Honda, Nissan Begin Merger Talks, Driven By Intense Competition From China’s Auto Market: Report

The electric and hybrid vehicles made by BYD Co and other companies in the Chinese market have become increasingly popular. This has resulted in the Japanese carmakers losing their leading position

This has also led to excess capacity left in local factories that were made to cater to the projected domestic demand in the world’s largest market for automobiles.

Source : Pexels

Honda Motor Co’s began the merger talks with Nissan Motor Co on Monday. The companies might be looking to finalise the deal talks by June, Japanese media reported.

A report by Bloomberg noted that this merger talks are being majorly driven due to Chinese auto market. The electric and hybrid vehicles made by BYD Co and other companies in the Chinese market have become increasingly popular. This has resulted in the Japanese carmakers losing their leading position they enjoyed as the makers of high-quality car.

This has also led to excess capacity left in local factories that were made to cater to the projected domestic demand in the world’s largest market for automobiles.

During the fiscal year that ended March, Nissan manufactured 779,756 cars in China, which was half of its peak output clocked in recent years. As such the company has ventured into cost-cutting measures that will see its global capacity cut down by a fifth to 4 million vehicles. Out of its overall capacity, China would account for over half of the 1 million units reduction, Arifumi Yoshida, Citigroup Global Markets analyst noted.

Notably, Honda in July said that it will shut down factories and slash its capacity by 20 per cent in China. Executive Vice President, Shinji Aoyama, last month said that the company is in negotiations with local partners to look into more cuts.

On the other hand, Nissan has been suffering from issues since its former chairman, Carlos Ghosn, got arrested and ousted in 2018. Several management changes and a product lineup which is considered outdated have added to the problems of the Japanese automaker.

In the current fiscal year, Nissan aims to manufacture 3.2 million vehicles, which stands way below its ability to make 5 million units annually. 

Earlier, Hideyuki Sakamoto, Executive VP, Nissan, told analysts, “While that translates to a capacity utilisation rate of 64 per cent, excluding China, the rate improves to around 73 per cent.”

Tatsuo Yoshida, senior analyst, Bloomberg Intelligence, noted, “Optimal capacity utilisation rates for legacy automakers is widely considered to be at more than 80 per cent.”