November 2006, and the new Lancer, which
was rolled out in the U.S. before anywhere else in the world in March 2007. At the same time, MMC was
successful in strengthening the marketing capabilities of local dealership networks, boosting productivity at a
local plant and implementing effective sales promotion and advertising campaigns. As a result, retail sales inNorth America rose 8,000 units, or 5.1%, to 164,000 units, for the first time in the five fiscal years since
fiscal year 2001.
Due to the above factors, sales in North America increased 1.9% to ¥423.6 billion. Operating income improved¥7.8 billion to a profit of ¥0.6 billion, due in part to improved profitability in financial services operations.
■ Europe
In Europe, retail sales rose 15,000 units, 5.6% over fiscal year 2005 to 282,000 units. Despite falling sales
in major countries such as Germany and the U.K., sales were strong in growth markets, up roughly 20% in
Russia and doubling in the Ukraine.
As a result, net sales increased 13.1% to ¥662.8 billion and operating income improved ¥18.2 billion to¥42.6 billion.
■ Asia and Other Regions
In Asia and other regions, retail sales decreased 127,000 units, a 19.2% drop from fiscal year 2005, to
537,000 units. Although sales volumes increased in Africa, the Middle East and Latin America, where demand is strong, sales volumes were down sharply in Indonesia, Malaysia, Taiwan and China, where sales ofparts for overseas production account for much of MMC’s sales volume.
Net sales decreased 0.6% to ¥610.5 billion, while operating income fell ¥4.1 billion to ¥40.8 billion.

45

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Financial Position<Assets>
Total assets as of March 31, 2007 were ¥1,778.7 billion, up ¥221.1 billion from the end of fiscal year 2006.
Current assets were ¥1,059.6 billion, up ¥217.3 billion from a year earlier. Inventories rose ¥94.0 billion
to ¥352.0 billion in conjunction with the launch of new models. Furthermore, cash and bank deposits increased ¥99.0 billion to ¥358.1 billion.
Fixed assets increased ¥3.8 billion to ¥719.1 billion.
<Liabilities>
Total liabilities as of March 31, 2007 were ¥1,470.4 billion, an increase of ¥194.1 billion from the end of
fiscal year 2006.
Current liabilities increased ¥243.7 billion to ¥1,110.9 billion. The main contributing factor was anincrease of ¥117.2 billion in trade notes and accounts payable in conjunction with the launch of new models.
Interest-bearing debt increased ¥56.1 billion from the previous year to ¥503.8 billion.
<Equity>
Total net assets increased ¥27.0 billion to ¥308.3 billion. There was a reduction in the accumulated deficit
due to the recording of net income, and foreign currency translation adjustments improved significantly. The
equity ratio was 16.6%, a deterioration of 0.6 of a percentage point from a year earlier.

Cash Flows
Looking at cash flows in fiscal year 2006, net cash provided by operating activities totaled ¥162.3 billion,¥107.9 billion more than in fiscal year 2005.
Net cash used in investing activities was ¥46.0 billion, ¥38.8 billion less than in the previous fiscal year.
Net cash used in financing activities was ¥11.3 billion, ¥7.7 billion less than in the previous fiscal year.
As a result, the year-end balance of cash and cash equivalents was ¥364.3 billion, an increase of ¥116.2
billion from the beginning of the fiscal year.

Business-related Risks
Risks related to the company’s operations and financial status are as follows:

Support for Mitsubishi Motors Revitalization Plan from Mitsubishi Group Companies
Mitsubishi Group companies, especially Mitsubishi Heavy Industries, Ltd., Mitsubishi Corporation and Bankof Tokyo-Mitsubishi UFJ, Ltd., substantially support MMC’s financial status and administrative efforts, aswell as play a critical role in the realization of the Mitsubishi Motors Revitalization Plan. If this support were
to be removed, MMC would find it difficult to achieve the goals of our revitalization plan and restore ourbusiness back to health.

Legal Proceedings for Product Liability and Other Matters
Mitsubishi Motors is involved in the following product liability and other legal proceedings.
MMC is amongst those included in a Tokyo air pollution suit (first–sixth proceedings) that targets theJapanese National Government, the Tokyo Metropolitan Government, the Metropolitan Expressway Public
Corporation and seven diesel automobile manufacturers. Residents and commuters of the Tokyo City area (23wards) who are afflicted with respiratory ailments such as bronchial asthma as well as bereaved family members (the total number of plaintiffs is more than 500 up through the sixth proceeding) have launched this suit.
On August 8, 2007, a settlement of this suit was reached in the Tokyo District Court and the Tokyo High Court.
Under the settlement, MMC and the other six defendant companies will pay the plaintiffs a settlement fee
and contribute funds to a medical subsidy program to be established by the Tokyo Metropolitan Government.
In January 2002, a front wheel of a truck that was manufactured by MMC’s truck and bus division (nowMitsubishi Fuso Truck and Bus Corporation) detached while the truck was in motion, resulting in a fatal accident. One legal proceeding is currently in progress in relation to this accident. The suit was filed in March 2003
by the mother of the deceased. The suit seeks product liability damages amounting to 165.5 million yen
46

Business-related Risks(including punitive damages) from MMC, the Japanese National Government, and both the driver and his employer. On April 18, 2006, the Yokohama District Court, and on February 27, 2007, the Tokyo Superior Court
ordered MMC to pay 5.5 million yen (plus interest) to the plaintiff in compensatory damages; no punitive
damages were awarded. On April 21, 2006, MMC paid the 5.5 million yen (plus interest) to the plaintiff inaccordance with the ruling of the Yokohama District Court. However, the plaintiff appealed the ruling to theSupreme Court. On September 20, 2007, the Supreme Court rejected this appeal and confirmed the ruling of
the Tokyo Superior Court.

Leasing, financial services and sales incentives
Overcapacity in the automobile industry, and fierce competition, especially price competition in the North
American market, have led to the necessity of sales incentives in sales promotion efforts.
The sales incentives the company uses in promotions reduce the selling price of new vehicles. It is possiblethat the use of incentives will lower residual values, which will affect both residual values in the used carmarket and that for vehicles returned at the end of leases. If vehicle residual values decrease, there could bea negative impact on future business performance. The decline in residual values could also put downward
pressure on car and lease assets held as collateral in the sales-finance unit.

Issuance of common and preferred shares and effect on share price
In June and July 2004, March 2005 and January 2006, the company issued several classes of convertible
preferred shares as part of its revitalization plan. Conversion of all Class B shares, series 1–3 (issued July 2004),
has already been completed, but conversion of the remaining Class A & G shares to common shares in the future
will dilute the value of existing common shares and thus possibly influence the market prices of common shares.

Effect of foreign exchange rate fluctuations
Overseas sales accounted for 77.0 percent of the consolidated net sales of MMC for the period. The Company
endeavors to minimize the risk involved in foreign currency receivables and payables through foreign currency derivative contracts. However, fluctuations in the foreign exchange markets still may have an impact on MMC results.

Effect of socioeconomic situations
The breakdown of the above ratio of overseas sales is 19.2 percent for North America, 30.1 percent for
Europe, and 27.7 percent for other regions. The remaining 22.3 percent represents sales in the Japanesemarket. There is a possibility that a change in the socioeconomic situation in any of these regions will impact
the results of the company.

Effect of fluctuations in interest rates on borrowings
The balance of MMC’s consolidated interest-bearing liabilities stood at 503.8 billion yen at the end of March
2007. There is a possibility that fluctuations in interest rates on borrowings resulting from a change infinancial market conditions in the future will impact the results of the company.

Effect of fluctuations in materials prices
The MMC Group purchases materials and finished parts and components from many partners. Increased
demand and other changes in market conditions may cause materials and components prices to increase,thus raising the company’s manufacturing costs and resulting in an impact on results.

Natural and other disasters
The company maintains production and other facilities in many parts of the world. The occurrence of a major
natural or other disaster, such as an earthquake or typhoon, may result in large operational halts, etc., andthus have an impact on the results of MMC.

Changes in laws & regulations
MMC abides by laws and regulations regarding the environment, product safety, etc. in its various markets ofoperation. If any laws or regulations were to be changed, or new rules issued, costs associated with implementing these changes would have an impact on the results of the company.

47

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Consolidated Balance Sheets
Mitsubishi Motors Corporation and Consolidated Subsidiaries
As of March 31, 2007 and 2006

In millions of yen

In thousands of
U.S. dollars(Note 4)

AssetsCurrent assets:
Cash and cash equivalents (Notes 9 and 14)
Trade notes and accounts receivable (Notes 5 and 9)
Finance receivables (Notes 5 and 9)
Inventories (Note 9)
Short-term loans receivable
Deferred tax assets (Note 18)
Prepaid expenses and other current assets (Note 9)
Allowance for doubtful accounts

2007

2006

2007

¥ 364,268
195,02140,480351,991
3,277
846
130,840(27,092)¥ 248,069
179,101
39,278257,946
2,047
1,206
140,462(25,805)$ 3,085,715
1,652,021
342,910
2,981,711
27,761
7,167
1,108,350(229,497)

Total current assets

1,059,633

842,306

8,976,139

Property, plant and equipment, net (Notes 6 and 9)

517,464

506,0074,383,431

Intangible assets (Note 9)

38,53025,836326,394

Investments and other assets:
Investments (Notes 7 and 9)
Long-term finance receivables (Notes 5 and 9)
Long-term loans receivable (Note 9)
Deferred tax assets (Note 18)
Retained interests in securitized assets and others (Note 9)
Allowance for doubtful accounts

90,13818,872
13,262
8,468
50,226(17,903)83,4298,365
12,9007,413
126,290(54,979)

763,560
159,871
112,348
71,739425,468(151,663)

163,065

183,419

1,381,322¥1,778,693¥1,557,570$15,067,288

Investments and other assets, net
Total assets

48

Consolidated Balance Sheets

In millions of yen

In thousands of
U.S. dollars(Note 4)

2007

2006

2007

¥ 451,053
215,036
137,008¥ 333,842
159,254
85,108$ 3,820,871
1,821,567
1,160,598

250,7227,220
49,832

234,998
7,371
46,585

2,123,868
61,167422,132

Total current liabilities
Long-term debt (Note 9)
Deferred tax liabilities (Note 18)
Accrued retirement benefits (Note 17)
Other non-current liabilities

1,110,874
151,806
24,259105,881
77,567867,160
203,389
18,251
102,787
84,7219,410,206
1,285,947
205,500
896,920
657,074

Total liabilities

1,470,389

1,276,311

12,455,648

221,296

221,296

1,874,599

436,046
432,654(740,454)

436,040
432,648(749,198)

3,693,740
3,665,007(6,272,380)

(13)

(12)

(115)

Total stockholders’ equity

349,528

340,774

2,960,851

Valuation, translation adjustments and others
Unrealized holding gain on securities
Deferred gains /losses on hedging activities
Translation adjustments

10,132
1,393(65,272)

9,046—(81,142)

85,832
11,806(552,924)

Total valuation, translation adjustments and others
Minority interest
Total net assets(53,746)
12,522
308,304(72,096)
12,580281,258(455,284)
106,074
2,611,640¥1,778,693¥1,557,570$15,067,288

Liabilities and net assets
Current liabilities:
Trade notes and accounts payable
Short-term borrowings (Note 9)
Current portion of long-term debt (Note 9)
Accrued expenses, accounts payable anddeferred income (Note 8)
Accrued income taxes (Note 18)
Other current liabilities (Note 18)

Net assets
Stockholders’ equity (Notes 10 and 21):
Preferred stock:
Authorized: 3,312,000 shares
Issued or converted
442,593 shares in 2006
442,593 shares in 2007
Common stock:
Authorized: 9,958,285,000 shares
Issued or converted
5,491,452,544 shares in 2006
5,491,516,544 shares in 2007
Capital surplus
Accumulated deficit
Treasury stock — 73,191 shares at March 31, 2006
Treasury stock — 76,934 shares at March 31, 2007

Contingent liabilities (Note 11)
Total liabilities and net assets
See accompanying notes to consolidated financial statements.

49

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Consolidated Statements of Operations
Mitsubishi Motors Corporation and Consolidated Subsidiaries
For the years ended March 31, 2007 and 2006

In thousands of
U.S. dollars(Note 4)In millions of yen

Net sales
Cost of sales
Reversal of deferred profit on installment sales, net

2007

2006

2007

¥2,202,869
1,788,897
0¥2,120,068
1,700,524
0$18,660,475
15,153,726
7

413,972

419,5443,506,755

373,735

412,760

3,165,906

40,237

6,783

340,849

8,098
20,777(7,465)
3,011

5,105
19,580(45,084)(29,969)

68,603
176,008(63,242)
25,513

23,104(82,745)

195,714

7,236
5,066

7,351
558

61,30342,915(12,303)
2,055(7,909)1,511(104,219)
17,413Gross profit
Selling, general and administrative expenses (Note 12)
Operating income
Interest and dividend income
Interest expense
Loss on impairment of fixed assets
Other gain (loss), net (Notes 7 and 13)
Income (loss) before income taxes andminority interest
Income taxes (Note 18):
Current
Deferred
Minority interest
Net income (loss) (Note 21)
See accompanying notes to consolidated financial statements.

50

¥

8,745

¥

(92,166)$

74,081

Consolidated Statements of Operations / Consolidated Statements of Changes in Net Assets

Consolidated Statements of Changes in Net Assets
Mitsubishi Motors Corporation and Consolidated Subsidiaries
For the years ended March 31, 2007 and 2006

Stockholders’ equity
Preferred stock:
Balance at beginning of year
Preferred stock issued or converted
Balance at end of year
Common stock:
Balance at beginning of year
Common stock issued or converted
Balance at end of year
Capital surplus:
Balance at beginning of year
Issuance or conversion of common and preferred stock
Balance at end of year
Accumulated deficit:
Balance at beginning of year
Net income
Effect of Australian subsidiary for adopting
new accounting standards
Effect of deconsolidation of subsidiaries
Balance at end of year
Treasury stock:
Balance at beginning of year
Net change

In millions of yen

In thousands of
U.S. dollars(Note 4)

2007

2006

2007

¥221,296—¥263,096(41,800)$1,874,599—

221,296

221,296

1,874,599

436,0405379,204
56,836

3,693,693
47

436,046

436,040

3,693,740

432,6485

417,61215,035

3,664,960
46

432,654432,648

3,665,007(749,198)
8,745(656,068)(92,166)(6,346,448)
74,081

—
(1)

(962)
—

—
(14)

(740,454)(749,198)(6,272,380)

(12)
(0)

(8)
(4)

(108)
(7)

Balance at end of year

(13)

(12)

(115)

Total stockholders’ equity

349,528

340,774

2,960,851

9,046
1,085

9,208
(161)

76,636
9,196

10,132

9,046

85,832

—
1,393

—
—

—
11,806

1,393—

11,806

Translation adjustments:
Balance at beginning of year
Net change(81,142)
15,869(88,262)
7,119(687,358)
134,433

Balance at end of year
Total valuation, translation adjustments and others(65,272)(53,746)(81,142)(72,096)(552,924)(455,284)

Minority Interest:
Balance at beginning of year
Net change

12,580(58)

10,2292,351

106,568(493)

12,522¥308,304

12,580¥281,258

106,074$2,611,640

Valuation, translation adjustments and others
Unrealized holding gain on securities:
Balance at beginning of year
Net change
Balance at end of year
Deferred gains/losses on hedging activities:
Balance at beginning of year
Net change
Balance at end of year

Balance at end of year
Total net assets
See accompanying notes to consolidated financial statements.

51

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Consolidated Statements of Cash Flows
Mitsubishi Motors Corporation and Consolidated Subsidiaries
For the years ended March 31, 2007 and 2006

In millions of yen

In thousands of
U.S. dollars(Note 4)

2007

2006

2007

8,745

¥ (92,166)

75,330(15,201)(650)(2,166)
5,066
2,055

68,718(9,345)
1,763(1,453)
558
1,511

638,121(128,770)(5,508)(18,348)
42,915
17,413

2,003
7,465(5,036)451—(13,885)
3,073
5,618
(55,334)
58,249(1,717)
69,297
18,978(1,862)45,084
(391)
335
1,186
—
—
(19,550)(5,881)
15,79016,85330,2103,069

16,972
63,242(42,661)
3,823—(117,620)
26,03647,597(468,736)
493,428(14,546)
587,021
160,769

162,345

54,4301,375,230

12,085(111,594)

3,045(133,924)

102,379(945,311)

40,2749,294(8,750)(2,646)(68)
1,974
19,451(6,039)45,839(166)—741(2,017)1,584—
86341,165
78,732(74,121)(22,418)(578)
16,729164,773(51,161)

Net cash used in investing activities
Financing activities:
Decrease in short-term borrowings
Proceeds from issuance of long-term debt
Repayment or redemption of long-term debt
Common and preferred stock issued
Dividend paid to minority interest
Other(46,017)(84,811)(389,810)(13,564)
68,823(66,464)
—
(79)
(3)

(48,192)
41,687(42,067)
29,704(33)(53)(114,904)
583,006(563,019)
—
(675)
(26)

Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents(11,287)
11,326(18,955)2,557(95,620)
95,945

Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Change in cash and cash equivalents due to inclusion andexclusion of subsidiaries in consolidation

116,367
248,069(46,779)
294,903

985,745
2,101,392

(167)

(54)

(1,422)

Cash and cash equivalents at end of year (Note 14)¥364,268¥248,069$3,085,715

Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization
Allowance for doubtful accounts, net of reversal
Accrued retirement benefits, net of reversal
Gain from affiliates accounted for by the equity method, net
Deferred income taxes
Minority interest
Loss (gain) on sales and disposal of property,
plant and equipment, net
Loss on impairment of fixed assets
Gain on sales of investments in securities, net
Loss on impairment of investments in securities
Loss compensation based on stock transfer contract
Gain on liquidation of anonymous association
Early retirement expense
Change in trade notes and accounts receivable
Change in inventories
Change in finance receivables (Note 14)
Change in retained interests in securitized assets
Change in trade notes and accounts payable
Other
Net cash provided by operating activities
Investing activities:
Decrease in investments in term deposits
Purchase of property, plant and equipment (Note 14)
Proceeds from sales of property,
plant and equipment (Note 14)
Decrease (increase) in investments in securities
Acquisition of capital investments in affiliates
Decrease (increase) in short-term loans receivable
Loans madeCollection of loans receivable
Proceeds from liquidation of anonymous association
Other

See accompanying notes to consolidated financial statements.

52

¥

$

74,081

Consolidated Statements of Cash Flows / Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements
Mitsubishi Motors Corporation and Consolidated Subsidiaries

1. Going Concern
Although the Mitsubishi Motors Corporation (MMC) group recorded consolidated net income of ¥8,745 million ($74,081
thousand) in fiscal year (“FY”) 2006, the MMC group recorded consolidated net losses of ¥474,785 million and¥92,166 million in FY 2004 and FY 2005. As a result, significant doubt arises as to the Company’s ability to continue
as a going concern.
To address this situation as well as strengthen its operating base, the MMC group formulated the “Business
Revitalization Plan” (from FY 2004 to FY 2006) in May 2004 and outlined additional measures in June 2004 that
focus on three areas: all out cost cutting; restoring customer trust; and across the board compliance.
Despite these measures, the MMC group’s inability to respond adequately to past recall problems delayed thehoped for restoration of consumer and public trust and seriously impacted sales. This, in turn, highlighted the problemof over capacity that lurked beneath the surface over recent years. In addition, concerns deepened about delays in therecovery of operations and about the financial health of the MMC group. As a result, the MMC group was forced to use
funds allocated for the revitalization program in the repayment of interest bearing debt.
To break out of this situation and successfully revitalize itself, the MMC group, while continuing its efforts to regain
customer and public trust, found itself in a situation that required additional measures to improve profitability. Given
these circumstances, the MMC group put together the new “Mitsubishi Motors Revitalization Plan” in January 2005.
Highlights of the plan as well as the progress in FY 2006 are summarized as follows.
(1) Corporate culture reform initiatives
Recovering customer and public trust and reforming corporate culture are absolute priorities in the MMC group’s bid torevitalize itself. The Corporate Social Responsibility (CSR) Promotion Office has been playing a lead role in the implementation of a wide range of measures designed to enhance compliance. The Business Ethics Committee, made up of
specialists and leaders in their fields from outside the MMC group, has also given valuable advice and guidance froman external perspective in this regard. The MMC group continues to carry out the counter measures that were announced
in March 2005 to prevent recurrence of the recall problem.
(2) Key points of the “Mitsubishi Motors Revitalization Plan” and additional commitments for FY 2006 and FY 2007
• Recover trust by assigning first priorities to customers• Assigning first priorities to customers in all areas, from marketing through after sales services• Regaining customer’s trust by superior product quality• Business strategy• Setting sales plans that reflect downside risks• Promoting of operational tie-ups with other automakers• Rationalizing production capacity and sales network• Capital enhancement• Strengthening financial standing and securing capital for revitalization• Effective management• Taking lead with a new management team
• Setting up a thorough follow-up system• Implement and extend across the board compliance[Additional commitments for FY 2006]• Strengthening sales operations around the world beginning with Japan and North America in order to achievesales targets• Implementing cost reduction policies in all functional areas including sales, production and development• Optimizing the global production system• Enhancing corporate governance through effective internal control

53

MITSUBISHI MOTORS CORPORATION Annual Report 2007

[Additional commitments for FY 2007]• Returning into the black in domestic operations by integrating sales networks and strengthening the sales operations• Expanding sales in new markets centering on BRICs• Progressing in environmental technology development(3) Targets• Achieved net profitability in FY 2006 as targeted• Continuing to carry out measures to sustain profitability in FY 2007
(4) Business strategy(i) Sales volume plans
Sales plans in the “Mitsubishi Motors Revitalization Plan” have been drawn up for each region based on current market
trends to set realistic and achievable targets and eliminate all foreseeable downward risks. As a result, although fiscal
year volume targets in the new plan were originally sought to recover to the FY 2003 level of 1,500,000 vehicles in FY
2007, volume targets were revised to 1,320,000 vehicles due to lower aggregate demand in current domestic and
ASEAN markets.
(ii) Product strategy
a. Motorsports
The MMC group places Motorsports at the very heart of its car design and development activities. The technology andexperience built up through taking part in grueling and competitive events such as the Dakar Rally and the World Rally
Championship are being fed back and reflected into all production cars as the “Sporty DNA” and “SUV DNA” thatdefine the MMC brand. That same technology and expertise also enables increased safety and durability as well as
driving performance and the MMC group intends to further raise its product value by actively promoting theseembodied qualities.
b. Improving efficiencies in model mix
The new plan incorporates measures under which the MMC group will cut back the number of low volume models
produced for individual markets and concentrate managerial resources on highly competitive global market models.
This will raise development and production efficiencies.
c. New model launches
The MMC group has been increasing the number of new model launches since FY 2005 and will expand earning
opportunities by continuing to actively introduce new models across all regions.
(iii) Business tie-up strategy
To further promote a policy of selection and concentration, the MMC group will actively pursue strategic tieup opportunities with other companies. The MMC group has reached an agreement for a joint development project of
the next generation diesel engine with Mitsubishi Heavy Industries, Ltd. (MHI) and has signed a diesel engine supply
agreement with PSA Peugeot Citroën. On April 2007, the MMC group also has agreed with Nissan Motor Co., Ltd. toexpand its OEM contract scope. The MMC group continues to seek tie-ups with other companies to consider the
options such as expanding OEM arrangements, component supply partnering, joint distribution arrangements and joint
procurements arrangements.

54

Notes to Consolidated Financial Statements(iv) Regional strategy
a. JapanAs one of the cornerstones of the “Mitsubishi Motors Revitalization Plan”, the MMC group has been acceleratingreconstruction of its domestic sales network and it plans to integrate and merge widespread domestic consolidated
sales companies and parts sales companies during FY 2007. By continuing to implement the policies of: improving
efficiency in sales network; strengthening sales operations; and enhancing corporate governance, the MMC groupstrives to obtain top class customer satisfaction in the industry and improve profitability. As a result of these measures,the MMC group strives to achieve profitability in domestic operation at an early stage.
b. North America
In order to establish a structure for profitable operations in the North American market, the MMC group appointed ahead office managing director to become CEO and President of its North American subsidiary. The MMC group also
introduced a new management structure that will strengthen links and promote effective communication with MMC.
c. Europe
To move its European operations forward from start-up stage into the growth stage, the MMC group will work to promote sales
for a stronger model lineup and will place its effort to strengthen its management and improve sales structures.
d. China
The MMC group seeks to expand its operation by continuing to promote the Mitsubishi brand that is already being wellestablished in China. In September 2006, the MMC group completed capital investment in South East (Fujian) Motors
Co., Ltd. to upgrade the Mitsubishi brand models and expand its range of models for sale. The MMC group is also
considering establishing engine joint ventures in China, as a major engine production hub, and R&D facilities to meet
local market needs on a timely basis.
e. Other markets
The MMC group is taking steps to strengthen its operational footing in ASEAN markets. These include strengthening
sales operations in Thailand, establishing sales structures in Malaysia, and reorganizing operations in Indonesia. The
MMC group is also increasing production capacity in Thailand, which now serves as one of the important export hubs
to global markets.
(v) Cost reductions
a. Manpower
As a result of changes in organizational structure and work processes, improved operational efficiency and reduction of
the numbers of personnel, the MMC group’s staff reduction program is on track and scheduled to achieve the plannedtarget. The MMC group also continues to work on further improvements in operational efficiencies.
b. Materials costs
In spite of rising prices of raw materials, the MMC group continues to make every effort for further cost reductions.

55

MITSUBISHI MOTORS CORPORATION Annual Report 2007

(5) Corporate ideals and direction
Together with the announcement of the new “Mitsubishi Motors Revitalization Plan” in January 2005, the MMC groupformed the new corporate maxim “We are committed to providing the utmost driving pleasure and safety for our valued
customers and our community. On these commitments we will never compromise. This is the Mitsubishi Motors way”.
In addition, from September 2005, the MMC group also adopted a new slogan in Japan that was chosen by staff:“Kuruma zukuri no genten e” (“Pursuing the Origins of Car Engineering”).
(6) Profit and loss targets
By reflecting all the measures described above, the MMC group was able to return to the black at the operating income
level one year ahead of the target originally planned in the “Mitsubishi Motors Revitalization Plan” in FY 2005.
In FY 2006, the MMC group recorded net income of ¥8,745 million ($74,081 thousand) and achieved net profitability as targeted in the plan. For FY 2007, the MMC group continues to carry out the measures towards solid profitability.
(7) Support systems: capital and funding reinforcements(i) Capital reinforcement
With the full support of four Mitsubishi companies, during FY 2004, the MMC group received a capital enhancementof ¥284.2 billion through the issuance of common and preferred stock. In January 2006, the MMC group issued an
additional ¥30 billion of preferred stock by third party allocation. The combined interests of the MMC group by MHI,
Mitsubishi Corporation, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. were approximately 34% at March 31, 2007.
The MMC group became an equity method affiliate of MHI since the second half of FY 2005.
(ii) Borrowing
In respect of the plan to raise ¥240 billion as part of the “Mitsubishi Motors Revitalization Plan” formed in January
2005, the MMC group raised nearly ¥80 billion in FY 2005, and also raised nearly ¥80 billion by obtaining ¥56 billion
through a medium term syndicate loan in FY 2006. As for FY 2007, the MMC group plans to raise the appropriate
amount of funds by reviewing its financing needs.
(iii) Capital expenditure for revitalization
The funds that were obtained from capital enhancement and funding measures will be utilized in R&D and capital
investment, which will provide the platform vital to the successful achievement of targets and goals that were set out
in the “Mitsubishi Motors Revitalization Plan”.
The MMC group set up a new “Business Revitalization Monitoring Committee”, an external body that monitors the
progress made in the implementation of the “Mitsubishi Motors Revitalization Plan” in April 2005. The members of
the committee are made up of specialists and leaders in their fields from outside the MMC group as well as representatives from key stockholders of Mitsubishi companies, and they have been overseeing the progress of the “Mitsubishi
Motors Revitalization Plan” and have given valuable advice and guidance.
For this fiscal year, the MMC group has restored profitability at all levels (operating, ordinary and net income).
The MMC group, in order to restore operations as well as financial health across the board, is devoting itself tomaterializing the new “Mitsubishi Motors Revitalization Plan” that was announced in January 2005 with full supportof three Mitsubishi companies (MHI, Mitsubishi Corporation and The Bank of Tokyo-Mitsubishi UFJ, Ltd.).
Accordingly, these financial statements have been prepared on the basis of going concern and the effect of any
significant doubt as to going concern is not reflected.

56

Notes to Consolidated Financial Statements

2. Significant Accounting Policies(a) Basis of preparation
MMC and its domestic consolidated subsidiaries maintain their books of account in conformity with the financial
accounting standards of Japan. Foreign subsidiaries maintain their books of account in conformity with standards intheir countries of domicile.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in Japan which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. These financial statements have been compiled from the consolidated financial statements filed to the Financial Services Agency as required by the Securities and Exchange Law
of Japan.
In addition, the notes to the consolidated financial statements include information, which is not required undergenerally accepted accounting principles in Japan but is presented herein as additional information.
Certain reclassifications have been made to the prior year’s financial statements to conform to the current
year’s presentation.
As permitted, amounts of less than ¥1 million have been omitted. Consequently, the totals shown in the accompanying
financial statements (both in yen and U.S. dollars) do not necessarily agree with the sum of the individual amounts.
(b) Principles of consolidation
All significant companies over which MMC has effective control are consolidated. Significant companies over which
MMC has the ability to exercise significant influence have been accounted for by the equity method.
All significant inter-company transactions have been eliminated in consolidation.
Any differences at the date of acquisition between acquisition cost and the fair value of the net assets acquired are
expensed when incurred or are amortized over periods between 3 to 7 years.
(c) Cash and cash equivalents
All highly liquid and low risk investments with maturities of three months or less when purchased are considered to be
cash equivalents.
(d) Inventories
Inventories of MMC and its domestic consolidated subsidiaries are principally stated at cost determined by the first in
first out or specific identification method. Inventories of the foreign consolidated subsidiaries are principally stated at
the lower of cost or market value. Cost is determined by the specific identification method.
(e) Investments in securities
Investments in securities are classified either as held-to-maturity, investments in unconsolidated subsidiaries andaffiliated companies, or other securities. Investments in securities that are expected to be held to maturity are statedat their amortized cost. Investments in securities that are expected to be held-to-maturity were not held during FY
2006. Other securities with a readily determinable market value are stated at fair value and the cost of other securities
sold is computed based on the moving average method. The difference between the acquisition cost and the carrying
value of other securities, including unrealized gains and losses, is recognized in “Unrealized holding gain on securities” in the accompanying consolidated balance sheets. Other securities without a readily determinable market value
are stated at cost determined by the moving average method.

57

MITSUBISHI MOTORS CORPORATION Annual Report 2007(f) Depreciation and Amortization
Depreciation of property, plant and equipment is principally calculated by the declining balance method or the straightline method over the estimated useful life of the respective assets. The estimated useful life of the assets at MMC and
its domestic consolidated subsidiaries are as provided for in the Corporate Tax Law.
Intangible fixed assets are amortized by the straight line method primarily over their respective estimated useful
lives. Software intended for use by MMC and its domestic consolidated subsidiaries is amortized by the straight line
method over a period of 5 years. Goodwill and negative goodwill are amortized immediately or on a straight line basis
over periods of 3 to 7 years depending on the period of effectiveness estimated by each investment.
[Additional information]
Until this fiscal year, in order to determine the useful lives of the fixed assets for accounting purposes, MMC used thesame useful lives that are provided for in the Corporate Tax Law. However, due to effective manufacturing integration
based on the “Mitsubishi Motors Revitalization Plan” and by reducing the number of platforms and sharing existing
platforms, the estimated actual useful lives of dies, which are classified under tooling and furniture, and their useful
lives under the Corporate Tax Law are now substantially different.
Hence, from this fiscal year, instead of the useful lives dictated by the Corporate Tax Law, estimated actual useful
lives are used to determine the useful lives of MMC’s fixed assets. As a result, operating income, ordinary income andnet income for the year ended March 31, 2007 have increased by ¥7,585 million ($64,259 thousand). (The effects on
the segment information are described in Note 19).
(g) Allowance for doubtful accounts
The allowance for doubtful accounts has been provided based on MMC and its consolidated subsidiaries’ historicalexperience with respect to write-offs and an estimate of the amount of specific uncollectible accounts.
(h) Allowance for product warranties
The allowance for product warranty claims has been calculated based on MMC and its consolidated subsidiaries’
historical experience and estimations with respect to future costs relating to claims.
(i) Retirement benefits
Accrued retirement benefits for employees at March 31, 2007 and 2006 are calculated based on the retirement
benefits obligation and the fair value of the pension plan assets estimated at year end.
Prior service cost is being amortized using the straight line method over periods of 5 to 21 years. These periods arewithin the estimated average remaining service years of the employees.
Actuarial gains and losses are being amortized using the straight line method over the periods of 5 to 21 years.
These periods are within the estimated average remaining service years of the employees.
(j) Accrual for retirement benefits for directors and corporate auditors
Before the termination of the retirement benefits plan for directors and corporate auditors during this fiscal year,
certain directors and corporate auditors of MMC and its domestic consolidated subsidiaries were customarily entitledto lump-sum payments under their respective unfunded severance benefit plans subject to the stockholders’ approval.
Provision for severance benefits for those directors and corporate auditors were made at the estimated amount which
would be paid if all directors and corporate auditors resigned as of the balance sheet dates. Due to the termination of
the plan, further provision is no longer needed and the outstanding balance of the provision represents only a portionof benefit payments reserved before the plan’s termination.

58

Notes to Consolidated Financial Statements(k) Translation of foreign currency accounts
The accounts of the consolidated foreign subsidiaries are translated into Yen as follows:a. Asset and liability items are translated at the rate of exchange in effect on March 31;
b. Components of stockholders’ equity are translated at their historical rates at acquisition or upon occurrence; andc. Revenues, expenses and cash flow items are translated at the average rate for the financial period. Translation
adjustments are included in “Net assets”.
(l) Amounts per share of common stock
The computation of basic net income (loss) per share of common stock is based on the weighted average number ofshares of common stock outstanding during each year. Diluted net income per share of common stock is computed
based on the weighted average number of shares of common stock outstanding each year after giving effect to thedilutive potential of common stock to be issued upon the conversion of preferred stock and stock options.
(m) Leases
Non-cancelable lease transactions at MMC and its domestic consolidated subsidiaries are accounted for as operatingleases regardless of whether such leases are classified as operating or finance leases, except that lease agreements, which
stipulate the transfer of ownership of the leased property to the lessee, are accounted for as finance leases.
Non-cancelable lease transactions at foreign subsidiaries, except for operating leases, are capitalized.
(n) Derivative financial instruments
MMC and its consolidated subsidiaries are exposed to risks arising from fluctuations in foreign currency exchange rates
and interest rates. In order to manage those risks, MMC and its consolidated subsidiaries enter into various derivative
agreements including forward foreign exchange contracts and interest rate swaps.
Forward foreign exchange contracts are utilized to manage risks arising from forecast exports of finished goods andrelated foreign currency receivables. Interest rate swaps are utilized to manage interest rate risk for loans and bonds.
MMC and its consolidated subsidiaries do not utilize derivatives for speculation or trading purposes.
Derivative financial instruments are recorded at fair value, excluding certain instruments described below which
are recorded in accordance with the special hedge provisions of the accounting standard.
Forward foreign exchange contracts related to forecast exports of finished goods are accounted for using deferral
hedge accounting. Deferral hedge accounting requires unrealized gains or losses to be deferred as liabilities or assets.
MMC and its consolidated subsidiaries have also developed a hedging policy to control various aspects of thederivative transactions including authorization levels and transaction volumes. Based on this policy, within certain
limits, MMC and its consolidated subsidiaries hedge the risks arising from the changes in foreign currency exchange
rates and interest rates. Forward foreign exchange contracts are designated to hedge the exposure to variability in
expected future cash flows.
For interest rate swaps accounted for as special hedges, instead of measuring hedge effectiveness, confirmation of
the conditions for special hedge accounting is carried out.

59

MITSUBISHI MOTORS CORPORATION Annual Report 2007

3. Changes in Accounting Policies(a) Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective for the year ended March 31, 2007, Accounting Standard for Presentation of Net Assets in the Balance Sheet(Accounting Standards Board of Japan (ASBJ) statement No.5, December 9, 2005) and Guidance on AccountingStandard for Presentation of Net Assets in the Balance Sheet (ASBJ Guidance No.8, December 9, 2005) have been
adopted. Total stockholders’ equity under the previous presentation amounted to ¥294,388 million ($2,493,759
thousand). In conjunction with the revisions of the Regulations Concerning Consolidated Financial Statements, net
assets in the consolidated balance sheets for this fiscal year are presented in accordance with the revised Regulations
Concerning Consolidated Financial Statements.
(b) Accounting Standard for Business Combinations
Effective for the year ended March 31, 2007, Accounting Standard for Business Combinations (Business accounting
Council, October 31, 2003), Accounting Standard for Business Divestitures (ASBJ statement No.7, December 27,2005) and Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestures(ASBJ Guidance No.10, December 27, 2005) have been adopted.
4. U.S. Dollar Amounts
The U.S. dollar amounts in the accompanying consolidated financial statements are included, solely for convenience,at ¥118.05 = U.S.$1.00, the exchange rate prevailing on March 31, 2007. This translation should not be construed
as a representation that the Yen amounts represent or have been, or could be, converted into U.S. dollars at that or any
other rate.
5. Trade Notes and Accounts Receivable, and Finance Receivables
The outstanding balances of trade notes and accounts receivable sold to others which have been deducted from therespective accounts amounted to ¥6,614 million ($56,034 thousand) and ¥12,359 million as of March 31, 2007 and2006, respectively. Such amounts deducted from finance receivables were ¥27,836 million ($235,800 thousand)and ¥115,214 million as of March 31, 2007 and 2006, respectively.
As March 31, 2007 was on the weekend, some receivables and payables were not able to be settled by financial
institutions on that date. Accordingly, notes receivable and accounts receivable are affected by ¥8,279 million ($70,138
thousand) and, notes payable and accounts payable are affected by ¥47,341 million ($401,030 thousand) at March
31, 2007.
6. Property, Plant and Equipment
Accumulated depreciation of property, plant and equipment at March 31, 2007 and 2006 was ¥1,282,155 million($10,861,124 thousand) and ¥1,260,506 million respectively.
Impairment losses were recognized in the following asset groups for the year ended March 31, 2007:
In millions of yen

In thousands of
U.S. dollars

Location

Application

Assets

Shioya, Tochigi and Okaya,
Nagano and others (78 sites)

Assets used insales operations

Land, buildings and others¥6,379$54,044

Niigata, Niigata and Sendai,
Miyagi and others (29 sites)

Idle assets

Land, buildings and others

1,085

9,198

¥7,465$63,24260

Impairment loss amountNotes to Consolidated Financial Statements

The groupings of assets are determined as follows:
Assets used in production are grouped either by manufacturing plants or operational sites. Assets used in sales operations are generally grouped by operational sites. Assets leased to others and idle assets have their own asset groups.
As a result of the previously listed factors that cast doubt on the ability of the MMC group to continue as a going
concern, as well as significant decreases in market prices, the book value of some of the assets has been adjusted
downwardly to recoverable value.
The recoverable values of assets have been obtained through comparing and then taking the higher of: value in use,which is determined by estimating future cash flow with a 6% discount rate; and net realizable value, which is basedon an appraisal value obtained from a professional real estate appraiser or calculated on a reasonable basis by using
the estate tax valuations through land assessments and similar methods.
Loss on impairment of fixed assets amounted to ¥7,465 million ($63,242 thousand) and ¥45,084 million for theyear ended March 31, 2007 and 2006, respectively. Losses on land at March 31, 2007 and 2006 amounted to¥3,102 million ($26,285 thousand) and ¥20,665 million, respectively. Losses on buildings at March 31, 2007 and2006 amounted to ¥2,340 million ($19,826 thousand) and ¥3,944 million, respectively.
Losses on other assets at March 31, 2007 and 2006 amounted to ¥2,022 million ($17,130 thousand) and¥20,474 million, respectively.
7. Investments
Other securities at March 31, 2007 and 2006 were as follows:
In millions of yen

2007
Acquisition
cost

Carrying
amountOther securities:
Securities withmarket value
Securities withoutmarket value¥10,682

Total other securities

2006

Unrealized Unrealized
gains(losses)Acquisition
cost

Carrying
amount¥27,892¥17,218¥(8)¥ 9,870 ¥25,110 ¥15,246¥(6)

32,57732,577——27,288——¥43,259¥60,469¥17,218¥(8)¥37,159 ¥52,399 ¥15,246¥(6)

27,288

Unrealized Unrealized
gains(losses)In thousands of U.S. dollars

2007
Acquisition
cost

Carrying
amountUnrealized Unrealized
gains(losses)

Other securities
Securities withmarket value
Securities withoutmarket value$ 90,490 $236,274 $145,858——

Total other securities$366,453 $512,236 $145,858$(75)

275,962

275,962$(75)

61

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Proceeds from sales of other securities and the corresponding gross gains and losses that are included in other gain
(loss), net in the accompanying consolidated statements of operations for the years ended March 31, 2007 and 2006
were as follows:

Proceeds
Gross gains
Gross losses

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥4,501
2,040
157

¥74
31
—

$38,132
17,285
1,332

Significant declines in the value of securities with market value are recognized as impairment losses if the decline
is not considered to be recoverable. After the write down of the impaired amount, a new book value is established.
Likewise, significant declines in the value of securities without market value are recognized as impairment losses.
Losses recognized on the impairment of securities without market value totaled ¥334 million ($2,837 thousand) and¥9 million for the years ended March 31, 2007 and 2006, respectively.
Investments in unconsolidated subsidiaries and affiliated companies, and investments in securities at March 31,
2007 and 2006 were as follows:

Investments in unconsolidated subsidiaries andaffiliated companies
Investments in securities

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥41,894
48,244¥36,395
47,033$354,883
408,676¥90,138¥83,429$763,560

8. Accrued Expenses, Accounts Payable and Deferred Income
Accrued expenses, accounts payable and deferred income at March 31, 2007 and 2006 were as follows:
In millions of yen

Accrued expenses and accounts payable
Allowance for product warranties
Deferred income

In thousands of
U.S. dollars

2007

2006

2007

¥194,941
53,213
2,567¥181,553
49,5893,856$1,651,348
450,767
21,753¥250,722¥234,998$2,123,868

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥215,036¥159,254$1,821,567

9. Short-Term Borrowings and Long-Term Debt
Short-term borrowings at March 31, 2007 and 2006 consisted of the following:

Loans, principally from banks

The weighted average interest rates on short-term borrowings at March 31, 2007 and 2006 were 5.6% and4.6%, respectively.

62

Notes to Consolidated Financial Statements

Long-term debt at March 31, 2007 and 2006 consisted of the following:

Loans, principally from banks and insurance companies,
due through 2023 at interest rates averaging 4.8% in 2007
and 4.4% in 2006:
SecuredUnsecured
3.1% bonds due May 28, 2007 (issued May 28, 1997)
3.3% bonds due May 28, 2009 (issued May 28, 1997)
Euro medium-term notes due through 2006 at rates 5.0%
to 5.2% (issued April through May, 2003)
Euro medium-term notes due 2007 through 2008 at rates 3.0%
(issued 2003 through 2004)
5.7% to 6.0% bonds due 2008 through 2009(issued 2005 through 2006)
1.1% bonds due September 24, 2010
(issued September 26, 2005)
Less current portion

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥ 141,694
84,9308,700
25,600¥208,962
17,1508,700
25,600$ 1,200,293
719,441
73,697
216,857

—

3,745

—

2,000

3,000

16,941

25,69021,140217,619

200

200

1,694

288,814(137,008)

288,498(85,108)2,446,546(1,160,598)¥ 151,806¥203,389$ 1,285,947(a) 3.1% bonds due May 28, 2007, 3.3% bonds due May 28, 2009, and Euro medium-term notes due 2007 through2008 at rates 3.0% were issued by MMC.
(b) Euro medium-term notes due through 2006 at rates 5.0% to 5.2% consist of notes issued by an overseas subsidiary, MMC International Finance (Netherlands) BV. (Balance at March 31, 2006 was =C 26,225 thousand).
(c) 5.7% to 6.0% bonds due 2008 through 2009 consist of notes issued by an overseas subsidiary, Mitsubishi Motors(Thailand) Company Limited. (Balances at March 31, 2006 and March 31, 2007 were B| 7,000,000 thousand).
(d) 1.1% bonds due September 24, 2010 were issued by a domestic subsidiary, Suiryo Plastics Co., Ltd.
The maturities of long-term debt are as follows:
In millions of yen

In thousands of
U.S. dollars

2008
2009
2010
2011
2012
Thereafter¥137,008
96,30954,844438
164
50$1,160,598
815,836
464,584
3,710
1,390
424

Total

¥288,814$2,446,546

Year ending March 31,

63

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Assets pledged as collateral for short-term borrowings, long-term debt and guarantees (excluding factory relatedgroups of assets) at March 31, 2007 and 2006 consisted of the following:
In millions of yen

Trade notes and accounts receivable
Inventories
Finance receivables
Property, plant and equipment, net
Retained interests in securitized assets
Other (see (i) below)

In thousands of
U.S. dollars

2007

2006

2007

¥ 15,845
93,40939,155
182,224
9,358
79,185¥ 14,129
55,95632,080202,879
28,182
56,767$ 134,224
791,273
331,684
1,543,617
79,277670,777¥419,178¥389,995$3,550,854(i) ¥864 million ($7,325 thousand) and ¥687 million of other current assets were pledged based on a liability in aterm lease contract relating to a building with Murata Medical Services, Ltd. at March 31, 2007 and 2006,
respectively. ¥46 million ($389 thousand) of investments were pledged as collateral for debt from Mizushima EcoWorks Co., Ltd at March 31, 2007.
The following groups of assets of MMC, the Okazaki factory, were pledged as collateral at March 31, 2007 and2006, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land
Other

In thousands of
U.S. dollars

2007

2006

2007

¥11,754
5,438
985
297

¥11,038
4,124
985
—

$ 99,573
46,0738,351
2,517¥18,476¥16,148$156,515

The following groups of assets of MMC, the Mizushima factory, were pledged as collateral for the debt from The
Japan Bank for International Cooperation to EQUUS Leasing B.V., a counterparty of Netherlands Car B.V., a consolidated subsidiary, at March 31, 2007 and 2006, respectively. The amounts guaranteed to EQUUS were ¥13,567
million ($114,933 thousand) and ¥15,600 million at March 31, 2007 and 2006, respectively.

Buildings and structures
Machinery and equipment
Land
Other

64

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥ 9,127
41,3472,008
1,771¥ 5,375
25,704
2,008—$ 77,319
350,255
17,01615,009¥54,255¥33,088$459,601

Notes to Consolidated Financial Statements

The following groups of assets of MMC, the Kyoto factory, were pledged as collateral at March 31, 2007 and2006, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land
Other

In thousands of
U.S. dollars

2007

2006

2007

¥ 6,870
11,4402,235
689¥ 7,347
13,622
2,275—$ 58,200
96,91018,934
5,843¥21,235¥23,244$179,888

The following groups of assets of MMC, the Shiga factory, were pledged as collateral at March 31, 2007 and2006, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land

In thousands of
U.S. dollars

2007

2006

2007

¥ 3,039
15,031
3,859¥ 3,251
10,5993,859$ 25,747
127,335
32,693¥21,930¥17,710$185,776

The following groups of assets of a consolidated subsidiary, Pajero Manufacturing Corporation, were pledged ascollateral at March 31, 2007 and 2006, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land

In thousands of
U.S. dollars

2007

2006

2007

¥2,9984,314
1,540¥3,1812,130
1,540$25,40236,545
13,045¥8,853¥6,851$74,993

The following groups of assets of a consolidated subsidiary, Suiryo Plastics Co., Ltd., were pledged as collateral at
March 31, 2007 and 2006, respectively.

Buildings and structures
Machinery and equipment
Land

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥1,0071,349
194¥1,053
1,248
194$ 8,533
11,432
1,647¥2,551¥2,496$21,61465

MITSUBISHI MOTORS CORPORATION Annual Report 2007

The obligations secured by such collateral at March 31, 2007 and 2006 consisted of the following:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Short-term borrowings
Current portion of long-term debt
Long-term debt

¥112,962
65,03476,659¥ 87,729
71,270137,692$ 956,907
550,909649,383

Total short-term borrowings and Long-term debt

¥254,657¥296,692$2,157,201

10. Net Assets
The new Corporate Law provides that an amount equal to 10% of the amount to be disbursed as a distribution of
earnings should be appropriated to the legal reserve until the sum of the legal reserve and capital surplus equals atleast 25% of the common stock account. MMC and its domestic subsidiaries have provided these amounts in accordance with the new Corporate Law.
MMC is authorized to issue 3,312,000 shares of convertible preferred stock that are classified as Series A, B andG (3 to 4 times in each series), and has 442,593 shares outstanding at March 31, 2007.
The holders of each series of convertible preferred stock are not entitled to voting rights, but the holders of Series
A and G (except for Series B) are entitled to preferred stock dividends of ¥50,000 per share each year after April 2009.
MMC also distributes residual claims to the holders of each series of convertible preferred stock by a single
payment of one million yen per share of preferred stock in order of payment.
11. Contingent Liabilities
Loan guarantees given in the ordinary course of business amounted to ¥4,192 million ($35,518 thousand) and¥5,274 million at March 31, 2007 and 2006, respectively. Agreements similar to guarantees given in the ordinary
course of business amounted to ¥2,626 million ($22,249 thousand) and ¥3,215 million at March 31, 2007 and2006, respectively.
12. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended March 31, 2007 and 2006 consisted of the following:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Sales promotion and advertising
Freight
Bad debts expense
Salaries and wages
Pension expenses
Depreciation
Research and development
Other¥116,584
27,596471
77,302
5,346
15,76741,32589,339¥121,453
21,177
1,041
80,588
5,382
19,00360,345
103,767$ 987,587
233,771
3,994
654,830
45,294
133,567
350,067
756,794

Total¥373,735¥412,760$3,165,906

66

Notes to Consolidated Financial Statements

13. Other Gain (Loss), Net
Other gain (loss), net for the years ended March 31, 2007 and 2006 consisted of the following:
In millions of yen
2007

In thousands of
U.S. dollars

2006

2007

391

$ 42,661(2,003)
2,166(3,073)—(4,856)(1,264)(13)(4)
13,885(6,859)

1,862
1,453
—
(14,766)(5,732)(3,395)(295)(1,186)—(8,300)(16,972)
18,348(26,036)—(41,138)(10,710)(113)(37)
117,620(58,107)¥ 3,011¥(29,969)$ 25,513

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Cash and bank deposits
Time deposits with maturities of more than three months
Short-term investments maturing within three months
from the acquisition date

¥358,058(6,005)¥259,045(16,331)$3,033,111(50,872)

12,215

5,355

103,476

Cash and cash equivalents¥364,268¥248,069$3,085,715

Gain on sales of investments in securities, net
Gain (loss) on sales and disposal of property,
plant and equipment, net
Gain from affiliates accounted for by the equity method, net
Early retirement expense
Provision for losses on restructuring
Litigation expenses
Foreign exchange losses
Stock issuance costs
Loss compensation based on stocks transfer contracts
Gain on liquidation of anonymous association
Other¥ 5,036¥

Total

14. Cash Flow Information
Cash and cash equivalents at March 31, 2007 and 2006 consisted of the following:

Interest paid less interest received and dividends received within operating activities in the consolidated statements of cash flows for the years ended March 31, 2007 and 2006 amounted to a net expense of ¥10,779 million($91,308 thousand) and ¥12,603 million, respectively. Income taxes paid for the years ended March 31, 2007 and2006 amount to ¥7,881 million ($66,760 thousand) and ¥2,680 million, respectively.
Purchases of property, plant and equipment within investing activities in the consolidated statements of cash flows
for the years ended March 31, 2007 and 2006 include payments for the acquisition of lease vehicles of ¥16,799
million ($142,309 thousand) and ¥8,904 million, respectively.
Proceeds from sales of property, plant and equipment within investing activities in the consolidated statements ofcash flows for the years ended March 31, 2007 and 2006 include proceeds from sale of lease vehicles of ¥18,909
million ($160,181 thousand) and ¥16,323 million, respectively.
Changes in finance receivables within operating activities in the consolidated statements of cash flows for the years
ended March 31, 2007 and 2006 are primarily the net of payments amounting to ¥161,005 million ($1,363,873
thousand) and ¥89,546 million, respectively, and proceeds from collections amounting to ¥208,805 million($1,768,790 thousand) and ¥96,441 million, respectively.

67

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Significant noncash transaction:
Assets and liabilities recognized as a result of finance lease transactions in this fiscal year both amounted to ¥16,897
million ($143,138 thousand).
15. Leases
As lessee
The following pro forma amounts represent acquisition costs, accumulated depreciation, impairment losses, and net
book value of the leased assets as of March 31, 2007 and 2006, which would have been reflected in the consolidatedbalance sheet if finance lease accounting had been applied to finance lease transactions except for lease arrangementsthat stipulate the transfer of title of the assets to the lessee, which are accounted for as operating leases:(a) Notional equivalent acquisition cost, accumulated depreciation, impairment losses, and related net book value ofsuch finance lease assets:
In millions of yen

2007

2006

Notional
equivalentacquisition
cost

Notional
Notional
equivalent equivalent
accumulated impairment
depreciation
loss

Notional
equivalent
net book
value

Notional
Notional
Notional
equivalentequivalent equivalentacquisition accumulated impairment
cost depreciation
loss

Notional
equivalent
net bookvalue

Tools and equipment
Others¥29,960
6,011¥16,011
3,769

¥18
20

¥13,930 ¥36,950
2,222
5,507

¥21,843
3,215¥20 ¥15,086
17
2,273

Total

¥35,972¥19,780¥38¥16,152 ¥42,458¥25,059¥38 ¥17,360

In millions of yen

In thousands of
U.S. dollars

In thousand of U.S. dollars
2007
Notional
equivalentacquisition
cost

Notional
Notional
equivalent equivalent
accumulated impairment
depreciation
loss

Notional
equivalent
net bookvalue

Tools and equipment
Others$253,796 $135,635
50,922
31,927$152 $118,008
171
18,823

Total$304,719 $167,563$323 $136,831(b) Future minimum lease payments of such finance leases:

2007

2006

2007

Due within 1 year
Due after 1 year

¥ 6,782
13,778¥11,105
11,824$ 57,452
116,719

Total¥20,560¥22,929$174,171

The balance of the impairment provisions relating to leased assets amounted to ¥23 million ($195 thousand) and¥25 million at March 31, 2007 and 2006, respectively.

68

Notes to Consolidated Financial Statements(c) Lease payment expense, reversal of impairment provisions relating to leased assets, notional depreciation expense,
notional interest expense and, impairment loss of such finance leases:
In millions of yen

Lease payment expense
Reversal of impairment provisions relating to leased assets
Notional depreciation expense
Notional interest expense
Impairment loss

In thousands of
U.S. dollars

2007

2006

2007

¥7,904
13
6,907
630
12

¥9,570
12
8,747
498
38

$66,959
110
58,5125,344102(d) Notional finance lease depreciation method
Notional depreciation of such finance leases is principally calculated and depreciated with no residual value by the
declining-balance method over the lease term.
(e) Calculation of notional interest expense of finance leases
The notional interest expense of such finance leases is principally regarded as the difference between total minimum
lease payments and acquisition cost, and is allocated to each period using the interest method.
Future minimum lease payments required under operating lease transactions entered into by MMC and its consolidated subsidiaries at March 31, 2007 and 2006 were as follows:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Due within 1 year
Due after 1 year

¥ 4,664
17,070¥15,596
30,294$ 39,514
144,599

Total¥21,734¥45,891$184,114

As lessor
Future minimum lease revenues from operating lease transactions entered into by MMC and its consolidated subsidiaries as lessor at March 31, 2007 and 2006 were as follows:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Due within 1 year
Due after 1 year

¥10,825
12,307¥14,508
15,279$ 91,706
104,258

Total¥23,133¥29,787$195,964

69

MITSUBISHI MOTORS CORPORATION Annual Report 2007

16. Derivative Financial Instruments(a) Nature of and policy for derivative transactions
MMC and its consolidated subsidiaries utilize derivative financial instruments, including forward foreign exchange
contracts, currency options, currency swaps, interest rate swaps and cross currency swaps to manage their exposure tofluctuations in foreign currencies and interest rates. MMC and its consolidated subsidiaries do not utilize derivatives
for speculation or trading purposes.
(b) Risk
MMC and its consolidated subsidiaries are exposed to the risk of credit loss in the event of nonperformance by thecounterparties to the derivatives, but any such loss would not be expected to be material because MMC and its
consolidated subsidiaries enter into derivative transactions only with financial institutions with high credit ratings. The
notional amounts of the derivative financial instruments do not necessarily represent the amounts exchanged by theparties and, therefore, are not a direct measure of MMC’s risk exposure in connection with derivatives.
All the transactions related to derivative financial instruments are for the purpose of hedging. MMC and its consolidated subsidiaries do not enter into derivative contracts for which significant volatility would have any significant
influence on its operations.
(c) Control
MMC does not enter into derivative contracts for trading purposes or on the anticipation of gains from short-term
market movements. Derivative transactions are appropriately pre-approved by managing directors in charge of financegroup headquarters. MMC approves derivative transactions of consolidated subsidiaries as appropriate, and in accordance with policies established for each subsidiary, which require the appropriate approval of managing directors incharge of finance group headquarters.
Summarized below are the notional amounts and the estimated fair values (based on the prices provided bycounterparty financial institutions) of the derivative positions, other than those accounted under the special hedge
provisions, at March 31, 2007 and 2006:[Forward foreign exchange contracts]
In millions of yen

Forward foreign exchange contracts:
Sell:
U.S. $Euro£ stg
Canadian $Australian $Japanese ¥Buy:Japanese ¥
Total

70

Notional
amountFair value¥14,330
59,951———
13,880¥13,787
57,008———13,095

11,63011,6282007
Unrealized
gain (loss)

Fair value

2006
Unrealized
gain (loss)¥ 543 ¥18,596 ¥19,523
2,943 48,999 47,676
—
1,420
1,518
—
—
—
—
9,704
9,845
785 19,812 17,023¥ (927)
1,323
(98)
—
(141)
2,789

(1)
¥4,270

Notional
amount12,714

12,392(322)¥2,623

Notes to Consolidated Financial Statements

In thousands of U.S. dollars
Notional
amountForward foreign exchange contracts:
Sell:
U.S. $Euro£ stg
Canadian $Australian $Japanese ¥Buy:Japanese ¥Fair value

2007
Unrealized
gain (loss)$121,395 $116,791 $ 4,604
507,851 482,914 24,936
—
—
—
—
—
—
—
—
—
117,585 110,934
6,650
98,51998,507Total(12)$36,179[Cross currency swaps]
In millions of yen

Cross currency swaps:
Pay-JPY receive — U.S.$
Pay-THB receive — U.S.$

Notional
amountFair value

2007
Unrealized
gain (loss)

¥—
—

¥—
—

¥—
—

Total

¥—

Notional
amountFair value

2006
Unrealized
gain (loss)

¥722
711

¥ 5
102

¥ 5
102
¥108

In thousands of U.S. dollars

Cross currency swaps:
Pay-JPY receive — U.S.$
Pay-THB receive — U.S.$

Notional
amountFair value

2007
Unrealized
gain (loss)

$—
—

$—
—

$—
—

Total

$—

All cross currency swaps have maturities within one year.

71

MITSUBISHI MOTORS CORPORATION Annual Report 2007

[Interest rate swaps]
In millions of yen

Interest rate swaps:
Pay-fixed, receive-floating
Pay-floating, receive-fixed

Notional
amountFair value

¥—
—

¥—
—

Total

2007
Unrealized
gain (loss)

Notional
amountFair value

2006
Unrealized
gain (loss)¥— ¥41,556
—
6,696

¥181
(30)

¥181
(30)

¥—

¥150

In thousands of U.S. dollars

Interest rate swaps:
Pay-fixed, receive-floating
Pay-floating, receive-fixed

Notional
amountFair value

2007
Unrealized
gain (loss)

$—
—

$—
—

$—
—

Total

$—
In millions of yen

Pay-fixed, receive-floating
Notional amount
Average pay-fixed rate (%)
Average receive-floating rate (%)
Pay-floating, receive-fixed
Notional amount
Average pay-floating rate (%)
Average receive-fixed rate (%)

Within 1
year

From 1year to 3

2006
Over 3
years

—
—
—

— ¥41,556
—
3.2
—
4.9

—
—
—

—
—
—

—
—
—

— ¥ 6,413
—
5.2
—
3.9

¥283
6.9
4.7

—
—
—

Within 1
year

From 1year to 3

—
—
—
—
—
—

2007
Over 3years

In thousands of U.S. dollars
2007

Pay-fixed, receive-floating
Notional amount
Average pay-fixed rate (%)
Average receive-floating rate (%)
Pay-floating, receive-fixed
Notional amount
Average pay-floating rate (%)
Average receive-fixed rate (%)

Within 1
year

From 1year to 3

Over 3
years

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

The method to determine fair values is based on quotations obtained from financial institutions.

72Notes to Consolidated Financial Statements

Derivative financial instruments, principally forward exchange contracts and interest swaps, which qualify as hedges
and are accounted for using the deferred hedge accounting method, are excluded from the above table according to thedisclosure requirements.
17. Retirement Benefits
MMC and its consolidated subsidiaries have defined benefit pension plans for their employees. The plans include
contributory plans in accordance with the Welfare Pension Institute Law of Japan, tax-qualified plans and non-contributory
severance plans. Additional retirement benefits are paid in certain cases upon an employee’s retirement. Certain
foreign consolidated subsidiaries have defined contribution pension plans. At March 31, 2007, MMC and its consolidated subsidiaries have 7 funds for contributory plans in accordance with the Welfare Pension Insurance Law, and 39
funds for tax-qualified plans. MMC and its consolidated subsidiaries have 41 non-contributory severance plans.
The discount rates used to determine the retirement benefit obligation were 1.5%–2.5% for MMC and its domestic
consolidated subsidiaries, 4.0%–5.8% for its foreign consolidated subsidiaries, and 1.5%–2.5% for MMC and its
domestic consolidated subsidiaries, 4.6%–5.8% for its foreign consolidated subsidiaries at March 31, 2007 and2006, respectively. The rates of return on plan assets assumed were 0.8%–4.0% for MMC and its domestic consolidated subsidiaries, 4.0%–8.0% for its foreign consolidated subsidiaries, and 0.8%–4.0% for MMC and its domestic
consolidated subsidiaries, 6.7%–8.5% for its foreign consolidated subsidiaries for the year ended March 31, 2007
and 2006, respectively.
Prior service cost is amortized using the straight line method over periods of 5 to 21 years for the years ended
March 31, 2007 and 2006. These periods are within the estimated average remaining service years of the employees.
The amortization period for actuarial gains and losses starts from the subsequent fiscal year and actuarial gains
and losses are amortized by the straight line method over the periods of 5 to 21 years for the years ended March 31,
2007 and 2006. These periods are within the estimated average remaining service years of the employees.
Unrecognized net obligations and assets at the date of initial application are amortized within one year.
The retirement benefit obligation for MMC and its consolidated subsidiaries’ employees’ defined benefit plans at
March 31, 2007 and 2006 are summarized as follows:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Retirement benefits obligation
Pension plan assets at fair value¥(191,009)
76,310¥(187,638)
66,251$(1,618,034)
646,426

Unfunded status
Unrecognized actuarial losses
Unrecognized prior service costs(114,698)
11,557
2,812(121,387)
10,236
12,040(971,608)
97,89923,820

Net recognized retirement benefits obligation
Prepaid pension premiums(100,329)
5,552(99,110)
3,677(849,888)
47,031

Accrued retirement benefits¥(105,881)¥(102,787)$ (896,920)

Plan assets relating to multi-employer pension plans are not included in the above pension plan assets, as theamount of such assets representing the consolidated subsidiaries’ share can not be reasonably established. The amountof such assets calculated mainly on the basis of contribution ratio were ¥7,905 million ($66,966 thousand) and¥9,529 million at March 31, 2007 and 2006, respectively.
Some of the consolidated subsidiaries adopt the simplified method for the calculation of retirement benefits obligation.

73

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Pension expenses for MMC and its consolidated subsidiaries’ employees’ retirement defined benefit plans for theyears ended March 31, 2007 and 2006 consisted of the following:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial losses
Amortization of prior service costs
Others¥ 9,437
4,644(3,686)
2,712
66
604

¥ 9,444
4,351(3,267)
3,102
716
—

$ 79,942
39,342(31,225)
22,976567
5,117

Pension expenses¥13,778¥14,347$116,721

In addition to the above pension expenses, additional retirement benefits of ¥3,073 million ($26,036 thousand) and ¥3,183 million were paid and recorded as other gain (loss), net for the years ended March 31, 2007
and 2006, respectively.
Pension expenses of consolidated subsidiaries, which adopt the simplified method, are included in service cost.
18. Income Taxes
MMC and its domestic consolidated subsidiaries are subject to corporate, resident and enterprise taxes based on theirtaxable income. Income taxes of the foreign consolidated subsidiaries are generally calculated based on the tax rates
applicable in their countries of incorporation. The consolidated tax payment system is applied at March 31, 2007 and2006.
The effective tax rates reflected in the accompanying consolidated statements of operations for the year ended
March 31, 2007 differ from the statutory tax rate for the following reasons:
(%)
2007

Statutory income tax rate for MMC
Change in valuation allowance, effect ofusing loss carry forwards and similar items
Dividends received (exclusion from gross income)
OthersIncome taxes as a percentage of income before income taxes
and minority interest

74

40.3
18.5
(5.7)
0.2
53.3

2006

Due to loss before income
taxes and minority interest,
the information is omitted
from the notes.

Notes to Consolidated Financial Statements

The significant components of deferred tax assets and liabilities as of March 31, 2007 and 2006 consisted of
the following:

Deferred tax assets:
Net operating loss carry forward
Accrued retirement benefits
Allowance for doubtful accounts
Allowance for product warranties
Accounts payable — warranties
Fixed assets (incl. impairment losses)
OthersLess valuation allowance

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥ 205,940
46,02911,294
19,815
12,342
39,68674,702(362,074)¥ 183,201
45,561
25,264
18,583
14,35942,79977,861(351,425)$ 1,744,523
389,914
95,675
167,860
104,548
336,186
632,804(3,067,125)

Total deferred tax assets
Deferred tax liabilities:
Reserves under the Special Taxation Measures Law
Unrealized holding gain on securities
Fair value adjustments relating to land
Accelerated depreciation in overseas consolidated subsidiaries
Other

47,73856,205404,388(412)(6,797)(5,047)(34,637)(16,242)(436)(6,022)(6,149)(41,627)(11,685)(3,491)(57,577)(42,760)(293,410)(137,586)

Total deferred tax liabilities(63,136)(65,921)(534,826)(9,716)$ (130,437)

Net deferred tax assets¥ (15,398)¥

Deferred tax assets and liabilities at March 31, 2007 and 2006 are included in the accompanying consolidatedbalance sheets as follows:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Current assets
Investments and other assets
Current liabilities
Non-current liabilities

¥

846
8,468
(453)
(24,259)¥ 1,206
7,413(86)(18,251)$

7,167
71,739(3,843)(205,500)

Net deferred tax assets¥(15,398)¥ (9,716)$(130,437)

75

MITSUBISHI MOTORS CORPORATION Annual Report 2007

19. Segment Information(a) Business segments
The business segment information for MMC and its consolidated subsidiaries for the years ended March 31, 2007 and2006 are summarized as follows:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Net sales:
Automobiles
Financial services¥2,154,672
47,947¥2,080,883
39,183$18,252,202
406,160

Total
Intersegment

2,202,619
249

2,120,067
1

18,658,363
2,111¥2,202,869¥2,120,068$18,660,475

¥

¥

$

Consolidated
Operating income (loss):
Automobiles
Financial services
Total
Intersegment
Consolidated
Total assets:
Automobiles
Financial services

17,682
22,30539,987249¥

40,237(6,142)
10,418
4,276
2,507

¥

6,783

149,787
188,950
338,737
2,111$

340,849¥1,674,897
110,818¥1,453,123
127,607$14,188,037
938,738

1,785,715(7,022)

1,580,731(23,161)

15,126,775(59,486)¥1,778,693¥1,557,570$15,067,288

Depreciation:
Automobiles
Financial services¥

68,215
6,820¥

60,9448,541$

577,854
57,773

Consolidated¥

75,035¥69,486$635,628

Impairment loss:
Automobiles
Financial services

¥

7,465
—

—
—

$

63,242—

Consolidated

¥

7,465

—

$

63,242

Capital expenditures:
Automobiles
Financial services¥

98,05814,176¥ 119,460
8,904$

830,653
120,090¥ 112,235¥ 128,365$

950,743

Total
Corporate and eliminations
Consolidated

Consolidated

Note: 1. Segments are divided by sector and by market.
2. Major products by business segment
Automobiles . . . . . . . . . Passenger cars
Financial services . . . . . . Sales-finance products
3. Changes in useful lives of fixed assets
As described in additional information in Note 2, Significant Accounting Policies, from this fiscal year, instead of the useful lives dictated by the
Corporate Tax Law, estimated actual useful lives are used to determine useful lives of MMC’s fixed assets. As a result, operating income of theautomobiles segment increased by ¥7,585 million ($64,259 thousand).

76

Notes to Consolidated Financial Statements(b) Geographical segments
The geographical segment information for MMC and its consolidated subsidiaries for the years ended March 31, 2007
and 2006 are summarized as follows:

Net sales:
Japan
North America
EuropeAsia
Other areas

In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

¥1,515,221
423,941
681,155
292,885
164,087¥1,352,182
401,229597,585
228,498
166,247$12,835,423
3,591,206
5,770,058
2,481,033
1,389,980

3,077,292(874,423)

2,745,744(625,675)

26,067,702(7,407,227)¥2,202,869¥2,120,068$18,660,475

¥

¥

$

Total
Interarea
Consolidated
Operating income (loss):Japan
North America
EuropeAsia
Other areas
Total
Interarea
Consolidated
Total assets:
Japan
North America
EuropeAsia
Other areas
Total
Interarea
Consolidated(5,136)
5,466
25,327
20,260(3,562)42,355(2,117)¥40,237(10,857)(3,891)
9,288
15,220(5,031)
4,728
2,054

¥

6,783

(43,512)46,308214,548
171,625(30,179)
358,790(17,941)$

340,849¥1,271,955
333,025
248,485
250,081
83,774¥1,130,673
315,155
198,625
164,60973,948$10,774,720
2,821,052
2,104,913
2,118,435
709,649

2,187,321(408,627)

1,883,011(325,441)

18,528,771(3,461,482)¥1,778,693¥1,557,570$15,067,288

Note: 1. Geographical segments are classified by the region of the consolidated Mitsubishi Motors entity primarily involved in the transaction, both local
sales and exports. The figures are not classified by the region of the wholesaler or end users. National and regional groupings are by geographicalproximity and mutual relevance of business activities.
2. Main countries and regions outside Japan are grouped as follows;(1) North America . . . . . The United States, Puerto Rico
(2) Europe . . . . . . . . . . . The Netherlands(3) Asia . . . . . . . . . . . . . Thailand, Philippines(4) Other . . . . . . . . . . . . Australia, New Zealand, UAE
3. Changes in useful life of fixed assets
As described in additional information in Note 2, Significant Accounting Policies, from this fiscal year, instead of the useful lives dictated by
Corporate Tax Law, estimated actual useful lives are used to determine useful lives of MMC’s fixed assets. As a result, operating income of Japan
increased by ¥7,585 million ($64,259 thousand).

77

MITSUBISHI MOTORS CORPORATION Annual Report 2007(c) Overseas sales
Overseas sales, which include export sales of MMC and its domestic consolidated subsidiaries and sales (other thanexports to Japan) of the foreign consolidated subsidiaries for the years ended March 31, 2007 and 2006 are summarized
as follows:
In millions of yen

In thousands of
U.S. dollars

2007

2006

2007

Overseas sales:
North America
EuropeAsia
Other areas¥ 423,611
662,815
191,347
419,130¥ 415,614
586,167
235,775
378,357$ 3,588,406
5,614,701
1,620,902
3,550,449

Total¥1,696,905¥1,615,914$14,374,460¥2,202,869¥2,120,068$18,660,475

Consolidated sales(%)

Overseas sales as a percentage of consolidated sales:
North America
EuropeAsia
Other areas
Total

19.2
30.1
8.7
19.0

19.6
27.7
11.1
17.8

77.0

76.2

Note: 1. National and regional groupings are by geographical proximity and mutual relevance of business activities.
2. Main countries and regions outside Japan are grouped as follows:(1) North America . . . . . The United States, Puerto Rico
(2) Europe . . . . . . . . . . . The Netherlands, Italy, Germany, Russia(3) Asia . . . . . . . . . . . . . Thailand, Malaysia, Taiwan(4) Other . . . . . . . . . . . . Australia, New Zealand
3. Overseas sales are classified by the region of the wholesaler or end users. The figures consist of sales outside of Japan of MMC and its
consolidated subsidiaries.

20. Related Party Transactions
MMC entered into the following transactions with related parties during the years ended March 31, 2007 and 2006:
March 31, 2007

Party type:
Party name:
Address:
Capital:Business:% of voting stock held:
Concurrent board appointment:
Business relationship:
Detail of transaction:

Transaction amount:
Account title:
Balance at year end

78

Main stockholder
Mitsubishi Corporation
Chiyoda-Ku, Tokyo, Japan¥199,228 million
Wholesale trading
Direct 14.1
1 concurrent member,2 permanently transferred to MMC
Sales of passenger cars and import ofmaterials for production(1) Proceeds from sales of stocks(see (i) below)(2) Profit from sales of stocks(see (i) below)(1) ¥2,750 million ($23,295 thousand)(2) ¥2,365 million ($20,034 thousand)——Notes to Consolidated Financial Statements

March 31, 2007

Party type:
Party name:
Address:
Capital:Business:% of voting stock held:
Concurrent board appointment:
Business relationship:
Detail of transaction:
Transaction amount:

Account title:
Balance at year end

Subsidiary
Heart Beat Dealers LLC
Chuo-Ku, Tokyo, Japan¥3 million
Holding and sales ofbeneficial interest in trust
Direct 100.0—
Investment in anonymous association(1) Proceeds from liquidation(2) Gain on liquidation(1) ¥8,533 million($72,283 thousand) (see (ii) below)(2) ¥6,880 million($58,280 thousand) (see (ii) below)
Accrued income¥63 million ($540 thousand)Subsidiary
Heart Beat Land LLC
Chuo-Ku, Tokyo, Japan¥3 million
Holding and sales ofbeneficial interest in trust
Direct 100.0—
Investment in anonymous association(1) Proceeds from liquidation(2) Gain on liquidation(1) ¥11,229 million($95,121 thousand) (see (ii) below)(2) ¥7,034 million($59,585 thousand) (see (ii) below)——(i) Sales of stocks include the sales of an affiliated company’s stocks and sales price is determined based on contract.
(ii) The proceeds in the form of liquidation dividends were from dividend distributions due to the end of anonymous
associations’ operations.
March 31, 2006

Party type:
Party name:
Address:
Capital:Business:% of voting stock held:
Concurrent board appointment:
Business relationship:

Detail of transaction:

Transaction amount:
Account title:
Balance at year end

Main stockholder
DaimlerChrysler AG
Stuttgart, Germany=C 2,649 million
Manufacturing and sales of passenger
cars and other transportation equipment——
International alliances for research,development, production, sales andsimilar for passenger cars
Loss compensation based on
Mitsubishi Fuso Truck and Bus
Corporation stock transfer contract—
Accrued expenses, accounts payableand deferred income¥23,858 million

Main stockholder
Mitsubishi Corporation
Chiyoda-Ku, Tokyo, Japan¥197,817 million
Wholesale trading
Direct 14.1
1 concurrent member, 2 permanently
transferred to MMC
Trading partner

Capital injection¥30,000 million
Preferred stock and Capital surplus¥15,000 million in preferred stock and¥15,000 million in Capital surplus(i) The capital injection was a third party allocation of preferred stock and decided by negotiation.
(ii) The loss compensation based on stock transfer contract was decided by negotiation based on Mitsubishi Fuso
Truck and Bus Corporation’s net assets.
(iii) DaimlerChrysler AG no longer qualifies as a related party as of November 11, 2005. The transaction amount above
is based on the period when DaimlerChrysler AG qualified as a related party.

79

MITSUBISHI MOTORS CORPORATION Annual Report 2007

21. Income (Loss) and Equity Per Share
Net income (loss) and equity per share of common stock for the years ended March 31, 2007 and 2006 are summarized as follows:In yenNet income (loss) per share of common stock
Basic
DilutedStockholders’ equity per share of common stock

In U.S. dollars

2007

2006

2007

¥ 1.590.96(26.73)¥(19.75)—(31.67)$0.01
0.01(0.23)

Diluted amounts per share of common stock are not included for the year ended March 31, 2006 due to the net
loss recorded.
The computations of net income (loss) per share of common stock for the year ended March 31, 2007 and 2006
are as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2007

2007

Numerator for basic net income (loss) per share of common stock:¥
Net income (loss)
Income not available to common stockholders
Income (Loss) available to common stockholders
Denominator for net income (loss) per share of common stock:
Weighted average number of shares (in thousands)
Number of dilutive potential common shares (in thousands)(Preferred stock )(Number of stock option executed)

¥

8,745
—

¥

(92,166)—$

74,081—

8,745¥(92,166)$

74,081

5,491,435
3,579,689(3,579,512)(176)

4,666,018———

5,491,435
3,579,689(3,579,512)(176)

In numbers of stock, 1,088 thousand shares relating to stock options were outstanding at March 31, 2007.
22. Stock Option Plans
The subscription, size and fluctuation for stock options as of March 31, 2007 are as follows:(1) Subscription of stock options
March 31, 2007

Date of approval by shareholders: June 25, 2002
Grantees:
5 directors, 25 executive officers and
80 employees
Date of issue:June 2, 2003
Class and number ofshares granted:
Common stock 1,994,000
Condition of settlement of rights: Limited to director, executive officer,
employee of the company or its
subsidiaries at exercise date(except for those who no longer hold
above positions due to termination ofterms, retirement, or other valid reasons)
Period grantees provide service inreturn for stock options:
No provisions
Exercisable period:
From July 1, 2004 to June 30, 200980

Notes to Consolidated Financial Statements(2) Size and fluctuation of stock options
Outstanding stock options during the year ended March 31, 2007 converted to numbers of shares are as follows.
March 31, 2007

Non-vested (number of shares):
Outstanding at the beginning of the year:
Granted during the year:
Forfeited during the year:
Vested during the year:
Outstanding at the end of the year:
Vested (number of shares):
Outstanding at the beginning of the year:
Vested during the year:
Exercised during the year:
Forfeited during the year:
Outstanding at the end of the year:
Exercise price:
Weighted-average market price at exercise date:
Fair evaluation price:

—
—
—
—
—
1,168,000—
64,00016,0001,088,000
¥173
¥240
—

23. Business Combinations
During the year ended March 31, 2007, in order to improve the efficiency of its sales network by the integration ofdomestic sales companies, MMC merged its consolidated subsidiaries as follows.
1. Business of the entities combined:
Sale of vehicles, etc.
2. Description of business of the entities combined:
Sale of vehicles, etc.
3. Legal form of business combinations:
Absorption by surviving company
4. Corporate name before and after the business combination:
April 1, 2006

Corporate name before the business combination

Corporate name after the business combination

Surviving company:

Shimane Mitsubishi Motors
Sales Co., Ltd.

Sanin Mitsubishi Motors Sales Co., Ltd.

Non-surviving company:

Nishi Tottori Mitsubishi
Motors Sales Co., Ltd.
July 1, 2006

Corporate name before the business combination

Corporate name after the business combination

Surviving company:

Saitama Chuo Mitsubishi
Motors Sales Co., Ltd.

Saitama Mitsubishi Motors Sales Co., Ltd.

Non-surviving company:

Saitama Mitsubishi
Motors Sales Co., Ltd.

Surviving company:

Iyo Mitsubishi Motors
Sales Co., Ltd.

Ehime Mitsubishi Motors Sales Co., Ltd.

Non-surviving companies: Uwajima Mitsubishi
Motors Sales Co., Ltd.
Matsuyama Mitsubishi
Motors Sales Co., Ltd.

81

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Since the entities combined are consolidated subsidiaries in the automobiles segment, their transactions aretreated as transactions under common control. Thereby the combined entities’ transactions are properly accounted forbased on appropriate book values in the stand-alone accounts and are properly eliminated as inter-company transactions in the consolidated accounts. Moreover, there are no additional acquisitions of shares from minority interests ofthe entities combined.
24. Subsequent Event
In January 2007, the MMC group announced the accelerated reconstruction of its domestic sales network, in order toobtain top class customer satisfaction in the industry as well as to improve profitability. The MMC group will merge
domestic sales companies into 5 companies and parts sales companies into 1 company as follows.
March 31, 2007

Hokkaido area:

Hokkaido Mitsubishi Motors Sales Co., Ltd., Sapporo Mitsubishi Motors Sales Co., Ltd., Asahikawa
Mitsubishi Motors Sales Co., Ltd., Sorachi Mitsubishi Motors Sales Co., Ltd., Iwamizawa
Mitsubishi Motors Sales Co., Ltd.

Higashi-Nihon area:

Iwate Mitsubishi Motors Sales Co., Ltd., Fukushima Mitsubishi Motors Sales Co., Ltd., Gunma
Chuo Mitsubishi Motors Sales Co., Ltd., Tochigi Mitsubishi Motors Sales Co., Ltd.

Kanto area:

Minami Ibaragi Mitsubishi Motors Sales Co., Ltd., Tokyo Mitsubishi Motors Sales Co., Ltd.,
Saitama Mitsubishi Motors Sales Co., Ltd., Kanagawa Mitsubishi Motors Sales Co., Ltd.,
Yamanashi Mitsubishi Motors Sales Co., Ltd., Matsumoto Mitsubishi Motors Sales Co., Ltd.

Chubu area:

Aichi Chuo Mitsubishi Motors Sales Co., Ltd., Nagoya Mitsubishi Motors Sales Co., Ltd., Gifu
Mitsubishi Motors Sales Co., Ltd., Ishikawa Mitsubishi Motors Sales Co., Ltd.

Nishi-Nihon area:

Kinki Mitsubishi Motors Sales Co., Ltd., Sanin Mitsubishi Motors Sales Co., Ltd., Okayama
Mitsubishi Motors Sales Co., Ltd., Hiroshima Chuo Mitsubishi Motors Sales Co., Ltd., ShinYamaguchi Mitsubishi Motors Sales Co., Ltd., Ehime Mitsubishi Motors Sales Co., Ltd., Nagasaki
Mitsubishi Motors Sales Co., Ltd., Miyazaki Chuo Mitsubishi Motors Sales Co., Ltd., Kagoshima
Chuo Mitsubishi Motors Sales Co., Ltd.

Consolidated Parts
Sales Subsidiaries:

Hokkaido Mitsubishi Motors Parts Sales Co., Ltd., Tohoku Mitsubishi Motors Parts Sales Co.,
Ltd., Kita Kanto Mitsubishi Motors Sales Parts Co., Ltd., Shinetsu Mitsubishi Motors Parts
Sales Co., Ltd., Kanto Mitsubishi Motors Parts Sales Co., Ltd., Hokuriku Mitsubishi Motors
Parts Sales Co., Ltd., Chugoku Mitsubishi Motors Parts Sales Co., Ltd.

The merger will be handled as transactions under common control according to Accounting Standard for Business
Combinations (Business accounting Council, October 31, 2003), and Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No.10, December 27, 2005).
Consolidated sales companies located in the Hokkaido area have merged on April 1, 2007 with the Hokkaido
Mitsubishi Motors Sales Co., Ltd., being the surviving entity. For the sales companies and parts sales companies
located other than in the Hokkaido area, the mergers are planned to take place on July 1, 2007. Accordingly, for all theabove domestic sales and parts sales companies except for those in the Hokkaido area, retirement costs are expected
to be incurred due to voluntary retirements.

82

Report of Independent Auditors

Report of Independent Auditors

83

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Consolidated Subsidiaries and Affiliates(As of March 31, 2007)

CONSOLIDATED SUBSIDIARIES IN JAPAN
Capitalization(In millions of yen)Company

Business Lines

MMC Share of
Voting Rights (%)*1

Hokkaido Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Sapporo Mitsubishi Motors Sales Co., Ltd.

470

Automobile sales

100.0

Iwamizawa Mitsubishi Motors Sales Co., Ltd.

80

Automobile sales

100.0

Sorachi Mitsubishi Motors Sales Co., Ltd.

150

Automobile sales

100.0

Asahikawa Mitsubishi Motors Sales Co., Ltd.

240

Automobile sales

100.0

Iwate Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Fukushima Mitsubishi Motors Sales Co., Ltd.

280

Automobile sales

100.0

Gunma Chuo Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Tochigi Mitsubishi Motors Sales Co., Ltd.

150

Automobile sales

100.0

Minami Ibaraki Mitsubishi Motors Sales Co., Ltd.

290

Automobile sales

100.0

Saitama Mitsubishi Motors Sales Co., Ltd.

316

Automobile sales

100.0Tokyo Mitsubishi Motors Sales Co., Ltd.

3,673

Automobile sales

100.0

Kanagawa Mitsubishi Motors Sales Co., Ltd.

1,025

Automobile sales

100.0

Kawasaki Mitsubishi Motors Sales Co., Ltd.

1,070

Automobile sales

100.0

Yamanashi Mitsubishi Motors Sales Co., Ltd.

130

Automobile sales

100.0

Matsumoto Mitsubishi Motors Sales Co., Ltd.

310

Automobile sales

100.0

Aichi Chuo Mitsubishi Motors Sales Co., Ltd.

650

Automobile sales

99.9

Nagoya Mitsubishi Motors Sales Co., Ltd.

1,200

Automobile sales

100.0

Gifu Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0 (17.5)

Ishikawa Mitsubishi Motors Sales Co., Ltd.

150

Automobile sales

100.0

1,203

Automobile sales

100.0

100

Automobile sales

76.9

Kinki Mitsubishi Motors Sales Co., Ltd.
Okayama Mitsubishi Motors Sales Co., Ltd.
Hiroshima Chuo Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

97.8

Sanin Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Shin Yamaguchi Mitsubishi Motors Sales Co., Ltd.

180

Automobile sales

100.0

Ehime Mitsubishi Motors Sales Co., Ltd.

354

Automobile sales

99.9

Miyazaki Chuo Mitsubishi Motors Sales Co., Ltd.

40

Automobile sales

100.0

Nagasaki Mitsubishi Motors Sales Co., Ltd.

120

Automobile sales

100.0

Kagoshima Chuo Mitsubishi Motors Sales Co., Ltd.

140

Automobile sales

Hokkaido Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

90.0 (45.0)

Tohoku Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

64.3 (15.9)

Kita Kanto Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

75.0 (25.0)

Kanto Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

100.0 (36.2)
56.0 (10.0)

99.5

Higashi Kanto Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

Shinetsu Mitsubishi Motors Parts Sales Co., Ltd.*2

100

Automobile parts sales

50.0 (15.0)

Hokuriku Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

65.8 (21.5)

100

Automobile parts sales

73.1 (29.6)
50.0 (8.0)

Chugoku Mitsubishi Motors Parts Sales Co., Ltd.
2

Shikoku Mitsubishi Motors Parts Sales Co., Ltd.*

100

Automobile parts sales

Pajero Manufacturing Co., Ltd.

610

Automobile and parts manufacture, sales

100.0

Mitsubishi Automotive Accessories & Products Co., Ltd.

300

Sales of automobile accessories, air conditioners

100.0

Mitsubishi Automotive Techno-Service Co., Ltd.

400

Automobile servicing

100.0

Mitsubishi Automotive Logistics Co., Ltd.

300

Vehicle transportation contractor

75.0

Mitsubishi Automotive Engineering Co., Ltd.

350

Design and testing of automobiles and parts

100.0

Suiryo Plastics Co., Ltd.

100

Manufacture, sales of automobile parts

100.0

84

Consolidated Subsidiaries and Affiliates

MAJOR CONSOLIDATED SUBSIDIARIES OUTSIDE JAPANCompany

Incorporated in

Capitalization(In millions)

Business Lines

MMC Share of
Voting Rights (%)*1

Mitsubishi Motors North America, Inc. (MMNA)

U.S.A.

USD

398.8

Automobile importing, manufacturing, sales

Mitsubishi Motors R&D of America, Inc. (MRDA)

U.S.A.

USD

2.0

Mitsubishi Motor Sales of Canada, Inc. (MMSCAN)

Canada

USD

Mitsubishi Motors Credit of America, Inc. (MMCA)

U.S.A.

USD

Mitsubishi Motor Sales of Caribbean, Inc. (MMSC)

Puerto Rico

USD

47.5

Automobile importing, sales

Mitsubishi Motors Europe B.V. (MME)

Netherlands

EUR

1,282.9

Mitsubishi Motor R&D of Europe GmbH (MRDE)

Germany

EUR

0.8

Product development, design, testing, certification

100.0 (100.0)

Mitsubishi Motor Sales Netherlands B.V.

Netherlands

EUR

6.8

Automobile importing, sales

100.0 (100.0)

Mitsubishi Motors Deutschland GmbHGermany

EUR

30.0

Automobile importing, sales

100.0 (100.0)

Mitsubishi Motors France S.A.S.

FranceEUR

10.0

Automobile importing, sales

100.0 (100.0)

Mitsubishi Motors Belgium nv

Belgium

EUR

3.0

Automobile importing, sales

100.0 (100.0)

MMC International Finance (Netherlands) B.V.

Netherlands

EUR

0.1

Procurement of funds, group company financing

Netherlands Car B.V. (NedCar)

Netherlands

EUR

250.0

Manufacturing, sales of automobiles and parts

Mitsubishi Motors Australia, Ltd. (MMAL)

Australia

AUD

1,359.9

Mitsubishi Motors New Zealand Ltd. (MMNZ)New Zealand

NZD

48.0

Mitsubishi Motors (Thailand) Co., Ltd. (MMTh)Thailand

THB

7,000.0

Automobile importing, assembly, sales

99.8

MMTH Engine Co., Ltd.

Thailand

THB

20.0

Manufacturing of automobile engines

100.0 (100.0)

100.0

Product development, design, testing, certification

100.0 (100.0)

1.3

Automobile importing, sales

100.0 (100.0)

260.0

Automobile financing, leasing

100.0 (100.0)
100.0

Importing, sales of automobiles and parts

100.0

100.0
100.0 (15.0)

Automobile importing, assembly, sales

100.0

Automobile importing, sales

100.0

Mitsubishi Motors Philippines Corp. (MMPC)

Philippines

PHP

1,640.0

Asian Transmission Corp. (ATC)Philippines

PHP

350.0

Manufacturing of automobile transmissions

Automobile importing, assembly, sales

Mitsubishi Motor Parts Sales of Gulf FZE

UAE

UAD

10.0

Importing, sales of automobile panels

51.0
94.7 (89.4)
100.0

Note: MMC has 26 other subsidiaries outside Japan in addition to the above.

EQUITY METHOD AFFILIATES IN JAPAN
Capitalization(In millions of yen)

Business Lines

Hakodate Mitsubishi Motors Sales Co., Ltd.*3

240

Automobile sales

16.9

Muroran Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

29.0 (29.0)

Company

MMC Share of
Voting Rights (%)*1

Tokachi Mitsubishi Motors Sales Co., Ltd.

60

Automobile sales

35.0

Morioka Mitsubishi Motors Sales Co., Ltd.

48

Automobile sales

23.5

Ibaraki Mitsubishi Motors Sales Co., Ltd.

30

Automobile sales

40.0

Meihoku Mitsubishi Motors Sales Co., Ltd.

70

Automobile sales

28.6

Mie Mitsubishi Motors Sales Co., Ltd.

58

Automobile sales

24.8

Kagawa Mitsubishi Motors Sales Co., Ltd.

50

Automobile sales

23.0

Miyazaki Mitsubishi Motors Sales Co., Ltd.

60

Automobile sales

38.8

Auto sales financing, leasing, rentals

50.0

MMC Diamond Finance Corporation

3,000

MAJOR EQUITY METHOD AFFILIATES OUTSIDE JAPANCompany

Incorporated in

Capitalization(In millions)

MMC Share of
Voting Rights (%)*1

Mitsubishi Motors do Portugal S.A.

Portugal

EUR

16.5

Importing, sales of automobiles

P.T. Mitsubishi Krama Yudha Motors and Manufacturing

Indonesia

IDR

11.5

Manufacture, sales of automobile parts

32.3

Vina Star Motors Corporation

Vietnam

USD

16.0

Manufacture and marketing of automobiles and parts

25.0

Business Lines

50.0 (50.0)

Note: MMC has 10 other equity method affiliates outside Japan in addition to the above.

OTHER ASSOCIATED COMPANIESCompany
Mitsubishi Heavy Industries, Ltd.

Capitalization(In millions of yen)
265,608

Business Lines

Share of Voting Rights
in MMC (%)*1

Shipbuilding & ocean systems development, power systems,
machinery & steel structures, aerospace, mass andmedium-lot manufactured machinery and others

15.8 (0.5)

RelationshipSupplier of partsfor MMC products*1 Figures in parentheses represent indirect shares.
*2 Although MMC’s equity holding is less than 50%, this affiliate is listed as a subsidiary because MMC exercises effective control over the company.
*3 Although MMC’s equity holding is less than 20%, this company is listed as an affiliate because MMC exercises effective control over the company.

85

MITSUBISHI MOTORS CORPORATION Annual Report 2007

Investor Information(As of March 31, 2007)

Company NameMITSUBISHI MOTORS CORPORATIONHead Office

5-33-8, Shiba, Minato-ku, Tokyo 108-8410, Japan
Telephone: +81-3-3456-1111

Established

April 22, 1970

Capital¥657,342,531,926

Number of Employees

33,739 (Consolidated)

Stock Listings

Tokyo Stock Exchange and Osaka Securities Exchange

Securities Code7211

Share Trading Unit

1,000

12,938 (Non-consolidated)

Number of Shares Outstanding 5,491,959,137
Number of Shareholders
Type

Number ofissued shares

Number ofstockholders

COMMON SHARES

5,491,516,544

445,997

PREFERRED SHARESFirst Series Class A

73,000

4

Second Series Class A

30,0008

Third Series Class A

1,000

1

First Series Class G

130,000

2

Second Series Class G

168,393

3

Third Series Class G

10,2001

Fourth Series Class G

30,0001

Major Shareholders
Number of shares held
(thousands)% of total

Mitsubishi Heavy Industries, Ltd.

839,94215.30

Mitsubishi Corporation

774,768

14.11

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

268,763

4.89

Name

MLP FS Custody

47,6400.87

The Master Trust Bank of Japan, Ltd. (Trust account)

47,611

0.87

Mitsubishi UFJ Trust and Banking Corporation

32,106

0.58

Japan Trustee Services Bank, Ltd. (Trust account 4)

31,114

0.57

Japan Trustee Services Bank, Ltd. (Trust account)

28,8680.53

Mitsubishi UFJ Trust and Banking Corporation (Trust account)

24,1490.44

MMC Suppliers' Employees Shareholding Association

20,2340.37

2,115,197

38.52

Total
Transfer Agent and Register86

Mitsubishi UFJ Trust and Banking Corporation
1-4-5, Marunouchi, Chiyoda-ku, Tokyo, Japan(Contact)
Mitsubishi UFJ Trust and Banking Corporation Transfer Agent
7-10-11, Higashisuna, Koto-ku, Tokyo, Japan
Toll-free telephone 0120-232-711

Principal Plants





➤











 



Vehicle assembly plant
Powertrain plant

Country/Region

Name

Major ProductsJapan Nagoya Plant–Okazaki

Colt, Colt Plus, Grandis Mizushima Plant

Outlander, Lancer, i, eK Wagon, Minicab

 Pajero Manufacturing Co., Ltd.

Pajero (Montero) Powertrain Plant–Kyoto

Engines Powertrain Plant–Shiga

Engines Powertrain Plant–Mizushima

Engines, transmissions

U.S.A.

Mitsubishi Motors North America, Inc. (MMNA)

Eclipse, Galant, Endeavor, Eclipse Spyder

Netherlands

Netherlands Car B.V. (NedCar)

Colt (European model)

Australia

Mitsubishi Motors Australia, Ltd. (MMAL)

380

ThailandMitsubishi Motors (Thailand) Co., Ltd. (MMTh)

Triton, Strada, Lancer, Spacewagon (Grandis)

MMTH Engine Co., Ltd. (MEC)

Engines

Philippines

China Mitsubishi Motors Philippines Corporation (MMPC)

Adventure, L300 (Delica) Asian Transmission Corporation (ATC)Transmissions

 Hunan Changfeng Motor Co., Ltd. (CFA)

Pajero, Liebao (old Pajero), Liebao Feiteng (Pajero iO)

 South East (Fujian) Motor Co., Ltd. (SEM)

Galant, Lancer, Spacewagon (Chariot Grandis), Delica, Freeca, Veryca

 Shenyang Aerospace Mitsubishi Motors Engine Manufacturing, Co., Ltd. (SAME)

Engines Harbin Dongan Automotive Engine Manufacturing, Co., Ltd. (HDMC)

Engines, transmissions

Taiwan China Motor Corporation (CMC)

Galant, Lancer, Savrin (Chariot Grandis), Zinger

Indonesia

 P.T. Mitsubishi Krama Yudha Motors and Manufacturing (MKM)

Engines, parts

Vietnam Vina Star Motors Corporation (VSM)

Pajero, Joly, Grandis

05
87

MITSUBISHI MOTORS CORPORATION
5-33-8, Shiba, Minato-ku, Tokyo 108-8410, Japan
Public Relations Department
Tel: +81-3-6852-4206 (IR)+81-3-6852-4274 (Corporate PR)
Fax: +81-3-6852-5405
http://www.mitsubishi-motors.com

Printed in Japan