The news that Nissan, Honda and Mitsubishi are working on a merger is the latest drama in the metamorphosis of the automotive sector. Nissan, which has been one of the world’s largest vehicle manufacturers, has been tipped into a state of panic due to poor sales. It has grabbed at the possibility of merging with Honda as a possible solution to its problems.
The merger with Honda is also partly an attempt to pre-empt the Taiwanese mobile phone assembler, Foxconn, from bidding for Nissan. It appears that the desire to include Mitsubishi is almost an afterthought.
A statement from Honda described the situation as one where “the three companies have agreed to explore the possibility of achieving synergies at an increased level through Mitsubishi Motors’ participation or involvement in the business integration”. The CEO of Honda commented to journalists that he found it “difficult” to articulate the rationale for the move.
Traditionally, the purpose of mergers in the automotive sector was driven by the logistics of fixed assets. The profitability of a vehicle manufacturer was in great part dependent on achieving high utilisation of fixed assets, notably the assembly plant. A merger that achieved higher sales could deliver much higher utilisation. The proposed merger of Nissan, Honda and Mitsubishi is different. It seems to be an attempt to create a company with higher capitalisation that will be in a position to deliver higher investment in new electric propulsion technologies.
The fact that three of the largest vehicle manufacturers are struggling to fight off a Taiwanese consumer electronics hardware assembler is a powerful signal of the enormous changes that are taking place in this part of the global economy. In parallel, other economies that have strong automotive production operations are also suffering. Germany is a good example, with major assembly plant closures inevitable.
The short-term driver of the crisis is the wave of electric vehicles emerging from China. However, the longer-term change is that the sector is shifting into a completely new technology that requires a wholly new supply-side architecture.
The implications for the logistics service providers are significant. Although automotive assembly plant and finished vehicle logistics is still an important element in many logistics service providers businesses, it is not as vital as it used to be. Segments such as internet retailing, life-sciences and aerospace have grown as a proportion of the logistics market. None-the-less, many logistics service providers will have to exhibit considerable agility in managing their exposure to what is both a very volatile as well as a declining sector.
Source: Ti Insight
Author: Thomas Cullen
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