--:-- [Theme music fades out]
--:-- Ryan Knutson: Welcome to The Journal. I'm Ryan Knutson.
--:-- Jessica Mendoza: And I'm Jessica Mendoza.
--:-- Ryan Knutson: Today, we're talking about the proposed merger between Honda and Nissan. It's a deal that would create the third largest automaker in the world.
--:-- Jessica Mendoza: That's right. And it's a story that's been a long time coming. Let's start with the iconic scene from the 2003 action movie "Too Fast, Too Furious".
--:-- [Sound effects: Car engines revving]
--:-- Ryan Knutson: There's an iconic scene from the 2003 action movie "Too Fast, Too Furious", a scene beloved by gearheads. And it begins, naturally, with cars rolling up to a starting line.
--:-- Jessica Mendoza: Of course, it's a street race. Looks like the streets of Miami, if I recall correctly.
--:-- Ryan Knutson: That's right. And that's our colleague Sean McLean. He covers the auto industry.
--:-- Sean McLean: And there were very iconic cars from the 1990s and the early 2000s. And two in particular that I think are relevant for our discussions.
--:-- Ryan Knutson: One is a candy pink convertible made by a Honda, an S2000.
--:-- Jessica Mendoza: Whoa. All right, ladies.
--:-- Ryan Knutson: And then we also have the Nissan Skyline GTR, nicknamed Godzilla, rolling down the street, puffing smoke out of its wheel wells and shooting flames at the tailpipe.
--:-- Sean McLean: And these are two of the most iconic vehicles of the street racing circuit from that period.
--:-- Ryan Knutson: Honda versus Nissan, locked in a high octane street race. Kind of like the rivalry they have in real life.
--:-- Jessica Mendoza: Two Japanese car giants selling similar cars to similar customers.
--:-- Ryan Knutson: Which is why, just before Christmas, some news out of Japan was so surprising.
--:-- Jessica Mendoza: We are following some breaking news this morning.
--:-- Ryan Knutson: Japanese automakers Honda and Nissan have announced that they plan to merge.
--:-- Jessica Mendoza: If the deal goes through, this would make the companies the third largest automakers in the world.
--:-- Ryan Knutson: So, if you were to boil down this story into one simple idea, what would that be?
--:-- Jessica Mendoza: I mean, I would say this boils down to money and pure desperation.
--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh.
--:-- Kate Leinbaugh: It's Wednesday, January 8th.
--:-- Ryan Knutson: Coming up on the show, what's behind the proposed merger of Nissan and Honda?
--:-- Jessica Mendoza: We're the Hartford, with decades of experience insuring millions of unique small businesses.
--:-- Ryan Knutson: When it comes to your small business insurance. Thank you.
--:-- Jessica Mendoza: One size absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash small business.
--:-- [Sound effects: Car engine revving]
--:-- Ryan Knutson: Imagine being 12 years old, already having 30 bone fractures, and wondering, why can't I just play like other kids?
--:-- Jessica Mendoza: I'm Leanne, and I was diagnosed with brittle bone disease.
--:-- Ryan Knutson: Now I'm running the Bank of America Chicago Marathon for Lurie Children's, so every kid can just be a kid.
--:-- Jessica Mendoza: Join Bank of America in supporting Leanne's cause. Give if you can at bfa.com slash support Leanne.
--:-- Ryan Knutson: What would you like the power to do? Bank of America.
--:-- Jessica Mendoza: References to charitable organizations is not an endorsement by Bank of America Corporation.
--:-- Ryan Knutson: For decades, Japanese automakers have sold their vehicles to the world.
--:-- Jessica Mendoza: Cars famed for being reliable, no frills, and not too expensive.
--:-- Ryan Knutson: I mean, there were three giants of Japanese automaking, all storied companies for different reasons.
--:-- Jessica Mendoza: You obviously have your Toyota, largest carmaker in the world, an engine of profit and efficiency.
--:-- Ryan Knutson: And then you have Honda, probably Japan's most famous startup.
--:-- Jessica Mendoza: You know, started from Soichiro Honda, who made motorcycles out of bicycles and then had no background in cars and forced his way to the car industry and his current place in the world.
--:-- Ryan Knutson: Honda is kind of like the engineering weirdo of the triumvirate of Japanese automakers.
--:-- Jessica Mendoza: The third company in Japan's big three is its oldest.
--:-- Ryan Knutson: Nissan, innovation that excites.
--:-- Jessica Mendoza: Nissan, which was always the most storied, I would say, of the Japanese automakers, maybe not the biggest, maybe not the best known but certainly the most storied
--:-- Ryan Knutson: I mean Nissan name in Japanese literally means Japanese industry
--:-- Jessica Mendoza: You know it was an industrial powerhouse throughout the sort of the mid till today.
--:-- Ryan Knutson: So Nissan of the early 90s was known as a very engineering-driven company that, you know, the cars you bought from them were, in one sense, over-engineered.
--:-- Jessica Mendoza: They were exciting to drive. Exciting to drive.
--:-- Ryan Knutson: Like that Nissan Skyline that roars across the finish line in Too Fast, Too Furious.
--:-- Jessica Mendoza: Spoiler alert. In the movie, the Nissan wins.
--:-- Ryan Knutson: And Nissan was also once seen as a pioneering automaker.
--:-- Jessica Mendoza: Nissan was the inventor of the modern electric vehicle.
--:-- Ryan Knutson: What? Really? Nissan?
--:-- Jessica Mendoza: Yeah. Well, if you remember the Nissan Leaf.
--:-- Ryan Knutson: At the time, 15 years ago, it was absolutely groundbreaking.
--:-- Jessica Mendoza: Introducing the 100% electric Nissan LEAF. Innovation for the planet. Innovation for all.
--:-- Ryan Knutson: And Nissan was the first company to bring a sort of mass market EV to the market and proved that they could make a EV that could be a viable replacement for a gasoline vehicle.
--:-- Jessica Mendoza: So how did Nissan go from pioneering an electric vehicle to today?
--:-- Ryan Knutson: Like, tell us the story of where Nissan went wrong.
--:-- Jessica Mendoza: Well, Nissan has placed a lot of the blame at the feet of a man named Carlos Ghosn.
--:-- Ryan Knutson: Carlos Ghosn. Automotive titan Carlos Ghosn was put on.
--:-- Jessica Mendoza: Carlos Ghosn became CEO of Nissan in 2001.
--:-- Ryan Knutson: He was a superstar of the auto industry and had a bold vision for Nissan.
--:-- Jessica Mendoza: He wanted to make it the largest carmaker in the world.
--:-- Ryan Knutson: What was the big bet he made?
--:-- Jessica Mendoza: I don't know if everybody remembers the term bricks, right?
--:-- Ryan Knutson: So you had your Brazil, your Russia, your India, your China, your South Africa.
--:-- Jessica Mendoza: Carlos Ghosn's big bet is that there was hundreds of millions of people in these new middle classes emerging in these smaller, poorer countries that were all going to buy Nissans for the first time.
--:-- Ryan Knutson: And Nissan, more so than other car makers, they wanted to be the first to market for a lot of these countries.
--:-- Jessica Mendoza: So Ghosn and Nissan spent billions of dollars building factories all over the world.
--:-- Ryan Knutson: He pushed for drastic sales increases and made big investments in electric cars, robo-taxis, and autonomous vehicles.
--:-- Jessica Mendoza: And he was betting the substantial portion of that growth on emerging market demand that, frankly, never materialized.
--:-- Ryan Knutson: What happened instead?
--:-- Jessica Mendoza: Well, instead, Nissan ended up with a bunch of half-filled factories around the world that instead of being profit engines, just were giant black holes and money furnaces for Nissan's cash.
--:-- Ryan Knutson: By 2018, Nissan's profit margins were shrinking.
--:-- Jessica Mendoza: And Ghosn soon found himself accused of financial crimes in Japan.
--:-- Ryan Knutson: He fled the country and is now a fugitive in Lebanon.
--:-- Jessica Mendoza: He denies wrongdoing and has dismissed the idea that he was responsible for Nissan's current woes.
--:-- Ryan Knutson: But Nissan was stuck.
--:-- Jessica Mendoza: Carlos Ghosn disappears.
--:-- Ryan Knutson: And that sets about a number of things that change at Nissan, including management overhaul, turmoil, chaos and infighting within Nissan.
--:-- Jessica Mendoza: But also a broad reset of Nissan's strategic vision for what kind of a company it wants to be.
--:-- Ryan Knutson: And Nissan goes about trying to shut down all of these factories that Carlos Ghosn has had built around the world.
--:-- Jessica Mendoza: They lay off about 10% of their workforce.
--:-- Ryan Knutson: They say they need to shrink to regrow their profits.
--:-- Jessica Mendoza: Nissan shrinks from selling about 6 million cars a year to three and a half today.
--:-- Ryan Knutson: Whoa. So Nissan has become a much smaller company as they shut down factories and produce fewer vehicles.
--:-- Jessica Mendoza: However, profits have not really rebounded.
--:-- Ryan Knutson: It's just today a much smaller company with much less cash.
--:-- Jessica Mendoza: Nissan was strapped for cash at a time when the industry was on the precipice of big changes.
--:-- Ryan Knutson: The electric vehicle market was taking off around the world and Nissan was left flat.
--:-- Jessica Mendoza: Especially in China the world largest car country where Nissan had invested heavily.
--:-- Ryan Knutson: China had a burst of new EVs of its own, carmakers like BYD Auto, and Chinese customers were buying in.
--:-- Jessica Mendoza: Which was bad news for the whole Japanese car industry, and especially for Nissan.
--:-- Ryan Knutson: With the advent of all these electric vehicles coming out, you are starting to see that market share being taken away.
--:-- Jessica Mendoza: Chinese car companies, especially when it comes to electric vehicles, are really eating the lunch of the global car industry.
--:-- Ryan Knutson: So what did Nissan do?
--:-- Jessica Mendoza: Well, Nissan decided that it could use a helping hand and reached out to crosstown rival Honda about a potential partnership, specifically on electric vehicles, but has since blossomed into a potential marriage.
--:-- Ryan Knutson: So it's like a matter of survival for them.
--:-- Jessica Mendoza: It's a matter of survival for Nissan.
--:-- Ryan Knutson: Everybody sees this as Honda bailing out Nissan and Nissan receiving a much-needed lifeline.
--:-- Jessica Mendoza: In this proposed deal, Nissan would get a lifeline.
--:-- Ryan Knutson: But what does Honda get?
--:-- Jessica Mendoza: That's after the break.
--:-- Ryan Knutson: Burlington has in store.
--:-- Jessica Mendoza: Or maybe it's the quality of the items, the amazing selection, and the newest trends.
--:-- Ryan Knutson: If you like to save, but also like to stay in style, Burlington is your answer.
--:-- Jessica Mendoza: And the question you'll be asking yourself is, why go anywhere else?
--:-- Ryan Knutson: Burlington.
--:-- Jessica Mendoza: Deals. Brands. Wow.
--:-- Ryan Knutson: Tuesday on NBC, Jimmy Fallon and Bozema St. John host a highly anticipated new competition show.
--:-- Jessica Mendoza: I hired 10 creatives from all walks of life.
--:-- Ryan Knutson: They will be battling it out to see who can impress the world's biggest brands.
--:-- Jessica Mendoza: This is a huge opportunity.
--:-- Ryan Knutson: This is the battle for the next big idea.
--:-- Jessica Mendoza: We're spending millions of dollars.
--:-- Ryan Knutson: I'm so excited to embark on this adventure with all of you.
--:-- Jessica Mendoza: Make the best idea win!
--:-- Ryan Knutson: On Brand with Jimmy Fallon. Series premiere Tuesday on NBC.
--:-- Jessica Mendoza: Thank you for waiting.
--:-- Ryan Knutson: Thank you for coming to this venue, despite your busy schedule and despite the short notice.
--:-- Jessica Mendoza: In December, Nissan and Honda held a joint press conference, a translator interpreted for the CEOs and for reporters.
--:-- Ryan Knutson: Good afternoon, everyone.
--:-- Jessica Mendoza: I am Mibe of Honda Motor.
--:-- Ryan Knutson: Thank you for joining us on such short notice.
--:-- Jessica Mendoza: As the CEOs of both companies stood on stage at the press announcement, Things got awkward.
--:-- Ryan Knutson: What did the Honda CEO first say about this deal?
--:-- Jessica Mendoza: I mean, OK, first of all, you have to understand Mibe, the Honda CEO, a little bit.
--:-- Ryan Knutson: He wears his heart on his sleeve.
--:-- Jessica Mendoza: He was asked what he saw in Nissan.
--:-- Ryan Knutson: What is the aspect that you like about each other?
--:-- Jessica Mendoza: And he gave this very long, rambling answer.
--:-- Ryan Knutson: That's a tough question.
--:-- Jessica Mendoza: It was a very simple question, which you would think have a very simple answer, but this is stereotypical Mibe.
--:-- Ryan Knutson: We respect Nissan as worthy of consideration.
--:-- Jessica Mendoza: I hope I answered your question.
--:-- Ryan Knutson: He said worthy of consideration? Like, that's not exactly a ringing endorsement.
--:-- Jessica Mendoza: Yeah, he is honest in an endearing way for a modern CEO.
--:-- Ryan Knutson: The merger, which is planned for next year, would create the third largest automotive group in the world, behind Toyota and Volkswagen.
--:-- Jessica Mendoza: The merged company would have sales of 8 million vehicles a year.
--:-- Ryan Knutson: Honda has said that pooling resources with Nissan will allow for both brands to continue innovating as demand rises for EVs and autonomous technologies.
--:-- Jessica Mendoza: But if Honda's CEO sounded lukewarm about the deal, that may be because it was a bit of an arranged marriage.
--:-- Ryan Knutson: Arranged by the Japanese government
--:-- Jessica Mendoza: So the Japanese government is one of the biggest architects pushing this deal for one very big reason
--:-- Ryan Knutson: Jobs in Japan that directly work for these two companies and are reliant on these two companies having manufacturing and research facilities in Japan.
--:-- Jessica Mendoza: And so the hope is that by combining together, they might together produce enough vehicles and sell enough vehicles in Japan to sort of justify their continued existence.
--:-- Ryan Knutson: Honda's CEO has rejected suggestions that the company was being pushed to rescue Nissan.
--:-- Jessica Mendoza: So this deal might make sense from like a political perspective, but what about the market challenges the deal faces?
--:-- Ryan Knutson: Well, the number one challenge is culture.
--:-- Jessica Mendoza: These are two extremely different companies.
--:-- Ryan Knutson: Nissan, historically, has had its top management picked from the University of Tokyo, the Harvard of Japan, Keio University, the blue-blooded patrician elite of Japanese education.
--:-- Jessica Mendoza: And their leadership tends to be people who come up through the sales side of the business.
--:-- Ryan Knutson: Whereas Honda has always been an engineering company.
--:-- Jessica Mendoza: And Honda's leaders have typically come up through their research and development arm, people whose engineering chops have propelled them to the top of the company.
--:-- Ryan Knutson: So these are two very different corporate cultures.
--:-- Jessica Mendoza: And frankly, even the way that they operate internally are very different.
--:-- Ryan Knutson: There's also concerns about duplication, the idea that both Honda and Nissan currently have similar product lines.
--:-- Jessica Mendoza: You have your Honda Accord, which competes with your Nissan Altima.
--:-- Ryan Knutson: Your Civic competes with your Sentra.
--:-- Jessica Mendoza: Your CR-V that competes with your Rogue.
--:-- Ryan Knutson: There's very little difference in the lineups of these companies.
--:-- Jessica Mendoza: And so where do you find efficiencies that aren't just simple cuts?
--:-- Ryan Knutson: Honda and Nissan are calling this a merger, not a takeover by Honda.
--:-- Jessica Mendoza: But it's clear Nissan is the weaker company.
--:-- Ryan Knutson: The boss of the combined company would likely come from Honda, and Honda will also appoint the majority of board members.
--:-- Jessica Mendoza: All of which positions Honda to be the company calling most of the shots.
--:-- Ryan Knutson: How do you think this potential merger between Nissan and Honda will affect future Fast and Furious films?
--:-- Jessica Mendoza: You think Vin Diesel is going to be driving a Chinese BYD car?
--:-- Ryan Knutson: Maybe he already has.
--:-- Jessica Mendoza: But I think that's certainly the concern of a lot of these car makers, that they're going to lose that niche in the market and that sort of place in the sort of automotive pantheon to these Chinese companies that are cooler, younger and more innovative.
--:-- Ryan Knutson: What does this tell us about how the global automotive industry is changing?
--:-- Jessica Mendoza: Look, I think this is absolutely emblematic of the strain on carmakers today.
--:-- Ryan Knutson: Carmakers from GM to Ford to Toyota to Honda and Nissan are struggling to spend enough money to compete with the likes of Tesla and particularly Chinese carmakers.
--:-- Jessica Mendoza: I would not be surprised if we see more of these mergers and partnerships, especially if enough markets around the world still push electric vehicles.
--:-- Ryan Knutson: That is going to strain the budgets and the finances of these car makers, and something will break.
--:-- Jessica Mendoza: And in the case of Honda and Nissan, we're seeing it starting to crack.
--:-- Ryan Knutson: But they will not be the last.
--:-- Jessica Mendoza: That's all for today, Wednesday, January 8th.
--:-- Ryan Knutson: The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Jessica Mendoza: If you like our show, follow us on Spotify or wherever you get your podcasts.
--:-- Ryan Knutson: We're out every weekday afternoon.
--:-- Jessica Mendoza: Thanks for listening. See you tomorrow.
