New York (CNN) — Honda and Nissan have formally agreed to discuss over the next six months a possible merger, a deal that would create the world’s third-largest automaker and give them more resources to compete with the growing threat from Chinese automakers.
A third, smaller Japanese automaker, Mitsubishi, which already has an alliance with Nissan, will also participate in the negotiations. The merged company, if created, would be behind only Toyota (TM) and Volkswagen in global sales.
Mergers in the automotive industry are nothing new. They have taken place since the acquisition of the various brands formed by General Motors (General manager) in the first decade of the 20th century. But they sometimes have difficulty successfully bringing together different partners.
German automaker Daimler-Benz has agreed to buy Chrysler Corp. in 1998, but the combined group split ten years later. The newly independent Chrysler Company went bankrupt and had to obtain a federal bailout within two years.
Chrysler’s last merger with the European group PSA in 2001 to Stellantis formhad its own problems last year, with sales down and profits. And Nissan’s alliance with Renault, although not a formal merger, ultimately collapsed following the Arrest of Nissan CEO Carlos Ghosn in Japan over accusations of “significant” financial misconduct. He fled the country before a trial can take place.
But given the cost and challenges of the industry’s efforts to transition from gasoline-powered cars and trucks to electric vehicles and with growing competition from Chinese automakerswho have has surpassed most Western automakers In these efforts, Honda and Nissan needed to combine their resources in order to remain competitive.
“Today marks a pivotal moment,” Nissan CEO Makoto Uchida said in a statement. statement announcing the negotiations. “Together we can create a unique way for (customers) to enjoy cars that neither company could achieve alone.”
Nissan has been struggling since the collapse of its alliance with Renault, facing serious financial problems that leave it in desperate need of a larger merger partner.
Profits in the six months ending in September plunged 94% from the same period in 2023 as the company lost money in its auto operations and reported only a small profit due to its fundraising activities. In response, Nissan announced it would cut its manufacturing output by 20%, resulting in the layoff of 9,000 workers. It also cut its operating profit forecast for the full year by 70%.
Some analysts had speculated that Nissan could face bankruptcy as early as 2026, when a huge amount of debt would come due.
The Honda-Nissan tie-up could lead to even more industry mergers in the future, Adam Jonas, an auto analyst at Morgan Stanley, said in a note last week when news of the talks broke. emerged.
“Incumbent automakers that fail to find new partners face the prospect of becoming smaller companies with higher capital expenditures and research and development costs per (each vehicle sold),” he said. he writes.
“Moreover, in a potentially broader era of consolidation, those who have chosen not to participate effectively ‘shrink.’ We are entering a new phase in the automotive industry where scale and cost leadership strategies emphasize cooperation and potential scope changes.