Honda and Nissan: Major Reorganization Meant to Confront A Period of Transformation

Editorial

14:59 JST, December 19, 2024

By launching a large-scale reorganization, Honda Motor Co. and Nissan Motor Co., two companies that represent Japan, may be seeking to confront what has been called a once in a century transformation of the automobile industry.

For Japan, where automobiles are a key industry, the management of leading car manufacturers has a major impact on the overall economy and employment. It is hoped that the reorganization will lead to the development of a world-leading corporate group.

It has become known that Honda and Nissan are in talks to integrate their operations. The two companies intend to establish a new holding company that both would be placed under. They are also reportedly considering adding Mitsubishi Motors Corp. to the merger. Nissan is the largest shareholder of Mitsubishi.

If the merger of the three companies is realized, sales will exceed 8 million units, making it the world’s third-largest automaker group after the Toyota Group and Germany’s Volkswagen Group. The creation of a world-leading automobile alliance would have a major impact. It is also expected to trigger new corporate alliances and cooperative ties.

The competitive environment in the automobile industry is changing dramatically. In the electric vehicle market, Tesla Inc. of the United States and BYD Co. of China boast overwhelming competitiveness. The reality is that not only Japanese automakers but also traditional manufacturers in Europe and the United States are struggling.

This year, Honda and Nissan announced collaborative measures for EV production. The reason for the two to take the extra step toward a business merger now is a sense of urgency that they will not be able to survive unless they strengthen ties and accelerate improvement of their development capabilities and management efficiency.

Compared to gasoline-powered vehicles, EVs have fewer parts and are developed extremely quickly. On the other hand, the development of new technologies, such as batteries, which determine the driving range, in-vehicle software and automated driving, requires huge sums of money.

It is important that the companies take advantage of their expanded business scale from the integration and share a huge sum of investment. Cost reductions can also be expected from volume efficiency through the standardization of storage batteries, which are a key component. The two companies also need to collaborate in software development.

The automakers are considering the merger largely due to the fact that Nissan’s operation is in a difficult situation. This is because Nissan’s net profit dropped about 90% from a year earlier in the consolidated financial results for the first half of the fiscal year ending September 2024, forcing it to cut 9,000 jobs.

The merger has also likely been spurred by reports that Hon Hai Precision Industry Co., a major Taiwanese electronics firm, is seeking to take a stake in Nissan.

The merger talks going forward may have their twists and turns, including the wishes of the Renault Group, which owns a stake in Nissan.

Honda’s management has some surplus power for the present due to its strong sales of hybrid vehicles, the mainstay of its earnings. It is hoped that the two companies will take advantage of each other’s strengths to formulate a strategy for the future.

(From The Yomiuri Shimbun, Dec. 19, 2024)