The recent talks between two of Japan's automotive giants, Honda and Nissan, to merge and form what could have been the world's third-largest automotive group, abruptly came to an endOn February 6, Nissan's president, Makoto Uchida, led a delegation to Honda's Tokyo headquarters, where it was collectively decided to retract the memorandum of intent regarding their business restructuring.

This sudden decision marks a notable conclusion to their efforts at consolidation, happening at a pace that exceeds the historical tempo of mergers within the automotive industryA little over two months prior, the two companies had proudly announced their intentions to engage in discussions to combine resources, eyeing the creation of a formidable "world-class mobility company" with annual sales exceeding ¥1.4 trillion (approximately $20 billion) and operating profits surpassing ¥139 billion (around $2 billion).

The proposed merger promised a new entity that was set to go public by August 2026, underlining a significant shift in the industry's competitive landscape

Advertisements

However, the past few months have shown that the ambitions of combining efforts to combat an increasingly fierce market may have been excessively optimistic.

The pressures facing the Japanese automotive sector are palpable, with new challenges emerging as electric vehicles (EVs) and intelligent technologies rapidly gain tractionHonda and Nissan together sold over seven million vehicles in 2023, and their aim to join forces would have established a new powerhouse, following the lead of Toyota and Volkswagen.

The notion of collaboration seems like a viable strategy in a time marked by immense challenges, which raises the question: why did these two heavyweights choose isolation over unity?

During negotiations, Honda's conditions for partnership included Nissan producing an actionable recovery plan, a response to Nissan's announcement of a 20% reduction in global production capacity last November

Advertisements

Resistance from various regions thwarted progress on these plans, creating tension between the companies.

In an attempt to solidify its influence and expedite decision-making, Honda suggested restructuring Nissan as a subsidiary, a move met with strong opposition from Nissan, which emphasized the need for an equal partnershipThis divergence in perspectives proved to be a critical stumbling block in their discussions.

With a majority within Nissan expressing skepticism towards continuing negotiations, the company formally confirmed its intention to withdraw from talks on February 3. The contrasting corporate philosophies of the two companies appear to have fundamentally contributed to their inability to alignWhile Honda prioritizes innovation and maintaining independence, Nissan has been more inclined toward collaboration and alliances, as evidenced by its long-term partnership with Renault.

At a deeper level, disagreements rooted in technological direction created rifts between the companies

Advertisements

As the global auto industry pivots toward full electrification, Nissan opted to promote its e-Power hybrid technology as an intermediate solution, while Honda invested in hydrogen energy as a long-term strategyThis disparity manifested itself during negotiations as both companies debated over investment priorities for the imminent decade, with Nissan advocating for a reduction in hydrogen initiatives and Honda perceiving the all-electric path as laden with risks.

This stark contrast in corporate philosophies evolved into a battle for power on the negotiation tableIt is noteworthy that the industry did not openly support this merger beforehandFormer Nissan CEO Carlos Ghosn openly suggested that finding synergy between the two companies would be exceedingly difficult due to their competitive nature, operating in the same segments with strikingly similar products.

The pressures exerted by electrification and technological advancement have left both Honda and Nissan beleaguered, navigating a transition that is anything but easy

• How the U.S. Can Lower Treasury Yields
• How to Lower U.S. Treasury Yields
• Revitalizing the Auto Market through Trade-Ins
• Nissan and Honda's Two-Month Split
• Honda-Nissan Merger Plan Falls Through

Nissan, in particular, has faced crippling financial challenges, evidenced by its reported 93.5% decline in net profit for the first half of the 2025 fiscal year, on track for a mere ¥19.2 billionWith Nissan's executives expressing concerns about a 14-month survival timeline, the urgency for strategic pivots has never been greater.

The clock is ticking for NissanIn a bid to recover, the company may need to seek new partners, much like its historical collaboration with RenaultEach decision made from here on is a matter of survival.

On a positive note, Nissan's vast manufacturing capabilities and reputable branding retain significant appeal in the marketplaceLast December, Foxconn, a prominent player in technology, initiated discussions with Nissan for potential equity stakes, although those plans are currently on hold pending the outcome of the negotiations with HondaFrom Foxconn's perspective, collaborating with Nissan could unlock opportunities to penetrate the automotive sector while building a robust renewable supply chain in Asia.

Moreover, reports indicate that Nissan is keen on bringing in new partners from the U.S

technology industryAccording to a Nissan spokesperson, any developments regarding the talks with Honda will be disclosed as planned in mid-February.

The struggles faced by Japanese automakers are reflective of broader challenges confronting automotive giants globally, as many navigate turbulent conditions fostered by economic uncertaintyAt the end of last year, Volkswagen was met with turmoil, wrestling with unions over factory closures and salary cuts, while Stellantis’ CEO experienced a sudden departure attributed to disappointing financial performanceGeneral Motors trimmed operations to maintain cash flow, eliminating its self-driving taxi program and restructuring its Chinese operations.

It is indeed hard to envisage a scenario like this just a decade agoThe industry finds itself amid a profoundly transformative epoch, delineating a historical inflection point characterized by pervasive change