Honda, Nissan move to deepen ties, sources say, including possible merger By Reuters

By Maki Shiraki and Norihiko Shiruzu

TOKYO (Reuters) – Honda and Nissan ( OTC: ) are in talks to deepen ties, two people said on Wednesday, including a possible merger, in the clearest sign yet of how Japan’s once seemingly invincible auto industry is being transformed Because of Tesla’s challenges.NASDAQ.) and Chinese competitors.

A combination Honda: (NYSE:) and Nissan will create a $54 billion company with annual production of 7.4 million vehicles, making it the world’s third largest auto group after auto sales. Toyota: (NYSE: ) and Volkswagen (ETR: ).

The two companies had already entered into a strategic partnership in March to collaborate on the development of electric vehicles, but Nissan’s financial and strategic difficulties have made it more urgent in recent months to work more closely with bigger rival Honda.

Nissan last month announced a $2.6 billion cost-savings plan that includes 9,000 job cuts and 20% of its global manufacturing capacity, as slumping sales in China and the US led to an 85% drop in second-quarter profit. :

“This deal appears to be more about saving Nissan, but Honda is not resting on its laurels,” said Sanshiro Fukao, executive director of the Itochu Research Institute next year, and its EVs aren’t doing too well.”

Shares of Nissan closed up nearly 24% in Tokyo trading on Wednesday, while shares of Honda, which has a market value of four times that of Nissan, fell 3% by 20%.

Automakers have faced challenges from EVs, particularly in China, where BYD ( SZ: ) and others have surged ahead.

The talks between Honda and Nissan, first reported by the paper, would allow the companies to collaborate more on technology and help them create a more formidable domestic rival to Toyota.

The discussions are focused on finding ways to strengthen the partnership and include the possibility of creating a holding company, said the people, who declined to be identified because the information is not disclosed.

The companies are also discussing a full merger, according to one of the people, as well as ways to work with Mitsubishi Motors (OTC:), in which Nissan is a major shareholder with a 24% stake.

Honda, Nissan and Mitsubishi said no deal had been announced by any of the companies, although Nissan and Mitsubishi said the three automakers had previously said they were considering future collaborations.

French car manufacturer Renault: (EPA:), one of Nissan’s major shareholders, said it had no information and declined to comment.

The three Japanese automakers are expected to hold a joint news conference in Tokyo on Monday, according to a source familiar with the matter.

Taiwan Foxconn ( SS: ), which makes Apple ( NASDAQ: ) iPhones and was looking to expand its fledgling electrical contract manufacturing business, approached Nissan with an offer but was turned down by the Japanese company, two people familiar with the matter said. separate sources.

Bloomberg News reported earlier Wednesday that Foxconn had approached Nissan to take a controlling stake.

Foxconn did not immediately respond to a request for comment, while a Nissan representative declined to comment on Foxconn.

A CHANGED LANDSCAPE

The EV price war waged by Tesla and BYD over the past year has put pressure on any automakers that are losing money on next-generation vehicles, putting pressure on companies like Honda and Nissan , seek to reduce costs and speed up vehicle development, and mergers are a big step in that direction.

“In the medium to long term, this is good for the Japanese auto industry because it creates a second axis against Toyota,” said Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory.

“Constructive competition with Toyota is a positive for Japan’s rather stagnant auto industry when it has to compete with Chinese automakers, Tesla and others.”

Any merger would face significant U.S. scrutiny, and President-elect Donald Trump has vowed to take a tough stance on imported cars, including threatening 25% tariffs on cars from Canada and Mexico.He could seek concessions from Honda and Nissan on any deal to confirm, auto industry officials said.

Honda and Nissan both manufacture cars in Mexico for export to the US

Analysts say Honda and Nissan also need to work out how to integrate their different corporate cultures if they go ahead with the merger.

“Honda has a unique, technology-focused culture with strong strengths, so there should be some internal resistance to a merger with Nissan, a competitor with a different culture, which is now wavering,” said Tang Jin, a senior research fellow. Mizuho (NYSE:) Bank.