Three reasons why the Honda-Nissan deal collapsed

The problem, though, is that Nissan indicated through the duration of the talks that it wants to be seen as an equal partner, spurning any possibility of it being viewed as a junior player or a subsidiary. Jesper Koll, from Japanese online trading platform operator Monex Group, was quoted by the BBC as saying that the “pressure to make it appear like a merger of equals in Japan is very strong”. “Having somebody leading this would seem almost offensive to the other party.”

Honda’s chief Toshihiro Mibe had said any merger would be “based on the assumption that Nissan completes its turnaround action”. That was a stiff ask: despite Nissan having slashed 9,000 jobs — about 6 per cent of its global workforce — and reducing global production capacity by 20 per cent after having reported a quarterly loss of 9.3 billion yen (over $60 million) in October.

Second, a partnership by the two companies on electric vehicles, which was announced by them well before the merger talks commenced, will continue. So, technically, the collapse of the merger talks does not upend this crucial EV collaboration.

This is important given the popularity of electric and hybrid vehicles made by China’s BYD Co. and other Chinese companies such as Xpeng, Nio and Li Auto eclipsed Japan’s automakers from the leadership position that they once enjoyed across markets. Honda and Nissan have been losing their share of the Chinese market for some time and both Japanese automakers, according to analysts, were expected to announce large capacity cuts to at least cover some of the fixed-cost exposure they have in China. Nissan and Honda are also facing the prospect of tariffs in the US, another major market.

Third, there were more suitors wanting to wriggle into this alliance, making it a somewhat crowded field. Taiwan-based Foxconn, a leading contract manufacturer, said Thursday it is open to buying Nissan shares and exploring collaborations with Renault, which has an over 35 per cent stake in Nissan after rescuing the latter from going belly up in 1999. Renault, on its part, called the terms of the proposed merger deal “unacceptable”. What is clear, though, is that without the merger with Honda, Nissan could face a really bumpy road ahead.

If a merger had gone through, both companies hoped to leverage their substantial synergy across various markets and technologies. Nissan, for instance, is strong in the European market while Honda does not produce vehicles in Europe anymore. Nissan makes great body-on-frame utility vehicles, while Honda is a superlative petrol engine maker, which also happens to make cars. Also, Honda is a relative newcomer in the battery electric segment, while Nissan is one of the long-standing EV pioneers. The company was ahead of everyone when it launched the Nissan LEAF about 15 years ago, but they’ve kind of dropped the ball since then. A joint effort could have helped Nissan regain lost glory and enabled Honda scale up the learning curve in the EV segment.

For their business in India too, a merger might have been a net positive. Both companies had tasted some degree of success in India, but struggled to build on this. Honda has consistently held the top slot in the mid-level sedan market with its brilliant City, but failed to make a dent in other segments of the Indian car market. The company was a pioneer in affordable hybrid technology in India with the City Hybrid, but has since given up the leadership slot of the Maruti Suzuki-Toyota combine. Nissan too had seen some success with the Magnite mini-SUV, but failed to capitalise on that or launch more models that would gain consumer acceptance in the Indian market. A joint effort could have potentially helped both companies in the world’s third largest car market.

Like a lot of failed auto sector deals, though, this one too has veered off a hairpin bend.