The restructuring between FAW and GAC has been finalized, though the outcome differs somewhat from initial expectations.

On the evening of September 14, GAC announced that Guangzhou Automobile Group Co., Ltd. ("GAC") had entered into a Letter of Intent with China FAW Co., Ltd. ("FAW Co."), the core operational platform of China FAW Group. GAC stated in its announcement that it plans to acquire a portion of the equity in a joint venture vehicle company held by FAW Co. through the issuance of shares and raise counterpart funding (supporting funds). Preliminary calculations indicate that, upon completion of this transaction, FAW Co. will become GAC's second-largest shareholder with strategic influence.

Currently, GAC's two major shareholders are Guangzhou Automobile Industry Group Co., Ltd. and Hong Kong Central Clearing Agent Co., Ltd., holding stakes of 54.02% and 27.56%, respectively. For FAW Co. to become GAC's second-largest shareholder, its stake must surpass that of Hong Kong Central Clearing Agent. GAC noted that this transaction is expected to constitute a major asset restructuring and related-party transaction but will not result in a change of the company's actual controller or constitute a restructuring listing.

In simpler terms, this announcement signifies that GAC is purchasing equity in a joint venture company from FAW Co., while FAW is investing in GAC Group to become its second-largest shareholder. Given that the transaction is still in the planning phase and subject to uncertainties, GAC will suspend trading starting September 14 to ensure fair information disclosure, protect investor interests, and prevent abnormal stock price fluctuations. The suspension is expected to last no more than 10 trading days.

Data indicates that FAW Group sold 3.302 million vehicles in 2025, generating revenue of 541.5 billion yuan, and has yet to go public as a whole. By the end of 2025, it also signed an agreement to strategically invest in Leapmotor. In contrast, GAC is currently experiencing a performance slump, with 2025 sales reaching 1.7215 million vehicles, down 14.06% year-on-year; revenue at 95.662 billion yuan, down 10.43%; and a net loss attributable to the parent company of 8.784 billion yuan, marking a shift from profit to loss. Losses in the first half of 2026 expanded year-on-year to 4.467 billion yuan. Outsiders interpret this as the initial stage of a merger, and if FAW and GAC fully merge, the combined entity would have annual sales exceeding 5 million units, surpassing BYD and SAIC to become China's largest auto group.

However, the situation may not be so straightforward. Firstly, speculation arises that the assets being acquired are likely FAW Toyota's assets within FAW Co., leading to significant speculation about adjustments in Toyota's joint venture layout in China. If all adjustments involving North and South Toyota are incorporated into GAC Toyota's assets, the current dual-Toyota landscape would cease to exist.

From the perspective of joint venture entities, in 2025, FAW Toyota's annual sales exceeded 805,000 units, while GAC Toyota's sales reached 756,000 units. If these two joint ventures also undergo synchronous adjustments, the new Toyota joint venture is expected to have a volume exceeding 1.7 million units, making it by far the largest joint venture. However, such adjustments would necessitate significant product line adjustments for both companies, as Toyota's current product layout includes many models that serve dual purposes.

According to sources, signs of integration between North and South Toyota have been evident for some time, with their model divisions already being separated last year. This has been referred to by outsiders as the completion of the first step of integration.

In fact, rumors of a merger between FAW and GAC emerged two years ago, with a clear version already circulating. This strategic integration is seen as another new move in the consolidation of central and state-owned auto enterprises. Just previously, on September 11, the National Development and Reform Commission stated at a press conference that it would actively support large enterprise groups in carrying out reforms, promoting mergers and acquisitions among industrial enterprises through market-oriented and legal means, supporting key enterprises in effectively integrating R&D, production, and other resources, and avoiding homogeneous competition in product design and technological development.

Currently, the overall strategy for consolidating central and state-owned enterprises is to expand two core central SOEs: FAW and Dongfeng. FAW's path involves merging with GAC, while Dongfeng is set to restructure Changan. However, the merger between Dongfeng and Changan later underwent changes, with Changan ultimately being upgraded to an independent central SOE. Nevertheless, there have been persistent rumors that Dongfeng and Changan were actually in a race, with the winner leading the restructuring. However, this remains the view of some analysts, and the final outcome will require time to observe.

GAC stated in its announcement that the goal is to promote the optimization and integration of industrial resources between local SOEs and central SOEs and enhance the operational efficiency of listed companies. Historically, there have been multiple rounds of mergers and acquisitions among auto companies, but the pressure for reform remains significant.

In March 2009, the State Council issued the "Automotive Industry Adjustment and Revitalization Plan," proposing to promote corporate mergers and acquisitions, increase industrial concentration, and achieve optimization and upgrading of the automotive industry's organizational structure. Subsequently, in January 2013, the Ministry of Industry and Information Technology issued the "Guidelines on Accelerating the Merger and Reorganization of Key Industry Enterprises," proposing to promote horizontal mergers and acquisitions among vehicle enterprises, promote mergers and acquisitions among parts companies, and support large auto companies in extending into the service sector through mergers and acquisitions. With the support of a series of policies, multiple mergers and acquisitions among Chinese auto companies were indeed facilitated.

Interestingly, GAC was the earliest to respond to the previous wave of corporate mergers and acquisitions. In May 2009, GAC invested approximately 1 billion yuan to acquire a 29% stake in Changfeng Automobile, becoming its largest shareholder. This marked the first domestic auto merger after the "Automotive Industry Adjustment and Revitalization Plan." Later, Changfeng Automobile was renamed GAC Changfeng. However, this acquisition affected GAC's listing plans at the time. It is reported that before the acquisition, GAC had consulted relevant departments on whether it would affect its overall listing and received a response of "no impact." However, it later encountered obstacles in listing due to issues such as insufficient shareholding ratio and horizontal competition, and it was not until 2012 that it completed its A-share listing through a share swap and absorption of GAC Changfeng, with GAC Changfeng being delisted.

Another example is the restructuring of China Changan Automobile Group by China South Industries Group Corporation and AVIC in November 2009, with Hafei, Changhe, and others being transferred to Changan. This was the first case of automotive restructuring among central SOEs. After the restructuring, Hafei's sales plummeted from a peak of 220,500 units in 2009 to just 38 units in 2015. In 2018, its 38% stake was listed for transfer at 1 yuan, with no takers. In 2024, Hafei Automobile underwent bankruptcy restructuring and returned to local state-owned assets in Harbin through Changan in May of this year.

Changhe Automobile, which was merged into Changan during the same period, also faced an unfavorable situation. In January 2012, Changan Automobile planned to transfer the independent vehicle production of Changhe Suzuki to Changan Mazda, triggering large-scale protests from Changhe employees. Subsequently, in January 2013, Changan Automobile also planned to transfer the Hefei Changhe base to become a production base for China Changan in Hefei, again triggering dissatisfaction from Changhe Automobile. In April of the same year, Changhe Suzuki independently participated in the Shanghai Auto Show and announced a dual-brand strategy, which was interpreted as seeking "independence."

Later, in October 2013, Changhe officially separated from Changan and joined BAIC. BAIC restructured to establish Jiangxi Changhe Automobile, holding a 70% stake, but its sales remained sluggish for a long time. Later, Changhe Automobile shifted from passenger vehicles to commercial vehicles, still relying on continuous financial support from BAIC.

Earlier, there was another classic acquisition: in June 2002, FAW signed a joint restructuring agreement with Tianjin Automobile Industry Group, acquiring a 50.98% stake in Tianjin Xiali. It is worth noting that Xiali had been the top seller of economy cars in China for 18 consecutive years (1986-2004), with sales peaking at 253,000 units in 2011. However, it eventually declined due to insufficient R&D investment and slow product iteration. In 2018, the Xiali brand ceased production. Nevertheless, through the acquisition of Xiali, FAW gained a springboard for cooperation with Toyota and established FAW Toyota.

Therefore, for auto groups, integration is not the ultimate goal; gaining new strength from integration is key. As for how FAW and GAC will integrate in the future and what actions they will take, let's wait and see.