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Merging the two companies would increase their U.S. manufacturing footprint and reduce their exposure to import taxes. Nissan has three plants in the U.S.; Honda meanwhile has 12 facilities. President-elect Trump is hoping tariffs will force foreign companies to make more of their cars in the U.S.: “I want [foreign] car companies to become American car companies. I want them to build their plants here,” Trump said in September.
The Japanese car giants Nissan and Honda are exploring talks to build a closer relationship that could include a merger, according to reports. Combined, Japan’s second- and third-largest carmakers would become closer in size to Toyota, which would remain the world’s top automaker.
A potential merger also hints at the changing automotive landscape. Car manufacturers are struggling with the transition to electric vehicles and the possibility that global trade could be upended should President-elect Donald Trump impose the blanket tariffs he campaigned on.
For car companies that make products outside the U.S., the possibility of having to pay a duty on imports could exact a significant toll on their business. Merging Honda and Nissan would increase their combined U.S. manufacturing footprint, which would reduce their possible exposure to taxes on vehicles made in Japan or Mexico. Nissan has three manufacturing plants in the U.S.: in Smyrna and Decherd, Tenn., and in Canton, Miss. Honda meanwhile has 12 facilities in the U.S.
Through October of this year, Nissan made 460,338 vehicles in the U.S., down 10.6% compared with the same time last year, according to sales data. Honda has enough capacity to produce 1 million cars a year in the U.S., according to a June press release.
Talks of a possible merger were first reported in the Nikkei. A spokesperson for Honda told Fortune the reports did not come from individuals at the company. Nissan did not respond to a request for comment.
In March, Honda and Nissan announced they would collaborate on developing software and certain car components for electric vehicles. “Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths. We will inform our stakeholders of any updates at an appropriate time,” the Honda spokesperson said.
Throughout his presidential campaign, and now during the transition process, Trump has repeated his proposal to enact 20% tariffs on all imported goods into the U.S. Those tariffs would apply to any Honda or Nissan vehicles manufactured abroad and then shipped for sale in the U.S. The stated goal of the tariffs is to induce companies to increase their American manufacturing. Although to what extent companies will do so—rather than simply pay the tariffs and pass along prices to consumers—remains to be seen.