Honda Motor and Nissan Motor have taken the first steps toward a possible merger. The two Japanese auto giants signed a memorandum of understanding on Monday, formally beginning talks to combine their operations under a new holding company.
The strategic alliance is aimed at positioning the companies to better navigate the costly technological transitions currently reshaping the auto industry. The proposed merger, if successful, would create one of the world’s largest automotive groups, potentially the third largest automaker behind Toyota and Volkswagen.
The driving force behind this potential merger is the need to share the financial burden of developing next-generation vehicles. As the industry shifts to electric and autonomous vehicles, both Honda and Nissan recognize the importance of pooling their resources and expertise.
Honda CEO Toshihiro Mibe emphasized the urgency of the move, saying, “Current business models are being upended. It is not going to take 10 to 20 years for that to happen, it will come much faster. We need to have the right artillery in order to be competitive on that battlefield so we’re starting today“.
The proposed structure would see the creation of a holding company that is expected to be listed on the Tokyo Stock Exchange by August 2026. Under this arrangement, Honda would have the power to nominate a majority of the directors of the new company.
For Nissan, the merger represents a potential lifeline. The company has been struggling with slumping sales and has been forced to cut jobs and production. The partnership with Honda could provide much-needed relief and help revitalize its product lineup.
The combined company is expected to generate significant financial gains. Honda’s CEO predicts an operating profit of more than ¥1 trillion, with the expectation that this figure will eventually rise to ¥3 trillion.
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However, the road to a successful merger is not without its challenges. Automotive mergers have a history of falling short of expectations, with examples such as DaimlerChrysler and the recent leadership changes at Stellantis serving as cautionary tales.
Industry experts stress the importance of creating synergies beyond mere size. Tang Jin, a senior researcher at Mizuho Bank, warns that if the companies cannot create a “chemical reaction” of new value by coming together, “their merging will simply become a gathering of the weak“.
The merger talks also come at a critical time for both companies in the Chinese market. Both Honda and Nissan have experienced significant sales declines in China, the world’s largest auto market, where they face stiff competition from low-cost and technologically advanced local rivals.
As part of the merger announcement, Honda also revealed plans for a substantial share buyback program. The company intends to repurchase up to ¥1.1 trillion ($7 billion) of its own shares, representing nearly 24% of its shares excluding treasury stock.
The potential merger has caught the attention of industry observers and investors alike. Hiroki Ihara, an analyst at Tachibana Securities Co. noted, “There are just too many Japanese carmakers, and mergers are becoming necessary to become more competitive, globally“.
