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.

The merger talks come amid competition from China in the auto industry and the increasing popularity of electric vehicles.

Honda and Nissan are reportedly in talks to merge to better compete with other automakers such as Tesla and Toyota in electronic vehicle development.

Japan's Honda and Nissan said Monday they had embarked on formal merger talks that would create the third-largest car manufacturer globally with sales of as much as $191.4 billion and more than $19 billion profit.

Japanese automakers Honda Motor ( NYSE: HMC) and Nissan ( OTCPK:NSANY) and Honda announced on Monday they had entered into official talks to merge. A finished deal would create the world’s third-largest automaker by sales, behind only Toyota ( TM) and Volkswagen ( OTCPK:VLKAF)

Honda and Nissan signed a basic agreement for merger talks, according to a joint media briefing held in Tokyo. Honda also said it will buy back as much as $7 billion of its own shares.

Honda and Nissan have started talks toward a potential merger, they said on Monday, a historic pivot for Japan's auto industry that underlines the threat Chinese EV makers now pose to some of the world's best known car makers.

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.

Japanese automakers Honda and Nissan have announced plans to work toward a merger that would form the world's third-largest automaker by sales, as the industry undergoes dramatic changes