(Adds Subaru and S&P Ratings)

Dec 18 (Reuters) - Honda ( HMC ) and Nissan ( NSANF )

are in talks to deepen ties, two people said on Wednesday,

including a possible merger, the clearest sign yet of how

Japan's once seemingly unbeatable auto industry is being

reshaped by challenges from Tesla and Chinese rivals.

Here are comments from experts:

KOJI ENDO, SENIOR ANALYST AND HEAD OF EQUITY RESEARCH, SBI

SECURITIES, TOKYO:

"If Honda's ( HMC ) hybrid cars are supplied to Nissan ( NSANF ) and

Mitsubishi Motors ( MMTOF ) and if they can sell them, the three companies

would all be better off since that would expand the sales

channel.

"The holding company scheme, rather than a merger, appears

to be the key as they can minimise the risks while taking the

benefits of integration.

"The question now is what will happen to Renault's 15% stake

in Nissan ( NSANF ). Renault may completely part ways with Nissan ( NSANF ) through

selling the shares."

SANSHIRO FUKAO, EXECUTIVE FELLOW, ITOCHU RESEARCH INSTITUTE,

TOKYO:

"This deal appears to be more about bailing out Nissan ( NSANF ), but

Honda ( HMC ) itself is not resting on its laurels. Honda's ( HMC ) cash flow is

set to deteriorate next year and its EVs haven't been going so

well. Honda ( HMC ) itself needs to change drastically. It may need to

spin off its motorcycle business and it should establish a solid

financial base from engine cars. If these are made easier by a

setting up a holding company (with Nissan ( NSANF )), then that would be a

positive thing for Honda ( HMC ).

"If their thinking is no more than 'we can manage this by

getting together,' I don't think they can survive any longer.

The speed of Chinese automakers is totally different. We're no

longer in the age where carmakers would join together, churn out

profits through economies of scale and then reinvest them in a

five-year restructuring plan. They have no time for that."

TANG JIN, SENIOR PRINCIPAL RESEARCHER, MIZUHO BANK, TOKYO:

"Honda ( HMC ) has a unique, technology-centric culture with

strengths in powertrains, so there should be some internal

resistance to the merger with Nissan ( NSANF ), a competitor with a

different culture that is now faltering.

"Honda ( HMC ) itself doesn't have such abundant management

resources. It faces a major challenge of how it can accelerate

its shift to electrification by making money from hybrids and

motorcycles. Nissan ( NSANF ), on the other hand, has no choice.

"The car industry is currently undergoing rapid changes ... so

if the two companies cannot make decisions and execute them in

unison and at speed, they may not be able to keep up with the

changes."

SEIJI SUGIURA, SENIOR ANALYST, TOKAI TOKYO INTELLIGENCE

LABORATORY, TOKYO:

"Honda's ( HMC ) internal opinion is probably split and not

monolithically supportive of the merger. Because their

motorcycle business is doing well. For the four-wheelers, they

certainly have problems, but they weren't in dire straits

either.

"In the mid- to long-term, this is good for the Japanese car

industry as it creates a second axis against Toyota ( TM ).

Constructive rivalry with Toyota ( TM ) is a positive for the rather

stagnating Japanese car industry when it must compete with

Chinese automakers, Tesla and others."

ATSUSHI OSAKI, CHIEF EXECUTIVE OF TOYOTA-AFFILIATED JAPANESE

CARMAKER SUBARU:

"It's too much of a hurdle to do it all by one company," he

said, referring to the challenge of electrification facing

carmakers.

S&P GLOBAL RATINGS:

"Even if the two companies merge, it would take time for

synergies to have a positive impact on their creditworthiness,

in our view.

"The combined annual global sales of the two companies would

exceed 7 million units, which could help cut costs through

economies of scale and facilitate growth.

"As the auto industry shifts to electric vehicles, companies

face heavy investment burdens, including battery manufacturing

and software development.

"However, both companies have developed their businesses

based on their own strategies. We therefore believe it will be

difficult for them to produce significant effects quickly

through expanding the scope of their collaboration to include

batteries, software, and autonomous driving."