Will Honda Be Nissan's Ride or Die?

Summary

Summary of "Will Honda Be Nissan's Ride or Die?"

Podcast: The Journal
Hosts: Kate Linebaugh, Ryan Knutson, Jessica Mendoza
Release Date: January 8, 2025

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Introduction

In the January 8, 2025 episode of The Journal, hosts Kate Linebaugh and Sean McClain delve into the surprising announcement of a proposed merger between two Japanese automotive giants: Honda and Nissan. This potential union has sent ripples through the global automotive industry, raising questions about its motivations, implications, and future impact.

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Overview of the Proposed Merger

The central focus of the episode is the groundbreaking news that Honda and Nissan intend to merge, potentially forming the third-largest automaker globally. This strategic move comes at a time when both companies are navigating significant financial and market challenges.

Sean McClain (00:23): "Japanese automakers Honda and Nissan have announced that they plan to merge if the deal goes through. This would make the companies the third largest automakers in the world."

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Background on Honda and Nissan

Honda: The Engineering Maverick

Sean provides a detailed background on Honda, highlighting its origins and evolution. Founded by Soichiro Honda, the company started by manufacturing motorcycles before expanding into automobiles. Honda is renowned for its engineering prowess and innovative approach, distinguishing itself from its Japanese counterparts.

Sean McClain (03:16): "Honda's kind of like the engineering weirdo of the triumvirate of Japanese automakers."

Nissan: The Industrious Pioneer

Nissan, on the other hand, has a rich history as a stalwart of Japanese industry. Known for introducing the modern electric vehicle with the Nissan Leaf, Nissan was once at the forefront of automotive innovation. However, recent years have seen the company struggle amidst financial woes and increased competition, particularly from Chinese EV manufacturers.

Sean McClain (04:35): "Nissan was the inventor of the modern electric vehicle. Introducing the 100% electric Nissan Leaf... first company to bring a mass market EV to the market."

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The Downfall of Nissan

The episode traces Nissan’s decline to its overambitious expansion under former CEO Carlos Ghosn. Ghosn’s strategy involved massive investments in global factories and future technologies, betting heavily on emerging markets. However, this led to financial strain without the anticipated market growth.

Sean McClain (06:01): "I would say this boils down to money and pure desperation."

Ghosn’s downfall in 2018, marked by accusations of financial misconduct, exacerbated Nissan's troubles, leading to significant layoffs and a reduction in production from six million to three and a half million vehicles annually.

Sean McClain (07:12): "Nissan shrinks from selling about 6 million cars a year to three and a half today."

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The Merger Announcement

As Nissan grappled with financial instability, it sought a lifeline in Honda. The proposed merger aims to pool resources, particularly in the electric vehicle (EV) and autonomous technologies sectors, to better compete in a rapidly evolving market.

Sean McClain (09:28): "It's a matter of survival for Nissan. Everybody sees this as Honda bailing out."

The merger is projected to create a formidable automotive group with combined sales of eight million vehicles annually. However, initial reactions suggest a complex dynamic between the two companies, with concerns over Nissan's weaker position and Honda’s potential dominance in the merged entity.

Kate Linebaugh (12:02): "Honda will appoint the majority of board members, all of which positions Honda to be the company calling most of the shots."

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Challenges Facing the Merger

Cultural Differences

One of the primary hurdles discussed is the stark cultural contrast between Honda and Nissan. Their differing management styles—Honda's engineering-centric leadership versus Nissan's sales-oriented executives—pose significant integration challenges.

Sean McClain (13:32): "These are two extremely different companies... Honda's leaders have typically come up through their research and development arm."

Product Line Overlaps

Another concern is the redundancy in their product lines, with models like the Honda Accord competing directly with the Nissan Altima, and the Civic against the Sentra. This overlap raises questions about potential efficiencies and the risk of brand dilution.

Sean McClain (14:31): "There's very little difference in the lineups of these companies."

Market Position and Competitiveness

The episode highlights the broader challenges facing traditional automakers amidst the rise of Chinese EV manufacturers like BYD Auto. The struggle to maintain market share in key regions, especially China, underscores the urgency behind the merger.

Sean McClain (09:08): "Chinese car companies, especially when it comes to electric vehicles, are really eating the lunch of the global car industry."

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Impact on the Automotive Industry

The Honda-Nissan merger is indicative of broader trends in the automotive sector, where legacy automakers are increasingly pressured to consolidate to stay competitive against agile and innovative rivals. The potential merger serves as a precursor to more such alliances as companies strive to navigate the financial and technological demands of the EV revolution.

Sean McClain (15:55): "Look, I think this is absolutely emblematic of the strain on carmakers today... I would not be surprised if we see more of these mergers and partnerships."

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Conclusion

The episode wraps up by emphasizing the high stakes involved in the Honda-Nissan merger. While it aims to provide mutual benefits and enhanced competitiveness, the path forward is fraught with challenges that will test the resilience and adaptability of both companies. As the global automotive landscape continues to evolve, such strategic moves will be critical in shaping the future of mobility.

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Notable Quotes

• Sean McClain (01:54): "I would say this boils down to money and pure desperation."
• Sean McClain (05:42): "Carlos Ghosn becomes CEO of Nissan in 2001... bold vision for Nissan."
• Sean McClain (07:35): "Nissan shrinks from selling about 6 million cars a year to three and a half today."
• Sean McClain (13:32): "These are two extremely different companies... Honda's leaders have typically come up through their research and development arm."
• Sean McClain (15:55): "I would not be surprised if we see more of these mergers and partnerships."

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This summary encapsulates the key discussions and insights from The Journal episode on the proposed Honda-Nissan merger, providing a comprehensive overview for both regular listeners and newcomers.

Transcript

[Kate Linebaugh]

There's an iconic scene from the 2003 action movie Too Fast, Too Furious, a scene beloved by gearheads. And it begins naturally, with cars rolling up to a starting line.

[Sean McClain]

Of course, it's a street race. Looks like the streets of Miami, if I recall correctly.

[Kate Linebaugh]

That's our colleague Sean McClain. He covers the auto industry.

[Sean McClain]

And there were very iconic cars from the 1990s and the early 2000s. And two in particular that I think are relevant for our discussions. One is a candy pink convertible made by Honda, an S2000.

[Kate Linebaugh]

Whoa.

[Sean McClain]

All right, ladies. And then we also have the Nissan Skyline gtr, nicknamed Godzilla, rolling down the street, puffing smoke out of its wheel wells and shooting flames out the tailpipe. And these are two of the most iconic vehicles of the street racing circuit from that period.

[Kate Linebaugh]

Honda versus Nissan, locked in a high octane street race. Kind of like the rivalry they have in real life. Two Japanese car giants selling similar cars to similar customers. Which is why just before Christmas, some news out of Japan was so surprising.

[Sean McClain]

We are following some breaking news this morning. Japanese automakers Honda and Nissan have announced that they plan to merge if the deal goes through. This would make the companies the third.

[Miebe]

Largest automakers in the world.

[Kate Linebaugh]

If you were to boil down this story into one simple idea, what would that be?

[Sean McClain]

I mean, I would say this boils down to money and pure desperation.

[Kate Linebaugh]

Welcome to the Journal, our show about money, business and power. I'm Kate LINEBAUGH. It's Wednesday, January 8th. Coming up on the show, what's behind the proposed merger of Nissan and Honda Foreign?

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[Kate Linebaugh]

For decades, Japanese automakers have sold their vehicles to the world. Cars famed for being reliable, no frills, and not too expensive.

[Sean McClain]

I mean, there were three giants of Japanese automaking, all storied companies for different reasons. You obviously have your Toyota, largest carmaker in the world, an engine of profit and efficiency. And then you have Honda, probably Japan's most famous startup. You know, started from Soichiro Honda, who made motorcycles out of bicycles and then had no background in Cars and forced his way to the car industry and his current place in the world. Honda's kind of like the engineering weirdo of the triumvirate of Japanese automakers.

[Kate Linebaugh]

The third company in Japan's big three is its oldest Nissan innovation.

[Sean McClain]

That excites Nissan, which was always the most storied, I would say, of the Japanese automakers, maybe not the biggest, maybe not the best known, but certainly the most storied. I mean, Nissan's name in Japanese literally means Japanese industry. You know, it was an industrial powerhouse throughout the sort of the mid century till today. So Nissan of the early 90s was known as a very engineering driven company that, you know, the cars you bought from them were in one sense over engineered. They were exciting to drive.

[Kate Linebaugh]

Exciting to drive. Like that Nissan Skyline that roars across the finish line in Too Fast, Too Furious. Spoiler alert. In the movie the Nissan wins. And Nissan was also once seen as a pioneering automaker.

[Sean McClain]

Nissan was the inventor of the modern electric vehicle.

[Kate Linebaugh]

What, really Nissan?

[Sean McClain]

Yeah. Well, if you remember the Nissan Leaf at the time, 15 years ago, it was absolutely groundbreaking. Introducing the 100% electric Nissan Leaf. Innovation for the planet, innovation for all. And Nissan was the first company to bring a sort of mass market EV to the market and proved that they could make a EV that could be a viable replacement for a gasoline vehicle.

[Kate Linebaugh]

So how did Nissan go from pioneering an electric vehicle to today? Like, tell us the story of where Nissan went wrong.

[Sean McClain]

Well, Nissan has placed a lot of the blame at the feet of a man named Carlos Ghosn.

[Kate Linebaugh]

Carlos Ghosn. Carlos Ghosn. Automotive titan Carlos Ghosn was put on. Carlos Ghosn became CEO of Nissan in 2001. He was a superstar of the auto industry and had a bold vision for Nissan. He wanted to make it the largest carmaker in the world. What was the big bet he made?

[Sean McClain]

I don't know if everybody remembers the term bricks, right? So you had your Brazil, your Russia, your India, your China, your South Africa. Carlos Ghosn's big bet is that there was hundreds of millions of people in these new middle classes emerging in these smaller, poorer countries that were all going to buy Nissan's for the first time. And Nissan, more so than other car makers, they wanted to be the first to market for a lot of these countries.

[Kate Linebaugh]

So Ghosn and Nissan spent billions of dollars building factories all over the world. He pushed for drastic sales increases and made big investments in electric cars, robo taxis and autonomous vehicles.

[Sean McClain]

And he was betting the substantial portion of that growth on emerging Market demand that frankly never materialized.

[Kate Linebaugh]

What happened instead?

[Sean McClain]

Well, instead, Nissan ended up with a bunch of half filled factories around the world that instead of being profit engines, just were giant black holes and money furnaces for Nissan's cash.

[Kate Linebaugh]

By 2018, Nissan's profit margins were shrinking and Ghosn soon found himself accused of financial crimes in Japan. He fled the country and is now a fugitive in Lebanon. He denies wrongdoing and has dismissed the idea that he was responsible for Nissan's current woes. But Nissan was stuck.

[Sean McClain]

Carlos Ghosn disappears and that sets about a number of things that change at Nissan, including management overhaul, turmoil, chaos and infighting within Nissan, but also a broad reset of Nissan's strategic vision for what kind of a company it wants to be. And Nissan goes about trying to shut down all of these factories that Carlos Ghosn has had built around the world. They lay off about 10% of their workforce. They say they need to shrink to regrow their profits. Nissan shrinks from selling about 6 million cars a year to three and a half today.

[Kate Linebaugh]

Whoa.

[Sean McClain]

So Nissan has become a much smaller company as they shut down factories and produce fewer vehicles. However, profits have not really rebounded. It's just today a much smaller company with much less cash.

[Kate Linebaugh]

Nissan was strapped for cash at a time when the industry was on the precipice of big changes. The electric vehicle market was taking off around the world and Nissan was left flat footed, especially in China, the world's largest car buying country where Nissan had invested heavily. China had a burst of new EVs of its own. Car makers like BYD Auto and Chinese customers were buying in, which was bad news for the whole Japanese car industry and especially for Nissan.

[Sean McClain]

With the advent of all these electric vehicles coming out, you are starting to see that market share being taken away. Chinese car companies, especially when it comes to electric vehicles, are really eating the lunch of the global car industry.

[Kate Linebaugh]

So what did Nissan do?

[Sean McClain]

Well, Nissan decided that it could use a helping hand and reached out to crosstown rival Honda about a potential partnership specifically on electric vehicles, but has since blossomed into a potential marriage.

[Kate Linebaugh]

So it's like a matter of survival for them.

[Sean McClain]

It's a matter of survival for Nissan. Everybody sees this as Honda bailing out. Nissan and Nissan receiving a much needed.

[Kate Linebaugh]

Lifeline in this proposed deal. Nissan would get a lifeline, but what does Honda get? That's after the break.

[Miebe]

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[Honda CEO]

Thank you for waiting. Thank you for coming to this venue despite your busy schedule and despite the short notice.

[Kate Linebaugh]

In December, Nissan and Honda held a joint press conference. A translator interpreted for the CEOs and for reporters.

[Honda CEO]

Good afternoon everyone. I am Miebe of Honda Motor. Thank you for joining us on such short notice.

[Kate Linebaugh]

As the CEOs of both companies stood on stage at the press announcement, things got awkward. What did the Honda CEO first say about this deal?

[Sean McClain]

I mean, okay, first of all, you have to understand me BEI the Honda CEO a little bit. He wears his heart on his sleeve. He was asked what he saw in Nissan.

[Honda CEO]

What is the aspect that you like about each other?

[Sean McClain]

And he gave this very long rambling answer.

[Honda CEO]

That's a tough question.

[Sean McClain]

It was a very simple question which you would think have a very simple answer. But this is has a stereotypical me.

[Honda CEO]

We respect Nissan as worthy of consideration. I hope I answered your question.

[Kate Linebaugh]

He said worthy of consideration. Like that's not exactly a ringing endorsement.

[Sean McClain]

Yeah, he is. He's honest in an endearing way for a modern CEO.

[Kate Linebaugh]

The merger which is planned for next year would create the third largest automotive group in the world behind Toyota and Volkswagen. The merged company would have sales of 8 million vehicles a year. Honda has said that pooling resources with Nissan will allow for both brands to continue innovating as Demand rises for EVs and autonomous technologies. But if Honda's CEO sounded lukewarm about the deal, that may be because it was a bit of an arranged marriage arranged by the Japanese government.

[Sean McClain]

So the Japanese government is one of the biggest architects pushing this deal for one very big jobs in Japan that directly work for these two companies and are reliant on these two companies having manufacturing and research facilities in Japan. And so the hope is that by combining together, they might together produce enough vehicles and sell enough vehicles in Japan to sort of justify their continued existence.

[Kate Linebaugh]

Honda's CEO has rejected suggestions that the company was being pushed to rescue Nissan. So this deal might make sense from like a political perspective, but what about the market challenges the deal faces?

[Sean McClain]

Well, the number one challenge is culture. These are two extremely different companies. Nissan historically has had its top management picked from the University of Tokyo, the sort of the Harvard of Japan, Keio University, the sort of blue blooded patrician elite of Japanese education. And their leadership tends to be people who come up through the sales side of the business. Whereas Honda has always been an engineering company. And Honda's leaders have typically come up through their research and development arm, people whose engineering chops have propelled them to the top of the company. So these are two very different corporate cultures and frankly, even the way that they operate internally are very different.

[Kate Linebaugh]

There's also concerns about duplication, the idea that both Honda and Nissan currently have similar product lines.

[Sean McClain]

You have your Honda Accord, which competes with your Nissan Altima. Your Civic competes with your Sentra. Your CR V, that competes with your Rogue. There's very little difference in the lineups of these companies. And so where do you find efficiencies that aren't just simple cuts?

[Kate Linebaugh]

Honda and Nissan are calling this a merger, not a takeover by Honda. But it's clear Nissan is the weaker company. The boss of the combined company would likely come from Honda. And Honda will also appoint the majority of board members, all of which positions Honda to be the company calling most of the shots. How do you think this potential merger between Nissan and Honda will affect future Fast and Furious films? You think Vin Diesel is going to be driving a Chinese BYD car?

[Sean McClain]

Maybe he already has. But. But I think that's certainly the concern of a lot of these car makers, that they're going to lose that niche in the market and that sort of place in the sort of automotive pantheon to these Chinese companies that are cooler, younger and more innovative.

[Kate Linebaugh]

What does this tell us about how the global automotive industry is changing?

[Sean McClain]

Look, I think this is absolutely emblematic of the strain on carmakers today. Carmakers from GM to Ford to Toyota to Honda and Nissan are struggling to spend enough money to compete with the likes of Tesla and particularly Chinese carmakers. I would not be surprised if we see more of these mergers and partnerships, especially if enough markets around the world still push electric vehicles. That is going to strain the budgets and the finances of these carmakers and something will break. And in the case of Honda and Nissan, we're seeing it starting to crack. But they will not be the last.

[Kate Linebaugh]

That's all for today. Wednesday, January 8th. The Journal is a co production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.