Nissan Motor Recalls
Nissan has secured a 34% stake in its smaller Japanese rival Mitsubishi MotorsReuters

Japanese car giant Nissan has reached an agreement to buy a 34% stake in its smaller rival Mitsubishi Motors, as the latter seeks funds to overcome the ongoing scandal over fuel economy data. Confirmed on Thursday (12 May), the ¥237.4 billion (£1.5bn, €1.9bn, $2.2bn) deal will see Nissan become Mitsubishi Motors' largest shareholder, surpassing the 20% stake currently held by Mitsubishi Heavy Industries.

Mitsubishi has seen domestic sales plummet after it admitted to using fuel economy testing methods that were non-compliant with Japanese laws for the last quarter of a century. Four types of small petrol-powered vehicles sold in Japan, including two models built for Nissan and sold under its brand, were involved in the fiasco.

The group, Japan's sixth biggest car producer, revealed last month it had overstated the fuel economy of as many as 600,000 of its own vehicles. Following the revelation on 20 April, the Tokyo-based auto manufacturer has seen shares tumble 43%.

Following the scandal, the car maker could face being forced to pay out up to £700m in compensation payments to its customers, along with payments to Nissan.

However, Nissan, which was itself rescued by Renault in 1999, remained adamant the Tokyo-based firm, which sells approximately 1 million vehicles per year, could turn its fortunes around.

"We will help this company address the challenges it faces, particularly in restoring consumers' trust in fuel economy performance," said Carlos Ghosn, chief executive of Nissan and Renault.

However, Osamu Masuko, chief executive of Mitsubishi Motors, admitted: "It will not be easy to restore trust."

Despite Mitsubishi's recent travails, analysts suggested that the deal will allow Nissan to expand its presence in Indonesia and Thailand.

"With little prospect of growth in the domestic car market, Nissan probably wants to get more involved in smaller vehicles given expectations of a surge in emerging markets and elsewhere," said Kiyoshi Yamanaka at T&D Asset Management.

"But taking a one-third stake feels a bit like a half-measure. The key will be how well Nissan is able to exert control over Mitsubishi Motors' governance and repair its damaged brand value."