Honda put nostalgia to the fore on December 18th when it announced that the Prelude, a nameplate last produced some 25 years ago, now being relaunched as a hybrid-electric, would come with the option of a system that simulates gear changes and combustion-engine noises. The message, however, was quickly drowned out by news with far more bearing on the Japanese carmaker’s future. It is considering merging with Nissan, a floundering domestic rival, to create the world’s third-largest carmaker by sales, behind only Toyota and Volkswagen. Yet joining together will not fix the problems of a duo stuck in the past.
Both firms have struggled with the upheaval in the car industry. Keeping pace with Chinese rivals in their home market and, increasingly, around the world requires rolling out electric vehicles (EVs) and investing heavily in software while continuing to sell the petrol cars that will finance the shift. Donald Trump’s threats to levy tariffs when he re-enters the White House, and the possibility of retaliation, has added uncertainty. Honda and Nissan seem to have concluded that a partnership to develop EVs unveiled in March will not be enough.
Nissan in particular is dangerously weak. Operating profit plunged almost 90% in the six months to September, compared with a year before. Its market share has dwindled in North America, its most important market, and sales have gone downhill in China. Although it announced 9,000 layoffs and a 20% cut in manufacturing capacity in November, investors remain unconvinced that it has a clear strategy for EVs or hybrids, which are growing in popularity with car buyers.
An enlarged group made up of Honda, Nissan and probably Mitsubishi, a smaller carmaker in which Nissan has a controlling stake, could invest more in technology to catch up with rivals. The news of a potential tie-up has been greeted with glee by shareholders in Nissan and Mitsubishi, as well as France’s Renault, which holds a 36% stake in Nissan (it might sell some of this to Honda or else convert it into a stake in a less troubled car firm). Honda’s investors, though, seem wary; its shares fell on the news.
A deal would undoubtedly mean cost savings through factory closures and job losses, even in Japan, where restructuring is frowned upon. The ministry which oversees the car industry called the reports “a positive development”. That is probably because the alternative—a foreign takeover—is even more unpalatable to the Japanese government.
Rumours have swirled that Foxconn, a Taiwanese contract manufacturer that wants to become as dominant in the production of cars as it is in consumer electronics, was talking to Nissan about a takeover that would have allowed it to acquire skills in designing and producing hardware such as chassis and suspension systems. Chinese carmakers might also be interested in buying Nissan for its production facilities in America, which would help them sidestep punitive tariffs on imported EVs. Foxconn’s approach is likely to have accelerated talks between Honda and Nissan.
Would a deal secure the future of the firms involved, though? Pooling resources would help. Yet the biggest advantage Chinese firms have is not scale but speed. New models are developed in three years or fewer, half the time it takes foreign firms. Software is updated in the blink of an eye. No legacy carmaker from Japan, America or Europe has yet worked out how to match the pace at which Chinese carmakers are innovating. Bringing together two ponderous Japanese giants, whose best years may be behind them, is unlikely to be the answer.
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