12/23/2024
What a merger between Nissan and Honda means for the automakers, the industry and Detroit
Luke RamsethGrant Schwab
The Detroit News
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Japanese rivals Honda Motor Co. and Nissan Motor Corp. confirmed Monday they are moving forward with merger talks to forge the world's third-largest car company by sales, aiming to find efficiencies amid the industry's cutthroat transition toward electric vehicles and create a formidable competitor for Detroit’s automakers.
Struggling Nissan has most to gain from a tie-up with larger and more financially stable Honda, analysts said — especially as its partnership with France's Renault SA has scaled back recently. But Honda also can reap some benefits, including cost savings and access to Nissan's expertise in fully electric vehicles and body-on-frame SUVs and pickups.
"For Honda, they increase their buying power," said Sam Fiorani, vice president of AutoForecast Solutions. "They get more volume out of their purchases, and they can share engineering costs across their engines and platforms as well."
Nissan Chief Executive Makoto Uchida, left, Honda Chief Executive Toshihiro Mibe, center, and Takao Kato, CEO of Mitsubishi Motors, right, pose for photographers during a joint news conference in Tokyo, Japan, Monday, Dec. 23, 2024.
The two Japanese companies said they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors Corp. also had agreed to join the talks on integrating their businesses. Honda will initially lead the new management, retaining the principles and brands of each company.
Nissan sells more than 3 million cars per year, with Honda almost 4 million, and Mitsubishi just over 1 million. In the United States, Honda sold more than 1.3 million cars last year, Nissan nearly 900,000 and Mitsubishi shy of 90,000. Add up those sales and the potential new alliance would trail only Toyota Motor Corp. and Volkswagen AG in global sales — and leapfrog Detroit's Ford Motor Co., General Motors Co. and Stellantis NV.
There are “points that need to be studied and discussed,” said Honda's president, Toshihiro Mibe, Monday. “Frankly speaking, the possibility of this not being implemented is not zero.”
The deal, if it is finalized, could have implications for Detroit's automakers, said Sam Abuelsamid, an auto industry analyst: "If you've got a stronger Honda, that's a challenge.
"If Honda suddenly has access to full-size, body-on-frame SUVs, GM's got to be thinking that's potentially a stronger competitor against the Tahoe, Yukon, Suburban, Escalade," he added. "And similarly for Ford, the Expedition, Navigator. And, of course, the midsize truck segment."
Nissan Chief Executive Makoto Uchida, left, and Honda Chief Executive Toshihiro Mibe, center, and Takao Kato CEO of Mitsubishi Motors, right, arrive to attend a joint news conference announcing the merger of Nissan and Honda Monday, Dec. 23, 2024, in Tokyo. Mitsubishi has agreed to discuss joining the merged company.
Fiorani said he doesn't see too much risk for Ford, GM and Stellantis — they are already grappling with Honda as a robust North American competitor. But if Nissan sales gained steam again in the North American market under the new-look company, it could create headaches for domestic automakers — and Nissan is in a good position to capitalize, Fiorani said, with large U.S. and Mexican plants that have space and could scale up production quickly.
Honda and Nissan together employ about 325,000 people. Both companies have significant manufacturing and research footprints in the United States, including Honda in Ohio and Indiana and across several southern states, and Nissan in Tennessee and Mississippi.
Abuelsamid said there would be several areas of overlap where the combined companies save money. They could merge their powertrain teams, for example, and leverage some of the expertise Honda has gained in hybrid vehicles in recent years across the vehicle lineup.
Locating such areas of cost savings has become even more critical as homegrown Chinese EV manufacturers have gobbled up market share previously held by Japanese automakers such as Nissan and others in China while increasingly pushing into markets around the world.
"Everybody needs to look at their costs and cut out everything extraneous because the Chinese manufacturers are coming in at a lower price with high-quality vehicles and really good designs," Fiorani said.
Nissan, Honda and Mitsubishi had already announced in August that they will share components for electric vehicles like batteries and jointly research software for autonomous driving to adapt better to dramatic changes in the auto industry centered around electrification. A preliminary agreement between Honda, Japan's second-largest automaker, and Nissan, third-largest, was announced in March.
A full merger could result in a behemoth worth about $55 billion based on the market capitalization of all three automakers.
"Creating synergies from combining, although extremely difficult, could be a way for the combined entity to save on costs and build up some capital to do battle with the leaders and some up-and-comers over the next several years," Tu Le, managing director of Sino Auto Insights, wrote in a recent newsletter. "It’s going to be costly to basically learn new skills that will allow you to compete for your place in the future of transportation. No one’s place is secure as I see it right now, well, except for BYD and Tesla’s anyway."
But Le added that one challenge to an eventual merger will be Nissan unwinding itself from its arrangement with Renault "without any strings." The two sides have had a decades-long alliance, though it was restructured to give Renault a much smaller stake as of last year.
Renault noted in a Monday statement that the Honda-Nissan talks are "still at an early stage," and that all options were on the table as it considers what's "in the best interest of" Renault.
Nissan said last month that it was slashing 9,000 jobs, or about 6% of its global workforce, and reducing global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).
Earlier this month, it reshuffled its management and its chief executive, Makoto Uchida, took a 50% pay cut to take responsibility for the financial woes, saying Nissan needed to become more efficient and respond better to market tastes, rising costs and other global changes.
Fitch Ratings recently downgraded Nissan's credit outlook to “negative,” citing worsening profitability, partly due to price cuts in the North American market. But it noted that it has a strong financial structure and solid cash reserves that amounted to 1.44 trillion yen ($9.4 billion).
Nissan's share price has fallen to the point where it is considered something of a bargain. A report in the Japanese financial magazine Diamond said talks with Honda gained urgency after the Taiwanese maker of iPhones — Hon Hai Precision Industry Co., better known as Foxconn — began exploring a possible acquisition of Nissan as part of its push into the EV sector.
The company has struggled for years following a scandal that began with the arrest of its former chairman, Carlos Ghosn, in late 2018 on charges of fraud and misuse of Nissan assets, allegations that he denies. He eventually was released on bail and fled to Lebanon. Honda reported its profits slipped nearly 20% in the first half of the April-March fiscal year from a year earlier, as sales suffered in China.
Honda's Mibe told reporters in Tokyo that the deal wasn't about a rescue of Nissan, despite its recent struggles, but about sharing costs and finding savings for developing electric and autonomous cars.
Ghosn, meanwhile, is already on the record saying he thinks such a tie-up is a bad idea and won't succeed because there is too much duplication between the two companies. He told reporters Monday that it was a political move because the Japanese government wants Nissan's rescuer to be Japanese, according to the Wall Street Journal.
Michael Dunne, founder and CEO of Dunne Insights LLC and a former GM executive, wrote on social media that a "key driver" of the deal was Japanese "national security," as the country seeks to protect its industrial base.
All the global automakers are facing potential shocks if President-elect Donald Trump follows through on threats to raise or impose tariffs on imports of foreign products, even from allies like Japan and neighboring countries like Canada and Mexico. Nissan is among the major car companies that have adjusted their supply chains to include vehicles assembled in Mexico.
Meanwhile, analysts say there is an “affordability shift” taking place across the industry, led by people who feel they cannot afford to pay nearly $50,000 for a new vehicle. In America, a vital market for companies like Nissan, Honda and Toyota, that's forcing automakers to consider lower pricing, which will eat further into industry profits.
If the merger is finalized, Abuelsamid said, he could see some changes in what brands are available to U.S. buyers. He said he'd be "shocked" if the Infiniti brand — Nissan's luxury segment — still exists here, for example. And maybe even Nissan itself could go away as a nameplate in the United States, considering that its products often compete directly with Honda's lineup here.
"Across the various brands, he said, they'll probably look at different regions and see which brands have strength in which countries, and keep those brands around, but maybe consolidate (some)."
The tie-up would create the world’s third-largest automaker by sales as the industry undergoes big changes in its transition away from fossil fuels.
