The automotive industry is undergoing significant transformations, and Nissan’s journey to recovery is anything but overRecent reports reveal that Nissan is contemplating a drastic workforce reduction, with plans to cut around 9,000 jobs worldwideThe majority of these cuts will affect production staff, signaling a major restructuring within the companyAlongside these layoffs, there will also be changes in the company's board structure, reducing the number of directors from 63 to a smaller number by April.

Currently, the workforce distribution at Nissan shows that the largest percentage is in Japan, accounting for approximately 45% of employees, followed by North America at 30%, Asia at 13%, and Europe at 7%. Over the next few months, Nissan aims to finalize the specific layoff numbers for each region, targeting completion of this adjustment before the 2026 fiscal year.

This organizational shrinkage is part of Nissan's strategy to regain stability following a period of declining performance

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It also appears to be a preparatory move for a potential merger with Honda, as Nissan seeks to reassure Honda about its viability and financial health.

At the end of last year, Nissan, having been actively seeking solutions for its troubles, received encouraging news when Honda announced its willingness to engageOn December 23, a memorandum of understanding was signed between Honda, Nissan, and Mitsubishi Motors, initiating formal merger discussionsNevertheless, the path to a successful merger is laden with challenges, particularly due to Honda's stated conditions.

The CEO of Honda, Toshihiro Mibe, has been clear that Nissan must solidify its financial foundation before any partnership can advanceHonda has suggested that by the fiscal year 2026, Nissan’s annual operating profit should at least double to make the merger feasible.

For Nissan, achieving this goal poses considerable challenges

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The sales figures from major markets like China and the USA have taken noticeable hits in 2024, exacerbating the company’s financial woesFrom April to September 2024, Nissan saw its sales in China plummet by as much as 14.3%, with the USA experiencing a 2.7% drop and Japan not faring much better, down by 2.4%. As a result, Nissan's global sales during this period fell by 3.8% year-on-year.

Even though the overall decline in sales seems manageable, the company’s financial situation tells a different storyNissan’s latest financial reports reveal that for the first half of the fiscal year 2025 (April-September 2024), the company reported revenues of 5.98 trillion yen, a year-on-year decrease of 1.3%. Operating profits plummeted by a staggering 90.2% to 32.9 billion yen, while net profit dramatically reduced by 93.5%, resting at just 19.2 billion yenNotably, the operating profit margin dwindled to a mere 0.5%, significantly lower than the previous year’s 5.6%.

Looking closely at fiscal quarters, Nissan recorded a net loss of 9.3 billion yen in the second quarter of fiscal 2025 (July-September 2024), equating to roughly 4.3 billion yuan

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This bleak financial outlook prompted Nissan executives to disclose that the company has only 12 to 14 months to turn things around, emphasizing the urgency for both the Japanese and U.Smarkets to generate cash flowHowever, sales in China have sharply declined, while the U.Smarket is grappling with aging models and excessive inventory.

This precarious financial standing not only intensifies Nissan's urgency for self-rescue but also places the company in a weaker position during merger negotiationsTo meet Honda's stipulations, Nissan would need profits nearing 60 billion yen, a daunting target to reach amid declining sales.

To combat these pressing issues, Nissan is looking to cut fixed costsThe company aims to reduce fixed costs by 300 billion yen and variable costs by 100 billion yen in the 2024 fiscal year, with job cuts being one of the most critical measuresIn light of the financial strain, CEO Makoto Uchida has voluntarily opted for a 50% salary reduction, a gesture echoed by other senior executives.

Additionally, Nissan plans to sell part of its stake in Mitsubishi Motors, reduce global production capacity by 20%, and further cut both fixed and variable costs

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This series of aggressive measures showcases Nissan’s commitment to achieving its objectivesActual details regarding the merger, including stock transfer ratios, are expected to be finalized by June 2025. If the merger proceeds successfully, the newly formed company would become the third-largest auto manufacturer globally, trailing only Toyota and VolkswagenHowever, the challenges remain manifold.

In recent years, Nissan, Honda, and Mitsubishi have all seen their market shares erode in key territories, losing their competitive edge amid fierce market rivalryIn the first half of 2024 alone, the combined sales of the three companies reached roughly 4 million vehicles, starkly contrasting with Toyota’s single-handed sales figure of 5.2 million units.

Moreover, all three manufacturers face hurdles as they transition toward electrification and smart technologiesThe recent circumstances of these companies in the Chinese market illustrate this struggle vividly

Currently, Nissan lacks a standout smart product, indicating a delay in its transformation; Honda has rolled out its new brand E and the model E-P, but their market acceptance remains to be verified; while Mitsubishi's presence in China officially came to an end in 2023 when the GAC Group took over the joint venture.

The market share of Japanese automakers in China has been on a downward spiral, with their overall share now at 11.2%, a decline of 3 percentage points from the previous year, marking a historical lowThis indicates that even after a possible merger, these companies would be facing a more formidable challenge with a more extensive integration.

The automotive industry is inherently global, and history has shown that no manufacturer is immune to the sweeping changes that affect the marketEven the giants must adapt to survive; a reactionary strategy is essentialAs Nissan continues its struggle to regain profitability, it will undoubtedly face ongoing challenges ahead.