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August 19, 2020

The Japanese Government Wanted a Nissan-Honda Merger

Japanese government figures tried to bring Nissan and Honda together for merger talks this year according to the Financial Times.

In what could be a growing concern over the future of the Japanese auto industry, officials there felt that car manufacturers were losing their edge as the shift towards self-driving electric vehicles intensified.

The independent future of Honda, Japan’s third-largest carmaker has come under particular scrutiny in recent years as consolidation has accelerated elsewhere.

Japan still has eight big car brands, but four of them, Mazda, Subaru, Suzuki, and Daihatsu are tied by cross-shareholdings with Toyota, the world’s second-largest carmaker. Meanwhile, Nissan has a troubled three-way alliance with France’s Renault and Mitsubishi Motors, leaving Honda as the only group without a capital tie-up.

The idea of combining Nissan with Honda appears to have arisen after the Japanese government feared the state of Nissan’s alliance with Renault after the arrest of former boss Carlos Ghosn.

But Honda officials have pushed back against that idea, pointing to Nissan’s complex capital structure with Renault. Nissan was also equally opposed to the idea as the group focuses on getting its existing alliance back on track. The merger idea quickly evaporated before it reached the boards of both companies.

Auto industry executives point to other structural factors in ruling out a Nissan-Honda alliance.

The main obstacle is Honda’s unique engineering design for its cars which would make it very difficult to use common parts and platforms with Nissan and its partners. Without that, the alliance would not be able to reap the cost savings that come with greater scale.

While the two companies are similar in size when it comes to the number of cars they sell each year, their business model is fundamentally different. Honda makes more profit from motorcycles than cars, allowing it to weather downturns better than Nissan. The group is also the world’s largest manufacturer of engines and its products include private jets, lawnmowers, and boat motors.

In terms of technology, the two companies have pursued separate strategies with Nissan being a pioneer of electric vehicle technology while Honda, similar to Toyota, had traditionally invested heavily in hydrogen-powered cars.

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