How Nissan, Honda, And Mitsubishi Will Become One Of The Largest Car Companies In The World

With increasing competition from China and disruption everywhere else, it was increasingly obvious that Honda and Nissan would likely merge. The companies attempted to delay the inevitable with a Memorandum of Understanding the companies put together this summer to explore ways to work together, then all of a sudden rumors began to fly that the two would just become one company. Today in Japan Honda, Nissan, and Mitsubishi announced that they’re going to try and form one company with a goal of accomplishing this by 2026. Why now and what would this look like?

It’s important to understand why the three companies ended up here as it’ll provide some guidance as to where this whole tie-up is likely to go. Honda is clearly in better shape than the other two companies, but this in no way means that Honda will thrive without this tie-up. All of these companies face a difficult future without help and could create something stronger by eliminating some of their shared weakness. Or, the weakness inherent in all of these companies could make for another Stellantis.

I am a little more hopeful that Honda and Nissan, plus Mitsubishi, will be able to make a merged company an effective organization in this new automotive paradigm than some, so it’s worth talking about what could go wrong here as well.

Nissan, Mitsubishi, And The Inescapable Gravity Of Global Commerce

In some ways, Japanese automakers in the late ’90s learned what German automakers are learning right now, which is that the only way for things to stay the same is to constantly change. The worst time to be complacent is when everything is going well, which is unfortunately also the easiest time to be complacent. As enthusiasts, we worship Japan’s “Bubble Era” of cars, because companies like Toyota and Nissan created some incredible cars limited only by imagination and contemporary tire technology.

The “Bubble Era” was still a bubble, and ultimately represented the end of the long-predicted and feared Japanese economic hegemony. In the ’80s, Japan’s growing exports, perceived coolness, and technological innovation made the country’s many global corporations quite valuable. At the same time, poor banking policies and rampant corruption created insane valuations, resulting in an economic situation that was inevitably going to blow up (further reading here if you’re curious how this all happened).

Japanese automakers, once admired and feared, were caught up in all of this as well. Not only did the cars have to make economic sense when there was no overheated domestic market, but the companies had to find a way to survive the fallout. Toyota and Honda were, in some ways, in the strongest position post-Bubble, with a greater emphasis on the US market and more production in North America. As Toyota puts it in its own history of the era:

Toyota took several proactive measures, including expansion of local production, release of new models suited to the U.S. market, and development of its sales network. As a result, the company saw a significant increase in sales. Breaking down this increase, Toyota sold more than 900,000 units in 1988, 1.05 million in 1990, and reached another milestone with 2.06 million in 2004, growing further still to 2.62 million vehicles in 2007. The company’s market share also rose – from 6.1 percent in 1988, passing 10 percent in 2001, and growing to 16.1 percent in 2007. During this time, Toyota’s annual number of vehicles sold passed Chrysler Corporation in 2006 and bettered Ford Motor Company in 2007, securing the No. 2 position behind General Motors Corporation (GM, now General Motors Company).

While Toyota was strong enough to make it through Japan’s “lost decade” by becoming more American, it wasn’t quite as easy for other companies. Isuzu tried to lean on its partnership with General Motors before eventually exiting the passenger car market. Subaru, which was partially owned by Nissan, temporarily became part of GM in a strange semi-merger with Saab. Many forget that, though Honda did well over here, Mitsubishi was the fastest-growing Japanese brand in America for a few years. Mitsubishi even attempted, briefly, to perform a hostile takeover of Honda.

Nissan, with huge exposure to the Japanese market, was in the worst shape and was eventually forced into a marriage with Renault (which Mitsubishi would be shoved into after a fuel economy scandal nearly sunk the company). This was always a bad deal for Nissan as Renault only made the deal after it got outsized control over Nissan. There was a brief moment where it worked, mostly because the charming and tough Carlos Ghosn managed to keep both the French government (which owns a large share in Renault) and Nissan execs happy. Eventually, though, Nissan’s Japanese leadership reportedly feared Ghosn was going to cave to the French side and had Ghosn arrested under charges of defrauding the company.

Without Ghosn, the Nissan-Renault-Mitsubishi was doomed, and the three companies had to spend the next couple of years figuring out a way to divorce in a way that would cause the least disruption. Understandably, a company dealing with all of this can’t be expected to make great cars, let alone compete with China, and Nissan has suffered greatly basically everywhere it makes cars. Mitsubishi has tried to share platforms with Nissan to survive and has done so admirably, all things considered. Still, the companies are too small to survive on their own in the modern automotive world.

Honda Is Doing Great, But For How Long?

I’ve seen a lot of hand-wringing over Honda’s position here, given that Honda has been extremely profitable and seems to be doing well in many of its markets. It’s true that Honda is in a better position than Nissan-Mitsubishi. It’s true that, from a product standpoint, Honda has a lot less to gain from this deal than Nissan. This is an American-centric view and ignores a few key points:

• Nissan does better in some global markets, like Latin America, and sells a lot of cars (3.98 million annually for Honda last year, compared to 3.37 million for Nissan)
• Honda is suffering in China like other automakers
• Alone, all of these companies are probably too small to compete on electrification/advanced driver systems with the Toyotas, Volkswagens, Hyundai-Kias, Teslas, and GMs of the world
• Nissan was far ahead of Honda in electrification, though it has less of a lead now
• Nissan has real truck platforms, while Honda has no global body-on-frame truck platform

Honda has built its success on the back of hybrids and affordable/reliable vehicles. As I said earlier, this puts Honda in a great position at the present, but not necessarily in the future. I believe the industry is in an interim period between full-ICE cars and more widespread EV adoption. How long that period lasts is debatable, of course, and that’s all the more reason why Honda needs more capital and more help to ride out the next decade of uncertainty.

Both companies seemed content to let this partnership slowly develop until a few weeks ago, when it was discovered that massive Taiwanese global manufacturer Foxconn was angling to snag Renault’s remaining Nissan shares and try to take over the automaker. This was untenable both to Nissan, which didn’t want to be ripped apart by Foxconn, and Honda, which didn’t want to share technology with a potential competitor. Now the companies are announcing a full partnership under a new holding company, to be named later.

This Is A Full-On Merger

Unlike previous MOUs between Nissan, Honda, and Mitsubishi, the announcement today from the companies is a full-on admission of a proposed merger:

The MOU between Nissan and Honda announced today is aimed to serve as an option to maintain global competitiveness and for the two companies to continue to deliver more attractive products and services to customers worldwide.

If the business integration can be realized, both companies can aim to integrate their respective management resources such as knowledge, human resources, and technologies; create deeper synergies; enhance the ability to respond to market changes; and expect to improve mid- to long-term corporate value. Additionally, Nissan and Honda can aim to further contribute to the development of Japan’s industrial base as a “leading global mobility company” by integrating Nissan and Honda’s four-wheel-vehicle and Honda’s motorcycle and power products businesses, enabling the brands of both companies to become more attractive and to deliver more attractive and innovative products and services to customers worldwide.

Uh, yeah, that’s everything. The companies plan to combine manufacturing, vehicle platforms, supply chain, sales functions, and electrification plans.

From a business structure, this means a single listing under a joint-holding company as Bloomberg explains:

A holding company will be created to house the new entity and should be listed by August 2026, the firms said, adding that Honda will be able to nominate a majority of the new company’s board of directors.

Mitsubishi is coming along for the ride as well, though Honda, as the larger company, is mostly in control here.

What If This Doesn’t Work?

Not everyone is supportive of the deal and one of those people is Carlos Ghosn, the ex-Nissan CEO who knows Nissan quite well. He spoke to Bloomberg TV from his Lebanese exile and expanded on his views that Nissan is doing this out of desperation:

“It’s a desperate move,” Ghosn said Friday on Bloomberg Television. “It’s not a pragmatic deal because frankly, the synergies between the two companies are difficult to find.”

[…]

Nissan and Honda operate in the same markets with similar brands and products, Ghosn said, casting doubt on the merits of the two combining. He believes Japan’s Ministry of Economy, Trade and Industry has pushed Honda to go forward with a deal.

“They’re trying to figure out something that could marry the short-term problems of Nissan and the long-term vision of Honda,” Ghosn said. While there is “no industrial logic” to a deal, “there is a moment where you have to choose between performance and control.”

I think this would have been a better plan if Foxconn hadn’t forced Honda’s hand (and also the Japanese government’s hand, according to Ghosn). Yet again, Nissan finds itself being made to merge with another company or else face some sort of existential threat. It’s not ideal and, yet, I don’t think there’s a better alternative at the moment. Honda and Nissan have a lot of overlap and will have to figure out how that works, and brands like Infiniti may get cut. However, if Honda can learn from Nissan’s past merger, I believe they can make a better go of it than Renault ever did simply because Honda is a Japanese company.

The resulting company will be one of the largest in the world, with a combined production of around 7-8 million, making them about as big as Hyundai-Kia, and behind Volkswagen. By my math, they’d be the third largest automaker.

Also, this gives us a chance for an S2000/300ZX reincarnation on a shared platform, as well as the rebirth of a plethora of other potential nameplates. Bubble Era 2.0, LFG!

Top photo: Honda/The Three Amigos