How the merger could help Honda and Nissan rev up their sluggish Indian operations

Japanese car maker Honda launched the City sedan in India way back in 1998. It became a huge success, and over the years the company has gone on to launch multiple new generations of the City in the country, and even today has a large fan following few others can boast of. However, the sedan has been losing market share in recent times. Also, barring the City, Honda has had limited success in the world's third largest car market.

Honda's Japanese rival Nissan entered India in 2010 with the Micra hatchback. The car found many takers, but just like Honda, Nissan has not been able to make major inroads here, struggling to match up with more aggressive and agile global and local rivals like Maruti Suzuki, Hyundai, Tata Motors and Mahindra.

Both Honda and Nissan have a limited product line-up in India. Honda, for instance, only has the fifth generation City, the City hybrid, Amaze compact sedan and the Elevate SUV on sale here. Nissan, meanwhile, only has the Magnite and X-Trail on offer. Their sales and in turn market share too is limited.

As per the November retail sales data from Federation of Auto Dealers Association of India (FADA), Honda had a market share of 1.39 per cent, with sales of 4,485 units. Nissan's sales were even lower at 2,354 units, giving it a market share of 0.73 per cent. In comparison, India's largest car maker Maruti Suzuki sold 1.28 lakh units in November, while Hyundai, which is the second largest, sold 43,996 units. Over the years, both car makers have phased out several models from India and scaled down operations (Nissan, for instance, pulled the plug on Datsun brand, Honda shut production at its Greater Noida plant). Both, however, have announced new investments and expansions in the coming years.

On Monday, their parents Honda Motor Co. and Nissan Motor Co. signed a memorandum of understanding (MOU) to start discussions towards a potential merger and establishment of a joint holding company.

"Today marks a pivotal moment as we begin discussions on business integration that has the potential to shape our future. If realized, I believe that by uniting the strengths of both companies, we can deliver unparalleled value to customers worldwide who appreciate our respective brands," said Makoto Uchida, director, president, CEO and representative executive officer at Nissan.

The two companies had, in March 2024, signed an MOU regarding a strategic partnership for vehicle intelligence and integration. In August, they had agreed to deepen the framework of that partnership. The two companies are also going to carry out joint research for next-generation software-defined vehicles.

Separately, Honda, Nissan and another Japanese automaker, Mitsubishi Motors, signed an MOU to explore the possibility of the latter's participation and synergy sharing in relation to the merger plans outlined by Nissan and Honda.

Should the potential merger between Honda and Nissan be successfully concluded, it will bring in multiple benefits for the two companies, especially in markets like India, where they have been in the slow lane as well in China, where local companies like BYD are racing ahead.

Merging together, Honda and Nissan could integrate management resources, and technologies, create deeper synergies, in turn enhance the ability to respond to changing market dynamics faster.

They could bring a wider range of products under their roof, standardise vehicle platforms, bring in operational synergies, strengthen competitive advantages across the supply chain, integrate R&D, and optimise manufacturing facilities. All this will help in cost savings, while also enhancing corporate value over time.

Honda and Nissan have their own different strengths that can be exploited. For instance, Honda is strong in hybrid technology, while Nissan had been among the world's first to launch a mass market electric car, when it introduced the Leaf back in 2009.

"Creation of new mobility value by bringing together the resources, including knowledge, talents, and technologies that Honda and Nissan have been developing over the long years is essential to overcome challenging environmental shifts that the auto industry is facing," Toshihiro Mibe, Honda director and representative executive officer.

A partnership with rival Suzuki for emerging markets has given a big boost to Japanese car giant Toyota's sales in India. Their partnership has helped them in hybrid tech as well as provide operational synergies.Maruti Suzuki's Grand Vitara, Toyota's Hyryder and Innova Hycross have been among the most popular strong hybrid vehicles in the country.

Honda and Nissan have similar ambitions on a global stage. Will they succeed, only time will tell. As Mibe pointed out, the two companies are still at the stage of starting their review. Nissan has had a partnership with Renault, but in recent years, they have faced multiple challenges. Renault has over time trimmed its stake in Nissan significantly.

At a time when automobile regulations have become stricter in India, and rivals are aggressively launching new models and pushing new technologies, joining hands could perhaps be the best possible option for Honda and Nissan.