Honda Merger Throws Lifeline to Troubled Nissan

Honda, Nissan and Mitsubishi have agreed to combine under a newly formed Japanese holding company, a plan hatched among the three automakers and the Japanese government, with Honda management taking a leadership role in the new company by 2026.

The deal is being done to keep Nissan from going bust.

After a peak in 2018 with annual revenues of approximately $107.6 billion, Nissan's revenue declined to $74.9 billion by 2022. A modest recovery followed, with revenues reaching $78.4 billion in 2023 and $87.5 billion in 2024. Nissan's profitability has been under significant pressure. In the first quarter of 2024, net profit plummeted 73% year-over-year to $185.6 million. This downturn led the company to revise its annual net profit forecast downward by 30%, anticipating a net profit of $2.0 billion for the fiscal year ending March 2025.

Nissan's market share has also diminished. In the U.S., the company experienced a 0.8% decline in market share in 2022, attributed to an aging product lineup and a lack of hybrid offerings. Additionally, in the third quarter of 2024, Nissan's share of the U.S. electric vehicle market stood at 2.4%, indicating challenges in the rapidly growing EV segment.

Embattled Nissan, fighting long-term sales decline, massive debt and crumbling profits, launched a revival plan in November that slashes global capacity and cuts 9,000 jobs worldwide.

A combined Honda and Nissan could generate annual revenue topping ¥30 trillion ($181.8 billion) and operating profit exceeding ¥3 trillion ($19.2 billion), the companies predicted at a Monday, Dec. 23 press conference.

What form a Honda rescue of Nissan would take has been percolating for weeks. There has been plenty of opinion about why a merger would be a bad idea given the fraught histories of mergers in the auto industry, as well as Honda having a fiercely independent culture.

Honda is expected to nominate the majority of directors of the new holding company and the CEO/president of the new company is expected to come from Honda.

The agreement between the two companies seems to take into account that slower integration will be better than faster, and that Nissan has an opportunity to gain from technology and purchasing scale without diminishing the best parts of Honda’s brand and engineering organization.

Honda CEO Toshihiro Mibe says the biggest benefits of combining under the new holding company won’t materialize until after 2030. “We have the potential to be a world-class, leading company in new mobility,” Mibe says. “By 2030, we need the artillery to compete on the battlefield. So, we are starting today.”

The Ghost of Mergers Past

Looming in the background, though, are the dismal results of past auto industry mergers. From BMW’s takeover of The Rover Group to Ford’s acquisition of premium European brands, to Daimler-Benz’s takeover of Chrysler and Stellantis’s combination of FCA, Peugeot and GM Europe.

“Merging Nissan and Honda creates scale, but accessing cost benefits from that scale is also a long-range process which can be costly in the short term,” analyst Stephanie Brinley writes in a comment. “Finding meaningful and sustainable synergies in the product portfolio, in product development and in manufacturing is where many mergers stumble and fail to live up to the potential.”

The counterweight to merger failure is taking a slow walk to realize the benefits of the scale created, keeping the companies separate under a holding company structure and Honda dominating management. Nissan is seen as taking a clear back seat.

The two companies can’t help but lower capital costs and R&D around electrification, battery and software. Additionally, Nissan can employ Honda’s hybrid technology. Honda can explore how it might use Nissan’s body-on-frame and large unibody platforms.

Mitsubishi Motors, which is 40% owned by Nissan, says it will announce whether it wants to be part of the new holding company in January. Nissan previously said it would sell its Mitsubishi stake as part of its restructuring.

Nissan and Honda would combine for 7.2 million vehicles produced annually. Mitsubishi would add another 895,000 deliveries, bringing total sales to more than 8 million.

Honda and Nissan plan to finalize an agreement by next June and establish the holding company by August 2026. The reason for the delay is to allow Nissan to run its restructuring and take the financial hits to its own balance sheet. Investors will be asked to approve the deal around April 2026. Both Honda and Nissan will be delisted from the Tokyo Stock Exchange and become subsidiaries of the new holding company.

Last year, Nissan emerged from two decades in its alliance with Renault after both companies agreed to rebalance their cross-holdings. Each company will have a 15% stake in the other after Renault sells down the balance of its 43% stake.