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23 December 2024

Honda And Nissan Move Toward Historic Merger

The merger aims to create the world’s third-largest carmaker as Japanese automakers strive for survival against fierce global competition.

Honda Motor Co. and Nissan Motor Co., two giants of the Japanese automotive industry, have officially entered merger talks aimed at creating the world’s third-largest car manufacturer by sales. On Monday, the companies announced they had signed a memorandum of understand, marking the beginning of what could be the most significant restructuring of the auto industry since the creation of Stellantis.

The news is expected to shake up the market considerably as Japan's automotive sector strives to remain competitive against local and international rivals, particularly amid the rising dominance of electric vehicle (EV) manufacturers from China, such as BYD and Geely. Honda's president, Toshihiro Mibe, noted the necessity for the merger, stating, "We have to build up capabilities to fight with [Chinese manufacturers] by 2030, otherwise, we’ll be beaten."

The merger plans come at a time when both Honda and Nissan face strong headwinds, including sluggish sales and shifts toward electrification. Under their new arrangement, they intend to form a joint holding company by August 2026, with Honda initially leading the management of this new entity.

Mitsubishi Motors Corp., partially owned by Nissan, is also expected to participate, which combined with Honda and Nissan's strengths, could create operational efficiencies and market scale to compete with more dominant rivals like Toyota and Volkswagen.

Industry analyst Sam Fiorani from AutoForecast Solutions remarked, "Combining their strengths could allow Honda to gain vehicle segments it currently lacks and bolster Nissan's EV framework." The operational synergies predicted from this merger could drive profitability beyond ¥3 trillion for the new conglomerate, with predictions of combined sales reaching ¥30 trillion (approximately $191 billion).

Though the companies hope to finalize the merger agreement by June, Mibe candidly acknowledged, "Frankly speaking, the possibility of this not being implemented is not zero." Such caution resonates as Nissan and Honda enter negotiations against the backdrop of industry wide consolidation trends.

Nissan has struggled after the fallout from the Carlos Ghosn scandal and is seeking new pathways to recovery following significant job cuts and production capacity reductions. The company recently announced it would slash 9,000 jobs globally, reducing its production by 20%. Nissan's CEO, Makoto Uchida, represented both optimism and realism, stating their partnership with Honda is not solely about addressing the current crisis but about positioning themselves for future growth.

Ghosn himself criticized the merger plans, describing them as 'a desperate move' and casting doubt on the operational viability of joining forces with Honda. He mentioned the lack of complementarity between the two companies, which have historically operated as competitors rather than complementary allies. “For me it does not make sense,” Ghosn stated at an online press conference.

Despite Ghosn's reservations, industry experts largely agree on the necessity for Japanese automakers to consolidate to face mounting pressures from global competitors and rapidly changing market dynamics. The Japanese government has also expressed concerns over China's growing dominance, urging local car manufacturers to seek consolidation to maintain competitiveness.

Particularly notable is the impact of EVs, where Japanese manufacturers have lagged behind. The last few years have seen a significant pivot toward electric vehicles, and the potential merger is aimed at enhancing developmental capabilities for EVs as consumer demand shifts toward sustainability.

Should the merger be completed, Honda and Nissan would have to navigate the legal and operational landscapes carefully, especially as previous attempts for large-scale mergers have faced hurdles related to cultural differences and operational integration.

Currently, Toyota stands unchallenged as the largest automaker, with approximately 11.5 million vehicles sold. Both Honda's 4 million and Nissan's 3.4 million pale compared to Toyota's efficiency but together with Mitsubishi's output would push their combined production closer to 8 million vehicles.

Market reactions have shown optimism, with both companies’ share prices reacting positively since the merger discussions were made public. By Monday, Nissan shares gained 1.6% after rallying over 20% when the merger talks were first implied. Likewise, Honda exhibited stock increases of 3.8%.

Looking forward, the success of this merger will depend not only on realizing operational and financial efficiencies but also on translating these benefits through consumer offerings and adaptability to rapidly changing automotive trends.

Among notable industry responses, governmental officials have indicated the merger reflects current needs for competitiveness, with Cabinet Secretary Yoshimasa Hayashi stating, "We expect measures needed to survive international competition will be taken."

With all eyes now on Honda and Nissan, the mutual aim is clear: to create a formidable presence as the industry reorients itself toward electrification and sustainable mobility.

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