Nissan is preparing to call off discussions with Honda, another automobile manufacturer. Initially, both companies discussed joining forces to create the third-largest automobile manufacturing company in the world. However, the deal is doubtful because some problems with control and over-complexity seem to be standing in the way.
The outcome of the report made Nissan's stock drop by more than 4%, which temporarily suspended trading on the Tokyo Stock Exchange; Honda's stock price increased by more to 8%, depending on the investor's outlook on the deal.
The talks on the merger began when both companies were having their challenges in the auto industry. This was because electric vehicle companies, particularly from China like BYD, were threatening the traditional car makers. Nissan also needed to regain its image after the scandal associated with the former chairman Carlos Ghosn who was ousted in 2018 a situation that damaged the company's image and sales.
If the merger had been completed, Honda and Nissan would have combined to form a more formidable opponent to foreign competitors. Honda, Japan's second-largest car maker, and Nissan, Japan's third-largest, would have created a new revolution in the car industry. They would have perhaps created a very large international company that could have posed a threat to Toyota and Volkswagen.
Honda is almost five times larger than Nissan in market value. Honda suggested that Nissan become a subsidiary. The original suggestion, was for both companies to become equal subsidiaries of a new holding firm. This change in control proposals appears to have raised concern at Nissan, with reports saying that the company does not want to cede control to Honda.
The control issue has been a point of contention. Analysts say Honda may not be pleased with the proposed setup. Christopher Richter, a CLSA analyst, stated that the battle for control may have prompted Honda to reconsider. Honda was also concerned about how well Nissan is performing with its ongoing plan to turnaround
Nissan has faced several years of difficulties, including a declining market share and ongoing issues related to its leadership crisis. The company's recovery efforts have been under scrutiny, as its turnaround plan includes major cuts, including the loss of 20,000 jobs and a reduction of 20% in global capacity. These measures indicate that Nissan has not yet fully recovered from its troubled past.
Honda, on the other hand, has remained a more stable player in the industry. With a larger market value, Honda is better positioned to continue pursuing its growth plans without depending on Nissan. This disparity in the companies' financial health and strategic direction may have contributed to the breakdown of the merger talks.
Nissan's longtime partner, Renault, has expressed openness to exploring mergers with Honda or even Mitsubishi Motors, signaling that the company may seek alternative routes for growth and recovery. However, it remains to be seen whether Nissan will be able to overcome its internal challenges without significant external assistance.
The merger between Honda and Nissan was initially seen as a way for both companies to strengthen their positions in the face of an evolving automotive market. However, the unresolved issues of control and differing strategies have now put the future of the merger in doubt. Both companies are expected to finalize their discussions by mid-February.