Honda, Nissan formalise merger talks, aim to combine by 2026

Honda Motor and Nissan Motor took their first historic steps toward merging to create a new force in the world’s automotive industry, as aggressive competition from China forces legacy carmakers to rethink their business models.

The two Japanese auto manufacturers signed a basic agreement for merger talks on Monday (Dec 23), according to a joint media briefing held in Tokyo. Honda also said it will buy back as much as 1.1 trillion yen (S$9.5 billion) of its own shares.

A holding company will be created to house the new entity and should be listed by August 2026, the firms said, adding that Honda will be able to nominate a majority of directors of the holding company.

Mitsubishi Motors, which is 24.5 per cent owned by Nissan, also signed the memorandum of understanding and will likely be part of the group, with a final decision on that expected by the end of January.

Honda’s buyback cancels a previously announced buy back of 100 billion yen and will start on Jan 6 and run through most of 2025, according to Monday’s announcement. The company plans to repurchase as many as 1.1 billion shares, or almost 24 per cent of its stock excluding treasury securites.

Honda chief executive officer Toshihiro Mibe said synergies from the combined company should lead to an increase in operating profit of more than 1 trillion yen, climbing to 3 trillion yen eventually.

“Both companies will continue as wholly owned subsidiaries of the joint holding company with their respective brands in place,” Mibe said. The holding company will include the brands of both Honda and Nissan, and wrap in Honda’s large motorcycle unit.

Such an alliance would give rise to one of the world’s largest carmakers, pitting the trio against Toyota Motor at home and Chinese automakers including BYD and Geely Automobile Holdings abroad. Toyota has stakes in Subaru, Suzuki Motor and Mazda Motor, creating a powerhouse of brands backed by its top-notch credit rating.

All three Japanese companies are to some degree facing an existential threat brought on by the global automobile industry’s breakneck shift to battery-powered electric vehicles and hybrid drivetrains and away from combustion engine cars.

In China, the soaring popularity of locally made EVs has foreign brands fighting for survival, and Japanese carmakers there are stuck with too much capacity. Honda and Nissan have both had to pare back staffing and production, while Mitsubishi Motors has all but extricated itself from China, the world’s biggest car market.

Meanwhile, a rebound in sales of hybrid gas-electric cars in North America has left Nissan on the backfoot while Toyota, a pioneer in hybrid technology, has received a welcome boost. Nissan missed that window of opportunity due to its outdated product lineup that was missing attractive options for hybrids, much less any competitive EVs.

For Nissan, the merger with Honda could provide much-needed relief after paltry sales in the US and China triggered a massive drop in revenue, forcing the battered carmaker to cut jobs, slash production capacity and lower its annual profit outlook by 70 per cent.

“Partnering with Honda isn’t a sign that we’re giving up on our plans to turn Nissan around,” Nissan CEO Makoto Uchida said on Monday.

Nissan was rescued from its last financial crisis more than two decades ago when French carmaker Renault swooped in with a cash injection and dispatched Carlos Ghosn to orchestrate a turnaround. Ghosn’s shock arrest and ouster in late 2018 paved the way for Uchida to take the helm.

Ghosn has resided in Beirut since his daring escape from Japan five years ago. While on bail facing charges of financial misconduct, he hired a father-son extraction team to smuggle him onto a private plane in a music-equipment box and flew to Lebanon, which rarely extradites its citizens.

The exiled executive weighed in again about the merger on Monday, saying that to him, it doesn’t make sense. 

Speaking at the Foreign Correspondents’ Club of Japan via teleconference, Ghosn pointed out that Nissan’s unit sales have fallen more 40 per cent since 2018, and the carmaker has gone from making billions of dollars in revenue every year to barely breaking even.

While it’s fair to say the merits aren’t as obvious to Honda, a partnership with Nissan and Mitsubishi Motors would provide the scale and competitive edge it’s been seeking for years to maintain its presence in a global industry increasingly dominated by consolidated, big players. BLOOMBERG