Carlos Ghosn's Nissan can help drive a recovery at Mitsubishi Motors. The Japanese carmaker he leads is paying its scandal-hit smaller peer 237 billion yen ($2.2 billion) for a 34 per cent stake. That sounds like a smart investment rather than a bailout.
The tie-up sounds economically rational. At the closing price on May 11, Mitsubishi Motors had a market value of about 483 billion yen. Getting just over a third in exchange for this capital injection amounts to a five per cent discount to a stock price that has halved this year because of a fuel-economy scandal.
Consolidation makes sense, too. By global standards, Japan's auto sector looks oddly fragmented. Industry leader Toyota recently swallowed subsidiary Daihatsu. But that still leaves Nissan, Honda, Suzuki, Mazda, Mitsubishi Motors and Subaru - not to mention other truck- and motorcycle-makers. With the exception of makers of supercars, scale matters hugely for profitability. And Mitsubishi Motors is a tiddler, selling just over a million cars last year.
More broadly, the duo could cut costs in production, development and procurement of other products, including compact cars, pick-up trucks, and especially electric vehicles - already a strength for both sides.
Ideally this would be a first step to a full takeover - assuming the other Mitsubishi Group firms that hold big stakes in their sister company agree. But even an alliance would be helpful. Ghosn, after all, has reaped huge benefits by joining forces with Renault, even though Nissan stopped short of merging with the French group. The duo boasts that the partnership led to ^3.8 billion of cost cuts and revenue boosts in 2014. It can be useful to travel in convoy.
The tie-up sounds economically rational. At the closing price on May 11, Mitsubishi Motors had a market value of about 483 billion yen. Getting just over a third in exchange for this capital injection amounts to a five per cent discount to a stock price that has halved this year because of a fuel-economy scandal.
Consolidation makes sense, too. By global standards, Japan's auto sector looks oddly fragmented. Industry leader Toyota recently swallowed subsidiary Daihatsu. But that still leaves Nissan, Honda, Suzuki, Mazda, Mitsubishi Motors and Subaru - not to mention other truck- and motorcycle-makers. With the exception of makers of supercars, scale matters hugely for profitability. And Mitsubishi Motors is a tiddler, selling just over a million cars last year.
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A tie-up with Nissan would allow the duo to work more closely on small cars: Mitsubishi Motors' testing problems surfaced in vehicles that the group supplied to Nissan. The presence of the $41-billion Nissan on its smaller rival's share register - and in its boardroom -might also speed up the adoption of better corporate governance.
More broadly, the duo could cut costs in production, development and procurement of other products, including compact cars, pick-up trucks, and especially electric vehicles - already a strength for both sides.
Ideally this would be a first step to a full takeover - assuming the other Mitsubishi Group firms that hold big stakes in their sister company agree. But even an alliance would be helpful. Ghosn, after all, has reaped huge benefits by joining forces with Renault, even though Nissan stopped short of merging with the French group. The duo boasts that the partnership led to ^3.8 billion of cost cuts and revenue boosts in 2014. It can be useful to travel in convoy.