Japanese car giants Honda and Nissan announce merger plans

Honda and Nissan have announced plans to join forces, forming the world’s third-largest car maker by sales.

The two Japanese companies said they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors had also agreed to join the talks on integrating their businesses.

Nissan’s chief executive Makoto Uchida said: “We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a wider customer base.”

Car makers in Japan have lagged behind their big rivals in electric vehicles and are trying to cut costs and make up for lost time.

News of a possible merger surfaced earlier this month, with unconfirmed reports saying that the talks on closer collaboration partly were driven by aspirations of Taiwan iPhone maker Foxconn to tie up with Nissan, which has an alliance with Renault SA of France and Mitsubishi.

A merger could result in a behemoth worth more than 50 billion dollars (£39.77 billion) based on the market capitalisation of all three car makers.

Together, Honda and the Nissan alliance with Renault SA of France and smaller automaker Mitsubishi Motors would gain scale to compete with Toyota and Germany’s Volkswagen AG. Toyota has technology partnerships with Japan’s Mazda and Subaru.

Even after a merger Toyota, which rolled out 11.5 million vehicles in 2023, would remain the leading Japanese car maker.

If they join, the three smaller companies would make about eight million vehicles. In 2023, Honda made four million and Nissan produced 3.4 million. Mitsubishi Motors made just over one million.

Nissan, Honda and Mitsubishi announced in August that they would share components for electric vehicles like batteries and jointly research software for autonomous driving to adapt better to dramatic changes centred around electrification, following a preliminary agreement between Nissan and Honda set in March.

Honda, Japan’s second-largest car maker, is widely viewed as the only likely Japanese partner able to effect a rescue of Nissan, which has struggled following a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets, allegations that he denies. He eventually was released on bail and fled to Lebanon.

Speaking on Monday to reporters in Tokyo via a video link, Ghosn derided the planned merger as a “desperate move”.

From Nissan, Honda could get truck-based body-on-frame large SUVs such as the Armada and Infiniti QX80 that Honda does not have, with large towing capacities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.

Nissan also has years of experience building batteries and electric vehicles, and gas-electric hybrid powertrains that could help Honda in developing its own EVs and next generation of hybrids, he said.

But the company said in November that it was slashing 9,000 jobs, or about 6% of its global work force, and reducing its global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen (£47.2 million).

It recently reshuffled its management and Makoto Uchida, its chief executive, 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 (£7.3 billion).

Nissan’s share price also has fallen to the point where it is considered something of a bargain.
On Monday, its Tokyo-traded shares gained 1.6%. They jumped more than 20% after news of the possible merger broke last week.

Honda’s shares surged 3.8%. Honda’s net profit slipped nearly 20% in the first half of the April-March fiscal year from a year earlier, as sales suffered in China.

The merger reflects an industry-wide trend toward consolidation.