(Yicai) Sept. 16 -- GAC Group plans to take a stake in FAW Toyota Motor, a joint venture of Chinese carmaker FAW Group and the Japanese auto giant, according to sources familiar with the matter. A final deal could set the stage for major changes to the ownership structure, sales channels, and product lineup of Toyota's two Chinese JVs with FAW and GAC, they said.

GAC announced on Sept. 14 that it had signed a letter of intent with China FAW, a FAW Group subsidiary, to acquire an equity stake in an automotive joint venture via a share issuance. The Guangzhou-based company did not name the JV because the transaction involves an overseas-listed company, it said.

An agreement would be a major step toward closer cooperation between two of China's biggest state-owned automakers. FAW would become GAC's second-largest shareholder with strategic influence, GAC said, noting that the move is expected to constitute a major asset restructuring and a related-party transaction under Chinese securities regulations, although it would neither change GAC's ultimate controlling shareholder nor constitute a backdoor listing.

Toyota plans to merge its FAW and GAC JVs into a single Toyota China sales company, fully integrating their dealer networks and allowing them to sell and service all of its models, China Economic Net reported recently. Toyota would own half of the new firm, while FAW and GAC would split the rest.

The restructuring effort follows a prolonged decline in Toyota's China business. Sales tumbled 18 percent to about 809,400 vehicles in the seven months ended July 31 from a year earlier. The figure fell to about 1.78 million last year from a peak of 1.94 million in 2021. GAC Toyota sold about 341,100 cars in the first half, down 6.3 percent from a year ago, while FAW Toyota's sales plunged 27 percent to around 273,700.

A GAC-FAW deal would be just the opening phase of a potentially broader integration effort, according to auto industry analyst Li Yanwei. Their cooperation is likely to progress through three stages, Li told Yicai.

The first and the easiest stage would be the standardization of procurement and components, followed by sharing back-end capabilities such as testing and validation, basic software, and overseas after-sales services, Li said. The last and more complex stage would be to consolidate vehicle platforms, manufacturing assets and brand resources.

Only when cooperation extends from procurement to products and production capacity can their joint operation genuinely change the cost structure, Li stressed.

FAW and GAC have too many own brands -- Hongqi, Bestune, and Yueyi for FAW and Trumpchi, GAC Aion, and Hyptec for GAC, according to Li. Much overlap across vehicle categories and price segments risks creating internal competition, potentially eroding the benefits of platform sharing and other integration efforts unless the number of brands is reduced, he pointed out.

Editor: Martin Kadiev