Japanese car manufacturers Honda And Nissan have announced plans to work toward a merger that would create the world’s third-largest automaker by revenue as the industry undergoes dramatic changes as the industry moves away from fossil fuels.
The two companies said they signed a memorandum of understanding on Monday and the smaller alliance member Nissan Mitsubishi Motors Corp. had also agreed to take part in the discussions regarding the integration of their businesses.
Japanese automakers have lagged behind their major rivals in electric vehicles, trying to cut costs and make up for lost time while newcomers like China’s BYD and electric vehicle leader Tesla gobble up market share.
Honda President Toshihiro Mibe said Honda and Nissan would seek to combine their operations under a common holding company. Honda will lead the new management while maintaining the principles and brands of each company. They aim to reach a formal merger agreement and close the deal by June and list the holding company on the Tokyo Stock Exchange by August 2026, he said.
No dollar value was given and formal discussions had just begun, Mibe said.
There are “points that need to be examined and discussed,” he said. “To be honest, the chances of this not being implemented are non-zero.”
Based on the market capitalization of all three automakers, a merger could result in a behemoth worth more than $50 billion. Together, Honda, Nissan and Mitsubishi would grow in size to compete with Toyota Motor Corp. and the German Volkswagen AG to compete. Toyota has technology partnerships with Japan’s Mazda Motor Corp. and Subaru Corp.
News of a possible merger surfaced earlier this month. According to unconfirmed reports, Taiwanese iPhone maker Foxconn sought cooperation with Nissan by buying shares from the Japanese company’s other alliance partner, France’s Renault SA.
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Nissan CEO Makoto Uchida said Foxconn had not contacted his company directly. He also acknowledged that Nissan’s situation was “serious.”
Even after a merger, Toyota, which launched 11.5 million vehicles in 2023, would remain the leading Japanese automaker. If they joined, the three smaller companies would produce around 8 million vehicles. In 2023, Honda produced 4 million and Nissan 3.4 million. Mitsubishi Motors produced just over 1 million.
“We have come to the realization that bolder change than collaboration in specific areas is required for both parties to be leaders in this mobility transition,” Mibe said.
Nissan, Honda and Mitsubishi had previously agreed to share electric vehicle components such as batteries and jointly research autonomous driving software to better adapt to electrification.
Nissan has been struggling after a scandal that began with the arrest of its former chief executive Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.
Speaking via video link to reporters in Tokyo on Monday, Ghosn derided the planned merger as a “desperate move.”
From Nissan, Honda could get large truck-based, body-on-frame SUVs like the Armada and Infiniti QX80, which Honda doesn’t have, with large towing capacity 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 as well as gas-electric hybrid powertrains that could help Honda develop its own electric vehicles and the next generation of hybrids, he said.
But the company said in November it would cut 9,000 jobs, or about 6% of its global workforce, and reduce its global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).
The company recently reshuffled its management and Uchida, its chief executive, took a 50% pay cut but acknowledged responsibility for the financial problems and said Nissan needed to become more efficient and better responsive to market tastes, rising costs and other global changes .
“We expect that if this integration comes to fruition, we will be able to deliver even greater value to a broader customer base,” Uchida said.
Fitch Ratings recently downgraded Nissan’s credit outlook to negative, citing worsening profitability partly due to price cuts in the North American market. However, it noted that it has a strong financial structure and solid cash reserves, which amounted to 1.44 trillion yen ($9.4 billion).
Nissan’s stock price had also fallen so far that it was considered a bargain. Shares traded in Tokyo rose 1.6% on Monday. They rose more than 20% after news of the potential merger broke last week.
Honda shares rose 3.8%. Honda’s net profit fell nearly 20% year-on-year in the first half of its April-March fiscal year as sales fell in China.
The merger reflects an industry-wide trend toward consolidation.
At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on details of automakers’ plans but said Japanese companies must remain competitive in the rapidly changing market.
“As the business environment surrounding the automotive industry is changing dramatically and competitiveness in storage batteries and software is becoming increasingly important, we expect that the necessary measures will be taken to compete internationally,” said Hayashi.
&Copy 2024 The Canadian Press
