The mooted Honda/Nissan merger and the fallout from the change of leadership at Stellantis suggests the auto industry must brace itself for a period of turmoil, where size is seen as a necessity for survival.
This will add to European investors’ concerns for 2025 as they brace themselves for economic weakness and political turmoil, a possible President Trump-initiated tariff war, China’s expansion, autonomous vehicles, the uncertain future for electric vehicles, and a mounting controversy over the European Union’s CO2 regime.
Some analysts expect a mega-merger between healthy Honda and troubled Nissan plus Mitsubishi to trigger more acquisition action by competitors. Others don’t, but investment bank Morgan Stanley has no doubt.
“Powerful industry forces are driving (traditional manufacturers) to preserve scale, share costs and optimize return on incremental invested capital as powerful rivals and disruptive technologies gain momentum. Consolidation may be more than a trend – it’s a strategy,” Morgan Stanley said in a report.
Meanwhile any changes at Stellantis will need to consider whether it really needs 14 brands.
“Stellantis’s travails are both company-specific and the latest iteration of the struggling global auto conglomerate business mode. We trust the next CEO will be tasked to not just fix earnings but also “rethink” its strategy, with a mandate that could range from break-up to more alliances in manufacturing or technology,” investment researcher Jefferies said in a report.
Stellantis CEO Carlos Tavares quit in December. Tavares orchestrated the huge merger between Fiat Chrysler and France’s Groupe PSA in 2021. Many of the brands compete in the same market, including Citroen, Peugeot, Vauxhall, and Opel in the mass market, Lancia, DS and Alfa Romeo in the wannabe premium sector, and Dodge, Ram, Jeep and Chrysler in the U.S.
Other analysts point to the lack of success over the years of mega-mergers like Daimler-Chrysler and BMW-Rover which were later unwound. Stellantis’s problems have led to a suggestion it merge with Renault of France.
U.S.-based Auto Forecast Solutions doesn’t expect to see any merger mania.
“Just like in the past, the current discussions between Honda and Nissan will not lead to a wave of large automakers merging into mega-players. Major transactions such as these are rare and have never led to other gigantic consolidations,” AFS said in its latest report.
“Acquisitions of smaller automakers happen all the time and will likely continue as the remaining players secure their place among the global pecking order,” AFS said.
Last month, Honda and Nissan said they would explore the possibility of merging as they both struggled to meet the global move to electric vehicles. That would create a company with annual sales of nearly 7.5 million vehicles making it the world’s 3rd largest automaker behind Toyota and 2nd place Volkswagen. Taiwan’s Foxconn was also said to be interested in buying a controlling stake in Nissan. Renault and Nissan hold major stakes in each other.
French automotive consultancy Inovev said in a report that this seemed to be a move to rescue ailing Nissan by healthy Honda. Inovev said the two companies’ vehicle ranges and markets overlap.
“Both carmakers are losing ground on the Chinese market, as on the European market. It is therefore time to join forces to negotiate the shift to electric, an area in which they are both almost absent, and which is dominated today by Tesla and BYD,” Inovev said.
iSeeCars Executive Analyst Karl Brauer said the mooted merger reflects the global industry’s attempt to meet existential challenges. He agrees Nissan is weaker because of mounting debt and weak sales, while Honda needs more scale to challenge massive competitors like Toyota, Volkswagen and General Motors.
“Rising production costs, electric vehicle development, and China’s ever-increasing share of the global automotive market are universal challenges,” Brauer said.
Big mergers are difficult to implement and failure would be dangerous.
“While automotive mergers always look great on paper, making them work in practice is never easy. Effective leadership is crucial in the process of identifying each brand’s strengths and consolidating vehicle platforms and drivetrains while developing a future product plan that fully utilizes the new partnership. It will be years before we know if this one was successful, and if the merger fails it will likely leave both brands weaker than before they started,” Brauer said in a statement.
Steve Young, managing director of British-based automotive retailing consultancy ICDP said that in the past a wide range of factors drove mergers, the current wave is centred on China.
“The current wave of discussions seems to be consistently driven by the scale of the product development challenges, both in terms of cost and timeframe. Manufacturers can see the speed with which their Chinese rivals have won share in the Chinese market, and fear that the same will happen in other markets – despite some consumer resistance to buying from new brands, Young said in his weekly blog.
“I don’t doubt the technical ability of the established (manufacturers) to compete on engineering, but I fear that the pace will be too slow, influenced by traditional thinking that is based around 4-year development processes and 8-year life cycles,” Young said.
Morgan Stanley said multiple factors disrupting the industry make more mergers an imperative.
“Legacy auto companies that don’t find new partners must face the prospect of being smaller companies with higher capex/R&D per unit. We’re entering a new phase of the auto industry where the strategies for scale and cost leadership put the focus on cooperation and potential changes in scope,” Morgan Stanley said.
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