Honda Motor Co. and Nissan Motor Co. have made headline news with their announced plans to merge, resulting in what amounts to the formation of a joint holding company. Set to be finalized by June 2025 and listed on the Tokyo Stock Exchange by August 2026, this merger aims to create one of the world’s largest automotive entities. But the reasons behind this merger extend beyond mere size, as both companies grapple with the intense pressure from surging Chinese automakers.
The automakers officially announced their tentative agreement at the beginning of the week, with Honda expected to lead the new entity, nominating the majority of its directors. This structural approach means Nissan will function as one of Honda’s subsidiaries, maintaining its brand identity, which was saying something significant during the press conference where Honda CEO Toshihiro Mibe noted, “Both companies will continue as wholly owned subsidiaries of the joint holding company with their respective brands.”
The competitive pressures they face cannot be understated. The automotive market has seen the emergence of Chinese brands, which are rapidly advancing and now threatening foreign manufacturers’ shares, including those of Honda and Nissan, said industry analysts. According to Tatsuo Yoshida of Bloomberg Intelligence, the synergies from the merger could take time to develop but may provide much-needed financial relief, particularly for Nissan, whose prospects have substantially dimmed since the departure of former chairman Carlos Ghosn amid allegations of fraud.
Despite recent struggles, both Honda and Nissan remain hopeful about their combined efforts. During initial discussions, Mibe stated the necessity of enhancing competitiveness by 2030, highlighting the urgency for both companies to address falling sales, especially as they face competition from brands like BYD Co. and other local EV manufacturers in China.
Adding to the intrigue of this merger is the uncertain involvement of Mitsubishi Motors, which Nissan has significant stakes in, holding about 24.5%. A preliminary agreement to explore Mitsubishi’s inclusion was signed, with decisions expected by the end of January 2025.
Financially, the merger arrives following Honda's announcement of plans to repurchase up to ¥1.1 trillion ($7 billion) of its stock, significantly surpassing its previous repurchase goals. This buyback, as noted by Mibe, serves as both a stabilizing financial strategy for Honda and as reassurance for shareholders who have seen Honda shares drop substantially this year. After merging plans began surfacing, shares of Honda soared by 15%, reflecting renewed investor confidence.
On the flip side, Nissan's stock, after months of decline influenced by falling unit sales and reduced production, also saw gains, as analysts expressed optimism about the merger’s potential for revitalizing the brand’s competitiveness.
Despite this optimism, challenges loom large for both firms. The merger aims to streamline and optimize operations, yet pressing issues such as possible factory closures and job cuts remain unaddressed. Nissan CEO Makoto Uchida emphasized, “Partnering with Honda isn’t a sign we’re giving up on our plans to turn Nissan around,” asserting the company’s commitment to recovery through this partnership.
The Japanese government's stance on these developments seems cautiously optimistic. Yoji Muto, head of the Ministry of Economy, Trade and Industry, recently stated the government “should take a favorable view when companies cooperate to strengthen their competitiveness.” This sentiment reflects the broader acknowledgment of the challenges faced by Japanese automakers at the hands of global market dynamics. The expected consolidation between Honda and Nissan signals potentially transformative shifts within Japan’s automotive sector.
Meanwhile, Ghosn, speaking from Lebanon, has not been shy about critiquing Nissan's situation, claiming the company is “in panic mode” due to drastic declines since his exit. He stressed, “Nissan’s unit sales have fallen more than 40% since 2018 and the carmaker is barely breaking even,” emphasizing the dire need for restructuring.
This merger between Honda and Nissan, along with their collaboration with Mitsubishi, could mark a pivotal moment for the companies and the industry as they strive to recover and adapt to ever-changing market demands. The proposed changes are sure to captivate stakeholders as they work to navigate future challenges together, driving efficiency through combined resources and strategies.
With the finalization of agreements and details expected by 2025, the auto industry will be watching closely to see if this merger can deliver on its promise of synergy, financial stability, and regained competitiveness.
