One year ago, Nissan's financial situation deteriorated sharply, while Honda appeared as a potential "white knight" in merger discussions. However, Nissan refused to accept Honda's demands, including becoming a wholly-owned subsidiary, leading to the collapse of the merger plan. Today, the situation is almost completely reversed: Nissan has successfully achieved full-year operating profit, while Honda has fallen into a historic loss. This dramatic reversal of fortunes creates the possibility for the two companies to restart merger negotiations on a more equal footing.
Performance Reversal: Honda's First Loss, Nissan's Recovery Honda announced this week an operating loss of 414.3 billion yen (approximately $2.6 billion) for the fiscal year ending March, marking its first annual loss since its founding in the late 1940s. The primary cause was a 2.5 trillion yen asset impairment due to a misguided bet on the U.S. electric vehicle market. More concerning is that Honda's automotive business has been losing money for five consecutive quarters, with its product lines aging significantly in key markets like the U.S. and China, and it is losing its leading edge in the hybrid vehicle sector.
In contrast, Nissan is gradually emerging from the mire through large-scale restructuring. Although it previously faced declining retail sales in China and the U.S. due to uncompetitive products, forcing it to cut 20,000 jobs and close seven factories, the global business simplification strategy implemented by CEO Ivan Espinosa, who took office a year ago, is showing initial results. Nissan not only achieved full-year operating profit but also stabilized its financial position, potentially giving it a more proactive stance in any merger talks.
Facing Common Challenges: Can Economies of Scale Save the Day? The systemic challenges facing both companies have not disappeared. Under pressure from Chinese automakers, Honda and Nissan are also losing growth momentum in emerging markets like India and Mexico. Seiji Sugiura, an analyst at Tokai Tokyo, stated bluntly, "Both companies have stopped making good cars." Meanwhile, the entire automotive industry is grappling with multiple pressures, including rising material costs, trade wars, an increase in price-sensitive consumers, and rapid technological iteration.
Even though both companies predict a return to profitability this fiscal year, the foundation is not solid. If a merger were to proceed, it would create one of the world's largest automotive groups by sales volume, bringing significant economies of scale in logistics, procurement, and R&D for both parties. Particularly in cutting-edge fields like hybrid technology and semi-autonomous driving, joint investment could share the enormous costs and enhance competitiveness against domestic and international rivals. However, investors may question whether merging two struggling companies selling similar products in the same market can truly achieve a "1+1>2" effect.
Nissan Opens the Door, Honda Remains Silent Nissan CEO Ivan Espinosa stated clearly this week, "Discussions with Honda are still ongoing actively. We will continue to explore opportunities for cooperation." This sends a positive signal for restarting negotiations. In contrast, Honda CEO Toshihiro Mibe—who led the failed EV strategy—has said almost nothing about whether to resume talks with Nissan and is currently busy seeking a new strategic direction for Honda.
Christopher Richter, an analyst at CLSA, noted, "Honda's situation is not as dire as Nissan's was a year and a half ago, but they really need to take a hard look at their automotive business." He even suggested that Honda might need to implement the kind of restructuring it once demanded from Nissan, but Toshihiro Mibe has so far been unwilling to accept this. More crucially, there is a psychological barrier. Richter stated plainly, "Honda's pride will not allow them to go down that road now. If no one is truly in control, a merger of equals usually ends badly."
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