Money Matters, Simplified.
Chinese Tengzhong buys Hummer from GM
by Jamie Anderson - October 12, 2009 - comments
Hummer's turnaround will prove a challenge for Tengzhong, especially in the U.S., where the market for SUVs has fallen in recent years
Michigan, October 12 -- In a deal that marks the first major entry of a Chinese company into the U.S. auto market, Sichuan Tengzhong Heavy Industrial Machinery Co. agreed to buy the Hummer truck brand from General Motors in a $150 million transaction.
GM, which bought the license for the Hummer brand from AM General in 1999, will continue to manufacture the vehicle till 2012, post which Tengzhong will take over.
As a part of the deal, Tengzhong will take over the Hummer brand, its trademark and intellectual-property rights. However, the Hummer dealers will carry on operations under the agreements they had entered with GM.
With Hummer in its portfolio, Tengzhong intends to manufacture a more fuel-efficient and environmentally-friendly fleet, including electric vehicles in the near future. The company is also contemplating producing a diesel powered Hummer which would be sold outside North America.
Challenge for the buyer
The deal brings to light the global ambitions Chinese auto players have. The litmus test for Tengzhong would, however, be to rejuvenate the troubled auto brand.
Klaus Paur, North Asia director for TNS said, “For China, it is an opportunity to show they are able to produce the vehicles that are in demand. It is definitely a good thing for China to move forward in this direction, but there are still some hurdles to overcome.”
The challenge is really huge for the Chengdu, China-based manufacturer given the fact that it does not have a rich experience in managing a global business.
Also, if the deal is to see the light of the day, the Chinese government has to give its go-ahead. John Zeng, a Shanghai-based analyst at IHS Global Insight opined, “Whether it will be approved will hinge on how they develop the next generation fuel-efficient models. The existing Hummer models don’t fit the government’s direction for fuel-efficient vehicles.”
The downfall of Hummer
Hummer is the civilian counterpart of the military vehicle Humvee. Created in 1998, Hummer satiated the appetite of the Americans aspiring for sport-utility vehicles.
When GM, as a whole, fell into a financial quagmire in 2005, so did the brand. Brushing aside all suggestions of selling off the brand, GM retained Hummer, only to see its sales plummet.
Hummer sales have dipped as much as 64 percent this year, as compared to the comparative period last year. GM sold a mere 426 Hummers nation wide in the month of September.
But there is a silver lining.
Jim Lynch, a Hummer owner claims that the deal removes a lot of ambiguity from the customer’s minds. "There were people who were considering purchasing a Hummer but waiting because they didn't known if the brand would be around or not," Mr. Lynch said.