Lessons from the Past Suggest the Honda-Nissan Merger Will Fail

The Potential Merger of Honda and Nissan: What It Means for the Automotive Industry

The automotive world is buzzing with the news that Honda Motor Company and Nissan Motor Company, Japan’s second and third-largest automakers respectively, are considering a merger by 2026. This potential move reveals the challenges that the industry faces, including the push for electric vehicles (EVs) and competition from Chinese automakers. If this merger goes through, it could result in the third-largest auto group globally, following Toyota and Volkswagen.

What Would the Merger Look Like?

If Honda and Nissan proceed with the merger, they would form a holding company by 2026. This shift would mean that their current stocks would be replaced by shares in this new entity. Most positions on the board and executive roles would likely be dominated by Honda executives. Mitsubishi, formerly part of the Nissan-Renault alliance, will not be joining this merger, which raises questions about the dynamics within the group.

However, the pressing question remains: Is this merger a good idea, and why are they even considering it?

Nissan’s Challenges

Exit from Renault Alliance

Nissan is currently distancing itself from its partnership with the French automaker, Renault. This situation makes it surprising that Nissan would consider merging with another company. The leadership at Nissan seems resistant to external influences on their decision-making, which may complicate the merger.

Early EV Lead Lost

Nissan was a pioneer in the electric vehicle market, introducing the Nissan Leaf, the first mass-market battery electric car, in 2009. However, it failed to expand its EV technology across its lineup effectively, leading to a significant disadvantage compared to competitors like Toyota, which successfully incorporated hybrid technology across various models. As consumers increasingly seek hybrid options, Nissan finds itself lacking viable alternatives, while companies like Honda and Ford have robust lineups of hybrid vehicles.

Aging Vehicle Lineup

The issues facing Nissan extend beyond electrification. The company has delayed updates for many of its models, which has kept them stagnant in a fast-evolving market. For example, the Nissan Murano, which was introduced in 2014, is just now seeing a replacement model for 2025. On the other hand, the Nissan Altima was last redesigned in 2019 and still hasn’t seen any major updates, while its competitors, such as the Honda Accord and Toyota Camry, have undergone significant redesigns.

Impact on Profitability

Due to the aging models, Nissan has to offer substantial discounts to move inventory, which adversely affects profitability. Reports indicate that for the first half of the fiscal year ending in September 2024, Nissan’s net income dropped drastically by 94%. A subsequent production cut and employee layoffs demonstrate the severity of the company’s situation.

While some attribute the decline to former CEO Carlos Ghosn’s leadership, that era ended six years ago. Despite this, Nissan’s conservative culture has hampered innovation, making it hard to rejuvenate its aging product lineup.

The Independent Path of Honda

Unlike other Japanese automakers that have formed partnerships, Honda continues to operate independently. Despite being a successful player in the industry, it has made some partnerships, such as those with GM for the production of electric vehicles. Honda’s own breakthrough automotive technologies are still on the horizon, set for release in 2026.

The Appeal of a Merger

So why would Honda consider merging with Nissan?

One clear benefit could be improved access to Nissan’s EV technologies, which are already in place. The merger might also enable both companies to benefit from economies of scale, reducing costs associated with manufacturing and development.

However, merging two distinct corporate cultures can be troublesome. Each company brings its own set of values, practices, and workforce arrangements, which could complicate integration efforts. This struggle might divert attention from addressing the rapid advancement of Chinese automakers, who can bring a new car to market in as little as 18 months.

Historical Context: This Isn’t the First Time

Interestingly, discussions about merging Honda and Nissan are not entirely new. In 2019, Japanese officials suggested the idea amidst concerns over the stability of the Nissan-Renault alliance. However, the proposal didn’t gain traction and never officially reached the boards of either company.

What’s Next?

Overall, while the merger could appear to have potential benefits, various factors complicate the situation. Nissan’s internal challenges, an aging product lineup, and differing corporate cultures may limit any upside for Honda. Over time, Honda has managed to thrive by focusing on partnerships that share technology rather than paperwork and bureaucracy.

There’s also the reality that many mergers fail. The histories of large auto companies show that struggling automakers often shed partnerships, leaving one side worse off than before.

Given the ongoing challenges in the automotive sector—such as diverse consumer demands and stringent government regulations—the merger may not be the clean solution it seems. Historical precedent and current factors indicate that partnership with a troubled company may lead to more complications rather than a smooth transition.

Conclusion

The potential merger of Honda and Nissan brings a mix of opportunities and concerns. If pursued, it could reshape the automotive landscape in Japan and beyond. However, the complexities involved, as well as the unpredictable nature of mergers in the automotive industry, leave plenty of room for skepticism regarding whether this partnership will truly benefit either company in the long run. As the two giants consider their next moves, the outcome will undoubtedly have major implications for the future of not just Honda and Nissan but the automotive industry as a whole.