Nissan and Honda Intends Merging to Rival Toyota, World's Largest Automaker

Honda Motor Co. and Nissan Motor Co. are discussing a potential merger, which would establish a single rival to Toyota Motor Corp. in Japan and better position the merged business to meet global competitive difficulties.  

Honda is exploring a merger, capital tie-up, or the formation of a holding company, Executive Vice President Shinji Aoyama said on Wednesday, following reports of talks between the automakers overnight.

The two have been in preliminary negotiations regarding a merger, according to the people, who asked not to be identified because the discussions are private. One possibility under consideration is the formation of a new holding company to operate the combined enterprises, according to one of the sources. According to the person, the transaction might be expanded to include Mitsubishi Motors Corp., which already has capital links with Nissan.

A pact would effectively divide the Japanese car industry into two camps: one controlled by Honda, Nissan, and Mitsubishi, and another made up of Toyota group companies. It would also give them more resources to compete with larger competitors on a global scale after they downsized long-standing ties with other automakers. Nissan has cut links with France's Renault SA, and Honda has pulled away from General Motors Co.

The potential merger follows the two businesses' agreement earlier this year to collaborate on electric vehicle batteries and software. At the time, Honda CEO Toshihiro Mibe addressed the possibility of a capital collaboration with Nissan.

"If the merger goes through, it will provide short-term relief for Nissan's financial woes," said Bloomberg Intelligence senior auto analyst Tatsuo Yoshida.

The two Japanese automakers want to sign a memorandum of understanding to discuss sharing equity holdings in a new holding company. The merger would allow the manufacturers to compete with electric vehicle rivals like Tesla Inc. and Chinese automakers.

In some aspects, it could be interpreted as a protective alliance between Japan's weaker players. Honda, Nissan, and Mitsubishi sold approximately 4 million automobiles globally in the first half of the year, far short of Toyota's 5.2 million sales. Combining forces would allow the two companies to compete against Toyota, the world's largest automaker, both domestically and internationally. Toyota has invested in Subaru Corp., Suzuki Motor Corp., and Mazda Motor Corp., forming a powerhouse of brands supported by the company's stellar credit rating.

"While this would be good news for Nissan given their current state, they would have a lot of overlap and other issues to overcome. For the Toyota group though we could see an acceleration there as well as it gathers its flock more tightly under its wing in a show of commitment, with the possibility of raising its stakes in Subaru, Suzuki and Mazda sooner rather than later," said Julie Boote, a senior analyst at Pelham Smithers Associates.