Pieces of a Puzzle

Auto alliances have had a chequered history in India. Can the proposed Honda-Nissan merger change that?

- SURAJEET DAS GUPTA

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.