Can the Honda-Nissan merger transform India's automotive landscape?

On Monday, Japanese car giants Honda and Nissan said they were in talks for a merger. If the deal goes through, the combine will become the third largest car company in the world, behind only Toyota and Volkswagen, selling more than 8.2 million vehicles a year. It would also result in the second big consolidation in the Japanese automotive industry after the Toyota-led alliance, which includes Suzuki, Subaru, and Mazda — Toyota holds minority stakes in the latter three. 

These moves come against the backdrop of a shift in the global industry towards electric and hybrids, coinciding with the surge of Chinese companies such as BYD. China last year became the largest vehicle exporter overtaking Japan. Nissan has been struggling with debt, witnessing a sharp drop in its profits, and is cutting thousands of jobs. 

A joint statement by Honda and Nissan, Japan’s second and third largest automakers — Toyota is the biggest — cited “dramatic changes in the environment surrounding both companies and the automotive industry”. Mitsubishi, in which Nissan is the largest shareholder, is also part of the merger talks but will decide by the end of January. 

Both the Toyota-led alliance as well as the Honda-Nissan combine have a critical play in India, the world’s fourth largest car market. Maruti Suzuki, majority owned by the Japanese company, is by far the largest carmaker in the country. Toyota, riding on its alliance with Maruti, has seen a surge in its fortunes lately. Honda has been a strong brand ever since it came into this country. And Nissan, though not a major force in India, has been trying to scale up. 

It is not just the Japanese which are trying to band together. European giant Volkswagen, which also owns brands Skoda and Audi — all three have been in India for years — is reported to be in talks with homegrown Mahindra & Mahindra. Surely, global auto alliances could change the rules of the game in India. One thing in favour of the Japanese and Europeans is that the Chinese are weak in India, hobbled by an investment climate that does not look at them kindly. BYD is a bit player here and, even if things turn for the better, will likely have to forge an alliance like the one its compatriot MG has done with JSW. 

 

 

        Export play 

India, apart from being a large market, can also be a base for low-cost manufacturing and export of electric vehicles. The costs are higher by 20 to 30 per cent in Japan and Europe.  

Neither Honda nor Nissan (nor VW, for that matter) is a significant player in India. The two Japanese companies together have a mere 2.1 per cent share of the market (April-November this year). Their annual volume is about what the top players notch up in a month. 

But Honda has seen recent success with its Elevate sports utility vehicle (SUV), which is assembled in India and shipped to Japan. Nissan exports from India to markets in Africa. The two companies together have done far better in exports than in the domestic market, having grabbed 16.89 per cent share of total car exports from the country, catapulting them into the third position behind only Maruti and Hyundai, and have 59 per cent of their sales coming from exports. 

Yet, both face similar problems: Lack of new models in the country. 

Limited play 

Nissan has just two listed models, the affordable Magnite (ex-showroom price about Rs 6 lakh), which is made in India, and the super-premium X-Trail (ex-showroom price about Rs 50 lakh), which comes to India as a completely built unit. The company has promised to add an affordable SUV to its lineup and hopes to increase its market share from 1 per cent to 3 per cent in two to three years. That was before the merger-related announcement. 

Honda has three models in India. The new version of Amaze, a small sedan, has just entered the market and joins Elevate and the time-tested and ever popular City. The company has announced three new models in 2026-27, which, admittedly, is some way off. 

In contrast, Maruti Suzuki has new 16 models in the market, ranging from sedans and SUVs to hatchbacks and multipurpose vehicles. Hyundai has nine on the road. 

Back to the drawing board 

Even if the Honda-Nissan merger goes through, experts say it will take them at least two to three years to align their business plans in India, not least because of the third element in the equation: Renault. 

Despite the coming apart globally of the Renault-Nissan alliance after Carlos Ghosn’s arrest in Japan and his daring escape to Beirut, the two continue to be in partnership in India. It is the combined entity that controls the factory in Chennai. The joint venture had put in $1.8 billion and in end-2023 announced investments of another $600 million to launch six vehicles. 

But now, with talks of Nissan’s merger with Honda, the entire plan needs to go back to the drawing board for redrafting. It is unclear what Renault, which also has a stake in Nissan in Japan, will do. Will it just sell its stake to Honda?   

Of course, by working together Nissan and Honda will be able to substantially reduce their cost of developing technology for electric cars. “Nissan had been an early entrant in electric cars, but it could not capitalize on it in the EV boom. It is currently working on solid state batteries in-house to address range challenges. Honda, too, is working on EVs. So, they can synergise their EV efforts and save costs and could use India as an important market to sell and to export from,” says Puneet Gupta, Director-India and ASEAN Automotive Market, with S&P Global Mobility. 

Others say that Nissan is too small in the Indian market and should probably concentrate on exports. “In India, Honda has excellent brand equity, a committed dealer network, competent management, and a reputation for quality. Nissan India scores poorly on most of these counts,” says B V R Subbu, former president of Hyundai India and now on the board of many auto companies. 

He suggests that Nissan should cut its losses, disband its domestic sales team, move its service capabilities to Honda, and exit the domestic market. This, he says, will leave it free to focus on manufacturing the Magnite, which can be rebadged as a Honda. Honda could then move aggressively on hybrids and concentrate on manufacturing for and selling in the domestic market.   

Story of alliances 

Automotive alliances in India have not really blazed new trails.

  “Automotive alliances have often struggled to achieve lasting success in India due to the intricate dynamics of the market,” says Harshwardhan Sharma, who heads the auto retail practice at Nomura India. 

He lists four key challenges. One, 75 per cent of the cars sold in the country are priced below 10 lakh, so alliances have to build models to cater to this market. Most global players find this challenging. Two, in the supply chain integration, cost pressures in India require such alliances to streamline procurement to achieve economies of scale. Three, with 40 per cent of sales coming from semi urban and rural markets, dealer networks must be strong, and consumers have to be offered innovative financing options. And four, Indian consumers prefer reliability and affordability — surveys show 85 per cent of buyers prioritise cost of ownership over advanced features. 

Not surprisingly, there have been aborted attempts and plain failures. The Volkswagen-Suzuki alliance of 2009 (the former took a minority stake) could have made it easier for the German company to make affordable cars, soured quickly. Suzuki alleged the Germans were withholding information they had promised. Volkswagen objected to Suzuki’s deal to buy diesel engines from Fiat. 

The failure of the Nissan-Renault combine clearly impeded their ambitious plans for India. And in 2019, M&M decided to walk out of a JV with Ford citing the pandemic as the reason.  

One tieup that is working is between Toyota and Suzuki, signed up in 2019. Toyota’s rebadging of Maruti’s models and selling them in the domestic market has helped it expand its portfolio and increase sales. According to estimates, 40 per cent of Toyota’s sales in FY24 came from rebadged Marutis. Maruti has benefited from Toyota’s hybrid technology. 

They have extended their alliance to electric vehicles. Maruti, which sources the Grand Vitara from Toyota, has announced the launch of e-Vitara for the domestic market as well as exports. It is expected to arrive in April-May next year. The same model will be rebadged by Toyota for the global market. The Japanese giant, many experts say, is looking to make India into a global hub for affordable electric cars. 

Surely, automotive alliances have a chequered past in India. Is that about to change?