By Wei Wei
According to Nikkei Asia, Japanese automotive giants Honda and Nissan are in talks to establish a holding company that would oversee both automakers, with plans to sign a memorandum of understanding (MOU) for this new entity as soon as possible. At the same time, Honda and Nissan are considering including Mitsubishi Motors in this new holding company.
Currently, Nissan holds a 24% stake in Mitsubishi Motors, making it the largest shareholder. Reuters also reports that it remains unclear whether the creation of the new holding company is intended to lead to a full-fledged alliance between the two companies, but they have indeed begun merger negotiations. As of December 2024, Honda has a market value of JPY 5.95 trillion (approximately USD 38.8 billion), while Nissan's market value is JPY 1.17 trillion (approximately USD 7.6 billion). If the merger goes through, it would become the largest deal in the industry since the 2021 merger between Fiat Chrysler and Peugeot-Citroën.
In fact, since March of this year, the two automakers have strengthened their cooperation. They have agreed to explore strategic partnerships in electric vehicles (EVs) and other areas, as well as to explore various possibilities for future collaboration, with the aim of sharing more resources in the face of intense global competition. In August, they further deepened their ties, agreeing to collaborate on batteries, axles, and other technologies. Analysts at the time pointed out that their goal is to catch up with Chinese automakers, who have already taken the lead in the EV sector, while Japanese companies have lost their edge by focusing on hybrid vehicles. Honda and Nissan are the second and third-largest automakers in Japan, behind Toyota. However, their market share in key regions has been steadily declining, with stagnant demand in Europe and the United States adding to the pressures they face.
Honda's performance report for the 2024 fiscal year (April to September) revealed revenues of JPY 5.4 trillion, an 8.2% year-on-year increase. However, operating profit was JPY 257.9 billion, a 14.6% decline compared to the previous year. Net profit stood at JPY 100 billion (approximately USD 656 million), down 61% year-on-year. More notably, Honda's results exhibited a clear polarization. While its motorcycle business saw continuous profit growth, the automotive division showed significant regional disparities, with a sharp decline in net profit attributable to the parent company. In the Chinese market, sales dropped by 29.3%, totaling 588,018 units. In North America, sales rose by 35.5%, reaching 1,358,000 units, but net profit attributable to the parent company still fell by 19.7%.
Nissan has been deep in a financial crisis for some time. According to multiple media reports, the company is actively seeking new investors, or it could face bankruptcy within about a year. While rumors about Nissan's potential bankruptcy are circulating, the real situation is that the company's performance has worsened further in 2023-2024. According to Nissan's financial report, its net revenue for the first half of the 2024 fiscal year (April to September) declined by 1.3% year-on-year to JPY 5.9842 trillion (approximately USD 38.9 billion), operating profit fell by 90.2% to JPY 32.9 billion (approximately USD 210 million), and net profit was JPY 19.2 billion (approximately USD 125 million), a 93.5% year-on-year decline. During the same period, global new car sales dropped by 1.6% to 1.596 million units. More importantly, one of the key reasons for Nissan's financial losses is the poor performance of its overseas markets. In North America, sales of EVs continued to decline. North America is Nissan's most important overseas market, and according to 2023 data, U.S. sales accounted for 26.6% of Nissan's total global sales.
If Honda, Nissan, and Mitsubishi successfully merge, their annual car sales are expected to exceed 8 million units. This would place the new company among the largest automakers in the world, just behind Toyota (11.2 million units in 2023 sales) and the German automaker Volkswagen (9.2 million units in 2023 sales). This would undoubtedly significantly enhance the global competitiveness of the new Honda-Nissan holding company.
In the past two years, global automakers have faced increasing challenges from EV manufacturers. The price war initiated by Tesla and BYD has put even more pressure on multinational automotive giants, whose profits have been dwindling and are on the verge of losses. In September of this year, General Motors (GM) announced that it was exploring ways to collaborate with South Korea's Hyundai Motor to reduce costs, including joint vehicle development. The European automotive sector has also been thrown into chaos, with Volkswagen threatening to close its German factories for the first time in its 87-year history, lay off workers, and cut wages in an effort to reduce costs and boost profits. However, this was immediately met with a strike from 100,000 workers, and intense negotiations are currently underway with labor unions over cost-cutting measures. Volkswagen's predicament has prompted Germany's Ministry of Labor and Social Affairs to step in to help the company navigate its current crisis. Meanwhile, the global automotive industry may also face the threat of newly-elected U.S. President Donald Trump retracting EV-friendly policies. Trump has vowed to take a tough stance on imported cars, including threatening a 25% tariff on vehicles imported from Canada and Mexico. He may also seek concessions from Honda and Nissan in exchange for approving any merger or deal.
The potential merger between Honda and Nissan may also involve the future relationship between Japan's two major conglomerates behind them, the Mitsubishi Group and the Fuyo Group. In Japan, conglomerates maintain close ties through methods such as identity qualifications, capital alliances, and cross-shareholding. This structure allows member companies to support each other in the face of market risks, enhancing their overall competitiveness. Honda is a member of the Mitsubishi Group's Kinyo-kai, an informal organization composed of senior executives from major Mitsubishi Group companies, primarily established to strengthen internal connections and coordination within the group. Nissan, on the other hand, is one of the core companies of the Fuyo Group, with its development closely linked to its financial and industrial capital. Nissan, along with well-known brands such as Hitachi and Canon, forms a tight-knit cooperative relationship within the framework of the group.
Although Renault, Nissan's major shareholder, has yet to comment, ANBOUND’s founder Mr. Kung Chan believes that the merger between Honda and Nissan could also involve Renault. For Renault, this likely means the divestiture of its stake in Nissan. In 1999, Renault acquired more than one-third of Nissan's shares, which later increased to 43%. For a long time, Nissan has been the larger and more profitable of the two partners, which led to dissatisfaction within Nissan regarding the Japan-France alliance. However, last year, Renault reduced its stake in Nissan to 15%. Given that this merger between Nissan and Honda is taking place within the framework of Japanese conglomerates, it is estimated that it will be difficult for Renault to maintain any shares in the new entity.
The merger of these two Japanese automotive giants has attracted widespread attention. Mr. Kung Chan believes that the merger of automotive giants is a trend. The competitiveness of manufacturing industries should sometimes be viewed from the perspective of the entire industry. Internal integration is a form of integrating core competitiveness. It is sustained and upward, aiming at leading enterprises. Only in this way can the manufacturing industry achieve self-reinforcement, overall improvement, and ultimately reflect on global competitiveness. The merger between Honda and Nissan is expected to achieve a combined production and sales volume of 8 million units in the future. If the strategic vision is solely focused on a single company, that entity will be too small, and its ceiling will be too low. Amid the intense global market competition, this could lead to a wave of failures. Chinese automotive manufacturers are already facing such a trend. Recently, after companies like Hozon Auto, HiPhi, WM Motor, and JIDU, news has also emerged of a potential crisis at FAW Jilin Automobile.
If, as Mr. Chan predicted, a "wave of failures" occurs, with widespread bankruptcies and layoffs, it would indicate flaws within the automotive industry itself, i.e., flaws that can no longer be digested or remedied within the industry. Therefore, he suggests that government industrial policies should focus more on the overall industry, rather than just individual sectors. Since there is now an emphasis on a "unified national market" in China, if industrial policies do not keep up or fail to understand this aspect, the problem will be significant, and a "wave of failures" will still occur.
Final analysis conclusion:
To respond to the global competition in the automotive industry, Japanese automotive giants Honda and Nissan plan to establish a holding company. If the merger is successful, they will be able to achieve a production and sales volume of 8 million units, ranking just behind Toyota and Volkswagen globally. Mr. Kung Chan believes that the merger of automotive giants is a trend, and China's automotive industry policies should focus on the industry as a whole, rather than on individual sectors.
- Dr. Wei Wei is a research fellow at Economy Center.