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A Honda logo is seen during the New York International Auto Show, in Manhattan, New York City, US. File photo: DAVID DELGADO/REUTERS
A Honda logo is seen during the New York International Auto Show, in Manhattan, New York City, US. File photo: DAVID DELGADO/REUTERS

Tokyo — Honda and Nissan were in talks to deepen ties, two sources said on Wednesday.

One of the sources said the talks might include merging, the clearest sign yet of how Japan’s once seemingly unbeatable automotive industry is being reshaped by challenges from Tesla and Chinese rivals.

Combining Honda and Nissan would create a $54bn group with annual output of 7.4-million vehicles, making it the world’s third-largest car group by vehicle sales after Toyota and Volkswagen.

The two groups forged a strategic partnership in March to co-operate in electric vehicle development, but Nissan’s deepening financial and strategic trouble in recent months has added  urgency for closer co-operation with larger rival Honda. 

Nissan announced a $2.6bn cost-savings plan last month that includes cutting 9,000 jobs and 20% of its global production capacity, as slumping sales in China and the US led to an 85% plunge in second-quarter profit.

“This deal appears to be more about bailing out Nissan, but Honda itself is not resting on its laurels,” said Sanshiro Fukao, executive fellow at Itochu Research Institute. “Honda’s cash flow is set to deteriorate next year and its EVs haven’t been going so well.”

Nissan’s share price closed nearly 24% higher in Tokyo trade on Wednesday. Honda’s share price fell 3%. Honda’s market value of $43bn is more than four times that of Nissan. The share price of  Mitsubishi Motors, in which Nissan is the top shareholder with a 24% stake, gained nearly 20%.

The carmakers have been grappling with challenges from EV makers, particularly in China, where BYD and others have surged ahead.

Talks between Honda and Nissan, first reported by the Nikkei newspaper, could allow the companies to co-operate more on technology and help them create a more formidable domestic rival to Toyota.

The talks were focused on finding ways to bolster collaboration and included the possibility of setting up a holding company, said the sources, who declined to be identified because the information had not been made public.

The companies were also discussing the possibility of a full merger and looking at ways to co-operate with Mitsubishi, said one of the sources.

Honda, Nissan and Mitsubishi said no deal had been announced by any of the companies. Nissan and Mitsubishi said that the three carmakers had said previously they were considering opportunities for future collaboration.

French carmaker Renault, a major Nissan shareholder, said it had no information and declined to comment. Renault’s share price leapt 6.5%.

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

Taiwan’s Foxconn, which makes Apple’s iPhones and has been seeking to expand its nascent EV contract manufacturing business, approached Nissan about a bid but the Japanese group rejected it, said two informed sources.

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

Foxconn did not immediately respond to a request for comment. A Nissan spokesperson declined to comment on Foxconn.

Changing landscape

Over the past year, an EV price war launched by Tesla and BYD has intensified pressure on any automakers losing money on the next-generation vehicles. That has put pushed companies like Honda and Nissan to seek ways to cut costs and speed vehicle development. Mergers are a major step in that direction.

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

“Constructive rivalry with Toyota is a positive for the rather stagnating Japanese car industry when it must compete with Chinese automakers, Tesla and others.”

Any merger would face significant US scrutiny. President-elect Donald Trump has vowed to take a hard line on imported vehicles, including threatening 25% tariffs on vehicles shipped from Canada and Mexico. He could seek concessions from Honda and Nissan to approve any deal, automotive sources said.

Honda and Nissan produce cars in Mexico for export to the US

Honda and Nissan would also have to work out how to integrate their corporate cultures if they proceed with a merger, said analysts.

“Honda has a unique, technology-centric culture with strengths in powertrains, so there should be some internal resistance to the merger with Nissan, a competitor with a different culture that is now faltering,” said Tang Jin, a senior researcher at Mizuho Bank.

Reuters

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