Japanese automaker Nissan (NSANY) finds itself at a crossroads.
Nissan was poised to participate in a megamerger with rival Honda (HMC), and it was a huge development when the talks were revealed late last year. This was not just some run-of-the-mill consolidation — this would have been like General Motors (GM) and Ford (F) joining forces into one behemoth.
Both brands enjoy their own cultures and reputations, and this may have led to the deal’s unraveling, per some reports. Honda, in the more enviable position, looked at Nissan as a troubled partner that needed more cost cuts, which apparently did not happen at the speed that Honda desired.
Honda then reportedly wanted to make Nissan a subsidiary, which Nissan wasn’t going to allow. Nissan, after all, has a history with such relationships. It felt like a subsidiary with its alliance partner Renault (RNO.PA), and the company still feels disrespected in some fashion to this day.
Both Honda and Nissan say their boards are meeting soon and an announcement will be made shortly.
While Nissan potentially scrambles for a new dance partner, the question remains how Nissan arrived at the position it finds itself in now.
Feeling dissed? BA Nissan GT-R sports car on display at Brussels Expo in Brussels, Belgium. (Sjoerd van der Wal/Getty Images) ·Sjoerd van der Wal via Getty Images
The company behind enthusiast cars like the mighty GT-R, 240Z sports car, and trusty Pathfinder SUV was once in the driver’s seat in the US and in its home market of Japan.
However, in the late 1990s, the company found itself in dire financial straits and entered into an alliance with French automaker Renault. Renault held the superior position for some time, eventually leading to resentment from Nissan’s Japan-based leadership.
“Nissan’s drive for independence prevented it from fully integrating with Renault [and] from merging with FCA (Fiat Chrysler),” Sam Fiorani, manufacturing expert at AutoForecast Solutions, said to Yahoo Finance. By 2023, Renault eventually sold down its ownership so that Renault held a 15% voting stake in Nissan and Nissan held a 15% voting stake in Renault.
After a renaissance during former CEO Carlos Ghosn’s tenure when the company became profitable, Nissan again struggled with sales due to an aging product lineup and rising costs.
Nissan never really fully recovered. For example, the company reported that global revenues fell 5% in its most recent quarter from July to September and it had a net loss of $62 million versus a profit a year ago. Operating margins dropped below 0.2%.
The company also cut its revenue projection for the 2025 fiscal year by 10%, with the company saying that it is “facing a severe situation” and that it is “taking urgent measures to turn around its performance and create a leaner, more resilient business capable of swiftly adapting to changes in the market.” Nissan said it would cut its global capacity by 20% and reduce its global workforce by 9,000.
Aging products were an issue for Nissan.
“I think sometimes they tend to let their vehicles get a little bit older and put them on longer life cycles than much of the market,” S&P auto analyst Stephanie Brinley told Yahoo Finance.
In addition, the Nissan team didn’t step on the accelerator pedal when it came to electric vehicles.
“It’s not so much that Nissan is in a bad position for not having more EVs; it’s just they had a lead, and they were early,” Brinley said. “They were early in that segment and then sort of pulled back a little bit, and took a different path, and ended up really letting competitors sort of get out ahead of them.”
Though that EV growth story slowed across the industry, Nissan could have had a leadership position behind Tesla (TSLA). Now Ford and GM occupy that space in the US.
China woes have also been a concern for Nissan. Moody’s noted that Nissan’s China sales in 2023 were roughly half of its 2019 volume when China accounted for 1 in 3 of Nissan’s global sales.
Once a source of growth, those sales tumbled as the industry as a whole felt pressure from growing Chinese domestic automakers like BYD.
Combined with pressure in the US, an aging product portfolio, heavy debt, and a shrinkage in China brought Nissan to where it is today.
Breaking up? Nissan chief executive Makoto Uchida, left, Honda chief executive Toshihiro Mibe, right, during a joint news conference in Tokyo, Japan, on Dec. 23, 2024. (AP Photo/Eugene Hoshiko, File) ·ASSOCIATED PRESS
A massive tie-up with Honda, though audacious, was seen as a strong move for Nissan.
Nissan would be receiving a lifeline from Honda with potential access to capital and shared development costs. Honda would gain more manufacturing capacity and benefit from cost sharing as well.
“The best opportunity there would be for being able to share development costs of new technology, whether that’s battery technology or software,” Brinley said. “They could’ve shared either the research and development cost of that or the deployment cost of that, and then you can get the scale on those systems which are expensive to develop really quickly.”
The two combined would take advantage of their strengths and address their weaknesses too.
“Each of the manufacturers could harness the other’s strengths providing Honda with body-on-frame vehicles that are popular and wildly profitable in North America while Nissan could harness Honda’s hybrid expertise to help in the current transition to EVs, when both bring technologies together to create profitable electric vehicles when the market is fully ready,” Fiorani said.
And scale is key. A potential merger between Nissan and Honda would have created the world’s third-largest automaker, right behind Toyota (TM) and Volkswagen (VWAGY), leapfrogging Korea’s Hyundai-Kia group in total unit sales.
Too little too late: The 2023 Nissan Ariya EV (Credit: Nissan) ·Nissan
If the proposed deal with Honda unravels, what happens next is uncertain.
“I’m not quite sure who [steps in],” Brinley said. “It’s got to be the right person to step in.” Like Honda, Brinley surmises it will be a partner that needs the scale that Nissan’s 40+ assembly plants could provide.
“Finding a company large enough to make Nissan stable limits the group of eligible mates quickly. Finding one with an automotive focus cuts that list down to very few,” AutoForecast Solutions’ Fiorani said. “Finding one who would be willing to take a $10 billion bet on an automaker with two or three failed marriages eliminates just about everyone.”
Speaking of failed marriages, some have advocated that Nissan and Renault should pursue a full merger, not the alliance they currently have in place. Joining forces on development costs, manufacturing expansions, and their global footprints (Renault in Europe, Africa, and the Middle East; Nissan in the US, Japan, and Asia) could provide the right mix to survive in an industry where scale matters.
Another possible plan emerged recently: There have been rumors of a Foxconn tie-up, as the tech device contract manufacturer for goods like the Apple (AAPL) iPhone needs a dance partner to build its upcoming EV products.
A Foxtron New Model C electric car is displayed during the Hon Hai Tech Day (HHTD 24) at the Nangang Exhibition Center in Taipei, Taiwan, Tuesday, Oct. 8, 2024. (AP Photo/Chiang Ying-ying) ·ASSOCIATED PRESS
Foxconn has a joint venture with Taiwan automaker Yulon Motor, called Foxtron, which showed off an EV concert at CES earlier this year. A former Nissan exec is also running Foxconn’s EV venture.
“Instead of merging with another car manufacturer, exploring partnerships with businesses across shared mobility, autonomous driving, and electrification may offer more substantial paths forward,” Edmunds head of insights Jessica Caldwell said to Yahoo Finance.
With the deal potentially back on the table, a merger with Nissan would provide the company some much-needed credibility in the space. Nissan is reportedly amenable to a deal.
In exile: Carlos Ghosn, former CEO of the Renault-Nissan-Mitsubishi Alliance, at the Paris Auto Show, in 2018. (REUTERS/Regis Duvignau) ·REUTERS / Reuters
“If Nissan isn’t willing to give up control to another company and doesn’t want to become a division of a China-based automaker, Nissan needs to find a visionary leader. The last time that happened for them, he was forced out of the country in a storage case,” Fiorani added, alluding to the strange saga of former Nissan and Renault CEO, Carlos Ghosn.
A Ghosn comeback is definitely not happening — the notorious leader is exiled in his native Lebanon. But this much is clear: Nissan needs to take any deal it can get.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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