Honda-Nissan business integration overall credit positive if executed well says Moody’s

The proposed Honda-Nissan business integration is overall credit positive if executed successfully, said Moody’s Ratings in a comment.

“We believe that a larger scale through integration will result in stronger credit quality, particularly for Nissan, which currently has significantly weaker credit metrics than Honda,” said Dean Enjo, VP-Senior Analyst, Moody’s Ratings 

“Integration would allow the automakers to share research and development (R&D) costs, which will be beneficial for the introduction of new electrified powertrain models in regions such as China,” he said. 

“Additionally, the integration could help mitigate the potential effects of increased tariffs on imports to the US and enhance product diversification for Nissan, given Honda’s higher-margin motorcycle business,” he added.

On the other hand, according to Moody’s execution risk is high, especially for Honda, which has lower margins in its automotive business compared to its motorcycle business. 

“This gives it less flexibility in absorbing Nissan’s automotive business, which is currently under heavy restructuring and loss-making. The JPY1.1 trillion buyback announced by Honda for its own shares is credit negative for Honda as it will erode its liquidity or credit metrics depending on the amount of cash or debt it uses to fund the buyback,” Mr Enjo said.

Both the companies on December 23, 2024 announced the signing of a Memorandum of Understanding for integration of their business. Nissan alliance member Mitsubishi Motors will also join talks for the integration that would create the world’s third largest automobile company.