Nissan and Honda are expected to formally begin merger talks on Monday, NHK reported.
The possibility of the two combining has been one of the options discussed as the carmakers work to stay competitive in the face of overcapacity and the need for huge investments related to electric-vehicle and self-driving technologies.
If the two companies unite along with Mitsubishi Motors, Japan's auto industry will essentially be reduced to two groups: Toyota and Honda-Nissan.
Their merger could create the world’s third-largest auto group, following Toyota, and related companies, and the Volkswagen Group.
Competition in the auto industry is intensifying, with nontraditional players expanding into the business in response to the rise of new technologies, such as connected vehicles and autonomous vehicles, as well as the ongoing process of electrification.
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