Why Nissan’s Future Hangs on Willingness to SubmitWhy Nissan’s Future Hangs on Willingness to Submit

Nissan’s management and board are rejecting merger terms with Honda Motor Co. and are seeking a third-party investor or new merger partner that will ensure the troubled automaker’s independence as it tries to restructure itself.

A plan for the two companies to join under a new holding company in 2026, and find cost savings on R&D, purchasing, EV and battery work, platform sharing and more, hit the rocks when Honda reportedly insisted Nissan become a subsidiary of Honda rather than an equal partner.

Read: Why Honda and Nissan Merger is Unlikely, Dec. 14, 2024.

That move by Honda was made to subordinate decision-making that could impact Honda by Nissan management, principally Nissan CEO Makoto Uchida. Uchida, perhaps not surprisingly, has rejected that corporate structure.

Foxconn, the world’s largest electronics manufacturer, has been making overtures to Nissan, but thus far Uchida has resisted because Foxconn reportedly wants a majority stake, and Nissan would prefer to only surrender a minority stake. Foxconn has also reportedly approached Renault to take over the French automaker’s 35% stake in Nissan as a foothold.

Foxconn has been trying to enter the auto industry for a decade without much success but has developed its own software-defined-vehicle platform.

All that still leaves Nissan casting about for a partner, and not for the first time.

In the late 1990s, Nissan was on the brink of financial collapse due to decades of mismanagement, bloated costs and lack of innovation. Several factors led to its near bankruptcy. The company had a crushing $22 billion in debt, largely due to excessive investments in underperforming factories and a failure to cut costs. It had fallen far behind Toyota and Honda in both quality and efficiency, losing market share in Japan and globally.

Nissan was losing money on nearly every car sold, particularly in North America and Japan.

Renault invested in Nissan in 1999, acquiring a 36.8% stake for $5.4 billion. Renault ultimately decided to forge a deal with Nissan in which both companies held equity stakes in one another. General Motors, DaimlerChrysler, Ford and Honda all had kicked the tires on Nissan but passed because of the company’s debt load and lack of innovation assets and brand value.

CEO Carlos Ghosn, appointed by Renault’s board to fix Nissan, implemented the Nissan Revival Plan, a radical restructuring effort that prioritized cost-cutting, efficiency and product revitalization.

Ghosn shut down five unprofitable factories in Japan, a move previously considered taboo in the country’s corporate culture. He reduced Nissan’s supplier base by half, demanding better pricing and efficiency from those that remained. And Nissan’s debt of $22 billion was eliminated within three years, bringing the company back to financial health much quicker than anyone expected.

The alliance enabled Renault and Nissan to share platforms, engines and technology, reducing development costs. Joint procurement between the companies saved billions in annual costs.

The story of Ghosn’s departure in 2018, including his arrest in Japan and subsequent escape to Lebanon, is well known. Uchida replaced Ghosn.

Uchida has begun a restructuring plan that includes cutting 9,000 jobs and reducing manufacturing capacity, but without closing factories, which is one of the sticking points for Honda in Nissan’s restructuring plans, according to Japanese news reports. Honda's desire to relegate Nissan to subsidiary status has much to do with Honda wanting a free hand to further restructure Nissan’s operations when it gained control.

Todd Duvick, auto analyst at CreditSights, emphasizes Nissan's pressing need for a robust partner to navigate ongoing global challenges from Chinese automakers and costs related to electrification. “Without such an alliance, Nissan might struggle to maintain its position in key markets, especially given its prolonged financial difficulties and aging product lineup.”

Uchida doesn’t have a lot of success to stand on, but for now the board of directors is standing with him.

Between 2018 and 2024, Nissan Motor Co. Ltd. experienced a cumulative total shareholder return of approximately -41.56%. This figure encompasses both stock price appreciation and dividends paid during this period. Honda shareholders’ return in the same period was +47%.

Nissan’s global sales volume dropped by 2.3 million vehicles a year between 2018 and 2024 under Uchida, with a decline in market share from 6.6% to 4.5%, according to Nissan’s financial reports. Honda has had sales challenges too, reporting that global sales fell from 5.32 million vehicles in 2018 to 3.43 million vehicles in 2024. But it has been better at managing that decline, as evidenced by its shareholder returns.

Those numbers show how Honda would benefit from adding Nissan’s scale to its future product development costs, purchasing, back-office functions, etc., and eventually plant-sharing of vehicles built on common platforms. Under that scenario, some Nissan plants would almost surely need to close, and perhaps more Nissan jobs would be cut than Uchida currently plans.

While there is some consensus that the two companies would do well to find a collaborative future, some analysts point out it will take time to rationalize the strength and weaknesses of both companies. Vincent Sun, analyst at Morningstar Inc., points out that both Honda and Nissan lack compelling electric-vehicle offerings. “The combined entity would still face the challenge of building a new EV model pipeline,” Sun says, also mentioning the difficulty for Nissan if it had to play a smaller role in the new entity rather than stand on an equal footing with Honda.

Most investors, though, seem to favor a takeover of Nissan, while they also recognize the potential for Honda to be harmed long term by the tie-up. Following reports of Nissan's intent to back out of the merger, Nissan's shares experienced a decline of over 4% the first day, reflecting investor concerns about the company's independent viability. Honda's shares rose more than 8%, indicating investor confidence in Honda's prospects without the merger.