Why Honda and Nissan are negotiating a merger: NPR

Honda and Nissan have begun talks toward a merger that could create the world’s third-largest automaker.

The two major Japanese companies hope the partnership will allow them to better compete in an auto industry facing dramatic changes.

There are two major forces at play right now. The global auto industry is in the midst of a historic transition to electrification, while the world’s largest automakers face a formidable Chinese competitor.

As Honda and Nissan begin negotiations with the goal of completing their merger by 2026, here are some things you need to know.

China is winning both in China and abroad.

The rise of Chinese automakers such as BYD and Nio has eroded the market share of global automakers such as Honda, Nissan, and Volkswagen in China, a country that was once considered an important market. Ta.

In addition to being able to make cars more cheaply, Chinese automakers have won the hearts of Chinese consumers with electric vehicles and nifty software.

These Chinese startups are no longer content to be domestically dominant. They are currently focused on overseas markets, including key markets for Japanese automakers, such as Europe, where Chinese automakers are gaining market share.

And China is succeeding. The country has now overtaken Japan as the world’s largest exporter of automobiles.

Nissan has been struggling recently with weak sales, especially in the key U.S. market. Last month, for example, the company announced it would cut 9,000 jobs.

Honda’s performance has improved, but profits are still declining, mainly due to the slump in China.

Detroit-based auto industry analyst Sam Abuelsamid expects more global deals like those from Nissan and Honda to emerge in the coming years as automakers respond to the Chinese threat. It is predicted that there will be casualties.

“Some brands that have been around for a long time may no longer be a part of the world in five or 10 years simply because they are not big enough to compete with the big players and companies in the West. There is a Chinese company,” Abuelsamid said.

This is the main reason why analysts say Honda and Nissan are pursuing a merger. Mitsubishi Motors, in which Nissan holds a large stake, will also join the partnership.

Honda and Nissan are not making popular EVs.

The global transition to electrification is another force. Tesla has led the U.S. EV market, but other companies are close behind.

South Korean automakers Hyundai and Kia made Consumer Reports’ list of best mainstream EVs this year, while Germany’s Porsche and BMW performed well in the luxury car segment.

Honda and Nissan haven’t made much headlines, in part because they were slow to transition to electric vehicles, but Honda has had a little more success with hybrid vehicles.

A merger between the two automakers would create the world’s third-largest automaker behind Toyota and Volkswagen, with many potential benefits.

This could allow them to share their expertise and strengths. They may also benefit from improved vehicle production efficiency.

“Companies like Honda and Nissan are coming together to drive research and development, improve purchasing, and bring the financials all together to lower costs,” said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. There is a need,” he says.

Not all mergers make sense

Both Honda and Nissan rely heavily on the US market, where SUVs and sedans overlap a lot.

And mergers won’t solve all problems. In fact, there are many failed mergers in the auto industry. DaimlerChrysler once sought to merge Germany’s Mercedes-Benz and the storied American automaker Chrysler, but the deal ended in a split in 2007.

What does that mean for American consumers?

Not much in the short term. Honda and Nissan will continue discussions in the coming months and hope to conclude a deal by mid-2026.

However, if the merger goes through, there will be serious consideration as to which model and brand the joint venture will maintain. Analysts said Honda, as a large company, is in the driver’s seat when it comes to mergers, adding that there is no guarantee Nissan will survive as a brand.

Abuelsamid said Nissan’s luxury brand Infiniti in particular could be “allowed to disappear” because of its overlap with Honda’s Acura.

Eventually, we may also see new models, especially in electric vehicles. But changes will take a long time, from the model lineup to production to dealers.

“The automotive industry is moving at a glacial pace,” says Fiorani of AutoForecast Solutions. “Change takes forever to happen.”