updated 4/23/2004 7:28:07 AM ET 2004-04-23T11:28:07

Burdened with a multibillion-dollar debt, plunging car sales and a spate of recalls, Mitsubishi Motors Corp., suffered a major blow Friday when partner DaimlerChrysler AG ruled out pumping more cash into the Japanese automaker.

Shares in Mitsubishi Motors plunged in Tokyo, finishing down 25 percent, the day's allowed limit, to $2.20 after DaimlerChrysler said it had "decided not to participate in a capital increase" planned by the Japanese automaker.

The news killed off speculation that the German-U.S. automaker would unveil a revival plan that would include hundreds of billions of dollars of additional cash.

"This is a disaster for Mitsubishi Motors," said Koji Endo, auto analyst at Credit Suisse First Boston in Tokyo. He said the automaker probably was scrambling to find another partner.

"The company is about to vanish if things continue this way," he said.

But the news sent DaimlerChrysler's stock price up 7.3 percent in morning trading on the Frankfurt stock exchange to $46.10, reflecting market sentiments that the move was sensible for DaimlerChrysler.

DaimlerChrysler spokesman Thomas Froehlich said from the company's Stuttgart headquarters that a decision had not yet been made on what it will do with its 37 percent stake in Mitsubishi Motors.

Standard & Poor's Ratings Services downgraded its long-term corporate credit rating on the automaker to "CCC-" from "B-" citing heightened debt risks. Mitsubishi Motors is shouldering $10.4 billion in debts.

The Mitsubishi group of companies — major shareholders that make up a powerful conglomerate with roots in the 1800s — was stunned. A joint statement said the companies were looking into DaimlerChrysler's announcement, which came as a surprise in the midst of talks between the companies to hammer out a revival plan together.

The companies will continue to do their "utmost" to turn around Mitsubishi Motors, the statement said, but they stopped short of promising more cash. Mitsubishi Heavy Industries owns 15 percent of the automaker, trading company Mitsubishi Corp. a 5 percent stake, and Bank of Tokyo-Mitsubishi 3 percent. DaimlerChrysler owns 37 percent of the automaker.

The Japanese government also expressed concern, indicating that a domestic bailout may be in the works.

"It's a crucial matter that could affect the fate of the company," said Transport Minister Nobuteru Ishihara.

DaimlerChrysler's decision is just the latest blow for the Tokyo-based automaker.

Sales in Japan have never recovered after Mitsubishi Motors acknowledged four years ago that it had systematically hidden auto defects for decades. The company recalled millions of vehicles. The automaker had already suffered losses as it struggled to compete with Japanese rivals Toyota Motor Corp. and Honda Motor Co.

Mitsubishi Motors embarked on a revival plan and returned to profitability in fiscal 2002, but the following year suffered massive losses from buyers in North America with bad credit.

The recalls have continued despite DaimlerChrysler's efforts to upgrade quality.

Mitsubishi Motors is forecasting a $658-million loss for the fiscal year that ended March 31, a reversal from $338 million in profit the previous year.

Mitsubishi Motors spun off its truck division last year, but that hasn't helped the brand's image.

Mitsubishi Fuso Truck & Bus Corp. is being investigated in the death of a pedestrian who was crushed by a wheel that flew off one of its trucks in 2002. After years of denial, the company recently acknowledged a design defect that affected more than 240,000 vehicles.

Analysts say the truck business will likely survive as part of DaimlerChrysler because of its strength in the growing Asian market.

But the same optimism doesn't hold for the car business.

"The situation can be called a crisis for Mitsubishi Motors," said Nobuaki Yanachi, auto analyst at UFJ Tsubasa Securities Co. in Tokyo. "Even with the extra money, a turnaround would have taken a long time."

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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