• by Thom Forbes  @tforbes, May 12, 2016

Nissan Motor is taking a 34% stake in Mitsubishi Motors in a “far-reaching alliance” that will make it the largest shareholder of its scandal-plagued rival going forward. The deal, which is valued at 237 billion yen ($2.2 billion), is expected to close by the end of the year and must be approved by regulators and Mitsubishi shareholders.

The agreement, announced in Nissan’s headquarters in Yokohama, Japan, this morning, extends an existing partnership between the two automakers under which they have jointly collaborated for the past five years.

“Nissan is determined to preserve and nurture the Mitsubishi Motors brand. We will help this company address the challenges it faces, particularly restoring consumer trust in the fuel-economy performance,” Renault-Nissan Alliance chairman and CEO Carlos Ghosn said at a news conference with Mitsubishi chairman and CEO Osamu Masuko. 

“Mitsubishi is grappling with declining sales and growing costs after admitting in April to falsifying data relating to fuel economy on at least four minicar models sold in Japan. Two of the models were manufactured by Mitsubishi and sold under Nissan’s brand name,” reports the Wall Street Journal’s Yoko Kubota.

Yesterday, in fact, Mitsubishi said it was investigating falsified fuel tests on nine additional models, which “means nearly all models sold by Mitsubishi in Japan are now being examined,” CNN Money’s Sophia Yan reports. “Mitsubishi said its initial investigation showed that company managers were under intense pressure to keep pace with fuel economy rates reported by competitors, and used a procedure to calculate efficiency that did not comply with Japanese law.”

“It is not an easy task to regain trust, so through the alliance with Nissan Motor, we will be starting our step forward on this difficult task,” Masuko said. 

“The decision by Nissan to acquire a strategic stake in MMC marks the latest expansion of its Alliance model, built around a 17-year cross-shareholding arrangement with Renault. Nissan has also acquired stakes or signed partnerships with other automotive groups including Daimler, and AvtoVaz,” according to a news release characterizing it a “win-win” transaction.

“The deal is a lifeline for Mitsubishi Motors, which is mired in its third scandal in two decades, but should also be a boost for Nissan,” write Reuters’ Maki Shiraki and Naomi Tajitsu. “Japan's No. 2 car maker has struggled to make inroads into Asia outside China, in countries like Thailand and the Philippines, where Mitsubishi's models are popular.”

It also “will gain a leg up in Japan's small car market — where it is dwarfed by Suzuki and Toyota's Daihatsu — and in key emerging economies,” Shiraki and Tajitsu point out. “Asia, excluding China, accounted for about 7% of its global retail sales in April-December.”

The alliance “will build economies of scale and create synergies in areas including platform sharing, sport utility vehicles, pickup trucks” in those markets, write Bloomberg’s Ma Jie, Yuki Hagiwara and Masatsugu Horie.  

“Both Ghosn and Masuko said the companies have held talks over the years on options to deepen the partnership, with the recent turn of events accelerating the process. The companies plan to sign an agreement by May 25 in which Nissan can name four directors to Mitsubishi Motors’ board, including the chairman,” they continue.

In the New York Times, Jonathan Soble observes that “the rescue has parallels with how Renault saved Nissan from collapse a decade and a half ago by buying a large minority stake in the then-ailing Japanese producer. Today, Carlos Ghosn, the executive Renault sent to Japan to turn Nissan around, is chairman of both companies.”

“We have been there not a very long time ago,” Ghosn said. “We have the track record to make it work.”

Ghosn “said he has a close relationship with Masuko and they have a good relationship built on trust,” the AP reports. “The automakers will maintain separate identities, brands and dealerships.” 

In other news, “Nissan reported a 40% plunge in January-March profit of 71 billion yen ($651 million), as sales dipped and currency perks faded,” the AP’s Yuri Kageyama reports. “Quarterly sales edged down 1.2% to 3.25 trillion yen ($29.8 billion). For the fiscal year, Nissan's profit rose 15% to 523.8 billion yen ($4.8 billion), and Nissan forecast a 525 billion yen ($4.8 billion) profit for the fiscal year through March 2017.”

Kageyama points out that “a weak yen had worked as a plus for exporters like Nissan, but the currency is strengthening in recent months.”