The idiom, ‘two heads are better than one’ would be the perfect description for the proposed merger between Honda and Nissan. In a bid to stay competitive in an automotive world that is fast changing with the electrification movement, these two rival Japanese carmakers are exploring a merger to join forces. This news sent shock waves through the global automotive industry. More interesting is that there are also speculations about Mitsubishi joining the party, making this merger a powerful trio if it should go through.
What prompts a merger?
Honda and Nissan are both big car companies that have been around for well over 50 years. These car companies were even rivals, especially in the 1990s when the Honda NSX and Nissan GT-R competed for dominance. So why exactly would these two supposed enemies consider working together? Well, since the whole scandal and arrest of Nissan’s former CEO, Carlos Ghosn, Nissan has been struggling financially. Both Nissan and its luxury arm, Infiniti, have been experiencing low sales figures and it was speculated that the company was headed for bankruptcy. Nissan recently announced that its profits for the year will be 70% lower than expected and suffered a $60 million loss last quarter. So we can clearly see that Nissan is currently not in a good place financially and that is where Honda comes in.
Honda on the other hand is doing quite well financially. Honda’s operating profit increased by 90.2 billion yen (890 billion naira) to 484.7 billion yen (4.8 trillion naira) from the same period last fiscal year. However, the goal of a business is to make more profits. This is why Honda aims for a 5 percent return on sales for its Electric Vehicle (EV) business as of 2030. This means that Honda needs to quickly improve their EV department and this would cost a lot of money. But, what if Honda could find a car company that needs financial support and in exchange help them develop their EV lineup? Yes, they can and that exact car company is Nissan. Nissan’s Ariya EV has been doing very great in the market and it would be nice for Honda to tap into its success.
What does the merger offer to both parties?
At first this supposed merger seemed to be a kind of commensal relationship in which only one party gets all the benefits. But when you put things into perspective, you realise that it is a mutual one as both parties would benefit from this merger. Moreover, many auto giants are struggling to cope with increased global competition from bigger electric vehicle makers such as Tesla and Chinese automaker BYD. But with a Nissan and Honda merger, they can easily collaborate on producing key components for EVs. The prospective tie-up could create the world’s third-largest auto group by vehicle sales, with 8 million sales annually, according to Citi. That would place Nissan-Honda-Mitsubishi behind fellow Japanese automaker Toyota Motor and Germany’s Volkswagen, respectively.
Ultimately, the proposed merger would be great for both Nissan and Honda as they would save a lot of money in the research and development of new EVs. More so, with a reduced cost of production, this means that the eventual products or rather, cars, will be cheaper. EVs are generally pricey, so having relatively cheaper EVs would give them an edge over the competition. Aside from the EV development, a potential merger would also spell good news for gearheads like me, because there is hope for a new Honda NSX and a reborn Nissan GT-R. All things being equal, this merger would be a great one and will probably spark similar mergers in the near future. For now, we watch and wait to see the outcome. What are your thoughts?
