FAW and GAC join forces, but the real target is a reshaping of Toyota’s China business
Two major Chinese state-owned automotive groups, FAW and GAC, are preparing a deal that would directly link their ownership structures for the first time. However, this is not a full merger between FAW and GAC. Under the plan, GAC will acquire a stake in an automotive manufacturing joint venture owned by FAW and pay for it with its own shares. As a result, FAW will become GAC’s second-largest shareholder.
The name of the deal’s target has not yet been officially disclosed, but according to Chinese state media and Reuters sources, it is FAW Toyota. That makes the transaction far more significant than simply shifting stakes between two state-owned companies. In effect, it could be the first major step towards combining Toyota’s Chinese operations, which have operated in parallel for decades.
GAC buys, FAW receives GAC shares in return
On 14 September, GAC told the Shanghai Stock Exchange that it had signed a memorandum of understanding with China FAW. GAC plans to issue new shares and use them to acquire a stake in a joint venture owned by FAW. The company also plans to raise capital related to the transaction.
If the deal is completed, FAW will become GAC’s second-largest shareholder and gain strategic influence in GAC. However, actual control of GAC will not change, meaning FAW will not take over the Guangzhou-based group. Control of GAC will remain with the city of Guangzhou.
The deal is not yet final. The parties have not entered into a binding purchase agreement, and both internal corporate and regulatory approvals are required. GAC suspended trading in its shares on the Shanghai Stock Exchange for up to 10 trading days.
This alone illustrates the scale of the transaction. GAC officially describes it as a major asset restructuring rather than an ordinary minority-stake acquisition.
All roads lead to Toyota
The official stock exchange announcement does not identify the company in which GAC is acquiring a stake. GAC has justified its silence by saying that the transaction involves assets associated with an overseas-listed company.
However, China’s state-run Economic Daily reported that the target is FAW Toyota. According to Reuters, the next step could be a much closer integration of Toyota’s two Chinese operations.
Toyota has operated in China for decades with two major partners. In the north, FAW Toyota builds and sells cars; in the south, GAC Toyota does the same. This structure made perfect sense in China’s rapidly growing market. Two partners meant more factories, a larger sales network and better geographic coverage.
Today, the same system creates duplication.
According to the plan reported by Reuters, Toyota itself supports a solution in which its China sales operations would be consolidated into one company. Toyota would own 50%, while FAW and GAC would each hold 25%. The sales and service networks would be combined, and the new company would be able to sell and service all Toyota models.
This is not yet a confirmed final structure, but the industrial logic is clear. Toyota no longer needs two partly competing organisations to the same extent as it did during the rapid growth of China’s automotive market.
Toyota’s former strength became costly duplication
The scale of the problem is illustrated by market share. In the first eight months of 2026, FAW Toyota and GAC Toyota together accounted for around 7% of passenger-car sales in China. As recently as 2021, the two companies combined were the second-largest player in the Chinese market after Volkswagen. They now trail BYD, Geely and Volkswagen.
The sales network is also shrinking. According to Reuters, the number of FAW Toyota dealers has fallen from 773 outlets in 2022 to 651 this year. Over the same period, GAC Toyota’s network has contracted from 693 outlets to 620.
The broader situation in the Chinese market makes maintaining two parallel organisations even more painful. Automotive manufacturing profit margins have fallen to 1.5%, their lowest level in nearly a decade. More than 100 car brands operate in the market, and an aggressive price war is forcing manufacturers to cut costs.
Nor is the problem limited to Toyota. Honda and Nissan have reduced production in China, while Mitsubishi has ended local vehicle production altogether. At the same time, domestic brands BYD, Geely and Chery have rapidly captured market share with quickly developed electric vehicles and plug-in hybrids.
GAC needs the deal at least as much as Toyota does
GAC is not the stronger partner in this story, coming to Toyota’s rescue. The group itself is under heavy pressure.
According to Reuters analysis, GAC’s loss reached 11.5 billion yuan in 2025. The group’s factories are operating below optimal capacity, while the price war is squeezing profitability. Sales at FAW’s and GAC’s Toyota businesses have also declined.
GAC’s own brands include Trumpchi, Aion and Hyptec. FAW, meanwhile, has Hongqi, Bestune and the heavy-truck-focused Jiefang. FAW also operates Volkswagen and Toyota joint ventures.
On paper, the groups complement each other quite well. FAW is stronger in heavy trucks and has very long-standing relationships with major foreign manufacturers. GAC is more aggressive in electric-vehicle development and is based in Guangzhou, one of China’s most important technology industry hubs.
However, it would be premature to speak of a full merger. For now, it is primarily capital and joint-venture interests that are being linked.
For Beijing, this is the start of a broader clean-up
The FAW-GAC deal cannot be viewed solely as a Toyota issue. The Chinese government has been pushing state-owned carmakers to consolidate for some time.
The reason is simple: China has too many car brands, too much production capacity and too many companies burning money in the price war. From the perspective of state capital, there is little point in funding dozens of companies that are developing similar electric platforms, software, battery systems and sales networks in parallel.
S&P Global Ratings forecasts a broader wave of restructuring in China’s automotive industry over the next two to three years. China’s economic policymakers have also again publicly supported mergers and restructurings among larger automakers.
Precedent shows, however, that Beijing cannot simply combine automotive groups in an Excel spreadsheet. A possible merger between Dongfeng and Changan was discussed for a long time, but in 2025 Changan instead became a separately controlled central government group. China now has three major automotive groups directly controlled by the central government: FAW, Dongfeng and Changan.
In that sense, the FAW-GAC solution is far more subtle. Instead of a full merger, the state can link the two groups through shares, shared assets and Toyota, while keeping their remaining operations separate. If the model works, it could become an example for others.
Toyota’s problem is not its organisational structure
Cost cuts and the integration of dealer networks may make Toyota’s China business more profitable, but they will not solve its biggest problem.
Chinese buyers increasingly expect good software, rapidly advancing driver-assistance systems, strong phone integration and electric powertrains that can compete with those of local manufacturers not only in reliability, but also in price and technical specifications.
Bill Russo, founder of Automobility, summed up the issue aptly in comments to Reuters: the company may become much more efficient at producing a car that customers no longer want enough.
Toyota itself has understood this. The company is developing more vehicles locally for China and using local technology and battery partners. Combining the two sales organisations would remove one historical constraint: decisions could be made faster and there would be no need to pay twice for the same work.
For Europe, China’s consolidation could mean stronger competitors
From a European perspective, FAW, GAC and their Toyota stakes may appear to be a matter of distant Chinese domestic policy. In reality, consolidation directly affects the European automotive market as well.
China’s price war has forced local manufacturers to seek growth abroad. If weaker companies disappear and state-owned groups consolidate development, factories and capital, the survivors will be larger manufacturers with more money for exports and for establishing production capacity in Europe.
In other words, consolidation in China’s automotive industry does not necessarily mean fewer competitors for Europe. Instead of a hundred small and medium-sized players, there may be a smaller number of much stronger groups.
The FAW-GAC deal is therefore significant. It does not yet create a new Chinese mega-group. However, it shows that the existing system, in which state-owned automakers and foreign partners spent decades building parallel factories, models and sales networks, is beginning to lose its economic rationale.
The next contest in China’s automotive industry will no longer be only about who can bring new electric vehicles to market the fastest. An increasingly important question will be who can cut away the excess most quickly.
The name of the deal’s target has not yet been officially disclosed, but according to Chinese state media and Reuters sources, it is FAW Toyota. That makes the transaction far more significant than simply shifting stakes between two state-owned companies. In effect, it could be the first major step towards combining Toyota’s Chinese operations, which have operated in parallel for decades.
GAC buys, FAW receives GAC shares in return
On 14 September, GAC told the Shanghai Stock Exchange that it had signed a memorandum of understanding with China FAW. GAC plans to issue new shares and use them to acquire a stake in a joint venture owned by FAW. The company also plans to raise capital related to the transaction.
If the deal is completed, FAW will become GAC’s second-largest shareholder and gain strategic influence in GAC. However, actual control of GAC will not change, meaning FAW will not take over the Guangzhou-based group. Control of GAC will remain with the city of Guangzhou.
The deal is not yet final. The parties have not entered into a binding purchase agreement, and both internal corporate and regulatory approvals are required. GAC suspended trading in its shares on the Shanghai Stock Exchange for up to 10 trading days.
This alone illustrates the scale of the transaction. GAC officially describes it as a major asset restructuring rather than an ordinary minority-stake acquisition.
All roads lead to Toyota
The official stock exchange announcement does not identify the company in which GAC is acquiring a stake. GAC has justified its silence by saying that the transaction involves assets associated with an overseas-listed company.
However, China’s state-run Economic Daily reported that the target is FAW Toyota. According to Reuters, the next step could be a much closer integration of Toyota’s two Chinese operations.
Toyota has operated in China for decades with two major partners. In the north, FAW Toyota builds and sells cars; in the south, GAC Toyota does the same. This structure made perfect sense in China’s rapidly growing market. Two partners meant more factories, a larger sales network and better geographic coverage.
Today, the same system creates duplication.
According to the plan reported by Reuters, Toyota itself supports a solution in which its China sales operations would be consolidated into one company. Toyota would own 50%, while FAW and GAC would each hold 25%. The sales and service networks would be combined, and the new company would be able to sell and service all Toyota models.
This is not yet a confirmed final structure, but the industrial logic is clear. Toyota no longer needs two partly competing organisations to the same extent as it did during the rapid growth of China’s automotive market.
Toyota’s former strength became costly duplication
The scale of the problem is illustrated by market share. In the first eight months of 2026, FAW Toyota and GAC Toyota together accounted for around 7% of passenger-car sales in China. As recently as 2021, the two companies combined were the second-largest player in the Chinese market after Volkswagen. They now trail BYD, Geely and Volkswagen.
The sales network is also shrinking. According to Reuters, the number of FAW Toyota dealers has fallen from 773 outlets in 2022 to 651 this year. Over the same period, GAC Toyota’s network has contracted from 693 outlets to 620.
The broader situation in the Chinese market makes maintaining two parallel organisations even more painful. Automotive manufacturing profit margins have fallen to 1.5%, their lowest level in nearly a decade. More than 100 car brands operate in the market, and an aggressive price war is forcing manufacturers to cut costs.
Nor is the problem limited to Toyota. Honda and Nissan have reduced production in China, while Mitsubishi has ended local vehicle production altogether. At the same time, domestic brands BYD, Geely and Chery have rapidly captured market share with quickly developed electric vehicles and plug-in hybrids.
GAC needs the deal at least as much as Toyota does
GAC is not the stronger partner in this story, coming to Toyota’s rescue. The group itself is under heavy pressure.
According to Reuters analysis, GAC’s loss reached 11.5 billion yuan in 2025. The group’s factories are operating below optimal capacity, while the price war is squeezing profitability. Sales at FAW’s and GAC’s Toyota businesses have also declined.
GAC’s own brands include Trumpchi, Aion and Hyptec. FAW, meanwhile, has Hongqi, Bestune and the heavy-truck-focused Jiefang. FAW also operates Volkswagen and Toyota joint ventures.
On paper, the groups complement each other quite well. FAW is stronger in heavy trucks and has very long-standing relationships with major foreign manufacturers. GAC is more aggressive in electric-vehicle development and is based in Guangzhou, one of China’s most important technology industry hubs.
However, it would be premature to speak of a full merger. For now, it is primarily capital and joint-venture interests that are being linked.
For Beijing, this is the start of a broader clean-up
The FAW-GAC deal cannot be viewed solely as a Toyota issue. The Chinese government has been pushing state-owned carmakers to consolidate for some time.
The reason is simple: China has too many car brands, too much production capacity and too many companies burning money in the price war. From the perspective of state capital, there is little point in funding dozens of companies that are developing similar electric platforms, software, battery systems and sales networks in parallel.
S&P Global Ratings forecasts a broader wave of restructuring in China’s automotive industry over the next two to three years. China’s economic policymakers have also again publicly supported mergers and restructurings among larger automakers.
Precedent shows, however, that Beijing cannot simply combine automotive groups in an Excel spreadsheet. A possible merger between Dongfeng and Changan was discussed for a long time, but in 2025 Changan instead became a separately controlled central government group. China now has three major automotive groups directly controlled by the central government: FAW, Dongfeng and Changan.
In that sense, the FAW-GAC solution is far more subtle. Instead of a full merger, the state can link the two groups through shares, shared assets and Toyota, while keeping their remaining operations separate. If the model works, it could become an example for others.
Toyota’s problem is not its organisational structure
Cost cuts and the integration of dealer networks may make Toyota’s China business more profitable, but they will not solve its biggest problem.
Chinese buyers increasingly expect good software, rapidly advancing driver-assistance systems, strong phone integration and electric powertrains that can compete with those of local manufacturers not only in reliability, but also in price and technical specifications.
Bill Russo, founder of Automobility, summed up the issue aptly in comments to Reuters: the company may become much more efficient at producing a car that customers no longer want enough.
Toyota itself has understood this. The company is developing more vehicles locally for China and using local technology and battery partners. Combining the two sales organisations would remove one historical constraint: decisions could be made faster and there would be no need to pay twice for the same work.
For Europe, China’s consolidation could mean stronger competitors
From a European perspective, FAW, GAC and their Toyota stakes may appear to be a matter of distant Chinese domestic policy. In reality, consolidation directly affects the European automotive market as well.
China’s price war has forced local manufacturers to seek growth abroad. If weaker companies disappear and state-owned groups consolidate development, factories and capital, the survivors will be larger manufacturers with more money for exports and for establishing production capacity in Europe.
In other words, consolidation in China’s automotive industry does not necessarily mean fewer competitors for Europe. Instead of a hundred small and medium-sized players, there may be a smaller number of much stronger groups.
The FAW-GAC deal is therefore significant. It does not yet create a new Chinese mega-group. However, it shows that the existing system, in which state-owned automakers and foreign partners spent decades building parallel factories, models and sales networks, is beginning to lose its economic rationale.
The next contest in China’s automotive industry will no longer be only about who can bring new electric vehicles to market the fastest. An increasingly important question will be who can cut away the excess most quickly.
