(Bloomberg) -- Nissan Motor Co. is fighting for its life, again, and it may seek the help of another Japanese carmaker. Honda Motor Co. and Nissan are exploring a potential merger to pool resources in an alliance that could rival Toyota Motor Corp.
Nissan, one of the Japan’s flagship brands, is on the brink after weak sales in the US and China triggered a huge profit slump that left top brass with little choice but to cut jobs, slash a fifth of the carmaker’s manufacturing capacity and lower its annual profit forecast.
Nissan’s last crisis was about 25 years ago and was remedied by French carmaker Renault SA stepping in with a cash injection and dispatching “Le Cost Killer” Carlos Ghosn, who orchestrated a dramatic turnaround. The good times didn’t last and tensions mounted between some top Nissan executives and Ghosn.
This led to Ghosn’s dramatic arrest in 2018 and detention for suspected financial crimes, and his ouster from Nissan. Before facing trial, Ghosn slipped out of Japan in late 2019 hidden in a case for audio equipment that was loaded onto a private jet. He fled to Lebanon where he found sanctuary. Ghosn said he was the victim of a conspiracy among Nissan executives and escaped what he called Japan’s “rigged” justice system.
What is Nissan’s current financial position?
Nissan Chief Executive Officer Makoto Uchida is trying to stop the bleeding on the balance sheets, fend off activist investors and revive the brand.
On paper, the numbers don’t look great.
Nissan lowered its operating profit forecast for the current fiscal year by 70% — to ¥150 billion ($977 million) from ¥500 billion — when it announced quarterly earnings in November. Net income plummeted 94% during the first half.
The company in November said it would sell about a third of its stake in partner Mitsubishi Motors Corp. — worth about ¥69 billion when the plan was announced — after burning through nearly ¥450 billion during the same six-month period.
Nissan has about a year of breathing space before hitting a record bond maturity wall. The carmaker and its group firms have about $1.6 billion of debt due next year, a slight decrease from 2024, but that jumps to around $5.6 billion in 2026, the most in Bloomberg-compiled data going back to 1996.
How are the company’s sales?
Nissan’s sales have been falling for some time now in Japan, China and the US — its biggest and most important market. An outdated product lineup and inventory backlogs are fueling a cycle that threatens to hasten the carmaker’s decline.
Even when plans go well, things can take a wrong turn. Nissan released the world’s first mass-market electric vehicle — the Leaf — which went on sale in 2010. But it was never able to capitalize and create a global model like Toyota did with its Prius hybrid. Now, Nissan doesn’t have the EVs or the hybrids to compete in either the US or China.
What about a merger?
Honda is considering several options including a merger, a capital tie-up or the establishment of a holding company with Nissan, Honda Executive Vice President Shinji Aoyama said on Dec. 18.
The two companies have been having preliminary talks about a merger, said people familiar with the matter, who asked not to be identified because discussions are private. One option being considered is the creation of a new holding company under which the combined businesses would operate, one of the people said. The transaction could also be expanded to include Mitsubishi Motors Corp., which already has capital ties with Nissan, the person said.
Nissan and Honda made a preliminary deal in March 2024 to work with Mitsubishi to develop in-house software, batteries and other EV components. While details are forthcoming, this would pit the trio against Toyota and its partnerships with Subaru Corp., Suzuki Motor Corp. and Mazda Motor Corp.
In 2023, Nissan and Renault realigned their decades-long alliance. Renault lowered its stake in Nissan and they made plans to put forward a range of new models along with junior alliance partner Mitsubishi.
Why is Nissan cutting production?
Among the various elements of Uchida’s three-year plan to reinvigorate the business was a pledge to sell an additional 1 million cars a year by 2027. Less than a year later, that hardly seems within reach, as Uchida indicated in early November when he said: “Meeting our sales goals will be a challenge.”
Nissan lowered its production and sales outlook for the fiscal year ending in March 2025 after paring forecasts in each of its major markets, including North America, China, Japan and Europe. It now expects to make about 3.2 million vehicles, and to sell 3.4 million.
In June, the company announced it would cease production at a plant in Changzhou due to poor sales.
Nissan’s stock has fallen about 47% since Uchida became CEO on Dec. 1, 2019. It’s the worst performance for shares under any leader at the company in at least five decades, data compiled by Bloomberg show.
Why did an activist investor buy a stake in Nissan?
A fund controlled by Effissimo Capital Management Pte took a 2.5% stake in the carmaker. It’s not clear why it made the move that was disclosed in November and Effissimo isn’t talking. It might have been that shares were too cheap to pass up: Nissan trades at around 0.25 times book value, much lower than most other legacy automakers around the world.
Another possibility is that Effissimo might leverage its stake to pressure Nissan to buy out 50% of Nissan Shatai Co. The purpose would be to protect the financial firm’s minority interest in Shatai by pressuring Nissan to merge the companies and pay a fair price — and hand Effissimo a big check.
How much turnover has there been in top management?
Hiroto Saikawa, Ghosn’s successor, stepped down as CEO in 2019 over a scandal involving allegations of excess compensation and other executives left in the turmoil.
The most recent change came on Dec. 11 when the company overhauled its executive bench. Uchida remained in place, while Jeremie Papin was tapped to become chief financial officer effective Jan. 1. Current CFO Stephen Ma will be transferred to head operations in China.
The shift for Ma comes about 17 months after the departure of Ashwani Gupta, formerly chief operating officer. Nissan hasn’t had a COO since Gupta left.
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