By Peter Landers

Honda and Nissan said they were exploring a merger following a downturn in Nissan's results and struggles for both automakers in China.

The discussions between two of Japan's biggest carmakers and longtime rivals highlight how China's rapid rise in the global auto market is reconfiguring the industry.

Confirming a report in the Nikkei newspaper, Honda and Nissan said Wednesday they were in talks over a merger or other future collaboration. They said no final decision had been made.

The companies have grown closer this year and previously announced plans to work together on electrification technologies, seeking to share development costs.

Both are struggling in China, the world's largest auto market, after being caught flat-footed by that country's rapid shift to electric vehicles and plug-in hybrid vehicles. Nissan has also posted weaker results in the U.S.

A combination would allow Honda and Nissan to seek synergies in purchasing and technology development, but it would also present challenges for two companies with different cultures and partly overlapping vehicle lineups.

Last month, Nissan announced restructuring plans that include cutting 9,000 jobs globally and reducing its global production capacity by a fifth. It also lowered vehicle-sales forecasts for all major markets, particularly China and North America.

Earlier this year, Nissan halted vehicle production at its Changzhou plant in eastern China, while Honda has sought to cut workers at a China joint venture through voluntary buyouts.

Analysts said the merger talks between Honda and Nissan were driven by increasing competition from such EV makers as Tesla and China's BYD. Tesla and Chinese carmakers are also leading the way in autonomous driving and software, and automakers need to invest heavily to keep up.

Nissan shares closed up 23.7% in Tokyo trading Wednesday, while Honda shares closed down 3%. Honda's market capitalization is more than four times as big as Nissan's, suggesting that the power balance would favor Honda in a merger.

Nissan has never fully recovered from the November 2018 arrest of its then-chairman, Carlos Ghosn, which followed internal tension over Nissan's alliance with Renault of France. Ghosn was charged in Tokyo with financial crimes, which he denied, and escaped from Japan in December 2019 on a private jet before his trial began.

Renault took a more than one-third stake in Nissan in 1999, later raised to 43%. Nissan, which was long the larger and more profitable of the two partners, chafed under the alliance and finally won its independence last year when Renault agreed to reduce its stake to 15%.

But Nissan's fortunes turned downward this year. Operating income in the half-year ended Sept. 30 was down 90% from the previous year, and Nissan group sales in the U.S. fell 2% in the July-September quarter.

Last month Honda cut its annual forecasts for car sales and net profit. It posted a drop in earnings for the first half of its fiscal year owing partly to weakness in its auto business in China.

In China, 52% of passenger cars sold in November were either full EVs or plug-in hybrids, data from the China Passenger Car Association showed. As the market rapidly shifts away from gasoline-powered cars, local brands have captured share from Japanese, German and American automakers.

In the first 11 months of this year, Chinese brands accounted for 60% of China's passenger car sales, up 8.5 percentage points from a year earlier, the car association said.

Honda last year sold about 4 million vehicles globally, and Nissan sold about 3.4 million, according to the companies. If their merger goes ahead, the combined company will be poised to take third place globally in car sales, behind Toyota and Volkswagen, unless it scales back production to reduce overlaps.

The Japanese auto industry has been gradually coalescing into two camps. One is headed by Toyota, which owns minority stakes in Subaru, Mazda and Suzuki. The other brings together Honda, Nissan and Mitsubishi Motors. Nissan owns roughly one-quarter of Mitsubishi after trimming its stake in November.

--Yoko Kubota, Yang Jie and Kosaku Narioka contributed to this article.

Write to Peter Landers at Peter.Landers@wsj.com

(END) Dow Jones Newswires

December 18, 2024 02:02 ET (07:02 GMT)

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