By Kantaro Komiya, Yoshifumi Takemoto
TOKYO (Reuters) – Some trade unions are born out of necessity, others out of convenience. In the case of Honda (NYSE: ) and Nissan (OTC: ) of a possible merger, largely on the defensive as Chinese competitors take the country by storm.
While the challenge from China's EV technology appears to be off-limits to all traditional automakers, in Japan it represents a threat to the massive auto manufacturing system that has been the country's economic engine for years.
Honda, Japan's second-largest carmaker, and Nissan, the third-largest, are in talks to strengthen ties, including the possibility of setting up a holding company, two people familiar with the matter said on Wednesday. The automakers are discussing a possible merger, one of the people said.
Like other foreign automakers, both Honda and Nissan have lost ground in China, the world's largest auto market, as BYD ( SZ: ) and other local brands win over consumers with EVs and hybrids loaded with – new software.
Honda reported a 15% drop in quarterly profit last month, hit by a slowdown in China and has increased its workforce there. Nissan – a long-struggling company – plans to cut 9,000 jobs worldwide and cut production by 20% due to sluggish sales in China and the United States.
Sanshiro Fukao, managing fellow at the Itochu Research Center in Tokyo, warns that the speed at which Chinese EV makers have been able to innovate means that Honda and Nissan “don't have time” to pursue business as usual.
“We're no longer at this point where the automakers are going to get together, take out the economy and reinvest in a five-year restructuring plan.”
Some note that any further downturn in the Japanese auto industry will be even more painful. It is the strongest sector in the world's fourth largest economy and Japan's share of other key industries such as consumer electronics and chips has declined over the years.
“In Japan, in the end it's all about cars. If the auto industry is not improved, then the rest of Japan's production will not be better,” said Takumi Tsunoda, senior economist at the Shinkin Central Bank Research Institute.
THE DIGITAL SHIFT
Japan's auto supply chain totaled about 60,000 companies as of May this year, according to research by research firm Teikoku Databank. Total (EPA:) business transactions were estimated at 42 billion yen ($270 billion), equivalent to 7% of nominal GDP in fiscal year 2023.
Overall, the industry employs more than 5 million people, representing 8% of the total workforce, according to the Japan Automobile Manufacturers Association.
Consolidation can help by reducing costs and pooling resources but it remains to be seen if the Japanese auto industry – like the US or German auto industry – can compete adequately in EVs.
Japanese automakers are steeped in the country's traditions of “monozukuri” or manufacturing craftsmanship, and are influenced by the market leader. Toyota (NYSE: ) that revolutionized modern manufacturing with its lean manufacturing process and just-in-time delivery of components.
Those methods helped develop a culture of incremental improvement and efficient line production that powered the rise of the Japanese auto industry from the late 1970s.
However, the shift to battery-powered smart cars has seen much of the consumer interest focus on software-dependent self-driving features and their digital in-vehicle experience – an area where the Chinese excel.
Among Japanese automakers, Toyota has been the most vocal about the potential harm from a radical shift to EVs, with Chairman Akio Toyoda warning in October that an EV-only future would lead to many job losses in the industry, especially for suppliers and they are active. in engines.
Toyota has long championed what it calls a “broad approach” that includes producing hybrids, hydrogen cars and EVs.
Eikei Suzuki, a member of the ruling Liberal Democratic Party who represents the Mie district – home of the Honda plant and the Suzuka Circuit race course – said he hoped that if Honda and Nissan could merge, it would increase their global competitiveness.
But he added that, if the merger would have a negative impact on domestic production and employment, it would conflict with the policies of Prime Minister Shigeru Ishiba, who has promised to revive Japan's provincial economy.
“We hope that regional employment in Japan will be considered,” he said.
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