New York (CNN) — Honda and Nissan have officially agreed to engage in discussions over the next six months regarding a potential merger, a move that could establish the third-largest automaker globally and enhance their capabilities to contend with the increasing competition from Chinese manufacturers.
Additionally, Mitsubishi, a smaller Japanese automaker already allied with Nissan, will also take part in these discussions. If the merger materializes, the resulting entity would rank just behind Toyota (TM) and Volkswagen in terms of global sales.
Mergers within the automotive sector are not a recent phenomenon. They have been occurring since the early 20th century, notably with the formation of General Motors (GM) through various brand acquisitions. However, such partnerships often face challenges in achieving successful integration.
For instance, the German automaker Daimler-Benz’s acquisition of Chrysler Corp. in 1998 ultimately led to the disbanding of the combined entity a decade later. The newly independent Chrysler subsequently filed for bankruptcy and required federal assistance within two years.
Chrysler’s most recent merger with Europe’s PSA Group in 2001 to create Stellantis has encountered its own difficulties over the past year, marked by declining sales and profits. Furthermore, Nissan’s alliance with Renault, while not a formal merger, ultimately unraveled following the arrest of Nissan’s CEO Carlos Ghosn in Japan on charges of significant financial misconduct, after which he fled the country before facing trial.
Given the industry’s pressing need to transition from gasoline-powered vehicles to electric alternatives, coupled with the intensifying competition from Chinese automakers who have advanced further in this transition than many Western firms, Honda and Nissan recognize the necessity of pooling their resources to maintain competitiveness.
Nissan CEO Makoto Uchida stated
“Today signifies a crucial turning point,” while announcing the commencement of negotiations. “By collaborating, we can develop a distinctive approach for customers to experience vehicles that neither organization could realize independently.”
Following the breakdown of its alliance with Renault, Nissan has encountered significant challenges, grappling with severe financial difficulties that necessitate the search for a more substantial merger partner.
In the six-month period ending in September, profits plummeted by 94% compared to the same timeframe in 2023, as the company incurred losses in its automotive operations and reported only a modest profit from its financing sector. Consequently, Nissan declared a 20% reduction in manufacturing output, resulting in the layoff of 9,000 employees. Additionally, it revised its full-year operating profit forecast downward by 70%.
Some analysts have suggested that Nissan could be at risk of bankruptcy as early as 2026, when a significant amount of debt is due.
The potential collaboration between Honda and Nissan may pave the way for further mergers within the automotive industry, according to Adam Jonas, an auto analyst at Morgan Stanley, who commented on the discussions last week.
He noted, “Established automotive companies that fail to secure new partnerships may find themselves as smaller entities facing increased capital expenditures and elevated research and development costs for each vehicle sold.”
“Furthermore, in what could be a broader era of consolidation, those who opt not to engage will effectively diminish in size. We are entering a new chapter in the automotive sector where strategies emphasizing scale and cost efficiency will prioritize collaboration and potential shifts in operational scope.”
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