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Honda and Nissan have started talks to pursue a merger, a deal that could create the world's third-biggest automaker.

The two major Japanese companies are hoping that joining hands will allow them to better compete in an automotive world that's facing seismic changes. 

Two massive forces are at play currently: The global auto industry is in the midst of a historic shift to electrification at the same time that the world's largest automakers are facing a formidable competitor in China.

 with the goal of completing a merger by 2026, here are a few things to know:

The emergence of Chinese automakers such as BYD and Nio has eroded the market share of global automakers such as Honda, Nissan and Volkswagen in China — a country they once counted as a critical market.

The Chinese automakers can not only make cars more cheaply, they have also won over Chinese consumers with their electric vehicles and their nifty software. 

These Chinese upstarts are no longer content to become dominant at home. They are now focused on markets abroad, including key ones for Japanese automakers such as Europe, where Chinese automakers are 

And China is succeeding. The country has now 

Nissan in particular has struggled recently, especially in the key American market, where sales have weakened. Last month, for example, the company said it was 

Honda has done better, but it has still seen 

Sam Abuelsamid, an auto industry analyst based in Detroit, says he expects more global deals like Nissan and Honda in the next few years as automakers respond to the threat from China — and he predicts there will be casualties.

"Some brands that have been around for a long time may well not be part of the landscape ... five or 10 years from now just because they — they don't have enough scale to compete against — against either the big Western players or the Chinese companies," Abuelsamid says.

It's the main reason why analysts say Honda and Nissan are pursuing a merger. Mitsubishi, in which Nissan owns a sizable stake, would also be part of the alliance.

Honda and Nissan are not creating buzzy EVs 

The transition to electric globally is another force. While Tesla has led the EV market in the U.S., other companies are nipping at its heels.

Korean carmakers Hyundai and Kia have made 

' list of best mainstream EVs this year, while Germany's Porsche and BMW have done well in the luxury segment.

Honda and Nissan have not captured as much buzz, partly because they have been slower to transition to electric vehicles, though Honda is seeing a little more success with hybrids.

A merger between the two automakers would create the world's third-biggest automaker behind Toyota and Volkswagen — and that brings a lot of potential benefits.

It could allow them to pool their expertise and strengths. They could also benefit from more efficient production of vehicles. 

"Companies like Honda and Nissan need to join forces to get R&D, to get better purchasing, to combine all their financial sides to lower costs," says Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. 

Both Honda and Nissan depend heavily on the U.S. market, where there's a lot of overlap in SUVs and sedans. 

And a merger would not resolve all issues. In fact, the auto world is littered with failed mergers, including DaimlerChrysler, which once sought to merge the Germans offerings of Mercedes-Benz with the storied American automaker Chrysler — but ended in a split in 2007.

What would it mean for American consumers?

Not much in the near term. Honda and Nissan say they are hoping to continue talks in the next months and then to conclude the deal by mid-2026. 

If the merger is accomplished though, there would likely be a serious consideration of which models and brands the joint company would choose to maintain. Honda, as the larger company, is in the driver seat when it comes to the merger, according to analysts, who add there's no guarantee Nissan would survive as a brand.

Abuelsamid says he could see Nissan's luxury brand Infiniti in particular be "allowed to just fade away" because of the overlap with Honda's Acura.

Eventually there would also likely be new models, especially in electric vehicles. But any changes, whether to the model lineup to production or dealers, would take a long time.

"The automotive industry moves at a glacial pace," says Fiorani at AutoForecast Solutions. "It takes forever for change to occur." 

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Rafael Nam

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The two major Japanese automakers are discussing a merger. Here is what to know, from the reasons why they are doing this to how it could impact you.

Here are two seismic changes pushing Honda and Nissan into merger talks

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