The Collapse of the “Twin” Joint-Venture Car Strategy: Why Did Toyota’s Northern and Southern Units Merge?
Hello everyone, I’m your financial journalist. Today, we’re talking about a big story that’s caused a stir in the automotive industry: GAC Group and FAW Group are making a major move, with their primary target being FAW Toyota.
Many people’s first reaction was, “Wow, Toyota’s northern and southern units are merging? That’s a powerful alliance!”
That’s completely wrong.
If you think of this as an offensive move, you’re completely misunderstanding it. In reality, it’s a **“dignified retreat”—a strategic move to cut losses amidst the fierce price war in the new energy market.
For the past thirty years, Toyota has been making money effortlessly in China by using a “twin joint-venture strategy.” But that approach is no longer viable. Today, I’ll break down the logic behind this move, the relevant data, and what it means for the entire automotive industry in simple terms.
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I. Key Summary: This isn’t a “marriage”; it’s a “survival measure”
In one sentence: GAC is acquiring a portion of FAW Toyota’s shares by issuing stocks. After the transaction, FAW will become an important shareholder of GAC, but GAC will retain control.
The main reasons:
1. Background: The penetration of new energy vehicles has exceeded 50%, and domestic brands have pushed prices down to rock-bottom levels (for example, a hybrid SUV for 79,800 yuan), squeezing the profits of joint-venture fuel vehicles.
2. Current Situation: FAW Toyota and GAC Toyota (the northern and southern units) are selling almost identical cars, leading to fierce competition and a sharp decline in sales (both fell by over 20% in August).
3. Purpose: Toyota no longer wants to maintain two separate teams and marketing channels that compete with each other. The merger is aimed at streamlining operations, reducing costs, and stopping the bleeding.
4. Significance: This marks the first major integration between a central state-owned enterprise (FAW) and a local state-owned enterprise (GAC), signaling the end of an era where Chinese joint-venture cars could just sit back and make money.
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II. In-Depth Analysis: Why Did the “Twin” Strategy Fail?
1. The “Emperor’s Strategy” of the Past: Profiting from Two Sources
To understand the current pain, we need to look at how things used to be profitable for Toyota.
Ten years ago, Toyota was a master of the “Chinese joint-venture rules.” Policies limited foreign companies to having no more than two joint ventures in China, so Toyota decided to split up its operations between the north (with FAW) and the south (with GAC).
Toyota’s strategy was flawless:
- Shared Technology: The same TNGA architecture, hybrid systems, and even the same chassis parts.
- Slight Design Changes: A new front face or taillight, and the car became a different model—like the Corolla and Levin, or the RAV4/Rongfang and Velanda, which were essentially twins.
- Maximizing Profits: Toyota earned twice the technology transfer fees and twice the profits from parts purchases.
- Balancing the Chinese Partners: By having FAW and GAC compete, Toyota kept both in check, as neither could easily defy its will.
The Context: Back then, the Chinese automotive market was growing rapidly, and cars were in high demand, even at higher prices. This strategy of creating multiple brands for competition worked perfectly.
2. The Current “Choking Point”: Homogenization and Fierce Competition
Things have changed, and that strategy no longer works.
What’s the market like now?
- New Energy Penetration: Over 50% of new car sales are for new energy vehicles.
- Fierce Price Wars: Domestic brands have reduced the price of SUVs in the 100,000 to 120,000 yuan range to just 79,800 yuan.
- Consumers Are Smarter: They now value cost-effectiveness more than brand reputation.
The “Twin” Strategy Has Become Self-Destructive: Imagine two Toyota stores within 500 meters of each other. The cars are almost identical, with the same engines, transmissions, and features. When a customer asks for a discount, the salesperson has no choice but to agree, or they’ll lose the customer to the other store.
The Result: Both stores compete by lowering prices, turning what should be profits into discounts for consumers. This is a classic case of internal strife instead of external competition.
3. Data Speaks Volumes: Both Units on the Brink of Disaster
Let’s look at the real numbers from August 2026:
- FAW Toyota: 54,993 units sold, a 21.4% decrease.
- GAC Toyota: 52,368 units sold, a 20.7% decrease.
- Toyota’s Total Sales in China (first half of the year): 694,700 units, a 17.1% decrease.
Interpretation: These two once-profitable giants are now selling around 50,000 units per month. In the automotive industry, selling 50,000 units per month is often the break-even point or even the **line between profit and loss. Below that, factories can’t cover their fixed costs, and each car sold may result in a loss.
The Trend Is Even More Concerning: This is not just a temporary slump; it’s a continuous decline for the entire first half of the year. If the structure doesn’t change, things will get even worse.
4. Toyota’s Changing Attitude: From Opposition to Desperation for a Merger
In the past, Toyota would oppose any merger because it would mean losing its control over the Chinese partners. But now the situation has changed:
- Reasons for the Change: Profits have plummeted, and the costs of maintaining two separate teams (research and development, brand management, marketing) are no longer worth it compared to the meager profits.
- Current Challenges: Both the Tianjin and Nansha factories are operating at below capacity. The redundant costs of maintaining two separate operations are becoming a heavy burden, and each fuel vehicle sold incurs additional losses due to internal competition.
Conclusion: For Toyota, continuing the competition between the northern and southern units is no longer a strategic choice; it’s a situation where both sides suffer. A merger will:
1. Unify the product lines: Stop producing identical cars and reduce research and development costs.
2. Optimize Capacity: Concentrate production to improve efficiency and reduce costs.
3. Focus Resources: Reallocate funds and efforts towards new energy development and key areas rather than internal strife.
So, although the statement that “this is also what Toyota hopes for” might sound harsh, it’s quite accurate. Toyota isn’t forced into this merger; it’s a necessary step for survival.
5. A Larger Picture: The Breakdown of Barriers Between Central and Local State-Owned Enterprises
Beyond Toyota’s own difficulties, this merger also has a broader significance: it breaks the deadlock between central and local state-owned enterprises in the automotive industry.
Why GAC?
- GAC’s Challenges: In the first half of 2026, GAC’s total revenue was 46.5 billion yuan, but its net profit decreased. Its cash flow has slowed, and its new energy brand, Aion, is still struggling to gain traction. GAC needs to improve asset quality and the efficiency of its joint-venture operations.
- FAW’s Ambitions: As the leading company in the northeast, FAW wants to expand into the more dynamic South China market. By becoming a major shareholder of GAC, FAW not only relieves the pressure on its joint-venture operations but also gains a strong foothold in the Pearl River Delta, where the new energy industry is most developed.
The Cleverness of the Deal:
- GAC: Doesn’t need to pay cash; it acquires shares by issuing stocks, avoiding financial pressure and bringing in a strategic investor (FAW).
- FAW: Becomes an important shareholder without losing control (owned by the Guangzhou State-owned Assets Supervision and Administration Commission), thus avoiding policy risks.
- Policy Support: The Ministry of Industry and Information Technology and other eight departments have endorsed the merger as part of the “15th Five-Year Plan” for the development of intelligent and connected new energy vehicles. Policy guidance combined with market pressure led to this deal.
Summary: This merger is a rational choice forced by the harsh market realities. In times of growth, no one wants to disrupt existing interests. But in times of crisis, mergers have become essential for survival.
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III. Lessons for the Public
1. Joint-Venture Cars Are No Longer a Guaranteed Value Investment: In the past, Toyota cars were seen as reliable and valuable. However, with the merger of the northern and southern units and the impact of new energy vehicles, the premium value of joint-venture fuel cars is fading. When buying a car, don’t rely on the “joint-venture” label; look at the product’s quality and price.
2. The Automotive Industry Is Entering a Period of Consolidation: The merger of Toyota’s northern and southern units is just the beginning. More joint-venture brands may merge, exit the market, or even go bankrupt. Those relying on outdated brands and without significant technological advancements will face harder times.
3. Chinese Automakers’ Power Is Growing: In the past, foreign companies brought technology, and we followed their lead. Now, with the maturity of China’s new energy industry, foreign companies are forced to integrate more deeply and even cede some control. This marks a shift from being followers to leaders in the automotive industry.
In Conclusion: The merger of Toyota’s northern and southern units is not a result of love but a survival strategy. It marks the end of an era where joint-venture companies could profit easily while Chinese partners worked hard. The upcoming era will be a real “choking point” for the industry, and only those with real technology, cost advantages, and the ability to adapt to electrification and automation will survive.
The automotive industry is entering a new phase where only the most competitive and adaptable companies will thrive.