Honda, Nissan results likely to highlight flaws as deal set to fail

By Nicholas Takahashi

 

The likely fallout of Honda Motor Co.’s short-lived alliance with Nissan Motor Co. spells trouble for both companies, but probably one more than the other.

 

Nissan, which has struggled for years with revolving-door leadership and an outdated product lineup, may have doomed itself if it ultimately rejects Honda’s attempted takeover. And while Honda may have dodged a bullet by not taking on its weaker rival, it isn’t out of the woods either — it’s lagging behind in the global shift to electric vehicles, which has seen Chinese upstarts like BYD Co. power ahead.

 

A deal would have created one of the world’s biggest carmakers, giving the combined company the scale it needs to compete with EV makers. Left on their own, Honda and Nissan are languishing in eighth and ninth place when ranked by global sales, and in danger of being overtaken by China’s Geely Automobile Holdings Ltd., whose sprawling empire includes brands like Zeekr, Volvo and Lotus.    

 

When Honda and Nissan report third quarter earnings Thursday — delayed by a week as the companies tried to thrash out the deal — the results should indicate how they might fare post-breakup. 

 

Honda is forecast to report operating income of ¥407 billion ($2.7 billion) in the three months ended on Dec. 31, according to the average of estimates compiled by Bloomberg. In contrast, Nissan is seen posting operating income of only ¥51.5 billion.

 

For the fiscal year ending March 31, Honda’s operating income is forecast to reach ¥1.45 trillion, while Nissan’s is seen at just ¥130 billion, well short of its November guidance of ¥150 billion, which itself was a huge downgrade from its initial projection of ¥500 billion. 

 

The concern is that Nissan will be too optimistic, said Julie Boote, an automotive analyst at London-based research firm Pelham Smithers Associates. While gas-electric hybrids have caught a second wind in the US and EVs are running ahead in China, Nissan has fallen behind on both fronts.  

 

The maker of Pathfinder SUVs and Altime sedans said in November that it would cut 9,000 jobs, slash production capacity by a fifth and lower its annual profit forecast by 70 per cent. Its plans to reduce costs without closing any factories was met with skepticism, and Nissan is rushing to come up with a deeper restructuring plan in time for the earnings release on Thursday.  

 

“Where is sales growth going to come from?” Boote said. “They might be quite optimistic because they have to prove that they can generate enough income to increase profits after the restructuring.”