Honda and Nissan are holding talks to deepen their cooperation, including the possibility of a merger, in a move that represents the most prominent sign so far of how to reshape the Japanese auto industry, which was previously considered unbeatable, in light of the increased challenges from Tesla and Chinese competitors, according to informed sources.
The merger between Honda and Nissan will create a company worth 54 billion dollars with an annual production of 7.4 million cars, making it the third largest car group in the world in terms of car sales after Toyota and Volkswagen, reports “Reuters”.
The two companies had already established a strategic partnership in March to cooperate in the development of electric vehicles, but the deep financial and strategic problems faced by “Nissan” in recent months have increased the urgency of stronger cooperation with the larger “Honda”.
“Nissan” announced a plan to save 2.6 billion dollars last month, which includes cutting 9 thousand jobs and 20 percent of its global production capacity, as declining sales in China and the United States led to an 85 percent drop in profits in the second quarter.
“It seems that this deal is mainly aimed at saving Nissan, but Honda itself is not satisfied with what it has achieved,” said Sanshiro Fukao, executive fellow at the itosho Research Institute, adding that Honda’s cash flow will deteriorate next year, and its electric cars have not achieved much success.
Nissan shares closed up about 24 percent in Tokyo trading on Wednesday, while Honda shares, which have a market value of 43 billion dollars and are four times larger than “Nissan”, fell by 3 percent. Shares of “Mitsubishi Motors”, of which Nissan is the largest shareholder with 24 percent, also rose by 20 percent.
The companies are facing challenges from electric car makers, especially in China, where “BYD” and others have excelled.
The discussions are focused on finding ways to strengthen cooperation, including the possibility of creating a holding company, according to the sources, who declined to be identified as the information has not yet been published. The two companies are also discussing the possibility of a full merger, according to one of the sources, in addition to exploring ways of cooperation with “Mitsubishi”.
Two informed sources reported that the French company” Renault”, the largest shareholder of” Nissan”, is in principle open to the deal and will study all the ramifications of the merger. Shares of “Renault” rose by 6.1 percent at 12: 17 (GMT).
The three Japanese car companies are expected to hold a joint press conference in Tokyo on Monday, according to an informed source.
Earlier, two separate sources reported that the Taiwanese “Foxconn”, which manufactures iPhone phones for Apple, and was seeking to expand its business in the manufacture of electric cars, had submitted an offer to acquire Nissan, but Nissan rejected the offer.
Over the past year, the pressure on car companies that have suffered losses in the manufacture of electric cars has increased due to the price war launched by “Tesla”,”BYD”, prompting companies such as “Honda” and”Nissan” to look for ways to reduce costs and accelerate the development of cars. The merger is a big step in this direction.
“In the medium and long term, this is good for the Japanese auto industry, as it creates a second axis against (Toyota),” said Seiji Sugiura, senior analyst at Tokai Tokyo Intelligence Laboratory.
“Constructive competition with Toyota is a positive thing for Japanese industry, which is experiencing a recession, at a time when it has to compete with Chinese companies, Tesla and others,”he added.
Analysts at Standard & Poor’s said on Wednesday that the potential merger between Honda and Nissan will not contribute to quick gains, as the automakers will first have to coordinate their strategies, while overlapping regional markets may limit the benefits of sales.
Analysts explained in a research note that although the deal may lead to the creation of a 54 billion dollar car company, any improvements in the credit outlook will require a long time to achieve.
“We believe that it will be difficult to achieve significant effects quickly by expanding cooperation between the two companies in areas such as batteries, software and autonomous driving,” they added, noting that the final impact on creditworthiness will be significant.
They also noted that the merger is likely to negatively reflect on the independent credit outlook of the company “Honda”, while it will have a positive impact on the outlook for “Nissan”. Despite the different development strategies between the two companies, analysts added that their presence in similar regional markets, especially in North America, China and Japan, means that they do not significantly complement each other in terms of regional sales.
