Wave of restructuring among Japanese auto manufacturers, discussions between Nissan and Honda leading to two camps.

Discussions on the integration of NISSAN MOTOR CO and Honda's management, considering a merger, emerge amidst the transformation of the automotive industry due to the rise of Chinese manufacturers and the electrification of vehicles. The Japanese automotive industry, which once dominated the world with internal combustion engines, cannot avoid the impact, and in order to maintain competitiveness as a core industry, the eight domestic passenger vehicle manufacturers may be significantly consolidated into two major camps in the future.
<The "sense of vigilance" that spurred the alliance>
NISSAN MOTOR CO and Honda started discussions toward a business alliance in March this year. On August 1st, they signed a memorandum of understanding and announced a "partnership" for electric vehicle (EV) batteries, drive units, software, and more, but according to one insider, they had been considering a more comprehensive cooperative relationship even before that.
Another individual familiar with the situation explained, "Both Honda and NISSAN have mutual vigilance towards market changes and a desire to proceed with discussions and reach an agreement quickly. They express the intent of working together. Neither company alone believes they can move forward." According to three other separate sources, the two companies are considering establishing a holding company each, pooling their resources, and deepening cooperation. One of the sources mentioned that corporate integration is also under consideration.

<The disadvantage of numerous manufacturers competing globally>
Japan, which has historically seen automobiles as the engine of economic growth, surpassed West Germany in domestic production volume in 1967 to become the world's second-largest. While the electronics industry, another pillar, declined from around the 1990s, automobiles have remained Japan's key industry. Leveraging factors like fuel efficiency as a strength, they have held significant market shares in North America, China, and Southeast Asia.
The turning point began in the late 2010s. The rapid growth of Tesla in the United States and the gradual proliferation of EVs changed the game. Components like batteries, motors, and software started to determine automotive performance, creating headwinds for Japanese manufacturers who excelled in internal combustion engines. Particularly in China, now the world's largest automobile market, competition intensified with local players, prompting major global manufacturers including those from Japan to rethink their strategies.

A Japanese government official well-versed in automotive policies states, "The automotive industry has undergone significant changes including electrification and intelligence, with Chinese players also rising. With eight automobile manufacturers domestically, it is too many for Japan's industrial competitiveness, making it challenging."
As the need for Japanese competitiveness grows, there is already a trend towards grouping centered around Toyota Motor. The company has Daihatsu as a subsidiary and has capital relationships with Subaru, Suzuki, and MAZDA MOTOR CRP.
According to the aforementioned government official, the idea of bringing Honda and NISSAN together has long been considered as another group.
"As the domestic automobile market shrinks, I hope Honda and NISSAN will further enhance their global competitiveness by integrating," said Suzuki Hideyoshi, a member of the House of Representatives in the Liberal Democratic Party and a former official of the Ministry of Economy, Trade and Industry, who was also the governor of Mie Prefecture, home to Honda's Suzuka Plant and Suzuka Circuit. Suzuki stated, 'The automobile industry is also important for employment in the Japanese economy.'

<Sense of Urgency Required>
Honda, NISSAN, and potentially Mitsubishi Motors may merge this fiscal year, with a total annual sales volume of approximately 8.5 million units (FY2023), making it the third largest group after Toyota Motor Group, the world's largest, and Volkswagen Group of Germany. However, even if the plan comes to fruition and expands in scale, a sense of urgency will be required.
In both China and North America, NISSAN, facing difficulties, aims to reduce production capacity by 20% and achieve a profit structure that can sustain dividends and growth investments with annual sales at the 3.5 million unit level by fiscal year 2026. While Honda is earning well in the North American market due to strong sales of hybrid vehicles, the Chinese market, where it competes with local manufacturers, is experiencing a downturn in sales.
"The speed of the Chinese companies is completely different," says Mizo Shinshiro, Executive Fellow at ITOCHU Economic Research Institute. He points out, "There is no longer an era where the strategy was to make a profit based on economies of scale such as the previous '10 million unit club', invest that profit, and earn it over the span of about five years."
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