The Detroit Three are facing an auto industry increasingly affected by the rise of China as demonstrated by the planned merger of Honda and Nissan.

Honda's CEO said it was "difficult" to explain why Nissan would make a good business partner. Analysts believe that Honda's ideal partner for a merger would be a more "healthy and financially sound company.

Japanese automakers Nissan and Honda have announced plans for a merger that would catapult them to a top position in an industry that's in flux as it transitions away from its reliance on fossil fuels.

Facing extreme competitive pressure from the rise of Chinese EV makers, the Nos. 2 and 3 Japanese automakers turn to each other to build strength.

A prerequisite for the merger is for Nissan to complete its business turnaround, Mibe added. Honda and Nissan are the second and third largest automakers in Japan, respectively. I

Japanese automakers Honda and Nissan will attempt to merge and create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

The proposed deal aims to unify operations under a joint holding company, led by Honda, while maintaining the distinct identities of each brand, according to Honda's president, Toshihiro Mibe. If finalized, the merger would position the combined entity to better compete with market leaders Toyota and Volkswagen.

Moody's gave a positive review of the potential merger of Honda and Nissan, but former Nissan CEO Carlos Ghosn warned his old employer would face "carnage" if the combination went through.

The potential merger could help boost the auto companies production of electric vehicles amid growing changes in the car industry.

Honda, Nissan, and Mitsubishi are joining forces to operate together under a single holding company, in a bid to stave off fierce competition around the world.