If history is any guide, the Honda-Nissan merger is doomed

If history is any guide, the Honda-Nissan merger is doomed

The news that Honda Motor Company, Japan’s second-largest automaker, and Nissan Motor Company, its third-largest, are looking to merge by 2026 is an indication of an industry roiled by government demands for electrification and the ascent of Chinese automakers.

If successful, the merger would create the world’s third-largest auto group by vehicle sales after Toyota Motor Company and Volkswagen AG. It would be the car industry’s first merger since Fiat Chrysler Automobiles and PSA combined to become Stellantis in 2021.

Plans call for both automakers to become part of a holding company in 2026 when their stocks will be delisted and replaced by shares in the holding company. A majority of the board’s seats and its top executives would come from Honda. Mitsubishi, which had been part of the Nissan-Renault alliance, has said it will not take part in the merger. In essence, this is a takeover of Nissan by Honda, as they have a market capitalization four times that of Nissan.

Still, is it even a good idea? Why would it even be considered?

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Nissan’s issues

Given Nissan is extricating itself from their alliance with French automaker Groupe Renault, its appetite to tie up with another automaker is mystifying, as execs seem to bristle at anyone deciding what they should do. Nissan’s bravado is galling, as boardroom politics takes precedence over the business of manufacturing cars.

2010 Nissan Leaf

Nissan

Nissan introduced the Nissan Leaf in 2009, the first modern-day, mass-market battery electric car. However, the company squandered its early lead by not spreading its EV technology across the lineup, much like Toyota has done with its hybrid technology. Now, despite its early start, the company has fallen behind.

Even worse, as consumers turn to hybrids, Nissan has none to offer. Toyota, Honda, Hyundai, Kia, Ford, and others do.

Nissan’s aging lineup

Their response to these challenges has been glacial at best.

It’s more than electrification; it’s a widespread issue stemming from postponed product updates. The 2025 Nissan Murano is a perfect example. It replaced a model that was introduced in 2014, more than a decade ago. And while the current Nissan Altima dates to 2019, it has yet to get redesigned. Its prime competitors, the Honda Accord and Toyota Camry were redesigned in 2018, and both have been redesigned since.

Same as it ever was: 2025 Nissan Altima

Nissan

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Aging models mean that the cars must carry bigger discounts to clear out dealer lots and remain competitive. This, in turn, affects corporate profits. For the six months ending Sept. 30, 2024, Nissan’s net income plunged 94%, according to Bloomberg. Come November, the automaker reduced production capacity by one-fifth and laid off 9,000 employees.

Many critics point to former CEO Carlos Ghosn as the reason for the company’s problems, but his reign ended six years ago. In the interim, Nissan’s notoriously conservative culture has failed to address its outdated products or update and expand the EV innovation that it pioneered 16 years ago.

Honda Prologue

Honda

Still a lone wolf

Mazda, Daihatsu, Suzuki, and Subaru all partner with Toyota. Until last month, Nissan, Mitsubishi, and Renault were allies. Only Honda continues to operate independently, and it is second only to Toyota in car sales. Yet its do-it-alone mentality and flat corporate structure remain mostly intact.

Yes, Honda has entered partnerships, most recently with GM for the Honda Prologue and Acura ZDX EVs. These two products are placeholders until Honda’s own efforts come to market in 2026. Honda has also partnered with Sony on the Afeela EV, as its self-driving systems and infotainment technology lag behind those of rivals.

Why would Honda be interested?

A tie-up with Nissan could lead to greater access to EV technology that’s already developed while bringing economies of scale to both automakers’ line-ups.

The downside is the merging of two vastly different corporate cultures and the plethora of factories, staff, and suppliers. As the two companies combine, both sides will resist having to take the hit, making any savings from co-development illusory. It will prove a distraction that will prevent Honda from meeting the challenge posed by Chinese automakers, which can develop a car in as little as 18 months.

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Chinese automakers such as BYD can develop a car in 18 months. Above, the BYD Dolphin.

BYD

Given that its two largest Japanese rivals would be distracted, Toyota stands to benefit greatly, not to mention Hyundai Motor Group, General Motors, and Volkswagen AG.

Not the first time that a merger was considered

The biggest surprise of all is that the merger is not a new idea.

According to a 2020 Financial Times report, Japanese government officials suggested a merger of the two automakers in 2019. At the time, the government was concerned that the Nissan-Renault alliance would collapse in the wake of former Nissan CEO Carlos Ghosn’s arrest the year before over allegations of financial misconduct.

This led Japanese officials to suggest that the two companies merge, but the idea never reached either company’s board of directors.

Former Nissan Motor Co. Chairman Carlos Ghosn

ANWAR AMRO/AFP via Getty Images

Final thoughts

Given their overlapping product line-ups, Nissan’s conservative, glacial corporate culture, and aging line-up, it’s hard to see an upside for Honda. Until now, the company has thrived with its corporate tie-ups that shared technology but not bureaucracy. It’s hard to see any upside from a struggling automaker with few iconic products besides a couple of sports cars. Nissan’s ailments could easily infect Honda, bringing down both companies.

It is no surprise that Japan’s formidable Ministry of Economy, Trade, and Industry favors the merger. However, it can’t force it, so the merger could still fall apart. Still, one gets the sense that MITI would rather see Honda partner with a Japanese company than a gaijin.

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2024 Nissan Frontier Hardbody

Nissan

And let’s not forget that most mergers don’t work. Stellantis aside, consider that Ford Motor Company no longer owns Mazda, Volvo, Jaguar, or Land Rover. GM killed Saab, and Daimler ditched Chrysler, which Fiat picked up for a song.

But given the challenges in today’s industry and the huge cost of meeting fickle and unrealistic government mandates, what was once unthinkable is now reality.

“There is practically no complementarity here,” said Carlos Ghosn in an interview with CNBC late last year. “Nissan is in panic mode, looking for somebody to save them from the situation because they are unable to generate the solution by themselves.”

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