The automotive industry was at the stage of showcasing the potential substantial growth paving way towards becoming world fourth (4th) largest auto group with the proposed £48 billion merger between Japanese car makers, Honda and Nissan. This proposed deal seemed to be a game changer and could have bolstered the auto car’s global market but fell apart leaving everyone bewildered.
Last year, cut-throat rival Honda, offered a lifeline to Nissan through a proposed merger deal, as Nissan was facing trouble competing in the global market. The proposed merger aimed towards a strategic growth to gain competitive edge compare to auto car’s leading leaders like, Toyota and Volkswagen. And, even from the automotive strategic viewpoints, the Honda’s engineering excellence and hybrid technology must have perfectly complemented Nissan’s Electric Vehicles (EV) strength and uniqueness. But this all could be successfully concluded only if the deal seamlessly completed and didn’t collapse within a month of the proposal’s initiation.
Nissan’s Critical Market Position and Imprecise Role in Deal
Nissan, once a Second (2nd) largest automotive industry in Japan started facing decline in its market position, just after the arrest of its former chairman Carlos Ghosn in the year 2018 accused of some financial misconduct. Honda benefiting themselves from this circumstance, entered this proposed deal with a strong hand and upper position in the deal. And, here that spark of deal breaker takes shape and later emerges in form of disagreement over Nissan’s role in the merger, whether as an equal partner or a subsidiary.
Nissan’s unmindful of their mare’s nest and arrogant in denial of their reality as well as Honda’s unilateral amendment of the deal terms declaring Nissan as a mere subsidiary in this proposed merger ultimately sealed the deal’s fate.
Structural & Behavioural Differences: Collapse of a Vision That Doesn’t Meant to Be
Deep-rooted structural differences between the concerned parties of the deal paves its way towards eclipse of the ambition of becoming largest automaker globally.
- Clash of Hybrid Tech & Decision of Not Budging: e: HEV vs e-Power
There’s always some behind the scene action that seems not too flashy but very crucial in deciding the fate of the deal. The disagreement over the use of hybrid technology upon merger i.e. e-HEV or e-Power opens up the discussion through very brief understanding of both the technology used by Honda and Nissan respectively.
e-Power, the hybrid technology of Nissan enables exclusive use of the on-board engine for electrical generation by separating the engine’s output and the driving force at the wheels. On contrary e-HEV, the innovative hybrid tech of Honda with self-charging feature along with the dual combination of petrol engine with two electric motors and a lithium-ion battery. Honda want Nissan to drop and dismantle their hybrid technology and adopt e-HEV but the heavy investment in the hybrid technology by Nissan in 2025 indirectly forces to take a step forward from ditching their technology.
- Mismatched Financial Standing and Market Discrepancy
Apart from technological advancement’s difference there’s a huge financial and market standing discrepancy at the time of entering into the proposed merger’s deal. Nissan entered into the deal with a weaker position forecasting annual loss of $518 million and lowered production capacity by 20%. Whereas, Honda has seen surge of 25% profit before tax despite several issues including disruption of supply chain.
Greater emphasis put down on the market value of each entity and discrepancy in that. Estimated market value of Honda i.e. 7.92 trillion yen is five times more than what the market value of Nissan i.e. 1.44 trillion yen.
This huge mismatch of financial standing in the market let the shareholders making pressure on Honda to go for taking full ownership of Nissan rather balancing the ownership.
- Cultural and Company’s DNA Differences: Decisive Role in Eroding Deal
While the technological and financial differences seem pivotal and screen taker for failed merger but the subtle cultural and operational DNA’s differences equally perform the decisive role in eroding the deal. Japanese companies always pay attention to their inculcated cultures and here both the companies differ in their operational philosophy despite having same conservative nature in running their businesses.
Honda, to be an engineering and innovation maverick because of their strong background of R&D and timely innovation, having independent existence by avoiding the giant alliances and control over their affairs. Whereas on contrary, Nissan’s operational philosophy differs in terms of be it centralisation of power and indulging in alliances. Nissan’s history been a ‘hem and haw’ paving towards its alliance with Renault in the late 1990s. Not decentralising the power of decision making and strictly centralising goes totally against the operational philosophy of Honda, making it impossible to merge.
Revamping and Revitalizing of Internal Strategy: Post Fallout of Merger
The helm of Nissan transferred from Makoto Uchida to Ivan Espinosa, a former head of global product strategy as a part of its revitalization of internal strategy after the collapse of the merger. Ivan holded the helm with dedication of strengthening EVs and product line in specific countries like- USA and China, and looking for some other alliance in near future and been in talk with Foxconn, a giant Taiwan based company, after failing to close the merger deal successfully with Honda.
Meanwhile, Honda being maverick takes solo path and double down its strategy for developing EVs and related technologies instead of entering again into any alliances or seeking external assistance. Only exception is seen in term of its partnership with Sony Mobility with a sole focus on development of EVs (software-focused) under the AFEELA brand.
Negative Implications over Japanese Automaker’s Market
While briefly discussing on the crucial negative implications on the Japanese automotive industry, the focus sticked on 2-3 points i.e. lagging behind in EVs race, hesitant in alliances (especially merger) and lastly, the global rise of EVs competition.
- With the emergence of EVs technology and rise of automakers like- Tesla, BYD, Hyundai in this arena leaves hybrid technology associated automakers like- Honda, Nissan, Toyota behind.
- Japanese automaker’s culture of independency and reluctancy to enter into any alliance for adapting and coping the competition of EVs and related technological advancement puts a severe negative/deteriorating effect on their position into the global market.
- Japanese automakers have to come out of their shell of self-advancement and independency in order to compete in the global market. The Chinese market with the software driven car and EVs technology in a way controlling the global market and leading it.
Conclusion: Proposed Deal Revealing the Industry Challenges
This giant proposed merger of two automakers is not limited to be called as a mere ‘business transaction’ rather it is appropriate to say differential operational philosophy i.e. traditional vs modern. The deal not only fallout but it reveals the real and behind screen industry challenges the automakers facing on global level.
The EVs and Software-developed automakers flourishing on global scale and on contrary, the hybrid tech automakers lagging behind on global scale in this advanced era. Its very crucial for hybrid tech automakers to come out of their fixed shell and adopt new EVs and software developed technologies to compete into the market. Honda and Nissan parted their way considering challenges and adopting safer and comfort path but road ahead doesn’t seem smooth.
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Author: Rohit Raj | B.A. LL.B. | M&A Associate, Integriti Law (UAE) | Batch 2024
Easy read and very insightful