How Nissan, Honda and Mitsubishi became one of the largest car companies in the world

With increasing competition from China and disruptions everywhere else, it became increasingly obvious that Honda and Nissan were likely to merge. The companies tried to delay the inevitable with a Memorandum of Understanding that the companies came together this summer to explore ways to work together, then suddenly rumors started swirling that the two would just become one company. Today in Japan Honda, Nissan and Mitsubishi announced that they will try to form one company with a goal of achieving this by 2026. Why now and what would that look like?

It’s important to understand why the three companies ended up here, as it will provide some guidance as to where this whole tie-up is likely to go. Honda is clearly in better shape than the other two companies, but that in no way means that Honda will thrive without this tie-up. All these companies face a difficult future without help and could create something stronger by removing some of their common weaknesses. Or the weakness of all these companies could create another Stellantis.

I’m a little more hopeful that Honda and Nissan plus Mitsubishi will be able to make a merged company into an effective organization in this new automotive paradigm than some, so it’s worth talking about what could go wrong here as well.

Nissan, Mitsubishi and the inevitable gravity of global trade

In some ways, Japanese automakers learned in the late 90s what German automakers are learning right now, which is that the only way things can stay the same is to constantly change. The worst time to be complacent is when everything is going well, which unfortunately is also the easiest time to be complacent. As enthusiasts, we adore Japan’s “Bubble Era” of cars because companies like Toyota and Nissan created some incredible cars limited only by imagination and modern tire technology.

The “Bubble Era” was still a bubble and ultimately represented end of the long predicted and feared Japanese economic hegemony. In the 80s, Japan’s growing exports, perceived coolness and technological innovation made the country’s many global companies quite valuable. At the same time, poor banking policies and widespread corruption created insane valuations, resulting in a financial situation that would inevitably blow up (further reading here if you’re curious about how it all happened).

Japanese automakers, once admired and feared, were also caught up in all this. Not only did the cars have to make economic sense when there wasn’t an overheated domestic market, but the companies had to find a way to survive the fallout. Toyota and Honda were in some ways in the strongest position after the Bubble, with more emphasis on the US market and more production in North America. As Toyota puts it its own epochal history:

Toyota took several proactive measures, including expanding local production, releasing new models tailored to the US market, and developing its sales network. As a result, the company experienced a significant increase in sales. Breaking down this increase, Toyota sold more than 900,000 units in 1988, 1.05 million in 1990, and reached another milestone with 2.06 million in 2004, growing further to 2.62 million vehicles in 2007. The company’s market share also increased – from 6.1 percent in 1988, passed 10 percent in 2001, and grew to 16.1 percent in 2007. During this time, Toyota’s annual vehicle sales passed Chrysler Corporation in 2006 and surpassed Ford Motor Company in 2007, securing the no. 2 position behind General Motors Corporation (GM, now General Motors Company).

While Toyota was strong enough to make it through Japan’s “lost decade” of becoming more American, it wasn’t quite so easy for other companies. Isuzu tried to lean on its partnership with General Motors before eventually exiting the passenger car market. Subaru, which was partly owned by Nissan, temporarily became part of GM in a strange semi-merger with Saab. Many forget that while Honda did well here, Mitsubishi was the fastest growing Japanese brand in America for a few years. Mitsubishi even tried briefly, to carry out a hostile takeover of Honda.

Nissan, with heavy exposure to the Japanese market, was in the worst shape and was eventually forced into a marriage with Renault (which Mitsubishi would be pushed into after a fuel economy scandal nearly sunk the company). This was always going to be a bad deal for Nissan as Renault entered into the deal only after it gained overall control of Nissan. There was a brief moment when it worked, mostly because the charming and cool Carlos Ghosn managed to keep both the French government (which owns a large stake in Renault) and Nissan executives happy. In the end, however, Nissan’s Japanese management reportedly feared that Ghosn would go to the French side and had Ghosn arrested on charges of defrauding the company.

Without Ghosn, Nissan-Renault-Mitsubishi was doomed, and the three companies had to spend the next few years figuring out a way to part ways in a way that would cause the least possible disruption. Understandably, a company dealing with all this can’t be expected to make great cars, let alone compete with China, and Nissan has suffered pretty much everywhere it makes cars. Mitsubishi has tried to share platforms with Nissan to survive and has done so admirably, all things considered. Still, the companies are too small to survive on their own in the modern automotive world.

Honda is doing well, but for how long?

I’ve seen a lot of hand-wringing over Honda’s position here, given that Honda has been extremely profitable and seems to be doing well in many of its markets. It is true that Honda is in a better position than Nissan-Mitsubishi. It’s true that from a product standpoint, Honda has much less to gain from this deal than Nissan. This is an American-centric view and ignores a few key points:

• Nissan is doing better in some global markets, such as Latin America, selling a lot of cars (3.98 million annually for Honda last year, compared to 3.37 million for Nissan)
• Honda is suffering in China like other car manufacturers
• Alone, all of these companies are probably too small to compete on electrification/advanced driver systems with the Toyotas, Volkswagens, Hyundai-Kias, Teslas and GMs of the world.
• Nissan was way ahead of Honda in electrification, although it has less of a lead now
• Nissan has real truck platforms, while Honda has no global body-on-frame truck platform

Honda has built its success on the back of hybrids and affordable/reliable vehicles. As I said earlier, this puts Honda in a great position at the moment, but not necessarily in the future. I think the industry is in an in-between period between full-ICE cars and more widespread EV adoption. How long that period lasts is debatable, of course, and that’s all the more reason why Honda needs more capital and more help to ride out the next decade of uncertainty.

Both companies seemed content to let this partnership slowly develop until a few weeks ago when it was discovered that massive Taiwanese global manufacturer Foxconn was looking to snap up Renault’s remaining Nissan stake and attempt to take over the automaker . This was unsustainable both for Nissan, who did not want to be ripped apart by Foxconn, and Honda, who did not want to share technology with a potential competitor. Now the companies are announcing a full partnership under a new holding company to be named later.

This is a complete merger

Unlike previous MOUs between Nissan, Honda and Mitsubishi, announcement today from the companies is a full admission of a proposed merger:

The MOU between Nissan and Honda, announced today, aims to serve as an opportunity to maintain global competitiveness and for the two companies to continue to provide more attractive products and services to customers around the world.

If the business integration can be realized, both companies can aim to integrate their respective management resources such as knowledge, human resources and technologies; create deeper synergies; improve the ability to respond to market changes; and expects to improve the company’s value in the medium to long term. In addition, Nissan and Honda can aim to further contribute to the development of Japan’s industrial base as a “leading global mobility company” by integrating Nissan and Honda’s four-wheeled vehicles and Honda’s motorcycle and electric products, enabling both companies’ brands to become more attractive and to provide more attractive and innovative products and services to customers worldwide.

Um, yeah, that’s all. The companies plan to combine manufacturing, vehicle platforms, supply chain, sales functions and electrification plans.

From a business structure, it means a single listing under one cooperative as Bloomberg explains:

A holding company will be set up to house the new entity and should be listed on the stock market by August 2026, the firms said, adding that Honda will be able to nominate a majority of the new company’s board.

Mitsubishi also comes along for the ride, although Honda, as the bigger company, is mostly in control here.

What if this doesn’t work?

Not everyone supports the deal, and one of them is Carlos Ghosn, the former Nissan boss who knows Nissan quite well. He spoke with Bloomberg TV from his Lebanese exile and expanded on his views that Nissan is doing this out of desperation:

“It’s a desperate move,” Ghosn said Friday on Bloomberg Television. “It’s not a pragmatic deal because, frankly, the synergies between the two companies are hard to find.”

(…)

Nissan and Honda operate in the same markets with similar brands and products, Ghosn said, casting doubt on the merits of combining the two. He believes that Japan’s Ministry of Economy, Trade and Industry has pressured Honda to go ahead with a deal.

“They’re trying to figure out something that can reconcile Nissan’s short-term problems and Honda’s long-term vision,” Ghosn said. While there is “no industrial logic” in a deal, “there is a moment when you have to choose between performance and control.”

I think it would have been a better plan if Foxconn hadn’t forced Honda’s hand (and also the Japanese government’s hand, according to Ghosn). Once again, Nissan finds itself forced to merge with another company or face some kind of existential threat. It’s not ideal, and yet I don’t think there is a better alternative at the moment. Honda and Nissan have a lot of overlap and will have to figure out how it works, and brands like Infiniti could be cut. But if Honda can learn from Nissan’s previous merger, I think they can do better than Renault ever did, simply because Honda is a Japanese company.

The resulting company will be one of the largest in the world with a total production of around 7-8 million, making them about as big as Hyundai-Kia and behind Volkswagen. By my reckoning they would be the third largest car manufacturer.

This also gives us a chance for an S2000/300ZX reincarnation on a shared platform, as well as the rebirth of a host of other potential nameplates. Bubble Era 2.0, LFG!

Top photo: Honda/The Three Amigos