Why are Honda and Nissan merging? Here are 5 reasons

Two, the China factor. The popularity of electric and hybrid vehicles made by BYD Co. and other Chinese companies such as Xpeng, Nio and Li Auto eclipsed Japan’s automakers from the leadership position they once enjoyed across markets. Both Honda and Nissan have been losing their share of the Chinese market for some time and both, according to analysts, are expected to announce large capacity cuts to at least cover some of the fixed-cost exposure they have in China.

Three, sharing of costs. While maintaining both brands, the two companies aim to cut costs by sharing vehicle platforms and cooperating on new hybrid and electric cars. Honda and Nissan also aim to integrate research and development functions to jointly develop software and electric vehicles.

Four, Nissan’s troubled finances. Nissan is ailing and needs to regain its competitiveness, especially after its divorce from France’s Renault. Last month, the company said it was slashing 9,000 jobs — about 6 per cent of its global workforce — and reducing global production capacity by 20 per cent after reporting a quarterly loss of 9.3 billion yen (over $60 million).

And lastly, both companies hope 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 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 longest 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 help Nissan regain lost glory and help Honda scale up the learning curve in the EV segment.

Contours of the Honda Nissan deal

Honda is in the driver’s seat in this deal and will appoint the president of the joint holding company as well as the majority of the company’s internal and external directors. The transaction could also be expanded to include Mitsubishi Motors. Nissan is the top shareholder in Mitsubishi Motors.

Honda CEO Mibe Toshihiro said, “As the environment surrounding the automobile industry continues to undergo dramatic global change, the company has been launching discussions with an eye on possibilities other than collaboration.”

He said through the discussions, Honda was able to reconfirm the possibility of “a larger-than-perceived synergetic effect that” can be brought through its merger with Nissan. Nissan CEO Uchida Makoto said, “As new automakers emerge in succession and repaint the competitive landscape of the industry, Nissan’s advantage of being a carmaker of a massive scale will prove to become a more vital weapon than ever.”

Mibe and Uchida were joined by Mitsubishi Motors Company CEO Kato Takao, who is to decide on possible participation in the merger talks. Kato said he welcomes the decision by Nissan and Honda to start merger negotiations.

India impact

Both companies have tasted some degree of success in India, but have struggled to build on this. Honda has consistently held the top slot in the mid-level sedan market with its brilliant City, but has 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 has seen some success with the Magnite mini-SUV, but has failed to capitalise on that or launch models that would gain consumer acceptance in the Indian market. A joint effort could help both companies in the world’s third largest car market, though the focus of the broader deal is more on other global markets.