The industry that helped turn Japan into an economic juggernaut is undergoing its biggest change in years, with two of the country’s best-known carmakers looking to join forces.

Honda Motor Co. and Nissan Motor Co. both saw global vehicle sales stagnate or fall in 2024, underscoring the need for the pair to combine and arrest their sliding market shares.

As talks between the automakers continue, analysts say a combination makes sense but may face hurdles, including short-term financial hardship.

Renault executives travelled to Japan this week to meet counterparts at Nissan in an effort to maximise the value of the French automaker's stake in the Japanese firm ahead of its merger with Honda, a source close to the matter told Reuters.

Despite reports that Mitsubishi would not be a part of the Honda-Nissan merger, officially no decision has been made

As Honda and Nissan push forward with merger plans, Mitsubishi Motors may bow out, citing doubts about its influence in the new partnership.

Mitsubishi is thought to be concerned about its management freedom, as the future of Nissan’s management restructuring is not clear.

Honda’s sales slipped 4.6% to 3.8 million units last year, as production dropped 11% to 3.7 million vehicles. Sales at smaller Japanese rival Nissan decreased 0.8% to 3.3 million for the 12 months, while output declined 8.7% to 3.1 million units.

Renault SA wants a premium for its stake in Nissan Motor Co. if Honda Motor Co. takes over control of the rival Japanese automaker, according to people familiar with the matter.

Japan's Mitsubishi Motors, a junior partner of Nissan Motor, is considering not joining a planned merger between Nissan and Honda Motor, sources told Reuters on Friday. Mitsubishi Motors plans to remain listed while continuing its cooperative relationship with both companies,