How Will a Merger of Honda and Nissan Affect the Auto Industry?

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Two Japanese automakers are merging and planing to create the third-largest auto manufacturer in the world. It’s a move that hopes to rejuvenate the Japanese auto industry.

“Japanese automakers Honda and Nissan have announced plans to work toward a merger that would form the world’s third-largest automaker by sales, as the industry undergoes dramatic changes in its transition away from fossil fuels,” the Associated Press reports. “The two companies said they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors Corp. also had agreed to join the talks on integrating their businesses.”

The two companies want to fast-track the merger. They’re aiming at drafting a formal merger agreement by the summer and putting the new company on the Tokyo Stock Exchange by August 2026. The merger would put the new company just behind Toyota and Volkswagen as the third-largest automaker worldwide.

The two companies are confident that the merger will go through. Toshihiro Mibe, president of Honda, said, “Frankly speaking, the possibility of this not being implemented is not zero.”

“We have come to the realization that in order for both parties to be leaders in this mobility transformation, it is necessary to make a more bold change than a collaboration in specific areas,” Mibe added.

“We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a wider customer base,” Nissan CEO Makoto Uchida said.

The two companies are looking at a potential merger as a way to remain competitive in one particular sector of the market: electric vehicles (EVs). The preferred vehicles of the we-know-better-than-you set are more popular in Europe and Asia than in the States, and Japanese automakers are dealing with a formidable threat from China’s cheap EVs.

The merger “will create one of the largest companies in Japan. It will be the third-largest auto manufacturer in the world. And it will be big enough to withstand the emerging competition from China,” notes Matthew Lynn at The Telegraph. “A merger of Honda and Nissan may well prove vital for saving the mighty Japanese car industry.”

“Honda and Nissan have already announced a strategic partnership to cooperate on making electric vehicles,” Lynn continues. “Even so, deepening financial troubles at Nissan, which is also a significant player in the British market, means it is likely to be open to a deal with its larger rival.”

The potential merger would have to overcome some regulatory hurdles in Japan, but officials in that country may see it as necessary to jump-start Japan’s car industry. But could it create issues in other countries?

“As the business environment surrounding the automobile industry largely changes, with competitiveness in storage batteries and software is increasingly important, we expect measures needed to survive international competition will be taken,” Cabinet Secretary Yoshimasa Hayashi said.

“A full-scale merger would face significant regulatory scrutiny, not just in Japan, where if we are being honest it is likely to be waved through, but more seriously in the United States, where Donald Trump has made reducing foreign car imports a key policy objective,” Lynn writes.

Would other companies in other countries follow suit? Could we see more super-companies emerge to fend off the Chinese behemoth? I guess we’ll have to see.

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