The automotive industry is currently grappling with existential anxieties, and this struggle is being felt on a global scaleOnce bastions of stability, several long-established car manufacturers in Germany have already faced plant closures and workforce reductionsNow, the Japanese automotive sector is also experiencing significant turbulenceRecent reports suggest that negotiations are underway for a potential merger between Japanese automakers Nissan and Honda, with Mitsubishi Motors potentially joining the discussions as well.
The strategy of forming alliances is a common approach that companies are increasingly adopting to combat the shifting tides of the external environment.
In recent years, Nissan, Honda, and Mitsubishi have all witnessed a decline in market share in their primary markets, slowly losing their competitive edge in an intensely competitive landscapeData indicates that in the first half of the current year, these three companies collectively sold approximately 4 million vehicles globally, a stark contrast to Toyota, Japan's automotive leader, which alone recorded sales of 5.2 million vehicles.
While the survival pressures are most acute for Nissan at this moment, the overall luster of Japanese car manufacturers is fading
They are facing a retreat in the global market and are caught in the throes of transformation.
Nissan's Quandary
Just 20 days ago, two executives from Nissan revealed that the company had only 12 to 14 months of operating cash left and that the situation was worsening, highlighting the urgent need for cash influxes from Japan and the U.S.
This shocking revelation prompted a wider recognition that even a globally renowned automotive giant like Nissan had reached such dire straitsHowever, the decline had been brewing for some time.
Nissan’s total global sales for the fiscal year 2018 amounted to 5.516 million units, representing a 4.4% drop, marking the beginning of its downward trajectoryData shows that between April and September of this year, Nissan's global new car sales fell by 1.6% year-on-year to 1.596 million units, a far cry from its peak performance.
The company’s financial reports reflect this downturn
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In the latest fiscal report for the first half of 2024 (April to September of this year), Nissan's net revenue decreased by 1.3% to 598.42 billion yen (approximately 290 billion yuan, based on a current exchange rate of about 20.6:1), while its operating profit plummeted by 90.2% to 32.9 billion yenNet profit saw a staggering decline of 93.5%, landing at 19.2 billion yen.
This sharp drop in profitability is a crucial reason behind the company’s urgent pursuit of mergers and other novel pathways to survivalIn light of the overall fiscal situation, Nissan has significantly downgraded its profit forecast from an expected surplus of 300 billion yen to “undetermined.”
Nissan's decline is particularly evident in its largest markets, especially in China and North America.
Since last year, the North American market, a key market for Nissan, has experienced stagnation in growth
The company has struggled to launch new models that resonate with consumer preferences, especially in the hybrid segmentMany customers have shifted their loyalty to Honda and Toyota insteadAdditionally, Nissan's dealerships in the U.Sare overly saturated, intensifying competition, elongating inventory cycles, and making it more challenging to maintain profitability.
Similarly, in the Chinese market, the downward trend is a common fate for many joint-venture brands, Nissan included.
Starting from 2022, annual sales in China for Nissan have consistently suffered double-digit declinesIn 2022, for instance, sales were reported at 1.0452 million units, a significant year-on-year drop of 22.1%. As of the first eleven months of this year, the total sales figured at 621,700 units, reflecting a year-on-year decrease of 10.53%. It appears to be a daunting task for Nissan to reach the 700,000-unit mark this year.
While the global automotive sector is indeed transitioning, Nissan's decline is not solely attributable to transformation challenges
Since the shift in its cooperation with Renault in 2018, Nissan has found itself in a state of confusion.
In recent years, Renault has gradually reduced its stake in Nissan, dropping from 43% to 15% this yearInternally, Nissan has been plagued with issues, including infighting, and has reported substantial losses, such as a staggering net loss of 671 billion yen in the fiscal year of 2019.
In response to the challenging landscape this year, Nissan is exploring various survival strategies.
Along with pursuing a merger, the company has unveiled a series of cost-cutting plans, including a reduction of global production capacity by 20% and laying off 9,000 employees worldwideAdditionally, CEO Makoto Uchida announced that he would voluntarily cut 50% of his monthly salary starting in November, with other executive committee members also opting for similar pay reductions.
However, these measures may not be sufficient to inspire hope for the future.
To address the challenges in China, Nissan is undergoing its own transformations
Recently, the company announced the appointment of its current CFO, Stephen Ma, as the chairman of Nissan's China management committee.
Steven Ma is an individual familiar with the Chinese market, having served as the Vice President of Dongfeng Limited in 2012 during a period of rapid growth for Nissan in China, later returning to Nissan’s headquarters in 2018 as CFO.
Furthermore, during this time of joint venture transformation, Dongfeng has provided significant supportRecently, Dongfeng Nissan announced a commitment to invest 10 billion yuan in research and developmentThis year, Nissan has fully acquired the former Renault-Nissan-Mitsubishi Alliance Innovation Center in Shanghai and established Nissan Technical Development (Shanghai) Co., Ltd., focusing on electric drive, autonomous driving, and connectivity fields.
Collective Transformation Efforts
Currently, the century-old automotive industry is undergoing an unprecedented energy transformation, which will undoubtedly lead to a reassessment of the hierarchy among existing players.
The three major Japanese automakers were once titans in the global automotive landscape, with their vehicles enjoying immense popularity worldwide
Today, despite Toyota's continued resilience, it too faces concerns, while Nissan and Honda are battling significant setbacks, teetering on the brink of merger discussions.
Moreover, since the beginning of this year, companies like Toyota have been implicated in widespread production irregularities, which have tarnished the reputation of Japanese automobiles.
Financial data released by seven Japanese firms for the first half of the fiscal year 2025 shows that apart from Nissan, the net profits of Toyota, Honda, Mitsubishi, and Mazda have all experienced varying degrees of decline compared to last year.
As early as 2022, the combined new car sales of the six major Japanese automakers in the U.Sdropped by 17.9% year-on-year; significantly, much of that lost share was captured by Tesla.
In the past two years, the most pronounced decline for Japanese automakers has occurred in the Chinese market, which is undergoing the most intense transformation
Since last year, joint venture cars have faced declines of varying degrees, with Japanese cars that once dominated the mainstream market losing ground to local brands like BYD, seeing nearly double-digit year-on-year sales declines each month.
For instance, in the sales data for the first eleven months of this year, FAW Toyota has remained relatively stable with sales of 701,400 units, down only 2.14%. In contrast, GAC Toyota sold 701,100 units, a decline of 14.94%; Honda's total terminal sales in China amounted to 740,400 units, reflecting a 30% decreaseChangan Mazda's sales dropped to less than 70,000 units, a decrease of 12.9%, and Mitsubishi exited the Chinese market entirely in 2023.
According to data from the Passenger Car Association, the market share of Japanese vehicles in China has plummeted from 22.6% in 2021 to 13.7% now.
Changes are also occurring in Southeast Asia, traditionally a stronghold for Japanese automakers
In recent years, local Chinese car manufacturers have targeted markets in Southeast AsiaFor instance, Thailand has introduced numerous policies supporting the development of new energy, which clearly benefits Chinese electric vehicle companies expanding abroad.
Currently, mergers appear to be the most effective means for these companies to collectively shelter themselves from impending market challengesHowever, merging conglomerates is no small feat.
In 2019, after Nissan released financial reports highlighting plummeting profits and dire performance metrics, the Japanese government exerted pressure on the two companies to consider a mergerBut negotiations dragged on for years, and it wasn’t until this year that Nissan's situation deteriorated further, prompting renewed discussions about a mergerIn announcements from March and August of this year, Nissan, Honda, and Mitsubishi made clear their intentions to integrate strengths and explore various cooperative opportunities.
As the industry transforms, the question remains whether newcomers will succeed in establishing themselves or if traditional giants can maintain their past advantages