SHANGHAI, China — China's Guangzhou Automobile Group, which has alliances with Toyota and Honda, has been in talks with Hunan Changfeng Motor on a possible merger or acquisition, according to an insider.

'We have been in contact over the past few months,' said an unnamed Guangzhou official. 'Both companies have proposals, but we haven't gone through all the details.'

A report Monday in China Business News said Guangzhou Auto is planning to take a controlling stake in the much smaller pickup and SUV maker Changfeng.

The deal, if successful, would be the latest merger in China, the world's second-largest auto market, after the central government called on industry-wide consolidations to heal the fragmented industry and help Chinese carmakers grow and become more competitive.

The deal is expected to be sealed in the fourth quarter of this year, the Shanghai-based newspaper said. It also said that Guangzhou Auto is in competition with Beijing Automotive Industry Holdings. That company, a partner of Mercedes-Benz, Chrysler, Hyundai and Mitsubishi, also wants to get involved in the restructure of Changfeng.

Guangzhou Auto is China's sixth-biggest automaker, selling more than 500,000 vehicles last year. A merger with Changfeng could help it form a third partnership with Japan's Mitsubishi, which currently owns 16 percent of Changfeng, and broaden its product portfolio and technical expertise to include trucks and SUVs.

Changfeng, a former unit of the People's Liberation Army and one of China's mid-tier vehicle manufacturers with annual sales of around 30,000 units, has displayed its SUVs in the past two years at the annual Detroit auto show, including the Mitsubishi-based Liebao.