After weeks of speculation, on December 23, Japanese automotive giants Nissan (NSANY) and Honda (HMC) announced that they signed a memorandum outlining their plans for a possible merger.
Under the proposed deal, the two Japanese automakers would merge into a common parent company by August 2026. During a press conference, Honda CEO Toshihiro Mibe said the merger needed to adapt to new competition in a more difficult world auto industry.
“The rise of Chinese automakers and new players has changed the car industry quite a lot,” Mibe said. “We have the potential to be a world-class, leading company in new mobility. By 2030, we need the artillery to compete on the battlefield. So, we are starting today.”
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Prior to the announcement, Nissan was on the verge of losing everything. In remarks to the Financial Times the month before, Nissan execs said that the automaker exists on borrowed time, noting that it has “12 to 14 months” to survive if circumstances do not improve.
Honda CEO Toshihiro Mibe made it clear that the merger was “not a rescue of Nissan,” adding that Nissan’s ability to be profitable on its own was a “prerequisite” before the merger could happen.
However, recent suggest that Honda may have taken things too far in its effort to make a deal with Nissan, as a provocative move received some pushback from Nissan execs.
A Nissan LEAF at the Nissan Motor headquarters in Yokohama, Japan. Nissan announced its third-quarter financial results and the end of merger negotiations with Honda.
Tomohiro Ohsumi/Getty Images
The deal is over, says Nissan, Honda
According to a report from Automotive News, the planning behind the landmark Nissan-Honda merger has officially ended.
In a press conference on February 13, Honda CEO Toshihiro Mibe acknowledged that his company’s proposal to buy out Nissan and operate it as one of Honda’s own subsidiary companies was a little too ambitious and risky.
“We anticipated that our proposal of share exchanges would be quite a difficult decision for Nissan, and we considered that a possibility that the agreement might be withdrawn,” Mibe said.
“However, the far greater concern could be that the integration would progress so slowly that we would fall into a more serious situation in the future.”
At a separate press conference later the same day, Nissan CEO Makoto Uchida acknowledged that Nissan’s board of directors did not see the value in becoming what would essentially be majority-owned by Honda, as it wouldn’t make the case for a ‘stronger’ company.
“We were not confident that our autonomy would be preserved or that Nissan’s potential would truly be maximized,” Uchida said. “I had doubts whether it would be successful.
Related: Honda’s bold move might have killed merger op with its biggest rival
Nissan, Honda will work together—they’re just not merging.
In a statement, Honda and Nissan said that Honda proposed departing from the terms of the original memorandum of understanding signed on December 23 last year.
“Honda proposed changing the structure from establishing a joint holding company, where Honda would appoint the majority of directors and the chief executive officer based on a joint share transfer as initially outlined in the MOU, to a structure where Honda would be the parent company and Nissan the subsidiary through a share exchange,” they said.
“As a result of these discussions, both companies concluded that to prioritize speed of decision-making and execution of management measures in an increasingly volatile market environment heading into the era of electrification, it would be most appropriate to cease discussions.”
In a separate joint statement, Nissan, Honda, and Mitsubishi said they will continue working as strategic partners on future electric vehicle technology.
“We will continue to focus on exploring strategic partnerships that aim to create new value,” Uchida said during a press conference.
Related: Nissan’s US factory workers are being forced into a harsh reality
Cash-strapped Nissan tightens its belt
With the Honda merger behind him, Uchida is still leading a Nissan that is still in trouble.
The end of the merger talks comes as Nissan reported a 78% dip in operating profit and a net loss in its last fiscal quarter. The automaker is trying to get a grip on a litany of problems, including bloated inventory, sagging sales, and continued cash burn.
In Nissan’s fiscal third quarter, which ended on December 31, its operating profit sank from $899.2 million in the same period a year earlier to just $197.5 million. Additionally, its net profit sank from a $184.8 million profit the year before to a $89.5 million loss in its last fiscal quarter.
To bring itself back up to the surface from back-to-back losing quarters, Uchida
Nissan announced that it aims to save $2.59 billion through the 2026 fiscal year. It added that it plans to shut down three of its factories in the next two years and cut thousands of jobs, including American factory workers.
The automaker estimates that reducing some of its fixed costs will result in $1.94 billion in savings.
It will cut around 2,500 jobs in its worldwide sales and administration roles. Additionally, over the course of two years, it will consolidate production lines at Smyrna and Canton in the US and close its operations in Thailand, which will cut a total of 6,500 jobs.
Nissan notes that an additional $650 million in savings will come from streamlining other inefficiencies, such as shortening the development time of its new cars, streamlining its product lineups and parts, and cutting weak links in its supply chain.
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The Foxconn question
With Honda out, Uchida noted that Nissan will “conduct a strategic review to actively explore new partnerships.”
Taiwanese electronics giant Foxconn (FXCOF) is one potential partner that has expressed its interest with working with Nissan. In a previous report, the contract manufacturer of Apple’s (AAPL) iPhones has sent one of its top executives to talk with bigwigs at the automaker.
In a report from the Financial Times, Foxconn’s chairman, Young Liu, said it will consider acquiring Renault’s stake in Nissan as long as it is a prerequisite for working with either automaker.
“We did have talks about acquiring a stake in [Nissan],” Liu said. “If [taking a stake] is necessary for cooperation, we will consider it, but buying shares is not our main goal. Our main goal is cooperation.”
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