Nissan and Honda would drive better together
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Katrina Hamlin
HONG KONG, Nov 29 (Reuters Breakingviews) -It's time for Toyota Motor's 7203.T two biggest domestic rivals to deal with their problems by joining forces. Nissan Motor's 7201.T woes are the more obvious: poor results prompted the $9 billion manufacturer into an emergency overhaul this month. But $40 billion Honda Motor's 7267.T autos unit is subpar, too. Welding them together would give scope to cut costs, charge earnings and invest more efficiently and effectively in electric vehicles and other technology.
Nissan CEO Makoto Uchida's turnaround plan involves cutting 9,000 jobs and 20% of manufacturing capacity. That's only likely to take the automotive division's operating margin to 0.4% in the March 2026 financial year, per forecasts gathered by Visible Alpha. The company also seems willing to have Honda as a long-term shareholder, the Financial Times reported on Tuesday, citing sources.
Honda's operating margin at its carmaking business is just 3.6% - way below its motorcycle division's 18% - and may only improve by around a percentage point by the 12 months to the end of March 2026, analysts estimate.
Together, Nissan and Honda would sell nearly 6 million vehicles that year, according to Visible Alpha. Since the pair share key markets, they would be able to shrink spending on everything from administration and procurement to factories and research.
Lifting their game to match Toyota's 10% operating margin is probably a stretch, requiring around $12 billion in cost cuts, equivalent to 7.5% of the combined companies' top line. Getting that margin to 7% - just over half way between the 3% the combined entity would theoretically achieve without any cuts and its larger rival's 10% - could be doable. That'd require slashing expenses equal to roughly 4% of revenue. That's more than the 2.7% Peugeot and Fiat Chrysler targeted when they first agreed in 2019 to tie the knot and become Stellantis STLAM.MI. But it's in line with the savings rate implied by goals Renault RENA.PA, Nissan and Mitsubishi Motors 7211.T set for their alliance back in 2017. Nissan and Honda could crunch more costs by meshing their auto-finance units.
Merging the two is hardly a new idea: they came under pressure from Japan's government to contemplate a merger in 2019, the Financial Times reported. Former Nissan chair Carlos Ghosn has already dubbed potential cooperation on EVs and software a “disguised takeover” by Honda. The companies have not indicated any such intentions. But earnings woes and merger maths suggest it's a road worth exploring.
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CONTEXT NEWS
Nissan Motor is searching for an anchor investor as long-time partner Renault sells down its holding in the carmaker, the Financial Times reported on Nov. 26 citing sources. In addition, the people said Nissan would be open to Honda Motor buying a portion of its shares. The pair are also currently discussing a partnership on electric and autonomous vehicles.
Nissan on Nov. 7 announced a plan to cut 9,000 jobs and 20% of its global manufacturing capacity, and slashed its annual operating profit outlook by 70%.
Graphic: Nissan and Honda shares have underperformed https://reut.rs/49eode3
Editing by Antony Currie and Ujjaini Dutta
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