The Auto Market Enters the 'Final Circle': How Can Automakers Break Through?

On September 14, after a one-day trading halt, GAC Group (601238.SH) welcomed a new shareholder.

That evening, GAC Group announced that it plans to purchase a portion of the equity in a vehicle joint venture held by FAW Group through the issuance of shares and raise matching funds (supplementary funds). Upon completion of the transaction, FAW Group will become GAC's second-largest shareholder with strategic influence.

Image source: Screenshot of the announcement

The 'integration of FAW and GAC,' which had been rumored for over a year, has officially moved from speculation to announcement for the first time. However, rather than questioning why FAW is investing, a more pertinent question is: Why does GAC need FAW?

This local automotive giant, once holding the profitable 'cash cows' of GAC Honda and GAC Toyota while successively creating blockbuster models like Trumpchi and Aion, has not had an easy time in the past few years.

As price wars push the automotive industry into increasingly fierce competition, the competitive landscape has changed. On September 11, nine departments including the Ministry of Industry and Information Technology released the '15th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry.' The document proposes increasing the intensity of mergers, acquisitions, and cross-regional integration of automotive enterprises in accordance with the law, and further promoting the reform of group management in automotive production enterprises.

In the past, automakers competed on the number of brands and scale; now, companies like GAC are beginning to consider how to consolidate their sprawling operations.

01. The 'Marriage' Between GAC and FAW

For GAC, FAW is clearly not an ordinary new shareholder.

On one side is a large automotive group directly managed by the central government, and on the other is one of the most important automotive assets under Guangzhou's state-owned assets. The two automotive groups, which originally developed independently, are now bound together through equity for the first time.

FAW is not simply buying GAC shares with cash: According to the announcement, GAC plans to issue shares to FAW Group to purchase a portion of the equity in a vehicle joint venture held by the latter. In simple terms, FAW is exchanging a piece of its automotive assets for shares in GAC's listed company.

Outside speculation suggests that the vehicle joint venture mentioned in the announcement is FAW Toyota. However, according to Caijing, sources familiar with the matter stated that the transaction involves FAW Toyota, but GAC will not fully acquire FAW Group's stake in FAW Toyota, nor will it involve FAW Toyota Motor Sales Co., Ltd.

Image source: Screenshot of the Caijing WeChat official account

In other words, after the transaction, FAW Toyota will continue to exist independently, with its shareholders becoming FAW Group, GAC Group, and the Toyota Group. This means that the previously speculated 'merger of North and South Toyota' will not directly occur in this transaction, at least.

FAW Toyota is an important joint venture automotive asset for China FAW Group. According to media reports, FAW Toyota aims to achieve profits exceeding 7.3 billion yuan by 2025; in contrast, GAC Group reported losses exceeding 4.4 billion yuan in the first half of 2026.

If the transaction is completed, the corresponding investment income contributed by FAW Toyota in the future is also expected to improve GAC's profit structure; in return, FAW gains entry into GAC.

Of course, the 'North and South Toyota' scenario itself is full of possibilities.

During the era of rapid growth in the Chinese automotive market, FAW Toyota and GAC Toyota each had their own factories, distribution channels, and product systems, helping Toyota expand its market coverage. However, in the era of stock competition (market saturation competition), having two organizational structures, two distribution channels, and a large number of similar products also means higher costs. Although this transaction will not directly lead to a 'merger of North and South Toyota,' it may open up opportunities for collaboration in procurement, research and development, and other areas.

Image source: Canuto Picture Library

According to Caijing, sources familiar with the matter stated that FAW Group may hold approximately 30% of GAC Group's shares after the transaction. If the final plan approaches this proportion, although FAW will not gain control, it will become a significant second-largest shareholder.

Therefore, what is truly being exchanged in this transaction is not FAW Toyota and GAC Toyota, but the interconnected (interconnection) of industrial resources between the two automotive groups. After establishing an equity relationship, the more noteworthy aspect is whether the two sides can further integrate their research and development, procurement, supply chain, distribution, and logistics resources.

02. GAC's Path to 'Self-Rescue'

GAC was once one of the best-performing regional state-owned automotive enterprises.

For a long time, GAC Honda and GAC Toyota were stable 'cash cows.' At their peak in 2022, the combined sales of the two joint venture brands exceeded 1.5 million vehicles, accounting for more than 60% of the group's total sales. On the independent brand side, Trumpchi established a firm market position, while Aion capitalized on the new energy trend.

The model of joint ventures generating profits and independent brands driving growth allowed GAC Group to reap dividends for many years. However, in the new energy era, the first signs of weakness appeared precisely in what was once the most stable foundation.

In 2025, GAC Group's annual sales reached 1.7215 million vehicles, a year-on-year decrease of 14.06%. Among them, GAC Honda's annual sales were 351,900 vehicles, a year-on-year decline of approximately 25%. GAC Toyota's sales dropped from 1.005 million vehicles in 2022 to 756,000 vehicles in 2025.

Image source: Screenshot of the annual report

This sales figure marks a recent low, representing a decline of more than 780,000 vehicles over two years compared to the peak of 2.505 million vehicles in 2023.

The decline in sales ultimately affected financial performance. In 2025, GAC Group reported a net profit attributable to shareholders of the parent company of -8.784 billion yuan, marking its first annual loss since going public. In the first half of this year, the loss further widened to -4.467 billion yuan.

Facing declining sales, GAC is taking steps to save itself. At the end of 2024, GAC launched the 'Panyu Action,' relocating its group headquarters to Panyu Automotive City and subsequently adjusting its independent brand, research and development, and marketing systems. In 2025, Feng Xingya took over as chairman and general manager, initiating a new round of management and organizational adjustments.

Reforms have already begun to reflect in sales: From January to August 2026, GAC's independent brands Total Sales (cumulative sales) exceeded 460,000 vehicles, a year-on-year increase of 31.44%. However, compared to the sales recovery, GAC's challenges extend far beyond products and sales.

In July of this year, GAC held a warning and education meeting for leading cadres, explicitly proposing to promote reform and governance based on the 'GAC Group series of cases,' with a focus on areas with concentrated power and dense capital, such as procurement, engineering, and bidding.

Previously, the GAC system had already experienced a wave of anti-corruption turmoil. According to media reports, in September 2025, Zhang Yuesai, the former general manager of GAC Passenger Cars who had recently retired, came under investigation. By the end of that year, Zheng Heng, the former deputy general manager of GAC Group, and others were also reported to have been taken away for investigation by relevant authorities, with the scope extending from vehicle manufacturing and joint ventures to components and trade systems. The specific investigation details for some individuals have not yet been confirmed by GAC's official channels.

Image source: Screenshot of the China Automotive Network WeChat official account

Beyond anti-corruption efforts, personnel adjustments in the joint venture sector are also ongoing. Just before the announcement of this restructuring, according to Yicai, two core Chinese management personnel at GAC Toyota were simultaneously adjusted: Wen Dali, the executive deputy general manager, was transferred back to GAC Group's headquarters, while Wang Jun, the deputy general manager, was appointed as the general manager of GAC Components.

This personnel change may not be directly related to the restructuring, but at the very least, it shows that GAC's adjustments have extended from the group headquarters and independent business units to the previously relatively stable joint venture system.

For a large group with over 80,000 employees, spanning vehicle manufacturing, components, research and development, energy, finance, and maintaining complex joint venture relationships with Toyota and Honda, GAC Group now faces more than just the challenge of 'creating another blockbuster model.'

After the decline of joint venture dividends, business models, organizational efficiency, and internal governance all require realignment. Now, with FAW entering as the second-largest shareholder, GAC's reforms have gained an additional external variable.

03. Automakers Enter the Era of 'Major Integration'

GAC is not the first major automaker to embark on integration and transformation.

Over the past two years, a notable change in the automotive industry is that large automakers, once busy launching new brands, establishing new companies, and rolling out new platforms, are now doing the opposite—streamlining their operations.

For example, Geely is advancing its 'One Geely' strategy, integrating Geometry into Galaxy, merging Lynk & Co with Zeekr, and subsequently completing the privatization of Zeekr and reincorporating it into Geely Auto. SAIC is also consolidating its brands and reorganizing its passenger vehicle, research and development, and overseas businesses. Although the previously market-anticipated restructuring between Dongfeng and Changan did not materialize, China Changan Automobile Group subsequently became an independent first-tier central state-owned enterprise.

Image source: Screenshot from Xinhua News Agency

Behind automaker integrations lies a practical issue: the industry is finding it increasingly difficult to generate profits.

Chen Shihua, Deputy Secretary-General of the China Association of Automobile Manufacturers, stated that the profit margin for vehicle manufacturing has dropped to as low as 1.5%, representing a historical low. On one hand, factors such as price wars and rising raw material costs continue to suppress profits. On the other hand, significant investments are still required in intelligent driving, AI, batteries, chips, electronic and electrical architectures, and overseas markets.

In the past, an automotive group could simultaneously support multiple brands and research and development systems, as long as sales volumes were sufficient to dilute costs. However, as growth slows, repeated investments across different brands have begun to burden companies.

It is worth mentioning that in recent years, to comprehensively address 'involutionary' competition and promote high-quality development in the automotive industry, relevant national authorities have been taking the lead in advancing the restructuring of large state-owned automotive enterprises.

Just on September 11, the National Development and Reform Commission proposed supporting large enterprise groups in promoting mergers and acquisitions among companies through market-oriented and law-based means, as well as supporting leading enterprises in integrating resources such as research and development and production to reduce homogeneous competition in product design and technological research and development.

Not long ago, the '15th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry,' released by nine departments including the Ministry of Industry and Information Technology, also explicitly proposed increasing the intensity of mergers, acquisitions, and cross-regional integration among automotive enterprises.

Image source: Screenshot from Weibo

In the past, the Chinese automotive industry emphasized scaling up; now, efficiency has become an additional priority.

The competitive moats of automakers are no longer just brands and sales volumes but also include technologies, factories, supply chains, distribution channels, and users—capabilities that are now being recombined.

For example, the cooperation between Leapmotor and Stellantis enables a Chinese new energy vehicle startup to export technologies and vehicle manufacturing capabilities to a global automotive group. The partnership between XPeng and Volkswagen has also extended beyond capital investment to platform and electronic and electrical architecture collaboration.

Such changes are not unique to China. In 2019, Volkswagen and Ford formed a technology alliance, sharing electric platforms and commercial vehicle models without cross-shareholding but achieving collaboration in research, development, and procurement. In late 2024, Honda and Nissan initiated merger talks, which ultimately fell through. However, in August 2026, the two sides signed a joint development agreement in the field of software-defined vehicles.

Future integrations among automakers may not necessarily manifest as direct mergers between two companies but could occur more frequently at the equity and business levels: strategic equity investments, asset swaps, shared research and development platforms, joint supply chain procurement, factory contract manufacturing, and even the rearrangement of joint venture assets.

FAW and GAC provide a new example. Under the current plan, FAW does not seek control over GAC, nor will GAC acquire FAW Toyota. However, by becoming a significant shareholder through joint venture assets, FAW and GAC establish deeper capital and industrial ties.

Compared to a direct merger between two large automotive groups, this approach faces less resistance and aligns more closely with the current logic of the automotive industry's shift from 'scale expansion' to 'quality and efficiency improvement.'

Image source: Canuto Picture Library

In recent years, primarily marginal brands and small automakers have been eliminated. Next, what may need realignment are the brands, factories, research and development systems, and joint venture assets within large automotive groups, as well as the equity relationships between large groups themselves. While 'shutdowns and consolidations' may still be premature for these large automakers, 'mergers and transfers' have already begun.

As cars become harder to sell, profits more elusive, and technologies increasingly expensive, does the market truly need so many brands, factories, and research and development teams each doing the same thing?

By inviting FAW to the table, GAC may have begun to find an answer to this question.