Chery, GAC in auto tie-up (2)

GAC has spent some 8 billion yuan ($126.7 billion) developing and marketing its Trumpchi range of cars and some 7 billion yuan more will be invested by the end of 2015, according to GAC.

But despite this heavy investment, sales have been disappointing so far. The Trumpchi GS5 SUV, which went on sale last year, has sold less than 3,000 units a month on average, the Economic Observer reported Tuesday.

Besides poor sales, GAC has also had capital flow problems. According to the company's financial report released at the end of October, it made a net profit of 357 million yuan in the third quarter of 2012, a sharp drop of 58.4 percent year-on-year.

Meanwhile, rivals like Chongqing Changan Automobile Co and Shanghai Automotive Industry Corporation (Group) have seen a rise in net profit.

GAC Honda and GAC Toyota, which together contributed 94 percent of the group's profits in 2011, suffered a slide in sales over recent months and are expected to suffer further poor sales in the fourth quarter, according to industrial insiders.

For years, Chery has been investing heavily in developing vehicles, but it has also had difficulties turning the fruits of its research into profits, Zeng said. So the company needed to find partners to share research costs and shorten the cycle of developing a new model.

The government has been encouraging large-scale auto producers to conduct mergers and acquisitions since 2009, and the move by Anhui-based Chery and Guangdong-based GAC can promote structural adjustment and industrial upgrading in the sector, industrial analysts said.