A Honda-Nissan merger is a slow-moving savior

By Gearoid Reidy

It finally might be happening: A quarter century after Nissan Motor Co.’s bailout by Renault SA, six years after the shock arrest of savior-turned-fugitive Carlos Ghosn and five years after it was first proposed, the troubled Japanese automaker might find a permanent ally in the form of Honda Motor Co.

An agreement for the two carmakers to seek a merger could come as early as Monday — a Christmas gift that’s not a moment too soon. There are lots of problems with the proposed combination, but it’s the deal that’s available. The alternatives look a lot less pretty.

Regardless of what you might have read, Japan’s auto industry isn’t collapsing: Toyota Motor Corp has been the world’s largest carmaker for the last four years running, and its decision to stick with hybrids while rivals rushed into electric vehicles looks increasingly smart. That’s especially true in the US, where the incoming Trump administration is reportedly preparing to cut support for EVs and block cars and components from China.

Nissan, however, is struggling — burning through cash and with billions of dollars of debt due in a little over a year. Like Honda, it is discovering, as so many firms before them, that overdependence on a fickle Chinese market is dangerous. And it’s running short of both options and friends: Nissan’s alliance with Renault was always the wrong fit for both parties, held together only by Ghosn’s outsized personality. A mooted merger with such a key-man risk was always a bad idea, and both parties have mostly been trying to unravel it ever since his arrest.

Is the famously independent Honda the right choice? Hours after the initial stories of the merger, further reports broke that Taiwan’s Hon Hai Precision Industry Co, better known as Foxconn, had sought to take control of Nissan. It’s a curious choice, until one considers that former Nissan number three Jun Seki is the chief strategy officer for the Taiwanese firm’s EV arm. But Foxconn, with great ambition but little experience in the car business, might have been no better a fit than Renault. Consider its flawed stewardship of the last faded Japanese giant it bought, Sharp Corp., which has reported massive losses for the last two years and is exiting TV panel production, with its share price down 96 per cent from its peak.

And with the rest of the domestic sector in bed with Toyota — which owns stakes in Mazda Motor Corp, Suzuki Motor Corp, Subaru Corp, and Isuzu Motors Ltd, along with half of Hino Motors Ltd and the whole of Daihatsu Motor Co — Nissan doesn’t have much choice. (The country’s other carmaker, Mitsubishi Motors Corp, is part of Nissan’s alliance and will seemingly be subsumed into the newly merged entity in time.)

That means a Nissan-Honda deal would, at long last, create two poles in Japan’s auto industry — one broader reason the deal should be welcomed. It may also be a sign that the authorities might be focusing on the bigger picture for its automakers, having wasted much of the last 12 months chastising Toyota and others with scarcely important testing lapses, even as a generational change occurs in the industry.

Doubtless, it will be far from ideal. Much depends on the terms: Should it be conducted as a face-saving merger, where Nissan is given equal weight to the much larger Honda, then it’s right to be skeptical. Such dignity-preserving alliances of unequals have been common in Japanese M&A over the years, but quickly led to power struggles among competing fiefdoms.

Concerning, too, is that this is happening from a position of weakness, perhaps in a hasty attempt to dodge Foxconn and keep Nissan in Japanese control. It would have been far better to take this step five years ago, when it was reportedly first proposed by the country’s powerful trade ministry.

Nissan and Honda also have relatively little synergy for parts in their competing platforms. But what choice do they have? It gives both firms the chance to find benefits in what would be the world’s third-biggest automaker by sales, in an era where bit-players are going to get left behind. Nissan, in particular, might benefit from Honda’s stable management after a post-Ghosn era marked by a power vacuum and executive churn. It could also bring Nissan, the company that mass-produced the first EV, into Afeela, Honda’s intriguing EV tie-up with Sony Group Corp, another national champion.

After all, just like when choosing a car, there’s never a perfect answer — just the set of wheels that best fits your needs.