Storm Clouds Gather over Hummer Acquisition

Time is not an ally in this situation

By Brendan Moore

02.23.2010

2010 Hummer H3TTengzhong of China, the would-be next owner of Hummer, GM’s faded child star, is experiencing more and more difficulties convincing the Chinese government that buying Hummer is a good idea.

China’s central government has to give their approval for deals involving acquisition of distressed auto companies from abroad, and that seems more and more unlikely as Beijing tries to move their own auto industry towards greener and more fuel-efficient vehicles. The caricature of Hummer as a gas-swilling monster has not helped further the cause.

Add to that the uncontested fact that Sichuan Tengzhong Heavy Industrial Machinery Co, a virtually unknown manufacturer of decidedly average construction machinery, is the buyer, and that they have no experience in the auto industry, and this has given Beijing pause. Perhaps even heartburn. Tengzhong did not even exist until 2005, when it was formed as the result of several small entities merging together – the company today is believed to have around 4900 employees.

There is some intrigue in this transaction as well. The Ministry of Commerce in China, which has approval authority over any deals requiring outbound investment by Chinese companies, states that it has never received an application from Tengzhong for approval of the purchase.

Tengzhong signed the purchase agreement for Hummer with GM in October 2009. The deadline for the deal is the end of February, which has been pushed back once already, from the original date of the end of January.

It is now being suggested that Tengzhong may realize their large-scale ambitions by doing an end-run around the Chinese government regulatory agencies and purchasing Hummer through an offshore investment company. No government approval would be required for this sort of transaction as long as all assembly and production of the vehicles occurred outside of China.

2010 Hummer H4

Tengzhong’s purchase agreement with GM calls for production of the H3 and H3T to continue at the current plant in Shreveport, Louisiana, and for production of the H2 model to continue in their Indiana plant. The new H4 model would have been produced at the Louisiana plant as well.

It is believed that Tengzhong is keen to have a Hummer production plant in China at some point.

All Hummer production has been suspended currently, pending disposition of the purchase.

Sources inside the Chinese government say that the chances of government approval for the acquisition of Hummer are fading with each passing day, as there is little enthusiasm for a deal seen as risky from a business standpoint, and, one that runs counter to the government’s push for energy conservation.

From a business risk perspective, the fact that Hummer sales are in a tailspin in the United States is also not helping Tengzhong’s case for a purchase of Hummer. The brand has some very loyal owners, but is increasingly viewed as a dead brand by many American consumers. Indeed, many consumers believe that Hummer has already gone out of business, and it will be difficult for any new owner to revive the brand’s prospects in the United States.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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2 Comments

  1. For the life of me, I can’t see how anyone can make Hummer work for them. Things have changed and a specialty S.U.V. manufacturer is going to have a tough time of it in today’s world. Where will the demand come from when the major manufactures still offer S.U.V.s and it is a shrinking segment?

  2. Looks like all those nice stand-alone showrooms dealers built for their Hummer franchises are going to have to be converted to something else.

    Those dealerships built to look like big Quonset huts are going to be particularly difficult to transform into something else.

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