Nissan Seems To Be Screwing Up The Honda Merger In The Most Nissan Way Possible

The greatest superpower available to any mortal human might be the ability to overcome one’s insecurities. With enough confidence, you’ve got a decent chance of accomplishing a few things. Nissan is a company seemingly defined by its own insecurities — a business with no faith, only fear, and we all know that fear is the mind-killer.

Another Dune reference in The Morning Dump? Yes. If you’d like a Frank Herbert-free car news roundup you can write your own blog, with blackjack and hookers. I have to start the day with the big news from Asia that Nissan is bungling the Honda merger before it even got started.

Nissan isn’t alone! A key measure of Germany’s car industry found that most businesses think they’re uncompetitive. That’s nicht gut, but there are reasons for hope. Toyota reported a 28% drop in quarterly operating profit, mostly due to production woes. The future still looks bright for Toyota and, especially, its luxury arm Lexus.

Nissan Wanted To Be Treated As An Equal, But It Is Not An Equal

William Gorham is a footnote in Nissan’s history. If you go to the company’s English language heritage site you’ll find one reference to him from 1919:

William R. Gorham, an American engineer, developed a three-wheeled vehicle in 1919. This drew attention from a businessman in Osaka, who established Jitsuyo Jidosha Co., Ltd.. The mechanical equipment, auto parts, and materials were ordered and imported from the United States.
Jitsuyo Jidosha Co. was a modern automobile factory of the time.

That’s not much to go on, and you’d assume it was a weird little quirk in the company’s history. The funny American engineer who came to Japan to build airplanes and created a little three-wheeler. Other sources paint a slightly broader picture, with Gorham being responsible for bringing the production know-how from America to Japan. That little three-wheeler eventually became a four-wheeled car that helped establish what would become Datsun and, eventually, Nissan.

Here’s another reference from Choong Kim’s “Japanese Industry in the American South” via a small history of Gorham:

[I]f the Japanese [people] had been too ingrown to learn from William R. Gorham, the American electrical engineer who is considered the founder of the Datsun (Nissan) motor company in terms of technology, Nissan might not be the success we see today.

Journalist David Halberstam in his book The Reckoning, about the car industry, takes it further, writing that “[t]he earliest teachers at Nissan had been Americans, most particularly an exceptional man named William R. Gorham. In terms of technology, Gorham was the founder of the Nissan Motor Company.”

That is an American viewpoint, and many, many things had to happen in order to create Nissan. I don’t want to diminish the key contributions of people like Yoshisuke Aikawa or Masujiro Hashimoto. I do think it’s a bit of a tell that Nissan makes this offhanded reference to the role of Gorham and seems to leave it at that.

Nissan has had good years and bad years, like any company, but it’s been a company more defined by its bad ones. The ultimate bad period came with the bursting of Japan’s asset bubble in the late ’90s. The company was creating some amazing cars and, yet, it was in terrible financial shape. Nissan had to get bailed out by Renault and, worse, had to accept a bad deal that put too much of the control of the company in French hands.

The company was, according to a lot of reporting, always worried about submitting to Renault. As a CEO, Carlos Ghosn restored some of Nissan’s pride, and the company, for a while, seemed to be going in the right direction. However, depending on who you believe, Japanese Nissan execs feared that Ghosn was going to move to bring Nissan fully under Renault.

Ghosn was arrested, famously, and Nissan eventually got its separation from Renault. Unfortunately, without Renault, Nissan is yet again in a bad way and a target for a takeover. It was concern that Foxconn could buy Renault’s remaining stake in Nissan that allegedly caused the Japanese government to strongly suggest to both Honda and Nissan that the two companies consider merging.

I have thought this was a good idea for a while, mostly because it would create one big automaker instead of three smaller ones (if you include Mitsubishi). The catch, as always, is that Nissan is overestimating its bargaining position. This came to a head recently and, according to Nikkei Asia, Nissan is likely going to walk away from a merger. Why? The most obvious sticking point is that Nissan is supposed to restructure itself and, thus far, has been conservative in its restructuring.

But there’s more:

The valuation of the two sides was also an issue. According to a joint statement in December, Nissan and Honda planned to establish a joint holding company by share transfer that would be the parent company to both.

The share transfer ratio was to be determined “with reference to the average closing prices of each company’s shares over a certain period prior to the announcement of the MOU.” The negotiations on a share transfer ratio were expected to start at around 5-to-1, according to a Nikkei tabulation, which significantly cut Nissan’s influence in the new company.

Honda judged that it would take time to rebuild Nissan and discuss the exact integration ratio, and it approached Nissan with a proposal to make it a subsidiary as a way to speed up restructuring. But Nissan — which sought a near-equal role in the merger — became increasingly confrontational.

You can’t have a merger of equals if one company is so much less equal than the other one. It would be hard for Nissan to swallow the idea of being a subsidiary, but it’s the move that makes the most sense right now. This is especially true as the threat of tariffs lingers and Nissan, at the moment, makes about 25% of its cars in Mexico.

Since this news broke, Honda’s share price has gone way up and Nissan’s share price has gone way down, which is as clear a statement of how this news should be viewed as I can imagine.

Germany’s Auto Industry Doesn’t Feel Great About Germany’s Auto Industry

You know it’s bad news when I pull out the “guy working at Volkswagen factory in Germany” photo. I use this photo so often that we should probably give him a name. I’m open to suggestions.

From Bloomberg:

Sentiment in Germany’s automotive industry reached a new low in January, as companies fret about their ability to compete, highlighting the challenges facing carmakers from BMW AG to Volkswagen AG and suppliers including Continental AG.

A business climate gauge by the Ifo institute slumped more than five points to minus 40.7 last month, the Ifo economic research institute said on Wednesday. Companies assessed their position on foreign markets as lower than ever before — both within and outside the European Union. They have also lost ground “significantly” on the German market, Ifo said.

The first step is admitting you have a problem!

Toyota’s Operating Profit Drops 28% As Toyota Can’t Build Cars Fast Enough

Toyota didn’t make as much money last quarter (4th by the calendar, 3rd by the Japanese fiscal calendar) as it would have probably liked, though it remained profitable. What’s the issue? Toyota is having trouble keeping up with demand, so any snag in production is going to hit the bottom line.

Per Automotive News:

Before its earnings retreats — first in the June to September period and then October to December — the last time Toyota booked a quarterly reversal in operating profit was in the July to September period of 2022, as the carmaker grappled with pandemic supply chain shocks.

In the latest October to December quarter, operating profit dropped 28 percent to ¥1.2 trillion yen ($7.8 billion), from ¥1.7 trillion yen ($10.7 billion) a year earlier. Operating profit margin declined to 9.8 percent in the quarter, from a robust 14 percent the year before.

Factory slowdowns in the key manufacturing hubs of U.S. and Japan put the brakes on sales and drove up costs due to idle time. Global output fell 5 percent in the quarter as Toyota gradually recovered from quality and vehicle certification problems in the U.S. and Japan.

It’s going to be fine. It’ll all be fine. Toyota has a plan to build more hybrids, which is what everyone seems to want these days.

Toyota’s new battery plant in North Carolina coming onboard will be a big part of this CFO Yoichi Miyazaki said during the announcement of the Q3 results:

We are working to ensure production flexibility such as through common usage of batteries for BEVs and PHEVs so that we can respond to customers’ needs regardless of what products they choose. Because we will ultimately need to internalize production technology for aptly mass-producing different types of batteries in the same plant and buildings, we made battery manufacturer Primearth EV Energy our wholly owned subsidiary, and it began operations as TOYOTA BATTERY in October 2024.

Cool stuff.

Lexus Owns The Luxury Hybrid Segment

I love this graphic from S&P Global Mobility that shows luxury registrations in the United States per quarter. You can get a sense of how much Tesla has grown and, at the same time, how much the Mercedes approach of focusing on EVs hasn’t worked out as well as Lexus’s hybrid approach.

S&P explains in some detail how this happened:

Nationally, hybrids comprised 13% of all new US retail registrations in the first 11 months of 2024, an increase from 10.3% the year prior. Meanwhile, electric vehicles accounted for 9.1% of registrations, up from 8.4% a year ago. In November 2024, the hybrid share jumped to an all-time monthly record high of 15.3%.

Lexus has been able to take advantage of this surge in hybrid popularity by marketing hybrid versions of its most popular models. In particular, the RX accounts for more than half of all new retail registrations in the upper midsize luxury utility segment, and 20% of these RX registrations are hybrids.

[…]

A list of the 15 most popular luxury hybrids through the first 11 months of 2024 illustrates Lexus’ strength in hybrids (see below). Six of these products are the Lexus brand, versus three Mercedes-Benz products and just one BMW.

The six Lexus models together accounted for more than 4 of every 10 luxury hybrids registered in November 2024 as well, a dominant and impressive performance given that 35 luxury hybrids had at least one registration in November.

Also, I forgot how well the Volvo XC90 hybrid sells.

What I’m Listening To While Writing TMD

Autopian reader Crank Shaft suggested “50 Ways to Leave Your Lover” by Paul Simon as a good song for the Nissan-Renault divorce, and it seems fairly apt for Nissan-Honda-Mitsubishi as well. [Ed note: Ahem]

The Big Question

What is Nissan going to do now?

Photo Credit: Honda/The Three Amigos