Speaker 1: Some reports have said that it's possible Japanese automaker Nissan has just about a year to survive.

Speaker 2: They have a lot of debt there, have dwindling profits and cash. Nissan is in panic mode, looking for somebody to save them.

Speaker 1: Profits fell 90 percent in the first half of 2024 from the same period the year prior. To ensure its survival, it is seeking an anchor investor. Nissan is in talks to merge with Japanese rival Honda.

Speaker 2: A tie up with Honda would be better than almost any other OEM that I can think of.

Speaker 3: This is bigger than a merger between two companies that have to be Japanese. This is the end of an era, in a sense, where the Japanese find themselves under attack from an emergent and ascending Chinese auto industry.

Speaker 1: Nissan's crisis is a dramatic reversal of the far healthier results seen at the end of the company's 2023 fiscal year. It has cut production, jobs and executive salaries. Its problems aren't U.S. specific. It's challenged in China, Europe and emerging markets. Long overshadowed by Japan's leading names, it in recent years has suffered blow after blow. A longtime alliance with another automaker is strained. A once admired former CEO is an international fugitive. Once a leader in EVs, Nissan has been eclipsed.

Speaker 4: So some of its electric vehicles that were pioneers got old and were not competitive enough. And then the Chinese arrive and change everything.

Speaker 1: A new partnership with another automaker, even a Chinese one, might be its best shot.

Speaker 4: These are desperate measures that demonstrate that they were not prepared for this new reality after a pandemic and after the semiconductor shortage, which put the Chinese carmakers almost at the top.

Speaker 1: While the global auto industry's total sales grew by 2 percent in the first half of 2024, Nissan's fell by 1.6 percent. The company blamed its drop in operating income on fewer sales, greater sales incentives and inflation.

Speaker 5: It's been struggling in the market. It's been struggling at home. It doesn't have the right product lineup. There are so many warning signs, so many red flags around Nissan.

Speaker 1: Like larger Japanese rivals Toyota and Honda, Nissan is a global automaker. The U.S. is its largest market. Lately, China has yielded the biggest losses. In the first half of fiscal 2024, sales fell by more than 5 percent. From January to October of that year, that number was 10 percent. In October 2024, Nissan sold 61,170 units in China. In October 2017, it had sold three times that amount. But the U.S. has been a declining market for the company, too. Sales of the Nissan brand fell by 34 percent over the course of the pandemic. Sales for Infiniti, Nissan's premium or luxury brand, fell by more than 55 percent. That's the worst performance of any brand in the U.S. Part of the problem is a product lineup that hasn't kept up with the times or is misaligned with the market.

Speaker 2: Because they still have, in my opinion, product quality that's not as good as Honda or Toyota or Mazda or the Koreans. It doesn't have really innovative designs like we've come to expect from the Korean brands. And now I would say Toyota is having some more innovative styling. And it doesn't have the dealer network in the U.S. where there's a lot of loyalty and trust and love that exists between the dealers and Nissan corporate.

Speaker 1: Nissan plans to discontinue its Titan full-size pickup in North America. Pickups are a huge market and tend to be profitable. A recent attempt at a comeback for Infiniti, a large SUV, was priced too high.

Speaker 2: They've got a product that came out that dealers were excited about at first, and then they feel like it's overpriced. There's a lot of products you can buy for $100,000, you can buy a Range Rover for $100,000, or a Land Rover you can buy, you know, an Escalade. You can buy a BMW, you can buy a Mercedes. There's a lot. And I don't think the Infiniti brand stands in the consumer's mind at the same level as those brands.

Speaker 1: This is hardly the first time Nissan has been in trouble. Its last brush led to an alliance with French maker Renault in 1998, to which smaller Japanese maker Mitsubishi was later added. The following revival largely took place under the leadership of former CEO Carlos Ghosn, a Lebanese-Brazilian outsider. Ghosn became something of a legend in Japan before a spectacular downfall that ended with him escaping house arrest in a musical equipment case.

Speaker 6: Former Nissan chairman Carlos Ghosn had been under house arrest in Japan. Ghosn is no longer under house arrest. He's landed in Lebanon.

Speaker 1: Nissan was still reeling from this episode in the years leading up to the COVID-19 pandemic.

Speaker 2: Nissan was struggling before the pandemic hit. There was a lot of supply out there in the marketplace back then. If you look at the history of Nissan, it's always been the number three Japanese brand, Toyota, Honda, Nissan. Nissan's always been kind of the third Japanese stepchild in a way.

Speaker 1: Renault would later reduce its stake in Nissan from 43 percent to 15.

Speaker 4: Yes, it's still an alliance. There are still partners. But as the word says, it's an alliance. So it's not a marriage. It's they are somehow together but separate. It worked under Carlos Ghosn because he probably he was the only one who could make the Japanese-French people work together. And probably it was also one of one of the reasons why he was sent out of the company, because he was trying to merge these companies.

Speaker 1: The COVID years brought shortages, chips, raw materials and, of course, vehicles. Suddenly, every automaker was able to sell every vehicle it had for a strong price and a strong profit.

Speaker 2: And then in the words of Warren Buffett, you know, when the tide went out, you could see who was swimming naked.

Speaker 1: In fiscal year 2023, Nissan sold 794,000 units in China. In its original 2024 forecast, the company estimated a 3 percent decline, but it revised its forecast down another 10 percent. And the outlook for every region is more pessimistic than its previous. Though it foresees improvement in North America, it is still a downward revision from its earlier target and not enough to offset losses elsewhere. While automakers were raking in cash in some markets, conditions in the world's largest were turning against them. Virtually every carmaker faces an onslaught of highly competitive Chinese cars. Sixty three percent of the vehicles sold in China are made by domestic companies, a 27 percent increase since 2020. This has hit Nissan especially hard.

Speaker 4: It's one fifth of their sales coming from a market that don't want to buy foreign cars, car brands anymore. So you are, let's say, quite exposed to it. And and the response has been quite low. As it is has been the case for Volkswagen, for the German premiums and even Toyota, Hyundai, all of the ones operating in China are taking longer to respond to this shift in demand in China.

Speaker 1: It doesn't help that Nissan has fallen behind its non-Chinese competitors in the electrification race as well. Just over half the cars sold in China are electric or hybrid. Nissan was once a leader in this space. The LEAF, first released in 2010, is often called the world's first fully electric mass market vehicle, but it has received fewer updates than competitors. In some markets, such as the U.S., Nissan doesn't have a hybrid. It will introduce a rogue plug-in hybrid to its U.S. lineup in 2025, as well as a replacement for the LEAF EV.

Speaker 3: They had the vision, let's go electric. But what they didn't have was that special sauce called making their products attractive, alluring, good looking. Something that would move the emotions. This is what Tesla nailed and this is what more Chinese automakers are getting on.

Speaker 1: While its share in China plummets, it's also increasingly confronted with Chinese cars in other markets, especially in emerging ones such as Thailand, Indonesia, countries in the Middle East and Africa and Latin America. Individually, many of these markets are small, but altogether they make up about a fifth of global car sales and about 16 percent of Nissan's. Some of the leading Chinese EV makers have a 30 percent cost advantage, even without subsidies and an ability to pump out new models in a year and a half compared with more than five years for legacy automakers.

Speaker 4: And this population in these economies, most of it cannot afford brand new cars, especially now when prices of cars have been increasing over the last four, three, five years. China is becoming like a solution for these people. That's where these brands, companies like Nissan, are feeling the impact.

Speaker 1: Nissan's troubles in the U.S., its largest market, are entirely different. Many of its foreign rivals, including some fellow Japanese firms, are thriving here. The average U.S. Nissan dealer is selling 400 fewer cars than it was five years ago. The average Mazda dealer is selling 266 more.

Speaker 2: So it's not just a Japanese carmaker thing. It's specific, I think, to Nissan, that some of the decisions they've made, the management choices they've made about the products they've produced, how they've interacted with their dealers, how they've interacted with consumers when there's a problem with the product has led to this significant loss of market share in the U.S.

Speaker 1: Take service, for example. Nissan sells a lot of cars with continuously variable transmissions, which have had some problems. Haig says the company has historically refused to pay to fix them if the car is out of warranty.

Speaker 2: They fix it if it's under warranty, but if it's not, they're saying, you know, it's the consumer's problem. Well, it also becomes a dealer's problem because the customer comes back to say, hey, my vehicle's got 30, 36,001 miles and the transmission is out. What can you do for me? Dealer calls Nissan, asks for help, and they say, well, it's out of warranty. And so the customer is on his own to fix that vehicle. And that's, you know, four figure repair.

Speaker 1: Toyota dealers, on the other hand, tell him that company has been better about issuing recalls and springing for repairs to preserve its reputation for quality, as it has done with its recent recall of 100,000 trucks and SUVs with potentially defective engines.

Speaker 2: So the large majority of these motors are perfectly fine, but Toyota saying, hey, we don't want there to be a perception of there being a problem.

Speaker 1: Nissan also has instituted sales incentives that push dealers to sell cars aggressively, which is difficult to sustain over the long term and has a way of driving down resale values. It can also damage its reputation by creating resentful customers who had to shell out a lot more cash for a car than someone who shopped just a few weeks later. Of course, Nissan is not the only automaker that refuses to fix cars out of warranty or the only one that introduces aggressive incentive programs.

Speaker 2: It's the question is, how can I sell another car today, even if it costs me two sales tomorrow versus Toyota, which is I care more about the two sales tomorrow. So I'm going to I'm going to behave in a way that treats the customer and the dealer well today. And it's that difference in mindset that I think is the overall core reason why Nissan struggles compared to its peers.

Speaker 1: Nissan's current position is reflected in the values of its dealerships. Toyota stores haven't fallen that much in value since the overall peak in 2023, whereas Nissan stores are a lot cheaper than the average. In fact, there might be a bigger difference between a Toyota and Nissan dealership than at any point Hague Partners has seen, according to its report. So sales are depressed and products are stale. Meanwhile, Nissan faces intense competition from the Chinese, both in China and increasingly in emerging markets. In much of the rest of the world, it is being outrun by global rivals who themselves are facing increased Chinese competition. At the end of the second quarter, 2024, Nissan said it would slash global production by 20 percent and cut 9000 jobs, about 7 percent of its workforce. CEO Makoto Uchida gave up 50 percent of his salary starting in November 2024. Other executive committee members are expected to follow, though details are unclear. It is also shuffling executives. CFO Stephen Ma will now oversee the China business. America's boss, Jeremy Papan, will become the new global CFO. Christian Meunier will take on the Americas. Nissan declined CNBC's request for an interview. It said in a statement, among other things, that reports the company only has 12 to 14 months to survive are based on speculation and not on any announcement by the company. We continue to maintain strong levels of liquidity and are progressing with investments in new products and technologies. Perhaps the biggest news is its possible merger with Honda. This would create the world's third largest automaker, with U.S. market share comparable to that of Toyota and the Hyundai Motor Group. It would also provide an opportunity to share parts and research and development costs.

Speaker 2: We hope that they will merge with Honda or perhaps Mazda, but more likely Honda, where together they would have comparable market share to Toyota or the Korean brands. I think that both brands would do better in the U.S. marketplace and also be better positioned to survive against the Chinese, which is a major concern for all these OEMs outside of the U.S. I don't see the Chinese brands coming into the U.S. for quite a while, but in other markets, they're there and it's going to be hard to get them out.

Speaker 4: What we used to see in the past that the Western car makers went there and they taught the Chinese how to make cars now is the opposite.

Speaker 1: Nissan does have some potential advantages in a market where high prices are driving away consumers. The fact that Nissan has six models starting under $30,000 can attract customers alienated by still relatively high vehicle prices. It will need every tool it has.

Speaker 4: Crisis 2025 is going to we're going to see one of the most serious crisis since the last one we had in 2011, 2012.

Speaker 2: We've been here before with Nissan, and I believe that the strength of Infiniti and Nissan are sufficient to survive this, particularly if they can get a partner.