Honda (HMC.US) reports first loss, Nissan turns around: Fate reversed or paving the way for a restart of the merger.

One year ago, Nissan's financial situation deteriorated sharply, and Honda Motor Co., Ltd. Sponsored ADR (HMC.US) appeared in the merger negotiations as a "white knight". However, due to Nissan's refusal to accept Honda's proposed demands, including becoming a wholly owned subsidiary, the merger plan between the two sides eventually fell apart. Today, one year later, the situation has almost completely reversed: Nissan has successfully achieved full-year operating profit, while Honda has plunged into historic losses. This dramatic turn of fate creates the possibility for both companies to restart merger negotiations on more equal terms. Performance reversal: Honda reports its first loss, while Nissan recovers Honda announced this week that it recorded a operating loss of 414.3 billion yen (approximately $26 billion) for the fiscal year ending in March, marking its first annual loss since its founding in the late 1940s. The main reason is a 2.5 trillion yen impairment of assets due to a wrong bet on the U.S. electric vehicle market. More concerning is that Honda's business has been in the red for five consecutive quarters, and its product lines in key markets such as the U.S. and China are severely outdated, losing a leading edge in hybrid technology. In contrast, Nissan has gradually emerged from the quagmire through massive restructuring. Despite a decline in retail sales in the U.S. and China due to lackluster products, which forced the company to lay off 20,000 employees and close 7 factories, the CEO Ivan Espinosa, who took office a year ago, implemented a strategy to streamline global operations, showing initial results. Nissan not only achieved full-year operating profit, but also stabilized its financial situation, positioning itself more actively in the merger negotiations. Facing a common predicament, can economies of scale save the situation? The systemic challenges faced by both companies have not disappeared. With the Chinese auto companies advancing, Honda and Nissan have also lost momentum in emerging markets such as India and Mexico. Seiji Sugiura, an analyst at East Tokyo, bluntly stated: "Both companies can no longer make good cars." Meanwhile, the entire automotive industry is under multiple pressures, including rising material costs, trade wars, an increasing number of price-sensitive consumers, and rapid technological advancements. Even though both companies predict a return to profitability this fiscal year, their foundations are not solid. If the merger goes through, it will create one of the largest automotive groups in the world by sales volume, bringing significant economies of scale in logistics, procurement, research, and development for both parties. Particularly in advanced areas such as hybrid technology and semi-autonomous driving, united investment can share a substantial cost burden and enhance competitiveness against domestic and international rivals. However, investors may question: can two struggling automakers in the same market selling similar products truly generate a synergistic effect from the merger? Nissan opens the door, Honda remains silent Nissan CEO Ivan Espinosa stated this week: "Discussions with Honda are still ongoing positively. We will continue to explore opportunities for cooperation." This releases a positive signal for restarting negotiations. On the other hand, Honda CEO Toshihiro Mibe, who led the failed electric vehicle strategy, remains almost silent about whether to resume negotiations with Nissan and is currently busy seeking a new strategic direction for Honda. CLSA analyst Christopher Richter pointed out: "Honda's situation is not as bad as Nissan's a year and a half ago, but they do need to seriously review their car business." He even suggested that Honda may need to implement the kind of restructuring it once demanded Nissan to do, but the Honda leadership has been hesitant so far. More importantly, there is a psychological barrier. Richter stated: "Honda's pride does not allow them to take this path right now. Without someone truly in control, a merger on equal terms often ends in disaster."