Carmakers Nissan and Honda call off merger talks

Japan’s Nissan and Honda have ended discussions on a deal that would have created the world’s third-largest carmaker.

The two companies, along with their junior partner Mitsubishi Motors, agreed to “terminate” a memorandum of understanding to join forces, Nissan said in a statement on Thursday.

“Going forward, Nissan and Honda will collaborate within the framework of a strategic partnership aimed at the era of intelligence and electrified vehicles, striving to create new value and maximize the corporate value of both companies,” it said.

Nissan and Honda had announced in December that they would begin talks over the following six months on a possible merger, in a deal that would have given them more firepower to compete with growing competition from Chinese carmakers like BYD.

The deal was motivated by the need to combine their resources to remain competitive as the industry transitions to electric vehicles. However, after just a few weeks of talks, negotiations appeared to stall.

During the discussions, various options were considered regarding the structure of the business integration, according to the statement.

Honda proposed changing the structure of the intended merger from a joint holding company, as agreed initially, to a deal with Honda as the parent company and Nissan its subsidiary through a share exchange. Both companies concluded eventually that it was best to “cease discussions,” the statement added.

Nissan has struggled since the collapse of its long-standing alliance with French carmaker Renault. It faces severe financial problems that put it in desperate need of a larger partner. Some analysts had speculated Nissan could face bankruptcy as soon as 2026 when it has a huge amount of debt coming due.

Nissan’s profits in the six months ending in September plunged 94% compared with the same period in 2023, as the company lost money on auto operations and reported only a narrow profit due to its financing business. In response, Nissan announced it would cut its manufacturing output by 20%, laying off 9,000 workers as a result. It also slashed its forecast for full-year operating profit by 70%.

Intense competition

Beyond its financial problems, Nissan – like most legacy automakers – faces huge research and development costs in the transition from making gasoline- to electric-powered vehicles required to comply with tougher environmental regulations around the world.

The company has had some success with its EV offerings, such as the Nissan Leaf, an asset it brought to the table in merger discussions, despite its financial problems.

EV development costs have created a powerful incentive for carmakers to explore mergers as a way to share the financial burden, according to analysts.

“Industry consolidation should be the ‘theme’ for global automakers in 2025,” James Hong, an energy transition and autos analyst at Macquarie Capital, wrote in a research note in December before Nissan and Honda confirmed they were in talks. “We think Honda and Nissan need each other.”

Since 1999, Nissan has been in an alliance with Renault. The two agreed in January 2023 to restructure their partnership, with the French company whittling down its stake in the Japanese carmaker to 15% – a significant milestone in their long collaboration.

The carmakers had worked in tandem, alongside junior partner Mitsubishi Motors. The alliance had allowed them to share production and technology and ultimately save billions of dollars a year. But the grouping fell apart after the stunning downfall of its former chief Carlos Ghosn in 2018.

Source: CNN
--Agencies