Previously, it was sibling rivalry with constant disputes. Now, it's the succession of the heir and the power settled? The feud between FAW Toyota and GAC Toyota has finally come to an end, with FAW Group handing over its stake in FAW Toyota to GAC Group. If you add up FAW Toyota and GAC Toyota's sales, the new Toyota will top the sales charts for oil cars. Does this mean that GAC has already won? But if you look at GAC's net profit attributable to shareholders, its high point was in 2017 and 2018, with annual net profit attributable to shareholders of over RMB 10 billion. But by 2025, it lost RMB RMB RMB 8.8 billion. And the loss is still expanding. In the first half of this year, it lost another RMB 4.5 billion. Meanwhile, FAW Toyota made a net profit of 4.2 billion in 2025. Why did FAW Group, which had a good business, part with FAW Toyota? Was the merger between FAW Toyota and GAC Toyota well received by the capital market? Is the era of dual joint ventures about to end? If you think that the biggest highlight of this transaction is the merger between FAW Toyota and GAC Toyota itself, you are mistaken. The biggest highlight of this transaction is whether the era of dual joint ventures will end. To be clear, over the past two decades, China's automotive industry has formed the "one foreign company, two Chinese companies" dual joint venture model, such as Toyota partnering with FAW and GAC, Honda partnering with GAC and Dongfeng, and Volkswagen partnering with FAW and SAIC. The purpose of doing this was very clear, to introduce competition and balance the foreign party. But with the continuous rise of new energy vehicles, the oil car market is shrinking, and oil car sales have disappeared by 8.31 million vehicles in just six years. And this trend is still ongoing. So the original dual joint venture needed two sets of R&D, two sets of procurement, and two sets of marketing systems, which soon showed its drawbacks – that is, the cost was too high. And the terminal was still fighting with each other, continuously cutting prices, so the joint brands have also failed to make money in recent years. To avoid further bleeding, the best solution was to merge the two sets of systems, such as merging R&D into one system to avoid repeated development; through centralized procurement, because you have a large volume, the discount will also be higher, which can reduce costs; at the same time, eliminate the duplicate sister models and create bestsellers models; finally, adopt a single city single store model in low-tier cities to reduce channel costs. According to calculations by Citibank, after the merger, sales costs can be reduced by 2-3 percentage points and administrative expenses can be reduced by 1-2 percentage points, adding up to a 3%-5% cost reduction space. If you assume that the revenue of FAW Toyota and GAC Toyota in 2025 is added together, it will be around 200 billion, assuming a 3%-5% cost reduction space, at least saving 6-10 billion in one year. We just mentioned that GAC lost RMB RMB RMB 8.8 billion in 2025. If the cost reduction is successful, GAC turning from loss to profit is just around the corner. So, whether the merger between FAW Toyota and GAC Toyota can achieve cost reduction and efficiency improvement is the main focus. If the results are significant, there is a high likelihood that other joint brands will follow in the integration. Is the merger between FAW Toyota and GAC Toyota well received by the capital market? Of course, this transaction also has another highlight, which is the lack of cash usage. To be clear, now the competition in the automotive industry is becoming increasingly intense, selling cars is almost losing money. The thicker the cash flow, the greater the possibility of staying in the car market in the future. The merger between FAW Toyota and GAC Toyota also set a model for the automotive industry, that is, how to integrate resources while ensuring that they have a thick cash flow. In short, GAC issued new shares to FAW via a private placement to acquire FAW's 50% stake in FAW Toyota. FAW transferred its 50% stake in FAW Toyota and became GAC's second-largest shareholder. FAW received shares of the listed company, while GAC gained FAW Toyota's sales volume, which could leverage the scale effect to reduce costs. Toyota, on the other hand, maintained its 50% share unchanged and achieved efficiency improvements. On September 29, FAW and GAC signed a strategic cooperation framework agreement, with GAC's stock price hitting a peak on the same day. The stock price continued to rise the next day. But by October 8, after the signing, the stock price began to fall, and by October 12, the stock price was almost the same as before the announcement. Source: Wind. The question is, why did the market start to look positively at this merger, and why did the stock price ultimately return to its original state? In summary, it's just one sentence: The market recognizes the "direction of integration" but not the "speed of integration". What does this mean? If the integration is successful, in the future, it can save tens of billions, even hundreds of billions, and the market will recognize the potential value brought by this merger. But the problem is, this integration needs to take several years, especially the integration of channels, which will be very difficult – to be clear, currently, over 80% of dealers are at a loss, and half are losing money. Channel integration will inevitably involve shutting down stores, compensation, and resettlement, which will inevitably incur significant expenses in the short term. So, it's hard to see immediate results from cost reduction and efficiency improvement. The three main highlights of the merger The main reason why the stock price did not change much in the end is still the huge uncertainty in the future, such as whether sales can stabilize? Can the integration efficiency be improved? Can the cost savings be realized? If you understand these three things, you will have the answer. First, let's talk about the main problem, that is, sales. Because of the sudden increase in oil prices, it has had a significant impact on the overall sales of GAC and FAW Toyota, resulting in a 20%-30% drop. However, from May, the drop has been narrowing. Currently, the main pressure on sales is on FAW Toyota. Especially in May, sales dropped by 49%, but from May, the drop has been narrowing, and by August, the drop has narrowed to 21%. Looking at GAC Toyota, compared to the oil car market, which often sees a 40% drop, the drop in GAC Toyota is only a minor setback, with drops of about 10% in April and May, but in July and August, the drop trend has expanded, with drops of 20% and 21% respectively. In the future, if the merger is retained, which models will be retained and which product lines will be cut, and whether sales can stabilize, are the main concerns of the capital market. Secondly, the division of labor, according to "Automotive Business Review" disclosed, GAC Toyota will handle R&D and supply chain, while FAW Toyota will handle marketing and channels. This means that one company is responsible for R&D, and one company is responsible for marketing, and there will definitely be communication and coordination costs in the middle. The subsequent collaboration between the two companies is also very important. Finally, how much can be saved? The two companies have thousands of dealers, although integrating dealers will be cost-effective in the long term, it is likely to incur significant compensation and subsidies in the short term. There is also the question of how much can be saved through joint procurement, even if the money is saved, whether it will be turned into profits or invested in new energy vehicles is also uncertain. Do you think the merger between FAW Toyota and GAC Toyota is a good thing? You can leave your comments in the comments section.