Honda and Nissan took their first historic steps toward merging and creating a new force in the world’s automotive industry on Monday as aggressive competition from China forced legacy carmakers to rethink their business models.
The two Japanese auto manufacturers signed a basic agreement for merger talks, according to a joint media briefing in Tokyo. Honda also said it will buy back as much as ¥1.1 trillion yen (€6.7 billion) of its own shares.
A holding company will be created to house the new entity and should be listed by August 2026, they said, adding that Honda will be able to nominate a majority of directors of the holding company.
Mitsubishi Motors, which is 24.5 per cent owned by Nissan, also signed the memorandum of understanding and will be part of the group.
Such an alliance would give rise to the world’s third-largest carmaker, pitting the trio against Toyota at home and Chinese automakers including BYD and Geely Automobile Holdings abroad.
Toyota has stakes in Subaru, Suzuki, and Mazda, creating a powerhouse of brands backed by its top-notch credit rating.
All three Japanese companies are to some degree facing an existential threat brought on by the global automobile industry’s breakneck shift to battery-powered electric vehicles and hybrid drivetrains and away from combustion engine cars.
In China, the soaring popularity of locally made EVs has foreign brands fighting for survival, and Japanese carmakers there are stuck with too much capacity. Honda and Nissan have both had to pare back staffing and production, while Mitsubishi has all but extricated itself from China, the world’s biggest car market.
Meanwhile, a rebound in sales of hybrid gas-electric cars in North America has left Nissan on the backfoot while Toyota, a pioneer in hybrid technology, has received a welcome boost. Nissan missed that window of opportunity due to its outdated product lineup that was missing attractive options for hybrids, much less any competitive EVs.
For Nissan, the merger with Honda could provide much-needed relief after paltry sales in the US and China triggered a massive drop in revenue, forcing the battered carmaker to cut jobs, slash production capacity and lower its annual profit outlook by 70 per cent.
Nissan was rescued from its last financial crisis more than two decades ago when French carmaker Renault swooped in with a cash injection and dispatched Carlos Ghosn to orchestrate a turnaround. Mr Ghosn’s shock arrest and ouster in late 2018 paved the way for Makoto Uchida to take the helm.– Bloomberg
