Nissan may face cost-cutting ‘carnage’ at Honda merger

Nissan if it joins forces with its Japanese peer, it will fall victim to a cost-cutting “carnage.” HondaNissan’s former CEO Carlos Ghosn told CNBC about it on Tuesday.

“No doubt Honda will be in the driver’s seat, which is sad to see after 19 years at the helm of Nissan (and) It put Nissan in front of the industry to see if they’re going to be a victim of carnage because there’s a complete overlap between Nissan and Honda,” he told CNBC’s “Squawk Box Europe.”

Ghosn, who once headed three automakers as part of the Nissan-Renault-Mitsubishi alliance, now lives in Lebanon. He was arrested in Japan in November 2018 and absconding from court accused of financial crimes. He denies wrongdoing.

“There’s virtually no complementarity here, so if they want to create synergy, it’s probably going to be through cost reduction, design duplication, technology duplication, and we know exactly who’s going to pay for that. It’s going to be a junior partner, and it’s going to be Nissan. ” said Ghosn.

Nissan had greater complementarity with France RenaultGhosn speculated, referring to a long-term partnership that has been largely disrupted.

Speculation of a potential Honda and Nissan merger began earlier this month, and the two companies confirmed the official start of negotiations on business integration during a press conference on Monday. Under current proposals, the holding would act as the parent of both firms and be listed on the Tokyo Stock Exchange, with Honda – which has four times the market capitalization of Nissan – nominating most of the new entity’s board members. A strategic partner of Nissan Mitsubishi is also negotiating to join the group.

The $54 billion Nissan-Honda group would leapfrog South Korea Hyundai becoming the world’s third largest car manufacturer after Japan in terms of car sales Toyota and of Germany Volkswagen. The integrated group will also mark the long-awaited consolidation of the auto industry, both in Japan and around the world, as businesses struggle to shoulder the costs of developing electric vehicles and autonomous driving technology.

The heads of both Honda and Nissan stressed on Monday the combined company could share the intelligence and resources needed to compete in the EV transition and provide economies of scale, boosting operating profits to a projected 3 trillion yen ($19.1 billion) over the long term.

Nissan is embarking on an ambitious merger, and at the same time, a deep venture reconstruction announced in November that it would cut its global manufacturing capacity by a fifth and cut 9,000 jobs.

On Monday, Honda CEO Toshihiro Mibe acknowledged that some shareholders may feel he will back his company. fight Nissan as part of the deal, but stressed that business integration talks “will not be productive” unless the two automakers can stand on their own.

However, Ghosn told CNBC that the merger plan is “Nissan in panic mode, looking for someone to bail them out because they can’t create a solution themselves.”

He expressed “high doubts” that the turnaround at Nissan would be successful, without giving details.

Kei Okamura, SVP and Portfolio Manager at Neuberger Berman, reiterated that the details of the merger plan still need to be ironed out.

“If you’re an investor, you’re going to think about three to five earnings forecasts. The one that was announced (on Monday) was near-term, so the timeline and the long-term view. The only question is how will this combined entity get there, and there are a lot of uncertainties ahead. ” Okamura told CNBC’s “Street Signs Asia” on Tuesday.

“Post-merger integration is going to be absolutely critical … if these companies can’t fully integrate themselves in terms of people, assets and, of course, culture, these deals have the potential to unravel, and we’ve got to keep in mind that unless (Nissan) comes up with its own turnaround program, this deal may not happen,” Okamura added.

Nissan declined to comment for this story his statement it comes out on monday. Honda did not immediately respond to CNBC’s request for comment.