The Journal. - Will Honda Be Nissan's Ride or Die?

Episode Date: January 8, 2025

Once fierce rivals, Japanese car giants Honda and Nissan recently announced their plans to merge in 2026. The deal would create the world’s 3rd largest automaker. WSJ’s Sean McLain reports on why Nissan struggled in recent years and the challenges the merged company would face. Further Listening: -Inside Carlos Ghosn's Escape From Japan  -The Future of Self-Driving Cars Is Here  Further Reading: -Nissan Needs a Honda Rescue. What Went So Wrong?  -Honda, Nissan Plan to Create World’s No. 3 Automaker in 2026 Merger  Learn more about your ad choices. Visit megaphone.fm/adchoices

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. Of course, it's a street race. Looks like the streets of Miami, if I recall correctly. That's our colleague, Sean McLean. He covers the auto industry. 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. Whoa. 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 up the tailpipe.

And these are two of the most iconic vehicles of the street racing circuit from that period. 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. 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 largest automakers in the world. If you were to boil down this story into one simple idea, what would that be? I mean, I would say this boils down to money and pure desperation. Welcome to The Journal, our show about money, business, and power. I'm Kate Leimbach. It's Wednesday, January 8th. Coming up on the show, what's behind the proposed merger of Nissan and Honda? For decades, Japanese automakers have sold their vehicles to the world. Cars famed for being reliable, no frills, and not too expensive.

I mean, there were three giants of Japanese automaking, all storied companies for different reasons. You obviously have your Toyota, largest car maker 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 this current place in the world. Honda is kind of like the engineering weirdo of the triumvirate of Japanese automakers. The third company in Japan's big three is its oldest. Nissan, innovation 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 until 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. 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. Nissan was the inventor of the modern electric vehicle. What? Really? Nissan? 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 So how did Nissan go from? pioneering an electric vehicle to Today like tell us the story of where Nissan went wrong. Well, Nissan has placed a lot of the blame at the feet of a man named Carlos Ghosn. 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? I don't know if everybody remembers the term BRICS, 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

Nissans 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. 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. And he was betting the substantial portion of that growth on emerging market demand that, frankly, never materialized. What happened instead? 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. 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.

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 3.5 today.

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. 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. 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. So what did Nissan do?

Well, Nissan decided that it could use a helping hand and reached out to cross-town rival Honda about a potential partnership specifically on electric vehicles, but has since blossomed into a potential marriage. So it's like a matter of survival for them. It's a matter of survival for Nissan. Everybody sees this as Honda bailing out Nissan and Nissan receiving a much-needed lifeline. In this proposed deal, Nissan would get a lifeline. But what does Honda get? That's after the break. Thank you for coming to this venue despite your busy schedule and despite the short notice.

In December, Nissan and Honda held a joint press conference. A translator interpreted for the CEOs and for reporters. Good afternoon, everyone. I am Mibe of Honda Motor. Thank you for joining us on such short notice. 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? I mean, okay, first of all, you have to understand Mibbe, the Honda CEO, a little bit. He wears his heart on his sleeve. He was asked what he saw in Nissan.

What is the aspect that you like about each other? And he gave this very long rambling answer. That's a tough question. It was a very simple question, which you would think have a very simple answer. But this is stereotypical Mibe. We respect Nissan as worthy of consideration. I hope I answered your question. He said worthy of consideration. I hope I answered your question.

He said worthy of consideration? Like that's not exactly a ringing endorsement. Yeah, he is honest in an endearing way for a modern CEO. 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. So the Japanese government is one of the biggest architects pushing this deal for one very big reason, 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. 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? 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, thus

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.

There's also concerns about duplication, the idea that both Honda and Nissan currently have similar product lines. You have your Honda Accord, which competes with your Nissan Altima, your Civic competes with your Sentra, your CR-V which competes with your Nissan Altima. Your Civic competes with your Sentra. Your CRV 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? 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? Maybe already has, 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. What does this tell us about how the global automotive industry is changing? 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 car makers 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. 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.