Tuesday, December 24

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Japanese automakers Honda and Nissan have begun talks over a major merger, which would create the world's third-largest vehicle manufacturing company.

Toyota is currently the world's largest automaker with Volkswagen in a close second, while Honda and Nissan lie in a distant eighth and ninth when it comes to vehicle sales. In recent years, the two brands have faced hardships due to global inflation and economic difficulties for many countries. In addition, both companies have struggled to keep up as the world rapidly shifts to electric and hybrid vehicles to release less carbon dioxide into the atmosphere.

China is also a major market for both Honda and Nissan, and they have lost a large portion of the local market share over the past few years to Chinese companies like SAIC and BYD, the latter of which surpassed Tesla last year for the position of the world's largest EV manufacturer. In fact, all Western brands are struggling in China, which is the world's largest car market; around five years ago, foreign automakers produced 62% of cars sold in China, but that number has been reduced to just 30% as the country shifts towards Chinese-made electric and hybrid vehicles using government incentives.

To add onto their woes, Nissan has been slowly losing one of their biggest allies in the automotive industry. Back in 1999, Renault and Nissan forged a deep partnership after Renault rescued Nissan from their serious debt, allowing Renault to take a 37% stake in the company. Mitsubishi Motors, another Japanese car company, joined the alliance in 2016. Over the years, their partnership remained relatively stable, but it broke apart during more recent times as mistrust grew between them. In addition, Renault maintained a much larger stake in Nissan than the other way around, displeasing Nissan executives.

The company began suffering so much, though, that they were forced to lay off over 9,000 workers and decrease their manufacturing output by 20% after profits from March to September dropped by over 94% in 2024. Nissan was now struggling in the automotive market and had lost their biggest ally, leaving them in search of another partner to get their business back on track.

However, if Nissan and Honda were to combine, it would be ideal for both sides. Both automakers are based in Japan, allowing for a more seamless merger, and they would be able to boost each others' sales while working together to advance in the electric vehicle market. Also, a merger would boost their future company to third on the list of largest automakers by sales, moving ahead of the Hyundai Group and enabling them to compete with the top brands of Toyota and Volkswagen.

Mitsubishi has also established that they would like to be included into the merger, which is being considered by Honda and Nissan, and could to the value of the new group.

Honda and Nissan aim to complete talks by the summer of 2025 and go through with the merger by 2026, creating one large automaker. Honda is expected to take the lead as the bigger company -- Honda's market capitalization is over $40 billion, contrasting to Nissan's $10 billion -- and will likely be the one to appoint the majority of the new board of directors.

Nevertheless, there are several questions raised by the merger that have yet to be answered by Honda and Nissan. Many of their cars overlap in certain markets, so which ones will survive? Many of their production plants are also located in similar areas, so which ones will be sold off? In addition, of course, the reduction in manufacturing plants also means streamlining the workforce, so how many layoffs are on the way? These are all questions that both companies will need to clarify to shareholders and the public before going through with the deal, but if everything works out, it could end up being one of the largest mergers in the history of the automaking industry.

Fact of the Day (Reader's Digest): Crocodiles cry while eating. Typically when the crocodile is eating on dry land, they need to shed tears to lubricate and clean their eyes because they are not in the water. In addition, the movement of their head combined with the huffing, puffing, hissing, and blowing noises they make while having a meal can stimulate their tear glands.

Quote of the Day: You can’t build a reputation on what you’re going to do. (Confucius)

Word of the Day (Merriam-Webster): Delectation (noun, pronounced dee-lek-TAY-shun)- Delectation is a formal word for a feeling of delight or enjoyment. It can also be used to refer to the source of such feelings.

In a Sentence: The resort staff left a sampling of fine chocolate in our room for our delectation.