Honda-Nissan Merger Could Create World’s Third-Largest Automaker

Japanese automakers Honda and Nissan are in talks to merge their operations, a move aimed at reducing costs and enhancing competitiveness in a rapidly evolving global auto industry. Discussions began following earlier collaborations on electric vehicle (EV) development and could include Mitsubishi Motors, a smaller partner of Nissan. If finalized, the merger would create the world’s third-largest automaker by production, trailing only Toyota and Volkswagen.

Honda and Nissan are grappling with declining sales, particularly in China, the largest automobile market globally. Both companies have limited offerings in the EV and plug-in hybrid segments, which now dominate over half of car sales in China. Domestic competitors like BYD, SAIC, and international player Tesla have outpaced the Japanese manufacturers in this shift.

Honda recently revised its fiscal year profit projections, cutting global vehicle sales estimates to 3.8 million units from 3.9 million due to poor performance in China.

Nissan faces even greater challenges, including management instability, diminished U.S. market share, and a 90 per cent drop in operating profit between April and September 2024. The company has announced plans to reduce its workforce by 9,000 and cut production by 20 per cent.

While a merger could help Honda and Nissan accelerate EV development and reduce costs through shared resources, the integration of two global manufacturing giants presents significant challenges. Combining operations would likely involve plant closures, workforce reductions, and the consolidation of engineering teams, which could spark internal resistance and political pushback.

Analysts note that while Nissan’s expertise in full-size pickup trucks could complement Honda’s lineup, the cultural and operational differences between the two companies could hinder cooperation. Previous mergers in the automotive industry, such as DaimlerChrysler and the Renault-Nissan alliance, have struggled due to clashing management styles and diverging priorities.

Lessons from Past Automotive Mergers

The auto industry has a history of high-profile mergers with mixed outcomes. For example:

• DaimlerChrysler (1998-2007): Cultural and operational mismatches led to the eventual split of the German luxury automaker and American mass-market brand.
• Renault-Nissan Alliance: While initially successful, the partnership faltered amid leadership disputes and allegations of financial misconduct against Carlos Ghosn, the alliance's architect.
• Hyundai-Kia: This alliance, formed in 1998, has been a rare success, leveraging shared engineering and manufacturing resources while maintaining independent sales operations.

The potential Honda-Nissan merger would follow recent trends in the automotive industry as manufacturers grapple with the transition to EVs, rising production costs, and shifting market demands. However, experts remain cauatious about its success, citing the complexity of integrating two established brands with distinct organizational structures and market strategies.