The proposed merger with Honda is the best solution right now for Nissan.Mumbai: Nothing is official yet but it is only a matter of time before Honda and Nissan announce their merger which will include Mitsubishi as part of the overall structure.
The news was broken by Nikkei Asia and even while the two Japanese companies have not confirmed it yet, industry observers say this is as good as done. It was earlier this year when the duo first made known that they were in talks for teaming up in strategic areas.
Since then, things have been going steadily downhill for Nissan which recently reported that it would be axing 9,000 jobs worldwide while making it known that it was in dire straits. There was yet another report indicating that the Japanese automaker had barely 15 months to survive and would require a lifeline in the form of a longterm investor to stay afloat.
The proposed merger with Honda is the best solution right now for Nissan and, as a top executive says, the directive has in all likelihood come in from Japan’s Ministry of International Trade and Industry (MITI). “The underlying message is that Japanese automakers must be protected at any cost especially with the growing threat from China in electric vehicles,” he adds.
Little love lost
It is also no secret that there is little love lost between the two countries, something that has been carried over for decades since World War 2. China is already the top producer of cars in the world with over 30 million units annually. It is also the leading exporter with a fifth of its output shipped out worldwide and it now plans to extend this dominance to the EV segment.
Japan’s auto industry, in contrast, is a shadow of its glorious past when it was once the monarch of all it surveyed. Its carmakers have also been a lot slower with their efforts on the electrification front. Sure, Toyota continues to be the global leader in automobile sales but Chinese brands like SAIC, Geely and BYD are now firing on all cylinders. Their aggression has caused tremendous anxiety in Europe and the US which remain paranoid about China’s growing might in EVs.
The merger of Honda and Nissan along with Mitsubishi (where Nissan holds 34%) will, hopefully, counter this offensive from China as MITI does its bit in drawing up a safety net for Japan’s automakers. “Honda and Nissan need to work really hard in building a harmonious relationship. Egos should be set aside and the top priority lies in creating a strong entity that can take on new challenges,” says the executive quoted earlier in this story.
According to him, the two companies should take the cue from Toyota and Suzuki which, over the last eight years, have strengthened their alliance considerably. What began as benign product swaps has gradually grown to technology support, exploring new markets and now ready with joint development of electric vehicles which will be launched in 2025.
Good synergies
There is no question that Toyota is easily the bigger of the two in terms of scale and global presence but Suzuki brings to the table tremendous cost efficiencies in manufacturing that no other carmaker can even hope to emulate. It is this strength that has enabled the company to remain the market leader in India for many decades now whereas Toyota has found the going a lot tougher.
However, as a joint front now, the two Japanese automakers make up a formidable twosome and their combined numbers will grow dramatically in the years to come. “It is mutual respect that is the driving force of this relationship and explains why it has emerged as a success story. There is no question of big versus small but in acknowledging the strengths and competencies that each company brings to the table,” says an industry observer.
This also explains why there have been no murmurs of discontentment brewing between the partners simply because there is no need to. Compare this to the time when Suzuki had teamed up with Volkswagen and things got really bitter towards the end when it became amply clear that the alliance was heading nowhere. When the divorce finally happened, a relieved Osamu SuzukiChairman of Suzuki chairman said, “It used to feel as if a small bone were stuck in my throat…I feel so refreshed now”.
He added that the period of this troubled relationship was a “precious experience” where he apparently “learned there are different types of companies”. Suzuki was also quick to dismiss the possibility of any future partnership with VW and reiterated that “you will not remarry someone you have divorced”.
Better ally
Within a year of this acrimonious parting of ways, the Japanese automaker found a far more accommodating partner in Toyota and the transformation since then has been remarkable. The Indian plants of both companies are now being optimised with plans to increase capacity during the course of this decade.
The pace will only quicken thereafter and there is very possibility of the two even setting up joint facilities abroad if the need arises. Toyota’s other compact arm, Daihatsu, will also be an integral part of this roadmap.
The Toyota template could serve as an important reference point for Honda-Nissan-Mitsubishi as they go about planning their new business model. They need to bury their cultural differences and come together on a new platform based on trust and respect as what has been clearly evident in the Toyota-Suzuki partnership. Honda also has an alliance with Sony for EVs and it remains to be seen how this will also be integrated with the merged entity comprising Nissan and Mitsubishi.
Difficult times
For Nissan, things have been traumatic since the time it pulled the plug on its former CEO, Carlos Ghosn, and had him arrested in a dramatic sequence of events in Tokyo six years ago. Never mind that this was the same individual who had worked on the merger of Renault and Nissan way back in 1999 and had showcased it to the world as the best example of a multicultural marriage. This was especially evident in the backdrop of the Daimler, Chrysler merger backfiring badly and leaving stakeholders battered and bruised.
Ghosn was jailed on charges of financial impropriety even though speculation was rife that this was more to do with his plans of merging Renault with Nissan, something that was unpalatable to the Japanese partner. At the time of its rescue, Nissan was weak and vulnerable but over the years as it grew in strength too, there was this sense of growing anger about being given the step-motherly treatment by Renault.
These differences came to the fore when Ghosn was arrested and the new leadership that followed just could not breach this trust deficit that had built up over the years. Nissan, meanwhile, was on a shaky wicket and things have only got worse in recent times with its market share taking a beating in the US and China.
“Perhaps, the script would not have turned awry had Ghosn still been at the helm of affairs. He was the glue that held Renault and Nissan together and it would have been interesting to see his response to the Chinese onslaught,” says another industry observer.
Dual tracks
MITI has now clearly drawn up two big structures for Japanese carmakers — one led by Toyota in a cluster that includes Suzuki, Daihatsu and Mazda while the other will be Honda along with Nissan, Mitsubishi and Sony. There is no clearcut direction on two-wheelers yet but a battery consortium in already in place with Honda, Yamaha, Suzuki and Kawasaki. On the truck front, Hino Motors of the Toyota group is due to merge with Mitsubishi Fuso that is part of Daimler Truck.
China clearly has been a disruptive force in the automobile world and has sent out a clear message that it is here to stay and rule the arena. While Japan is creating its own firewalls through consolidations, it will be interesting to see how huge entities like Stellantis, created through the merger of Fiat and Groupe PSA and also has brands like Opel, Vauxhall and Leapmotor of China in its portfolio, will stand up to the challenge. More so when its CEO, Carlos Tavares, recently called it a day following differences with the leadership team.
“These are difficult times for the global automobile industry with wars happening in Europe and the Middle East. There is no clue how the new Trump administration will plan out its strategy by way of more tariffs on cars imported from China and Europe. We can only keep our fingers crossed and hope for the best,” says an industry leader.
