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Japanese car manufacturers Honda and Nissan have announced plans to work on a merger that would create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.
The two companies said they had signed a memorandum of agreement on Monday and that smaller Nissan alliance member Mitsubishi Motors Corp. had also agreed to participate in the talks on the integration of their companies.
Automakers in Japan have lagged behind their big rivals in electric cars and are trying to cut costs and make up for lost time as newcomers like China’s BYD and EV market leader Tesla carve out market share.
Honda’s president, Toshihiro Mibe, said Honda and Nissan will seek to unify their operations under a joint holding company. Honda will lead the new management, maintaining the principles and brands of each company. They aim to have a formal merger agreement in June and complete the deal and list the holding company on the Tokyo Stock Exchange in August 2026, he said.
No dollar value was given and formal talks are just beginning, Mibe said.
There are “points that need to be studied and discussed,” he said. “Honestly, the possibility of this not being carried out is not zero.”
A merger could result in a behemoth worth more than $50 billion based on the market capitalization of all three automakers. Together, Honda, Nissan and Mitsubishi would 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.
News of a possible merger emerged earlier this month, with unconfirmed reports saying Taiwanese iPhone maker Foxconn was looking to tie up with Nissan by buying shares in the Japanese company’s other alliance partner, France’s Renault SA.
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Nissan CEO Makoto Uchida said Foxconn had not approached his company directly. He also acknowledged that Nissan’s situation was “difficult”.
Even after a merger, Toyota, which will roll out 11.5 million vehicles by 2023, would remain the leading Japanese automaker. If they join, the three smaller companies would make about 8 million cars. In 2023 Honda made 4 million and Nissan produced 3.4 million. Mitsubishi Motors made just over 1 million.
“We have come to the realization that in order for both parties to be leaders in this mobility transformation, it is necessary to make a more radical change than a collaboration in specific areas,” said Mibe.
Nissan, Honda and Mitsubishi have previously agreed to share components for electric vehicles such as batteries and to jointly research software for autonomous driving to better adapt to electrification.
Nissan is struggling after a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misappropriation of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.
Speaking to reporters in Tokyo via video link on Monday, Ghosn 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 capacities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.
Nissan also has years of experience building battery and electric vehicles, and gas-electric hybrid powertrains that could help Honda develop its own EVs and next-generation hybrids, he said.
But the company said in November that it cut 9,000 jobs, or about 6% of its global workforce, and reduced its global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).
It recently reshuffled its management and Uchida, its chief executive, took a 50% pay cut while admitting responsibility for the financial problems, saying Nissan needed to become more efficient and better respond to market tastes, rising costs and other global changes.
“We expect that if this integration comes to fruition, we will be able to provide even greater value to a broader customer base,” Uchida said.
Fitch Ratings recently downgraded Nissan’s credit outlook to “negative”, citing weakening 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 amounted to 1.44 trillion yen ($9.4 billion).
Nissan’s stock price had also dropped to the point where it is considered a bargain. On Monday, its Tokyo-traded shares gained 1.6%. They jumped more than 20% after news of the possible merger broke 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 its sales suffered in China.
The merger reflects an industry-wide trend toward consolidation.
At a routine briefing Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on details of the automakers’ plans, but said Japanese companies must remain competitive in the rapidly changing market.
“As the business environment around the automotive industry changes to a large extent, with competitiveness in storage batteries and software becoming increasingly important, we expect that measures necessary to survive international competition will be taken,” Hayashi said.
& copy 2024 The Canadian Press
