RPT-BREAKINGVIEWS-Stalling Honda-Nissan deal ignores tariff hazards

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates throughout to reflect Reuters report stating Nissan will suspend merger talks with Honda.

By Katrina Hamlin

HONG KONG, Feb 5 (Reuters Breakingviews) - U.S. President Donald Trump’s tariff threats ought to be ratcheting up pressure for a Nissan-Honda deal. Instead, the tie-up looks to be heading for the ditch: Nissan Motor’s 7201.T board has decided to suspend merger talks with its $42 billion peer, Reuters reported on Wednesday, citing a source. Yet the pair would be among the hardest hit if the U.S. whacks duties on imports from Mexico and Canada.

Trump announced additional levies of 25% over the weekend, before postponing implementation for 30 days. The prospect of a hike is particularly alarming for Honda 7267.T and Nissan as the country is the largest market for each of them.

Honda sold roughly 1.4 million cars in the U.S. last year, producing around 1 million of them in the country. Nissan delivered close to 1 million units, manufacturing around 500,000 onshore. Imports make up the rest. Honda’s Canada hub is key, while Nissan makes more in Mexico. What’s worse, some of their most popular products are among the models made offshore.

If levies materialise, the two have few options. Building a new factory takes as much as three years, while retooling existing production lines for another model can require up to 18 months’ work. More likely, they’ll absorb or pass on the costs to customers. Tariffs of 25% could translate to an average price rise of roughly 6% for Honda – the highest among automakers impacted – and around 3% for Nissan, according to analysts at CLSA.

Whichever of those difficult roads they might have to choose would reduce the already dismal automaking profit margins that pushed the two into merger discussions to start with. With the threat of tariffs potentially on the table for the duration of the Trump administration, the financial buffer of cost cuts and other economies of scale from joining forces ought to look all the more appealing.

Yet a heightened sense of urgency has piled pressure on increasingly tense talks. In a December presentation, Japan's second- and third-largest carmakers assumed that Nissan’s operating profit would roughly triple by mid-2026 ahead of a deal. New potential roadblocks in their biggest market cast doubt on that ambitious goal. The duo’s distinct corporate cultures were another concern. Then Nissan objected to a proposal that it become a Honda subsidiary, Reuters reported, rather than retain some independence as was originally proposed in December.

At the same time Renault RENA.PA, Nissan’s largest shareholder, has been pressing for a control premium, according to the Financial Times. At Wednesday’s closing price of 386.9 yen, Nissan’s stock is back below the 400 yen its French partner paid when they first formed an alliance in 1999.

Nissan and Honda’s paths may soon diverge. Navigating the future alone looks tougher than ever.

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CONTEXT NEWS

Nissan Motor’s board has decided to suspend merger talks with Honda Motor, Reuters reported on Feb. 5, citing a source. The two Japanese automakers said on Dec. 23 that they had signed a memorandum of understanding to spend six months discussing a potential business integration.

In a statement earlier on Feb. 5 Nissan said it had not made any new announcement regarding the merger and would provide an update on the talks, as planned, in mid-February.

On Feb. 3, U.S. President Donald Trump said he would pause introducing tariffs on Mexico and Canada for 30 days and engage in further negotiations.

Two days earlier on Feb. 1, Trump had announced additional levies of 25% on imports from Mexico and most goods from Canada, as well as 10% on goods from China.

Honda’s shares rose 8.2% to 1500 yen in afternoon trade on Feb. 5. Nissan’s shares fell 4.9% to 386.9 yen.