MITSUBISHI MOTORS CORPORATION
Annual Report 2006
Year ended March 31, 2006

Mitsubishi Group Philosophy—Three Corporate Principles

Corporate Responsibility toSociety “Shoki Hoko”

Integrity and Fairness“Shoji Komei”

International Understanding
through Trade “Ritsugyo Boeki”

Strive to enrich society, both materiallyand spiritually, while contributing towards
the preservation of the global environment.

Maintain principles of transparency andopenness, conducting business withintegrity and fairness.

Expand business, based on an allencompassing global perspective.

Contents Mitsubishi Motors Corporate Philosophy

1 Quality34

 Consolidated Financial Summary2

 Production36

 Progress in the Mitsubishi Motors Revitalization Plan

3

 Procurement38

4

 Corporate Governance39

 Compliance42 Organizational Structure44

 Executives

45

 To Our Shareholders and Stakeholders
 Top Management Interview 1:

Progress in the Revitalization Plan and
Restoring Trust Product Development

Motor Sports

612

 Environmental Activities

46

13

 Financial Section

48

A Passion for Developing New Vehicles

14

 Consolidated Subsidiaries and Affiliates

86

Basic R&D Policies

16

 Investor Information

88

Eco-friendly Product Development

17

 Top Management Interview 2:

Roadmap for Improving Sales

18

 Regional Topics

Japan

24

North America

26

Europe28

Asia, ASEAN and Other Regions

30
Forward-looking Statements

On the Cover
Pajero (Montero) debuted in 1982 as an all-round SUV combining off-road
driving performance with the speed and comfort of a passenger vehicle.
Subsequent refinements led to second and third-generation models in 1991
and 1999. Over these years, Pajero (Montero) has been well received bycustomers in more than 170 countries and regions around the world, withroughly 2.5 million units produced and sold on a cumulative basis.
The new fourth-generation Pajero (Montero) features a diverse array of cutting-edge technologies befitting an all-round SUV built to global performancestandards. It employs technologies and expertise cultivated through participation in the Dakar Rally for the past 23 years and has undergone numerous
tests simulating some of the world’s most exacting driving conditions.

4

MITSUBISHI MOTORS CORPORATIONThis annual report contains forward-looking statements about
Mitsubishi Motors Corporation’s plans, strategies, beliefs and performance. 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 and projections are subject to a number of risks, and uncertainties that may cause actual results to differ materially from thoseprojected. Mitsubishi Motors Corporation, therefore, cautions readers
not to place undue reliance on forward-looking statements. Furthermore,
Mitsubishi Motors Corporation undertakes no obligation to update any
forward-looking statements as a result of new information, future eventsor other developments.

ANNUAL REPORT 2006

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.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

1

Consolidated Financial Summary
For the years ended March 31,

In millions of yen

In thousands of
U.S. dollars

FY2001

FY2002

FY2003

FY2004

FY2005

FY2005¥3,200,699¥3,884,874¥2,519,449¥2,122,626¥2,120,068$18,047,741

40,227

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

6,783

57,748minority interest(31,875)

42,206(77,173)(460,906)(82,745)(704,400)

Net income (loss)

11,25637,361(215,424)(474,785)(92,166)(784,596)

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¥7.66¥25.35¥(145.22)¥(194.36)¥(19.75)$(0.17)

7.42

23.43

–

–

–

–

–

–

–

–

–

–

In millions of yen

In thousands of
U.S. dollars

Cash dividends

At year-end:
Total assets
Total stockholders’ equity¥2,894,560¥2,425,352¥2,029,035¥1,589,286¥1,557,570$13,259,301

270,663

280,294

29,972

324,782

268,678

2,287,211

Notes: 1. U.S. dollar amounts in the accompanying consolidated financial statements are converted, solely for convenience, at a rate of ¥117.47=U.S.$1.00, theexchange rate prevailing on March 31, 2006.
2. In the year 2003, due to a change of accounting period at consolidated overseas subsidiaries, with fiscal year-end date moving from December 31 toMarch 31, 15-month figures for overseas subsidiaries have been incorporated. Prior to fiscal year 2001, the accounting periods of subsidiaries in Japanran from April to March of the subsequent year, whereas those of overseas subsidiaries ran from January to December with certain exceptions.
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 other parties
by the end of March 2005.

Net Sales

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

4,000

90

3,500

60

3,000

30

2,500

0

2,000

-30

1,500

-60

1,000

-90

500

-120

0

01 02 03 04 05 06
Actual

2

-150
(FY)

100
0
-100
-200
-300
-400

01 02 03 04 05 06

Plan

MITSUBISHI MOTORS CORPORATION

ActualPlan

ANNUAL REPORT 2006

-500
(FY)

01 02 03 04 05 06
ActualPlan(FY)

Consolidated Financial Summary
Progress in the Mitsubishi Motors Revitalization Plan

Progress in the Mitsubishi Motors Revitalization PlanThousand units

Retail Sales*1

FY2005 (Target)

FY2005 (Actual)

FY2006 (Target)

1,370

1,344

1,408

Japan

256

257

302

North America

169

156

181

Europe

254

267

271

Asia and Other Regions

691

664

654
In billions of yen

Performance*1
Net sales¥2,220.0¥2,120.1¥2,230.0

Japan

530.0

504.1

570.0

North America

430.0

415.7

450.0

Europe

620.0

586.2

600.0

Asia and Other Regions

640.0

614.1

610.0

Operating income (loss)(14.0)

6.8

43.0

Japan

(62.0)(55.3)(24.0)

North America(22.0)(7.2)(11.0)

Europe

10.0

24.4

26.0

Asia and Other Regions

60.0

44.9

52.0

(64.0)(92.2)

8.0

Net income (loss)
Balance Sheet*2
Cash and cash equivalents

175.0

259.0

168.0

1,592.0

1,557.6

1,601.0

Interest-bearing debt

497.0

447.8

500.0

Total stockholders’ equity

281.0

268.7

289.0

Total assets

Cash Flow*2
Cash flow from operating activities

1.0

54.4

105.0

Cash flow from investing activities(122.0)(84.8)(115.0)Cash flow from financing activities

48.0(19.0)

3.0

–

2.6

–

(73.0)(46.8)(7.0)

Effect of exchange rate changes on cash and cash equivalents
Total* 1 MMC revised its targets for fiscal year 2005 and fiscal year 2006 on November 10, 2005 and April 27, 2006, respectively.
* 2 Targets for fiscal year 2005 and fiscal year 2006 are from figures in the Mitsubishi Motors Revitalization Plan announced on January 28, 2005.

Total Assets

Retail Sales(¥ billion)(Thousand units)

3,000

2,000

2,500
1,500
2,000
1,000

1,500

쎱 OEM Plan
1,000
500
500
0

01 02 03 04 05 06
Actual0(FY)

01 02 03 04 05 06

Plan

MITSUBISHI MOTORS CORPORATION

Actual(FY)(Nissan Motor Co., Ltd.,PSA Peugeot Citroën)쎱 Asia and Other Regions
쎱 Europe쎱 North America
쎱 JapanPlan

ANNUAL REPORT 2006

3

To Our Shareholders and Stakeholders

Takashi Nishioka
Chairman of the Board

Osamu Masuko
President

On March 31, 2006, Mitsubishi Motors Corporation (MMC) completed the first fiscal year of the three-year
Mitsubishi Motors Revitalization Plan, which was unveiled on January 28, 2005 and covers fiscal years
2005 to 2007.
Progress was made in the two primary themes of the plan, to win back customer confidence and improveearnings. All corporate officers and employees united to execute each and every initiative of the plan. We’repleased to report that sales volumes and net sales were largely in line with forecasts for fiscal year 2005 andoperating profitability moved back into the black one year earlier than planned. We want to thank our shareholders
and stakeholders for their support and guidance in the wake of MMC’s management crisis of 2004. We also wantto thank all MMC employees in all regions around the world for their efforts.
Heading into the plan’s second year, we face an increasingly challenging operating environment with sales
slow to recover in certain markets and other factors at play such as high crude oil prices and rising materials
costs. Most importantly, we have yet to achieve bottom-line profitability. Nevertheless, we are committed anddetermined to clear each and every one of the hurdles that remain to revitalize the company.

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MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

To Our Shareholders and Stakeholders

The main points of MMC’s performance in fiscal year 2005 were as follows:
1. Sales Volume Driven by the Japanese and European Markets
In fiscal year 2005, sales volume increased 2.4% year-on-year to 1,344,000 vehicles, reaching 98% of targets.
In the Japanese market, MMC launched two new models that have received strong praise from numerous
customers—the new Outlander SUV and the new i minicar. Launched in October 2005, Outlander recorded salesof 19,000 units in the six months leading to the end of March 2006, more than 50% higher than target. i got off
to a steady start, too, selling 16,000 units in only two months following its January 2006 debut. With the strong
sales of these two models, we feel that we have made strides in winning back the confidence of customers andtaken decisive first steps in revitalizing the company. Also, sales volumes were strong in main European markets
such as Germany and the U.K., and volumes grew briskly in Russia, the Ukraine, Central & South America, theMiddle East and Africa.

2. Operating Profitability Restored
As mentioned earlier, we achieved our target of restoring operating profitability one year ahead of schedule,
despite a 0.1% year-on-year decrease in net sales to ¥2,120.1 billion, 4.5% lower than target. Operating income
was ¥6.8 billion, more than ¥20.0 billion better than the operating loss initially projected for the fiscal year. This
partly reflected cost reduction efforts and favorable exchange rates as the yen weakened.

3. Sales Bottomed Out in the Important U.S. Market
MMC’s sales have been slow to improve in the U.S. and Australian markets. To further ensure sound profitability
in both these markets and provide for the risk of potential losses, MMC decided to book additional asset impairment losses in fiscal year 2005. Consequently, we posted a net loss of ¥92.2 billion for the fiscal year, which wasworse than target. In the large U.S. market, we dispatched numerous management personnel from Japan, including Hiroshi Harunari as President & CEO of our U.S. subsidiary. This was done to conduct sweeping reforms of ouroperating structure, including enhancement of communication between parent company and U.S. operations aswell as communication with distributors. As a result, U.S. sales volumes have improved year on year since April
2006, suggesting that sales have bottomed out and business is recovering.
In fiscal year 2006, we will strive to reach even more ambitious goals. We are targeting sales volume of
1,408,000 vehicles, roughly 5% higher than in fiscal year 2005, with the goal of bringing operating income,ordinary income, and net income fully into the black. For the first quarter of fiscal year 2006, MMC posted an
operating loss of ¥6.8 billion. However, an operating loss of ¥9.0 billion in the first half was originally planned,
and positive profitability planned for the second half. Therefore, we believe that MMC is largely on track tomeeting forecasts. While we must rapidly respond to market conditions including declining demand in ASEAN
countries, such as Indonesia and Thailand, due to the impact of high crude oil prices and other factors, there aremany exciting developments to which to look forward. Sales are improving in the U.S., we will unveil more
Mitsubishi-brand vehicles in China, and the Outlander SUV and Triton (L200) one-ton pickup truck models will
be introduced to more markets worldwide. We anticipate reporting even more favorable news next year.
September 2006

Takashi Nishioka
Chairman of the Board

Osamu Masuko
President

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

5

Progress in the Revitalization Plan and Restoring Trust
Overview of the First Year of the Mitsubishi Motors Revitalization Plan
Restored operating profitability one year earlier than planned
Top Management Interview 1

Q: What is your assessment of MMC’s financial performancefor the first fiscal year of the revitalization plan?

<President Masuko>

Osamu Masuko
President of MMC since announcement of Mitsubishi Motors
Revitalization Plan in January
2005. Previously appointed
MMC Managing Director in
Charge of Overseas Operations
Group Headquarters in June
2004, after serving as SeniorVice President & Division COO of
the Motor Vehicle Business Division of Mitsubishi Corporation.

Since announcing the plan in January 2005, MMC has striven to implement each and every initiative under
the new management team. The two key priorities are to win back customer confidence and improve earnings.
It’s gratifying to know that we were able to restore operating profitability one year ahead of schedule in theplan’s first fiscal year.
In Japan, we launched two new models crucial to our revitalization—Outlander and i —on schedule undera stringent quality assurance system. These two models got off to a strong start, outperforming sales plans.
With this strong customer response to new models, I believe that MMC took a strong first step toward revitalization and winning back customer confidence.
Meanwhile, the issues that we must resolve have become clearer. MMC must boost performance in markets
where sales have been slow to recover, such as the U.S. and Australia, rationalize its global production
system, and respond to escalating materials costs. In fiscal year 2005, we restored operating profitability, a
key indicator of the health of a company’s core operations, and the ordinary loss was better than forecast.
However, the net loss was worse than forecast due to additional asset impairment charges taken and otherfactors. Nonetheless, our target for fiscal year 2006 is to restore profitability at all levels. To this end, MMC
requires all regions and operational units to perform at their best. Fiscal year 2006 is a crucial year for
ensuring that we remain firmly on the path to revitalization.

<Managing Director Ichikawa>

Hiizu Ichikawa
Managing Director in Charge ofFinance Group Headquarters
since June 2004. Previously withThe Bank of Tokyo-Mitsubishi,Ltd. (currently The Bank of TokyoMitsubishi UFJ, Ltd.)

6

In fiscal year 2005, MMC achieved positive operating income, an indicator of the earnings power of core
operations, but a larger net loss than originally planned. I’d like to highlight several points of interest withrespect to our performance.
First, while exchange rates did move in our favor, MMC was able to restore operating profitability principally due to cost reduction measures focused on fixed costs.
Second, while our net loss of ¥92.2 billion was ¥28.2 billion worse than forecast for fiscal year 2005, we
believe that the booking of additional asset impairment charges in North America and Australia along withrestructuring charges position us for improved earnings in fiscal year 2006 and beyond.
Third, MMC largely achieved its overall retail sales targets for fiscal year 2005. However, some regions
outperformed while others underperformed due to changes in market conditions such as high crude oil prices
and intensifying competition. Therefore, MMC has updated targets for fiscal years 2006 and 2007 based on
the regional sales results from the plan’s first fiscal year. This was done so as to achieve overall earnings
targets originally laid out in the revitalization plan.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Top Management Interview 1:
Progress in the Revitalization Plan and Restoring Trust<Executive Vice President Kasugai>
One of my roles as MMC’s Revitalization Promotion Officer is to foster an earnings-conscious mentality befitting a manufacturer in all operating divisions. Since my appointment, I have made every effort to pursue cost
reductions across the company. To accomplish MMC’s revitalization plan, it is imperative that we continuously implement cost reductions throughout the company to deliver greater results. This entails collectively
harnessing the motivation and efforts of all employees.

Corporate Culture Reforms
Top Management Interview 1

Q: Corporate culture reforms are a key theme of MMC’s revitalization plan. What progress has been made on this front?

<President Masuko>
In the past, MMC formulated plans but did not necessarily have the culture needed to follow up on execution.
To make a success of its revitalization plan, MMC has clarified the responsibilities and authority of each
operational unit, and is actively reviewing organizational and personnel systems. At the same time, we are
striving to foster a culture where every employee fulfills their respective duties from a customer-first perspective and with a sense of responsibility, without creating walls between departments. This entails a mindset
change. To this end, whenever the chance has presented itself I have held meetings directly with people frommany organizational levels across various operational units, including plants and dealerships. I’ve used theseopportunities to engage in dialog with frontline employees. These efforts are ongoing. MMC is also actively
rotating staff from the standpoint of changing mindsets and raising the motivation of employees.

<Executive Vice President Kasugai>
In April 2006, a product strategy office and environment & recycling affairs department were added to thegroup I oversee: the corporate planning, product strategy, environment affairs & corporate affairs group.
Product Executives (PX) responsible for product development were also transferred in from the product development group. As part of their mission, they are strongly aware of the importance of maximizing earnings andbuilding eco-friendly vehicles in addition to developing quality vehicles, from the customer’s and a companywide perspective. MMC is also conducting job rotations like, for example, temporarily sending employees indevelopment units who seldom have the chance to interact with customers to dealerships, giving them thechance to communicate with customers directly.

Heki Kasugai
Executive Vice President of MMC
since June 2005. Revitalization
Promotion Officer and also in
Charge of Corporate Planning,
Product Strategy, Environment
Affairs & Corporate Affairs
Group Headquarters. Previously
a director of Mitsubishi Heavy
Industries, Ltd.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

7

<President Masuko>
It is important to bring in an external perspective to ensure that corporate culture reforms do not become insular
and taken for granted. Since fiscal year 2004, the Business Ethics Committee and Business Revitalization
Monitoring Committee have been thoroughly monitoring the company from an outside perspective to see whether
our activities violate social norms and whether we are on track to achieving our plan’s goals. I was named Chief
Business Ethics Officer upon my appointment as President to ensure observance of business ethics, and theCSR (corporate social responsibility) Promotion Office has played a key role in instilling a compliance mindset
through various initiatives across the company. Activities to restore trust are a continuous pursuit. Our goal
remains to create a corporate culture and systems where there are no compliance violations.
With the enactment of new corporate laws in Japan, MMC established an Internal Control Promotion
Committee chaired by Managing Director Ichikawa. By establishing this committee, we aim to redouble thecommitment of all members of the Board of Directors to compliance and risk management, while raising theentire company’s awareness of activities aimed at restoring public trust.

<Managing Director Ichikawa>To firmly restore public trust, MMC must strengthen corporate governance, particularly in areas crucial toestablishing stringent risk management. My role is to put in place a company-wide structure for identifying andunderstanding risks.

Restoring Profitability on All Counts
Fiscal Year 2006 Plan
Top Management Interview 1

Q: What kinds of challenges will you tackle in the second yearof MMC’s revitalization plan?

<President Masuko>
MMC aims to achieve profitability on all counts in the second year of its revitalization plan.
Specifically, we are targeting retail sales of 1,408,000 units, an increase of roughly 5% from fiscal year
2005. On the earnings front, our targets are operating income of ¥43.0 billion, ordinary income of ¥21.0 billion
and net income of ¥8.0 billion. All of these targets are much more ambitious than those for the plan’s first year.
Achievement of these targets is premised mostly on meeting retail sales targets in all regions. It is especially critical that we attain our targets in Japan, which have been set higher, and in North America, where wemust ensure that sales continue to improve after the recent bottoming out.
To this end, MMC will move on the offensive by bringing a steady stream of new models to both of thesemarkets in fiscal year 2006. First, in Japan, we aim to grow annual retail sales by more than 45,000 units yearon-year to surpass the 300,000 unit mark. This will be accomplished by extending the range of the Outlander
and i models, which have garnered strong customer response for their outstanding performance and innovative
design, through the launch of special editions. This will be done with the aim of establishing these two models
as long sellers. We will also roll out three new offerings—eK Wagon, Pajero and Delica. In North America, we are
striving to improve our ability to attract customers to dealerships and enhance sales capabilities by unveilingthree new models, Eclipse Spyder, Outlander and Lancer, as well as through the successive launch of special
editions of models already on the market.

8

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Top Management Interview 1:
Progress in the Revitalization Plan and Restoring Trust<Managing Director Ichikawa>
Financial risk controls focused on factors such as exchange and interest rates will also be critical to achieving
bottom-line profitability while remaining profitable at the operating level. We will therefore be carefully managing operations with a close eye on these controls.

Top Management Interview 1

Q: Cost reductions, such as curbing materials costs, are justas crucial to restoring profitability as improving sales. How
is MMC progressing on this front?

<Executive Vice President Kasugai>
Curbing material costs is no easy feat, considering escalating materials prices worldwide. To realize further
cost reductions, we must reinforce cost countermeasures from the design stage by strengthening relationships with trading partners. We have established a materials cost reduction committee in conjunction withmaking materials cost-reduction activities traditionally undertaken by procurement departments a companywide initiative from fiscal year 2006. Progress toward cost-reduction targets is being monitored at a companywide level worldwide.
Cost reductions also have a bearing on our product strategies. We have reduced the number of cost inefficient regional models and increased the number of global strategic models. Thailand is MMC’s hub forexporting one-ton pickup trucks to more than 160 countries around the world. The new Triton, which enteredproduction in August 2005, is positioned as a global strategic vehicle, and was launched in Europe as the new
L200 in March 2006; it has won strong customer support. In fiscal year 2006, MMC will export three newmodels, Outlander, Pajero (Montero in some markets)
and Lancer, from Japan to overseas markets as global
strategic models.

<President Masuko>
Triton (L200) features an innovative, rounded designthat has proven highly popular in Europe. It also
enjoys strong support from women.

L200

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

9

Top Management Interview 1

Q: What circumstances led to your decision to continue production at the Okazaki Plant? And how is your production system
coping with growing demand for global strategic models?

<President Masuko>
Configuring an optimal global production system is an extremely important issue for the company. MMC’s
Mizushima Plant is operating at over full capacity to meet strong demand in Japan and overseas for models
produced there, whereas the Okazaki Plant and other production facilities have lower capacity utilization
rates. The decision to continue production at the Okazaki Plant reflected the need to redress this imbalance
in production levels in our domestic production network and avoid the loss of sales opportunities due to
production shortfalls. This decision entailed transferring production of the Outlander model for overseas
markets from the Mizushima Plant to the Okazaki Plant.

Top Management Interview 1

Q: Was this a costly move?

<Managing Director Ichikawa>
The transfer of Outlander production to the Okazaki Plant will not require a large capital investment, and will
not have a large impact on fiscal year 2006 operating results. Even with this investment, however, balancing
production levels in Japan remains an outstanding issue.

<President Masuko>
Capacity utilization will rise at production subsidiary Pajero Manufacturing Co., Ltd. due to full model changes
for Pajero (Montero) and Delica in fiscal year 2006.
Overseas, MMC will rationalize production levels at plants with excess capacity, while shipping vehicles toother regions to improve capacity utilization. The Illinois Plant of U.S. subsidiary Mitsubishi Motors North
America, Inc. (MMNA) is striving to reduce costs and enhance productivity, while launching exports of Galant
to the Middle East, Russia and the Ukraine. Netherlands Car B.V. (NedCar), a European subsidiary engaged in
the production of Colt, was contracted by DaimlerChrysler AG to produce a compact model. However, production of this model was terminated at the end of June 2006 at the request of DaimlerChrysler. We are now
considering rationalization measures to ensure profitability at NedCar based on Colt production alone. To
further improve capacity utilization at NedCar, MMC is also currently considering exporting NedCar produced
Colt models to Mexico and South Africa. By increasing shipments to other regions, we aim to effectively utilize
each production facility. Meanwhile, Mitsubishi Motors Australia, Ltd. (MMAL), an Australia-based subsidiary, is working to boost overall sales of the locally made 380. However, MMAL continues to face greater-thanexpected difficulties, reflecting factors such as weakening demand for large sedans due to high oil prices andintensifying price-based competition. In response, MMC continues to implement production cutbacks, cost
reductions and other measures in line with market conditions, as part of efforts to rationalize the company’s
local production operations.

10

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Top Management Interview 1:
Progress in the Revitalization Plan and Restoring Trust

In these and other ways, MMC will continue to rationalize the production networks of overseas production
subsidiaries to match planned production levels in the near term.

Top Management Interview 1

Q: There is growing interest in environmental technologies
among shareholders and customers. What progress is MMC
making here?

<Executive Vice President Kasugai>
Environmental activities are one of our key responsibilities as a memberof society. We recognize that automobiles have an impact on the environment, and are taking steps to mitigate this impact. To help combat
global warming, MMC is working hard to reduce CO2 emissions by improving the fuel economy of gasoline and diesel-driven vehicles andworking to bring to market an electric vehicle that emits no CO2 emissions whatsoever. We aim to bring an affordable electric vehicle to market in 2010. Furthermore, environmental demands differ in various
regions around the world. In Europe, fuel-efficient diesel engines arehighly prized. MMC and Mitsubishi Heavy Industries, Ltd. are therefore
pursuing plans to jointly develop new-generation diesel engines. In Brazil,
we are making progress in ethanol-powered vehicles. MMC is also pursuing other environmental initiatives, including the development of plantbased resins (Green Plastics), which help to conserve petroleum
resources. We are strongly committed to developing and commercializing these and other environmental technologies.

Lancer Evolution MIEVTop Management Interview 1

Q: What are your aspirations for fiscal year 2006, the second
year of MMC’s revitalization plan?

<President Masuko>
Concerns over the future course of the global economy, fueled by high crude oil prices and regional conflicts,
among other factors, are making our business environment increasingly challenging. In this context, it will not
be easy to achieve our targets for fiscal year 2006, which are more ambitious than in fiscal year 2005. I havebeen encouraging employees to meet these targets by fostering self-reliance—employees must take responsibility for their own company, without relying on anybody else for help. Now is the time for employees across all
operational units and regions to band together and rise to the challenge of achieving MMC’s revitalization plan.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200611

Product Development
Fiscal Year 2005 Accomplishments

New Model Introduction Plans for

MMC launched a total of 6 new models on schedule

Fiscal Year 2006

during fiscal year 2005: Eclipse in the United States;

During fiscal year 2006, the second year of the

Triton (L200) one-ton pickup truck in Thailand; 380

Mitsubishi Motors Revitalization Plan, MMC plans

sporty sedan in Australia; Zinger MPV in Taiwan; and,to accelerate business revitalization efforts with an

in Japan, the Outlander SUV and i minicar. Eacheven more aggressive introduction program coveringmodel has garnered praise in its respective market

new models and special editions.

for design and performance.

In terms of global model rollouts, following its
successful introduction in Japan, the new Outlander
SUV is due to be launched in the U.S. in November
2006 and in Europe from January 2007. The U.S.
market Outlander will feature a newly developed 3.0
liter V6 MIVEC* engine and 6-speed automatic transmission. It promises to outperform rival SUVs on
numerous fronts, including design, interior, suspension, driving performance, and fuel economy.
The new Lancer will receive its global debut in the
U.S. in March 2007. Sharing the same platform as

Managing Director

the new Outlander, through a new 2.0 liter MIVEC

In Charge of Product Development
Group Headquarters

engine the new Lancer will provide increased powerwith improved fuel economy. Equipped with the larg-

Tetsuro Aikawa

est tires of any C-segment vehicle in the U.S. and an

Principal New Model Introduction Plans for Fiscal Year 2006
[Europe][North America]

New model: Triton (L200) one-ton pickup truck [Thai-made](March 2006)
New model: Colt CZC (May 2006)
New model: Galant [American-made](September 2006: Russia & the Ukraine)
New model: Pajero (Montero) [Japanese-made] (November 2006)
New model: Outlander [Japanese-made] (January 2007)

New model: Eclipse Spyder (April 2006)
New model: Outlander [Japanese-made] (November 2006)
New model: Lancer [Japanese-made] (March 2007)
Special editions of Galant and other models (from April 2006)➤➤[Japan]➤➤Colt RALLIART Version-R (May 2006)
Special editions: i (May 2006)
Special edition: Outlander (June 2006)
Lancer Evolution IX MR (August 2006)
New model: eK Wagon (September 2006)
New model: Triton (L200) one-ton pickup truck [Thai-made] (September 2006)
New model: Pajero (Montero) (October 2006)
New model: Delica (February 2007)[Asia and Other Regions]
China:
LancerSpace Wagon (Chariot Grandis)
Central & South America/Middle East/Africa:
New model: Triton (L200) one-ton pickup truck [Thai-made]New model: Galant [American-made] (Middle East)

12Australia:
New model: Pajero (Montero) [Japanese-made]New model: Triton (L200) one-ton pickup truck [Thai-made]New model: Outlander [Japanese-made]New grades: 380

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Product Development

all-new suspension, the new Lancer delivers a par-in their home markets. In particular, the new Delica

ticularly comfortable ride along with excellent steer-

will be the first complete model change in 13 years.

ing characteristics. These characteristics help to realize

MMC plans to promote the remodeled Delica tosmooth and sporty driving performance. A global rollout

180,000 current Delica owners.
In Japan, a critical issue is to establish both theto Japan and other markets is also planned.
MMC plans to introduce an all new Pajero

Outlander SUV and i minicar as long-selling models.

(Montero) in Europe and Japan in fall 2006. Pajero

A special edition of Outlander, G-Limited Edition,(Montero) has become a symbol of Mitsubishi Motors,

has been introduced with various exterior designand demand remains especially high for the vehicle

touches and a luxury interior. For i, MMC has intro-

in Europe. Through a subsequent global launch, MMC

duced two special editions—i Play Edition, whichplans to stimulate demand in other regions with thefeatures a special slot for an iPod® nano music player

aim of cultivating a global customer base for thisfrom Apple Computer, plus i Limited, which ismodel. Also, the company began production of theequipped with a variety of popular features that ex-

new Triton (L200) one-ton pickup truck in Thailand

pand the customer base. Furthermore, MMC aims toin 2005. Plans call for exporting this model to mar-make the i range even more appealing to a broader

kets around the world, including Europe, Australia,

array of customers with the October 2006 introduc-

Central & South America, the Middle East and Africa.

tion of an i model with a non-turbocharged engine.

Regional model releases in fiscal year 2006 include the new Eclipse Spyder (U.S.), the Colt CZC
cabriolet (Europe), and the new eK Wagon and Delica* Mitsubishi Innovative Valve-timing Electronic Control system: featuresa proprietary continuously variable valve-timing mechanism.

(Japan). All of these models have gained popularity

Motor Sports
For more than 30 years, MMC has risen to the challenge of various
motor sports events, including international rallies. Participation insuch events has given MMC the opportunity to push its vehicles to thelimit in pursuit of superior safety, durability, and refined drivability
and endurance. The expertise and technology developed in these activities are fed back into all of the company’s vehicle development andmanufacturing operations. Motor sports are the embodiment of MMC’s
SUV DNA and Sporty DNA brand concepts, and are essential for refining technology and providing customers with cars that are both attractive and safe.
The Outlander SUV, launched in October 2005, features all wheel
control (AWC) systems, a technology concept developed at the frontlinesof motor sports. Technologies centered on an electronically controlled
4-wheel-drive system, along with an aluminum roof and mono-tube
rear shock absorbers, contribute to optimal balance and control of all
four wheels. This gives the driver more freedom in steering and delivers superior overall safety.

Suspension of WRC Participation
As part of efforts to accomplish the goals of the Mitsubishi Motors Revitalization Plan, MMC has decided not to participate in the 2006 FIA
World Rally Championship (WRC). The decision reflects a determination
to concentrate management resources on carefully selected areas toensure that MMC accomplishes the goals of its revitalization plan. However, MMC will continue to support participation of Mitsubishi drivers inmotor sports. The company aims to return to the WRC as soon as possible after making a success of the revitalization plan.
MMC plans however to continue to participate in the Dakar Rally.

Dakar Rally—Sixth Consecutive Win (11th Overall)
MMC is a time-tested veteran of the Dakar Rally, participating in therace for the 24th time in 2006. It was another year of great success forthe company in this near-legendary event: the first win for Luc Alphandof France (Mitsubishi Pajero Evolution), MMC’s sixth consecutive win,a new record for the Dakar Rally, and the 11th overall win for thecompany. Victory in this grueling event was a great opportunity to once
again showcase the company’s technologies, teamwork and determination to succeed.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200613

A Passion for Developing New Vehicles

Outlander
Outlander is MMC’s flagship model in the C segment. Embodying “Heart Thumping
Performance,” Outlander features a range of newly developed technologies, such as a
new aluminum block engine, aluminum roof, and mono-tube shock absorbers. As a vehicle
leading MMC’s revitalization, many more appealing features have been
added to Outlander to send a strong message to customers. One ofthese features is a groundbreaking audio system installed as standard
in premium grade models. This audio system realizes a sound qualitythat completely redefines the concept of car audio systems. By filling
enclosures on the door panels to create a deadening effect around the
speakers, the doors are designed to function as speaker boxes. This
innovation reflects the commitment of younger car designers to realizing uncompromising sound quality. In Japan, Outlander achieved No. 1 retail sales volume
in the SUV category in the second half of fiscal year 2005. This accomplishment showsthat the approach MMC is taking in creating new cars has been extremely well received
by customers—giving confidence that MMC is on the right track.

14

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

A Passion for Developing New Vehicles

iMinicars must reconcile trade-offs that arise from their size constraints such as “Design
and Comfortable Interior Space” and “Comfortable Interior Space and Impact Safety.” iemploys a new platform based on a rear midship layout, where the engine is mounted in
front of the rear axel. This platform helps to realize i ’s defining features—a futuristic onemotion form, agile handling, and excellent impact safety. It was extremely challenging tocommercialize this model without compromising design quality. For instance, MMC had to
conduct repeated trials of i ’s single front wiper to ensure full coverage of the large, curved
front windshield. Innovations were also required to ensure driving stability with i ’s rear
midship layout, such as employing front and rear tires with different
widths. As a result, MMC was able to refine i into a premium minicar
with intelligent features and an attractive design worthy of artistic merit.
The launch of i was originally planned for summer 2006. However,Engine compartment

as a symbol of MMC’s revitalization plan, management was determined

Crushable zone

to roll out i in the plan’s first fiscal year. Incredible efforts by the development team brought forward the launch to January 2006. The entire
Passenger
cabin

company banded together across organizational lines to ship exhibition
models to dealerships in time for the start of sales during the New Year holidays. Stringent
quality verification activities were also conducted before shipment using volume production models. In short, i is the embodiment of MMC’s enthusiasm and commitment todesign and engineering.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200615

Basic R&D Policies
Guided by its business philosophy, Mitsubishi Motors
engages in various research and development activities withthe aim of creating technologies that realize three goals:
the “Utmost Driving Pleasure,” “Reassuring Safety,” and“Environmental Contribution.”
The company’s R&D units employ approximately 4,000
people worldwide, or about 11% of the group-wide workforce. MMC also undertakes research projects in conjunction with major academic and other external research
institutions, as well as entrusting some research projects
to these institutions on a contract basis. Using a networkof close collaborative and cooperative relationships, MMC
aims to undertake R&D in cutting-edge technologies as efficiently as possible.
The Mitsubishi Motors Development System (MMDS) uses
a system of “quality gates,” consisting of strict product quality
checks at each stage of development. Quality is the foremost priority within the product development process.

“Utmost Driving Pleasure”: Development ofHigh-performance Driving Control Technologies
Based on All-wheel Control Systems
MMC is working to further enhance advanced all-wheel control technologies. In addition, MMC has developed a highperformance powertrain lineup that also boasts low fuelconsumption. This combination is based on newly developed aluminum engine blocks featuring the MIVEC continuously variable valve-timing system, which delivers a swift
response at all times. The high performance, low consumption matching is also based on continuously variable transmissions (CVTs), which enable the driver to make sporty gear
shifts when in shift mode. MMC is also increasingly employing aluminum roofs and engine hoods, which help to reduce
vehicle weight while also lowering the center of gravity.

use of advanced electronics, such as active stability control(ASC) systems to prevent skidding when cornering. Other
safety-related systems under development include driversupport technologies to provide assistance with parking.
With the aim of increasing cabin comfort, MMC is working on a variety of developments to make the driving experience more pleasant. These include technologies to reduce
cigarette and other odors as well as volatile organic compounds (VOCs), and to cut out harmful ultraviolet and infrared rays.

“Environmental Contribution”: Developmentof Vehicles With Lower Emissions and Fuel
Consumption, Next-generation Electric ZEVs,
and Easily Recyclable Vehicles Free of
Substances that Burden the Environment
MMC is actively working to meet new fuel economy standards before they come into force in Japan in 2010, as
well as meet a new certification system for low-emission
vehicles. In parallel, MMC is steadily working to meet overseas regulatory developments such as the tightening of
CAFE standards in the United States, the implementationof ZEV (zero-emission vehicle) standards in California, andvoluntary reduction targets for automotive CO2 emissions
in Europe. MMC is also promoting the development ofclean diesel engines and new-generation electric vehicles,with the goal of bringing these products to market by 2010.
The overriding aim is to create vehicles befitting theCentury of the Environment.

Consolidated R&D Expenditures(¥ billion)
Fiscal years ending March 31

100“Reassuring Safety”: Development of Passengerprotective Body Structures and Other Safety
Features Along with Technologies for
Increasing Cabin Comfort
MMC’s latest minicar i adopts an innovative rear midshiplayout in which the engine is mounted toward the rear of thevehicle. This creates a more extensive crushable zone at thefront of the vehicle. With this as an example, MMC continues to develop technologies to protect both passengers andpedestrians. In the field of preventive safety, besides enhancing technologies in the traditional fundamental areasof vehicle stopping and turning, MMC is also expanding the16

MITSUBISHI MOTORS CORPORATION

80

60

40

20

0

04

05
ActualANNUAL REPORT 2006

06
Plan

(FY)

Basic R&D Policies
Eco-friendly Product Development

Eco-friendly Product Development
The sharp increase in oil prices in recent years is contributing to rising global demand for vehicles with better fueleconomy. MMC is initiating product and development strategies which meet this market trend.
In June 2006, MMC announced a joint development
project with Mitsubishi Heavy Industries, Ltd. (MHI) to
create 2-liter class diesel engines. The aim is to make theseengines not only fully compliant with “Euro 5” exhaustemission standards due to come into force in Europe from2010, but also the top of their class in terms of power
output. MMC plans to obtain a broad range of support from
MHI for this project, including advanced combustion analysis technology and basic research and testing equipment.
MHI engineers will also be dispatched to aid in the project.
MMC is working to develop technologies that prioritize
eco-friendly performance. Symbolic of this is technology for
new-generation electric vehicles that emit no CO2. MMC is
also positioning the above clean diesel engines as a coretechnology alongside various fuel diversification technologies.

Electric Vehicle Development Program
MMC is pressing ahead with development efforts in newgeneration electric vehicles using the MIEV (Mitsubishi Inwheel motor Electric Vehicle) system. These vehicles are theembodiment of the ultimate eco-friendly vehicle—one thatemits no CO2 or any other exhaust emissions whatsoever
while in use. MMC has been focusing research on fundamental component technologies such as high-performancelithium-ion batteries, highly efficient electric motors, regenerative braking systems, and electricity-driven air conditioning. This research has entailed production of two test
vehicles—Colt EV and Lancer Evolution MIEV.
Looking ahead, while continuing to improve these component technologies, MMC will pursue joint research withelectric utility companies in areas such as the development of rapid battery recharging systems.
MMC is pressing ahead with development of an electricvehicle based on a minicar format, conducive to electricvehicles both in terms of driving distance and use. The
goal is to bring this product to market by 2010.

“Green Plastics” Development Program
The interior appointments of automobiles typically containmany materials such as oil-based plastics that have a highenvironmental impact. In its “Green Plastics” program, MMC
is developing original plant-based plastics technology withthe goal of creating eco-friendly alternative materials for commercial use in successive stages.
In February 2006, MMC announced the developmentof the first eco-friendly plastic to emerge from this program.
Created in collaboration with the Aichi Industrial Technology Institute, this material is a resin that can be manufactured from plant-based raw materials. It is combinedwith fibers derived from fast-growing bamboo to create amaterial for use in automobile interiors. Compared withconventional materials derived from petrochemical resins,the new biomaterial generates more than 50% less CO2
emissions over the course of its life cycle from harvesting
to disposal, and reduces emissions of VOCs by approximately 85%.
Moreover, in June 2006, MMC announced the successful development of floor mats made from a plant-based
resin and nylon fibers, developed in conjunction with Toray
Industries, Inc. The second successful product of the “Green
Plastics” program, these floor mats are due to enter commercial use during 2006.

The Mitsubishi Concept-CT MIEV concept car(Unveiled at the 2006 Detroit Motor Show)MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

17

Roadmap for Improving Sales
Fiscal Year 2005: Brightness in Japan While the U.S. Has Yet toClear the Fog
Top Management Interview 2

Q: Let’s begin by asking President Masuko, who has been overseeing overseas operations since January 2006, about MMC’s
progress overseas. How were sales in fiscal year 2005, thefirst fiscal year of the Mitsubishi Motors Revitalization Plan?
Could you provide a breakdown by region?

<President Masuko>

Osamu Masuko
President
Concurrently in Charge of Overseas Operations Group Headquarters since January 2006

MMC performed very well in Europe. Retail sales climbed 10.5% year-on-year to 267,000 units, owing to steadysales in the large German and U.K. markets, as well as substantial sales growth in Russia and the Ukraine.
However, in Asia and other regions, retail sales decreased 0.8% from the previous year to 664,000 units.
This decrease was mainly attributable to declining retail sales in Malaysia, which is promoting increased
production of domestic automobiles, and Indonesia, where economic conditions were weak due to high oil
prices. These declines were partially offset by growth in the strong markets of Thailand, Central & SouthAmerica, the Middle East and Africa.
In North America, retail sales declined 10.3% to 156,000 units. Sales were lower than forecast due tofalling sales in the U.S., despite strong sales in Mexico and Puerto Rico. High crude oil prices and otherfactors are significantly transforming the operating environment of the automobile industry in the U.S. In theprevailing environment, we believe that it is vital to establish a new operating structure that can respond more
dynamically to market conditions by engendering closer cooperation between MMC and U.S. subsidiary
Mitsubishi Motors North America, Inc. (MMNA). Hiroshi Harunari, formerly Managing Director in charge ofthe overseas operations group, was dispatched to the U.S. in January 2006 to accelerate ongoing reforms.
Mr. Harunari will explain the current status of U.S. operations in more detail.

<MMNA CEO Harunari>

Hiroshi Harunari

I regret that we were unable to deliver stronger performance in the U.S. in the first year of the revitalization
plan. The all-new Eclipse, for which we had high expectations as our first new model since the plan wasannounced, generated strong sales. However, performance was affected by damage to the Mitsubishi brandcaused by past management missteps, and the fact that the launch period for the new Raider* pickup truckcoincided with a major surge in oil prices. In addition, ongoing efforts to reduce fleet sales as part of initiatives to normalize sales activities lowered volume. These factors were compounded by a drop in overall U.S.
automobile demand in the wake of events such as Hurricane Katrina in September 2005. In this climate, rival
automakers began providing special offers such as employee pricing campaigns to stimulate demand, triggering fierce competition in terms of the use of incentives. MMC was unable to sufficiently respond to these andother disruptions in the U.S. market.

President and CEO of U.S.
subsidiary Mitsubishi Motors
North America, Inc. (MMNA)
since January 2006. Previously
appointed MMC Managing
Director in Charge of Overseas
Operations Group Headquarters
in June 2005.

18

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Top Management Interview 2:
Roadmap for Improving Sales

In the past, I believe there was a major breakdown in communication between MMNA and U.S. dealerships.
Marketing and incentive strategies cannot be effective without understanding the approaches taken by
dealerships, who are closest to customers. In other words, only by establishing strong relationships withdealerships based on trust can effective sales strategies be formulated. That’s why the first step I took after
being appointed as President and CEO of MMNA was to visit Mitsubishi dealers and listen to their views andrequests. This feedback was reflected in various sales initiatives. To this end, in my first six months I visited
200 dealerships, roughly half of our U.S. sales network. These visits also demonstrated our strong commitment to reviving operations in the strategically key U.S. market.
* Supplied by DaimlerChrysler AG on an OEM basis.

Top Management Interview 2

Q: The next question is for Managing Director Cho. How aredomestic sales progressing?

<Managing Director Cho>
MMC did its utmost to ensure the successful launch of the new Outlander and i models in Japan. I’m truly
grateful to consumers for their support for these two models, which got off to a strong start. Above all, thestrong response garnered by these two models in Japan, where we were most heavily affected by past recall
issues, is providing impetus for accomplishing the goals of the revitalization plan as we strive to win back theconfidence of customers.
Following the launch of the two new models, MMC held model exhibits at Mitsubishi dealerships for threeconsecutive weeks. 66,000 customer groups previewed Outlander and 100,000 customer groups previewed
i. These figures represent nearly double the attendance at past similar events to promote the launch of such
hallmark Mitsubishi models as Pajero (Montero) and eK Wagon. Furthermore, Outlander was the number one
selling vehicle in the SUV category in the second half of fiscal year 2005. These accomplishments were theculmination of concerted efforts by the entire MMC group, from development to production to sales, topromote the new models before launch. The success of this program has helped to restore confidence at
MMC, as well as at affiliated companies and dealerships.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Fujio ChoManaging Director since June
2004
In Charge of Domestic Sales
Promotion Group Headquarters

19

Enhancing Domestic Operations and Achieving a Turnaround in the U.S.
Top Management Interview 2

Q: The success of the revitalization plan hinges on improving
MMC’s competitiveness in Japan and the U.S. market. Whatinitiatives will be taken in each market?

<Managing Director Cho>
Currently, the domestic operations group is striving to surpass a retail sales target of 300,000 units, andrestore the overall profitability of dealerships in fiscal year 2006. Three new models will be rolled out. At thesame time, to maximize the benefits from these new models, MMC is taking initiatives together with sales
companies to raise the number of customers visiting dealerships and to reinforce customer service. For
instance, MMC is holding the Hello Kitty Campaign based on the popular character Hello Kitty in collaboration
with Sanrio Company, Ltd. This campaign is already delivering benefits, helping to increase the number ofwomen and families with small children visiting dealerships. From April to June 2006, customer traffic at
dealerships rose by 30% year on year. There was also a large improvement in the contract completion rate for
new car sales at dealerships as a result. Looking ahead, we believe that making Mitsubishi Motors a morefamiliar brand among customers, especially women, will be vital to winning back customer confidence.
Furthermore, MMC will continue to press ahead with cost cutting through rationalization measures, while
striving for stable growth in revenues from used car sales and after-sales services.

Top Management Interview 2

Q: Next, could MMNA CEO Harunari please explain initiatives
in the U.S.?

<MMNA CEO Harunari>During my fact-finding visits to dealerships in the U.S., many dealers expressed concerns over the possible
withdrawal of MMC from the U.S. market. However, 2006 marks MMC’s 25th year of business in the U.S.,
and as of March 2006, we had sold a cumulative 4.2 million vehicles locally with 2.8 million of these vehicles
currently still in use. I was officially dispatched to the U.S. in January 2006 to drive home MMC’s strong
commitment to supporting U.S. operations with the full resources of the company. This commitment includes
raising customer satisfaction, and working with dealerships to profit together with them. I’m striving to convey
this message to customers and dealers and to ensure that we act on our commitment.

20

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Top Management Interview 2:
Roadmap for Improving Sales

Many dealers on the other hand were upbeat about Mitsubishi vehicles and their standard of quality, andhardly any dealers felt that there were problems with products. In fact, Endeavor was recently ranked No. 1 incustomer satisfaction in the premium mid-size SUV category in a survey by a U.S. market research company.
Also, in the February 2006 issue of Consumer Reports, Mitsubishi ranked fourth place in brand-based reliability ratings, following three other major Japanese automakers. In light of these factors, I believe that MMC
is well positioned to further raise the motivation of dealers by continuing to provide vehicles with outstanding
quality, and by clearly demonstrating a long-term commitment to the U.S. market.
Acknowledging that MMC’s approach to the U.S. market was not sufficiently articulated to local dealerships
in past years, and aiming to deepen their understanding of MMC’s resolve, we plan to provide consistent andreasonable incentive plans for dealerships, as well as support initiatives such as financial services programs.
We are also conducting a major anniversary program commemorating our 25 years of business in the U.S. todemonstrate our commitment to the U.S. market.
These initiatives are gradually delivering tangible results. In the first quarter of fiscal year 2006, retailsales increased year on year, indicating that U.S. sales have bottomed.

Letting Mitsubishi Fans Know MMC is Back
Top Management Interview 2

Q: What kind of year do you want to make fiscal year 2006?

<President Masuko>
For over 30 years, MMC has been known for its participation in a wide range of motor sports, particularly the
Dakar Rally. We were also one of the first Japanese automakers to start production in the ASEAN region, amove that contributed to the host countries’ growth and industrial development. These activities have won usa large number of fans, who have given Mitsubishi vehicles high marks for their design and superior performance. Our fan base is one of our most valuable assets. Our deep-rooted popularity in Asia and Europe is now
our main source of earnings in these regions, where we are determined to steadily reinforce our presence inthe years ahead. MMC also plans to restore profitability at all levels in fiscal year 2006. To achieve this goal
we must rebuild the Mitsubishi brand in Japan and the U.S., where it has been damaged.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200621

<Managing Director Cho>
In Japan, MMC will introduce the new eK Wagon, a highly popular minicar, in September 2006, and import the

Triton (L200) one-ton pickup truck from Thailand. The new Pajero (Montero) and Delica models, traditionallysymbolic of Mitsubishi Motors, are scheduled for launch in the second half of the fiscal year. We will also
implement initiatives to ensure that Outlander and i remain long-term sellers. The Outlander range has seen theroll out of the special G Limited edition, while the i has seen the debut of the special i-play Edition and i Limited
editions. An i model with a non-turbocharged engine will also be introduced. Motor sports fans can look forward
to Lancer Evolution IX MR and Lancer Evolution Wagon MR, and Colt Ralliart Version-R. Through these strategies, we aim to create and attract more publicity and appeal to a wider base of car owners. Through the newmodel introductions throughout fiscal year 2006, we will let Mitsubishi Motors fans know that MMC is back.
Alongside these moves, we are implementing initiatives to enhance after-sales services and sales capabilities atdealerships to provide quality service. The overriding goal is to enhance customer satisfaction and win over new
Mitsubishi Motors fans.

<MMNA CEO Harunari>
We plan to launch the new Outlander, which has proved popular in Japan, in the U.S. in November 2006. This
will be followed by the launch of a new Lancer in March 2007, making its global debut in the U.S. By launching
six new models during the period of MMC’s three-year revitalization plan, we will greatly extend our productlineup beyond our range of offerings in the past. New model introductions are sure to increase customer trafficin our dealer showrooms and help lift sales, including sales of present models.
Mitsubishi’s used cars are fetching higher prices and our brand value has recovered as we reduce fleet
sales as part of efforts to normalize sales activities.
Rebuilding relationships based on trust with our dealers is a priority for fiscal year 2006. Equally importantis delivering on our sales target of 138,000 units and making fiscal year 2006 the year that sales turned around.

Outlander (North American specification)

22

MITSUBISHI MOTORS CORPORATION

Concept car MITSUBISHI Concept-X(Unveiled at the 2005 Tokyo Motor Show)ANNUAL REPORT 2006

Top Management Interview 2:
Roadmap for Improving Sales<President Masuko>
As explained by the two directors of operations, a continuing focus on rebuilding the Mitsubishi brand in Japanand the U.S. is vital. We must also not forget that we have customers throughout the world, and showing acommitment to efforts in each region with an aim of revitalizing our business overall is also important.
European sales of the new Triton (L200) one-ton pickup truck, exported from Thailand, are off to a strong
start. We want to maintain this momentum by introducing new models, such as the new Pajero (Montero) andOutlander, to lift overall sales.
In recent years, we have been focusing on new growth markets and creating more Mitsubishi fans in thesemarkets is very important. Recent developments include a great success in the Russian market. The Mitsubishi
Lancer has proven highly popular in Russia and has won the Car of the Year Award (C-segment class) for thesecond straight year. Helped in part by strong relationships with local dealers, Lancer sales have now grown tothe point where they are competing for the title of best-selling car in Russia. In September 2006, we will
introduce the much larger U.S.-made Galant into the Russian market. Through exports of Galant to the
Ukraine and the Middle East as well, capacity utilization at our U.S. plant will be raised. This will substantially contribute to fiscal year 2006 operating results, and I want to make a success of these initiatives.
In China, traditionally Mitsubishi-brand vehicles account for only around 20% of MMC’s total sales, including local-brand cars produced by its local partners. In fiscal year 2006, however, we plan to take a direct
equity interest in South East (Fujian) Motor Co., Ltd. (SEM), a partner in China, to commence full-fledged
production and sales of Mitsubishi-brand vehicles. In fiscal year 2007, we plan to raise the share of Mitsubishibrand vehicles to around 80% of total sales. Fortunately, the Mitsubishi brand enjoys a strong reputation in
China, which we will leverage to expand our operating base.
In ASEAN, we have positioned Mitsubishi Motors (Thailand) Co., Ltd. (MMTh), our local manufacturingsubsidiary, as the principal export base for our Triton (L200) one-ton pickup truck, which underwent a fullmodel change in August 2005. Exports of this model from Thailand to Australia, Europe and South America
have already started and MMTh plans to increase production capacity from 180,000 units per year to 200,000
units during fiscal year 2006 to meet growing overseas demand.
Retail sales are also on the rise in the Middle East and Africa, especially in oil-producing nations. Introduction of the mainstay Triton (L200) one-ton pickup truck will add to unit sales, thus continuing our expansion
in these regions.
In Australia, following the introduction of the locally made 380 in 2005, we plan to boost overall sales byintroducing three new models: the imported Triton (L200), Pajero (Montero) and Outlander.
We want to make fiscal year 2006, the second year of our revitalization plan, a year in which a large
number of people once again recognize the true worth of Mitsubishi Motors. Our targets for fiscal year 2006
are much more demanding and ambitious than in the first year of the plan. We are committed to marshallinggroup-wide resources in automobile development, manufacturing, marketing, and after-sales services to become
the company of choice for vehicles and services.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200623

Regional TopicsJapan
Net Sales

Operating Loss

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

600

0

500

400

–20

300

400
–40
300

200
–60

200

0

100

–80

100

04

05

06

–100
(FY)

04

Plan*

05

06

0
(FY)

04

Plan*

05

06

(FY)

Plan*

* MMC revised targets for fiscal year 2006 when it released fiscal year 2005 full-year financial results on April 27, 2006.

MMC’s home market of Japan suffered the greatest nega-

Plans for Fiscal Year 2006

tive impact due to past recall issues. However, numerous

MMC is targeting Japanese retail sales to surpass thestakeholders, including customers and shareholders, have

300,000 unit mark in fiscal year 2006. This reflects

expressed their support for MMC, along with their critical

the planned launch of three new models, together withviews. Having sincerely taken to heart the input from allvarious special editions of current models. MMC also

stakeholders, the company is focused on making further

expects both the Outlander SUV and the i minicar toprogress with initiatives to restore trust and increase cus-

continue selling well.

tomer satisfaction. MMC is targeting higher sales volumes

Three limited editions have been launched in the firstby offering attractive new models and various sales pro-half of the fiscal year. These included a premium luxury

motion programs. Along with this higher sales volume, theversion of the Outlander SUV, G-Limited Edition, along

company is aiming to improve profitability of sales com-with two special versions of the i minicar—i Play Edition,

panies and complete the revitalization plan.

which features a special slot to fit an iPod® nano music

Overview of Fiscal Year 2005

a number of improvements to other existing models, such

Retail sales in the Japanese market totaled 257,000 units

as Colt RALLIART Version-R. In addition, new versions

in fiscal year 2005, increasing 30,000 units, or 13%,of the eK Wagon and eK Sport models are scheduled to

year-on-year. The figure was 1,000 units higher than the

go on sale during the first half.

player, and i Limited. MMC also aims to boost sales withsales volume target of 256,000 units for the year. Growth
was mainly driven by the successful launch of two newmodels: the Outlander SUV and i minicar. Sales of the

Outlander SUV reached 19,000 units, more than 50%
higher than target, from its launch in October 2005 to
the end of March 2006. The i minicar achieved sales ofover 16,000 units in the first two months following its
launch in January 2006.
As a result, Japanese sales in fiscal year 2005 rose
22% over the previous year to ¥504.1 billion. The operating loss was ¥55.3 billion, an improvement of ¥41.7
billion year-on-year.

24

eK Wagon (launched September 2006)

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Regional Topics—Japan

In the second half of the year, MMC plans to launch• Expanding Profits From After-sales Services

new versions of the flagship models Pajero and Delica,

MMC recognizes that making dealerships consistently

further boosting the company’s presence in the SUV market.

profitable involves not only selling new cars, but also

Another planned introduction is a non-turbocharged

generating greater profits from after-sales services. The

version of the i minicar to meet the needs of a broader

Hearty Plus Program has been developed to provide
customers buying a new vehicle with a package of maintenance and inspection services. Through this and othermeasures, MMC is attempting to develop a base of customers that routinely bring their vehicles to Mitsubishi
dealerships for various services. MMC is also seeking toposition used car sales operations as an additional profit
center through the establishment of standard operational
procedures and methods for staff. By improving themanagement of these operations and establishing acompany-wide standard, business will be expanded.

range of customers.
In May 2006, MMC launched a new promotional
campaign featuring Hello Kitty, the popular characterfrom Sanrio Company, Ltd., to reach out to customers.
The Hello Kitty Campaign is encouraging more customers to visit MMC dealerships in Japan.

Improving the Profitability of Domestic Sales
Companies
With the successful launches of the Outlander SUV andi minicar in fiscal year 2005, MMC has taken the firststeps to win back customer trust. Building on this success, the company aims to foster deeper trust and lasting customer satisfaction while returning operations inJapan to profitability by enhancing services at domestic sales companies. Through various initiatives and abroad range of support offerings, MMC aims to surpassthe 300,000 unit mark for annual retail sales and restore sales companies in Japan to profitability.

• Rebuilding the Sales Network
MMC remains focused on cutting overhead costs andboosting operating efficiency by consolidating and broadening the coverage of Japanese sales companies and autoparts vendors. The sales company network stood at 158
companies, 855 branches at the beginning of April 2006,
down from 165 companies, 865 branches a year earlier.
Similarly, the network of auto-parts vendors shrank during
fiscal year 2005 from 13 companies, 65 branches to 9

• Strengthening Sales Force Effectivenesscompanies, 59 branches. MMC plans to continue thisCritical in strengthening sales effectiveness is increasing

initiative in fiscal year 2006 to achieve further improve-the amount of contact with customers, boosting thements in sales company profitability.

negotiating skills of sales personnel, and improving their

A nationwide dealership renovation program is under-

responsiveness to customers at dealerships. MMC is put-

way to make Mitsubishi dealerships more attractive toting stronger emphasis on role-play in sales force train-

customers. The redesign of advertising and company

ing and is also working to improve the coaching skills ofname signage has now been completed at all dealer-dealership managers to enable them to get the best out

ships. The next stage of the program is the renovationof staff. A team of 13 training experts has been formedof dealerships buildings themselves.

to provide support to Japanese sales companies.

i

Lancer Evolution IX MRMITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200625

North America
Net Sales

Operating Loss

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

600

0

500

–20

400

–40

300

–60

200

–80

100

–100

200

150

100

50

0

04

05

06

–120
(FY)

04

Plan*

05

06

0
(FY)

04

Plan*

05

06

(FY)

Plan*

* MMC revised targets for fiscal year 2006 when it released fiscal year 2005 full-year financial results on April 27, 2006.

With annual demand of around 17 million vehicles, theagainst North American operations. These actions will

huge U.S. market assumes the same importance as Ja-

help to strengthen and revitalize MMC’s operating struc-

pan in the Mitsubishi Motors Revitalization Plan. MMC

ture in fiscal year 2006 and subsequent fiscal years.

is working to restore sales competitiveness in the world’s

MMC appointed Hiroshi Harunari as president andleading automobile market through an aggressive new

CEO of Mitsubishi Motors North America, Inc. (MMNA)

model introduction program and through various mea-in January 2006. MMC has also dispatched manage-sures to build trust with dealerships and boost produc-

ment personnel from Japan to put in place an organiza-

tivity at the U.S. manufacturing plant.

tional structure that is responsive and strongly linked tothe head office in all fields, including production, de-Overview of Fiscal Year 2005

velopment, sales and marketing.

Retail sales in the North American market totaled
156,000 units in fiscal year 2005. This figure was
18,000 units less than the previous year’s total and
13,000 units below the target for the year. The drop insales reflected the ongoing challenge to rebuild the
Mitsubishi Motors brand in the United States and was
also due to the combined effects of hurricanes, high oil
prices and fierce sales competition.
Of the two new models introduced during the year,
although the remodeled Eclipse sold steadily, sales of
the Raider pickup truck fell below target. Overall, net
sales declined 5.8% on a year-on-year basis to ¥415.7
billion. Following the large asset impairment charges
and restructuring charges booked in fiscal year 2004
(thus leading to lower operating expenses), the operating loss improved by ¥96.6 billion to ¥7.2 billion. However, reflecting the delayed recovery, MMC booked
additional impairment charges and restructuring charges
Outlander (North American specification)

26

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Regional Topics—North America

Sales Strategy: Back to Basics

Aggressive New Model Introduction Program

U.S. sales operations are currently returning to basics.

The first new model to be introduced in fiscal year 2006

Since fiscal year 2004, MMNA has focused on normaliz-

was the Eclipse Spyder convertible, which was launched

ing sales by reducing sales incentives to appropriate levels,in April 2006. In November 2006, MMC also plans tolowering the ratio of fleet sales, and promoting proper

launch in the United States the new Outlander, a newinventory management. High fleet sales in particular

SUV model that has proven popular in Japan. The U.S.

damage the brand by undercutting resale values in usedcompact SUV market has continued to expand despite

vehicle markets. Efforts to reduce the proportion of fleet

the recent sharp rise in oil prices. The new Outlander

sales have been successful, cutting the ratio from a his-

attracted many positive reviews on its debut at the New

torical high of 30% in fiscal year 2003 to 18% in fiscal

York International Automobile Show in April 2006. In

year 2005.

addition, MMC plans to introduce an all new Lancer in

In addition to maintaining these sales policies,

March 2007. The new Lancer, which shares a platform

MMNA is also making visits to local dealerships to dis-with the new Outlander, is a global strategic model thatcuss ways of improving sales. In light of these discus-

will be rolled out first in the United States. Supple-

sions, MMNA strives to further motivate dealerships bymenting the succession of new models, MMC also plansdeveloping appropriate sales support programs based

to introduce a number of special editions of mainstay

on the dealerships’ requests.

models such as Galant and Endeavor to attract new

MMC plans to undertake a dynamic strategic adver-

customers and boost sales.

tising campaign in fiscal year 2006. Building on the
25th anniversary of the entry of Mitsubishi Motors into
the U.S. market, the campaign will emphasize MMC’s
commitment to providing customers with sporty, stylishcars. Campaign plans call for the use of strategic media
to boost exposure in critical major city markets by up to
65% compared with the past fiscal year.
Addressing the problems associated with previous
financial services programs, in July 2005, MMC established a new system for financial services operations incollaboration with leading U.S. financial institution
Merrill Lynch & Co. The new arrangements promise to
reduce significantly the risks associated with salesfinance receivables.

Eclipse Spyder

GalantMITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200627

Europe
Net Sales

Operating Income

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

800

30

300

20

200

10

100

600

400

200

0

04

05

06

0
(FY)

04

Plan*

05

06

0
(FY)

04

05

Plan*

06

(FY)

Plan*

* MMC revised targets for fiscal year 2006 when it released fiscal year 2005 full-year financial results on April 27, 2006.

MMC is generating steady earnings in Europe. This is

For the second straight year, Lancer received the Car

a reflection of the high marks won by Mitsubishi ve-of the Year Award for 2006 (C segment) in Russia. In

hicles in European markets for their performance andthe Ukraine, the 3-door Colt CZ3 won the Car of thedesign and MMC’s strong track record in motor sports

Year Award for 2006 (small car segment).

events such as the Dakar Rally. In recent years, MMC

In fiscal year 2005, sales in Europe decreased 12.2%

has also substantially grown sales volumes in rapidly

over fiscal year 2004 to ¥586.2 billion, chiefly due to a

expanding markets in Eastern Europe, such as Russia

decline in OEM supply volumes to other automakers.

and the Ukraine.

However, operating income improved ¥17.2 billion to¥24.4 billion.

Overview of Fiscal Year 2005
In fiscal year 2005, retail sales in Europe totaled
267,000 units, an increase of 26,000 units year on
year as well as 16,000 units higher than target. Sales
volume was boosted by strong demand for Lancer, as
well as the launch of the locally made three-door Colt

(CZ3 and CZT) models. By country, MMC once again
performed well in large markets such as Germany andthe U.K., while continuing to steadily grow sales in the
expanding markets of Russia and the Ukraine. In these
two markets, MMC reported sales growth of greater than
50% year on year.

Colt CZC

28

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Regional Topics—Europe

In fiscal year 2006, MMC plans to further grow sales by

Termination of smart forfour Production for
DaimlerChrysler

aggressively rolling out new models. The company has

Netherlands Car B.V. (NedCar), MMC’s vehicle assem-

already begun the staggered launch of the Thai madebly plant in Europe, was contracted by DaimlerChrysler

Aggressively Launch New Models

Triton (L200) one-ton pickup truck in various European
countries, starting in March 2006. Sales continue tosurpass targets, as the model has garnered a strong response from dealers and customers throughout Europe
for its innovative styling, which defies the look of conventional pickup trucks.
In May 2006, MMC also unveiled Colt CZC , acabriolet model designed by Pininfarina SpA of Italy.
This model, based on Colt, is aimed at the highly popular cabriolet segment in Europe. By boosting sales ofColt CZC, the company will also be able to enhance theimage of the other Colt models, helping to raise sales
volumes across the entire Colt range.
In November 2006, MMC will bring to market a newversion of the Pajero (Montero) SUV, one of its flagshipmodels. Together with the launch of the new Outlander
SUV in January 2007, MMC will reinforce its productlineup in the SUV and pickup truck market where thecompany already has strong brand recognition. The company hopes that synergies captured among these models
will further strengthen brand value and attract morecustomers to dealerships.
In Russia and the Ukraine, Lancer remains in strong
demand. In 2006, MMC will enter the D segment for
the first time in these markets with the launch of theAmerican made Galant in September. The new Pajero(Montero) SUV model will also be launched. Throughthese new models, the company aims to expand sales
to a broader range of customers.

Triton (L200)

AG (DC) to produce the smart forfour model from 2004
to 2010. However, this year, DC approached MMC witha request to end production of this model. Following
negotiations, MMC and DC concluded various agreements to terminate smart forfour production at the endof June 2006. Based on these agreements, MMC has
received financial compensation from DC for costs associated with the termination of production. The termination of production is therefore not expected to impact
earnings for fiscal year 2006.
MMC will continue to produce the Colt model at NedCar
after the termination of smart forfour production.

Pajero (Montero) (November 2006 Launch)

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

29

Asia, ASEAN and Other Regions
Net Sales

Operating Income

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

800

100

800

80

600

600

60
400

400
40

200

0

200

20

04

05

06

(FY)

0

04

Plan*

05

06

0
(FY)

04

05

Plan*

06

(FY)

Plan*

* MMC revised targets for fiscal year 2006 when it released fiscal year 2005 full-year financial results on April 27, 2006.

One defining characteristic of MMC is that overseas

America, the Middle East, and Africa. In addition tooperations represent approximately 80% of consolidated

this high growth in these regions, MMC surpassed sales

net sales, with around 30% of net sales derived fromvolume targets for the ASEAN region, on the back ofoverseas regions other than North America and Europe.

favorable sale volumes of the new Triton (L200) one-

In particular, MMC has a long history in Asia, including

ton pickup truck in Thailand. In the promising North

the ASEAN region. This presence has engendered trust

Asia region, volume growth in China was offset by ain Mitsubishi-brand vehicles and fostered a strong brandlackluster showing in Taiwan. In Australia, the new 380

image in these markets.

model failed to provide momentum, with overall sales
volumes falling slightly below the previous fiscal year,

Overview of Fiscal Year 2005

resulting in disappointing results overall.

In the past fiscal year, retail sales volume in NorthNet sales in fiscal year 2005 rose 2.3% to ¥614.1

Asia (China and Taiwan), ASEAN and other regions

billion. However, operating income was down 31.0% at

decreased 7,000 units to 664,000 units, 27,000 units¥44.9 billion.

below forecast.
Plans in fiscal year 2005 called for increasing retailsales by around 20,000 units year on year, with highgrowth in the Middle East, Africa, and Central & SouthAmerica, as well as higher sales in North Asia, Australia
and other areas. This growth was expected to outweighan anticipated drop in shipments to Malaysia-based
Proton Holdings Bhd. In terms of results, MMC grew
volume by 31,000 units, or 23%, in Central & South

Triton (L200) (made in Thailand)

30

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Regional Topics—Asia, ASEAN and Other Regions

쎱 North Asia

Moreover, MMC is currently considering plans to es-

China’s automobile market continues to grow at atablish a new venture business with Hunan Changfeng

double-digit pace, despite already having an annual sales

Motor Co., Ltd. (CFA) to serve as an SUV production base

volume of nearly six million vehicles, a level comparable

in China. CFA began production and sales of the Mitsubishi-with the Japanese market. MMC will work to strengthenbrand Pajero (Montero) model in December 2004.

its operating structure in the Chinese market in con-

In another development, in fiscal year 2006, MMC

junction with expanding the lineup of local Mitsubishi-

will export from Japan the Lancer Evolution IX and new

brand vehicles, making the most of the Mitsubishi

Outlander models to China.
In fiscal year 2005, sales volume of Mitsubishi brandvehicles in China was only 23,000 units, compared withtotal sales volume of 129,000 units. Through various
initiatives to increase sales of Mitsubishi brand vehicles,
including those described above, MMC aims to raise MMC
brand sales volume to 82,000 units in fiscal year 2006.
MMC currently produces approximately 150,000 engines per year at two engine-manufacturing companies
in China: Shenyang Aerospace Mitsubishi Motors Engine
Manufacturing Co., Ltd. (SAME) and Harbin Dongan
Automotive Engine Manufacturing Co., Ltd. (HDMC),
in which MMC holds equity stakes of 25% and 15.3%,
respectively. MMC is considering plans to convert thesetwo companies into key engine-manufacturing bases for
Asia. Particularly in regard to SAME, MMC plans to raise
its equity interest, thus bringing total foreign holdingsin SAME to 51% and obtaining a controlling interest in
this firm. With additional strengths in industrial engines,
SAME has won a contract to supply 15,000 engines
per year to a U.S. industrial machinery manufacturer.

brand’s strong image in China. To supply Mitsubishibrand vehicles that meet the requirements of this diversifying and increasingly sophisticated market, MMC
commissioned a new R&D Center in Shanghai with theestablishment of Lingfa Car Technical Consulting(Shanghai) Ltd. in January 2006. Plans also call forestablishing a local integrated sales company before
the end of March 2007 which will focus on vehicles
imported from Japan.
In April 2006, MMC concluded agreements with
China Motor Corporation and Fujian Motor Industrial
Corporation on taking a direct equity interest in South
East (Fujian) Motor Co., Ltd. (SEM). MMC plans to acquire 25% of the issued shares of SEM. The goal is tomake SEM a key production and sales base for
Mitsubishi-brand vehicles.
Following this investment, SEM will produce and sell
the Mitsubishi-brand Lancer, Space Wagon (Chariot

Grandis in Japan), and Galant models in fiscal year
2006. The company further plans to enlarge its local
sales network to 400 dealerships through the inclusionof 200 SEM dealerships alongside 200 existing
Mitsubishi-brand dealerships by the end of the current
fiscal year.

Lancer (made by SEM)Space Wagon (made by SEM; Chariot Grandis in Japan)

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200631쎱 ASEAN

쎱 Other Regions

The ASEAN region’s auto market represents only aroundIn other regions, MMC is posting rising sales volumes

3% of the global auto market but is a very importantfueled by remarkable growth in markets such as Central

market for MMC, accounting for 17% of total sales. In& South America, the Middle East, and Africa in recent

fiscal year 2006, MMC is targeting retail sales ofyears. In these other regions, MMC is targeting retail

202,000 units in this region.

sales of 251,000 units in fiscal year 2006, 21,000

Currently, the company is focusing efforts on pro-units more than in the previous fiscal year.

duction of the Triton (L200) one-ton pickup truck in

In Australia, MMC is taking steps to boost overall

Thailand. Production and sales of Triton (L200), a global

sales, such as repositioning 380 in new competitively

strategic model, commenced in August 2005, with ex-

priced grades. However, the company faces greater-than-ports to Europe beginning the following December.

expected difficulties, reflecting factors such as weak-

Building on previous increases in production capac-

ening demand for large sedans due to high oil prices

ity, Mitsubishi Motors (Thailand) Co., Ltd. (MMTh)and intensifying price-based competition. In response,plans to further ramp up capacity by an additional

MMC continues to implement production cutbacks, cost

20,000 units to 200,000 units per annum within fiscal

reductions and other measures in step with market con-year 2006. This increase is in light of strong Triton(L200) exports since December 2005. With one-ton
pickups being exported to more than 140 countries
around the world, MMTh is playing a vital role as anexport hub to global markets.
In Malaysia, despite a downturn in shipments ofproduction parts and components to Proton Holdings
Bhd, MMC signed a new agreement with Proton in
February 2006 that promises to open up new business opportunities.
Countries in the ASEAN market pursue distinctive
industrial policies. MMC will thus strive to launch
automobiles that collectively fit the market structureof each country.

ditions, as part of efforts to rationalize its local production operations.
Furthermore, MMC will strive to establish a stronger
market position in Australia through efforts to reinforce
sales of imported vehicles. Specifically, the company
will bring three new models to market—Triton (L200),

Pajero (Montero) and Outlander—and launch additionalmodel variations, such as a cabriolet model of theEuropean-made Colt.
Continuing on from fiscal year 2005, the company
is working to increase sales by bringing the Thai-madeTriton (L200) to markets in Central & South America,
the Middle East, and Africa. MMC also plans to launch
the European-made Colt in the South African market
and the American-made Galant in markets in the
Middle East.

380

32

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Regional Topics—Asia, ASEAN and Other Regions

Operations in North Asia and ASEAN Region

4

11
9

7

12

10

6
3

16

18
15

5

17
1
2

8

14
13

Local production (vehicles)
Local production (engines/transmissions)
Import and sales of finished vehicles (regional sales company)(As of August 31, 2006)
Country/
RegionName

MMC’s Equity
Interest (%)

Major Products and Models

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

14.59%

Pajero (Montero)

Mitsubishi brands

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

Local brands

Lancer, Spacewagon (Chariot Grandis)

Mitsubishi brands

햳 South East (Fujian) Motor Co., Ltd. (SEM)
China

햴 Beijing Benz-DaimlerChrysler Automotive Co., Ltd. (BBDC)
햵 Hafei Motor Co., Ltd. (HHMC)

0% *
0%

Delica, Freeca, Veryca

Local brands

Outlander (Airtrek)

Mitsubishi brands

0%

Sigma (Dingo)

Local brands

0%GrandisMitsubishi brands

25%

2.0- and 2.4-liter engines햶 Mitsubishi Corporation (Shanghai) Co., Ltd. (SSL)햷 Shenyang Aerospace Mitsubishi Motors Engine
Manufacturing Co., Ltd. (SAME)햸 Harbin Dongan Automotive Engine Manufacturing Co., Ltd. (HDMC)

15.3%

1.3- and 2.0-liter engines, transmissions

Taiwan햹 China Motor Corporation (CMC)

13.97%

Galant, Lancer, Zinger, Grunder,
Savrin (Chariot Grandis)
Veryca, Varica

Local brands

Thailand햺 Mitsubishi Motors (Thailand) Co., Ltd. (MMTh)햻 MMTH Engine Co., Ltd. (MEC)

99.8%

Triton, Strada, Lancer, Spacewagon (Grandis)

Mitsubishi brands

100%

Engines

The
Philippines햽 Mitsubishi Motors Philippines Corporation (MMPC)햾 Asian Transmission Corporation (ATC)51%

Adventure, Delica, Pajero (Montero)

Indonesia

햿 P.T. Krama Yudha Tiga Berlian Motors (KTB)
헀 P.T. Mitsubishi Krama Yudha Motors and Manufacturing (MKM)

Malaysia
Vietnam헁 Mitsubishi Motors Malaysia Sdn Bhd (MMM)헂 Vina Star Motors Corporation (VSM)

Singapore헃 Cycle & Carriage Automotive Pte Ltd. (CCA)

Brunei헄 GHK Motors Sdn Bhd (GHK)

94.7%
0%

Transmissions
Colt T120SS, L300––
Mitsubishi brands–
Mitsubishi brands–
Mitsubishi brands

32.3%

Engines, parts–0%

Lancer, L200

Mitsubishi brands

25%Grandis, Lancer, Pajero (Montero)

Mitsubishi brands

0%i, Colt, Colt plus, Lancer, Grandis,
Outlander, Pajero (Montero), L200, L300

Mitsubishi brands0%Colt plus, Lancer, Grandis,
Outlander, Pajero (Montero), L200, L300

Mitsubishi brands■ Local production (vehicles) ■ Local production (engines/transmissions) ■ Import and sales of finished vehicles (regional sales company)*Equity investment of 25% planned for fiscal year 2006.
MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

33

Quality
Quality improvement measures are crucial to restor-

that delved into the facts behind the past recall prob-

ing trust, a key priority of the Mitsubishi Motors

lems and into their root causes. Also, since the re-Revitalization Plan. MMC is determined to prevent

ceipt of the MLIT warning, MMC has been developing

any recurrence of past recall issues. To this end, thea new quality improvement framework.

overall quality of MMC’s vehicles is being improved

First, in order to unify the quality control decision-

through a variety of initiatives. These include

making process, all quality control operations were

strengthening recall-related functions, expediting

consolidated under the Quality Affairs Office in 2004.

quality improvements based on market feedback, andAdditionally, a Quality Audit Department was estab-

implementing stringent risk management and quality

lished within the CSR Promotion Office, putting inverification activities at the product development andplace a system for supervising the compliance status

production stages.

of the activities of the Quality Affairs Office.

Creating a Quality Improvement Framework

Motors Development System), a comprehensive quality

In March 2005, MMC submitted its final report inmanagement system designed to ensure and continu-

response to a warning issued by Japan’s Ministry ofally enhance quality at all levels, from concept for-

Land, Infrastructure and Transport (MLIT) in May

mulation to product development, production and2004. The final report details the findings of an ex-

sales. Under MMDS, MMC has established quality

haustive investigation by a team of external lawyers

standards that must be met associated with each of

In 2001, MMC introduced MMDS (Mitsubishi

seven quality gates. Efforts are focused on continuously upgrading MMDS to ensure quality. MMDS has
been employed throughout development, from theproduct concept stage onwards, for Outlander and i,
Managing Director

which entered production in fiscal year 2005. The

In Charge of Quality Affairs &goal has been to develop cars that are selected andTechnical Aftersales Service Groupvalued for their quality.

Headquarters

In fiscal year 2005, MMC added 20 employees

Corporate General Manager ofto its 10 technical centers throughout Japan, andQuality Affairs Officewhen Outlander and i were launched, 10 employees

Mitsuo Hashimoto

involved in the development of each model were dispatched to these technical centers for 6 month stays.
The goal was to collect feedback on quality from
customers through the dealer network, and to respondwithout delay. These employees have been able tohear customers’ views first-hand and are now sharing this feedback with development teams.

MMDS (Mitsubishi Motors Development System)
Start of development

Design approvalMarket launch

Product
development flow
Requests from
customers

Producct
planniing

Designconceept

Product

F concept

Specification

E targets

Designspecifications
ation

Prototypeype
testingg

Approval of

Validation of

D final specification C prototype
model

Completion
ion ofdevelopment
meCompletion of

B development

Quality Gate

34

MITSUBISHI MOTORS CORPORATION

Qualityy
verification
atio

ANNUAL REPORT 2006

Sales andretailing

Customers

Approval of volume production

A (Final Quality Approval Committee)

Follow-up for six

Z months after launchQuality

Fiscal Year 2006 Initiatives

ensure continuity and transparency. This requires that

In fiscal year 2006, MMC will focus on improving

for each quality improvement cycle, information be

and expanding the quality assurance system it has

openly shared on issues arising, and improvement

built up so far.

initiatives taken. This process will lead to improving

As part of organizational reforms in April 2006,

quality and winning back customer trust.

MMC established the Technical Aftersales Service

Pursuing quality can also deliver other benefits.

Office. The Quality Affairs & Technical Aftersales

For instance, it can lead to reductions in the use ofService Group Headquarters was formed to unify thematerials, lengthen product life and raise production

management of both the Technical Aftersales Service

efficiency, as well as contribute to environmental pro-

Office and the Quality Affairs Office. This structure

tection. By clearly identifying customer requirements

will enable MMC to not only offer high-quality products

and problems, MMC can offer speedy and optimal tech-that satisfy customers, but also to provide high-quality

nical after-sales services with greater efficiency.

after-sales services. It will also allow incorporation of

All MMC employees are aware of the importance ofcustomer views gained through these services into theand are committed to listening to customers and accu-

development of even better products.

rately responding to their needs. This process is funda-

Furthermore, MMC has transferred production

mental to quality, and will ultimately help in restoring

quality control functions from the Quality Affairs

trust, as well as realizing eco-friendly management.

Office to the Production Group Headquarters, toclarify plants’ responsibilities for quality. This step
will enable production quality control departments
to concentrate on analysis of inspection results ofeach manufacturing process and improving quality
control standards.
In overseas markets also, MMC is redoubling initiatives to improve quality. A Product Support Center(PSC*) was established in Europe in March 2006,
to join the center already established in the U.S.
While plans call for opening PSCs in other regions

Periodic Voluntary Report Submitted to the Ministry ofLand, Infrastructure and Transport:
Implementation Status of Improvement Initiatives:
ThemesMain Improvement Initiatives

Reform processes
to eliminate
ordered recalls• Clarify process for issuance of technical information to dealerships• Conduct periodic audits of the process for issuing technical information through The CSR Promotion Office’s Quality Audit Department.

Review decisionmaking criteria
for taking qualityrelated countermeasures andspeed up procedures• Reflect customer and external perspectives in discussions by having staff from customer-facing
departments participate in quality-related committees, and having Business Ethics Committee
members and labor union executives participate
as observers• Shorten time required to obtain information
through the launch of new IT system• Augment personnel at technical centers to improve ability to identify vehicles with defects at
an early stage

Raise management andemployee awareness of past
recall and quality
issues• Include quality information in the agendas ofmanagement committee meetings (report todirectors through quality meetings and managing directors meetings even when issues are
deemed not to require quality-related countermeasures)• Enhance training and education systems

Strengthen
quality assurance
divisions• Augment personnel through staff rotations whilereassigning staff within the Quality Affairs Group
Headquarters to reinforce the technical aftersales service network of sales companies

Improve customer service andtechnical skills of
dealer service
departments• Continue training seminars on “Mitsubishi Standard Customer Service Style”• Improve Mitsubishi technical after-sales service
certification systems

Company-wide
complianceinitiatives• Implement action program for observing corporate ethics• Hold Business Ethics Committee meetings

Strengthen
cooperation withdealers• Reinforce cooperation with dealer service departments to respond more quickly to defectinformation from market feedback and enhancecustomer services

as well, MMC is focusing on enhancing the functions of existing overseas bases and strengthening
ties with local sales companies. Expertise gained inJapan will be extended overseas, through such means
as introduction of MMDS and adoption of uniform
inspection criteria.
* Product Support Centers are equivalent to technical centers in Japan.

Implementation Status of Quality Improvement
Initiatives
Every three months, MMC voluntarily submits a report to MLIT, detailing progress and improvement
initiatives on seven items (initially six) that the company promised to improve in its final report to theministry. The key to quality improvements are to

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

35

Production

Revitalization Plan, MMC views improving produc-

Promoting Optimal Use of the Global
Production Network

tivity through stringent quality management andIn Japan, MMC expects planned production volume

raising capacity utilization through optimal use of

to continue to exceed capacity at the Mizushima Plant

its global production system as two of the highest

throughout fiscal year 2006 due to strong demandpriorities. Production departments are therefore

for minicar models and export models, along withmaking every effort to achieve continuous improve-

projections of continued export-led sales growth. To

ments in these areas.

resolve the capacity issue, MMC has opted to reverse

For achieving the goals of the Mitsubishi Motors

the decision originally contained in the Mitsubishi

Excellent Progress With ISQC

Motors Revitalization Plan to stop mass production

MMC recognizes that building quality into each pro-at the Okazaki Plant. This decision was made based

duction process is essential to improving productiv-

on a comprehensive review of options for avoiding

ity. The company therefore is implementing In Stage

missed sales opportunities at minimal cost, achiev-

1

Quality Creation (ISQC)* at all plants. In fiscal year

ing the shortest possible launch lead times, and en-

2005, these activities generated solid results, withsuring the quality of components procured from2

the first time capability (FTC)* rate averaging morebusiness partners. Production of Outlander will bethan 95% at all domestic plants. MMC believes thatpartially transferred from the Mizushima Plant to thea better FTC rate can contribute substantially to

Okazaki Plant, and operations at the Okazaki Plant
will move from one to two-shift production.
MMC subsidiary Pajero Manufacturing Co., Ltd.
(PMC) will also resume two-shift production fromthe second half of fiscal year 2006 with the planned
launch of the new Pajero (Montero) and Delica models
this fiscal year. MMC’s production departments are

Managing Director

working in close cooperation with other divisions to

In Charge of Production Groupput in place a system for meeting higher demands

Headquarters

stemming from these new models. These efforts are

Makoto Maeda

crucial to fulfilling the company’s responsibility todeliver high-quality vehicles to valued customers.
Overseas, MMC will strive to boost capacity utili-

income because it makes just-in-time parts procure-zation by adjusting production levels at plants withment based on detailed production plans feasible.

excess capacity while raising output through modelThis leads to reductions in logistics costs associatedshipments to new markets where appropriate.

with component shipments from business partners
and from within the company.
MMC has also made strides in developing traceability systems for tracking component quality. This
enables identification of vehicles with potentially
faulty components down to their production date,time, and line, within a few hours of finding a defectin any one of roughly 300 safety-critical key components. MMC plans to reinforce cooperation with business partners to expand the range of components
covered by such traceability systems.

36

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Production

Capacity Utilization Improvement at U.S. Plant

In response to reductions in production levels,

At the Illinois Plant of U.S. subsidiary Mitsubishi

MMC is pursuing rationalization measures to ensure

Motors North America, Inc. (MMNA), a multinationalcommercial viability of NedCar based on the current

team composed of staff from Japan and the U.S.

scale of Colt production (70,000 to 80,000 vehicles

has been formed to implement various initiatives toper year). These measures include shifting operations

reduce costs and raise productivity. Capacity utiliza-

from two to one-shift production, improving produc-tion at this plant is projected to improve following

tivity, reducing plant-related costs and increasing

the July 2006 start of production of Galant for ex-

operating efficiency.

port to the Middle East and Russia.

Furthermore, as part of moves to boost capacity
utilization at NedCar, MMC is currently considering

Developments at NedCar

exporting NedCar-produced Colt models to Mexico,

Netherlands Car B.V. (NedCar), a European subsid-

South Africa and elsewhere.

iary engaged in production of Colt, was contractedby DaimlerChrysler AG (DC) to produce the smart*1 ISQC entails detailed management of each process on produc-

forfour model from 2004 to 2010. However, DC ap-

tion lines. The system calls for improvement in equipment andproached MMC with a request to end production ofthis model. Following negotiations between MMC andoperating procedure optimization to prevent defects caused byequipment-related and human factors at each stage of production. ISQC also establishes specific in-stage quality-checking

DC, the two companies signed various agreements

processes to ensure that defects are not carried over to the nextto (1) terminate smart forfour production at NedCar

step. This significantly reduces the effort involved in inspecting

at the end of June 2006; and to (2) transfer to DC
MMC’s entire shareholding in MDC Power GmbH, a50-50 Germany-based joint venture engine plant
between the two companies.

MITSUBISHI MOTORS CORPORATION

and repairing finished vehicles at the final stage.
*2 The FTC rate is the proportion of finished vehicles that are assembled without being removed from the production line at any
time due to defects.

ANNUAL REPORT 2006

37

Procurement

Procurement
MMC’s procurement operations have a vital mission

lowering unit purchasing costs as a means of reduc-to accomplish in the Mitsubishi Motors Revitaliza-

ing materials costs. However, both unit prices andtion Plan since the success of procurement activ-

the volume of materials required have a bearing on

ities has a significant bearing on operational

material costs. For this reason, the procurement groupmanagement. The company has shifted its core ap-

is actively collaborating with the production group toproach from volume-based to quality-based purchas-make necessary improvements to reduce the volume

ing, with the emphasis on developing strongof material required.

relationships with trading partners based on trust.

The third theme is the improvement of contract-

MMC aims to combine high quality with appropriate

ing methods. MMC is working to alleviate the pres-costs by working in conjunction with trading part-sure created by annual price negotiations by extendingners from the component design phase.

the periods of supply contracts. Through this, thecompany can concentrate on VE and supporting trad-

Four Material Cost Reduction Themes

ing partners in improving their operations. TheseIn fiscal year 2006, the second year of the Mitsubishi

longer supply contracts will set three-year fixed pric-

Motors Revitalization Plan, MMC established theing levels which take into account the gains that sup-Material Costs Reduction Committee to increase ef-

pliers can achieve by increasing efficiency.

fectiveness and transparency of materials cost re-

Finally, the fourth theme focuses on upgrading

duction efforts in today’s tough procurement

performance improvement activities at trading

environment. The committee is being chaired by Ex-

partner’s production facilities. In addition to procure-ecutive Vice President Kasugai. The members of thisment staff, experts from various areas at MMC willvisit trading partner’s production facilities and work
together with partners to improve performance facilitywide. Programs of this type were initiated at 15
suppliers during fiscal year 2005. Plans call for expanding these programs to a total of 46 suppliers

Managing Director

during fiscal year 2006.

In Charge of Global Procurement
Group Headquarters
Corporate General Manager ofProcurement Office

Norio Aoki

Support for Trading Partners From the
Mitsubishi GroupAs a member of the Mitsubishi Group, MMC’s procurement group has a key advantage. With the advanced technology and marketing expertise of firms
such as Mitsubishi Heavy Industries, Ltd. andcommittee have been charged with overseeing the

Mitsubishi Corporation, MMC is able to provide

implementation of planned cost-reduction initiatives

additional support to trading partners and increase

based on the following four specific themes.

their competitiveness. By sharing these technologies

The first theme is the reinforcement of value engineering (VE) activities. To reinvigorate these ac-and expertise, the company aims to strengthen procurement activities.

tivities, in fiscal year 2006 MMC will incorporate
required costs into its budget to extend VE activities
to areas previously untouched due to evaluation expenses and other factors.
The second theme is the reduction of the volume
of materials required. Traditionally, MMC focused on

38

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Corporate GovernanceCorporate GovernanceFundamental Approach to Corporate Governance

Department and the Internal Audit Department. Inde-

MMC is taking three key measures to strengthen corpo-

pendent from other business functions, these groups

rate governance: ensure legal and regulatory compliance,

conduct internal audits from an objective perspective.

improve transparency through frequent disclosure of

The Quality Audit Department, which had four em-

information to stakeholders, and clarify management

ployees at the end of March 2006, monitors all processes

responsibilities.

that are carried out within the Quality Affairs Office. It
does so to ensure compliance with laws and regulations

1. Corporate Governance Framework(1) Governance Institutions

worldwide related to the development and production of

The Board of Directors and Board of Statutory Auditors

portation laws. The department reports its findings toaudit and oversee business execution. MMC has alsosenior management and also reports to the Businesssought to improve and strengthen the corporate gover-

Ethics Committee twice per year.

automobiles, including Japanese road safety and trans-

nance framework beyond statutory requirements throughThe Internal Audit Department, which had 15 em-

moves such as the introduction of an executive officer

ployees at the end of March 2006, conducts regularsystem and appointment of advisory committees.

company-wide audits to check the appropriateness of

The Board of Directors has 12 members, two of whombusiness processes, including those of subsidiaries andare outside directors. The Board is responsible for making

affiliates in Japan and overseas. These audits aim todecisions concerning important management issues andverify the execution status of all internal control systems,

overseeing business execution. The adoption of the execu-

including compliance and risk management. The results

tive officer system in June 2000 clarified the separationof internal audits are reported to senior management ofof the roles and responsibilities of directors and executive

MMC and of its subsidiaries and affiliates, along with

officers. Managing directors meetings, which are attended

proposals for improvement.

by 16 members (including directors, executive officers andBy the end of December 2005, MMC completed thestatutory auditors), are held every two weeks to expedite

establishment of a global internal audit system with in-decision-making within the company.

ternal auditing functions within all major overseas sub-

The Board of Statutory Auditors has five members,

sidiaries. MMC continues to work to strengthen internal

three of whom are outside auditors. Statutory auditors

audit systems and governance structures for the overallattend meetings of the Board of Directors, the managing

company while taking into account specific character-directors meetings and other key forums. They audit theistics of overseas markets and regional differences inoperations of MMC and its subsidiaries based on busi-

regulatory approach.

ness reports received from directors, reviews of key inter-

Advisory committees that report to the Board ofnal business documents, and interviews with the internal

Directors supplement the internal governance structures.

auditing groups and independent auditors. In June 2006,

In June 2004, MMC set up the Business Ethics

in a move to strengthen the Board of Statutory Auditors,

Committee, which is made up of outside experts in vari-

Yukio Okamoto, a former prime ministerial aide, was ap-

ous fields. As part of efforts to foster a more strongly

pointed as a new outside statutory auditor by resolution

compliance-oriented internal mindset, this committeeof the General Meeting of Shareholders. The consider-provides MMC with directions and advice on ethics-

able experience of Mr. Okamoto in international affairs is

related matters from an external perspective.

expected to be invaluable in ensuring that MMC applies

The Business Revitalization Monitoring Committee

appropriate auditing controls in its operations, especiallyis another important advisory body to the Board. Its

in overseas operations.

responsibility is to monitor progress against the aims of

Separate from the auditing functions of the statutory

the Mitsubishi Motors Revitalization Plan. Establishedauditors, to strengthen the company’s “self cleansing”

in April 2005, this committee is composed of external

activities MMC has also established two departments

experts and representatives of major shareholders.

within the CSR Promotion Office, the Quality Audit

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200639

(2) Internal Control Systems

쎱 ComplianceInternal control systems are reviewed to respond to any• Full legal and regulatory compliance and observancechanges in the domestic or overseas environment. MMC

of business ethics, based on internal regulations suchaims to strengthen governance structures further and isas the “Corporate Ethics Compliance First” declara-continually working on system improvements and up-tion and business ethics guidelines.

grades to ensure compliance with laws and regulations• Establishment of an internal reporting system. Appli-

and to promote proper, effective, and efficient businesscation of systems to investigate any information re-administration.

ceived and to take necessary measures to rectify andWith regard to improving the reliability of financial

prevent any recurrence of identified problems.

reporting, the Internal Controls Promotion Committee• Establishment of the Business Ethics Committee.

was established in March 2006 to coordinate efforts toplan and develop new systems that will facilitate쎱 Risk management

management’s evaluation of the effectiveness of inter-• Specification and application of clear rules for man-nal controls for financial reporting. These evaluations

agement reporting based on criteria set by the Board

are scheduled to become mandatory in the near future.

of Directors and at managing directors meetings.

Separately, MMC also initiated moves to strengthen cor-

• Development of company-wide risk management

porate governance by establishing management systems

systems centered on risk management promotion

for various functions of subsidiaries and affiliates toclarify the functions of each company.

departments.
• Appointment of risk management officers in each

In May 2006, in line with the statutory requirements

operational group.

of new Japanese corporate laws, the Board of Directors• Development of emergency response capabilities toapproved a basic policy on the construction of internal

react to unforeseen contingencies, including emer-

control systems.

gency communication and contact systems.

MMC’s Corporate Governance Framework
Shareholders
meetings
Board of
Statutory
Auditors

Audit
Report and advise
Board ofDirectors

Report and advise

Business Revitalization
Monitoring Committee
Business Ethics Committee

ChairmanPresident
Managing
Directors
meetings

Guidance and advice
Executive Vice President(Revitalization Promotion Officer)

Quality Affairs Office

Each Business Unit

Quality audit
CSR Promotion OfficeInternal audit

Internal audit

Subsidiaries and Affiliates(in Japan and overseas)

40

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Corporate Governance쎱 Efficient organizational function andoperational execution• Precautions taken to ensure the independence ofstatutory auditors’ staff, including consulting the statu-• Promotion of task execution based on specific goals

tory auditors prior to implementing any personnel

established by each division in line with company-widechanges at the office and having the statutory audi-

business plans.

tors conduct personnel evaluations of staff members.

• Clarification of leadership through appointment ofefficiency through regular confirmation by MMC direc-

2. Cooperation Between Statutory Auditors,
Internal Audit Departments andIndependent Auditors

tors of status of operations under their watch. Achieve-

To strengthen cooperation, the statutory auditors regu-

ment of business goals.

larly exchange information with independent auditors

senior managers at operational divisions to director
level. Maintenance and improvement of management• Integration of command hierarchies to expedite decision-making processes. Efficient execution of directo-and MMC’s internal audit departments, the Internal Audit
Department and the Quality Audit Department.

rial duties through improved internal communications

In fiscal year 2005, the statutory auditors held a total

and the development of systems to facilitate efficientof 8 meetings with independent auditors to hear presen-organizational function and operational execution.

tations on auditing systems, related plans and the statusof financial audits. These meetings also provided an op-

쎱 Information management and storage

portunity for the statutory auditors to explain the status• Appropriate management of important informationof their audits and related plans.

related to key decisions and execution of duties (in-Meetings were held with the Internal Audit Depart-

cluding minutes of the General Meeting of Sharehold-ment during the year to discuss the results of monthly

ers and meetings of the Board of Directors, businessinternal audits of MMC and its subsidiaries around theplans, investment plans, and product plans).

world. The statutory auditors provided feedback on the• Maintenance and proper operation of information

status of their auditing activities to the Internal Audit
Department at these meetings, which were also attended

security controls.

by independent auditors to facilitate the effective ex쎱 Ensuring the proper execution of group-widebusiness operations• Clarification of responsibilities and authority for sub-change of information. In addition, quarterly meetings
held with the Quality Audit Department focused on the
results of quality assurance audits.

sidiaries and affiliates through the establishment of
panies by the corresponding parent company division

3. Relationships With Outside Directors andStatutory Auditors (as of June 30, 2006)

with primary supervisory responsibility.

No conflicts of interest exist between MMC and any ofclear rules governing the management of such com-

• Ensure the proper execution of group-wide business
operations through formulation of rules governing thesupervision of subsidiaries’ management cycles, to-the outside directors or statutory auditors.
Outsidedirectors

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

gether with regular monitoring and evaluation.
쎱 Statutory auditors• Attendance at all important meetings (including Boardof 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 effi-

Outsidestatutory
auditors

cient audit operations.
• Establishment of the Office of Statutory Auditors andassignment of dedicated staff.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

41

Compliance
Guided by a “Compliance First” approach, MMC will

Directors comprised of outside experts. Based on thesecontinue to implement measures to enforce thoroughreports, the Business Ethics Committee provides guid-compliance with laws and regulations and observe

ance and advice on compliance promotion from anbusiness ethics. The aim is to win back the confidence

independent perspective.

of society and be recognized as a trustworthy company.

Compliance Initiatives
Compliance Promotion System

In fiscal year 2005, based on the theme of “converting

Top management has pledged its commitment to taking

self-awareness into action,” MMC strove to strengthen

the lead in instilling a compliance mindset throughout

compliance awareness based on the accomplishments

the company. The president of MMC, who was appointed

of initiatives in fiscal year 2004. Particularly notewor-

in January 2005, reaffirmed the company’s “Corporate

thy are business ethics issue review meetings, held toEthics Compliance First” declaration upon his appoint-

identify and discuss solutions to business ethics issues

ment as Chief Business Ethics Officer (CBEO). Under

familiar to workplaces. Using discussions based on casethe leadership of the CBEO, “compliance officers” werestudies, MMC is placing this meeting at the heart of its

assigned to each operational unit in conjunction withcompliance activities as it provides a prime opportunity

appointing each department manager as a “code leader”

to raise awareness of business ethics and improve com-under the compliance officers. This step was taken tomunication. Another key initiative for raising compli-

reinforce the compliance promotion structure so as toance awareness is training programs for directors,

ensure compliance down to each and every employee.

compliance officers, and code leaders, all of whom play

The CSR Promotion Office, which was established in

crucial roles in promoting compliance at MMC.

June 2004, constantly monitors the compliance status

Other key initiatives include the designation of Januaryof employees and their stance toward customers, to pro-

10 and October 19 as “Pledge of Safety Days” in re-vide instructions and guidance on required improvement

membrance of the victims of the two fatal accidents

measures. The CSR Promotion Office also reports on

caused by Fuso-brand heavy-duty trucks to assure thatthe status of compliance promotion to the Businessmistakes associated with past recall issues are not for-

Ethics Committee, an advisory body to the Board ofgotten. On these days, all employees hold a moment ofsilence for the accident victims. Also, business ethics
issue review meetings are scheduled close to these days.

Compliance Promotion Structure
Report and advise

Board ofDirectors

Guidance
and advice

ChairmanPresident

In addition to these activities aimed at improving awareness of past recall and quality
Business Ethics Committee(Made Up of Outside Experts)

issues, MMC conducts training
and awareness-building programs
targeting laws such as whistle-

Chief Business Ethics Officer (CBEO)

blower protection laws and private

Direction andsupervision

information protection laws inReport andconsult

Guided by a theme of “shift-Managing Director, Corporate
General Manager
Reportandconsult

Thorough compliancewith business ethics

Compliance Officer

Japan.
CSR Promotion OfficeDirectives
forinitiatives

Help Line
External Attorneys

ing from a passive to proactive,
self-reliant mindset,” MMC willbuild upon and develop fiscal

Compliance Department

year 2005 compliance initiatives
ReportThorough compliancewith business ethics

in fiscal year 2006.
Help Line/EmployeeCounseling Office

Deparment Manager= Code Leader
Consult on
ethicalissuesThorough compliancewith business ethics

Consult on
ethical issues

Employees with MMC Employment Agreements

42

Variousconsultations

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

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Compliance

Message From the Business Ethics Committee Chairman
The Business Ethics Committee was established in June
2004 as an advisory body to the Board of Directors to
help rebuild trust in MMC. Made up only of external
experts, the committee advises the Board of Directors
from the standpoint of establishing compliance.
Another role of the committee is to provide guidance
and advice to the CSR Promotion Office, which promotes business ethics and corporate culture reforms
as well as quality audits.
As chairman of the Business Ethics Committee, I
realize that MMC is taking numerous initiatives to put
compliance, safety and customers first, as part of asincere effort to ensure the continued existence of thecompany. Together with other committee members, I

ChairmanBusiness Ethics Committee

Noboru Matsuda

will continue to check and provide guidance on these
initiatives from the standpoints of an independent observer and in terms of social norms, with the aim ofrestoring public trust in MMC.
Two years have passed since the first meeting of theBusiness Ethics Committee was held in July 2004. At
the 26 meetings held so far, the committee has raisedquestions and offered candid opinions on each and every
report received from the company. The committee has
also promoted and kept a watchful eye over reforms
aimed at strengthening compliance through visits toplants and other actions. I feel that the series of resolute measures implemented by the current management
team underscores their determination to reform andrevitalize MMC. They have squarely addressed past recall
issues that triggered a loss of customer confidence.
MMC notified the authorities of all recall issues where
necessary and reopened its investigation into the cause

MITSUBISHI MOTORS CORPORATIONof the recall issues. Based on the findings, MMC madea clean break with the past by holding those responsible
accountable for their actions. Concrete measures to prevent any future recurrence and to revitalize MMC havebeen announced and are being implemented.
I believe that MMC is making steady strides toward
revitalization.
Despite this progress, MMC cannot foster a complianceoriented mindset throughout the company and win backpublic trust overnight. To me, compliance means thatcompanies must work earnestly to satisfy the expectations and requests of society in addition to obeying laws
and regulations. As an automaker, this means that MMC
must practice compliance by not only supplying safe,
high-performance vehicles to the public, but also by
winning back the confidence of society as a trustworthy
automaker through its business activities. In other words,
I believe that MMC must win recognition as a good corporate citizen to be permitted to co-exist in society.
Ensuring compliance will help to foster a trustworthy
brand image, a key source of competitiveness, which
will in turn drive forward the revitalization process.
The credibility of MMC can only be rebuilt throughthe sincere efforts of each and every corporate officer
and employee. This sincerity lies at the heart of compliance and must be achieved through hard work and personnel development. Recently, I’ve called upon
employees at manufacturing sites to add “Sincerity” totheir watchwords of “Orderliness, Tidiness, Cleanliness,
Neatness and Discipline.” I hope that this message will
help to make compliance a more familiar concept.
I congratulate MMC on restoring operating profitability in fiscal year 2005, the first fiscal year of the
Mitsubishi Motors Revitalization Plan. In fiscal year
2006, a crucial year for the company, I hope that all
employees will continue to make a concerted effort tokeep the “Compliance First” principle foremost in mind,
based on a correct understanding of current circumstances. The Business Ethics Committee will continue
to actively offer guidance and advice to MMC from an
independent perspective.

September 2006
Noboru Matsuda

ANNUAL REPORT 200643

Organizational Structure
On April 1, 2006, MMC instituted organizational changes to enable more rapid and appropriate
response to various issues faced by management. The main thrust of these organizational reforms wasto consolidate chains of command, as well as to clarify areas of accountability by establishing various
operational groups, or headquarters, to consolidate and streamline organizational units. These reforms
focused mainly on reinforcing business planning, cost and profitability control, and product strategyfunctions. Other key actions included enhancing quality control functions and service functions fromthe customer’s perspective.

New Organization(As of April 1, 2006)

Business Ethics
Committee

CSR Headquarters
Finance Group
Headquarters

CSR Promotion OfficeControlling & Accounting
OfficeFinance Office
Corporate Planning Office

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

Business
Revitalization
Monitoring Committee

Executive
Vice
President

Product Development
Group Headquarters

Product Strategy Office
Product Executives (PX);
Product Development Officer
Corporate Affairs Office
Development Engineering
OfficeDesign Office
Production Engineering
OfficeShareholders
meetings

Board ofDirectors

ChairmanPresident

Production Control Office
Production Group
Headquarters

Board of
Statutory
Auditors

Nagoya Plant
Mizushima Plant
Powertrain Plant

Managing
Directors
meetings

Global Procurement
Group Headquarters
Quality Affairs &Technical Aftersales
Service Group
Headquarters
Domestic Sales
Promotion Group
Headquarters

Procurement Office
Quality Affairs Office
Technical Aftersales Service
OfficeDomestic 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
Office44

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Organizational Structure
Executives

Executives(As of August 15, 2006)

Members of
the Board

Takashi Nishioka*

Osamu Masuko*

Heki Kasugai*

Chairman of the Board

President
Chief Business Ethics Officer
In Charge of Overseas Operations
Group Headquarters

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

Hiizu Ichikawa*Fujio Cho

Makoto Maeda

Norio Aoki

Managing Director
In Charge of Finance Group
Headquarters

Managing Director
In Charge of Domestic Sales
Promotion Group Headquarters

Managing Director
In Charge of Production Group
Headquarters

Managing Director
In Charge of Global Procurement Group
Headquarters
Corporate General Manager ofProcurement Office

Mikio Sasaki
Director(Non-Executive Director)

Hidetoshi Yajima
Director(Non-Executive Director)

Hiroshi Harunari

Tetsuro Aikawa

Mitsuo Hashimoto

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

Managing Director
In Charge of Product Development
Group Headquarters

Managing Director
In Charge of Quality Affairs &Technical Aftersales Service Group
Headquarters
Corporate General Manager of
Quality Affairs Office* Representative 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

Yoshikazu Nakamura

Akira Kameo

Shuma Uchino

Masao Ohmichi

Senior Executive Officer
Corporate General Manager
of Controlling & Accounting
OfficeExecutive Officer
Corporate General Manager of
CSR Promotion Office andGeneral Manager of Public
Relations Department

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

Executive Officer
Corporate General Manager ofCorporate Planning Office

Executive Officer
Vice Corporate General
Manager of Corporate
Planning Office

Shinichi Kurihara

Keizo Fuchita

Seiichi Ota

Akinori Nakanishi

Masaru Masuda

Executive Officer
Corporate General Manager
of Product Strategy Office

Executive Officer
Corporate General Manager ofCorporate Affairs Officeand Chief Information Security
Officer

Executive Officer
Corporate General
Manager of Development
Engineering Office

Executive Officer
Corporate General Manager of
Design Office

Executive Officer
Plant General Manager ofNagoya Plant

Osamu Matsumoto Shuzo Muramoto

Kenichi Miki

Michio Mori

Yoichi Yokozawa

Executive 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 Manager
of Domestic Sales Office

Executive Officer
Corporate General Manager ofOverseas Business Management
OfficeToshifumi Sudo

Kazuyuki Kikuchi

Makoto Ochi

Hisayoshi Kumai

Shiro Futaki

Executive Officer
Corporate General Manager
of Europe Office

Executive Officer
Corporate General Manager
of Oceania, Latin America,
Middle East and Africa

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

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

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

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

45

Environmental Activities
Aiming to Become a Company That Co-exists With the Environment and Helps Build a Sustainable Society
MMC has formulated the Mitsubishi Motors Environment Initiative Program 2010 (EIP 2010), a new action plan totackle environmental issues through fiscal year 2010. The launch of EIP 2010 follows the completion of MMC’s
previous Environmental Sustainability Plan (ESP). Based on the accomplishments and outstanding issues of ESP,EIP 2010 will guide the company’s efforts to co-exist with the environment and to contribute to building a sustainable society as MMC strives to both revitalize itself and spur further growth.

Environmental Policy
MMC formulated an Environmental Policy in 1999 thatclarifies measures for protecting the environment within
the context of management of the company.

Mitsubishi Motors Corporation
Environmental Policy(Basic Guidelines)
Mitsubishi Motors recognizes that protection of the
global environment is a priority for humanity and assuch makes the following pledges:
1. Taking a global perspective, MMC is committed toharnessing 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 totaking actions that protect the environment at thelevel of local communities and of society as a whole.

(Behavioral Standards)
1. MMC will endeavor to protect the environment by
forecasting and assessing the environmental impact of the company’s products at all stages intheir life cycle.
Priority is given to the following areas:• Prevention of global warming by reducing emissions of greenhouse gases• Prevention of pollution by restricting emissionsof substances harmful to the environment• Reduction of waste and maximizing efficientuse of resources by promoting conservation andrecycling
2. MMC will endeavor to improve our environmental
management practices as part of ongoing efforts toimprove the 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,
both in 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.

46

MITSUBISHI MOTORS CORPORATION

Mitsubishi Motors Environment Initiative
Program 2010
Based on the accomplishments and outstanding issuesof ESP, MMC launched Mitsubishi Motors Environment
Initiative Program 2010. EIP 2010 also reflects thelatest environmental developments around the world,such as the February 2005 ratification of the Kyoto
Protocol and increasingly stringent environmental regulations and legislation in Japan, North America, Europe
and elsewhere. This new environmental program
strengthens initiatives in four main areas: Environmental Management, Prevention of Global Warming,
Prevention of Environmental Pollution and Recycling &Resource Conservation. EIP 2010 also incorporates newmeasures relating to resources and energy from thestandpoint of reducing dependence on oil.

The main points of EIP 2010 are as follows:
1. Environmental management
MMC will build its integrated global environmental management framework to extend environmental management
systems to affiliates and subsidiaries in Japan and aroundthe world, including non-manufacturing operations.

2. Prevention of global warming• MMC will aim to improve overall fleet fuel economy byachieving compliance with 2010 Japanese Fuel Consumption Standards in fiscal year 2007. Also, the company will continue efforts in development of clean diesel
engines, high-efficiency transmissions and other core
new-generation technologies.
• MMC will develop ethanol and other bio-fuel technologies to meet the need of diversifying energy sources.
• The company will pursue R&D in its own Green Plastic
line of materials and parts made from plant-based resins,
aiming to commercialize products in successive stages.

3. Prevention of environmental pollution
MMC will institute R&D programs aimed at bringing newgeneration electric vehicles to market to aid in preventing
global warming and reducing society’s dependence on oil.

4. Recycling and resource conservation
While continuing to design products that are easier to recycle, MMC will work to make all parts and components
reusable*. The company will also work to reduce shredder
residue disposal costs at the same time as raising its
shredder residue recycling rate and achieve the required
rate before relevant legislation comes into force in 2015.
* End-of-life vehicles are disassembled into their smallest metalparts, which are then fed through a press to provide raw material
for manufacturing steel.

ANNUAL REPORT 2006

Environmental Activities

쎱 Main Accomplishments of the Mitsubishi

Motors Environmental Sustainability Plan
(ESP: Fiscal Years 2002 to 2005)
Environmental Management• Having acquired ISO 14001 certification, an international standard for environmental management
systems, for all its manufacturing plants in Japan in
1998, MMC also gained ISO 14001 certification for
its R&D units in October 2005. MMC is working toobtain certification at its major affiliates and subsidiaries in Japan and overseas.
• MMC has begun the introduction of environmental
management systems at its sales companies in Japan.
This will be continued under EIP 2010 as MMC pursues Eco Action 21 (EA21) certification at its sales
companies.
• MMC adopted Design for the Environment (DfE) principles, setting up assessment processes and benchmarks and also implementing life cycle assessment
principles (LCA) for current models in its lineup. MMC
will continue to pursue the adoption of DfE principles
with a view to applying them to the development of
new models.

Prevention of Global Warming• MMC achieved an overall fleet average fuel economy
of 15.5 km/L for its gasoline cars in Japan in fiscal
year 2005, a 28% improvement over the average forfiscal year 1990. This improvement stemmed in partfrom the revamping of the car engine family and fromfitting vehicles with continuously variable transmissions (CVT).
• Concerning Japanese 2010 fuel economy standards(for all weight classes of gasoline cars), after a major
review of product planning under the Mitsubishi
Motors Revitalization Plan, MMC revised its target forearly achievement of Japanese 2010 fuel economy
standards from fiscal year 2005 to fiscal year 2007.
This revision has been incorporated into EIP 2010.
• Under ESP, total CO2 emissions from production andlogistics operations at MMC’s plants in Japan as of
fiscal year 2005 have been reduced by approximately
26% compared with fiscal 1990 year levels. This
reduction was a result of the introduction of moreenergy-efficient plant equipment and of switching todifferent energy sources. MMC also met its CO2 emissions target with respect to the transportation offinished vehicles by raising efficiency.

Prevention of Environmental Pollution• MMC has continued to introduce models that produce
significantly lower emissions than regulatory levels. As
a result, Japanese sales of 3 and 4-star rated lowemission vehicles represented 71% of registered cars
and 92% of minicar sales in fiscal year 2005 in Japan,
rising 13 and 21 percentage points, respectively, fromfiscal year 2004.
• MMC participated in the Japan Hydrogen & Fuel Cell
Demonstration Project (JHFC Project), funded by theJapanese government, for which it developed the
Mitsubishi FCV prototype based on the Mitsubishi
Grandis minivan model. MMC has also embarked on a
R&D program for a new-generation electric vehicle powered by high energy density lithium-ion batteries.
• MMC met Japan Automobile Manufacturers Association(JAMA) voluntary requirements for vehicle interior volatile organic compound (VOC) levels, due for introduction in April 2007, in January 2006 with the launch of
the new i model. Going forward, MMC will ensure thatevery new model launched meets VOC requirements.
• MMC introduced water-based body painting lines at theMizushima Plant in August 2004 as part of efforts to
reduce shop floor VOC levels and meet its factory VOC
reduction target for fiscal year 2010.

Recycling and Resource Conservation• MMC is fully responding to the requirements of theAutomobile Recycling Law that came into force inJanuary 2005. In fiscal year 2005, MMC achieved an
automobile shredder residue (ASR) recovery rate of
64.2%, surpassing the regulatory level of 30% for fiscal
year 2005 and that of 50% for fiscal year 2010.
• MMC continues to steadily meet its targets for the recycling of in-process resources and for the Zero Landfill Waste program.
For more details, please refer to the Social andEnvironmental Report 2006.

Mitsubishi Motors Social and Environmental Report 2006
http://www.mitsubishi-motors.com/corporate/environment/
report/e

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200647

Financial Section

Contents
 Role of the Finance Group Headquarters

Financial Results and Discussion

48

49

 Consolidated Balance Sheets52

 Consolidated Statements of Operations

54

 Consolidated Statements of Stockholders’ Equity

55

 Consolidated Statements of Cash Flows56

 Notes to Consolidated Financial Statements

57

 Report of Independent Auditors

85

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Role of the Finance Group Headquarters

Role of the Finance Group Headquarters
The first fiscal year of the Mitsubishi Motors Revitalization Plan ended on March 31, 2006. Despite difficult conditions inNorth America, Australia and other regions, MMC is starting to see positive signs overall, such as increased sales in Japan,
Europe, the Middle East and other regions. The company is committed to making a sustained company-wide effort in thesecond and third year of the plan to achieve the overriding goals of the Mitsubishi Motors Revitalization Plan: restore
profitability in fiscal year 2006 and reach sustainable profitability in fiscal year 2007 and beyond. 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 toassure 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 group aims to prevent thecompany from straying off the path to restoring profitability that is set out in the revitalization plan. MMC’s businessenvironment is changing at a more rapid, dynamic pace than originally anticipated in terms of economic conditions invarious countries, as well as factors such as crude oil and raw materials prices, foreign exchange markets and interest rates.
In this business environment, based on a precise analysis and understanding of the course charted so far, the group must
quickly steer MMC around various obstacles as measures to reach goals are accelerated.
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. MMC has already raised ¥348.0 billion, roughly
70% of the total, mainly through third-party share allocations, long-term borrowings, and bond issues. Looking ahead, while
monitoring cash flow trends on a consolidated basis, the group will continue to raise the funds 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 Equity capital increases (excluding debt-equity swaps)
 Asset divestitures or equity capital increases

Funds Procured in First Year of Plan
220.0
30.0

 Borrowings and other sources

240.0

Total:490.0

 Equity capital increases
 Borrowings, bond issues, and other sources

Total

250.0
98.0

348.0

The three years covered by the Mitsubishi Motors Revitalization Plan is a vital period for MMC to recover strength bycarefully taking initiatives to improve and reinforce earnings in preparation for the next stage of growth. With an unwaveringresolve, the company aims to achieve steady growth in shareholder value and meet the expectations of all stakeholders.

Financial Results and Discussion
Operational Review
In fiscal year 2005, Japan approached the end of its deflationary period. Having largely eliminated the fallout from thecollapse of the bubble economy, specifically excess employment, production capacity, and debt, Japan is finally seeing an
upturn in corporate earnings, gradual yet sustained growth in consumer spending, and other positive signs. In fiscal year
2005, the Japanese economy also benefited from stronger exports underpinned by economic growth in the U.S., Asia
outside Japan, and other overseas regions.
Under this prevailing business environment, overall vehicle demand in Japan rose 0.7% over fiscal year 2004 to
5,861,000 units. Of this figure, demand for registered vehicles was 3,913,000 units, down 0.7%, while that for minicars
rose 3.6% to an all-time high of 1,948,000 units.

Results of Operations
In fiscal year 2005, consolidated net sales were ¥2,120.1 billion, a 0.1% decline from the previous fiscal year. Thisdecrease in sales mainly reflected lower OEM supply volumes in North America and Europe, partially offset by a boost to net
sales in Japan from higher sales volumes due to two new model launches.
MMC posted operating income of ¥6.8 billion, an improvement of ¥135.3 billion from the previous year’s operating loss. Key
factors of this improvement were as follows: a contribution of ¥23.1 billion from changes in unit volumes and model profitability
mix; a reduction of ¥15.8 billion in selling expenses, mainly advertising costs in North America and Europe; and an exchange rate
gain of ¥10.0 billion reflecting a weaker yen. Other key components included reductions of ¥38.6 billion in warranty-related
expenses in Japan and ¥14.7 billion in lower depreciation as a result of impairment charges booked in the U.S. and Australia in
the previous fiscal year. Lastly, the absence of the previous fiscal year’s loss of ¥10.4 billion on the sale of sales financereceivables booked by the U.S. financial services company was a key factor as were other business restructuring efforts.
MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200649

For non-operating income (loss), MMC reported a loss of ¥24.6 billion, an improvement of ¥26.1 billion from theprevious fiscal year.
The reasons for the improvement included a ¥14.5 billion improvement in income (losses) from equity-method affiliates, and a decrease of ¥12.6 billion in stock issuance costs.
Meanwhile, MMC posted ¥45.1 billion for asset impairment charges taken in Japan, the U.S. and Australia, as well as
restructuring charges of ¥14.8 billion. In Japan, MMC adopted new asset impairment accounting standards which led tolosses totaling ¥26.2 billion for fiscal year 2005. This included an impairment loss of ¥21.9 billion reported in the firsthalf of the fiscal year, as well as subsequent impairment losses associated with a drop in the market value of land owned bydomestic sales companies. In the U.S. and Australia, regions where sales have been slow to improve, MMC booked additional impairment losses of ¥18.9 billion in fiscal year 2005, following impairment losses of ¥84.4 billion booked in fiscal
year 2004. MMC also took steps to mitigate the potential risk of future losses—the booking of the above restructuring
charges of ¥14.8 billion, for example, to reduce the future burden of fixed costs related to consigned production activities
in the U.S.
The above factors, combined with income tax charges for overseas subsidiaries, resulted in a net loss of ¥92.2 billion,a ¥382.6 billion improvement over that in the previous fiscal year. However, this was worse than the forecasted net loss of¥64.0 billion for fiscal year 2005 announced with first half earnings on November 10, 2005. Nevertheless, MMC believes
that these actions will help to build sound individual businesses and restore a stronger operating structure in fiscal year
2006 and beyond.
In light of the net loss for fiscal year 2005, MMC is forced to decide once again not to pay dividends for the fiscal year
under review.

Segment Analysis<Business Segment Information>
MMC and its consolidated subsidiaries divide operations into two business segments: Automobiles and Financial Services.
 Automobiles
In fiscal year 2005, sales in the automobile business declined 0.2% year-on-year to ¥2,080.9 billion. MMC recorded an
operating loss of ¥6.1 billion, a ¥98.2 billion improvement over the previous fiscal year. Retail sales rose 31,000 units,
2.4%, to 1,344,000 units, with overall growth driven by two new models launched in Japan in fiscal year 2005.
 Financial Services
Mitsubishi Auto Credit-Lease Corporation (MCL) and U.S.-based Mitsubishi Motors Credit of America, Inc. (MMCA) conduct auto leasing, sales financing and related operations.
MMC holds an equity interest in MCL, a domestic equity method affiliate. In March 2006, Mitsubishi Corporation,
Diamond Lease Co., Ltd. and MMC reached a basic agreement concerning the strategic reorganization of MCL’s automotive
finance operations. MCL plans to begin services under a new structure in 2007.
As part of the Mitsubishi Motors Revitalization Plan, MMC shifted its U.S. financial services operations to a joint venturebusiness between MMCA and Merrill Lynch & Co. in July 2005.
In fiscal year 2005 revenues from financial services fell 2.5% year-on-year to ¥39.2 billion. MMC reported operating
income of ¥10.4 billion from the segment, an improvement of ¥31.5 billion from the previous fiscal year. This improvement was mainly due to the absence of a loss of ¥10.4 billion on the sale of finance receivables booked in fiscal year 2004.

<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 toConsolidated 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 rose 30,000 units, 13.2% year-on-year, to 257,000 units in fiscal year 2005. Sales had increased
year-on-year for 11 consecutive months as of the end March 2006 (since May 2005). The main reasons for the increase
were the strong starts for the new Outlander SUV and the new i minicar, which were launched in October 2005 and January
2006 respectively.
Consequently, in Japan, sales increased 22.1% to ¥504.1 billion and operating loss improved ¥41.7 billion to a ¥55.3
billion loss.

50

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Financial Results and Discussion

 North America
In North America, retail sales declined 18,000 units, 10.3% year on year, to 156,000 units. This decrease mainly reflected the impact of damage to the Mitsubishi brand caused by past over-ambitious sales strategies, problems related to
the launch timing for the new Raider pickup truck, and ongoing efforts to reduce fleet sales as part of initiatives tonormalize sales activities. These factors were partially offset by a strong start by the all-new Eclipse, a sporty coupe
launched in May 2005 in the U.S., and higher retail sales in Mexico and Puerto Rico.
Due to the above factors, as well as the termination of OEM sales contracts in fiscal year 2004, sales in North America
declined 5.8% to ¥415.7 billion. The operating loss improved ¥96.6 billion to ¥7.2 billion, however, due to lower depreciation expenses resulting from the impairment charges booked in fiscal year 2004 and reductions in selling expenses suchas advertising costs.
 Europe
In Europe, retail sales rose 26,000 units, 10.8% over fiscal year 2004, to 267,000 units, with growth coming from steadysales in the large German and U.K. markets, as well as a substantial increase in sales in Russia.
Net sales decreased 12.2% to ¥586.2 billion, mainly due to a decline in OEM supply volume. However, operating
income rose ¥17.2 billion to ¥24.4 billion.
 Asia and Other Regions
In Asia and other regions, retail sales decreased 7,000 units, a 1.0% drop from fiscal year 2004, to 664,000 units. The
main factors behind this decrease were declining retail sales in Malaysia, which is promoting increased production ofdomestic automobiles, and Indonesia, where economic conditions were weak. Retail sales also declined slightly in North
Asia (China & Taiwan) and Oceania. These factors were partially offset by growth in retail sales in the Thai market, as well
as Central & South America, the Middle East, and Africa.
Net sales rose 2.3% to ¥614.1 billion, but operating income was ¥44.9 billion, down 31.0% from the previous fiscal year.

Financial Position<Assets>
Total assets as of March 31, 2006 were ¥1,557.6 billion, down ¥31.7 billion from the end of fiscal year 2004.
Current assets were ¥842.3 billion, up ¥20.4 billion from a year earlier. Inventories rose ¥24.6 billion in conjunction
with the launch of new models, which along with other factors outweighed a decrease of ¥48.4 billion in cash and cash
equivalents mainly due to the repayment of borrowings.
Tangible fixed assets decreased ¥24.9 billion to ¥506.0 billion, due mainly to impairment losses booked in Japan, theU.S. and Australia.
Investments and other assets declined ¥20.9 billion to ¥183.4 billion. This decrease mainly reflected a drop of ¥42.0
billion in residual interest in securitized assets.

<Liabilities>
Total liabilities as of March 31, 2006 were ¥1,276.3 billion, an increase of ¥22.0 billion from the end of fiscal year 2004.
Current liabilities increased ¥9.8 billion to ¥867.2 billion. The main contributing factor was an increase of ¥40.0
billion in trade notes and accounts payable in conjunction with the launch of new models.
Interest-bearing debt decreased ¥28.2 billion from the previous year to ¥447.8 billion. This decrease was mainly due tothe scheduled repayment of debt, which outweighed the issue of bonds by MMC’s Thailand-based subsidiary.

<Stockholders’ Equity>
Total stockholders’ equity decreased ¥56.1 billion to ¥268.7 billion due to the net loss of ¥92.2 billion for fiscal year
2005, which was partly offset by capital increases to strengthen equity. As a result, the equity ratio was 17.2%, a deterioration of 3.2% from a year earlier.

Cash Flows
Looking at cash flows in fiscal year 2005, net cash provided by operating activities totaled ¥54.4 billion, ¥40.8 billion
more than in fiscal year 2004, mainly reflecting the year-on-year improvement in the net loss.
Net cash used in investing activities was ¥84.8 billion, ¥50.6 billion more than in the previous fiscal year, as paymentsfor purchases of tangible fixed assets exceeded proceeds from sales of these assets.
Net cash used in financing activities was ¥19.0 billion, compared with net cash of ¥133.6 billion provided by mainly
capital procurement activities in fiscal year 2004. This mainly reflected the repayment of short-term and long-term borrowings, which exceeded proceeds from the issue of bonds and long-term debt.
As a result, the year-end balance of cash and cash equivalents was ¥248.1 billion, a decrease of ¥46.8 billion from the
beginning of the fiscal year.
MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

51

Consolidated Balance Sheets
Mitsubishi Motors Corporation and Consolidated Subsidiaries
As of March 31, 2006 and 2005

In millions of yen

In thousands of
U.S. dollars(Note 5)

2006

2005

2006

¥ 248,069¥ 294,903$ 2,111,767

Trade notes and accounts receivable (Notes 6 and 11)

179,101

150,951

1,524,654

Finance receivables (Notes 6 and 11)

39,27824,476334,372

Inventories (Notes 7 and 11)257,946

233,353

2,195,851

Short-term loans receivable

2,047

2,386

17,432

Deferred tax assets (Note 20)

1,206

1,799

10,270Prepaid expenses and other current assets (Note 11)

140,462

128,244

1,195,726

Allowance for doubtful accounts(25,805)(14,176)(219,677)

Total current assets

842,306

821,937

7,170,398

Property, plant and equipment, net (Notes 8 and 11)

506,007530,903

4,307,548

Intangible assets

25,83632,107219,941

Investments (Notes 9 and 11)

83,42980,115710,215

Long-term finance receivables (Notes 6 and 11)

8,365

2,072

71,216Long-term loans receivable

12,90011,747

109,815

Deferred tax assets (Note 20)

7,413

6,730

63,113

Residual interest in securitized assets and others

126,290

178,615

1,075,085

Allowance for doubtful accounts(54,979)(74,943)(468,033)

Investments and other assets, net

183,419

204,337

1,561,412¥1,557,570¥1,589,286$13,259,301

AssetsCurrent assets:
Cash and cash equivalents (Note 16)

Investments and other assets:

Total assets

52

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Consolidated Balance Sheets

In millions of yen

In thousands of
U.S. dollars(Note 5)

2006

2005

2006

Trade notes and accounts payable¥ 333,842¥ 293,853$ 2,841,939

Short-term borrowings (Note 11)

159,254

236,151

1,355,700

Current portion of long-term debt (Note 11)

85,10841,800724,514

234,998

253,8932,000,498

Liabilities, minority interest and stockholders’ equity
Current liabilities:

Accrued expenses, accounts payable anddeferred income (Note 10)
Accrued income taxes (Note 20)

7,371

3,157

62,750

Other current liabilities (Note 20)

46,58528,481

396,572

867,160

857,338

7,381,975

203,389

198,020

1,731,419

Deferred tax liabilities (Note 20)

18,251

17,357

155,367

Accrued retirement benefits (Note 19)

102,787

99,295875,013

Other non-current liabilities

84,721

82,262

721,220

Total liabilities

1,276,311

1,254,274

10,864,995

Minority interest

12,580

10,229107,094

221,296

263,096

1,883,855

436,040

379,204

3,711,930

Capital surplus

432,648417,6123,683,055

Accumulated deficit(749,198)(656,068)(6,377,783)

Total current liabilities
Long-term debt (Note 11)

Stockholders’ equity (Notes 12 and 23):
Preferred stock:
Authorized: 3,312,000 shares
Issued or converted
526,193 shares in 2005
442,593 shares in 2006
Common stock:
Authorized: 9,958,285,000 shares
Issued or converted
4,253,995,212 shares in 2005
5,491,452,544 shares in 2006

Unrealized holding gain on securities
Translation adjustments
Treasury stock — 54,250 shares at March 31, 2005

9,046

9,208

77,014(81,142)(88,262)(690,752)

(12)

(8)

(108)

268,678

324,782

2,287,211¥1,557,570¥1,589,286$13,259,301

73,191 shares at March 31, 2006
Total stockholders’ equity
Contingent liabilities (Note 13)
Total liabilities, minority interest and stockholders’ equity
See accompanying notes to consolidated financial statements.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

53

Consolidated Statements of Operations

Consolidated Statements of Operations
Mitsubishi Motors Corporation and Consolidated Subsidiaries
For the years ended March 31, 2006 and 2005

In thousands of
U.S. dollars(Note 5)In millions of yen
2006

2005

2006

Net sales¥2,120,068¥2,122,626$18,047,741

Cost of sales

1,700,524

1,808,110

14,476,242

0

16

0

419,544314,532

3,571,499

412,760

443,076

3,513,750

6,783(128,544)

57,748

Reversal of deferred profit on installment sales, net
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income (loss)
Interest and dividend income

5,105

7,920

43,462

Interest expense

19,58025,601

166,689

Loss on impairment of fixed assets(45,084)(84,376)(383,796)

Other loss, net (Notes 9 and 15)(29,969)(230,304)(255,125)(82,745)(460,906)(704,400)

Loss before income taxes and minority interest
Income taxes (Note 20):
Current

7,351

4,016

62,580

Deferred558

15,745

4,751(7,909)(19,761)(67,331)

1,511(5,882)

12,864(92,166)¥ (474,785)

Minority interest
Net loss (Note 23)¥

See accompanying notes to consolidated financial statements.

54

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006$

(784,596)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Stockholders’ Equity
Mitsubishi Motors Corporation and Consolidated Subsidiaries
For the years ended March 31, 2006 and 2005

In millions of yen

In thousands of
U.S. dollars(Note 5)

2005

2006

—

$ 2,239,690

2006

Preferred stock:
Balance at beginning of year

¥ 263,096¥

Preferred stock issued or converted(41,800)

263,096(355,835)

Balance at end of year

221,296

263,096

1,883,855

Balance at beginning of year

379,204

252,201

3,228,095

Common stock issued or converted

56,836

127,003

483,835

Balance at end of year

436,040

379,204

3,711,930

Balance at beginning of year

417,61227,5133,555,059

Issuance or conversion of common and preferred stock

15,035390,099

127,996

Balance at end of year

432,648417,6123,683,055

Balance at beginning of year

(656,068)(183,410)(5,584,990)

Net loss(92,166)(474,785)(784,596)

—

2,127

—

(962)

—

(8,196)(749,198)(656,068)(6,377,783)

Balance at beginning of year

9,208

19,91778,392

Net change(161)(10,709)(1,377)

Balance at end of year

9,046

9,208

77,014(88,262)(86,245)(751,360)

7,119(2,016)60,607(81,142)(88,262)(690,752)

Balance at beginning of year

(8)

(3)

(73)

Net change

(4)

(5)

(35)

Balance at end of year

(12)

(8)

(108)

Total stockholders’ equity¥ 268,678¥ 324,782$ 2,287,211

Common stock:

Capital surplus:

Accumulated deficit:

Effect of affiliates for which the equity method was newly applied
Effect of Australian subsidiary for adopting
new accounting standards
Balance at end of year
Unrealized holding gain on securities:

Translation adjustments:
Balance at beginning of year
Net change
Balance at end of year
Treasury stock:See accompanying notes to consolidated financial statements.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

55

Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows
Mitsubishi Motors Corporation and Consolidated Subsidiaries
For the years ended March 31, 2006 and 2005

In millions of yen

In thousands of
U.S. dollars(Note 5)

2006

2005

2006

¥ (92,166)¥(474,785)$ (784,596)

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

96,043(9,125)(11,722)
13,002
15,745(5,882)584,984(79,560)
15,013(12,374)
4,751
12,864(1,862)45,084
(391)
335
1,186
295
(19,550)(5,881)
15,79016,85330,2102,774

16,18984,376(1,331)446
74,736
12,854
39,59753,402
126,116
49,660(57,396)(8,274)(15,854)383,796(3,331)
2,856
10,104
2,513(166,431)(50,071)
134,419
143,474
257,176
23,62054,43013,654463,355

Investing activities:
Decrease (increase) in investments in term deposits
Purchase of property, plant and equipment (Note 16)
Proceeds from sales of property, plant and equipment (Note 16)
Decrease (increase) in investment in securities
Decrease in short-term loans receivable
Loans madeCollection of loans receivable
Other

3,045
(133,924)
45,839(166)741(2,017)
1,584
86(18,920)(140,760)
111,788
7,301
5,009
(444)
1,616
203

25,925(1,140,077)
390,218(1,419)6,315(17,177)
13,491736

Net cash used in investing activities(84,811)(34,206)(721,985)

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 — common stock
Other(48,192)
41,687(42,067)
29,704(33)(53)(425,649)
119,974(328,067)
767,344(40)(5)(410,251)354,873(358,116)
252,870
(284)
(457)

Net cash provided by (used in) financing activities(18,955)

133,556(161,366)

Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Change in cash and cash equivalents due to inclusionand exclusion of subsidiaries in consolidation

2,557(46,779)
294,903(12)
112,991
181,911

21,773(398,222)
2,510,454

(54)

—

(464)

¥ 248,069¥ 294,903$ 2,111,767

Operating activities:
Net loss
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization
Allowance for doubtful accounts, net of reversal
Accrued retirement benefits, net of reversal
Loss (gain) from affiliates accounted for by the equity method
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
Stock issuance costs
Change in trade notes and accounts receivable
Change in inventories
Change in finance receivables (Note 16)
Change in retained interests in transferred receivables
Change in trade notes and accounts payable
Other
Net cash provided by operating activities

Cash and cash equivalents at end of year (Note 16)
See accompanying notes to consolidated financial statements.

56

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements
Mitsubishi Motors Corporation and Consolidated Subsidiaries

1. Going Concern
In fiscal years (FY) 2003 and 2004, the Mitsubishi Motors Corporation (MMC) group recorded net losses of¥215,424 million and ¥474,785 million respectively. In FY2005, the MMC group also recorded a net loss of¥92,166 million ($784,596 thousand).
As a result of these recurring losses, significant doubt arises as to the Company’s ability to continue as agoing concern.
To address this situation as well as strengthen its operating base, the MMC group formulated the “Business
Revitalization Plan” (from FY2004 to FY2006) in May 2004.
In June 2004, the MMC group outlined additional measures to its “Business Revitalization Plan” announced in
May 2004 that focus on three areas: all out cost cutting; restoring customer trust; and across the board compliance.
The new measures were in response to a marked slump in domestic sales that surfaced following the recall problems at MMC and Mitsubishi Fuso Truck and Bus Corporation.
After announcing its “Business Revitalization Plan” in May 2004, the MMC group devoted itself to implementing the measures set out in the plan, designed to regain customer and public trust and improve profitability. Despite
these measures, MMC’s inability to respond adequately to past recall problems delayed the hoped for restoration of
consumer and public trust and seriously impacted sales. This, in turn, highlighted the problem of over capacity thatlurked beneath the surface over recent years. In addition, concerns deepened about delays in the recovery 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 toregain 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 FY2005 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
to revitalize itself. The Corporate Social Responsibility (CSR) Promotion Office has played a lead role in the implementation of a wide range of measures designed to enhance compliance. The Business Ethics Committee, made upof specialists and leaders in their fields from outside the MMC group, has also given valuable advice and guidancefrom an external perspective in this regard. An internal seminar program has enabled each employee to acquire a
deeper understanding of business ethics principles. Employees have now submitted written pledges to fully observeand practice compliance.
An investigation by a panel of external lawyers into past recall problems was completed in March 2005. The
MMC group submitted to the Ministry of Land Infrastructure & Transport (MLIT) its final report, which summarizes
disciplinary action and measures to prevent any recurrence. In FY2005, these measures continued to be carried out
by the MMC group and the latest status of the implementation has been reported to MLIT every three months.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200657

(2) Key points and additional topics in the Mitsubishi Motors Revitalization Plan
• Putting customers first/Recovering trust• Put customers first in all areas, from marketing through after sales services• Provide measures for achieving no compromise improvements in product quality• Business strategy• Sales plans reflect downside risks• Promote of operational tie-ups with other automakers• Rationalize of production capacity and sales network• Reinforce capital and funding• Strengthen financial standing and securing capital for revitalization• Boost management’s effectiveness• Lead from the top with a new management team
• Set up a thorough follow-up system• Implement and extend across the board compliance[Additional topics]• Strengthen sales operations around the world (as Japan and North America) in order to meet the sales target set
out by the plan
• Implementing cost reduction policy in all functional areas including sales, production and research• Optimization of the global production system• Enhancing corporate governance through internal control(3) Targets• Achievement of profit in FY2006 (net income of ¥8 billion ($68 million))• Establish sustainable profitability in FY2007 (net income of ¥41 billion ($349 million))(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, fiscal year
volume targets in the new plan are lower than those in the Business Revitalization Plan but are set to recover to the
FY2003 level of 1,500,000 vehicles in FY2007.
(ii) Product strategy
a. Motorsports
The MMC group places Motorsports at the very heart of its car design and development activities. The technology
and experience built up through taking part in grueling and competitive events such as the Dakar Rally and theWorld Rally Championship is being fed back and reflected into all production cars as the “Sporty DNA” and “SUVDNA” that define 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
these embodied 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.

58

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

c. New model launches
The new plan calls for a major increase in the number of new model launches compared with the last four years.
The MMC group will expand earning opportunities by actively introducing 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 tie-up
opportunities with other automakers. As well as an expansion in May 2005 of the supply of minicars on an OEM
basis to Nissan Motor Co., Ltd., in July 2005, MMC reached an agreement with PSA Peugeot Citroën to supply a
new SUV model on an OEM basis. The new SUV model is expected to be released in FY2007 to the European
market. MMC group is looking to expand its tie-ups and considering the options such as increasing OEM arrangements,
component supply partnering, joint distribution arrangements and joint procurements arrangements.
(iv) Regional strategy
a. JapanDriving towards a group structure that returns stable profits, MMC and its sales companies will continue to work
hand in hand to regain the trust of customers with additional measures that follow on from the free inspection campaign covering 3.4 million owners in FY2004. The MMC group will also restructure its sales network and will drive tomaximize after sales services by launching a new brand in the after market auto parts market.
b. North America
North America remains a vital market for MMC group. To put its operations in that market on a profitable basis, inJanuary 2006, MMC appointed a managing director to become CEO and President of its North American subsidiary.
The Company also introduced a new management structure that will strengthen links and promote effective
communication with MMC.
The MMC group is currently addressing its U.S. captive finance unit that was at the center of problems in its
North American operations. It is currently reducing its exposure to loan default risk by selling off a portion of its
finance asset holdings to Merrill Lynch & Co. For the purpose of creating competitive and attractive consumer
financing programs, the MMC group also established a new joint venture company with Merrill Lynch.
c. Europe
To move its European operations forward from simply achieving profitability to the growth stage, the MMC group will work
to promote sales for a stronger model lineup and will place its efforts to strengthen its management and sales structures.
d. China
Positioning China as a core market by actively utilizing the Mitsubishi brand, which is very strong and well establishedin China, the MMC group seeks to expand its operating base. The MMC group is strengthening its capital tie-ups
with local companies in order to expand the Mitsubishi brand models, and plans to establish and expand its sales
network. 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 in Thailand, establishing sales structures in Malaysia and reorganizing operations in Indonesia. The MMC groupis also strengthening its production base by boosting capacity in Thailand, which serves as an export hub to global
markets. As for Australia, the MMC group closed its engine plant in August 2005.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200659

(v) Cost reductions
a. Manpower
As a result of changes to the organization, increased work process efficiencies, rationalization of work processes andnatural attrition of personnel, the MMC group’s staff reduction program is on track and is forecast to achievetargets. MMC group is also moving forward with further improvements in work process efficiencies.
b. Materials costs
In view of the deterioration in procurement brought about by falling sales volumes and sharp rises in raw materials
costs, the new plan aims to reduce materials costs by approximately ¥90 billion ($766 million) on a cumulativebasis by FY2006 over the FY2003 level. While this is a downward revision of the “Business Revitalization Plan,”the MMC group still maintains a 15% cost reduction rate as stated in the “Business Revitalization Plan.”(5) Corporate ideals and direction
Through a process of exhaustive analysis and discussion between cross-functional teams composed mainly of younger
employees and affected departments, the Corporate Revitalization Committee has looked in depth at a number ofissues that the MMC group faces. This has allowed the MMC group to formulate a new course of action; one thatclarifies to its stakeholders the ideals that underpin the MMC group’s management as it drives forward in fulfilling its
responsibilities as a corporate citizen. These ideals are crystallized in 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, in September 2005, the MMC groupalso adopted a new slogan in Japan, which was chosen by staff: “Kuruma zukuri no genten e” (English translation:“Pursuing the Origins of Car Engineering.”)(6) Profit and loss targets
To reflect all the measures described above, the targets for consolidated sales and earnings for the periods throughFY2006 in the “Business Revitalization Plan” were revised downward in the “Mitsubishi Motors Revitalization Plan.”Also, in FY2005, the MMC group did not achieve profitability except for on the operating profit level. Overallprofitability however, has been improving since FY2004 as MMC looks forward to bringing net income back to theblack in FY2006 and expects to generate record net income of ¥41 billion ($349 million) in FY2007.
(7) Support systems: capital and funding reinforcements( i ) Capital reinforcement
With the full support of four Mitsubishi companies, during FY2004, the MMC group received a capital enhancementof ¥284.2 billion ($2,419 million) through the issuance of common and preferred stock [Mitsubishi Heavy Industries,
Ltd. (MHI) ¥50 billion ($425 million); Mitsubishi Corporation, ¥70 billion ($595 million); The Bank of TokyoMitsubishi UFJ, Ltd. ¥154 billion ($1,310 million) (of which ¥54 billion ($459 million) was a debt-equity swap);
The Mitsubishi UFJ Trust and Banking Corporation, ¥10.2 billion ($86 million) (the entire amount being a debtequity swap)].
In January 2006, with Mitsubishi Corporation as underwriter, MMC group issued ¥30 billion of preferred stockby third party allocation.
The combined interests in the MMC group by MHI, Mitsubishi Corporation and The Bank of Tokyo-Mitsubishi UFJ,
Ltd. was approximately 34% at March 31, 2006. Following MHI’s conversion of its preferred stock, which made its
holdings in MMC more than 15%, MMC became an equity method affiliate of MHI in the second half of FY2005.

60

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements(ii) Borrowing
In January 2005, as part of the “Mitsubishi Motors Revitalization Plan,” the MMC group announced its plan to raise¥240 billion ($2,043 million) through new loans. Financing had been successful as the MMC group already raised¥70 billion ($595 million) by the end of FY2005. As actual cash flow exceeded forecast, the MMC group will review
its financing needs each year and will raise the appropriate amount of funds to successfully carry out the “Mitsubishi
Motors Revitalization Plan.”(iii) Capital expenditure for revitalization
The capital enhancement and funding measures will give the MMC group access to ¥490 billion ($4,171 million)(excluding a ¥64.2 billion ($546 million) debt-for-equity swap). MMC will allocate this funding with maximum efficiency to R&D and capital investment, which will provide the platform vital to the successful achievement of targets
and goals 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, due to effective business strategy, financing, and management, consolidated operating income
returned to the black a year ahead of original plan. Consolidated net loss however fell below plan as a result of theimpairment charge in Japan, additional impairment charges in North America and Australia, and provision for losses
on restructuring for this period. It is expected that as a result, the strength of individual operations will restore andimprove, and the transformation of the organization will continue steadily from FY2006 going forward.
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 support of 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.
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 theconsolidated 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.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

61

(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 that do not exceed 3 years.
(c) Cash and cash equivalents
All highly liquid and low risk investments with maturities of three months or less when purchased are considered tobe cash equivalents.
(d) Inventories
Inventories of MMC and its domestic consolidated subsidiaries are principally stated at cost determined by the firstin first out or specific identification method. Inventories of the foreign consolidated subsidiaries are principally statedat the lower of cost or market value. Cost is determined by the specific identification method.
(e) Investments in securities
Investments in securities that are expected to be held-to-maturity were not held during FY2005. Other securities
with a readily determinable market value are stated at fair value. The difference between the acquisition cost and thecarrying value of other securities, including unrealized gains and losses, is recognized in “Unrealized holding gain on
securities” in the accompanying consolidated balance sheets. The cost of other securities sold is computed basedon the moving average method.
Other securities without a readily determinable market value are stated at cost determined by the moving
average method.
( 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, including software intended for use by MMC and its consolidated subsidiaries, are amortized by the straight line method over the estimated useful life.
(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.

62

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements( i ) Retirement benefits
Accrued retirement benefits for employees at March 31, 2006 and 2005 are calculated based on the retirement
benefits obligation and the fair value of the pension plan assets estimated at year end. The full amount of the transition difference, arising from the adoption of the new accounting standard for retirement benefits was expensed
entirely in FY2000 when the new accounting standard was adopted.
Prior service cost is being amortized using the straight line method over periods of 5 to 21 years, and 10 to 21
years for the years ended March 31, 2006 and 2005, respectively. These periods are within the estimated averageremaining 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
and 10 to 21 years for the years ended March 31, 2006 and 2005, respectively. These periods are within the estimated average remaining service years of the employees.
( j ) Accrual for retirement benefits for directors and corporate auditors
Certain directors and corporate auditors of MMC and its domestic consolidated subsidiaries are customarily entitled to
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 has been made at the estimated amountwhich would be paid if all directors and corporate auditors resigned as of the balance sheet dates.
(k) Revenue recognition
Revenue is generally recognized on sales of products at the time of shipment.
Certain domestic and foreign subsidiaries recognize revenues by the installment sales method whereby grossprofit on such sales is deferred and credited to income in proportion to the amount of the installment receivables
which become due.
( l ) 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 “Stockholders’ equity.”(m) Amounts per share of common stock
The computation of basic net (loss) income 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 purchase warrants.
(n) Appropriations (dispositions) of retained earnings (accumulated deficit)
Cash dividends, bonuses to directors and corporate auditors and other appropriations or dispositions of retained
earnings (accumulated deficit) are recorded in the financial year in which the appropriations (dispositions) areapproved at the general meeting of the stockholders.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200663

(o) 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.
(p) 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
and related foreign currency receivables. Interest rate swaps are utilized to manage interest rate risk for debts. 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, MMC and its
consolidated subsidiaries hedge, within certain limits, 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, confirmationof the conditions for special hedge accounting is carried out.
3. Changes in Accounting Policies(a) Accounting Standard for Impairment of Fixed Assets
Effective for the year ended March 31, 2006, the accounting standard for impairment of fixed assets, “Opinion
concerning Establishment of the Accounting Standard for the Impairment of Fixed Assets” (The Business Accounting
Council, August 9, 2002) and “Guidance for Accounting Standard for Impairment of Fixed Assets” (AccountingStandards Board of Japan (ASB) Guidance, No. 6 October 31, 2003) have been adopted. As a result, loss before
income taxes and minority interest increased by ¥26,176 million ($222,832 thousand) this reporting period. The
effects on the segment information are stated in Note 21. The accumulated impairment loss has been deducted
directly from the book value of property, plant and equipment in accordance with Japanese accounting standards.
In addition, although some of overseas subsidiaries have reported impairment losses in this period, the above
figure does not include those losses, as these subsidiaries have already been adopting local accounting standards
for impairment of fixed assets on the basis of local Generally Accepted Accounting Principles.
(b) Accounting Standard for Retirement Benefits
Effective for the year ended March 31, 2006, the accounting standard for retirement benefits “Amendment of
Accounting Standards for Retirement Benefits” (Accounting Standard No. 3 March 16, 2005) and “Guidance forAmendment of Accounting Standards for Retirement Benefits” (ASB Guidance No. 7 March 16, 2005) have been
adopted. The effect of the adoption of this change in accounting policy for retirement benefits was insignificant in
net loss of fiscal year 2005. The effects on the segment information are stated in Note 21.

64

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

4. Additional Information
On March 30, 2006, MMC agreed with DaimlerChrysler AG (DCX) as to the basic outline on which both sides would
further advance their consultations regarding the discontinuance of production of the smart forfour model manufactured by MMC’s consolidated subsidiary, Netherlands Car B.V., as well as compensation for the discontinuance of production. At present, MMC is in discussion with DCX. However, based on the Contract Manufacturing Agreement
between Netherlands Car B.V. and smart gmbh which is effective until the year 2010, smart gmbh will bear annual
fixed costs related to the smart forfour . Therefore MMC’s FY2006 earnings projections are unchanged regardless ofthe discontinuance of the production of smart forfour .
5. U.S. Dollar Amounts
The U.S. dollar amounts in the accompanying consolidated financial statements are included, solely for convenience,at ¥117.47 = U.S.$1.00, the exchange rate prevailing on March 31, 2006. The 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.
6. Trade Notes and Accounts Receivable, and Finance Receivables Sold
The outstanding balances of trade notes and accounts receivable sold to others which have been deducted from therespective accounts amounted to ¥12,359 million ($105,210 thousand) and ¥7,913 million as of March 31, 2006
and 2005, respectively. Such amounts deducted from finance receivables were ¥115,214 million ($980,800 thousand) and ¥240,317 million as of March 31, 2006 and 2005, respectively.
7. Inventories
Inventories at March 31, 2006 and 2005 consisted of the following:
In thousands of
U.S. dollars

In millions of yen

Finished products
Raw materials
Work in process

2006

2005

2006

¥164,510
32,00861,427¥163,187
25,46844,696$1,400,448
272,485
522,918¥257,946¥233,353$2,195,851

8. Property, Plant and Equipment
Property, plant and equipment at March 31, 2006 and 2005 consisted of the following:
In millions of yen

In thousands of
U.S. dollars

2005

2006

2006

Land
Buildings and structures
Machinery and equipment
Construction in progress¥

105,038
320,919
1,319,823
20,732

Accumulated depreciation

1,766,514(1,260,506)

Property, plant and equipment, net¥

MITSUBISHI MOTORS CORPORATION

506,007

ANNUAL REPORT 2006¥¥

127,449
332,6131,350,483
34,964$894,176
2,731,927
11,235,407
176,490

1,845,511(1,314,608)

15,038,002(10,730,453)

530,903$ 4,307,548

65

Asset groups for which impairment losses were recorded for the year ended March 31, 2006 were as follows:
In millions of yen
Location

Application

AssetsIn thousands of
U.S. dollars

Impairment loss amount

Illinois, USA and South Australia, Assets used inAustralia, (2 sites)
production

Structures, machineryand equipment¥18,908$160,965

Nagakute, Aichi and Fujiidera,
Osaka and others (95 sites)

Assets used insales operations

Land, buildings and others

20,266

172,524

Sendai, Miyagi and Nara,
Nara and others (9 sites)

Assets leased
to others

Land, buildings and others

2,563

21,821

Tama, Tokyo and Kato,
Hokkaido and others (31 sites)

Idle assets

Land, buildings and others

3,346

28,485¥45,084$383,796

The grouping of assets are determined as follows:
Assets used in production are grouped either by manufacturing plants or operational site. Assets used in sales operations are generally grouped by operational site. 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 highest value of:value in use, which is determined by estimating future cash flow with 6% discount rate; an appraisal value obtained
from a professional real estate appraiser: and net sales value, which is calculated on a reasonable basis by using theestate tax valuations through land assessments and similar methods.
Loss on impairment of fixed assets amounted to ¥45,084 million ($383,796 thousand) as other loss, net for theyear ended March 31, 2006. Losses on land and buildings at March 31, 2006 amounted to ¥20,665 million($175,924 thousand) and ¥3,944 million ($33,578 thousand), respectively. Losses on other assets at March 31,
2006 amounted to ¥20,474 million ($174,293 thousand).
9. Investments
Other securities at March 31, 2006 and 2005 were as follows:
In millions of yen
2006
Acquisition
cost

Carrying
amountUnrealized
gains

Other securities:
Securities withmarket value
Securities withoutmarket value¥ 9,870¥25,110¥15,246

27,28827,288—

Total other securities¥37,159¥52,399¥15,246

66

Unrealized(losses)

MITSUBISHI MOTORS CORPORATION

2005

Acquisition
cost

Carrying
amountUnrealized
gains

Unrealized(losses)¥(6) ¥ 9,890¥25,622¥15,759¥(27)—

23,17823,178——¥(6) ¥33,068¥48,800¥15,759¥(27)

ANNUAL REPORT 2006

Notes to Consolidated Financial Statements

In thousands of U.S. dollars
2006
Acquisition
cost

Unrealized
gains

Unrealized(losses)

Other securities
Securities withmarket value
Securities withoutmarket value$ 84,029 $213,764 $129,788

$(54)

—

—

Total other securities$316,331 $446,065 $129,788$(54)

232,301

Carrying
amount232,301

Proceeds from sales of other securities and the corresponding gross gains and losses, which are included inother loss, net in the accompanying consolidated statements of operations for the years ended March 31, 2006 and2005 were as follows:
In millions of yen

Proceeds
Gross gains
Gross losses

In thousands of
U.S. dollars

2006

2005

2006

¥74
31
—

¥9,477
1,609
277

$638
268
—

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.
Losses recognized on the impairment of securities with market value totaled ¥2 million for the year ended March 31,
2005. However, an impairment was not incurred in the year ended March 31, 2006.
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 ¥9 million ($84 thousand) and ¥38 million
for the years ended March 31, 2006 and 2005, respectively.
Investments in unconsolidated subsidiaries and affiliated companies, and investments in securities at March 31,
2006 and 2005 were as follows:

Investments in unconsolidated subsidiaries andaffiliated companies
Investments in securities

In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

¥36,395
47,033¥35,535
44,580$309,827
400,388¥83,429¥80,115$710,215

10. Accrued Expenses, Accounts Payable and Deferred Income
Accrued expenses, accounts payable and deferred income at March 31, 2006 and 2005 were as follows:
In millions of yen

Accrued expenses and accounts payable
Allowance for product warranties
Deferred income
Accrued bonuses

MITSUBISHI MOTORS CORPORATIONIn thousands of
U.S. dollars

2006

2005

2006

¥181,553
49,5893,856—¥175,734
49,85922,783
5,516$1,545,528
422,143
32,827—¥234,998¥253,893$2,000,498

ANNUAL REPORT 2006

67

MMC’s consolidated subsidiaries in Japan have not accrued any amount for employees’ bonuses for FY2005
because of a change in the internal rules for the period covered. MMC’s consolidated subsidiaries in Japan accrued
total ¥5,021 million for employees’ bonuses in FY2004.
11. Short-Term Borrowings and Long-Term Debt
Short-term borrowings at March 31, 2006 and 2005 consisted of the following:
In millions of yen

Loans, principally from banks

In thousands of
U.S. dollars

2006

2005

2006

¥159,254¥236,151$1,355,700

The weighted average interest rates on short-term borrowings at March 31, 2006 and 2005 were 4.6% and4.6%, respectively.
Long-term debt at March 31, 2006 and 2005 consisted of the following:

Loans, principally from banks and insurance companies,
due through 2023 at interest rates averaging 4.4% in 2006
and 4.0% in 2005:
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 2005 through 2006 at rates 5.0%
(issued April through May, 2003)
Euro medium-term notes due 2005 through 2008 at rates 2.6%
(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

2006

2005

2006

¥208,962
17,1508,700
25,600¥173,270
24,0078,700
25,600$1,778,859
146,000
74,061217,927

3,745

4,243

31,882

3,000

4,000

25,53821,140—179,960

200

—

1,702

288,498(85,108)

239,821(41,800)

2,455,933(724,514)¥203,389¥198,020$1,731,419(a) 3.1% bonds due May 28, 2007, 3.3% bonds due May 28, 2009, and Euro medium-term notes due through2008 at rates 2.6% were issued by the parent company.
(b) Euro medium-term notes due through 2006 at rates 5.0% consist of notes were issued by an overseas subsidiary,
MMC International Finance (Netherlands) BV. (Ending balances at FY2005 and FY2004 were 26,225 thousand
euro and 30,555 thousand euro respectively).
(c) 5.7% to 6.0 % bonds due through 2009 consist of notes issued by an overseas subsidiary, Mitsubishi Motors(Thailand) Co., Ltd. (Ending balance at FY2005 was 7,000,000 thousand baht).
(d) 1.1% bonds due September 24, 2010 were issued by a domestic subsidiary, Suiryo Plastics Co., Ltd.

68

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

The maturities of long-term debt were as follows:
In millions of yen

In thousands of
U.S. dollars

2007
2008
2009
2010
2011
Thereafter¥ 85,108
74,88473,99750,6601,982
1,864$ 724,514
637,479
629,927
431,261
16,875
15,875

Total¥288,498$2,455,933

Year ending March 31,

Assets pledged as collateral for short-term borrowings, long-term debt and guarantees (excluding factory relatedgroups of assets) at March 31, 2006 and 2005 are as follows:
In millions of yen

Trade notes and accounts receivable
Inventories
Finance receivables
Investments
Property, plant and equipment, net
Other (see ( i ) below)

In thousands of
U.S. dollars

2006

2005

2006

¥ 14,129
55,95632,0803,341
202,879
81,608¥ 15,711
52,71221,018500
211,908
79,840$ 120,281
476,346
273,091
28,447
1,727,075
694,716¥389,995¥381,691$3,319,959( i ) ¥687 million of other current assets are pledged based on an encumbrance from a term lease contract of building with Murata Medical Services, Ltd.
The following groups of assets of the parent company, the Okazaki factory, were pledged as collateral at
March 31, 2006.
In millions of yen

Buildings and structures
Machinery and equipment
Land

In thousands of
U.S. dollars

2006

2005

2006

¥11,038
4,124
985¥11,871
8,884
985$ 93,966
35,107
8,393¥16,148¥21,741$137,466

The following groups of assets of the parent company, 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, 2006 and 2005, respectively. The amounts guaranteed to EQUUS
were ¥15,600 million ($132,799 thousand) and ¥14,353 million at March 31, 2006 and 2005, respectively.

Buildings and structures
Machinery and equipment
Land

MITSUBISHI MOTORS CORPORATION

In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

¥ 5,375
25,7042,008¥ 5,003
22,066
2,008$ 45,762
218,813
17,100¥33,088¥29,078$281,677

ANNUAL REPORT 2006

69

The following groups of assets of the parent company, the Kyoto factory, were pledged as collateral at March 31,
2006 and 2005, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land

In thousands of
U.S. dollars

2006

2005

2006

¥ 7,347
13,622
2,275¥ 7,250
15,222
2,137$ 62,545
115,963
19,367¥23,244¥24,610$197,876

The following groups of assets of the parent company, the Shiga factory, were pledged as collateral at March 31,
2006 and 2005, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land

In thousands of
U.S. dollars

2006

2005

2006

¥ 3,251
10,5993,859¥ 3,426
11,9403,859$ 27,680
90,22932,855¥17,710¥19,226$150,764

The following groups of assets of a consolidated subsidiary, Pajero Manufacturing Corporation, were pledged ascollateral at March 31, 2006 and 2005, respectively.
In millions of yen

Buildings and structures
Machinery and equipment
Land

In thousands of
U.S. dollars

2006

2005

2006

¥3,1812,130
1,540¥3,4242,585
1,540$27,080
18,136
13,109¥6,851¥7,549$58,326

The following groups of assets of a consolidated subsidiary, Suiryo Plastics Co., Ltd., were pledged as collateral
at March 31, 2006 and 2005, respectively.

Buildings and structures
Machinery and equipment
Land

70

MITSUBISHI MOTORS CORPORATION

In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

¥1,053
1,248
194¥1,123944
194$ 8,966
10,6281,655¥2,496¥2,261$21,250

ANNUAL REPORT 2006

Notes to Consolidated Financial Statements

The obligations secured by such collateral at March 31, 2006 and 2005 were as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

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

¥ 87,729
71,270137,692¥210,011
27,889145,380$ 746,827
606,712
1,172,147

Total short-term borrowings and Long-term debt

¥296,692¥383,281$2,525,687

12. Stockholders’ Equity
The Commercial Code of Japan (the “Code”) provides that an amount equal to at least 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 reserveand capital surplus equals at least 25% of the common stock account. The Code also stipulates that, to the extent
that the sum of the capital surplus account and the legal reserve exceed 25% of the common stock account, theamount of any such excess is available for appropriation by resolution of the stockholders. MMC and its domestic
subsidiaries have provided these amounts in accordance with the Code.
Unrealized holding gain on securities and derivative financial instruments is not available for dividends.
MMC is authorized to issue 3,312,000 shares of convertible preferred stock that are classified as Series A, B
and G (3 to 4 times in each series), and has 442,593 shares outstanding at March 31, 2006.
The holders of each series of convertible preferred stock are not entitled to voting rights, but the holders ofSeries 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.
13. Contingent Liabilities
Loan guarantees given in the ordinary course of business amounted to ¥5,274 million ($44,903 thousand) and¥6,008 million at March 31, 2006 and 2005, respectively. Agreements similar to guarantees given in the ordinary
course of business amounted to ¥3,215 million ($27,374 thousand) and ¥3,449 million at March 31, 2006 and2005, respectively.
14. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended March 31, 2006 and 2005 were as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Sales promotion and advertising
Freight
Bad debts expense
Salaries and wages
Pension expenses
Severance payments to directors and corporate auditors
Depreciation
Research and development
Others¥121,453
21,177
1,041
80,5885,382
649
19,00360,345
103,118¥132,727
19,757
4,602
86,906
4,348
796
14,15068,775
111,011$1,033,908
180,276
8,866
686,035
45,8205,528
161,777
513,707877,830

Total¥412,760¥443,076$3,513,750

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

71

15. Other Loss, Net
Other loss, net for the years ended March 31, 2006 and 2005 consisted of the following:
In millions of yen

In thousands of
U.S. dollars

2005

2006

2006

Gain on sales of investments in securities
Gain (loss) on sales and disposal of property, plant and equipment
and intangible assets
Income (loss) from affiliated companies
Severance payments for early retirement
Amortization of consolidation goodwill
Provision for losses on restructuring
Litigation expenses
Foreign exchange losses
Extraordinary measure expenses
Stock issuance costs
Loss compensation based on stocks transfer contracts
Other

¥

130

¥

1,331

$

1,114

1,862
1,453
(3,183)
767(14,766)(5,732)(3,395)—(295)(1,186)(5,623)(16,189)(13,002)(16,283)
1,441(29,530)(3,184)(2,007)(25,247)(12,854)(74,736)(40,044)

15,854
12,374(27,101)
6,537(125,708)(48,803)(28,905)—(2,513)(10,104)(47,870)¥(29,969)¥(230,304)$(255,125)

In millions of yen

In thousands of
U.S. dollars

16. Cash Flow Information
Cash and cash equivalents at March 31, 2006 and 2005 consisted of the following:

2006

2005

2006

Cash and bank deposits
Time deposits with maturities of three months or more
Short-term investments maturing within three months
from the acquisition date¥259,045(16,331)¥307,474(16,791)$2,205,202(139,027)

5,355

4,220

45,491

Cash and cash equivalents¥248,069¥294,903$2,111,767

Interest paid less interest received and dividends received within operating activities in the consolidated statements of cash flows for the years ended March 31, 2006 and 2005 amounted to a net expense of ¥12,603 million($107,291 thousand) and ¥15,927 million, respectively. Income taxes paid for the years ended March 31, 2006
and 2005 amounted to ¥2,680 million ($22,814 thousand) and ¥4,675 million, respectively.
Purchases of property, plant and equipment within investing activities in the consolidated statements of cash
flows for the years ended March 31, 2006 and 2005 included payments for the acquisition of lease vehicles of ¥8,904
million ($75,801 thousand) and ¥16,061 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, 2006 and 2005 included proceeds from sale of lease vehicles of¥16,323 million ($138,958 thousand) and ¥36,276 million, respectively.
Changes in finance receivables within operating activities in the consolidated statements of cash flows for the years
ended March 31, 2006 and 2005 are primarily the net of payments amounting to ¥89,546 million ($762,289
thousand) and ¥95,011 million, respectively, and proceeds from collections amounting to ¥96,441 million($820,984 thousand) and ¥223,580 million, respectively.

72

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

17. Leases
As lessee
The following pro forma amounts represent the acquisition costs, accumulated depreciation, impairment losses, andnet book value of the leased assets as of March 31, 2006, which would have been reflected in the consolidated balance sheet if finance lease accounting had been applied to the finance lease transactions excluding lease arrangements which 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
Notional
Notional
equivalentequivalent accumulatedacquisition cost depreciation

2006
Notional
equivalent
net book
value

Notional
equivalent
impairment
loss

Notional
Notional
equivalentequivalentacquisition accumulated
cost depreciation

2005
Notional
equivalent
net bookvalue

Tools and equipment
Others¥36,950 ¥21,843
5,507
3,215

¥20 ¥15,086 ¥31,275 ¥23,033 ¥ 8,242
17
2,273
5,372
2,432
2,940

Total

¥42,458 ¥25,059¥38 ¥17,360 ¥36,648 ¥25,466 ¥11,182
In thousands of U.S. dollars

Notional
Notional
equivalentequivalent accumulatedacquisition cost depreciation

2006
Notional
equivalent
net book
value

Notional
equivalent
impairment
loss

Tools and equipment
Others$314,554 $185,950
46,882
27,375$172 $128,431
153
19,353

Total$361,437 $213,325$325 $147,785(b) Future minimum lease payments of such finance leases:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Due within 1 year
Due after 1 year

¥11,105
11,824¥ 7,350
9,933$ 94,536
100,660

Total¥22,929¥17,283$195,197

The balance of impairment provision relating to leased assets is ¥25 million ($218 thousand) at March 31, 2006.
(c) Lease payment expense, reversal of impairment provision 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

MITSUBISHI MOTORS CORPORATIONIn thousands of
U.S. dollars

2006

2005

2006

¥9,570
12
8,747
498
38

¥10,156
—
8,483
522
—

$81,471
107
74,463
4,243
325

ANNUAL REPORT 200673

(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, 2006 and 2005 were as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Due within 1 year
Due after 1 year

¥15,596
30,294¥15,456
46,697$132,771
257,891

Total¥45,891¥62,153$390,662

As lessor
Future minimum lease revenues from operating lease transactions entered into by MMC and its consolidated subsidiaries as lessor at March 31, 2006 and 2005 were as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Due within 1 year
Due after 1 year

¥14,508
15,279¥20,741
22,215$123,504
130,072

Total¥29,787¥42,956$253,576

18. 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
to fluctuations 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 enters 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 the parties and, therefore, are nota 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, however, certain
interest rate swaps (pay-floating/receive-fixed) are exposed to risk of future interest rate fluctuations. MMC andconsolidated subsidiaries do not enter into derivative contracts for which significant volatility would have any significant influence on its operations.

74

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements(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 ofFinance Group Headquarters. MMC approves derivative transactions of consolidated subsidiaries as appropriate, andin accordance with policies established for each subsidiary, which require the appropriate approval of Managing
Directors in charge 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, except for those accounted for under the special
hedge provisions, outstanding at March 31, 2006 and 2005:[Forward foreign exchange contracts]
In millions of yen

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

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

¥14,033
18,328
2,284
967
2,920
13,444¥13,867
18,690
2,351
1,034
3,172
13,199

¥ 166
(362)
(66)
(66)
(251)
245

12,714

12,392(322)

10,95010,900

(49)

Total

¥2,623

Notional
amountFair value

2005
Unrealized
gain (loss)¥(385)In thousands of U.S. dollars
Notional
amountForward foreign exchange contracts:
Sell:
U.S. $Euro£ stg
Canadian $Australian $Japanese ¥Buy:Japanese ¥Fair value

2006
Unrealized
gain (loss)$158,304 $166,196 $ (7,891)
417,126 405,856 11,269
12,091
12,927(836)———
82,60883,813(1,204)
168,664 144,921 23,742
108,236

105,493

Total(2,743)$22,336

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

75

[Cross currency swaps]
In millions of yen

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

2006
Unrealized
gain (loss)

¥722
711

¥ 5
102

¥ 5
102

Total

Notional
amountFair value

2005
Unrealized
gain (loss)¥2,166
3,157

¥(16)
1

¥(16)
1

¥108

¥(15)

In thousands of U.S. dollars

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

2006
Unrealized
gain (loss)$6,149
6,055

$ 48
871

$ 48
871

Total

$920

All cross currency swaps have maturities within one year.
[Interest rate swaps]
In millions of yen

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

Notional
amountFair value¥41,556
6,696

¥181
(30)

Total

2006
Unrealized
gain (loss)

Notional
amountFair value

2005
Unrealized
gain (loss)¥181 ¥129,869(30)
61,428

¥113
139

¥113
139

¥150

¥252

In thousands of U.S. dollars
Notional
amountInterest rate swaps:
Pay-fixed, receive-floating
Pay-floating, receive-fixed$353,763
57,008Fair value

2006
Unrealized
gain (loss)$1,542 $1,542
(261)
(261)

Total

$1,280Included in interest rate swaps above, are contracts with maturities over one year with notional amounts of ¥283
million ($2,410 thousand) and ¥103,008 million as at March 31, 2006 and 2005, respectively.

76

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

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 3years

Within 1
year

From 1year to 3

2005
Over 3
years¥41,556
3.2
4.9

—
—
—

—
—
—

¥57,728
3.6
4.1¥72,140
3.1
4.6

—
—
—

¥ 6,413
5.2
3.9

¥283
6.9
4.7

—
—
—

¥30,560——¥30,868—————

The method to determine fair value is based on quotations obtained from financial institutions.
Derivative financial instruments, principally forward exchange contracts and interest swaps, that qualify as hedges
and are accounted for using the deferred hedge accounting method are excluded from the above table according to
the disclosure requirements.
19. 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 noncontributory 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, 2006, MMC andits consolidated subsidiaries have 8 funds for contributory plans in accordance with the Welfare Pension Insurance
Law, and 39 funds for tax-qualified plans. MMC and 44 of its consolidated subsidiaries have non-contributory
severance plans.
The discount rate used to determine the retirement benefit obligation was 1.5%–2.5% for MMC and its domestic
consolidated subsidiaries, 4.6%–5.8% for its foreign consolidated subsidiaries, and 1.5%–2.5% for MMC and its
domestic consolidated subsidiaries, 6.0%–6.3% for its foreign consolidated subsidiaries at March 31, 2006 and2005, respectively. The rate of return on plan assets assumed was 0.8%–4.0% for MMC and its domestic consolidated subsidiaries, 6.7%–8.5% for its foreign consolidated subsidiaries, and 0.8%–4.0% for MMC and its domestic
consolidated subsidiaries, 8.0%–8.5% for its foreign consolidated subsidiaries for the year ended March 31, 2006
and 2005, respectively.
Prior service cost is being amortized using the straight line method over periods of 5 to 21 years, and 10 to 21
years for the years ended March 31, 2006 and 2005, respectively. These periods are within the estimated averageremaining 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
and 10 to 21 years for the years ended March 31, 2006 and 2005, respectively. These periods are within theestimated average remaining service years of the employees.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

77

The retirement benefit obligation for MMC and its consolidated subsidiaries’ employees’ defined benefit plans at
March 31, 2006 and 2005 are summarized as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Retirement benefits obligation
Pension plan assets at fair value¥(187,638)
66,251¥(173,805)
45,628$(1,597,333)
563,983

Unfunded status
Unrecognized actuarial losses
Unrecognized prior service costs(121,387)
10,236
12,040(128,177)
20,362
11,449(1,033,350)
87,141
102,500

Net recognized retirement benefits obligation
Prepaid pension premiums(99,110)
3,677(96,365)
2,929(843,708)
31,305¥(102,787)¥ (99,295)$ (875,013)

Accrued retirement benefits

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
amount of such assets calculated mainly on the basis of contribution ratio was ¥9,529 million ($81,125 thousand)and ¥3,708 million at March 31, 2006 and 2005, respectively.
Some of the consolidated subsidiaries adopt the simplified method for the calculation of retirement
benefits obligation.
Pension expenses for MMC and its consolidated subsidiaries’ employees’ retirement defined benefit plans for theyears ended March 31, 2006 and 2005 are as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial losses
Amortization of prior service costs
Others¥ 9,444
4,351(3,267)
3,102
716
—

¥ 9,086
4,803(2,158)
781
708
428

$ 80,395
37,046(27,816)
26,414
6,098—

Pension expenses¥14,347¥13,650$122,137

In addition to the above pension expenses, additional retirement benefits of ¥3,183 million ($27,101 thousand) and ¥16,283 million were paid and recorded as other loss, net during the years ended March 31, 2006
and 2005, respectively.
Pension expenses of consolidated subsidiaries that adopt the simplified method are included in service cost.
20. Income Taxes
MMC and its domestic consolidated subsidiaries are subject to corporate, resident and enterprise taxes based on
their taxable 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,
2006 and 2005.

78

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

The effective tax rates reflected in the accompanying consolidated statements of operations for the year ended
March 31, 2005 differ from the statutory tax rate for the following reasons:(%)

Statutory income tax rate for MMC
Increase in valuation allowance, effect of use ofloss carry forwards and similar items
Income from affiliates accounted for by the equity method
Amortization of consolidation goodwill
Increase by tax effect of overseas subsidiaries and similar
Expenses not deductible for income taxes purposes
Income on sales of affiliates
Other

2006

2005

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

40.3(42.4)
1.1
(0.1)
1.1
(0.1)
0.1
4.3

Income taxes as a percentage of loss before income taxes
and minority interest

4.3

The significant components of deferred tax assets and liabilities as of March 31, 2006 and 2005 are as follows:

Deferred tax assets:
Net operating loss carry forward
Accrued retirement benefits
Allowance for doubtful accounts
Allowance for product warranties
Accounts payable — warranties
Impairment losses
OthersLess valuation allowance

In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

¥ 183,201
45,561
25,264
18,583
14,35942,79977,861(351,425)¥ 308,079
41,411
31,27013,33919,46831,05485,931(483,085)$ 1,559,557
387,858
215,069
158,198
122,235
364,341
662,820(2,991,617)

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 in consolidated subsidiaries
Accelerated depreciation in overseas consolidated subsidiaries
Other

56,20547,468478,464(436)(6,022)(6,149)(41,627)(11,685)(1,486)(6,145)(5,921)(30,448)(12,393)(3,716)(51,270)(52,353)(354,363)(99,475)

Total deferred tax liabilities(65,921)(56,396)(561,180)

Net deferred tax assets¥(9,716)¥(8,927)$(82,716)

Deferred tax assets and liabilities at March 31, 2006 and 2005 are included in the accompanying consolidatedbalance sheets as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Current assets
Investments and other assets
Current liabilities
Non-current liabilities¥ 1,206
7,413(86)(18,251)¥ 1,799
6,730(100)(17,357)$ 10,270
63,113(733)(155,367)

Net deferred tax assets¥ (9,716)¥ (8,927)$ (82,716)

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

79

21. Segment Information(a) Business segments
The business segment information for MMC and its consolidated subsidiaries for the years ended March 31, 2006
and 2005 are summarized as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Net sales:
Automobiles
Financial services¥2,080,883
39,183¥2,086,053
40,193$17,714,167
333,564

Total
Intersegment

2,120,067
1

2,126,246(3,619)18,047,731
9¥2,120,068¥2,122,626$18,047,741¥(6,142)
10,418¥ (104,305)(21,066)

$

4,276
2,507

(125,371)(3,172)

6,783¥ (128,544)$¥1,453,123
127,607¥1,601,183
273,412$12,370,165
1,086,302

1,580,731(23,161)

1,874,595(285,309)

13,456,467(197,166)¥1,557,570¥1,589,286$13,259,301

Depreciation:
Automobiles
Financial services¥

60,944
8,541¥

75,25822,226$

518,808
72,713

Consolidated¥

69,486¥

97,484$

591,521

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

Total assets:
Automobiles
Financial services
Total
Corporate and eliminations
Consolidated(52,292)
88,69336,40021,34757,748

Capital expenditures:
Automobiles
Financial services¥ 119,460
8,904¥ 128,592
16,061$ 1,016,948
75,801

Consolidated¥ 128,365¥ 144,653$ 1,092,749

Notes: 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 accounting policies;(1) Accounting Standard for Impairment of Fixed Assets
As a result of the change, the assets of the automobiles segment decreased by ¥26,176 million ($222,832 thousand) comparedwith using the earlier method.
(2) Accounting Standard for Retirement Benefits
The effect of the adoption of this change in accounting policy for retirement benefits was insignificant in operating income (loss) for
FY2005 in the automobiles segment.

80

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements(b) Geographical segments
The geographical segment information for MMC and its consolidated subsidiaries for the years ended March 31,
2006 and 2005 are summarized as follows:

Net sales:
Japan
North America
EuropeAsia
Other areas

In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

¥1,352,182
401,229597,585
228,498
166,247¥1,258,275
435,311670,218
198,554
160,677$11,510,877
3,415,587
5,087,135
1,945,168
1,415,235

2,745,744(625,675)

2,723,037(600,411)

23,374,003(5,326,261)¥2,120,068¥2,122,626$18,047,741

¥

¥

$

Total
Interarea
Consolidated
Operating income (loss):Japan
North America
EuropeAsia
Other areas
Total
Interarea
Consolidated

Total
Interarea
Consolidated(73,561)(74,256)(192)
21,602(11,448)(92,426)(33,124)
79,074
129,565(42,832)

4,728
2,054

(137,857)
9,313

6,783

¥ (128,544)$¥1,130,673
315,155
198,625
164,60973,948¥1,188,913
309,933
194,170
101,681
74,898$ 9,625,211
2,682,856
1,690,859
1,401,286
629,506

1,883,011(325,441)

1,869,598(280,312)

16,029,720(2,770,419)¥1,557,570¥1,589,286$13,259,301¥

Total assets:
Japan
North America
EuropeAsia
Other areas(10,857)(3,891)
9,288
15,220(5,031)

40,255
17,49357,748Notes: 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 bygeographical proximity and mutual relevance of business activities.
2. Main countries and regions outside Japan are grouped as follows:(1) North America . . . . . United States, Puerto Rico
(2) Europe . . . . . . . . . . . The Netherlands, Italy, Germany(3) Asia . . . . . . . . . . . . . Thailand, Malaysia, Taiwan(4) Other . . . . . . . . . . . . Australia, New Zealand, U.A.E.
3. Changes in Accounting Policies;(1) Accounting Standard for Impairment of Fixed Assets
As a result of the change, the assets in Japan decreased by ¥26,176 million ($222,832 thousand) compared with using the earlier method.
(2) Accounting Standard for Retirement Benefits
The effect of the adoption of this change in accounting policy for retirement benefits was insignificant in operating income (loss) of FY2005
in Japan.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

81

(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, 2006 and 2005 are summarized as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Overseas sales:
North America
EuropeAsia
Other areas¥ 415,614
586,167
235,775
378,357¥ 441,441
667,778
258,331
342,184$ 3,538,045
4,989,931
2,007,114
3,220,887

Total¥1,615,914¥1,709,736$13,755,978¥2,120,068¥2,122,626$18,047,741

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

19.6%
27.7
11.1
17.8

20.8%
31.4
12.2
16.1

76.2

80.5

Notes: 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 . . . . . United States, Puerto Rico
(2) Europe . . . . . . . . . . . The Netherlands, Italy, Germany(3) Asia . . . . . . . . . . . . . Thailand, Malaysia, Taiwan(4) Other . . . . . . . . . . . . Australia, New Zealand, U.A.E
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.

82

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Notes to Consolidated Financial Statements

22. Related Party Transactions
MMC entered into the following transactions with related parties during the years ended March 31, 2006 and 2005:
March 31, 2006(a)
Party type:
Party name:
Address:
Capital:Business:% of voting stock held:
Concurrent board appointment:
Business relationship:

Detail of transaction:

Transaction amount:
Account title:(b)

Main stockholder
DaimlerChrysler AG
Stuttgart, Germany
Euro 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(see (ii)and (iii) below)

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 ($255,384 thousand)Preferred stock and Capital surplus(see ( i ) below)( i ) The capital injection was a third party allocation of preferred stock and decided by negotiation.
The balances at year end were ¥15,000 million ($127,692 thousand) in preferred stock and ¥15,000 million($127,692 thousand) in capital surplus.
(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 amountabove is based on the period when DaimlerChrysler AG qualified as a related party, and the ending balance atthe time of DaimlerChrysler’s withdrawal was ¥23,858 million ($203,103 thousand).

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

83

March 31, 2005

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

Detail of transaction:

Transaction amount:
Account title:

Main stockholder
DaimlerChrysler AG
Stuttgart, Germany
Euro 2,633 million
Manufacturing and sales of passenger
cars and other transportation equipment
Direct 12.9
1 management board member
International alliances for research,development, production, sales
and similar for passenger cars
Loss compensation based on
Mitsubishi Fuso Truck and Bus
Corporation stock transfer contract¥64,212 million
Accrued expenses, accounts
payable and deferred income(see ( i ) below)( i ) The terms and conditions of the above transaction were decided by negotiation based on Mitsubishi Fuso Truck
and Bus Corporation’s net assets.
The balance at year end was ¥23,249 million.
23. Losses and Equity Per Share
Net loss and equity per share of common stock for the years ended March 31, 2006 and 2005 are summarized as follows:

Net loss per share of common stock
Basic
DilutedStockholders’ equity per share of common stock

In yenIn U.S. dollars

2006

2005

2006

¥(19.75)—(31.67)¥(194.36)—(47.34)$(0.17)—(0.27)

Diluted amounts per share of common stock are not included for the year ended March 31, 2006 and 2005 dueto the net loss recorded.
The computations of net loss per share of common stock for the year ended March 31, 2006 and 2005 are as follows:
In millions of yen

In thousands of
U.S. dollars

2006

2005

2006

Numerator for basic net loss per share of common stock:
Net loss
Income not available to common stockholders
Loss available to common stockholders¥(92,166)—¥(92,166)¥(474,785)—¥(474,785)$(784,596)—$(784,596)

Denominator for net loss per share of common stock:
Weighted average number of shares (in thousands)

4,666,018

2,442,865

4,666,018

84

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Report of Independent Auditors

Report of Independent Auditors
The Board of Directors
Mitsubishi Motors Corporation
We have audited the accompanying consolidated balance sheets of Mitsubishi Motors Corporation (the “Company”)
and consolidated subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of operations,stockholders’ equity, and cash flows for the years then ended, all expressed in yen. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and consolidated subsidiaries at March 31, 2006 and 2005, and the consolidated
results of their operations and their cash flows for the years then ended in conformity with accounting principles
generally accepted in Japan.

Further Information(1) As described in Note 1, Going Concern, the Company recorded large net consolidated losses of ¥215,424
million and ¥474,785 million in fiscal years (“FY”) 2003 and 2004. In FY2005, the MMC group has
also recorded a net loss of ¥92,166 million ($784,596 thousand). As a result, significant doubt arises
as to the Company’s ability to continue as a going concern. Management’s plans and other measures torectify this situation are described in Note 1. The consolidated 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.
(2) As described in Note 3, Changes in Accounting Policies, the accounting standard for impairment of fixed
assets, which was effective this fiscal year, was adopted for the year ended March 31, 2006.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2006 are presented solely for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 5.

Tokyo, Japan
June 23, 2006

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 200685

Consolidated Subsidiaries and Affiliates(As of March 31, 2006)

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

Business Lines

MMC Share of
Voting Rights (%)*

Hokkaido Mitsubishi Motors Sales Co., Ltd.

1,750

Automobile sales

Sapporo Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0
100.0

Iwamizawa Mitsubishi Motors Sales Co., Ltd.

60

Automobile sales

100.0

Sorachi Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Asahikawa Mitsubishi Motors Sales Co., Ltd.

150

Automobile sales

100.0

Iwate Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Fukushima Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Gunma Chuo Mitsubishi Motors Sales Co., Ltd.

80

Automobile sales

100.0

Tochigi Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Minami Ibaraki Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Saitama Mitsubishi Motors Sales Co., Ltd.

500

Automobile sales

100.0

Saitama Chuo Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0Tokyo Mitsubishi Motors Sales Co., Ltd.

3,263

Automobile sales

100.0

Kanagawa Mitsubishi Motors Sales Co., Ltd.

1,025

Automobile sales

100.0

Kawasaki Mitsubishi Motors Sales Co., Ltd.

882

Automobile sales

100.0

Yamanashi Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Matsumoto Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Aichi Chuo Mitsubishi Motors Sales Co., Ltd.

50

Automobile sales

99.1

Gifu Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

82.5

Ishikawa Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

1,083

Automobile sales

100.0

Nishi Tottori Mitsubishi Motors Sales Co., Ltd.

40

Automobile sales

100.0 (15.4)

Okayama Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

65.0

Hiroshima Chuo Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

97.8

Shimane Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0
100.0

Kinki Mitsubishi Motors Sales Co., Ltd.

Shin Yamaguchi Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

Iyo Mitsubishi Motors Sales Co., Ltd.

204

Automobile sales

99.9

Uwajima Mitsubishi Motors Sales Co., Ltd.

30

Automobile sales

100.0 (46.7)

Matsuyama Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Miyazaki Chuo Mitsubishi Motors Sales Co., Ltd.

40

Automobile sales

100.0

Nagasaki Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

100.0

Kagoshima Chuo Mitsubishi Motors Sales Co., Ltd.

100

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

96.8 (36.2)

99.4

Higashi Kanto Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

56.0 (10.0)

Shinetsu Mitsubishi Motors Parts Sales Co., Ltd.**100

Automobile parts sales

50.0 (15.0)

Hokuriku Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

65.8 (21.5)

Chugoku Mitsubishi Motors Parts Sales Co., Ltd.

100

Automobile parts sales

73.1 (29.6)

Shikoku Mitsubishi Motors Parts Sales Co., Ltd.**100

Automobile parts sales

50.0 (8.0)

Pajero Manufacturing Co., Ltd.

610

Automobile and parts manufacture, sales

100.0

Ryoji Yohin Sales Co., Ltd.

20

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

86

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

Consolidated Subsidiaries and Affiliates

MAJOR CONSOLIDATED SUBSIDIARIES OUTSIDE JAPANCompany

Incorporated in

Capitalization(In millions)

Business Lines

MMC Share of
Voting Rights (%)*

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 Motor Sales Sweden AB (MMSS)

SwedenEUR

5.5

Automobile importing, sales

100.0 (100.0)

MMC Automoviles Espana S.A.

Spain

EUR

1.2

Automobile importing, sales

75.0 (75.0)

Mitsubishi Motors France S.A.S.

FranceEUR

60.7

Automobile importing, sales

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

Mitsubishi Motors Belgium nv

Belgium

EUR

3.0

Automobile importing, sales

100.0 (100.0)

MME Vertriebsgesellshaft Schweiz AG

Switzerland

EUR

0.1

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

1,239.9

Automobile importing, assembly, sales

100.0

MMC Holding New Zealand Ltd.

New Zealand

NZD

48.0

Holding company

100.0

Automobile importing, sales

100.0
100.0 (15.0)

Mitsubishi Motors New Zealand Ltd. (MMNZ)New Zealand

NZD

38.2

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

THB

7,000.0

Automobile importing, assembly, sales

100.0 (100.0)
99.8

MMTH Engine Co., Ltd.

Thailand

THB

20.0

Manufacturing of automobile engines

100.0 (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
84.7 (79.4)
100.0

Note: MMC has 27 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.***480

Automobile sales

16.9

Muroran Mitsubishi Motors Sales Co., Ltd.

100

Automobile sales

29.0 (29.0)

Company

MMC Share of
Voting Rights (%)*

Tokachi Mitsubishi Motors Sales Co., Ltd.

60

Automobile sales

35.0

Morioka Mitsubishi Motors Sales Co., Ltd.

48

Automobile sales

21.5

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

Mitsubishi Automobile Credit-Lease Corporation

960

Auto sales financing, leasing, rentals

43.3

MAJOR EQUITY METHOD AFFILIATES OUTSIDE JAPANCompany

Incorporated in

Capitalization(In millions)

MMC Share of
Voting Rights (%)*

Business Lines

MDC Power GmbHGermany

EUR

0.5

Manufacture of automobile engines

Mitsubishi Motors do Portugal S.A.

Portugal

EUR

16.5

Importing, sales of automobiles

P.T. Mitsubishi Krama Yudha Motors & Manufacturing Indonesia

IDR

11.5

Manufacture, sales of automobile parts

32.3

Vina Star Motors Corporation

USD

16.0

Manufacture and marketing of automobiles and parts

25.0

Vietnam

50.0
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

Share of Voting Rights
in MMC (%)*

Business Lines

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

Figures in parentheses represent indirect shares.

** Although MMC’s equity holding is less than 50%, this affiliate is listed as a subsidiary because MMC exercises effective control over the company.
*** Although MMC’s equity holding is less than 20%, this company is listed as an affiliate because MMC exercises effective control over the company.

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

87

Investor Information

Investor Information(As of March 31, 2006)

Company NameMITSUBISHI MOTORS CORPORATIONHead Office

2-16-4, Konan, Minato-ku, Tokyo 108-8410, Japan(Scheduled to relocate to 5-33-8, Shiba, Minato-ku, Tokyo in January 2007)
Telephone: +81-3-6719-2111 Fax: +81-3-6719-0014

Established

April 22, 1970

Capital¥657,336,963,926

Number of Employees

34,911 (Consolidated)

Stock Listings

Tokyo Stock Exchange and Osaka Securities Exchange

Securities Code7211

Share Trading Unit

1,000

12,109 (Non-consolidated)

Number of Shares Outstanding 5,491,895,137
Number of Shareholders

427,415Type

Number ofissued shares

Number ofstockholders

COMMON SHARES

5,491,452,544

427,395

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

5,491,895,137

427,415

Total
Major Shareholders

Number of shares held
(thousands)% of total

839,94215.3

Mitsubishi Corporation

774,768

14.11

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

268,763

4.89

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

44,6390.81

Name

Mitsubishi Heavy Industries, Ltd.

Japan Trustee Services Bank, Ltd. (Trust account)

42,041

0.76

Mitsubishi UFJ Trust and Banking Corporation (Trust account)

33,7550.61

Mitsubishi UFJ Trust and Banking Corporation

32,106

0.58

Citibank Hong Kong BBG Client Hong Kong

26,6520.49

Nomura Securities Co., Ltd.

20,4640.37

Daiwa Securities Co., Ltd.

18,8980.34

2,102,028

38.26

Total
Transfer Agent and Register88

Mitsubishi UFJ Trust and Banking Corporation
1-4-5, Marunouchi, Chiyoda-ku, Tokyo, Japan(Contact)
Mitsubishi UFJ Trust and Banking Corporation Transfer Agent
1-7-7, Nishi-Ikebukuro, Toshima-ku, Tokyo, Japan
Toll-free telephone 0120-707-696

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

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)

ThailandPhilippines

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

Triton, Strada, Lancer, Spacewagon (Grandis)

MMTH Engine Co., Ltd. (MEC)

Engines

Mitsubishi Motors Philippines Corporation (MMPC)

Adventure, Delica, Pajero (Montero)

Asian Transmission Corporation (ATC)Transmissions

China Motor Corporation (CMC)

Galant, Lancer, Savrin (Chariot Grandis), Zinger, GrunderIndonesia

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

Engines, parts

Vietnam Vina Star Motors Corporation (VSM)

Pajero (Montero), Lancer, Joly, Grandis

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

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

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

Lancer, Spacewagon (Chariot Grandis), Delica, Freeca,
Veryca Shenyang Aerospace Mitsubishi Motors

EnginesEngine Manufacturing, Co., Ltd. (SAME)

Australia

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

Engines, transmissions

 Mitsubishi Motors Australia, Ltd. (MMAL)

380

MITSUBISHI MOTORS CORPORATIONANNUAL REPORT 2006

89
5

MITSUBISHI MOTORS CORPORATION
2-16-4, Konan, Minato-ku, Tokyo 108-8410, Japan(Scheduled to relocate to 5-33-8, Shiba, Minato-ku,
Tokyo in January 2007)
Public Relations Department
Tel: +81-3-6719-4206 (IR)+81-3-6719-4274 (Corporate PR)
Fax: +81-3-6719-0059
http://www.mitsubishi-motors.com
Printed in Japan