Big-time merger of Honda and Nissan

It is official. What has been speculated for some months now is now a fact. Honda, the second largest Japanese automaker and Nissan, the third largest, have announced that they would be merging the two companies.

The whole process would be complete by 2026. Nissan as the larger shareholder will have a majority in the combined board post-merger. Nissan is the largest shareholder in the smaller Mitsubishi carmakers. Mitsubishi said that it would be considering being a part of the megamerger.

The Honda-Nissan merger would create the third largest automaker in the world after Toyota and Volkswagen. In a press conference held on Friday, the chief executives of all the three companies, Honda, Nissan and Mitsubishi, announced the merger plan and explained the reasons for the decision.

Honda CEO Toshihiro Mibe said, “The rise of Chinese automakers and new players has changed the car industry quite a lot. We have to build up capabilities to fight with them by 2030, otherwise we’ll be beaten.” That is a candid confession from the Japanese automakers who have dominated the global car scene for more than half-a-century, and literally broke the monopoly of American and European carmakers.

The merger move can be seen as the Japanese showing enough alacrity in the face of the changing situation, and responding to it. The merger is expected to yield combined sales of $191 billion and a profit of $19 billion.

The merger has ramifications for Honda’s and Nissan’s international tie-ups. French automakers Renault said that it would discuss with Nissan the changes brought about by the merger. Honda’s Mibe said that Nissan’s arrangements with Renault would continue and so would Honda’s with the American carmaker General Motors.

There are two challenges that the two Japanese auto majors have to face after the merger. It is the production of electric vehicles (EVs) or hybrids because that is the future because of the pressure to curb carbon emissions. America’s Tesla and China’s BYD are seen as the lead players, and in Japan there are smaller car manufacturers who have displayed agility with the new technologies needed to make the EVs. Honda and Nissan want to move into the EV market in a big way and with a strong base.

Meanwhile, Honda has made it clear that the merger with Nissan was not because of the losses that Honda was making. As a matter of fact Honda has recovered from its losses and its two-wheelers are still dominating the market.

The carmakers, especially the fossil-fuel dependent vehicle manufacturers, are moving out of their comfort zones of producing the petrol- and diesel-run cars. It is not the case that Tesla and BYD will make the other car manufacturers redundant. The demand for cars will continue, and in place of ICE vehicles, it will now be EVs, and neither Tesla nor the Chinese EV-makers can meet the global demand on their own.

So there is time for the car manufacturers to switch to the new technology of EVs and keep their share of the global car market. Tesla and Chinese EV-makers have shown what the future looks like. The others have no other option but to change and adapt.

It should not come as a surprise that major changes are taking place in the way industries are being run. They have run in a certain way for the last 150 years, based on fossil fuels like coal and oil. The crisis of climate change has made it necessary to change the mode of production, especially the energy sources that were in use till now. Clean and renewable energy is the demand of the day.

There are many countries, governments and industries which are still resistant to the idea of decarbonising the economy, but it cannot be resisted for too long. Switching to green energy is inevitable. And the carmakers are moving in the right direction.