Why a Merger Between Nissan and Honda Is Unlikely

While even the hint of a merger between Honda and Nissan sent shares of the latter up more than 20%, the more likely scenario is that Honda replaces Renault as a major shareholder and alliance partner of the struggling automaker.

Honda forged a joint venture agreement with Nissan [How Nissan Hit The Wall] last March, explaining at the time that the two companies would explore sharing technology and capital investments. Earlier this year, Renault reduced its stake in Nissan from 43% to 15%, minimizing the hit on its own earnings from Nissan’s financial woes. [Nissan Renault Alliance Can Be Replaced By Honda]

Since then, Nissan has been scrambling, announcing a headcount trim of some 9,000 jobs and a 20% reduction in global capacity as the company’s sales in Europe, China and North America are all trending downward.

Nissan, Honda and Mitsubishi – Nissan owns a 34% stake in Mitsubishi – announced in August that they will share components for electric vehicles like batteries and software for autonomous driving.

That alliance model has proved to be effective. Toyota, for example, holds equity stakes in Mazda and Subaru, with the benefits thus far being the sharing of technology, especially that which impacts electrification and some vehicle platforms. By combining forces, the companies do not duplicate efforts and can scale capital costs across greater sales volumes.

An alliance between Honda and Nissan would also result in the three companies commonizing components and systems across all vehicles that would lower costs. General Motors CEO Mary Barra noted this month that one of the items on its list of ideas for optimizing an alliance being explored with Hyundai Group would be HVAC systems. There is no brand-specific quality of an HVAC system, said the CEO. Consumers just want it simple and reliable, she added, and so there are costs to be saved for both companies.

All three companies operating separately lack scale, compared with rivals, and disadvantages them in technology development, capital investment and purchasing. As of Dec. 17, Honda had a market cap of $39.9 billion. Nissan’s market cap was $7.6 billion, and Mitsubishi’s $4.04 billion.

Nissan reported global sales of about 3.4 million vehicles in 2023. Honda’s global sales were about 3.9 million vehicles. Mitsubishi’s sales were 1.02 million. In contrast, Toyota’s sales last year were 11.23 million before adding in Mazda’s and Subaru’s sales volume across which it can scale parts and systems.

Distracting and Destructive

Yes, a merger of the three companies would result in a much larger automaker. But the enterprise costs of a full-blown acquisition merger could be so distracting and destructive to the potential benefits that Honda, one of the perennially best-managed companies in the industry, would have to think ten times through going that route.

Honda, a fiercely independent company, has long resisted mergers and acquisitions, and has been a limited JV partner with GM and BMW, while other automakers have forged far more extensive JVs.

Honda’s dabbling in a joint venture with GM resulted in the current Honda Prologue and Acura ZDX BEVs being built on GM’s Ultium platform. But that JV seems to have been one-and-done save for continued joint work on hydrogen technology.

Even with the proposed restructuring of Nissan, the company’s independence is in question given its comparatively small size and lack of brand equity. Nissan has long been a weak brand, typically selling at a discount to rival Toyota’s and Honda’s models. Fitch Ratings recently downgraded Nissan’s credit outlook to “negative,” citing worsening profitability, partly due to price cuts in the North American market. 

And Honda is in no position to take on and digest another company’s ills. Honda reported its profits slipped nearly 20% in the first half of the April-March fiscal year from a year earlier, as sales suffered in China.

Costs and price pressures are likely going up, not down, for foreign-owned automakers in the all-important North American market as Donald Trump seems intent on raising tariffs on all imports – parts and components as well as finished vehicles. While Trump keeps repeating the falsehood that foreign countries pay tariffs levied by the U.S. government, the truth is that U.S. sellers pay the tariffs and then pass on higher prices to U.S. consumers if they can. And U.S. consumers are showing resistance to new-vehicle pricing, which is averaging between $48,000-$50,000. There is resistance to rising prices in Europe as well.

A JV among Honda, Nissan and Mitsubishi would allow the companies to optimize Honda’s and Nissan’s U.S. manufacturing facilities to mitigate tariffs without having to build new plants.

Honda Independence

Honda has a deeply ingrained culture of independence, originating with its founder Soichiro Honda. The company prides itself on charting its own path and staying self-reliant, which is evident in its refusal to form alliances even during challenging times. Merging with another automaker could be perceived as compromising this fiercely independent identity.

The company has been an observer of several botched mergers, such as Daimler-Benz and Chrysler, BMW’s acquisition of The Rover Group and the agglomeration of brands and companies in Stellantis.

Honda's culture places a heavy emphasis on engineering innovation and perfection, often prioritizing long-term technical development over short-term profitability. A full-on merger with another automaker might lead to conflicts over product development philosophies or compromises in engineering priorities. Honda's leadership and engineers would resist any shift in focus that could dilute this identity.

For Honda, the cost of merging with another major automaker likely outweighs the potential benefits when considering its deeply ingrained independence, engineering-driven culture and commitment to brand integrity.

All the potential benefits of a merger might be realized with a carefully planned alliance, with a possible investment stake by Honda to help Nissan’s cash position.