Rumors about restructuring between FAW and GAC have finally made significant progress.

On September 14, GAC Group unexpectedly announced a trading halt. That evening, GAC Group released a statement indicating its plan to acquire a portion of the equity in a certain automotive joint venture company held by China FAW Group Co., Ltd., through share issuance, while also raising supplementary funds. Once the transaction is finalized, FAW Group will become the second-largest shareholder of GAC with strategic influence.

In simpler terms, FAW Group is trading equity in a specific joint venture company for shares in GAC's listed entity. The spotlight naturally falls on the 'certain automotive joint venture company' mentioned in the announcement.

Currently, GAC and FAW have not yet revealed specific details. However, various media outlets, citing sources, suggest that the target of this transaction is FAW Toyota. Nonetheless, GAC will not fully acquire FAW Group's stake in FAW Toyota; the main entity of FAW Toyota will remain intact.

In other words, the speculated 'merger of North and South Toyota' will not directly materialize through this transaction.

However, with the continuous rise of China's domestic automotive brands in recent years, the allure of joint venture brands has gradually diminished. Whether the two 'Toyotas' can merge has become a long-standing question in the market.

But as the news unfolds, FAW and GAC are 'collaborating without full merger.' What are the underlying motives of both parties in this alliance?

01 FAW and GAC 'Investing in the Future'

An interesting detail: before GAC's trading halt on September 14, rumors of a 'merger between FAW and GAC' were already circulating in the market. GAC's H-shares opened sharply higher by 8.64% in early trading, with the capital market reacting faster than the official announcement.

The rationale behind investors' actions is straightforward. News of the integration of North and South Toyota has been circulating for years. If the two sides can successfully merge, the Toyota assets held by FAW and GAC have the potential to be revalued.

However, behind the speculative space for Toyota's revaluation lies tangible market pressure.

For a long time, Honda and Toyota have been the 'cash cows' among joint venture brands.

At their peak, Toyota's annual sales in China reached 1.944 million units in 2021. However, by 2025, this figure had dropped to 1.5781 million units, with FAW Toyota selling approximately 805,500 units and GAC Toyota around 772,600 units.

Honda's decline has been even more pronounced.

In 2020, Honda's sales in China reached a record high of approximately 1.627 million units. However, sales began to decline annually thereafter, dropping to just 645,300 units by 2025. Among them, GAC Honda sold 351,900 units, a year-on-year decline of approximately 25%.

With both growth engines stalling, the pressure is evident in GAC's financial reports.

Over the past five years, despite GAC's revenue maintaining growth, the pace has gradually slowed. Additionally, the company's net profit attributable to shareholders turned from profit to loss in 2025; in the first half of this year, the net loss attributable to shareholders expanded by 75.98% year-on-year to 4.467 billion yuan.

FAW's situation is similarly challenging. In 2025, FAW's self-owned brand sales exceeded 940,000 units, a 15% year-on-year increase. However, the penetration rate of self-owned new energy vehicles was only 13.5%, highlighting the pressure on FAW's new energy transformation.

In May of this year, FAW established its first independent new energy vehicle brand, 'FAW Yueyi.' Simultaneously, the independent 'Hongqi Tiangong Business Division' for Hongqi's new energy vehicles was established, aiming to achieve annual sales of 100,000 units within three years.

For an automotive group with last year's revenue reaching 541.55 billion yuan and sales of 3.302 million units, FAW's transformation progress seems slow, whether viewed from the perspective of new energy transformation or sales target setting.

At this point, the reasons for GAC and FAW's 'alliance' are already clear.

GAC possesses the technology and experience in new energy market operations but lacks scale and capital; FAW has the scale but lacks technology and reach. Both parties fulfill their respective needs, which is the core logic of this strategic restructuring.

From this perspective, it is not difficult to understand why North and South Toyota are 'collaborating without full merger.'

First, FAW and GAC's current biggest challenges are not Toyota. Although Toyota's sales have declined in recent years, the decline has been relatively mild due to the support of its hybrid vehicle matrix.

The urgent issues for both companies are market breakthroughs for their self-owned brands. After all, with the new energy market penetration rate exceeding 60%, what will determine the survival of an automaker in the future is not how many sales joint venture brands can contribute but whether self-owned brands can truly establish themselves.

Second, compared to the potential personnel changes, channel conflicts, and other growing pains that a 'brutal merger' of North and South Toyota might bring, a gentle equity alliance leaves ample buffer space for gradual cooperation between the two sides and reserves a ticket to the listed company for FAW.

Although North and South Toyota have not 'become one,' the 'certain automotive joint venture company' has become the biggest variable in this cooperation.

Let's first look at the most apparent changes.

According to the current circulating integration plan, the 'certain automotive joint venture company' is FAW Toyota. This integration will not change the main entity of FAW Toyota, but the equity structure may be revised to 50% Toyota, 25% FAW, and 25% GAC.

With the same 'Toyota,' both FAW and GAC having a stake will inevitably reduce competition and internal friction in the North and South markets to a certain extent.

For example, in the past, North and South Toyota have had corresponding sister models, such as the Corolla vs. the Levin, and the RAV4 Rongfang vs. the Wildlander. However, after the restructuring, such situations of 'fighting among ourselves' may disappear, avoiding both North and South markets competing for the same customer base.

In addition, with 'Toyota' as a bridge, FAW and GAC can also engage in deeper cooperation in technology research and development, supply chains, sales channels, and even capacity utilization, reducing duplicate investments by both parties in the same production chain.

Referring to previous merger and restructuring plans of joint venture brands: After FAW Mazda merged into Changan Mazda, the original FAW Mazda dealers were incorporated into Changan Mazda, achieving a unified sales network; after GAC Honda completed the acquisition of the original Dongfeng Honda Engine Co., Ltd., GAC Honda thereby achieved vertical integration in the powertrain sector, no longer 'developing one project in two places.'

A deeper change lies in who takes the lead.

Currently, GAC and FAW have not disclosed the specific equity ratios of the 'certain automotive joint venture company.' However, according to a report by China Economic Net, Toyota may play a leading role in this integration plan.

As for why GAC acquired equity in FAW Toyota rather than the reverse operation, it may be related to GAC's more flexible market-oriented operations.

In the first half of this year, GAC Toyota's Platinum Wisdom series sold approximately 52,000 units cumulatively, with the main model, Platinum Wisdom 3X, contributing 41,500 units, a year-on-year increase of 113%; during the same period, FAW Toyota's pure electric bZ series sold only 11,500 units.

GAC is a local state-owned enterprise located in Guangdong, the region with the highest degree of marketization, featuring a short decision-making chain and high operational flexibility; FAW is a central state-owned enterprise with complex approval processes. Handing over the baton of integration to GAC is not a preference but a rational choice for Toyota.

Therefore, although FAW and GAC each have their own agendas, this does not prevent Toyota from becoming the biggest winner.

After all, without spending a dime, Toyota has ridden the wave to promote the integration of North and South Toyota, achieving channel unification that has not occurred in the past four decades; it has also regained its voice and can concentrate its efforts on promoting Toyota's new energy transformation.

Even if Toyota's sales in China may not see a significant increase, it can at least maximize cost reduction and efficiency improvement.

However, in the short term, FAW, GAC, and Toyota all need to bear the growing pains of the break-in period.

Currently, synergy at the sales end between North and South Toyota is relatively easy to achieve, but backend integration involving procurement, supply chains, production, etc., is unlikely to happen overnight.

Although GAC has temporarily alleviated its financial pressure through the 'alliance,' it still has to bear the downward pressure of GAC Toyota in the short term.

Overall, both Toyotas still need more time to digest the benefits of integration, but the time window the market leaves them may not be vast. This year, Toyota's sales in China have continued to decline, with drops exceeding 25% from April to June.

Although Toyota has encountered new opportunities, to achieve significant results, it still needs to fight one battle at a time.

03 The Automotive Industry Enters the 'Era of Integration'

However, while Toyota is undergoing comprehensive integration, other competitors have not slowed down.

In fact, the automotive industry has long entered the 'era of integration,' where the essence is that after the slowdown of scale effects, the industry's profit pool begins to shrink, forcing companies to concentrate their resources, shifting from 'expanding production capacity to spread costs' to 'reducing redundancy to protect profits.'

Cui Dongshu, Secretary-General of the Passenger Car Association of the China Automobile Dealers Association, pointed out that from January to July 2026, the automotive industry's revenue was 6,078 billion yuan, a 2.7% year-on-year increase; however, profits were 216.2 billion yuan, a 20% year-on-year decrease. The automotive industry is making a lot of noise but not much profit.

As a result, policy directions are also accelerating their transformation. On September 11, nine departments, including the Ministry of Industry and Information Technology, released the '14th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry,' explicitly proposing to 'increase the intensity of mergers, acquisitions, and cross-regional integrations of automotive enterprises in accordance with the law'; the National Development and Reform Commission also stated that it would support large enterprise groups in promoting mergers and acquisitions among enterprises through market-oriented and law-based means.

Over the past few years, the automotive industry has already been busy with integrations:

In 2024, Geely released the 'Taizhou Declaration,' proposing the 'One Geely' strategy to promote internal resource integration and synergistic strategies within the group;

Early last year, Changan Automobile and Dongfeng Motor announced that their indirect controlling shareholders were planning a restructuring; in June this year, BAIC Group and China Changan Automobile Group signed a strategic cooperation agreement...

However, the problem is that mergers and acquisitions are not a 'panacea.' When two automakers, each once a hegemon in the market, 'become one,' issues such as who takes the lead, how profits are distributed, and how technology routes are balanced are all real challenges that lie ahead.

For example, the restructuring negotiations between Changan and Dongfeng were once high-profile, but their market overlaps were too high, and their channel crossovers were severe. Coupled with the increased difficulty in negotiations due to both being part of the central state-owned enterprise system, they ultimately failed to come together.

Looking globally, at the end of 2024, Honda and Nissan also initiated merger negotiations, but the two had highly homogenized technologies, markets, and products, ultimately failing to reach a compromise on the disagreement of 'who takes the lead.'

These cases all illustrate that if two companies cannot achieve true synergistic efficiency at the business level, a forced merger will only create greater internal friction for both parties, making separation preferable to union.

However, this restructuring of FAW and GAC may offer new insights to the industry:

First, integrations between joint venture brands inherently have lower friction coefficients.

For example, FAW and GAC have Toyota as a bridge, with highly homologous vehicle platforms and supply chain systems. Coupled with the leadership of the foreign brand, this integration has a ready-made grasp.

Second, the integration of central and local state-owned assets, with equity swaps being more flexible than mergers. The failed restructuring between Changan and Dongfeng illustrates that integrations between two major central state-owned automakers have too many rigid constraints;

FAW and GAC, however, have taken a different approach—exchanging assets for shares. Both parties can maintain their independence, avoiding the growing pains of a forced merger; it is not just a light strategic alliance but a solid binding of interests.

The essence of this plan lies in 'slowness.' Instead of immediately fusing the two behemoths together, it first binds the two parties with capital ties and then gradually sorts out the business to achieve resource synergy.

Both parties can exchange the minimal cost for the maximum possibility. Future integrations in the automotive industry may more frequently reference this path.

After all, the significance of integration has never been about mixing two decks of cards together but about playing a bigger game with the same deck. FAW and GAC's answer of 'collaborating without full merger' may become a new solution for the automotive industry to 'break through the competition.'

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