DTN News: China Buys All-American Hummer For $150 million

DTN News: China Buys All-American Hummer For $150 million

*Source: DTN News / Int'l Media (NSI News Source Info) WASHINGTON, DC - October 11, 2009: Nothing was more American than the Hummer. It was Schwarzenegger, cigars and swagger, laughing in the face of scornful environmentalists. Only now the Chinese are laughing.

General Motors Co., seeking to shed brands after emerging from bankruptcy, is nearing an agreement to sell its Hummer sport-utility vehicle business to China’s Sichuan Tengzhong Heavy Industrial Machinery Co. for about $150 million, said three people familiar with the deal. General Motors sold the military-inspired off-road brand to China's Sichuan Tengzhong Heavy Industrial Machinery Co. for a reported $150 million on Friday, consummating a deal announced in early June.

Tengzhong, a sprawling conglomerate with no car-building experience, will own 80 percent of the company. Hong Kong investor Suolang Duoji, who in turn is a major investor in Tengzhong, will own the rest. They will assume existing agreements with Hummer's 160 U.S. dealerships, including two in the Washington area. In its June bankruptcy filing, GM estimated that Hummer was worth $500 million. The deal requires regulatory approval in both Washington and Beijing. GM said it will continue to make the Hummer at least until June 2011, with an option to continue another year. Hummer's management team will stay in place, and company headquarters will be located in the Detroit area. After GM's attempts to sell its Saturn brand failed last week, analysts called the deal a victory for GM despite the low price tag. "It's good news for General Motors, they actually got some money out of it versus having to spend money to wind it down, as they have to do with Saturn," said Michelle Krebs, an analyst with auto information site Edmunds.com. Back in February, while seeking more federal aid, GM said that it would sell or close its Hummer, Saturn and Saab divisions in an effort to succeed as a leaner, more profitable company.

Concern about Hummer's sale to the Chinese was muted. "Yeah, it feels a little weird," said Anthony Cancel, new car sales manager at Moore Cadillac Hummer in Chantilly. "But Americans are still going to build these cars" for a while, Mr. Cancel said. "That's going to employ 3,000 Americans." He noted that even with Hummer's future in doubt, his dealership was still selling 15 of the vehicles a month, down from a peak of 75. GM has not produced the car for six months, he said. "It came at a pretty good time, we only have two left. From the time they turn the factory on it takes four weeks for us to get cars," Mr. Cancel said. Ms. Krebs said the Chinese are following the lead of the Japanese and Koreans, but not by building the cars on their own. "The Chinese are achieving a global presence by acquisition rather than introducing their own brands," she said. "They're buying low right now."

"The Chinese are achieving a global presence by acquisition rather than introducing their own brands," she said. "They're buying low right now." Beijing Automotive Industry Holding Co. has joined a Swedish consortium led by Koenigsegg seeking to complete the purchase of Saab this month. China's Geely Automobile was interested in buying Opel from GM and is bidding to buy Volvo from Ford Motor Co. "It's the same with the Indians, with Tata [Motors] buying Jaguar and Land Rover," Ms. Krebs said. The Financial Times reported this week that Geely's bid for money-losing Volvo was worth $2 billion but that Ford had concerns about protecting its technology. The London newspaper reported that a U.S. consortium led by former Detroit executives has also placed a bid. Independent auto analyst Tom Libby said trade is so interconnected now that Chinese ownership of Hummer is unlikely to diminish its macho appeal. "I have always held that the Hummer brand has value in this market and I consider it a viable competitor to Jeep," he said. The Jeep had its origin in the U.S. military, he said, and still benefits from "sort of a patriotism connection." The Hummer is derived from the Humvee, the U.S. military's successor to the Jeep. California Gov. Arnold Schwarzenegger, a Republican and former action-movie hero, persuaded military contractor AM General to make a civilian version of the Humvee in the early 1990s. AM General of South Bend, Ind., continues to make the military Humvee.

The challenge for Hummer, with fresh capital from Tengzhong, will be to reinvent the brand, which has suffered in recent years from its gas-guzzling image. The company will improve efficiency and performance and branch out to alternative fuels and diesel engines. There's no image problem in China, though. "I think it works for China," Ms. Krebs said. "I have been to China and Hummers are real popular there, even though they are only sold on the gray market. I've seen them on the streets of Shanghai. "They're popular in the Middle East and there are opportunities elsewhere, such as Russia," she said.