Chinese auto makers cause global carnage

The Chinese Automotive manufactures are causing absolute carnage across the global automotive sector from Germany,France .the USA  and Japan with companies like Volkswager,BMW and Mercedes Benz in Germany closing plants and laying off workers,its the same story in France and the USA and now Japan is really feeling the pain.    

Now Nissan, the Japanese automotive manufacturer, is facing significant challenges that that ask questions about the company's  furture viability. To avoid complete collapse, it decided to merge with two other Japanese automotive manufacturers, namely Honda and Mitsubishi. This strategic move, similar to the precedent set by Nissan's merger with Renault 25 years ago, aimed to address the challenges faced by the company. The question remains, however, what caused Nissan's sales to collapse so dramatically, and what are the implications of its substantial debt?
The Japanese automakers Honda and Nissan have signed a memorandum of understanding to merge their auto businesses. A final agreement is expected to be reached in June 2025.

The creation of a joint holding company is expected to combine the operations of both automakers, with the merger expected to be completed by August 2026.

The result will be the third largest global automaker in terms of sales. Honda sold 3.98 million cars last year, while Nissan sold 3.37 million. Toyota will retain its leading position with 11.23 million cars sold, followed by Volkswagen in second place with 9.23 million. However, the German manufacturer is also facing significant challenges.
A third Japanese manufacturer, Mitsubishi, may join these two. The concern must make a decision by the end of January 2025.

This strategic move by Japanese automakers is not driven by a period of sustained success, but rather by the need to maintain competitiveness in the face of intense competition from the Chinese automotive industry. Just ten years ago, Chinese cars were not considered a serious competitor in the market. However, they have not only grown rapidly, but have also surpassed the traditional leading automakers in terms of quality and reputation.
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Nissan has been particularly affected, with a 90% decrease in sales in the first half of 2024 compared to the previous year, and a 70% decrease in its full-year operating profit forecast.

A quarter of a century ago, Nissan faced the prospect of bankruptcy. However, the Japanese automotive industry received a significant financial boost from the French manufacturer Renault, which provided substantial financial support to Nissan. Currently, Nissan is seeking to survive with the support of Honda.

The high cost of electric cars and the disproportionately low returns on sales have left Nissan with a significant debt burden. The company has $1.6 billion in debt to pay off in 2025, slightly less than this year. However, in 2026, a significant $5.6 billion in bonds will become due, the most since 1996.
Nissan's management is aware that the company will be unable to settle its debts independently, given the decline in sales and operating profits. Consequently, they see no other way out than to seek support from Honda. This approach aligns with a previous strategic decision that proved effective. Last time, the Japanese company did not drag it out until the threat of bankruptcy, but decided to lay down some straw for itself in advance.

The question remains, however, what will become of Nissan's automotive division, given the significant decline in its sales?

The Japanese blame their Chinese competitors, BYD, and the American Tesla for the decline in sales, noting the latter's domination of the global electric vehicle market and its initiation of a price war last year.

Their sales have increased significantly, while their Japanese rivals have been unable to offer competitive prices due to the substantial costs associated with developing electric vehicle technology. The market is undergoing rapid technological changes, and Nissan is struggling to keep pace.

Last year, China overtook Japan to become the world's largest exporter of automobiles for the first time. It is noteworthy that the US and EU have adopted a protective stance against Chinese electric vehicles, which are gaining market share due to price competitiveness. Russia has also contributed to this shift, with a sharp increase in Chinese automotive industry deliveries to Russia, while Japanese and Western automakers have lost market share due to geopolitical factors.

The strengthening of the Japanese auto industry is unlikely to be a source of satisfaction for the United States and the newly elected president, who has already threatened to impose high tariffs on Chinese cars supplied through Canada and Mexico. Washington is averse to the emergence of new competitors in the automotive sector.
It is interesting to note that the European Union initiated the green agenda and the transition from traditional gasoline engines to electric cars. However, when China began to produce more electric cars and solar panels and wind turbines at lower prices, this prompted concern in the West. There is a specific Western business that is unhappy about the loss of market share to China, and this is behind the green agenda.
"Chinese cars have begun to make a significant presence on the global market. The Chinese automotive industry has developed a capacity for producing vehicles of a consistently high standard, equipped with a range of electronic features. They are also known for their rapid delivery times. While there have been some complaints about the quality, Chinese cars are generally very popular. Their cost-effectiveness is a key advantage, prompting Japanese manufacturers to collaborate in order to maintain revenue and turnover," says Maria Ermilova, associate professor of the Department of Sustainable Development Finance at the Plekhanov Russian University of Economics.

"The Chinese are quick to understand market trends and are working to incorporate the most popular technologies to attract buyers. If other concerns do not improve, it is highly likely that Chinese automakers will become the undisputed market leaders in the near future," Yermilova is sure.

"Firstly, this will reduce the costs of developing new car models and purchasing components and equipment. Secondly, this will strengthen the position of companies in the market, making it easier for them to attract investment for development. Thirdly, companies can support each other in different markets and promote the products of partners," says Dmitry Baranov, leading expert of Finam Management.
In his opinion, the brands of Japanese companies will be preserved for several years, and the new brand of the united company will not be created immediately. "Consumers are accustomed to cars of these brands, and it would be illogical to immediately abandon them. The new united brand will most likely develop in parallel with the existing brands of the companies. Preserving the technological platforms of the companies is also likely, as abandoning these would be illogical. When developing new cars, the best engineering solutions of one of the manufacturers will be selected, which are recognised as the best, and then each company will supplement them with their own developments. While the technical solutions and characteristics of the new cars may be similar, the design and consumer properties will differ to emphasise the origin," Baranov reasons.

Furthermore, he anticipates that such a partnership could either be terminated after a few years or, alternatively, expanded through the addition of new companies.