Honda and Nissan recently announced that they are exploring the possibility of merging. Why would two long-time competitors join forces and why might a merger between two Japanese automakers matter to you? Well, the answer to both questions revolves around competition and how a merger between the two companies would change the industry. For decades, Honda and Nissan along with fellow Japanese company, Toyota, have been fierce competitors not just in Japan and the United States, but across the global auto industry. A merger between Honda and Nissan would not only change the nature of that competitive rivalry, it would create one of the biggest auto companies in the industry. The merger talks are in response to two significant shifts within the industry: the move to electrification and the emergence of Chinese automakers. China has figured out how to make inexpensive electric vehicles (EVs) at a time when there is a global push toward replacing traditional gas powered cars with EVs. In fact, Chinese companies like BYD are now leading the way in EV exports and have become popular among Chinese car buyers as well. What’s more, the Chinese companies don’t have the baggage of making a costly shift from gas-powered to electric. Instead, they started as EV companies.
This all represents a major threat for Honda and Nissan, both of which rely on the Chinese market for a significant share of their revenues. Protectionist barriers are currently keeping Chinese companies out of the United States, but those barriers are likely to be effective only in the short term, suggesting that U.S. revenues could come under pressure as well. Europe, another big market for Honda and Nissan, is also becoming a target market for Chinese automakers. These shifts in the industry are forcing companies to reevaluate how they do business. By merging, the companies gain efficiencies and scale economies in R&D, production, marketing, distribution, and so on. As a bigger player, the company would have more clout with suppliers and more power to set prices. Why does this matter to you? As a potential car buyer, less competition can mean higher prices. It also signals a new era in the industry, one where futher consolidation may follow. Indeed, while Americans might not be trading their Japanese cars in for Chinese-made EVs just yet, it’s likely that it won’t be long before you see shiny new Chinese-made EVs in driveways across America’s suburbs.
Discussion Questions:
1. What is driving the Honda-Nissan merger? Discuss the changing forces in the global auto industry. Why have Chinese automakers emerged as a major threat to Japanese car makers, U.S, companies, and European automakers?
2. How would a merger between Honda and Nissan affect car buyers in the United States? What does the proposed merger tell you about the future of car buying in the United States?
Sources| NPR: https://www.npr.org/2024/12/24/nx-s1-5237488/honda-nissan-merger-china-autos; https://www.youtube.com/watch?v=a5ZHunxVx2c; Reuters: https://www.reuters.com/markets/deals/honda-nissan-set-announce-launch-integration-talks-media-reports-say-2024-12-22/; Unsplash: Photo by Maksym Kaharlytskyi on Unsplash