Nissan-Honda merger: Japanese automakers announce plans to merge

TOKYO (AP) – Japanese automakers Honda and Nissan have announced plans to work toward a merger that would create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

The two companies said they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors Corp. had also agreed to participate in the negotiations to integrate their companies.

Automakers in Japan have lagged behind their big rivals in electric vehicles and are trying to cut costs and make up for lost time which newcomers like China’s BYD and EV market leader Tesla swallow market shares.

Honda president Toshihiro Mibe said Honda and Nissan will try to bring their operations together under a joint holding company. Honda will lead the new management and maintain each company’s principles and brands. They aim to have a formal merger agreement by June and to close the deal and list the holding company on the Tokyo Stock Exchange by August 2026, he said.

No dollar value was given and formal negotiations have just begun, Mibe said.

There are “points that need to be studied and discussed,” he said. “Honestly, the possibility of this not being implemented is not zero.”

A merger could result in a behemoth worth more than $50 billion based on the market value of all three automakers. Together, Honda, Nissan and Mitsubishi will gain scale to compete with Toyota Motor Corp. and with Germany’s Volkswagen AG. Toyota has technology partnerships with Japan’s Mazda Motor Corp. and Subaru Corp.

News of a possible merger emerged earlier this month, with unconfirmed reports that Taiwanese iPhone maker Foxconn was seeking to tie up with Nissan by buying shares from the Japanese company’s other alliance partner, Renault SA of France.

Nissan CEO Makoto Uchida said Foxconn had not directly approached his company. He also acknowledged that Nissan’s situation was “serious”.

Even after a merger, Toyota, which rolled out 11.5 million cars by 2023, will remain the leading Japanese automaker. If they join, the three smaller companies would manufacture about 8 million vehicles. By 2023, Honda made 4 million and Nissan produced 3.4 million. Mitsubishi Motors made just over 1 million

“We have come to the realization that for both parties to be leaders in this mobility transformation, it is necessary to make a bolder change than cooperation in specific areas,” said Mibe.

Nissan, Honda and Mitsubishi previously agreed on this share components for electric vehicles as batteries and to jointly research software for autonomous driving to better adapt to electrification.

Nissan has been struggling after a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misappropriation of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.

Speaking to reporters in Tokyo on Monday via video link, Ghosn derided the planned merger as a “desperate move.”

From Nissan, Honda could get truck-based body-on-frame large SUVs such as the Armada and Infiniti QX80 that Honda doesn’t have, with large towing capacities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told the Associated Press.

Nissan also has years of experience building batteries and electric vehicles and gas-electric hybrid powertrains that could help Honda develop its own electric cars and next-generation hybrids, he said.

But the company said in November that it cuts 9,000 jobs, or about 6% of the global workforce, and is reducing its global manufacturing capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).

It recently reshuffled its management and Uchida, its chief executive, took a 50% pay cut while accepting responsibility for the financial problems and saying Nissan needed to become more efficient and respond better to market tastesrising costs and other global changes.

“We expect that if this integration becomes a reality, we will be able to deliver even greater value to a broader customer base,” Uchida said.

Fitch Ratings recently downgraded Nissan’s credit outlook to “negative,” citing deteriorating profitability, partly due to price cuts in the North American market. But it noted that it has a strong financial structure and solid cash reserves that amounted to 1.44 trillion yen ($9.4 billion).

Nissan’s share price had also fallen to the point where it is considered something of a bargain. On Monday, its Tokyo-traded shares rose 1.6 percent. They jumped more than 20% after news of the possible merger broke last week.

Honda’s shares rose 3.8 per cent. Honda’s Net profit fell almost 20% in the first half of the April-March financial year compared to a year earlier as sales suffered in China.

The merger reflects a trend of consolidation throughout the industry.

At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of the automakers’ plans, but said Japanese companies need to remain competitive in the fast-changing market.

“As the business environment surrounding the automotive industry changes widely and competitiveness in storage batteries and software becomes increasingly important, we expect that measures necessary to survive international competition will be taken,” Hayashi said.

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Kurtenbach reported from Bangkok.