Japanese carmakers Honda and Nissan have announced plans to work on a merger that would make them the world's third largest carmaker by sales, as the industry faces radical changes in its transition to de-fossilisation.
The two companies said they signed a cooperation agreement on Monday and Nissan alliance member Mitsubishi Motors Corp. has also agreed to join negotiations to merge their businesses.
Automakers in Japan are lagging behind their biggest rivals in electric vehicles and are trying to cut costs and make up for lost time as newcomers like China's market leader BYD and EV Tesla gobble up market share.
The president of Honda, Toshihiro Mibe, said that Honda and Nissan will try to combine their operations under a partner company. Honda will lead the new management, keeping the goals and products of each company. They aim to have a formal merger agreement by June and complete the deal and list the participating company on the Tokyo Stock Exchange by August 2026, he said.
No dollar amount has been given and formal negotiations are still underway, Mibe said.
There are “points that need to be studied and discussed,” he said. “To be honest, the probability of this not happening is not zero.”
The merger could result in a behemoth worth more than $50 billion based on the market capitalization of all three automakers. Together, Honda, Nissan and Mitsubishi will gain scale to compete with Toyota Motor Corp. and Volkswagen AG of Germany. Toyota has a technical relationship with Mazda Motor Corp. of Japan and Subaru Corp.
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News of a possible merger emerged earlier this month, with unconfirmed reports claiming that Taiwanese company Foxconn is looking to merge with Nissan by buying shares in the Japanese company's other subsidiary, France's Renault SA.
Nissan CEO Makoto Uchida said that Foxconn did not go directly to his company. He also agreed that Nissan's situation is “difficult”.
Even after the merger, Toyota, which produced 11.5 million vehicles by 2023, will remain Japan's leading automaker. If they join, the three small companies will make about 8 million cars. In 2023, Honda produced 4 million and Nissan produced 3.4 million. Mitsubishi Motors made just over one million.
“We have seen that in order for both sides to be leaders in this transition, it is important to make bold changes rather than cooperation in certain areas,” said Mibe.
Nissan, Honda and Mitsubishi have previously agreed to share electric vehicle components such as batteries and joint research software for autonomous driving to better adapt to electrification.
Nissan 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 he denies. He was eventually released on bail and fled to Lebanon.
Speaking Monday to reporters in Tokyo via video link, Ghosn derided the planned merger as a “difficult move.”
At Nissan, Honda can get large truck-based SUVs in a frame like the Armada and Infiniti QX80 that Honda doesn't have, with great 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 produce its EVs and next-generation hybrids, he said.
But the company said in November that it was cutting 9,000 jobs, or about 6% of its global workforce, and reducing its global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($ 61).
It recently changed its management and Uchida, the chief executive, took a 50% pay cut while admitting responsibility for the financial problems, saying Nissan needed to be more efficient and respond better to popular markets, rising costs and other global changes.
“We expect that if this merger is successful, we will be able to bring greater value to more customers,” Uchida said.
Fitch Ratings recently downgraded Nissan's credit outlook to “negative,” citing rising profitability, in part due to price cuts in the North American market. But it noted that it has a strong financial structure and strong reserves of up to 1.44 trillion yen ($9.4 billion).
The price of Nissan shares had also fallen to the point where it was considered a sell-off. On Monday, its shares traded in Tokyo gained 1.6%. They jumped more than 20% after news of a possible merger emerged last week.
Honda shares rose 3.8%. Honda's net profit fell nearly 20 percent in the first half of the April-March fiscal year from a year earlier, as its sales suffered in China.
Consolidation reflects an industry-wide trend toward consolidation.
At a general press conference on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of automakers' plans, but said Japanese companies need to remain competitive in a rapidly changing market.
“As the business environment surrounding the automotive industry changes dramatically, with competition in storage batteries and software becoming increasingly important, we expect that the necessary steps to survive international competition will be taken,” said Hayashi.
© 2024 The Canadian Press
