Honda And Nissan’s Merger Failed Because Nissan Didn’t Want To Take The Subordinate Role And Torpedoed The Deal For A Very Common Reason, They Didn’t Want To Lose Their Jobs

Honda and Nissan had planned to merge, but this effort failed spectacularly. The most recent report is that Honda is still willing to move forward, but only if Nissan’s CEO takes a hike. I used to run a merger clean up team at IBM, and doing mergers is an art form. However, generally, mergers are between two very different-sized companies. Exceptions I’ve covered in the past are the merger between HP and Compaq where Compaq’s CEO agreed to take a subordinate role, and the merger between Dell and EMC where EMC’s CEO agreed to retire.

This points to the problem with mergers between peers: You don’t need duplicate C-level executives, and starting from the top, half of them will need to retire, take a package, quit, or step down into a subordinate role.

Let’s discuss why that is a massive problem for mergers like this.

Executive Titles Are Core To Their Self Image

When you reach the C-level, not the fake VPs many industries have, which are more akin to the old Senior Directors or General Managers, that is quite an achievement because there is only one CEO, CFO, COO, CTO, or CSO. You are at the top of the hierarchy, but if there is a peer merger, you’ll likely lose that status, and opportunities for C-level executives are few and far between. Additionally, if you want to work for someone else, you’ll be more valuable on the job than unemployed.

For instance, if you are looking for a new C-level job, they will ask what happened with your last one, and you’ll need to admit you were let go because you were inferior to the person who replaced you. That’s a tough image to overcome because who wants to hire second best? We don’t often get a chance to measure a new prospect employee’s past performance truly, but if they were let go in favor of someone else, it sure looks like they were found wanting.

That means the people who will get the nod to retain their jobs post-merger will be largely OK with it, while those whose future is far less certain will likely attempt to kill the deal. Given that the Honda CEO wants the Nissan CEO gone, likely, the Nissan CEO didn’t want to step down in favor of this deal.

Joint Venture Is The Better Path

A joint venture makes more sense if the firms want to collaborate, especially to create a market-leading EV initiative. It is quicker to establish because you typically don’t require the same level of regulatory approval for a joint venture as you do for a merger. Instead of eliminating C-level jobs, it will create them in the new entity, which is less efficient but less likely to actively lead one side or the other to undermine the effort. The Chinese EV companies have been primarily new since 2001. Like Tesla, they are pure play EV manufacturers, which allows these companies to focus without the distractions associated with marketing two vastly different propulsion technologies.

You could reduce the redundancy by moving some of the partner companies’ manufacturing capacity into the joint venture, and move to Tesla-like direct selling to keep sales costs down and margins up. And, finally, it takes far less time to spin up a new Joint Venture than it does to execute a merger because with a merger you have a ton of complexity, approvals, and staffing conflicts you have to deal with on top of any staffing up you need to do. With a Joint Venture you only need to staff up. With automation and AI, the staffing requirements should be lower without encountering problems with entities like unions, which may object to the typical staff reductions that follow a significant merger.

Wrapping Up:

The merger between Honda and Nissan was always unlikely to conclude successfully because it wasn’t clear that either side’s executives would accept leaving the newly joined company. As a result, Honda and Nissan couldn’t execute, leaving both companies weaker than they had been. Given that new Chinese car company upstarts are trouncing them, that’ll be problematic for them.

It would be far better if they formed an EV-focused Joint Venture, as that would accomplish much of what they needed to do without the staffing and legal headaches that mergers tend to generate.

Rob Enderle is a technology analyst at Torque News who covers automotive technology and battery developments. You can learn more about Rob on Wikipedia and follow his articles on Forbes, X, and LinkedIn.