Late last year, Nissan offered embattled rival Honda a lifeline: a $60 billion tie-up that would have helped both Japanese carmakers compete against Chinese brands disrupting the auto industry.
Years of sales declines and management turmoil had left Nissan a weakened force, especially after it underestimated demand for hybrid vehicles in the US, its biggest market.
But merger talks broke down in little more than a month because of Nissan’s pride and lack of concern about its situation, as well as Honda’s sudden decision to revise the terms and propose that Nissan become a subsidiary, six people familiar with the matter told Reuters.
Nissan, Japan’s second-largest carmaker after Toyota until 2020, insisted on being treated almost as an equal in the talks despite its weak position, three of these people said.
Honda has pressed Nissan to make deeper cuts to its workforce and factory capacity, but Nissan is unwilling to consider politically sensitive factory closures, the three sources said. They said they were under the impression that Nissan thought it could recover on its own despite its mounting difficulties.
This intransigence, coupled with Honda management’s perception that Nissan was slow to make decisions, led to the undermining of a deal that would have created one of the world’s largest carmakers, the three people said.
Famed carmaker Nissan is now also facing the threat of US tariffs on vehicles made in Mexico, which accounts for more than a quarter of US sales. Both Nissan and Honda will announce their earnings on Thursday.
‘I think it’s a management problem,’ Julie Boote, an analyst at research firm Pelham Smithers Associates, said of the turmoil at Nissan. ‘They are completely overestimating their position, their brand value and their ability to turn the business around.’
Nissan and Honda declined to comment on specific aspects of the talks described by Reuters sources.
Nissan CEO Makoto Uchida visited his counterpart Toshihiro Mibe last week, saying he wanted to end talks after Honda made its subsidiary offer.
Both carmakers said they would provide an update this month.
Merger talks process
Nissan stunned investors in November by slashing its profit forecast by 70 percent due to deteriorating sales in China and the US. The company announced a turnaround plan that included cutting 9,000 jobs and reducing global capacity by a fifth, but some analysts called it ‘too little, too late’.
In December, Nissan and Honda announced plans to merge as a result of talks they have been in since March 2024, when they said they wanted to collaborate on technology.
But the merger talks quickly hit a wall over the calculation of the shareholding ratio for the combined company, two people said.
One of these people said Nissan CEO Uchida privately expressed scepticism about the future of the deal. Honda executives complained that Nissan’s decision-making process was too slow, four people said. A public update on the talks was originally set for the end of January, but was postponed until mid-February.
Honda executives thought Nissan’s turnaround strategy lacked detail and were disappointed to see a meagre reduction in factory capacity, the two sources said.
Reuters was unable to ascertain whether Honda had requested a specific number of layoffs or identified specific factories for capacity reduction.
One person said Nissan did not want to close factories because it would cause their value on paper to fall and hurt earnings.
The layoffs promised as part of Nissan’s turnaround plan amount to 7% of its global workforce. Honda has laid off more people in China in the past two years, one person said.
A person familiar with Nissan’s thinking said Honda seemed unwilling to compromise on its plans, implying that it did not see Nissan as an equal.
New partners
It is unclear what could bring the carmakers back to the table. They are likely to return to their initial agreement to work together on technology, the three people said.
If both companies agree to end talks, neither would be liable for the 100 billion yen ($650 million) break-up fee under the December memorandum of understanding.
Nissan is open to working with new partners, including Foxconn, the Taiwanese contract manufacturer that makes Apple’s iPhones, Reuters reported. Foxconn did not respond to a request for comment.
Foxconn Chairman Young Liu said on Wednesday that their aim was to co-operate with Nissan, not buy it.
The Taiwanese company’s electric vehicle business is led by former Nissan executive Jun Seki, who at one point was seen by an insider as a candidate to become the carmaker’s CEO.
Foxconn would be a more generous suitor than Honda because it needs a brand name in the auto industry and Nissan could be attractive, said Amir Anvarzadeh, strategist at Japanese equity advisory firm Asymmetric Advisors.
‘Whatever you think of their cars and balance sheet, at least the brand is still quite recognisable,’ Anvarzadeh said of Nissan.
The Japanese government has so far given little indication of how it views the breakdown of talks between Honda and Nissan or whether it would favour a Nissan acquisition by Foxconn, which is also the largest shareholder in consumer electronics company Sharp Corp.
Boote said the real question for Nissan now is what management will do.
‘They don’t have a realistic view of what’s going on in the auto industry and what really needs to happen at Nissan,’ he said.
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