Nissan Needs a Honda Rescue. What Went So Wrong?

Japanese carmaker, still reeling from Ghosn affair, looks to merger to help it with aging model lineup and restless U.S. dealers

Nissan 7201 1.90% increase; green up pointing triangle, once a symbol of Japan’s carmaking prowess, spent the past five years trying to regain its footing after the arrest of longtime leader Carlos Ghosn, only to find itself in a precarious spot again.

The carmaker has been slashing jobs, cutting vehicle production and reporting lower profit. Nissan has been slower than rivals in refreshing its lineup, and it has fallen behind in the electric-vehicle race it once led.

Now, it is looking to Honda 7267 3.38% increase; green up pointing triangle for a lifeline.

The two carmakers said they were in talks over a merger that would be poised to create the world’s third-largest automaker by sales. The idea of two of Japan’s biggest rival brands cohabiting under the same roof would once have been considered absurd, but the companies have grown closer as Nissan weakens, announcing this year plans to share costs and work together on electric vehicles.

Nissan shares rose more than 30% in the two trading days after the announcement about merger talks, while Honda shares declined almost 5% in the same period.

The combination could help fortify the carmakers against global threats including a wave of new competitors coming from China that have taken a lead in the electric-vehicle race.

For Honda, a merger with Nissan offers the promise of sharing the high cost of developing new technologies. The Japanese government, which is worried about the auto industry’s competitiveness versus China and is subsidizing technology research, has suggested it would welcome the combination.  

Nissan is also the largest shareholder in Mitsubishi Motors and collaborates with it on technology, a relationship that would likely carry over into a merged Honda-Nissan company. Together, Honda, Nissan and Mitsubishi sell more than eight million vehicles annually.

But Honda and Nissan have hurdles to overcome before they can make their deal final. The two companies have different cultures. They sell the same types of sport-utility vehicles and sedans for the mass market in the U.S. and elsewhere.

Nissan, which has a 25-year-old alliance with French carmaker Renault, has yet to fully recover from the arrest of Ghosn, its then-chairman, in late 2018. Stripped of his position and charged with financial crimes that he denied, Ghosn fled Japan a year later hidden inside a box on a private jet.

After his abrupt dethroning, Nissan reversed Ghosn’s growth plans, announcing mass layoffs and factory closures in 2019 and cycling through top executives and managers. The company’s global sales tumbled to 3.4 million vehicles last year from more than 5.6 million in 2018.

Renault and Nissan resolved their long-running tensions last year by agreeing that Nissan would regain its independence. Renault is gradually reducing its stake in Nissan to 15% from around 43%.

Freedom wasn’t as liberating as Nissan hoped. The company has struggled to fund its current business of selling mostly gasoline-powered vehicles such as the Rogue SUV and the Altima sedan while also investing in next-generation technologies. Its latest cost-cutting plan, released in November by CEO Makoto Uchida, calls for billions of dollars in savings and 9,000 job reductions.

Pooling resources could help Honda and Nissan, No. 2 and No. 3 in global sales among Japan automakers, approach the scale of No. 1 Toyota—which spends around $7.5 billion a year on research and development, and sells similar vehicles in many of the same markets.

Nissan said it was maintaining strong investments in R&D despite cost-cutting efforts. “We will also continue to leverage smart partnerships” to get the benefits of scale, said a Nissan spokesman.

Any partnership may need the blessing of Renault, but analysts say the deal is largely positive for the French carmaker because a struggling Nissan has been a weight on earnings.

The biggest fix-it job for a combined company would be in the U.S., where Nissan’s sales plummeted by one-third between 2019 and 2023.

Dealers say Nissan historically has been slow to refresh its lineup, and they have had to give steep discounts to unload dated-looking vehicles. That reputation has eroded the appeal of Nissan, and today buyers of the company’s vehicles tend to be people with poorer credit histories or those looking for a deal, dealers say. As a result, Nissan’s customer base has been harder hit by rising interest rates that have pushed up monthly payments.

Nissan’s replacement rate for its models—an indicator of how new its lineup is—has dropped to among the worst in the U.S. auto industry while Honda is above average, according to Bank of America’s annual “Car Wars” report.

Nissan says its sales decline over the past five years was the result of eliminating several models, such as the Maxima sedan, as well as selling fewer vehicles to rental-car companies. A company spokesman said Nissan wanted to roll out models more quickly and refresh them more often.

“Honda is a better-run company than Nissan, and I’m keeping my fingers crossed that it will rub off on Nissan,” said Adam Lee, chairman of Lee Auto Malls in Maine. His dealership group has two Nissan dealerships and one Honda store.

A survey of 600 auto retailers by Kerrigan Advisors, a buy-sell firm for dealerships, found that more than half of the respondents had no trust in Nissan. Founder Erin Kerrigan said many Nissan dealers were losing money and, if they wanted to sell their dealerships, couldn’t easily find a buyer.

On EVs, Nissan has gone from early mover to laggard. Its Nissan Leaf was one of the first fully battery-powered cars to hit the market in 2010, but Leaf sales have never taken off. Executives, wary of high development costs, have moved more slowly than rivals to expand Nissan’s EV lineup and production.

At a time when hybrid sales are taking off, Nissan doesn’t have one to sell in the U.S. It plans to sell a plug-in hybrid version of its Rogue in 2026. Honda, meanwhile, offers several hybrid models and a new all-electric SUV called the Prologue.

A merged Honda-Nissan would have to meld two distinctive cultures. Honda CEOs, starting with founder Soichiro Honda, have usually been engineers. Nissan historically favored graduates of the prestigious University of Tokyo, and its top jobs often went to sales leaders.  

The history of the auto industry is littered with mergers and partnerships that didn’t work out.

Stephanie Brinley, an analyst at S&P Global Mobility, said it takes a long time for merged companies to cut costs and get more productive by combining manufacturing and product development—but Nissan needs help right now for its flailing U.S. business.  

“A merger does not address the competitive issues holding Nissan’s sales back,” she said.