Mitsubishi has warned of huge losses.

The carmaker said its total losses were 228bn yen ($2.16bn; �1.16bn), compared with 102.56bn yen a year earlier.

Last year Mitsubishi was involved in a defect cover-ups scandal that impacted strongly on its sales.

The firm also said it had accepted to compensate partner DaimlerChrysler over the cost of the scandal at its Mitsubishi Fuso truck subsidiary.

The deal

The amount of cash compensation has not been revealed, but unnamed sources said to be close to the deal - and quoted by both the Reuters and AFP news agencies - said it would be between 200m euros (�137m) and 250m euros.

In addition, Mitsubishi said it was to give DaimlerChrysler its remaining 20% stake in Fuso, raising the US-German firm's share to 85%.

This would bring the total value of the compensation to DaimlerChrysler up to around 500m euros.

Mitsubishi said a final agreement was expected to be reached by the end of March.

Cash halt

As part of the deal, Mitsubishi will maintain 100% control over Dutch factory NedCar, which makes small cars for both companies. The alliance between Mitsubishi and the German-US company strained last year when DaimlerChrysler's announced that it would not pump any more money in the troubled Japanese carmaker.

Mitsubishi warned last month that its net losses for the fiscal year ending March 31 will be 472bn yen, almost double than the 240bn originally forecast.

In the nine months to 31 December 2004, Mitsubishi sales shrank 11.7% to 1.6 trillion yen, from 1.8 trillion yen a year earlier.