Why Mergers of Carmakers Like Honda and Nissan Often Falter

Japanese automakers Honda and Nissan are in discussions about a potential merger, aiming to share costs and strengthen their position in an increasingly competitive and rapidly evolving industry.

However, a merger—even between two companies from the same country—does not guarantee success. The automotive industry’s history is filled with failed deals and unmet expectations.

Merging two large, global manufacturing entities is a complex and daunting task. It involves reconciling differences in technology, business models, and company cultures. A merger’s success depends on convincing managers and engineers, who have spent years competing against each other, to collaborate. In some cases, entire teams and projects may need to be abandoned or reorganized, and executives may have to relinquish control. Political pressures from governments can also complicate matters, especially when they push for the continued operation of unprofitable factories.

Thomas Stallkamp, an automotive consultant based in Michigan, was involved in one of the most challenging automotive mergers: the 1998 union of Chrysler and Germany’s Daimler. Stallkamp, who held senior roles at both companies, described the difficulties of merging two massive organizations in a capital-intensive industry. “Car companies are huge, complex operations with engineering teams, manufacturing plants, and hundreds of thousands of employees worldwide. Bringing two together often leads to clashes of egos and infighting, making it a very tough process,” he said.https://wordpress.com/

Honda and Nissan have been collaborating on electric vehicles since earlier this year, and have now begun formal discussions about a merger that could also include Mitsubishi Motors, a smaller manufacturer closely allied with Nissan. The merger would combine Japan’s second- and third-largest automakers (after Toyota) and create the world’s third-largest carmaker by production volume, trailing only Toyota and Volkswagen.

The discussions have been prompted by challenges both companies are facing globally. Notably, both have struggled in China, the world’s largest auto market, where sales have plummeted. Chinese consumers are quickly shifting to electric and plug-in hybrid vehicles—models that Honda and Nissan have been slow to produce. Domestic manufacturers like BYD and SAIC, as well as Tesla, have outpaced them in this shift.

Honda recently revised its profit forecast for the fiscal year ending in March, predicting a 14 percent decline and lowering its global vehicle sales projection from 3.9 million to 3.8 million units, largely due to struggles in China. Nissan, which faces more serious challenges, has seen its market share shrink in the United States, once a critical market for the company. Its operating profit fell 90 percent from April to September, and the company plans to cut 9,000 jobs globally while reducing production by 20 percent.

In theory, a merger could help Honda and Nissan accelerate their electric vehicle development and reduce costs. However, achieving such benefits has proven difficult for other automakers. Ford and Volkswagen, for example, teamed up to develop electric vehicles and autonomous driving technologies but struggled to realize meaningful gains. Honda has also partnered with General Motors on electric vehicles, but the collaboration has been limited to two models, and GM is now exploring partnerships with Hyundai.

Despite the challenges, analysts suggest that a merger between Honda and Nissan could still offer benefits. Both companies focus on similar product lines, including small and mid-size cars and SUVs, such as Nissan’s Sentra, Altima, and Rogue, and Honda’s Civic, Accord, and CR-V. Additionally, Nissan’s expertise in full-size pickup trucks could be valuable to Honda, which currently lacks such offerings.

On the manufacturing side, the companies have overlapping operations in the United States. Nissan operates two assembly plants, while Honda has four. Both companies also have engine and transmission factories and engineering centers. In theory, combining operations could lead to cost savings by consolidating facilities and eliminating jobs. However, this is where resistance is likely to arise, as neither company would want to take the brunt of the cuts.

As Thomas Stallkamp noted, “One of the two partners will have to sacrifice their development organization or scrap their engine program, and that’s where you’ll face heavy resistance. Neither side wants to make that sacrifice.”

In many cases, efforts to downsize face political hurdles, as governments often push companies to preserve jobs. A recent example is Stellantis, formed through the 2021 merger of Peugeot and Fiat Chrysler. Despite initial success, the company has struggled in 2024 with a decline in sales and profits, and its CEO recently resigned.

For years, Nissan was the junior partner in an alliance with Renault, a partnership that helped Nissan recover from near-collapse. However, the alliance ultimately faltered, particularly after the arrest of Nissan’s former CEO Carlos Ghosn in 2018. While Renault still owns a significant stake in Nissan, the two companies no longer collaborate as closely as they once did.

The Daimler-Chrysler merger faced significant challenges as well. While there was little resistance to plant closures, the merger struggled due to cultural and management differences between the two companies. The combined entity, which attempted to merge a luxury carmaker with a more affordable model manufacturer, ultimately split in 2007 after nine years of difficulties.

Other mergers in the auto industry have also been disappointing, such as BMW’s acquisition of Rover in the 1990s, and Ford’s ownership of Jaguar Land Rover, Mazda, and Volvo, which it sold off after the 2008 financial crisis.

There are examples of successful automotive mergers, however. Fiat Chrysler, formed when Fiat took over Chrysler after the latter emerged from bankruptcy, is one example. Under CEO Sergio Marchionne, Chrysler’s brands, including Dodge, Jeep, and Ram, recovered and became the more profitable side of the business.

Hyundai and Kia, South Korean automakers in an alliance since 1998, are another example. The two companies have grown into one of the world’s largest automotive groups, sharing resources in development, engineering, and manufacturing while maintaining separate sales and marketing operations.

Marc Cannon, a former senior executive at AutoNation, questioned whether Honda and Nissan could emulate the success of Hyundai and Kia. “Honda is still a strong brand with great products. But Nissan’s brand has been damaged by recent turmoil, and their quality has suffered,” he said. “It’s hard to see why Honda would want to take on Nissan’s problems.”