Tokyo Japanese carmakers Honda and Nissan have announced plans to join forces to become the world’s third-largest automaker by sales, as the sector undergoes dramatic changes in the world’s transition away from fossil fuels.
The two companies said they had signed a Memorandum of Understanding on Monday and that Mitsubishi Motors, a smaller alliance member of Nissan, had also agreed to participate in talks to integrate their businesses.
“We expect that as this integration comes to fruition, we will be able to deliver even more value to a broader customer base,” Nissan CEO Makoto Uchida said in a statement.
Kim Kyung-Hoon / REUTERS
Automakers in Japan have lagged behind their major 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 that talks of closer cooperation were partly driven by Taiwanese iPhone maker Foxconn’s ambitions to team up with Nissan, which has an alliance with France’s Renault SA and Mitsubishi.
A merger could result in a behemoth worth more than $50 billion, based on the market capitalization of all three automakers. Together, Honda and Nissan’s alliance with France’s Renault SA and smaller automaker Mitsubishi Motors Corp. gain scale to compete with Toyota Motor Corp. and with the German Volkswagen AG. Toyota has technology partnerships with Japan’s Mazda Motor Corp. and Subaru Corp.
Even after a merger, Toyota, which launched 11.5 million vehicles by 2023, would remain Japan’s leading automaker. If they participate, the three smaller companies would make about 8 million vehicles. In 2023, Honda will earn 4 million and Nissan 3.4 million. Mitsubishi Motors made just over 1 million.
Nissan, Honda and Mitsubishi announced in August that they would share electric vehicle components such as batteries and jointly research autonomous driving software to better adapt to dramatic changes around electrification, following a preliminary agreement between Nissan and Honda that was closed in March.
Honda, Japan’s second-largest automaker, is widely seen as the only likely Japanese partner capable of rescuing Nissan, which has struggled following a scandal that began with the arrest of former chairman Carlos Ghosn in late 2018 on charges of fraud and misuse of company resources, allegations he denies. He was eventually released on bail and fled to Lebanon.
Ghosn spoke to reporters in Tokyo via video link on Monday and derided the planned merger as a “desperate move.”
From Nissan, Honda could get truck-based, body-on-frame large SUVs like the Armada and Infiniti QX80 that Honda doesn’t have, with big towing capacity and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told Associated Press.
Nissan also has years of experience building batteries and electric vehicles, and gas-electric hybird powertrains that could help Honda develop its own electric vehicles and next-generation hybrids, he said.
But the company said in November it was cutting 9,000 jobs, or about 6% of its global workforce, and shrinking its global production capacity by 20%, after reporting a quarterly loss of 9.3 billion yen ($61 million).
Recently, the company reshuffled its management and Makoto Uchida, the CEO, took a 50% pay cut to take responsibility for its financial problems. Nissan said Nissan needed to become more efficient and responsive 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 stood at 1.44 trillion yen ($9.4 billion).
Nissan’s stock price has also fallen so much that it is considered a bargain.
On Monday, shares traded in Tokyo rose 1.6%. They rose more than 20% after news of the possible merger emerged last week.
Honda’s shares rose 3.8%. Honda’s net profit fell nearly 20% in the first half of the April-March fiscal year from a year earlier as sales in China slumped.
The merger reflects an industry-wide trend toward consolidation.
At a routine briefing Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of the automakers’ plans, but said Japanese companies must remain competitive in the rapidly changing market.
“As the business environment surrounding the automotive industry largely changes, with competitiveness in batteries and software becoming increasingly important, we expect that measures necessary to survive international competition will be taken,” Hayashi said.
