Honda Motor Co. and Nissan Motor Co. have recently embarked on merger discussions aimed at establishing the world's third-largest auto manufacturing group, strategically crafted to stand against fierce global competition, especially from Chinese automakers like BYD.
On December 25, 2023, Honda and Nissan signed a memorandum of understandings to initiate talks focused on forming a new holding company by approximately August 2026. Both companies are responding to the pressures of the rapidly transforming auto industry, which emphasizes electrification and software integration.
Yoshimasa Hayashi, Japan's top government spokesperson, expressed optimism for the merger, stating, "We hope Japanese companies will take steps to respond to these changes and take measures to survive and win amid international competition." This sentiment is echoed widely across the Japanese automotive sector, as challenges intensify from domestic competitors.
The merger is set against the backdrop of recent struggles at both Honda and Nissan. Currently, Nissan is faced with plummeting profits, reporting over 90% decline recently, largely driven by poor sales figures from the U.S. and China. This downturn forced the company to announce job reductions of around 9,000 employees and decrease its global production capacity by 20%. Not to be outdone, Honda is also feeling its share of woes, noting significant sales drops, particularly within the Chinese market, where its allotted production dipped by 38% year-on-year. Honda’s sales fell to 324,504 units, representing a 6.7% decline.
Notably, in November, Nissan's sales dipped by 1.3%, with a marked drop of 14.3% in their production outputs. These stark figures highlight just how dire the situation is for both firms separately if they wish to combat the might of companies like BYD, which sold 3.76 million vehicles within the same timeframe. The alliance is seen as imperative for these Japanese automakers, as the threat from BYD and other Chinese manufacturers continues to escalate.
While analysts remain skeptical about how effective the merger will be, former Nissan chairman Carlos Ghosn cautioned against the merger's potential, citing limited synergy opportunities between the two firms. Ghosn remarked, "There was 'no complementarity' between the two makers, noting Nissan asked Honda for help out of 'panic mode.'" Ghosn’s observation raises significant concerns as both companies maintain similar production lineups and operational tactics, thereby complicate their integration.
Industry experts laid out the reality of the situation, advising both Honda and Nissan have developed their businesses adhering to distinct strategies. This could hinder their ability to realize substantial efficiencies quickly enough through this new collaboration, particularly when aiming to improve their competitiveness across the sectors of battery making, software platforms, and autonomous vehicle technologies.
Despite these warnings, optimism remains vibrant within the companies. Honda’s President and CEO, Toshihiro Mibe, supported this perspective, stating, "We have reconfirmed...a merger would create synergies across many dimensions." By establishing this new entity, both automakers believe they can evolve to become prominent players within the electric vehicle terrain, aiming for sales revenues to exceed ¥30 trillion (around $190 billion).
Though merging under one umbrella will allow Honda and Nissan to counter the rapid growth and development observed within Chinese automakers, both are cognizant of the need to advance their businesses independently until the merger is finalized. Mitsubishi Motors, Nissan's partner, is also weighing participation, expected to make its decision by January 2025.
The future of this merger, amid vast uncertainties, brings forth interesting dynamics for Japanese automakers. Will they pull together to create effective competition against burgeoning Chinese brands? Or will they redefine the dynamics on the global stage? What remains clear is the overwhelming desire from various stakeholders for Japanese automakers to unite under this new arrangement.
The competitors are aware of the stakes, facing intensifying rivalry not only against BYD but also against industry giants like Toyota Motor Corporation. On various fronts, competition has intensified against Toyota, as its sales—including those from subsidiaries—declined slightly, down 0.2% compared to November 2023. Like Honda and Nissan, Toyota struggles against the tidal wave of electric innovation led by Chinese firms.
The merger, if successful, could symbolize more than just corporate synergy—it may serve as the revitalizing impetus for declining sectors of the Japanese automotive list, beckoning for constructive competition against not only domestic firms but global players.
Investors remain vigilant, aware of the transformative effects this merger could evoke across the automotive industry. The subsequent months leading up to the conclusion of negotiations will undoubtedly be pivotal for both Honda and Nissan as they seek stability, growth, and renewed relevance within the fast-evolving automotive market.
