Bailing Out Nissan From Going Bust – The Real Reason Honda, Nissan & Mitsubishi Merge, But It Won’t Change Anything

Bailing Out Nissan From Going Bust – The Real Reason Honda, Nissan & Mitsubishi Merge, But It Won’t Change Anything


December 27th, 2024 by financetwitter



Japanese carmakers Honda Motor and Nissan Motor is exploring a mega merger, which will also involve Mitsubishi Motor, in which Nissan is the top shareholder with a 24% stake. The merger would see Honda management taking a leadership role in a newly formed formed Japanese holding company by 2026. Make no mistake – this deal is nothing but to keep Nissan from going bust.

By hook or by crook, the plan has to succeed because the driving force is the Japanese government. Japan hopes that the merger to create the world’s “third-largest” auto group by vehicle sales, behind Toyota and Germany’s Volkswagen, could bail out not only Nissan, but also to create a bigger entity to compete with electric vehicle (EV) makers such as Tesla and China’s BYD.

However, this is not a done deal. Even if the merger were to proceed, there is no guarantee of success. Nissan’s problem did not happen yesterday. In 1999, French automobile maker Renault rescued Nissan from bankruptcy when it bought 36.8% of Nissan, which in turn took a 15% stake in Renault, which later increased its stake in Nissan to 43.4% by 2001.


Although Nissan was bigger and slightly more profitable, it was Renault that control the “Alliance” due to its significant voting stake in Nissan. Chairman and CEO of Renault, Carlos Ghosn tried to merge Renault and Nissan in 2018. But Ghosn’s November 2018 arrest in Japan and dismissal from both Nissan and Mitsubishi has raised doubts about the stability of the Alliance.

Even before the Ghosn crisis, Renault, Nissan and junior partner Mitsubishi have clashed due to differences in corporate cultures and opposing views over structures. Worse, it involved politics where French President Emmanuel Macron tried to bulldoze a merger between Renault-Nissan-Mitsubishi, which would create the world’s second-biggest carmaker.

Ghosn said his arrest, for allegedly under-reporting his income, was part of a Nissan conspiracy to prevent a full merger with Renault. An effort by Renault to merge with Fiat Chrysler collapsed in June 2019. Fiat instead announced a £35 billion merger with Renault’s rival PSA Group, owner of Peugeot. But Nissan’s problem is much bigger than clashes with Renault.


After a peak in 2018 with annual revenues of US$107.6 billion, Nissan’s revenue plunged to US$74.9 billion in 2022. But its profitability has been under pressure. In the first quarter of 2024, net profit plummeted 73% year-over-year to US$185.6 million. This downturn led the company to revise its annual net profit forecast downward by 30%, anticipating a net profit of US$2.0 billion for the fiscal year ending March 2025.

In terms of global sales, Nissan’s retail volume has been consistently dropping – 5.52 million units (2018), 4.93 million (2019), 4.05 million (2020), 3.88 million (2021) and 3.30 million (2022). Its volume increased slightly to 3.44 million in 2023. But its worldwide sales tumbled 5.5% in August 2024, marking Nissan’s fifth consecutive monthly decline.

The Yokohama-based automaker’s two biggest problem areas just happened to be China and the U.S. – Nissan’s two biggest markets, accounting for half of global sales. In China, its sales were so bad that it tumbled 24% and is closing a plant in Changzhou and cutting production capacity after years of deteriorating performance. It simply can’t compete with local carmakers offering EVs loaded with high-tech features.


In the U.S., meanwhile, Nissan is facing an altogether different issue. Despite absence of Chinese players due to tariffs, sales slipped even after offering deep discounts and spending truckloads of money on advertising and incentives. It was so bad that Nissan’s U.S. dealers’ profits plunged to 70% over the last year. Nissan dealers are having trouble even selling 2023 models.

It was already bad Nissan doesn’t have any hybrid models at a time gas-electric models are in vogue. Worse, not only the carmaker is cutting production of its main North American models by around 30% due to lacklustre sales, it is also slashing 9,000 jobs and reduces its global production capacity by 20%. To clear the inventory, Nissan will either have to bring in new models or cut prices. It had done both, but neither work.

While Nissan’s financial situation had gotten dire and is urgently looking for a long-term anchor investor – insider sources said it has 12-14 months to survive – to help the Japanese automaker stays afloat, Honda isn’t doing spectacularly well either in China. Honda has closed its fourth production line in October 2024, which has an annual capacity of 50,000 units and has been in operation for nearly 20 years.


As Honda’s sales in the Middle Kingdom plummeted 21.48% in the first half of 2024, the company has decided to venture into hydrogen-powered vehicle instead of refocusing into electric vehicles, which was the main reason it is losing ground in China in the first place. But unlike Nissan, Honda is doing quite well in the U.S. Still, Honda’s profits slipped nearly 20% in the first half of 2024.

Both Nissan and Honda have a common problem, which cannot be solved with the merger – China. Chinese car buyers in world’s largest auto market are shifting much more quickly and aggressively to electric and plug-in hybrid cars and trucks than most industry experts had expected. Combining two baskets of vegetables does not miraculously produce a basket of salmon fish.

Generally, in the traditional automotive world, a new generation model is introduced after about eight years, with a facelift – minor cosmetic update – which is also known as a mid-generational refresh around three to four years. That was how Japanese car manufacturers Toyota, Honda, Nissan, Mitsubishi, Mazda, Suzuki, Daihatsu and Subaru maximize their profits.


The emergence of Chinese electric vehicle manufacturers like BYD, Geely, Xpeng, GWM, and around 100 local EV manufacturers (down from 500 manufacturers in 2019 due to fierce competition) has disrupted not only the ancient internal combustion engine (ICE) technology, but has also disrupted the lengthy eight-year life cycle of a car model.

Chinese EV manufacturers often introduce a new model nearly every year, reflecting a rapid pace of innovation and a focus on staying competitive even among Chinese companies. That’s one factor how BYD, which started with a 20-person startup venture, took 15 years to reach its first 5 million NEVs (new-energy vehicle) but accomplished the second 5 million in just 15 months (Nov 2024).

China has, according to the New York Times, the capacity to produce over 40 million ICE (internal combustion engine) cars a year. At the same time, Goldman Sachs thinks the nation also will have the capacity to produce around 25 million electric vehicles by the end of 2025. In comparison, Japan produced around 9 million motor vehicles (including cars, trucks and buses) in 2023.


The best part is China now has an incredible capacity to supply over half the global market for cars, which are typically around 90 million cars a year. Crucially, it currently has the capacity to produce over two times its own domestic demand, which is about 25 million cars. The rising domestic EV sales, however, is freeing up ICE capacity for export, creating a massive overcapacity to compete with foreign cars.

Essentially, China car manufacturers – both ICE and EV – can cut prices whenever they like to grab market share. Nissan’s share in the U.S. electric vehicle market stood at 2.4% only, whilst Honda’s market share is 8.4% in Quarter-1 2024. Even if China is prevented from entering the U.S. EV market due to tariffs, how exactly can a merged Honda-Nissan compete with Chinese EVs?

A combined Honda and Nissan could generate annual revenue topping ¥30 trillion (US$181.8 billion) and operating profit exceeding ¥3 trillion (US$19.2 billion). But if they keep losing market share in China, it’s not rocket science that the revenue and profit will continue to drop. Merging Nissan and Honda creates scale, but not necessarily cost benefits in the long run.


On the contrary, they would cannibalize each other in the same ICE market segment while watching Chinese EVs steal their lunch. And if past mergers are any indicator, a forced merger of Honda, Nissan and Mitsubishi may fail. From BMW’s takeover of The Rover Group in the 1990s to Daimler-Benz’s takeover of Chrysler, the results have been one huge disappointment.

Get real, you can’t find meaningful and sustainable synergies in the product portfolio of Nissan or Honda, let alone in product development and in manufacturing. That alone is a recipe for disaster. The merger is nothing but to rescue Nissan from bankruptcy. Honda is being forced to take on Nissan’s problems. There will be more layoffs and cost-cutting due to duplication between Honda and Nissan.